DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

INTERCON INTERNATIONAL USA, INC., 725 15th STREET, N.W., SUITE 903,

WASHINGTON, D.C. 20005 -- 202-347-2624 -- FAX 202-347-4631

Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Friday, July 16, 1999


Russian Federation

Politics

Media Battle Ahead Of Elections

· Two Russian media tycoons, Boris BEREZOVSKY and Vladimir GUSINSKY, have launched an information war for election money and influence. Mikhail KHODORKOVSKY, an oil tycoon, warns both sides that the fight may hinder the economic gains made since the August economic crisis. Izvestiya newspaper reported that BEREZOVSKY, possibly in collusion with the Kremlin, is working to create, "an information monopoly." He has recently purchased 15 percent of the company which publishes Kommersant Daily. BEREZOVSKY is also known to have shares in ORT and Nezavisimaya Gazeta. The Kremlin meanwhile says its primary task is to create, "favorable information conditions." Russian Prime Minister Sergei STEPASHIN has appointed Mikhail LESIN to lead a new ministry for Affairs of the press, radio and television broadcasting and the mass communications. STEPASHIN underlined that the new ministry would neither be the ministry for propaganda, nor ideology, but it would fulfill management, technological and juridical functions, rather than ideological tasks. He added that the ministry would, "bring the rules of the game" under control in the run-up to the election campaign. "During the election campaign we should resolve tasks set by the president and the government jointly with the mass media." Izvestiya adds that, "An alien thing to such a monopoly is the powerful Most media holding which cannot conceal its sympathies to [Yabloko leader] Grigory YAVLINSKY and Moscow mayor Yuri LUZHKOV, an old enemy of Boris Abramovich [BEREZOVSKY]." Oleg DOBRODEYEV, the Director General of NTV channel, which makes part of the Most empire led by GUSINSKY, told Kommersant daily, "It is clear that an information war has been launched against Media-Most by TV channels and

printed publications of Boris BEREZOVSKY." Various media outlets said that tax and law enforcement agencies had been ordered to target personally GUSINSKY and his editors-in-chief. The Rosbiznes Consulting agency said the initiative comes from Kremlin chief of staff Alexander VOLOSHIN. There was no response from the Kremlin so far. Head of Yukos oil company Mikhail KHODORKOVSKY is vehemently against such a media battle. He said, "Tensions at the top and information wars show that a serious fight has begun for the last important financial resource—the money which appeared in the Russian industry," adding that all methods and means will be used in the fight, including law enforcement agencies. He explains that, "political wars push the interests of the industry to the background." Emphatically he pleaded with the media oligarchs to call off the fight. "Listen guys, leave the industry in peace. In trying to determine who of you will become the next president you have no right to risk losing our last [economic] chance," KHODORKOVSKY said.

Parties Jockeying For Positions

· With less than six months to go before parliamentary elections, Russia's political parties are jockeying for positions and are considering forming alliances and new movements. The once powerful Communist Party has been weakened through a series of lost battles with the President. Last week, the Agrarian Party, with 36 seats in the 450-member Russian State Duma, voted unanimously to run independent of the Communists. Voters quickly be

Today's News Highlights

Russia

Gov't Reviews Income Tax Rate

Sakhalin Oil To Ship In August

Voronezh Plant Held Reponsible

European Republics

New Latvian Cabinet Approved

US Commander In Estonia

Nuclear Shutdown Confirmed

South Caucasus & Central Asia

New Military Attache Appointed

Azeri-Armenia Meet In Geneva

Politics-Economics-Business

Page


Friday

July 16, 1999

Intercon's Daily

came disillusioned with the young reforms, blaming the for Russia's economic crisis, lowered standards of living, and increase corruption and graft. But, reformer parties are working to forge an alliance that could help them clear the 5 percent of votes necessary to get into the Duma. The Associated Press reports that at least five coalitions have been formed to try to consolidate the anti-Communist vote. Vladimir RYZHKOV, the leader of the Our Home Is Russia the well-known centrist party, said, "I would prefer to run on our own," but there is a chance that the Our Home Is Russia movement (NDR) can create a bloc with some right-wing and governors' parties. He said NDR is engaged in very active consultations with many right-wing and center-right parties. Moscow Mayor Yuri LUZHKOV's Fatherland party has been gathering steam and actively wooing former prime minister Yevgeny PRIMAKOV. The question remains if LUZHKOV will be able to take the backseat to PRIMAKOV. Regional governors have joined forces in two groups All Russia and Voices of Russia. They too have been keen to earn PRIMAKOV's support. Boris MAKARENKO, deputy director of the Center for Political Technologies said, "Any political party without PRIMAKOV will remain fairly small. But any political party with PRIMAKOV becomes a real winner." PRIMAKOV has not ruled a future in politics. However, speculation and his candidacy could prove decisive in the parliamentary and presidential elections. PRIMAKOV on Thursday fueled more curiosity about his intentions by calling for constitutional reform which would transfer more presidential powers to the government and recreating the post of vice president.

Economy

Yeltsin Orders Investor Protection Bill

· Russian President Boris YELTSIN on Wednesday ordered his government to draft a bill to protect investors against sudden, unfavorable changes in the Russian law. As parliamentary and presidential elections approach, foreign and domestic investors are wary of putting their money in Russia for fear of losing it if hard-liners come to power. Earlier this month YELTSIN signed a law that protects investors from harmful tax changes, if they meet key conditions such as investing $41 million into government priority projects. Investors pulled their money from Russia since the onset of the August economic crisis. For

eign investment in Russia fell 40 percent to $1.5 billion in the first quarter of this year, compared to 1998. Investors have been encouraging Russia to take active steps to protect shareholder rights and their monetary investments. Prime Minister Sergei STEPASHIN said his government still does not have a comprehensive economic program. He said, "We need...precise, well-thought-out moves, a search for optimal ways of economic development."

Ruble = 24.34/$1.00 (NY rate)

Ruble = 24.32/$1.00 (CB rate)

Ruble = 24.81/1 euro (CB rate)

Feb Mar Apr May Jun Jul

Gov't Reviews Income Tax Rate

· Russia's First Vice-Premier Viktor KHRISTENKO said at a meeting with businessmen and administration officials of the Chelyabinsk region today that the government is planning to make changes to the income tax rate in the year 2000. He stressed that the income tax rate must be changed. "No sober-minded person will pay a 45 percent income tax. He will always find a way to evade it," he said. KHRISTENKO believes the new income tax legislation to be "unviable." In his words, the government will submit its own income tax proposal to the Russian State Duma when it considers the 2000 budget. KHRISTENKO said, however, he could already foresee some difficulties with the passing of the law on budget during the parliamentary election campaign. "There is a threat that the deputies will be guided by populist ideas and will not render support to the Cabinet," KHRISTENKO said.


When you need to know it as it happens

Politics-Economics-Business

Page


Friday

July 16, 1999

Intercon's Daily

Business

Sakhalin Oil To Be Shipped In August

· Mitsui Bussan Corporation, one of the biggest share holders of the Sakhalin-2 Project, Thursday announced that an oil tanker carrying the first oil developed on the Sakhalin shelf will sail from Sakhalin to Japan early in August. A ceremony marking the "Day of First Oil" is scheduled for July 30th. Mitsiu Bussan officials are not sure that the whole batch of oil will be sold there. It is not ruled out that after being harbored at the Japanese coast the oil tanker might head for any other country of East Asia to sell the remainder of the oil. The Japanese corporation expects Japan, South Korea, China and Taiwan to be the main markets where the Russian oil will be sold. For now, oil sales are being made on a one-time contract. When the price of Sakhalin oil rises, the project will consider signing long-term agreements. By the end of July, oil production is expected to go up to reach 683 tons per day, and further growth is expected as new oil wells are put into operation. By the year 2000, oil production will reach 12,300 tons per day. The Project's managing consortium includes Marathon Sakhalin (37.5 percent), Shell Sakhalin Holding (25 percent), Japanese Mitsui Sakhalin Holdings (25 percent), and Diamond Gas Sakhalin (12.5 percent).

Voronezh Plant Responsible For Explosion

· A spokesman for the director-general of the Russian Space and Aviation Agency (RAKA) Sergei GORBUNOV on Wednesday said that a Russian investigation commission has "practically defined the guilty side," in the explosion of a Proton-K rocket fro the Kazakh Baikonur Cosmodrone on July 5th. He said, "An engine manufactured at a plant in Voronezh, Russia, has been named to be the preliminary cause of the failed launch. The engine has been found and sent to Voronezh for an expertise. If it is proved to be the real cause of last week's accident, the full compensation will have to be paid by the Voronezh plant." He added the investigation had not established any other causes for the accident so far. GORBUNOV confidently stated, "We have resolved all the issues that were raised by the Kazakh side."

Alrosa Presses DeBeers On Russian Interest

· Alrosa president Vyacheslav SHTYROV said that his company, Russia's major diamond producer, will continue to cooperate with DeBeers but it wants

DeBeers to take Russia's interest into account. He said that the law on precious metals and precious stones signed on March 26, 1998, "establishes the priority of domestic companies in the organization of diamond extraction in Russia and limits the participation of enterprises with foreign capital. This opens up opportunities for Alrosa to develop new diamond fields in Russia, especially in the northeast." SHTYROV spoke after an international meeting of the presidents of diamond exchanges and associations of the producers of cut diamonds that has ended in Moscow. He agreed that the government should assume greater control over the country' diamond industry. SHTYROV stressed that Alrosa is following a policy which, "seeks to secure Russia a greater presence and stronger positions on the world diamond market and obtain steady and long-term hard currency profits." In 1998, Alrosa extracted $1.5 billion worth of diamonds. He said Alrosa accounts for 99.8 percent of diamond production in Russia which has 54 percent of the world' natural diamond deposits. SHTYROV said the company has not cut its prices despite the world financial crisis in Southeast Asia, because Alrosa has a long-term and mutually-advantageous cooperation agreement with DeBeers. He noted that the company has not been receiving financial support from the government since 1992, and has been finding investors to modernize production.

European Republics

New Latvian Cabinet Approved

· The Latvian parliament today easily approved, in a vote of 60 to 37 with three deputies not present, the new Latvian government formed by three parties and led by Prime Minister Andris SHKELE. The already two time Prime Minister pledged that his government will revive the Baltic nation's struggling economy and keep it on the path to membership in the European Union (EU) and other western bodies. Addressing parliament, SHKELE said, "Latvia is in a very difficult situation...the state budget has become dependent on the irresponsible borrowing which we have inherited from the previous seven months...The financial crisis is sucking Latvia into a blackhole, whose name is poverty, and this is the main obstacle in our path toward the EU and NATO." Coalition members say it will be a government of radical economic reforms. Each of the three parties has five

Politics-Economics-Business

Page

When you need to know it as it happens


Friday

July 16, 1999

Intercon's Daily

portfolios in the cabinet. The duplicating posts of state ministers are abolished. "The 15-member cabinet is the smallest in the Baltics," SHKELE noted.

US Commander Arrives In Estonia

· US Deputy troops commander stationed in Europe, Admiral Charles ABBOTT, arrived in Tallinn on Thursday. During the visit he is planning to discuss issues of defense and cooperation with representatives of the Estonian Defense Ministry. These subjects will be on agenda during ABBOTT's meeting at the Estonian Foreign Ministry with Estonian Defense Minister Yuri LUIK and Commander of Estonian Armed Forces Urmas ROOSIPUU. ABBOTT and ROOSIPUU will give a joint press conference at the conclusion of the meeting. ABBOTT will be received by Estonian President Lennart MERI and will also visit an Estonian naval base.

EU Membership Depends On Nuclear Shut Down

· Finnish Foreign Minister Tarja HALONEN on Wednesday said Lithuania's chances to join the European Union (EU) will depend on whether it confirms that the Ignalina nuclear power plant will be shut down before its fuel conduits are replaced. HALONEN, who has arrived in Vilnius on a brief working visit, met with Foreign Minister Algirdas SAUDARGAS. The Finnish Foreign Minister said that Lithuania is a favorite for membership and has a good starting position. The purpose of the visit to Vilnius is to brief Lithuanian diplomats on Finland's plan of action as EU president. She has already made similar trips to Latvia and Estonia. She believes that the European Commission will announce its recommendations in the Fall and based on them Lithuania may or may not be invited to begin accession talks at the EU summit to be held in Helsinki at the end of 1999. HALONEN said her country supports Lithuania's admission to the EU. Apart from Lithuania, Latvia, Slovakia, Bulgaria, Romania and Malta also intend to join the European Union. Meanwhile in Finland, Lithuanian Prime Minister Rolandas PAKSAS said his country will be able to shut down one of the reactors in the Ignalina nuclear power

plant by 2005. PAKSAS noted and EU and G-8 countries should provide financial assistance to Vilnius for the closure of Ignalina nuclear power plant and alternative energy sources.

South Caucasus & Central Asia

Georgia Appoints Military Attaché To Turkey

· Major Teimuraz KERESELIDZE, an officer of the Georgian Defense Ministry's Department for International Relations since 1993, has been appointed as the Georgian first military attaché in Turkey. A decree to that effect was signed today by Defense Minister David TEVZADZE. KERESELIDZE is a graduate of the Georgian Polytechnical University and the legal faculty of the Security Ministry's higher school. KERESELIDZE has a good knowledge of Turkish and English. This follows the first appointment of Lt. Col. Archil TSINTSADZE as the military attaché to the US.

Azeri-Armenia Presidents Meet In Geneva

· Azeri President Geidar ALIYEV and Armenian President Robert KOCHARYAN are meeting in Geneva to discuss the Nagorno-Karabakh settlement today. One diplomat said, "The two leaders are meeting tete-a-tete. But no breakthrough is expected. There are huge gaps between the two positions." The Azeri and Armenian missions to the UN in Geneva declined to provide further details. The Karabakh problem darkens relations between Azerbaijan and Armenia and has a negative influence on the general situation in the Caucasus. Armenia claims it is not formally involved in the Karabakh conflict, but it offers political and military backing for separatists. Negotiations between Azerbaijan and Armenia over Nagorno-Karabakh have been at a stalemate for the past nine months. Azeri officials have indicated that they want a stronger role for NATO and the UN in efforts to resolve the problem. The Organization for Security and Cooperation in Europe has submitted various peace initiatives, which have come to naught. KOCHARYAN earlier this week said that negotiations are active and "serious progress" has been achieved.


Paul M. Joyal, President, Editor in Chief Clifton F. von Kann, Publisher Jennifer M. Rhodes, Principal Editor

Daily Report on Russia is published Monday-Friday (excluding holidays), by Intercon International, USA. Subscription price for Washington, D.C. Metro area: $950.00 per year. A discount is

available for non-profit institutions.

Daily Report on Russia is for the exclusive use of the subscriber only. Reproduction and/or distribution is not permitted without the expressed written consent of Intercon. Daily Report on Russia Ó copyright 1999, Intercon International, USA.

When you need to know it as it happens

Politics-Economics-Business

Page