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

Thursday, July 22, 1999

Kremlin Denies Presidential Health Rumors

· The Kremlin today issued statements denying an earlier report on ORT Television that Russian President Boris YELTSIN was in a coma. Concerns about YELTSIN's health have risen in the last few days after he postponed a meeting with Prime Minister Sergei STEPASHIN on Tuesday, without explanation. Instead, YELTSIN underwent a "scheduled" health check-up at the Central Clinical Hospital in Moscow. STEPASHIN briefed YELTSIN today on wide range of domestic and international problems. These include the fuel and energy problems, forthcoming election to the State Duma, STEPASHIN's visit to Ukraine and his upcoming trip to the US on July 28th. They discussed in detail, "the economic block of problems, military aspects and the format of the coming talks in general. The President gave the needed instructions, especially on military problems," the Prime Minister said. After the talk with the President, STEPASHIN left for Yekaterinburg, after which he will visit Nizhny Tagil, Barnaoul and Vladivostok, and then fly to Seattle, Washington. YELTSIN was shown today on ORT television for the first time since July 9th, meeting with STEPASHIN. He moved slowly and unsteadily, but no sound was provided with the video clip. A Kremlin spokesman could not verify when the President's vacation will end. The President has been vacationing at Gorky-9 residence since the beginning of July.

Political Parties Gear Up For Elections

· Samara region governor Konstantin TITOV, who is building the Voice of Russia bloc,

Russian Federation

Politics

Russia-Britain To Strengthen Relations

· Russian Foreign Minister Igor IVANOV met with British Foreign Secretary Robin COOK after arriving Wednesday in London. Before flying to Britain, IVANOV got instructions from Russian President Boris YELTSIN to, "restore full trust between our countries and make sure that bilateral relations get a new impetus." During the two-day visit, Russia and Britain plan to discuss European and international security problems, including lessons of the Kosovo war, as well as development of Russian-British cooperation. IVANOV stressed, "Russia and Great Britain have accumulated extensive positive experience in bilateral relations and it has to be used. The development of multifaceted cooperation between our countries as members of the UN Security Council is in the interests of international stability." He added, "there are many unsolved problems with Kosovo, the Balkans is a region which has historically posed a threat to European security. We have to make sure that this zone becomes a region of peace." The sides are expected to sign a Memorandum of cooperation between the archive services of Russian and British foreign ministries. IVANOV will deliver to COOK original documents of British servicemen found in Nazi Germany's archives, which the Soviet army had taken away at the end of World War II. In return, COOK is planning to hand IVANOV a collection of materials concerning the execution of last Russian Tsar Nicholas II and his family. IVANOV will also lay a wreath to the memorial of Russian soldiers killed in World War II, which opened recently in London. He is meeting with British Prime Minister Tony BLAIR today. IVANOV and COOK will meet next in Sarajevo on July 30th and then at the UN General Assembly in September.

Today's News Highlights

Russia

Yukos Evidence Turned Over

Sakhalin Oil To Flow July 30th

European Republics

Ukrainian CD Pirates

Demonstrators in Belarus

Lith. Oil Terminal Delayed

South Caucasus & Central Asia

Poncelet For EU Membership

Rus-Armenia Bilateral Relations

Kazakh Presses For Profits

Politics-Economics-Business

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Thursday

July 22, 1999

Intercon's Daily

can join the All Russia bloc on equal conditions with other founders. Tatar President Mintimer SHAIMIYEV said All Russia, "is sort of a community of presidents and governors, but on equal terms." On Tuesday, the presidium determined the principles of cooperation with other movements and election blocs, SHAIMIYEV said. He noted that All Russia is continuing consultations with Moscow Mayor Yuri LUZHKOV's Fatherland movement.

The head of the Our Home is Russia (NDR) faction in the Russian State Duma, Vladimir RYZHKOV, said on Wednesday that the movement will enter into the election on its own, not banning together with another party. He said the NDR's federal list of candidates will be headed by the movement leader, ex-premier Viktor Chernomyrdin. He said the first dozen of candidates on the list may include the governors of the Novgorod, Orenburg, Perm, Sakhalin and Tyumen regions, as well as film producer Nikita MIKHALKOV and theater director Galina VOLCHEK. The final list will be approved at a movement's congress, in Moscow set for August 29th. RYZHKOV is confident that Our Home is Russia will successfully pass the five-percent barrier at the Duma elections. He noted that NDR will continue a dialogue with other public and political movements, including with the Right Cause, New Force and All Russia.

Grigory YAVLINSKY's Yabloko party will not form any electoral blocs before the forthcoming parliamentary elections and aims to increase its own representation in the State Duma, Sergei IVANENKO, Yabloko's deputy chairman, said Wednesday. IVANENKO met Georgy BOOS, head of electoral staff of the Fatherland movement, earlier that day to discuss a draft agreement between the parties suggested by YAVLINSKY in May. Under the agreement, the parties were to nominate jointly 120 candidates, half of them members of Fatherland and another of Yabloko, in 15 electoral districts in Moscow, as well as in other Russian regions. IVANENKO believes that Fatherland was not going to sign any such agreements. The two parties are continuing talks to coordinate candidacies in single-mandate districts.

Economy

State Gives Support To Light, Textile Industry

· At a Cabinet meeting today chaired by Prime

Minister Sergei STEPASHIN, he gave instructions for the state to support the light and textile industries. Reports on this issue were presented by Economics Minister Andrei SHAPOVALYANTS and Finance Minister Mikhail KASYANOV. STEPASHIN ordered the release from customs storage production equipment for the light and textile industry worth $900 million. According to him, this refers to equipment, which is not produced in Russia and was purchased abroad, including with the use of state guarantees. STEPASHIN said the light industry, "has been in a neglected state already for several years, which is especially noticeable in regions where the light industry is a priority sector of economic development." He said that the light industry ranks with strategic sectors such as the car industry, the defense complex and the fisheries industry. STEPASHIN emphasized, "The light industry means a vast market of consumer goods, Russia's independence in domestic consumption and employment of Russian population." KASYANOV noted that, "no structural measures to reform sectors of the light and textile industries have been carried out so far." He reported that the state presented the industry with 12 billion rubles in the form of subsidies over the past eight years. However, the minister underlined, the light and textile industries are fully closed up to this time, and, "foreign investors have no access to them." Approximately 60 percent of factories in these industries were profit-loosing at the start of 1999. He added that structural reorganization of the light and textile industries is necessary in the near future. KASYANOV concluded, "These industries should feed themselves and to feed the state rather than to live on state support." There is a possibility the government will considered the release of the equipment with a postponement of the customs duties for two years or more.

Ruble = 24.26/$1.00 (NY rate)

Ruble = 24.24/$1.00 (CB rate)

Ruble = 25.48/1 euro (CB rate)

Business

Yukos Evidence Turned Over To Authorities

· Russia's Federal Securities Commission's (FSC) chairman Dmitry VASILYEV said the commission has asked legal authorities to pursue evidence that Russia's second largest oil company, Yukos, led by Mikhail KHODORKOVSKY has violated the law.

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The FSC turned over evidence to the Interior Ministry, Tax Police, and Security Services. VASILYEV said the commission had uncovered facts indicating that Yukos had evaded taxes and failed to implement previous court decisions. He added that the commission might itself pursue legal action against Yukos to force the company to disclose more information about its involvement with Eastern Oil and Tomskneft. The commission's actions follow complaints from investors that Yukos had abused minority shareholder rights. Minority shareholders also have initiated legal action against Yukos' main production subsidiaries, Tomskneft, Yuganskneftegaz, and Samaraneftegaz, to prevent series of share issues which would dilute their holdings. This action is led by Michael HUNTER, president of Dart Management, who welcomed the news of the commission's action. This is the FSC's strongest indication that Russia's regulatory bodies are taking action against some of Russia's powerful private corporations.

Sakhalin Oil Celebration Set For July 30th

· On July 30th, Sakhalin will celebrate the Day of First Oil in the framework of the Sakhalin-2 project, Governor of the Sakhalin region Igor FARKHUTDINOV said Wednesday. The project provides for half a million tons of oil to be produced in 1999. The oil branch is now providing for 13 percent of the regional budget and "the further development of the shelf will only make the index go up," the governor emphasized. FARKHUTDINOV said great hopes were put on the development of the continental shelf for gas production. "Gasification of Sakhalin and the Far East is to prove the most important result of the shelf development," he said. "There can be no economic development of the region without solving the energy- related problems," he said adding that there was no alternative to the Sakhalin gas in the region.

Friday. Pirated CD's from Ukraine are costing Ifpi, the recording trade industry organization, $122.4 million a year. The Financial Times reports that Ukraine has an estimated production capacity of 70 million optical discs (including CD Roms and video CDs) twice the level of legitimate demand for the entire central and east European region. A total of 1 million pirated CDs made in Ukraine have been seized on the Russian border. The industry wants Ukraine to strengthen legislation on copyright protection and introduce tougher penalties for piracy. Ifpi wants Brussels to emphasize that the piracy CD issue could prevent Ukraine from joining the World Trade Organization and the EU.

Belarus Demonstrators Question Legitimacy

· More than 3,000 people demonstrated today near the presidential office in Minsk on Wednesday to mark the end of President Alexander LUKASHENKO's legitimate term in office. The demonstrators carried posters calling for LUKASHENKO to step down and pronouncing July 21st as, "the first day without LUKASHENKO in power." Police troops, which were present in large numbers, did not intervene but arrested 53 people after the protest ended. The same day, the opposition Supreme Soviet convened to declare LUKASHENKO's tenure over. Viktar HANCHAR, who was elected Supreme Soviet first deputy chairman, said Supreme Soviet chairman Syamyon SHARETSKI is now "de facto the head of state." Earlier the same day, artist Ales PUSHKIN dumped a wheelbarrow of manure with LUKASHENKO's portrait in front of the presidential office, saying his action is intended to thank the president "for five years of fruitful work," RFE\RL Newsline reported

Environmentalists Delay Oil Start

· Protesters from Latvia on Wednesday disrupted the first operations of the Butinge Oil Terminal, an incredible milestone for Lithuania's oil industry. Four environmental protesters chained themselves to a buoy near the terminal until they were removed by the Lithuanian coast guard and later deported. Oil began pumping at the terminal in mid-afternoon, the first 70,000 tons of which is to be purchased by British Petroleum. The official opening of the Butinge Terminal is scheduled for today. The planned terminal, with a capacity of 160,000 barrels per day, was conceived nine years ago, when Moscow used a fuel

European Republics

Ukraine Tops European Piracy List

· Ukraine has surpassed Bulgaria as Europe's biggest pirate producer. The international music industry has asked the Ukrainian government and the European Union (EU) to increase its efforts to halt exports of pirated compact discs from the east European country. This issue is expected to be discussed when Ukraine meets with the EU on

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blockade to keep Lithuania's demand for independence in check. The terminal has been used as a symbol for not only political independence but also energy independence. But in order for the pipeline to be successful financially, Russian oil supplies must flow through it to the West. Hermis Finance analyst Sharunas SKYRIUS said, "It is rather ironic. It was a political project started in order to be independent from Russia, but to be a viable economic project it has to be dependent on Russia." Parliament chairman Vytautas LANDSBERGIS said, "We want to see our basic idea implemented, the idea of normalization of relations with Russia, which means cooperation and cooperation of partners on equal footing."

South Caucasus & Central Asia

France Supports Georgia's Effort To Join EU

· French Senate President Christiane PONCELET said at a meeting with Georgian President Eduard SHEVARDNADZE, in Tbilisi on Wednesday that Georgia has passed the first stage on a long road to European Union (EU) membership. France said it would back Georgia's efforts to join the EU. The French Senate president put forth an initiative to create a single market in the Caucasus states. He said that implementation of this initiative is advantageous both for the region and Europe as a whole. PONCELET believes it will promote economic development of countries in the region, including their deeper integration and level economic development of the European states. He added that conflicts in the region will not thwart the creation of a single market, but serve favorable background for their peaceful settlement. PONCELET noted that the French Senate invites the Georgian, Azeri and Armenian parliament speakers to Paris. SHEVARDNADZE accepted with approval the initiative by the French Senate president which, according to SHEVARDNADZE, concurs with aims and tasks of Georgia. He noted that the start of such cooperation is connected, above all, with prospects for a revival of the Great Silk Road.

Sarkisyan Strengthens Relations With Russia

· Armenian Prime Minister and Defense Minister Vazgen SARKISYAN believes his official visit to Moscow was a success. The Armenian Embassy to Moscow stressed that the visit had confirmed warm relations with Russian Prime Minister Sergei STEPASHIN. They emphasized however, that the economic constituent in bilateral relations is lagging behind the political one. The sides outlined further moves for the ministries and departments of the two states. The two prime ministers agreed to hold regular meetings once a month, to quickly resolve cooperation issues. It was stressed that the two countries should focus on boosting cooperation in trade, economic and fuel fields. SARKISYAN also metwith Russian CIS Minister Leonid DRACHEVSKY, Atomic Energy Minister Yevgeny ADAMOV, deputy defense minister and head of the Russian armed forced General Staff Anatoly KVASHNIN, State Duma deputy speaker Artur CHILINGAROV, Moscow Mayor Yuri LUZHKOV, as well as Gazprom chairman Rem VYAKHIREV over transit issues.

Kazakhstan Pushes For Share In Space Profits

· Following the unfortunate explosion of a Russian Proton booster rocket on July 5th and its scattering of debris over the Kazakh territory with possible environmental contamination, Kazakhstan has increased its demands on Russia regarding its space program and use of the Baikonur Cosmodrome. Russia last week agreed to settle its $300 million in rent arrears and full compensation for the accident. Now, Kazakhstan wants to change its 1994 agreement with Russia to give it more control and profits from future space launches. Head of the Kazakh Space Agency Meirbek MOLDABEKOV said, "The recent disaster highlighted glaring inadequacies in the agreement which did not give Kazakhstan any say in the process." He said Kazakhstan is seeking a percentage share of profits from future commercial launches, each of which he said earned Russia up to $85 million. MOLDABEKOV said that Kazakhstan is working on a system under which launches would have to be approved by Kazakhstan.

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

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