DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

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

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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Monday, August 2, 1999

on Sunday, the Foreign Ministry said in a statement. It adds POSUVALYUK was, "A remarkably talented diplomat, whose high professionalism and mastery won authority and broad respect. He was wholeheartedly loyal to the cause, had a wide range of interests and erudition, and was capable of quickly grasping the situation and making decisions in the most complicated situations. Despite the ailment, he kept working till the last day to supervise the Middle Eastern and African areas of the activity of the Russian Foreign Ministry." POSUVALYUK was appointed deputy foreign minister in November 1994 and was named President Boris YELTSIN's Middle East peace envoy. He also played a key role in negotiations with Iraq and was ambassador there in 1990-1991, a period of the most acute crisis. His death came on the eve of a visit to Moscow by Israeli Prime Minister Ehud BARAK.

Chechnya-Stavropol Sign Border Agreement

· Delegations of the law enforcement agencies of Chechnya and the Stavropol Territory met in Nazran on Saturday to discuss the situation on the administrative border between the two regions. Chechnya and the Stavropol Territory signed, with the mediation of the Ingush Interior Department, an agreement containing measures aimed at enduring law and order in the region and particularly on the volatile administrative border. The main efforts will be directed against illegal oil trade, acting head of the Stavropol Territory's interior department Nikolai MAMONTOV said. A key pipeline for transport

Russian Federation

Politics

Barak Pays First Official Visit To Russia

· Russian President Boris YELTSIN, Prime Minister Sergei STEPASHIN, and Foreign Minister Igor IVANOV met today with Israeli Prime Minister and Defense Minister Ehud BARAK to discuss bilateral relations and new efforts on the Middle East peace process. Russia hailed the election victory of BARAK and the opportunity to revive the stalled peace talks. YELTSIN expressed interest in stepping up cooperation between Russia and Israel in all the spheres. He said, "We would like to do business with you." The President suggested greater cooperation in the fields of economic, science, technology, and cultural exchanges. YELTSIN resolutely denounced "outrageous manifestations of anti-Semitism in Russia." The guilty will be punished without any compassion. According to the Russian leader, they will be tracked down and punished in compliance with Russian legislation. IVANOV and BARAK, at the request of Israel, focused their talks on issues connected with Iran and Iraq. Prior to the talks, IVANOV said that he was planning to meet in September Israeli Foreign Minister David LEVY to continue discussions over a wide range of bilateral issues and the Middle East settlement. The meeting will be held within the framework of a UN General Assembly session in New York. BARAK praised the participation of Russian immigrants in Israel's political and cultural life. Approximately one million Russia Jews have moved to Israel in the past decade, about 15 percent of the electorate. The Israeli Prime Minister will meeting with leaders of Moscow's Jewish community before the end of his visit.

Posuvalyuk Dies of Serious Illness

· Russian Deputy Foreign Minister Viktor POSUVALYUK died of a protracted serious disease

Today's News Highlights

Russia

Paris Club Approves Restructure

Sidanco Elects Administrator

Yukos To Issue Shares

European Republics

Ventspiels Nafta Reports Profits

Ukraine-Azeri Council Meets

South Caucasus & Central Asia

Cohen On Defense In Georgia

New Armenian Ambassador

Kazakh-Turkmen On Oil Plans

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ing Caspian Sea oil runs through Chechnya and Stavropol and has been shut down because of damage caused by Chechen attackers and people seeking to steal oil. He noted that as long as this criminal business continues, it will be hard to fight other crimes. Chechen First Deputy Interior Minister Khasan KHATSIYEV said, "we have shared goals, objectives and, most importantly, desire to reverse the situation which is evolving on the administrative border." Also on Saturday two civilian hostages held for months in Chechnya were released.

Economy

Ruble = 24.19/$1.00 (NY rate)

Ruble = 24.43/$1.00 (CB rate)

Ruble = 25.85/1 euro (CB rate)

Russia-Paris Club Agree On Debt Restructuring

· Talks on the restructuring of the Soviet-era debt owed to the 18 creditors of Russia from the Paris Club began on Thursday between Paris Club president Francis MAYER and Russian Finance Minister Mikhail KASYANOV. Russia owes the Paris Club a total of $38 billion. After four days of talks, the two sides reached and signed an agreement. Under the agreement, Russia will pay only some $600 million instead of $8 billion over 1999 to 2000, and the rest will be restructured for 15 to 20 years, the Paris Club President said. It is also decided to have negotiations on a comprehensive settlement of the Soviet debt problem in fall 2000 in accordance with the formula of the G-8 Cologne summit. KASYANOV on Sunday said, "The agreement on the restructuring of the Soviet foreign debt, Russia has reached with the Paris Club, fully satisfied us and can be the guiding line for other creditors of Russia. This is true for the London Club which starts negotiations [with Russia] in Frankfurt next week." Russia's debt to the London Club totals over $20 billion. He added, "The sums we will have to pay are a minimum, they comply with the parameters of the current budget and the draft budget for 2000 and will not make us to cut spending, including that on social needs, once again." Russia reaffirmed the pledge of full and timely payment on its proper debt. "We managed to find a common language and to come to common understanding of problems. The first important step is made and we are very grateful to all European and overseas creditors, who have met us halfway," KASYANOV said. The stability and the prosperity of Russia are

important both for that country and democracy and market economy in general, MAYER said. He noted that the Paris Club is a financial organization which takes political circumstances in account. In his words, the Paris Club hopes that the decision will help Russia to continue its progress in democratic and market reforms. MAYER stressed that a "write-off of Soviet-era debt is not on the agenda," of future talks.

Germany, Italy, France and Austria are Russia's main sovereign creditors. French Minister of Economics and Finance Dominique STRAUSS-KAHN welcomes the agreement of Russia and the Paris Club to restructure the Soviet-era debt. The minister hopes that the Russian authorities will use the chance to make the necessary economic and structural reforms for stabilizing the macro-economic situation and promoting a lengthy economic growth.

Foreign Loans To Oil Cos. Reach $5 Billion

· A report submitted to the Russian Cabinet by the Fuel and Energy Ministry shows that short- and long-term foreign loans of Russian oil companies reached $5 billion by July 15, 1999. In the second half of this year, the oil companies will pay $1.1 billion on the foreign loans, which is equivalent to 10 percent of their monthly foreign currency proceeds from oil exports. The oil companies have started to sign long-term credit agreements on guarantee of oil export deals. According to the Ministry on Taxes and Dues, the increase of oil companies' arrears to the federal budget was 3.2 billion rubles in the second quarter of this year as compared to the first quarter. The ministry collected 4.9 billion rubles in cash from the oil companies in the second quarter, which is 2.9 billion rubles more than in the first quarter.

Business

Sidanco Elects Bankruptcy Administrator

· Russian oil company Sidanco, which BP Amoco holds a 10 Percent stake, suffered a set back in its bankruptcy proceedings, when the company's shareholders failed to support a preferred candidate as bankruptcy administrator to its Chernogorneft subsidiary. US Ex-Im Bank was barred from voting, after the $15 million owed from Chernogroneft was paid into a bank account. This reduced creditors in support of Sidanco's preferred administrator to less than 50 percent. The creditors of Chernogorneft approved Alexander GORSHKOV as the external

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manager for the company. His candidacy was proposed by the Federal Service on Bankruptcies. He is widely believed to be supported by the rival Tyumen Oil Company, which has not been quiet in its desire to take over some of Sidanco's assets. In addition, only $26 million of the $35 million owed to the European Bank fro Reconstruction and Development was recognized. BP Amoco spokesman Howard CHASE said, "There appear to have been considerable irregularities at the meeting, and we are very concerned about the impact on progress towards an amicable settlement." GORSHKOV's appointment is to be approved by the arbitration court in early August. Chernogorneft's total debt to different creditors exceeds $100 million.

Yukos To Issue Share For Subsidiaries

· Russia's oil company Yukos has announced plans to issue a new unified share for its subsidiaries to replace an assortment of their stocks. Yukos head Mikhail KHODORKOVSKY said at an expanded session of the company's board on Tomsk on Saturday that shareholders will have exchange advantages. He believes the exchange will send Yukos shares up, which will, "be good both for the subsidiaries and shareholders." KHODORKOVSKY said the company management plans to raise labor productivity, qualification and wages to world standards in the next five to ten years in order to increase oil production and processing.

Aksyonenko To Visit Omsk Industry

· Russian First Deputy Prime Minister Nikolai AKSYONENKO is scheduled to arrive in the Siberian city of Omsk today. He will visit the Omsk Oil Refinery, the aerospace industrial center Polyot producing Kosmos space boosters, and the radio-electronics enterprise Irtysh. AKSYONENKO will hold meetings with leaders of industrial, transport, communication and financial organizations.

company shipped 11 million tons of Russian oil and petroleum products to the West in January to June, 1999, which is 14.5 percent more than in the same period last year. It costs Russian companies $5 to transport every ton of oil via the Latvian port of Ventspiels, and $1 is deducted for the Latvian Treasury as a tax. Latvia plans to expand the transit capacity with a new pipe in addition to the existing two. One line is being used to bring crude oil from Russia to Ventspiels, the other is brining Russian petroleum products. President of the Western Pipeline System (WPS) Janis BLAZEVIC said Moscow supports the WPS project. In his words, the project's feasibility study will be analyzed in Moscow in late August, and representatives of the European Bank for Reconstruction and Development will come to Riga in September to discuss proposals on the Bank's participation in the project. BLAZEVIC thinks they won't be able to do the project without the support of Russian companies, on whose investments Latvia is counting.

Ukraine-Azeri Intergov't Comm. Meets

· The second sitting of the Ukrainian-Azeri Intergovernmental Commission for the Economic Cooperation ended in Kiev on Friday after signing several documents. The Commission Co-Chairmen First Deputy Prime Minister Vladimir KURATCHENKO and Abbas ABBASOV signed agreements against the double taxation, on joint measures against economic and financial violations, on communication and the pharmaceutical industry. A memorandum on the mutual assistance between the Ukrainian State Customs Service and the Azerbaijani State Customs Committee was signed as well. In the words of ABBASOV, Azerbaijan will fulfill its obligation of supplying petroleum products to Ukraine. Almost all of the 500,000 tons of fuel have been delivered to Ukraine. In Fall, Ukraine will start the supplies of industrial commodities and foods, including those in payment for the fuel, KURATCHENKO remarked. Kiev is expected to soon transfer $3 million to Baku for the fuel supply. Ways to enlarge the bilateral trade turnover, which dropped by 37 percent in five months of this year as compared to last year's period, were discussed by the sides. They agreed on the soonest construction of two out of the ten "river-to-sea" vessels by the Kiev ship-repairing plant. Each of the vessels costs $5.5 million and will be used by the Caspian sea shipping company of Azerbaijan. The

European Republics

Ventspiels Nafta Reports Rise in Profits

· Ventspiels Nafta, the Baltic largest oil transshipping company, made 12.8 million lati (about $22 million) in the first half of this year, which was a 9.4 percent increase in revenues as compared to January to June, 1998. According to spokesman for the company Gundega VARPA said on Sunday, the

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sides also focused on their participation in the construction of the Europe-Caucasus-Asia transport corridor and the Eurasian oil transport corridor. The next sitting of the Commission will take place in Baku in January 2000.

South Caucasus & Central Asia

Cohen Promotes Georgia's Reforms

· Georgian President Eduard SHEVARDNADZE, Defense Minister David TEVZADZE and Speaker Zurab ZHVANIA met with visiting US Secretary of Defense William COHEN in Tbilisi. COHEN and TEVZADZE signed a joint statement on the cooperation in defense and environmental protection. COHEN discussed with the Georgian leadership bilateral military and political cooperation, the situation in Kosovo and the Caucasus, the Georgian participation in NATO programs and a possibility to help the Georgia in drafting a modern defense strategy and methods of reforming its armed forces. The US Secretary of Defense said the doors of NATO are open to Georgia, but the steps are very steep. COHEN praised the efforts of the Georgian government to build its democracy and reform its military. He said it is up to Tbilisi to decide whether to replace Russian bases with American ones. The Secretary of Defense signed agreements to increase military cooperation, including supplying helicopters to improve security at Georgia's borders. At the state luncheon hosted by SHEVARDNADZE, COHEN pointed out that America is a young country, but with the oldest democracy and that Georgia is one of the oldest countries, with the youngest democracy. This he said is a winning combination for Georgia and US to cooperate with one another. COHEN indicated that US-Georgian military cooperation is increasing at a rapid rate. This year 30 separate military events are scheduled. He expects that number to again increase in 2000. Georgia is viewed by the Secretary as potentially becoming a model for all defense reform and democratic reforms in the former Soviet Union. COHEN said he was extremely pleased that TEVZADZE had invited him to Georgia. COHEN

added that the next time he visits Georgia he will stay for an extended period of time.

New Armenian Ambassador Begins Work

· Armenia's new ambassador to Russia, Suren SAAKYAN, on Thursday began his work in Moscow. He is a University graduate, a candidate of sciences. In 1991, SAAKYAN was appointed deputy interior minister of Armenia, and headed the state tax police. From 1994 to 1996, he worked at the Armenian Embassy to Russia. Until recently, he was Armenia's envoy at the Inter-State Economic Committee of the Commonwealth of Independent States.

Kazakh-Turkmen Oil Transport Plans

· After two-days of talks in Ashgabat to discuss the mutually-beneficial partnership of Kazakhstan and Turkmenistan oil and gas industries, Kazakh Minister for Energy, Industry and Trade Mukhtar ABLYAZOV said the two nations are reviewing a plan to transport the Kazakh northern oil to the Caspian port of Turkmenbashi and to the Caspian coast of Iran by tankers. The sides will use the oil pipeline from Pavlodar, Kazakhstan to Seidi, Turkmenistan via Chimkent, Kazakhstan, the minister said. They will have to coordinate the tariffs of pipeline and railroad transit. Experts believe the route will be profitable. Up to 50,000 tons of oil are expected to be delivered by the route every month, ABLYAZOV said. The sides are considering a pipeline to be built to Iran via western Turkmenistan, ABLYAZOV said. As for a possibility to transport Kazakh oil by the Baku-Ceyhan pipeline, a decision will be taken proceeding from the oil reserves of the Kazakh Caspian shelf and the reserves will be estimated in August, he noted. The sides also agreed that the first sitting of the Political Consultative Council co-chaired by the Presidents of Turkmenistan and Kazakhstan will take place in January 2000. ABLYAZOV said, a border trade project will be prepared by January, in accordance with Friday's memorandum on mutual understanding between the Turkmen Ministry of Trade and Foreign Economic Relations and the Kazakh Ministry of Energy, Industry and Trade.

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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