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, April 23, 1998

Russian Federation

Politics

Kiriyenko: For, Against, Undecided

· With less than 24 hours before the third and final vote on Sergei KIRIYENKO as Prime Minister, Russian President Boris YELTSIN conducted some last minute lobbying efforts meeting with the Russian State Duma speaker Gennady SELEZNYOV and Federation Council speaker Yegor STROYEV. Despite his party's insistence to vote down KIRIYENKO, SELEZNYOV voiced his support for the President's candidate. YELTSIN told them that he was planning on sending a letter to each individual Duma deputy prior to their vote asking for support. But he has declined from showing up at the Duma to present his nominee. YELTSIN even went as far as telephoning his arch rival Communist Party Gennady ZYUGANOV, who held firm his resolve to reject KIRIYENKO. "We are ready for elections. We think they would be very beneficial to us. In its current make-up, the Duma will not be bold enough to make changes to the constitution and put limits on executive powers that are destroying the country," ZYUGANOV told the Financial Times. As the vote approaches The Communist Party and the liberal opposition Yabloko are against; the Agrarian Party and Popular Power faction are undecided; and Our Home Is Russia, Liberal Democratic Party, Russian Regions factor, SELEZNYOV and the Federation Council [generally] are for KIRIYENKO. The three factions for KIRIYENKO can only secure a combined total of 160, 226 are need for confirmation. SELEZNYOV commented that, "sensible people who understand that one must not put the State Duma on one scale and the candidacy of prime minister on the other." Many Duma members feel early elections will disrupt Russia and therefore they will reluctantly to vote for KIRIYENKO. It is clear that the true determining factor in the vote will be the procedure by which the

vote is taken, open or secret. If open most predict KIRIYENKO will be rejected and early elections called. But, if secret, KIRIYENKO has a chance to relieve the nation of the political instability of the past few weeks.

EU Parliament President Pleased With Russia

· On Wednesday in Moscow, European Parliament President Jose Maria GIL-ROBLEZ said the European Union (EU) would make efforts to develop close ties and expand exchanges with Russia. GIL-ROBLEZ, addressing the Russian State Duma, said that economic and political stability in Russia was important for ensuring peaceful coexistence among nations world-wide. Stressing that integration into the global economy was crucial for Russia, GIL-ROBLEZ voiced his support for Moscow's bid to join the World Trade Organization (WTO), the body which acts as a monitor on goods and services trading in the world. On Tuesday GIL-ROBLEZ met with Russian Foreign Minister Yevgeny PRIMAKOV to discuss relations between Russia and the EU, "in the construction of new democratic Europe, stable and free from divides, and in settling crises and conflicts," according to a press release from the meeting.

Border Tax May Begin As Soon As July 1st

· Chief of the Russian State Tax Service Alexander POCHINOK on Wednesday said that a border tax may be introduced in Russia from July 1 or from August 1. He said the decision to introduce the bor

Today's News Highlights

Russia

Cuts In Budget Spending

Intourist-BeggemOT Merger

KamAz Auto Restarts Production

European Republics

Ukraine Currencey Chair Dead

Latvia Take Confidence Vote

Lat. To Change Citizebship Law

South Caucasus & Central Asia

Georgia, Azer, Turkey On Oil

Niyazov Signs Agreements

Politics-Economics-Business

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Thursday

April 23, 1998

Intercon's Daily

der tax had been taken two years ago under the law on the state border, but was not observed because the agency lacked a system for collecting taxes and needed to define the tax amount. The problem lies in ensuring that the border tax works and is not an inordinate burden, discouraging people from paying it. Therefore, federal services believe it is unreasonable to impose too high a tax, which should go to the development of border posts. POCHINOK proposed the border tax for naturalized people should be $10, while the Federal Border Service proposes to fix it at 0.8 percent of the minimum wage. POCHINOK said acting Prime Minister Sergei KIRIYENKO on Wednesday instructed the Federal Border Service to analyze how many dues a citizen pays crossing the border and how these funds are spent.

Economy

Ruble = 6,130/$1.00 (NY rate)

Ruble = 6,130/$1.00 (CB rate)

Ruble = 6,112|6,148/$1.00 (buy|sell rates)

Russia Plans To Cut Budget Spending

· Acting Prime Minister Sergei KIRIYENKO told the Federation Council on Wednesday that the government is developing plans which would cut the 1998 budget spending by 35 to 40 billion rubles ($5.8 to $6.5 billion). He explained that 10 billion rubles can be saved by imposing limits on energy and heat consumption by government organizations. Analysts believe that the cuts will be necessary because tax collection remains low and falling oil prices will cut into government revenues.

Russia Strengthens Min. Shareholders' Rights

· Russia's stock market watchdog agency the Federal Securities Commission (FSC) on Tuesday announced new rules to protect shareholders in an effort to strengthen investor confidence. FSC chairman Dmitry VASILIEV said the rules will be effective in early May, but are expected to face fierce opposition from Russia's powerful financial magnates. The new rules will compel Russian companies to disclose more information to their shareholders before registering share issues with the FSC. VASILIEV stated that the main problem shareholders complain about is, "the dilution of shares, the dilution of packages that belong to shareholders." He added that, "The problem is that majority shareholders can abuse the rights of minority shareholders," the Financial Times

reported. To alleviate these problems, the FSC rules that companies must disclose information regarding prospective new share issues to shareholders at least a month before they submit their prospectuses to the FSC for registration. Other regulations include appraisals of the value of proposed share issues, tighter control over in-kind payment for shares, and a new requirement that general shareholders' meeting approve closed subscriptions for new share issues in large companies.

Business

Minority Shareholders' Rights Violated

· Navaromco, a Cyprus based investment company, owned by US businessman Kenneth DART has filed a law suit against Noyabrskneftegaz, a subsidiary of Russian Yuksi group, which it accuses of diluting minority shares holdings through a contested share issue May, 1997. The suit charges that minority shareholders were not given pre-emptive rights to the equity, and that it was priced at half its market value, both violations of Russian law. Shareholders, led by DART, also charge that they were not notified in advance that there would be a vote on the share issue at a general shareholders' meeting. After the share dilution, Noyabrskneftegaz shares lost 40 percent of their value from the date of the share auction until the end of 1997, while Sibneft's shares gained by roughly the same percentage. The suit could slow down the consolidation plans for its parent company Sibneft, which in January merged with Yukos to form Yuksi.

Intourist Merges with BegemOT

· Intourist Travel Agency, which will celebrate its 70th anniversary next year, on Wednesday announced that it has merged with the BegemOT Travel Agency for joint activities on the travel market, accounting for 20 to 25 percent of the overall foreign travel market. President of the Intourist Alexander LEVIMAN and head of the BegemOT company Alexander DVORYANSKY stressed that the alliance of the conservative style of the oldest Russian travel agency and the efficiency of modern management would make it possible to boost commercial activities in all directions, including tourism into Russia, abroad and within Russia. The merger is expected to benefit to customers since tariffs for services provided by the two companies will be lowered. The new company

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will launch a unique project involving Rosno insurance company which will enable workers of the budgetary sector to buy travel vouchers by installments. Deputy Chairman of the Russian Committee for Sports and Tourism Sergei SHPILKO characterized the alliance of the two travel companies as, "a remarkable event in the Russian travel business." He said that the merged companies offer serious competition to foreign companies wishing to conquer the Russian travel market.

KamAZ Auto Restarts Production

· Russia's car-making plant KamAZ in the Volga city of Kazan restarted its main assembling line on Wednesday. KamAZ assistant general director in charge of economics and finances Ildar KHALIKOV said all of the plant's shops are to resume full-capacity operation on May 11th, the eve of a shareholders' meeting. The plants will start to pay its employees in June. To date, delays in wage payments at the plant's different departments vary from six months to one year. Officials of the Russian Economics Ministry, Federal Service for Insolvency and Financial Normalization and the Federal Commission for Securities Market, are working on a strategy to reschedule the plant's debt, determine the amount of bonds to be issued to cover the debt to major creditors as of April 1, 1998, and choose an independent auditing firm. Among other issues, the shareholders' meeting will consider the possibility of increasing the car-maker's authorized capital. The number of shares to be issued will directly depend on the amount of the funded loan. The loan is expected to be repaid by means of converting the bonds into ordinary shares. KamAZ plans to make 206 cars in April and 994 cars in May, all to be sold for cash.

Gokhran To Clear Debts To Gold Companies

· Acting First Deputy Prime Minister Boris NEMTSOV said that the Governmental Current Affairs Commission has decided to clear debts of Gokhran, or State Treasure Repository, to gold-mining companies within a month or two. Gokhran's debts total 800 million redenominated rubles. NEMTSOV said that the commission passed the decision to support the gold-mining industry by allowing gold exports "without bureaucratic restrictions." NEMTSOV added that the government is, "doing everything to make the precious metal market work and money come to the producer, to the gold

mining enterprises, first of all." He said the situation, where domestic mining enterprises are in a less advantageous position to importers, is inadmissible. He said producers and importers should be placed on equal conditions. The commission also passed the decision on equal conditions of Russian producers and importers of bauxite and alumina and leaving the current taxation regulations in the aluminum industry as they are until the end of 1998. All tax concessions to the industry will be abolished at the start of 1999.

European Republics

Ukraine Currency Chair Murdered

· Chairman of the exchange committee of the Ukrainian Interbank Currency Exchange Vadim GETMAN was killed Wednesday night at the entrance to his house in the center of Kiev; he was shot five times. President Leonid KUCHMA has ordered the Ukrainian Interior Ministry's security service (SBU) to form a special group to investigate the killing. They have not reported any possible suspects for the murder. The police believe there are three possible reasons for the murder, two of which are economic. Police however, have zeroed in on the third possible motive related to "serious conflict situations" in the recent elections, in which GETMAN, leader of the Independents Party, was unsuccessful in winning a parliamentary seat.

Lat. Parliament To Hold Vote Of Confidence

· The Latvian parliament has scheduled April 30 for a vote on the motion censuring the government. The vote will determine whether the government will remain in office or resign. Latvian Prime Minister Guntars KRASTS, whose coalition dissolved into crisis when the largest party stormed out, agreed to the vote. The leftist Democratic Party Saimnieks quit the coalition on April 8th, accusing KRASTS of not taking steps to repair relations with Russia. KRASTS objects to assertions that the government and the Prime Minister personally are to blame for worsening relations with Russia. Although, KRASTS said that his earlier statements which caused a sharp negative reaction in Moscow had been misunderstood.

Latvian Cabinet Drafts Citizenship Law

· The Latvian Cabinet on Wednesday sent to the

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parliament proposed amendments to the citizenship law that has been at the center of a row with Russia. The amendments call for the removal of "naturalization windows" under which many non-citizens would have to wait until 2003 to apply for naturalization. The new draft of the 14th article says everyone 16years and older can apply for the naturalization and their documents will be considered in a regular succession. The Cabinet still wants to review the draft amendments granting citizenship to children born in Latvia to non-citizens since August 21, 1991, accounting for the changes to its language and education laws. The proposals must be approved by the Latvian parliament before they go into effect. It is not clear whether the amendments if passed would be enough to induce Russia to rescind its threatened sanctions. Applicants will still have to prove Latvian language proficiency. Justice Minister Dzintars RASNACS said that the governmental decision fully corresponds to the recommendations of the OSCE and, "shall not be viewed as a concession to Russia." About 660,000 of Latvia's 2.6 million residents do not have citizenship, most of them are ethnic Russians.

South Caucasus & Central Asia

Georgia-Azeri-Turkey Discuss Pipelines

· Georgian President Eduard SHEVARDNADZE, Azerbaijan President Geidar ALIYEV, and Turkish President Suleyman DEMIREL will meet in Trabzon, Turkey, on Sunday to discuss the construction of a Baku-Ceyhan pipeline to transport Caspian Sea oil to the world markets. DEMIREL will show his counterparts the feasibility study worked out by Turkey. ALIYEV expressed his support for the Baku-Ceyhan route to visiting Turkish Energy Minister Mustafa Cumhur ERSUMER on Tuesday, saying it was time to implement the Baku-Ceyhan project. Under the Baku-Ceyhan project with a preliminary cost of $2.5 billion, the Azerbaijan section of the pipeline will be 480 kilometers long and the Georgian section will be 500 kilometers long. The planned oil pumping amount may reach 100 million tons a year. The Presidents

will also discuss prospects for economic, political and cultural cooperation among their countries and the situation in the region following the election of Robert KOCHARYAN as Armenia's President. The Armenian President's position is vital to stability in the Caucasus.

Mobil, Monument, Turkmen Sign Agreement

· Mobil Corporation and Britain's Monument Oil and Gas plc, the first two western oil companies to develop Turkmenistan reserves, on Wednesday in Washington at the Blair House signed an agreement forming a strategic alliance with Turkmenistan and Turkmenneft, the State Oil Concern of Turkmenistan, to pursue exploration and development onshore oil fields in Western Turkmenistan, named Garashsyzlyk or Independence. The development costs could reach $1 billion. A production sharing agreement which will give the operator Mobil 52.4 percent, Monument 27.6 percent, and Turkmenneft 20 percent is expected to be signed later this year. The provision includes a measure where by the government of Turkmenistan, Mobil and Monument will further advance their strategic alliance by pursuing additional exploration, production and transportation opportunities in Turkmenistan. Mobil Chair and CEO Lucio A. NOTO said that, "The Independence block will be a good strategic and operational fit with our existing position and is another step toward our goal of building a major hydrocarbon reserve position in Western Turkmenistan."

Turkmen President NIYAZOV also signed a memorandum of understanding with US Agricultural Secretary Dan GLICKMAN to facilitate mutual cooperation and assistance in agriculture. GLICKMAN said, "By sharing information in a number of areas, including current agricultural production techniques and practices, we will help Turkmenistan enter the 21st century as an equal partner." With a subtropical desert climate, Turkmenistan uses more than half of its land as pastures for raising sheep and cattle. Half of its irrigated land is planted with cotton, making it the world's 10th largest producer.

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: $895.00 per year. A discount is

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