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

Wednesday, November 4, 1998

Russian Federation

Politics

Bomb Explodes Outside Of Kremlin

· Tonight, a car exploded outside the main gate of the Kremlin, killing one person and critically injuring another. The cause of the blast is not known. Police are still investigating the crime scene. An unidentified spokeswoman from the Emergency Ministry said the incident was being treated as a criminal matter. The explosion occurred shortly after 7 p.m. Moscow time about 10 feet from Spassky Gate.

US- Russia Food Aid Negotiations

· A senior US official said the US is prepared to offer Russia 3.1 million metric tons of wheat and other food to alleviate the food supply crisis. The size of the proposed package is lower than what had been expected. The food aid package includes 1.5 million metric tons of wheat, while the rest is a mix of other foodstuffs. The net worth of the total package was not disclosed, but the wheat alone could be worth up to $200 million. Before the program is signed, US and Russia need to negotiate specific terms including distribution and monetary issues as well as taxes and customs duties. US President Bill CLINTON and Vice President Albert GORE believe it is important, "to assist the Russian people during this difficult time as Russia's transition to democracy is of vital national interest to the United States." A delegation from the US Department of Agriculture, led by General Sales Manager Chris GOLDTHWAIT, has been meeting with Russian Deputy Prime Minister Gennady KULIK and other representatives since Monday discussing food issues. KULIK, late last month, said the supplies will go in three directions: on the credit for conditions acceptable for Russia; within the framework of the program of US aid to foreign countries; and in small quantities as relief aid. The Russian side is interested, specifi

cally, in purchasing corn and soybean-seed mixture for the manufacture for combined fodder for livestock breeding and poultry farming.

Energy Crisis, Deputies Appeal to UN

· A special emergency government commission led by Minister for Emergencies Sergei SHOIGU arrived in the eastern city of Kamchatka today seeking a solution to an energy crisis. Existing fuel supplies are expected to last only about 10 more days in the main city of Petropavlovsk-Kamchatsky, where residents are receiving electricity for only three to four hours a day. Local deputies have already appealed to the UN for 120,000 tons of fuel oil and 30,000 tons of diesel fuel. Temperatures have dropped to 15 to 18 degrees Celsius. Magadan Governor Valentin TSVETKOV sent an appeal to Prime Minister Yevgeny PRIMAKOV, warning that a, "social explosion" is imminent. The Governor wants funds to purchase emergency supplies of fuel and food. This region has had trouble purchasing adequate fuel supplies in the past, but Russia's economic crisis have made conditions worse.

Chechen Opposition Seeks Stability?

· The Chechen opposition, led by Shamil BASAYEV, Salman RADUYEV and Ibragim ISRAPILOV, all former field commanders in Chechnya's 1994-96 war against Russia, have been urging Chechen President Aslan MASKHADOV to step down. BASAYEV said MASKHADOV is unable to run Chechnya and his voluntary resignation, "will be useful both for

Today's News Highlights

Russia

Debt Talks Resume In London

DeBeers-Alrosa

European Republics

Latvia Forms Coalition Cabinet

Belarus-Gazprom Food Deal

South Caucasus & Central Asia

Arrests, Pardons In Georgia

Rebels Clash WIth Tajik Forces

Tajik Pres. Meets With IMF

US Embassy Opens In Kyrgyz

Politics-Economics-Business

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Wednesday

November 4, 1998

Intercon's Daily

Chechen society and the strengthening of the independent Chechen state." He said Chechnya's current crisis stems not from personal controversies between MASKHADOV and the field commanders, but from the President's unwillingness to heed the voice of the people. The opposition's key goal is not moving MASKHADOV from power, but keeping stability and order, BASAYEV said on Grozny television on Monday night. He called on a reconciliation commission, which is made up of learned elders, to use their whole authority and knowledge of Sharia law for a possibly rapid resolution of the president-opposition stand-off.

Meanwhile, MASKHADOV named filed commander Abubakar MONTAEV as head of the Chechen army, replacing Alkhazur ABUEV.

Economy

Ruble = 15.57/$1.00 (NY rate)

Ruble = 15.57/$1.00 (CB rate)

Ruble = 15.33|15.71/$1.00 (buy|sell rates)

Debt Talks Resume, Deadline Looms

· A Russian Finance Ministry delegation and officials from 17 western investment banks which hold overdue Russian treasury bills (GKOs) and bonds (OFZs) are resuming the fourth round of talks today in London. The Russian delegation is led by Deputy Finance Minister Mikhail KASYANOV and the banks are represented by German Deutsche Bank. The Russian side is seeking approval of the scheme to refinance Russia's internal debt, proposed by Russian Prime Minister Yevgeny PRIMAKOV and the Central Bank. This round is expected to be heated, as Russia's three-month moratorium on paying internal and part of foreign debts expires on November 17th. Central Bank Chairman Viktor GERASHCHENKO pledged not to extend the moratorium. The main objective of the delegation is to avoid sharp demands by the western banks and continue the dialogue. The Russian government is still refusing to consider one of the creditors' main demands, that part of their debts be paid in cash.

Russia Seeks European Credit Line

· First Deputy Prime Minister Vadim GUSTOV announced on Monday in Yaroslavl, where he is participating in the ninth session of the Parliamentary Assembly of Russia-Belarus Union, that in the

next 20 to 30 days the Russian government will begin to work with five European countries to receive credit lines. He said credit lines have already been opened by Britain and France. GUSTOV added that the August 17th statement of the Russian government was "harmful". He noted that, "measures to encourage foreign investors will help attract foreign capital to Russia. These are real projects involving real money, and due to this we will be able to get into European market in a normal and civilized way."

Business

DeBeers-Alrosa Renew Marketing Contract

· South African DeBeers' Central Selling Organization and Almazy Rossii-Sakha (Alrosa) Tuesday signed a marketing contract for another three years, ending December 31, 2001. The deal is worth $80 million to $100 million a month depending on market conditions. DeBeers' chief executive officer Nicholas OPPENHEIMER met with Russian Prime Minister Yevgeny PRIMAKOV, prior to signing the agreement. The Russian government asked DeBeers to provide an advance payment of $200 million for diamond exports in the first quarter of 1999. The government also asked for a loan of $1 billion from DeBeers. Under the agreement Alrosa, which is 32 percent owned by the Russian government, agreed to sell at least $550 million of diamonds a year, half of its output, through DeBeers. It can also sell 5 percent of its diamonds on the international market independently. Alrosa and DeBeers agreed to monitor the implementation of the agreement and prevent the outflow of Russian diamonds through unofficial channels. Russian diamonds make up about a quarter of total sales by DeBeers' London based Central Selling Organization, which accounts for more than 60 percent of world trade in rough diamonds. The Financial Times noted that this agreement follows a dispute that peaked in 1997 when DeBeers stopped formal arrangements with Russia after 40 years.

Occidental Petro. Pulls Out Of Komi

· Los Angeles-based oil company, Occidental Petroleum Inc. is pulling out of joint oil exploration and drilling projects, following developing trends in the oil industry. Head of Occidental operations in the former Soviet Union Paul MCINNES told Komi governor Yuri SPIRIDONOV said the company is cutting back on projects around Europe and including Russia because of low world oil prices. Occidental had a 75

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percent stake in Parmaneft, a joint venture with Russian partners in the republic of Komi. Occidental won the right in 1992 to explore and drill in Komi and paid $10 million for a five-year lease.

tion costs would be still lower in a project of the export pipeline linking Baku, Supsa, Odessa, Brody and Adamova Zastava. Oil transportation through Ukraine would cost customers $10 less per ton than the Baku-Ceyhan route, he said. GORBULIN added Ukraine's task was to market advantages of its territory as a transportation route for foreign investors. He was speaking at a press conference of the Ukrainian-Polish consultative commission which visited Odessa's oil terminal, indicating the interest of foreign investors in Ukraine's proposal.

South Caucasus & Central Asia

Arrests, Possible Pardons In Georgian Mutiny

· A total of 34 people have been arrested in western Georgia over the past two weeks on charges on involvement in the anti-governmental mutiny of October 19th led by Colonel Akaky ELIAVA. Georgian chief military prosecutor Badri BITSADZE said the mutiny should not have been considered an armed rebellion of the army. "It was an action accomplished by Zviadists," he said. Police and security forces are continuing the search for ELIAVA, who is on the run with a group of supporters. BITSADZE also said, "If Colonel Akaky ELIAVA and members of his armed group, who carried out the anti-governmental action in western Georgia on October 19th, voluntarily surrender to authorities and give testimony to the investigating group probing into this action, all of law-stipulated benefits will apply to them. I do not rule out that President Eduard SHEVARDNADZE is considering a possibility of pardoning them." ELIAVA demanded in Tblisi's newspaper Aliya on Monday that the civilians and army servicemen who were arrested over the past two weeks as suspects in the mutiny be released and that SHEVARDNADZE resign and stop the persecutions of supporters of late President Zviad GAMSAKHURDIA.

Rebels Clash Against Gov't Troops In Tajikistan

· Tajik government troops clashed with armed rebels loyal to Colonel Makhmud KHUDOBERDYEV in two northern Tajik cities. The rebels attacked government troops early this morning at an airport in Chkalovsk. Several hundred gunmen also seized key administration buildings in Khodzhand. It is estimated that at least 10 people were killed during fighting which raged for several hours, although an official count has not been released. Reuters re

European Republics

Three Latvian Parties Form Coalition

· Latvia's Way, the Fatherland and Freedom party, and the New Party have signed and agreement forming a coalition and supporting the prime ministerial candidate of Latvia' Way, Transport Minister Vilis KRISTOPANS, RFE\RL Newsline reported. Chairman of Latvia's Way Andrei PANTELEJEVA said, "This deal is the core for a coalition with 46 seats which would work together to form a government." He noted that, "the worst case scenario would be a minority cabinet." PANTELEJEVA added that if the coalition cannot reach an agreement with the People's Party, which won last month's elections, it may turn to the leftist Social Democrats. President Guntis ULMANIS has said he will announce his candidate for Prime Minister later in the week.

Belarus To Pay Gazprom With Food

· In the fourth quarter of this year, Belarus plans to deliver $5.7 million worth of animal products to Russia as part of its repayment of the debt to the Russian leading natural gas supplier Gazprom. Belarus Ministry of Agriculture and Food said that the deliveries of pork, butter, meat and milk preserves and confectionery to Russia would not affect the republic's food market. Minsk plans to ship food to Russia only after satisfying demand on the home market. Belarus has already completed forming its own food reserves for the winter. The former Soviet republic owes the Russian gas supplier about $250 million. According to experts, the figure would probably reach $550 million before the end of this year. Gazprom thinks it is acceptable to get part of the debt paid with Belarus food stuffs, material and technical resources worth $200 million.

Ukraine Offers Caspian Route

· Ukrainian National Security and Defense Secretary Vladimir GORBULIN said on Tuesday that a pipeline route traversing Ukraine for the export of Caspian oil to the West would be two times shorter than the Baku-Ceyhan route. He said oil transporta

When you need to know it as it happens

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ported that KHUDOBERDYEV deplored criminality and the absence of democracy and freedom of speech in Tajikistan. He turned against the government after it signed a peace deal with the mostly Islamic opposition in the summer of 1997. The rebels are demanding that their forces at the airport be unblocked, government troops withdraw from the zone of conflict, and airtime on television for former prime minister Abdumalik ABDULLADZHANOV. Tajik President Emomali RAKHMONOV has called an urgent meeting of the Security Council to discuss the situation in Leninabad Region. Presidential Press Secretary Zafar SAIDOV said that Special Envoy of the UN Secretary-General to Tajikistan Jan KUBIS, commanders of the CIS joint peace-making forces and of the Russian border guards in Tajikistan, as well as Russian Ambassador Extraordinary and Plenipotentiary to Tajikistan Yevgeny BELOV were invited to the meeting. He described the situation in Leninabad Region as "very grave." The President has ordered all troops be put on alert. Russia's 201st motorized infantry division, deployed in Tajikistan to support the government, has been put on combat readiness. The Tajik government has urged all those involved in an anti-government revolt in the Leninabad region of Tajikistan to lay down arms and surrender to Tajik law enforcement bodies. SAIDOV said that the Tajik government and the National Reconciliation Commission agreed that the incident, "is aimed at thwarting the peace process in the country," and that such attempts should be stopped.

Uzbekistan President Islam KARIMOV, Kazakhstan President Nursultan NAZARBAYEV, and Russia's Foreign Minister Igor IVANOV condemned the activities of anti-government forces in the north of Tajikistan and expressed support for the present course of the republic's leadership. Many foreigners serving in the UN Mission of Observers in Tajikistan have left the country because it cannot provide sufficient safety guarantees.

Meanwhile, on Tuesday Tajik authorities made a number of arrests in connections with three bomb

ings: near the local Interior Ministry, the arms storage depot at that Qurghonteppa's police department, and between the town's civil registrar's office and a small market; a fourth bomb was defused. Tajik Deputy Interior Minister Abdusattor RAJABOV called the explosions a "terrorist attack."

Tajik President And IMF Meet

· Tajik President Emomali RAKHMONOV Monday met with the International Monetary Fund's (IMF) mission chief Tapio SAAVALAINEN to discuss the government's mid-term program. SAAVALAINEN, said that it would take Tajikistan some six months to cope with impacts of the global financial crisis, including the sagging cotton prices on world markets. This is feasible only with the provision of Tajikistan's "normal" but rigid money and credit policies, he said. SAAVALAINEN said Tajikistan was deemed to have better basic conditions for progress as compared with other CIS states. Its basic economic parameters have shown a 6.5 percent growth over the nine months of this year. Tajikistan's inflation rate is one of the lowest in the CIS at 8.7 percent in the period of January to September. As for the second $20 million tranche of the IMF's extended facility for Tajikistan, SAAVALAINEN said it could be approved in December, if the government pursues planned anti-crisis measures. The first $20 million tranche of the $120 million loan was issued in July.

New US Embassy Opens In Kyrgyz

· Kyrgyz President Askar AKAYEV and US Secretary of State for Newly Independent States Stephen SESTANOVICH attended the opening ceremony of the $ 18 million, US Embassy in Bishkek on Tuesday after nearly two years of construction. The building also houses offices of the US Agency for International Development. SESTANOVICH and AKAYEV met today to discuss national and international issues, including the situation in Tajikistan and Afghanistan and problems linked with political and economic cooperation. SESTANOVICH will also meet with the Kyrgyzstan Prime Minister and leaders of the national parliament.

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

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