DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Wednesday, March 10, 1999

a $200,000 reward has been offered for information leading to the capture of the kidnappers. MASKHADOV will also hear reports at a special meeting of the State Council from the chiefs of the republic's power structures on the course of investigation into the SHPIGUN kidnapping. MASKHADOV said, "Threats and blackmail [by Russia] are unacceptable." On Tuesday, the Chechen President accused members of the Shura headed by Shamil BASAYEV of being involved in the kidnapping. According to MASKHADOV, the kidnapping of general SHPIGUN is of a political nature and organized by the local opposition in the person of BASAYEV and Salman RADUYEV. These two opposition leaders have intensified their efforts to oust MASKHADOV in the past few months.

Chubais To Return To Gov't?

· Moskovskii Komsomolets today continued rumors of a government reshuffle by writing that Russian President Boris YELTSIN is considering replacing presidential administration head and Security Council Secretary Nikolai BORDYUZHA. The newspaper added that the hospitalization of BORDYUZHA on Monday for heart pain was not coincidental. Kremlin strategists point out that YELTSIN needs some one "strong and tough enough" to shield a sick President and who can be an effective counterweight to Prime Minister Yevgeny PRIMAKOV's influence. YELT-SIN also must be able to exert influence over this person. The newspaper concluded that former first deputy prime minister Anatoly CHUBAIS meets

Russian Federation

Politics

Rus-Chechnya Separately Evaluate Situation

· Russian Prime Minister Yevgeny PRIMAKOV is chairing a Russian Security Council government meeting today, which is to decide what to do with the situation in Chechnya where Russian Interior Ministry representative Major General Gennady SHPIGUN was abducted on Friday. PRIMAKOV was instructed by President Boris YELTSIN to design "urgent measures to ensure order in a number of Russian territories in connection with the situation in Chechnya." Speaker of the Russian State Duma Gennady SELEZNYOV said, "I don't think we should have filed an ultimatum to Chechnya, which if issued must be implemented, otherwise we may once again find ourselves in an awkward situation." He emphasized that major document was too tough, saying, however, that it was up to the Interior Ministry. He also stressed that the issue is "much broader, it has a political character." Earlier Interior Minister Sergei STEPASHIN threatened to bomb terrorist bases in Chechnya and introduce an economic blockade of the rebel region. First Deputy Prime Minister Vadim GUSTOV stressed that no decisions had been passed on Chechnya yet. Russian First Deputy Prime Minister Vadim GUSTOV said, "There is no talk that Russia is embarking on the path of war." On Sunday, Interior Ministry troops and special forces in the Northern Caucasus were placed on alert, and preparations were made to limit border traffic. Special military checkpoints have been fortified. The Russian law-enforcement bodies and the Prosecutor's Office of Chechnya have agreed to exchange information in the search for the SHPIGUN.

Meanwhile, Chechen President Aslan MASKHADOV has offered to hold meetings with Russian officials to negotiate a way out of the crisis. His spokesman says

Today's News Highlights

Russia

IMF To Return To Russia

Rostelecom Raises Int'l Rates

European Republics

Ukrtelekom Sell-Off Reviewed

Zil To Break Belarus Contract

South Caucasus & Central Asia

Black Sea Conference Opens

Abkhaz Backtracks On Refugees

Armen.Party Elects Wanted Man

Kazakh-Chinese Border Agmt.

Politics-Economics-Business

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March 10, 1999

Intercon's Daily

this description and that YELTSIN will make a decision soon on whether to invite him to rejoin the government.

Russian Crime Still On The Rise

· Russia's acting prosecutor general Yuri CHAIKA told the Russian State Duma on Friday that the crime rate in the country is still increasing. CHAIKA said the rise in the number of serious and very serious crimes was particularly alarming: 2,582 crimes were registered in 1998, almost 8.0 percent more than in 1997. This included nearly 10,000 first-degree murders and 40,000 armed assaults. About 5,000 people were killed by contract murderers in the country every year, CHAIKA said. According to him, the criminal situation was exacerbated in 1998 due to the drop in the standards of living as a result of the economic and financial crises. Deputy Security Council chairman Alexei MOLYAKOV told a meeting of spokesmen of law-enforcement bodies that there is a need to improve cooperation between Russia's law enforcement bodies and the media. "It is necessary to do everything so that the public receives true information about the struggle against corruption and crime and measures the state is taking to guard the constitution and maintain law and order." The session was attended by representatives of the Prosecutor General's office, the Interior Ministry, the Federal Security Service, and the Federal Service of the Tax Police.

US Food Deliveries To Reach Russia

· The first batch of US food aid is due to arrive in St.Petersburg on Thursday. A US Embassy official said the first batch of food supplies consists of 14,000 tons of corn seeds and 1,000 tons of seeds of vegetables. They are intended for farmers in Russia's northern and central areas. The next cargo of food aid is expected to arrive in St.Petersburg on March 17th or 18th. In all, the US is sending 3.1 million tons of food to Russia, including 1.7 million tons of wheat, 100 tons of rice, 30,000 tons of powder milk, 500,000 tons of corn, 120,000 tons of beef, 50,000 tons of pork, 200,000 tons of soybean and other foodstuffs. Out of the batch, 100,000 tons of food are to be distributed with monitoring by non-governmental organizations, as well as religious and volunteers. Special attention in the distribution of food will be devoted to northern areas, the Far East, children's homes and elderly nursing homes.

Economy

Ruble = 23.03/$1.00 (NY rate)

Ruble = 22.98/$1.00 (CB rate)

Ruble = 25/1 euro (CB rate)

IMF To Return To Negotiations In Russia

· The International Monetary Fund (IMF) senior Moscow representative Martin GILMAN confirmed that a Fund mission will arrive in Moscow on Thursday to follow up on telephone conversations between IMF Managing Director Michel CAMDESSUS and Prime Minister Yevgeny PRIMAKOV, which may have broken down some barriers in past negotiations. During the high level talks, PRIMAKOV and CAMDESSUS outlined the remaining problem areas. GILMAN said, "Progress has been identified in outstanding issues." According to London banking circles, the IMF and the Russian government have differences on two matters: the revenues under the budget and the Cabinet's plans to decrease the value-added tax (VAT). Russia insists on the primary surplus of the budget being 2.03 percent of gross domestic product, while the IMF wants it to be 3.5 percent. Russia has been negotiating with the IMF for new loans to help it repay some of the $17.5 billion in foreign debt repayments due this year. The government has only budgeted $9.5 billion on foreign debt repayments this year. The Russian side, represented by First Deputy Prime Minister Yuri MASLYUKOV and banking officials have failed to find common ground on key issues. MASLYUKOV has accused the Fund of exerting "indecent" pressure on Russia by asking it to adopt policies which he described as unacceptable. CAMDESSUS last week said that the IMF will not give credits to Russia, its biggest loan recipient, on softer terms than those offered by other member countries. GILMAN said that now there is, "a more common understanding of underlying fiscal situation and what needs to be done. The mission, led by deputy head of the IMF's second European Department responsible for Russia Gerard BELANGER, will return to Washington ahead of talks between PRIMAKOV and CAMDESSUS on March 24th. BELANGER is scheduled to meet with Deputy Finance Minister Oleg VYUGIN and is also scheduled to have a meeting with Finance Minister Mikhail ZADORNOV.

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Business

Gazprom And Ukraine Reach Debt Agreement

· Ukrainian First Deputy Prime Minister Vladimir KURATCHENKO and the Gazprom President Rem VYAKHIREV have reached agreement on the procedures for settling Ukraine's debts to Gazprom for already delivered Russian gas, amounting to $1.4 billion. According to the agreement, $410 million of the debt will be paid by the Naftogaz Ukrainy joint-stock company with deliveries of Ukrainian goods, including food products. The prices for these goods will be fixed on the basis of the cost of similar products on the Russian market. Previously, the Russian side offered to calculate them on the basis of the prices of Russian producers, which are much lower than in Ukraine. The remaining $990 million of the Ukrainian debt will be paid through mutual settlements with such structures as the Itera International Corporation, Rosgaztrans, and Gaztransit, which are closely linked with Gazprom. VYAKHIREV has pledged to send a special working group to consider changing prices, which at present amount to $80 per one thousand cubic meters, while the international price is only $35 to $40. Today, Gazprom signed a transit agreement with Naftogas Ukrainy company for an increase in Russia's gas transit via Ukraine of 14 percent in 1999, totaling 137 billion cubic meters against 120 billion cubic meters in 1998. The supplies are intended for European countries which will get 110 billion cubic meters, for Moldova (3 billion), and the southern Russian regions (24 billion).

Rostelecom Raises International Phone Rates

· The Russian Rostelecom company starting today will increase the tariffs on international telephone calls by an average of 22 percent. The company said prices will be raised 20 percent for "main direction" calls. Prices for the directions where the volumes of incoming and outgoing calls are not balanced, will rise 50 percent, and for calls to Baltic countries by 30 percent. Rostelecom explained that the hikes were caused by the growth of the dollar rate against the ruble. Since October, the last increase in the company's tariffs, the dollar has grown 40 percent. The company pays international operators in dollars. After March 10th, a Muscovite will pay 7.5 rubles (over $3) for a minute of talk with Ukraine, Moldova and Belarus, 11.7 rubles for calls to Baltic countries, 11.25 rubles for Azerbaijan and Kazakhstan, 13.50

rubles for European countries (Hungary, Yugoslavia), 23.85 rubles for the USA.

Exhibit On Energy Saving Technologies

· Approximately 50 Russian companies will display their products at the first international specialized exhibition "Energy Saving 1999," which opens in Moscow today. The exhibits will include the most up-to-date industrial energy-saving technologies, renewable energy sources and environmental protection methods. Russian Minister of Fuel and Energy Sergey GENERALOV said at a press conference on Tuesday, that energy saving is the priority direction in Russia's energy strategy for the coming years. Energy consumption in the Russian economy went up by 46 percent over the past several years. Energy losses continue to be great, specifically losses of electricity. Ordinary consumers used 120 billion kilowatt-hours a year, which is 13.5 percent of overall electricity output. Some 6.5 percent of Russia's 1998 oil output, which is about 20 million tons, were lost at oil fields or in the process of its transportation by the pipelines.

European Republics

Gov't Encourages Ukrtelekom Privatization

· Ukrainian Economics Minister Vasyl ROHOVY urged the parliament today to adopt a law on privatization of telecom monopoly Ukrtelekom, stating that the sell-off would boost the company's development. He told deputies that Ukrtelekom had accumulated massive debts on foreign loans totaling 2 billion gryvnias ($538 million). The company needs to attract direct investment to improve its financial situation, but this is only possible under the law if it is privatized. However, Ukrtelekom is on a government list of several thousand "strategic" companies which cannot be sold off. Ukraine's parliament in December rejected the government's plan to sell a stake of 25 percent plus one share in Ukrtelecom to a strategic investor. The state intended to retain a 51 percent, but did not specify what would happen to the remaining 24 percent. In 1998, Ukrtelekom reported a pre-tax profit of about $200 million.

Zil May Break Contract With Belarus

· Moscow Mayor Yuri LUZHKOV on Tuesday said the city car-maker Zil may withdraw from a contract with Belarus suppliers of engines who have marked up their prices. "Such a situation may prompt us to

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back out of the order for 25,000 car Belarus engines and seek another supplier," LUZHKOV told a meeting of Moscow authorities over the development of the local car-building industry. He intends to raise the issue in a letter to Belarus President Alexander LUKASHENKO. LUZHKOV believes both Russian and Belarus producers have adopted the practice of shifting the economic burden onto their partners.

South Caucasus & Central Asia

Black Sea Zone Conference Opens

· An international roundtable conference, entitled "The Black Sea Zone of Economic Cooperation on the Threshold of the XXI Century," opened at the Sheraton-Metehi-Palace Hotel in Tbilisi on Tuesday. Foreign Ministries from to the Black Sea Economic Cooperation Organization: Albania, Armenia, Azerbaijan, Bulgaria, Moldova, Georgia, Greece, Italy, Russia, Romania, Ukraine, and Turkey are attending the conference. Also participating in the conference are representatives from the Organization for Security and Cooperation in Europe (OSCE), United Nations, and other international organizations. The conference will determine the direction of the Black Sea states and draw up concrete measures to accelerate integration within the organization. A qualitatively new vision of the further evolution of the Black Sea Economic Cooperation Organization, as an international regional body, will be presented to the conference.

Abkhazia Backtracks On Repatriation Of Gali

· Georgian State Minister Vazha LRODKIPANIDZE met with Russian ambassador at large Lev MIRONOV and UN Special envoy for Abkhazia Liviu BOTA in Tbilisi on Tuesday. He accused the Abkhaz leadership of backtracking on an earlier offer to recruit into the police force of the Gali region displaced ethnic Georgians, who are returning to the remains of their homes in Abkhazia. LORDKIPANIDZE said the move is aimed at limiting Georgian representation in the force, Caucasus Press reported. In Sukumi, Abkhaz representative Sergei BAGAPSH said that it is Georgia that is preventing the repatriation of Gali. He said

350 people have managed to return since the process began on March 1st. MIRONOV said that there is a need for a Georgian-Abkhazian agreement on the return of refugees, and that the best way will be to sign a protocol on the refugees and the economic restoration of Abkhazia. He said it is important for the Georgian refugees to return home, but only if their safety is guarantee. MIRONOV met with Abkhazian leader Vladislav ARDZINBA on Saturday.

Armenian Party Elects Wanted Man

· After several days of voting the Armenian National Movement elected again Vano SIRADEGYAN as board chairman. The former Armenian interior minister outstripped former parliament speaker Babken ARARKTSYAN in the vote. Former Foreign Minister Alexander ARZUMANYAN withdrew his candidacy prior to the vote. SIRADEGYAN is on the Armenian Wanted List, after the Armenian parliament deprived him of deputy's immunity and agreed to hold him criminally responsible. According to materials of the prosecutor's office, the former minister had given instructions to his subordinates to engineer assassinations of people, unsuitable to him. SIRADEGYAN departed for Dubai, United Arab Emirates, for health reasons right after the first appeal of the prosecutor's office, which was rejected by parliament. The 11th congress of the party re-appraised its role under new conditions of being in opposition.

Kazakhstan Passes Chinese Border Agmt.

· Kazakhstan's parliament today approved the second supplementary agreement with China on border issues, which was signed during Chinese President JIANG Zemin visit to Kazakhstan last July. The border agreement has also been approved by the lower house of parliament. It finalizes the border in two disputed areas around the Baimurza pass and the Sary-Chardy territory. Kazakh Foreign Minister Kasymzhomart TOKAYEV hailed the China-Kazakhstan border agreement. He said, "It is necessary to close forever the territorial dispute with China, to eliminate a source of conflict and think of the country's security as China is developing rapidly."

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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