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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Monday, March 22, 1999

ties between Moscow and Grozny and, in general, to put the peoples of Russia on the brink of conflict." A meeting between Russian Prime Minister Yevgeny PRIMAKOV and MASKHADOV has been discussed, but no time or place has been set. The meeting was proposed following the abduction of Russian Interior Ministry representative Gennady SHPIGUN on March 5th. Moscow says that MASKHADOV's inability to bring Chechnya's warlords and gangs under control threatens regional stability, but Moscow has failed to provide pledged economic aid, which could help bolster the Chechen leader's position.

Primakov Gears Up for Make It or Break It Trip

· Russian Prime Minister Yevgeny PRIMAKOV is gearing up for a critical visit to the United States, beginning on Tuesday. His trip could either boost his chances of succeeding President Boris YELTSIN or fatally knock his credibility. PRIMAKOV will be seeking to secure billions of dollars in International Monetary Fund (IMF) lending in order to resume Russian payments of IMF debt and obligations. This poses a difficult question given the fact that billions of IMF dollars in the last tranche disappeared from the country and have not been returned and no prosecutions initiated. This led President Bill CLINTON to remark that an IMF agreement [it] "will only work if the money does not turn around and leave the country as soon as it is put in." Russian officials were encouraged last week during negotiations with the IMF mission in Moscow. Finance Minister Mikhail ZADORNOV said the IMF had withdrawn demands

Russian Federation


Mashkhadov Survives Assassination Attempt

· Chechen President Aslan MASKHADOV narrowly survived an assassination attempt on Sunday, when a radio controlled mine exploded near his motorcade, killing one and wounding eight bystanders and bodyguards. The explosion of the bomb, estimated to have been equivalent to 17 pounds (8 kg) of TNT, created a giant crater in a main road in Grozny, but missed MASKHADOV's car. This is the fourth time the Chechen leader has escaped attempts on his life. He sustained injuries to his leg in a similar attack last July. Chechen security agents and traffic police inspectors are searching for a red Jeep that was seen near the bombing site. Security chief Turpal ATGERIYEV said they are also looking for the owner of the Jeep and three people who, according to witnesses, had told bypassers to go around the place where the explosion later occurred.

On television, MASKHADOV warned his citizens, "Be ready for everything, since measures will be taken to destabilize the situation in the Caucasus to call off or delay elections [scheduled for December in Russia], forcing an emergency situation in the Caucasus republics." He said the explosion had been organized by "certain forces in Moscow" that are "trying to destabilize the situation in the Caucasus by any means." The head of Russia's Federal Security Service (FSB), Vladimir PUTIN flatly denied Moscow had anything to do with the latest bombing in Grozny. Chechen and Russian security officials agree that there is a link between the assassination attempt and Friday's bomb in a Vladikavkaz market place, which killed over 60 and injured 105 people. Russian Interior Minister Sergei STEPASHIN said, "I am confident that the terrorist acts aim to break the thin thread of interaction that is taking shape in the

Today's News Highlights


Oil Exports To Be Cut In April

Transaero Plane Seized

European Republics

Laar To Form Estonian Cabinet

Gazprom Resumes Deliveries

South Caucasus & Central Asia

Georgian Anti-Terrorist Decree

Georgian-Armenian Foreign Min.

Russia Opposes Caspian Route

New Chair On Supreme Council




March 22, 1999

Intercon's Daily

that the government run a 3.5 percent surplus before debt servicing in the 1999 budget. The budget projects a tight deficit of 2.5 percent of gross domestic product. ZADORNOV pointed out that political instability had caused some difficulties in talks with the IMF. PRIMAKOV will meet once with IMF Managing Director Michel CAMDESSUS and twice with President Bill CLINTON in Washington. Besides IMF lending, CLINTON and PRIMAKOV are expected to discuss Iraq, Kosovo, NATO expansion, passing the START-II Treaty, and reviewing the 1972 ABM Treaty. The current situation in Kosovo poses a particularly troublesome development for the visit. The prospect of NATO airstrikes, while PRIMAKOV is visiting would surely aggravate relations.

PRIMAKOV will also attend a session of the Russian-US joint commission on economic and technical cooperation (PRIMAKOV-GORE commission). The US and Russia are expected to sign a $325 million contract on Thursday to restart the 1993 high-enriched uranium US-Russian agreement.

FSB Staff Uncovers Illegal Arms Arsenal

· Officers of the Leningrad regional department of the Russian Federal Security Service (FSB) uncovered an illegal arms arsenal in Kingisep. A storage garage was found to contain a Kalashnikov assault rifle with a silencer, a Mauser K-96 pistol, 33 trotyl charges with an overall weight of 6.8 kilograms, five hand grenades, 23 detonators, two mine detonators, a mechanic time detonator, magazines to a TT pistol and an RPK machine-gun, about 1,500 cartridges to various armaments, and two hand-made radio controlled bombs. Also in the garage was a "killer set," which includes a hand-made rifle with a telescopic sight, laser targeting and a jungle butt, rifle legs and thin rubber gloves. The storage owner has been to jail twice. He is being charged under the Russian Criminal Code on the illegal purchase, selling and storage of fire arms and ammunition.


Ruble = 23.68/$1.00 (NY rate)

Ruble = 23.92/$1.00 (CB rate)

Ruble = 26/1 euro (CB rate)

Russia To Cut Oil Exports In April

· The Russian Fuel and Energy Ministry announced today that it will cut oil exports by 100,000 barrels a

day, beginning April 1st. The ministry said the decision was made to support the OPEC decision to reduce oil production by 2 million barrels a day and to increase deliveries to domestic refineries to guarantee an increase in their output. The announcement came after world crude oil prices jumped to their highest levels in five months last week, which boosted hopes for more foreign exchange earnings for Russia's impoverished, oil-dependent economy. Last Thursday, the price for international benchmark Brent crude shot up to $13.87 per barrel, up from the historic lows of under $10 a barrel. Low oil prices, primarily a result of the Asian financial crisis that started in the fall of 1997, have made an already difficult financial situation much worse for Russia, which relies on the export of its natural resources to survive. LUKoil's President Vagit ALEKPEROV opposed the reduction of oil production by Russia. He stated that Russia had reduced its oil output almost by half over the past ten years. Last year alone, Russia lost $6.2 billion because of the fall in world oil prices. Energy exports account for about half of Russia's export earnings and taxes on oil exports make up nearly a quarter of the federal budget's hard-currency revenues. The decision to reduce oil production by 18 percent from April 1, 1999 to March 2000 is expected to be finally adopted at the forthcoming OPEC conference, in Vienna on March 23rd.

Russia-WB To Reach Loan Term Agreement

· Deputy Finance Minister Oleg VYUGIN and First Deputy Prime Minister Yuri MASLYUKOV met with the head of the World Bank Moscow office, Michael CARTER on Thursday to finalize terms for a third loan that would go for financing structural changes in the economy. CARTER said the talks were good and constructive. Both sides will issue a joint statement on structural transformations in the Russian economic sector. VYUGIN said that statement, "is almost ready," with several outstanding issues that are to be coordinated with the Finance Ministry and Fuel and Energy Ministry. Energy Minister Sergei GENERALOV said that the issues involved raising the cash component in payments for gas and electricity and on regulating the tariffs of natural monopolies. CARTER, is expected to submit the coordinated version of the statement to the World Bank's Board of Governors in Washington on March 23rd. The World Bank's third loan to Russia will amount to $1.5 billion. Russia has already received $300 million in

When you need to know it as it happens




March 22, 1999

Intercon's Daily

the first tranche of this loan, and the second and third tranches are to total $500 million and $700 million.


Russia To Modernize Egypt's Air Defense

· The Russian Rosvooruzhenie company has won a tender to modernize the Egyptian Army's 50 Pechora air defense systems due to its, "cost-efficiency" principle. Also participating in the tender were Ukraine, China and Poland. Military adviser of the Rosvooruzhenie director-general Alexander LUZAN said the modernization process will begin this year. The modernization project provides for fitting out Pechora with many units of advanced semiconductor electron equipment, used now in the S-300P missile system. Improvement of air defense guided missiles of the system will help to increase the hitting zone of air targets from 17 to 25 kilometers. Rosvooruzhenie persistently implements its plan of enlarging services to update Soviet-made military hardware, previously exported abroad.

Transaero Plane Seized For Debts In London

· A Russian plane of the Transaero Air Company was seized Friday at the London Gatwick Airport due to a major debt of the air company to traffic controllers and navigating services of some Eurocontrol member-countries, according to a spokesman for the British Civil Aviation Department. The air company has debts to about a dozen countries, including Great Britain, Canada, Denmark and Iceland. The plane will be released only after all debts are paid. Active consultations of Transaero and Eurocontrol are underway. There will be direct negotiations this week in Brussels. Transaero said that everything is being done to settle the problem. However, the company will not make additional comments until the middle of the week.

Aeroflot-British Airways To Boost Cooperation?

· The Russian Aeroflot air company and British Airways are engaged in talks on boosting cooperation and are expected to sign a long-term agreement sometime this summer. However, a full-scale alliance of the two air companies is not round the corner. The companies on Thursday discussed the prospect for establishing a commercial alliance, which would envisage participation of the companies in common expenses and receipts at servicing one and the same transport destination, as well as mutual

maintenance of planes. According to British representatives, Aeroflot was earlier seeking the same partnership agreement with Air France, but failed. The foundation for cooperation between the British and Russian companies was laid early in February, when a strategic memorandum on expanding cooperation was signed. The main British Airways' competitors for signing a full-scale agreement with Aeroflot are British Midland and Virgin companies.

European Republics

Laar Instructed To Form Cabinet

· Estonian President Lennart MERI on Friday instructed chairman of the Fatherland Union and former prime minister Mart LAAR to form a new cabinet. The alliance of Fatherland Union, the Moderates, and the Reform Party, which has 53 out of 101 seats in the parliament, had selected LAAR as their choice for prime minister. He was confirmed by the parliament today in a vote of 53 to 48. He told the parliament, "We would like Estonia to be a European state in the 21st century. It cannot remain on the sidelines of global integration. We are moving towards the European Union which, in turn, is leading us toward NATO. Our firm goal is membership in the European Union by January 1, 2003." During his prior term as prime minister, LAAR was credited with leading Estonia's economy back to life after the Soviet collapse. He is expected to present a new cabinet to the legislature next week.

Gazprom Resumes Deliveries To Belarus

· The Russian gas monopoly Gazprom on Wednesday resumed gas deliveries to Belarus in the previous amount of 44 million cubic meters a day. Gazprom reduced these deliveries to 32 cubic meters per day at the end of February, because of Belarus' large debt of more than $250 million and lack of an agreement between Gazprom and Belarus for gas deliveries in 1999. The Belarus side insists that gas should be delivered to it at the prices existing on the Russian market, that is $35 per thousand cubic meters, not $50 as it was in 1998. Anatoly PODMYSHALSKY, official of the Gazprom Deliveries Department, in Minsk early this March that this problem could be settled only by a special injunction of the Russian government, which is unlikely, because all the taxes from Gazprom's export revenues were already included in the federal budget. Gaz

When you need to know it as it happens




March 22, 1999

Intercon's Daily

prom is ready to lower the gas price from $50 to $40 per thousand cubic meters provided the cash part of the payments was increased.

South Caucasus & Central Asia

Georgian President On Anti-Terrorist Decree

· Georgian President Eduard SHEVARDNADZE today, in light of the attacks in neighboring regions of Russia, issued a decree on battling terrorism. He called for a Caucasus-wide coordinated battle against terrorism. "The whole Caucasus must unite against terrorism. We need more than words, we need extraordinary measures." He added, "A lot has been said about those who protect terrorists, but what we should realize is that also in our own country there are people who support terrorists and that it is done completely openly. Georgia will not tolerate this." SHEVARDNADZE expressed support for Chechen President Aslan MASKHADOV, who survived an assassination attempt on Sunday. The Georgian President called him, "an honest fighter and the dignified son of his nation." SHEVARDNADZE, himself has survived two assassination attempts in 1995 and 1998, which government officials have alleged to be linked to forces within Russia. In reaction to the bomb blast in Vladikavkaz and the attempt on MASKHADOV, the Georgian President said that a special state commission would be created to introduce extraordinary security measures for the nation.

Mengarishvili-Oskanian Meet In Yerevan

· Georgian Foreign Minister Irakly MENAGARISHVILI and Armenian counterpart Vartan OSKANIAN met in Yerevan on Friday. The two Foreign Minister discussed the Abkhaz and Nagorno-Karabakh conflict, the Strasbourg meeting of the three Caucasus parliamentary speakers, and bilateral economic prospects. MENGARISHVILI said that while Georgia is not currently aspiring to become a NATO member, it considers the alliance, "an important component of the future European security structure" and intends to increase its participation in the Partnership for Peace program, RFE\RL Newsline reported.

OSKANIAN pointed out that Armenian-Georgian bilateral relations are an important part of regional stability in the face of growing polarization.

Russia Turns Green Over The Caspian Pipeline

· Russia voiced opposition to the Turkey-Turkmenistan underwater Caspian gas pipeline, claiming that such a facility may endanger the sea's ecological safety. Foreign Ministry Spokesman Vladimir RAKHMANIN said, "The Russian side had an invariably negative attitude toward construction of trans-Caspian underwater pipeline." He added that the pipeline could destroy the environment of the unique sturgeon. Moscow believes it premature to go ahead with construction before the littoral states agree on the legal status of the Caspian Sea and interstate compensation of damage to their marine environment in case of accidents. Russia expressed this view to both parties in a study, which indicate that volcanic eruptions could damage the underwater pipeline. The pipeline from Turkmenistan to Azerbaijan, Georgia and then Erzurum, Turkey, will be 2,000 kilometers long. Its cost is $2 billion, with a capacity of about 16 billion cubic meters a year.

New Chairman Appointed To Supreme Council

· Kazakhstan's President Nursultan NAZARBAYEV turned over his powers of chairman of Kazakhstan's supreme judicial council to Igor ROGOV at the council's meeting in Astana on Wednesday. He presided over the council for three years. The Constitution, amended last year, forbids the president from heading the council himself, but should appoint the council head. Prior to this position, ROGOV was a presidential adviser and engaged as a perfect in the judicial system. NAZARBAYEV said it will be extremely difficult to carry out political and economic reforms until judicial authorities in the country command respect. Two judges were arrested for crimes within the first two months of 1999. Altogether, seven criminal cases under which judges of different level are being charged are being investigated. The President also criticized the principle of appointing judges for life. He believes judges do not deserve this yet.

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

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When you need to know it as it happens