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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Friday, March 5, 1999

Russian Federation


Yeltsin Sacks Berezovsky From CIS Post

· Oil-to-media tycoon Boris BEREZOVSKY in his battle against Prime Minister Yevgeny PRIMAKOV for influence in Kremlin appears to have lost his political strong hold. Late Thursday, Russian President Boris YELTSIN proposed to Commonwealth of Independent State (CIS) leaders sacking BEREZOVSKY from his post as CIS Executive Secretary. BEREZOVSKY was relieved of his duties, "for regular actions, overstepping powers of CIS executive secretary, and for failing to fulfill instructions of the chairman of the Council of the Commonwealth heads of state." YELTSIN named Ivan KOROTCHENA of Belarus, the previous executive secretary, as the acting replacement, but he will have to be approved by the CIS countries.

YELTSIN did not elaborate on the sacking, but the explanation can be found in the words of PRIMAKOV, who early this year said that BEREZOVSKY was an international official and should work to improve the CIS, rather than criticize the government of one of the CIS members. The conflict between PRIMAKOV and BEREZOVSKY erupted this year when the tycoon-controlled media launched an unprecedented discrediting attack on the Prime Minister. Days later Russian police cracked down on companies linked to BEREZOVSKY, Sibneft, LogoVaz, ORT, and Aeroflot. YELTSIN's son-in-law Valery OKULOV, who heads the Russian Aeroflot airlines, sacked two of his deputies who were "BEREZOVSKY's men." He is also accused of bugging the president's family and other senior Kremlin officials. Earlier this week BEREZOVSKY's Nezaisimaya Gazeta published allegations of ministerial corruption. PRIMAKOV today commented that, "any executive secretary must act with two rules in his mind. The first, he must know

that he must always act with the permission and on instruction from the chief person in the CIS, who is Chairman of the Council of heads of state, Boris Nikolayevich YELTSIN in this case. Secondly, any, I repeat any, executive Secretary of the CIS must not intervene in the internal affairs of any state member of the Commonwealth, in their domestic affairs, to say nothing about criticizing the government and voicing critical remarks about any person at all in the leadership."

BEREZOVSKY shot back that it is not YELTSIN's sole authority to fire him. He said that the Council of the CIS heads of state appointed him to this post, and only the Council of CIS heads may release him of this post. BEREZOVSKY said, "if at least one president of the Commonwealth of Independent States expresses dissatisfaction with my work as CIS executive secretary, I'll step down." Technically, if any country of the CIS is against BEREZOVSKY's dismissal, he cannot be removed, but no nation is likely to choose BEREZOVSKY over YELTSIN. Azerbaijan and Georgia have expressed surprise at YELTSIN's decision. BEREZOVSKY was told to cut short his CIS tour; he was meeting with Azeri President Geidar ALIYEV today in Baku.

BEREZOVSKY has been sacked from other government positions, including a post on Russia's Security Council advisory board in late 1997, but retained his influence on the Kremlin because of his close ties with YELTSIN's daughter Tatyana.

Today's News Highlights


Financial Pyramid Investigated

Gazprom's Pipeline Plans

European Republics

Estonian Elections, Coalition?

South Caucasus & Central Asia

Georgia Approves Budget

Suspect Deported To Georgia

2nd Oil Consortium Pulls Out

Tajik-Uzbek Powerline Damaged




March 5, 1999

Intercon's Daily

BEREZOVSKY was said to have been behind the firing of former prime minister Sergei KIRIYENKO and his government because of a proposed campaign against the so-called "oligarchs" and other hiring decisions. It is unclear whether BEREZOVSKY will surface again in the government. YELTSIN's actions to assert his authority may signal a more widespread purge of the government. Despite Kremlin denials, many political analyst believe that Deputy Prime Minister Yuri MASLYUKOV and Gennady KUILK, both close to the Communist Party and foes of BEREZOVSKY, are vulnerable. YELTSIN has often sought to balance different factions, firing officials in clusters to keep rivals unstable.


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Pyramid Scheme Investigated In St. Petersburg

· Head of St. Petersburg's department for the struggle against organized crime Anatoly OLEINIKOV said that an investigation into the activities of International Innovation Center (IIC) for a gigantic financial pyramid has been launched. Igor FISCHER, head of the St. Petersburg branch of IIC, was arrested by the local police on charges of elements of the crime, mentioned in Article 159 of the Russian Penal Code. According to preliminary information, thousands of people in 20 regions of Russia were involved in its activities. IIC required people who wished to join it to pay an entrance fee of $2,200. Then members to earn their money back must recruit at least three people for membership among their

relatives and friends, in order, "to create an atmosphere of unity and confidence." Prior to the arrest, IIC held some 30 so-called presentations in the best palaces and hotels of St. Petersburg, which included dinners and confidential conversations with newcomers. IIC promised incomes running up to $27,000 a month and gave the names of the people, well-known in St. Petersburg, who were allegedly members of IIC. Members never complained of being deceived, because they were admitted to IIC on condition of strict confidentiality. The activities of IIC have been stopped in Perm and Voronezh, but it continues to function in Moscow and a number of other regions. IIC, registered in Moscow, sent suitcases full of money, collected in the regions, to its headquarters in Moscow. IIC was created by the organizing committee of the International League of Independent Experts in the Sphere of Intellectual Technologies and Social Innovations. In its turn, it was created by the International Union of Kurdish Public Organizations, the Continent International Academy of Sciences, and the International Federation of Spiritual Unity of Russia's Nations. The organizing committee includes well-known actors, scientists and pilot-cosmonauts. According to the investigation, those people stated they had no idea of the real character of IIC's activities.

Banks Split Over GKO Restructuring Terms

· Western Banks involved in negotiations with Russia over $15 billion of Russia's defaulted domestic bonds are split on whether to accept Russia's terms or press for a better restructuring deal. Deutsche Bank and Chase Manhattan Bank, which account for between 30 and 40 percent of foreign GKO holdings, have agreed to Russia's terms before all the details had been provided. Nomura and Bank of America are hoping to reopen talks with the government to negotiate better terms. Credit Suisse First Boston (CSFB), which accounts for up to 40 percent of foreign holdings of GKOs, has refused to accept the offer saying that the Russian side, "has not provided sufficient information to permit CSFB to assess the Russian sovereign restructuring," the Financial Times reported. The remaining banks seem more inclined to accept Russia's terms. The emerging consensus is that the legal and administrative costs of continuing to seek new terms will outweigh any potential benefits. One banker said, "We are dissatisfied with the terms of the deal, but we want to move

When you need to know it as it happens




March 5, 1999

Intercon's Daily

on rather than to bang our heads against a brick wall." The Russian government has extended the deadline for foreign investors to accept its terms until April 30th.


Gazprom's Multiple Pipeline Plans

· Gazprom board chairman Rem VYAKHIREV on Thursday said, Russia is strictly committed to the Yamal-Europe trans-continental gas pipeline's construction schedule. "Yamal-Europe will give an opportunity to ease load on the existing gas pipelines connecting Russia with the western part of the Old World...We shall no longer depend on one or two routes." VYAKHIREV admitted that, "it was a major mistake of the energy sector in the former Soviet Union to concentrate export gas pipelines in one direction—via Ukraine." Transit costs across Ukraine are high for Russia. According to Gazprom experts, the first section across Belarus up to the Polish border will be constructed this year. The construction of the first line of the Yamal gas pipeline estimated at about $1.5 billion, is to be completed in autumn 1999. He stressed that, "Natural gas has turned out to be a stable factor and a source of money for Russia's budget."

VYAKHIREV also expressed hope for the implementation of the Blue Stream project together with its Italian partners. This plan is for a 400-kilometer pipeline to be built along the Black Sea bottom from Russia to Turkey. The board chairman expressed gratitude to the Italian companies ENI, SNAM and Saipem, which are likely to be participants in signing the final contract on the project. "Italian companies have actively joined work on the project and should actually ensure its funding," VYAKHIREV noted.

Independent Internet Gazeta Launched

· A group of Russian reporters and editors has launched the first Russian-language Internet daily newspaper, promising to update the dedicated Web site throughout the day with news, analytical comment, and links to sites with additional information on featured stories. Organizers say their site is not linked to any political party or movement, and was established with the help of the independent Effective Politics Foundation. The first issue carried an in-depth report on the growing Chinese community in Moscow, with references to Russian Interior Ministry

documents and state statistics. The new site, which promises free access, is located at www.gazeta.ru. Gazeta means newspaper in Russian.

First Step In China-Russia Air Conditioner JV

· The Chunlan Group, a leading Chinese air conditioner manufacturer, became the first enterprise to export related production equipment to Russia. The agreement between Chunlan and the energy subsidiary of one of Russia's state-owned machinery plant calls for the two sides to jointly build a room air conditioner manufacturing facility with an annual production capacity of 200,000 units. The project will require an estimated total investment of $20 million. The agreement calls for Chunlan to provide production equipment, in addition to its designing and manufacturing expertise. The two sides plan to develop markets in Russia and other nations of the Commonwealth of Independent States. Chunlan and its Russian partner are also exploring the feasibility of establishing a cooperative venture to produce other household appliances.

European Republics

Coalition Gov't Likely For Estonian Parliament

· Estonians on Sunday March 7th will elect the 101 members of the parliament, in the nation's third parliamentary election since independence in 1991. According to the polls, the liberal market-oriented Reform Party and left-wing Center Party are leading the race, with 15 percent and 17 percent respectively. It is likely that neither will win enough seats to form a government by itself. The Center Party led by former prime minister Edgar SAVISAAR, has reached an agreement with the largest rural party, the Country People's Party, led by Arnold RUUTEL, the last Soviet-era leader. The Country People's Party prior to the election had the support of 10 percent of Estonians, while the Moderates had 9 percent and Pro Patria Union received 8 percent, the RFE\RL Newsline reported. Former prime minister Toomas Hendrick ILVES's People's Party is running jointly with the Moderates. The Center Party and Country's People Party appeals to citizens who feel they have been left behind by reforms, mainly pensioners, farmers, and ethnic Russians. SAVISAAR has promised to bridge the gap between the rich and the poor and to introduce a progressive income tax system to replace the current 26 percent flat tax. The Reform

When you need to know it as it happens




March 5, 1999

Intercon's Daily

Party aims at reducing Estonia's taxation, proposing to abolish corporate tax altogether. It hopes this will increase employment and double the average monthly wage from 4,000 to 9,000 kroons ($630). All major parties favor Estonia's entry into the European Union (EU) and retaining the currency board, whereby the kroon is pegged to the Deutsche Mark. Estonian President Lennart MERI predicted on Thursday that his nation will be ready to join the EU by 2003.

South Caucasus & Central Asia

Georgian-IMF Agreement One Step Closer

· The Georgian parliament on Thursday passed the first reading of the 1999 budget in a vote of 133 to 35. The budget proposed by the government provides for a deficit of 369.4 million lari ($165,948) with spending of 1.23 billion lari and 856.6 million of revenues. The Citizen Union deputies, led by chairman Zurab ZHVANIA, said the budget was not the best, but was realistic for the current economic situation, in the aftermath of the Russian crisis. The Labor Party was against the budget. Leader of the Labor Party Shalva NATELASHVILI said, "Huge sums are spent to keep bureaucratic management. We do not need such a budget." The budget has also received criticism from the International Monetary Fund (IMF). This version, however, had been revised with tougher spending targets in line with IMF recommendations. Previous draft budgets forecast spending of 1.3 billion lari and a deficit of 399 million lari. A second budget reading is scheduled for next week. The first approval is a positive sign in Georgia-IMF negotiations. The IMF has also urged Georgia to increase tax collection.

Assassination Suspect Deported To Georgia

· Former prefect of Georgia's Marneuli Region Valery GABELIA was flown from Moscow to Tbilisi on Thursday. GABELIA, a supporter of Zviad GAMSAKHURDIA, was detained by Moscow police in February. The Georgian Prosecutor General's Office has accused GABELIA of helping to organize the failed assassination attempt on President Eduard SHEVARDNADZE in February 1998.

North Absheron To Pull Out Of Caspian Project

· BP Amoco led, North Absheron Operating Company is the second foreign oil consortium to pull out of Azerbaijan. The company had planned to invest $2 billion in Azerbaijan. The oil consortium plans to close after test wells in its offshore contract area failed to yield commercially viable reserves. The third and final test revealed some crude oil and gas condensate, but even combined with the first two drillings it was not enough. BP Amoco had a 30 percent stake in the project, Unocal Corp. had 25 percent, Japan's Itochu a 20 percent share, Saudi Arabia Delta held a 4.5 percent and Azeri state oil company Socar owned a 20 percent stake. Low oil prices, about $10 per barrel, is a blow to Caspian projects because of high start-up and infrastructure costs. A $3 billion Pennzoil led Caspian International Petroleum Co. closed in January. Out of the other 14 consortium contracts the Azeri government has signed, Reuters reports that only one is actually producing oil, the $11 billion Azerbaijan International Operating Co., also led by BP Amoco.

Tajik-Uzbek Power Line Damaged

· The power transmission line linking Tajikistan and Uzbekistan's power grids has been tempered with, making it inoperable. Unidentified persons removed angle pieces from two power transmission line supports in the area of Tajikistan's Tursun-Zade district bordering on Uzbekistan. The Barki Tojik (Light of Tajikistan) state joint-stock company's spokesman said this is not the first time transmission lines have been deliberately damaged. In January 1999, alone Tajikistan exported to Uzbekistan 202 million kilowatt-hours of electricity to a sum of $5.1 million, while importing 214 million kilowatt-hours of electricity worth $5.3 million. The power transmission line has a particular importance for Tajikistan in the Winter-Spring period when there is a shortage of electricity in Tajikistan, which affects the functioning of industrial enterprises, above all, energy-consuming Tajik Aluminium Plant. The incident is to be investigated by a commission including representatives of Tajik law enforcement bodies.

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

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