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

Tuesday, March 9, 1999

Russian hardline Communist and heads of the Russian State Duma security committee, Viktor ILYUKHIN today called for the bombing of terrorist bases in Chechnya in retaliation for the kidnapping of Russian Interior General Gennady SHPIGUN from the Grozny Airport. However, he urged to refrain from sending ground forces into the republic which may trigger a new war in Chechnya. "The year 1994, when troops were sent to Chechnya, must not be repeated," ILYUKHIN said. He added, "We must use all capabilities at the disposal of the state and see to it that the Russian Constitution be observed in Chechnya, which is a Russian region." ILYUKHIN believes that Chechen president Aslan MASKHADOV knows the whereabouts of SHPIGUN.

Movladi UDUGOV, assistant chief of the opposition Chechen Council, the Shura, which is headed by Shamil BASAYEV, has warned that any use of force by Russia in retaliation for the kidnapping will, "result "in unpleasant consequences for Russia and for individual politicians." UDUGOV said that the accusations against BASAYEV, believed to be involved in SHPIGUN's abduction, are groundless and, "dictated not by emotions, but by a carefully thought-out policy aimed at concentrating the main blows on the forces in Chechnya that are adhering to the course of independence, initiated by Dzhokhar DUDAYEV, the late Chechen president. Spokesman for Shura Yusup ERALIEV said, "We are ready for any provocation on the part of Russia and the Shura is preparing to call for total military mobilization. Reservists

Russian Federation

Politics

Bordyuzha Hospitalized With Heart Problems

· Russian President Boris YELTSIN's senior aide Nikolai BORDYUZHA was hospitalized Monday with a heart problem. BORDYUZHA, YELTSIN's chief of staff, head of the powerful Security Council and formerly head of the border guard service and a KGB agent, is staying in the Central Clinical Hospital, the same hospital where YELTSIN is recovering from a bleeding ulcer. Doctors say that the heart condition does not threaten his life. Oleg SYSUYEV, deputy chief of staff of the presidential administration, will fulfill BORDYUZHA's duties in his absence. The Russian Security Council is expected to meet on Wednesday to discuss situation around the abduction of Russian Interior Ministry representative Gennady SHPIGUN in Chechnya at Grozny airport on March 5th. The Security Council meeting will be led by Prime Minister Yevgeny PRIMAKOV.

Chechnya-Russia Fortify Borders

· Presidential press secretary Dmitry YAKUSHKIN said that Russian Interior Minister Sergey STEPASHIN will report on the situation and investigation surrounding the abduction of Russian Interior Ministry representative Major General Gennady SHPIGUN to President Boris YELTSIN. On the basis of the report, the President will make a decision on further actions to be taken. The matter will also be reviewed by the Russian Security Council on Wednesday. SHPIGUN's whereabouts are unknown and so far the kidnappers have not put fourth any demands. STEPASHIN on Sunday night described the abduction as, "another challenge of the gangsters both to the federal center and to the local authorities." He has ordered Russian troops to seal the Russian-Chechen administrative border.

Today's News Highlights

Russia

Western Banks To Meet

Russia Unable To Cut Supplies

European Republics

Lilthuania Delays Refinery Sale

Bottlenecks At Ukrainian Ports

South Caucasus & Central Asia

Russia Harbors Terrorist

Berezovsky's Removal Criticized

OSCE and Tajik Peace Process

Turkmen-Pakistani Power Line

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March 9, 1999

Intercon's Daily

have already been called up and 2,000 rifles were handed to them. They have blocked the borders." The Chechen Moslem leader regards the capture of the Russian Interior Ministry representative as a premeditated political provocation, aimed at isolating the republic from the outside world and making Russian-Chechen relations more difficult.

Economy

Ruble = 23.09/$1.00 (NY rate)

Ruble = 23.03/$1.00 (CB rate)

Ruble = 25.1/1 euro (CB rate)

Western Banks To Consider New Terms

· Western private banks holding defaulted Russian Treasury debt (GKOs, OFZs) will meet on Friday March 12th in London to consider new details of the Russian government's planned restructuring. The consultations will be held at the level of heads of departments for foreign investments. Prior to the day when the consultations begin the Russian Finance Ministry is expected to provide new information about the possibilities for broadening foreign investments into Russia's oil and gas sector. The Russian Finance Ministry is due to offer the investors a new list of companies in which holders of defaulted debt can invest replacement securities for the defaulted debt. The Ministry could not be reached for comment, but the list is said to include gas monopoly Gazprom, the country's biggest oil producer LUKoil, Surgutneftegaz, and Purneftegaz, the oil-producing arm of state oil company Rosneft. Deutsche Bank and Chase Manhattan Bank have already agreed to the Russian government's restructuring terms, while other holders, specifically Credit Suisse First Boston are demanding clarification of terms and a more advantageous exchange of GKOs.

Business

Gazprom Unable To Cut Supplies To Chechnya

· Following orders from the Russian Interior Minister Sergei STEPASHIN to seal off the border with Chechnya and cut all supplies, communication, air and rail connections, Russia's gas monopoly Gazprom has determined that it is impossible to cut gas supplies to Chechnya without cutting supplies to the neighboring republic of Dagestan, Interfax new agency reported. The Russian government on Monday said it may reduce or suspend energy and fuel

deliveries to Chechnya in response to the weekend kidnapping of Russian Interior Ministry's representative Major General Gennady SHPIGUN. The government's first response to the terrorist abduction was to withdraw all the remaining presidential representatives and federal government officials from Chechnya.

Hong Kong-St. Petersburg On Port Cooperation

· For the first time in history Hong Kong and St. Petersburg are considering business cooperation, primarily as two major sea ports. St. Petersburg governor Vladimir YAKOVLEV Monday addressed a seminar on "Business Opportunities in St. Petersburg." He said that both cities have identified areas of possible cooperation. He believes they can, "cooperate as the sea gates to the Russian and Chinese markets respectively." Other industries the Governor is promoting includes food, pharmaceutical, and high technology. He stressed that his city is ready to lease plots of land under concession deals for the construction of roads, terminals and other infrastructure facilities. The two sides also plan to discuss direct air service between St. Petersburg and Hong Kong. Today, YAKOVLEV and St. Petersburg bankers, industrialists and entrepreneurs are in Hong Kong at the invitation of its government council for trade development. The delegation is expected to meet Hong Kong administration head DONG Jianhua and have talks with port officials, brokers, and business representatives.

Tuesday Tid-Bit

Tarzan To Help Bring Down Russian Gang

· Ludwig "Tarzan" FAINBERG, a Miami man who operates a strip club called Porky frequented by alleged Russian mobsters, claims he is an insider in the Russian mob. He has agreed to admit his guilt and cooperate with authorities on a three-year-old investigation of illegal activities of the gang, known as Redfellas. The mobsters are thought to be involved in prostitution, drug trafficking, extortion, sales of bootleg cigarettes and liquor, and immigration fraud. A federal task force has centered its investigation at FAINBERG's club, where more than 11,000 conversations were secretly tape-recorded by undercover agents and confidential informants. FAINBERG and his daughter have entered the witness protection plan, fearing for their lives.

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European Republics

Lithuanians Postpones Decision On Refinery

· Lithuania's Economics Ministry announced Monday that the government has postponed the decision on the sale of a 33 percent stake in the Mazeikiai Nafta oil refinery due to unfinished financial arrangements. Head of the ministry's energy development department Jonas KAZLAUSKAS said, "We still need to work on the financial package related to the sale, so the decision will be delayed probably until mid-April." Lithuania was expected to award the sale of the refinery, which will also include the Butinge terminal and Birzai refinery, to Williams Lithuania, part of Williams Cos. of the US. The Dow Jones Newswire reported that the Memphis-based US group has been advising the Lithuanian government on the construction of the Butinge terminal.

Bottlenecks At Three Ukrainian Ports

· Bottlenecks at three Ukrainian ports have threatened to reduce the country's grain exports in March. In late February, Port of Illichivsk was at a standstill and serious delays are reported at Odessa, Kherson, and Mykolayiv. Approximately 4,000 railcars loaded primarily with milling wheat and feed wheat are jammed at three ports. Dmitry YAKUSHEV, a trader at Ukrayinska Prodovolcha Kompania said that the state railway company UkrZalliznytsia, "is not letting any more [railcars] come into these ports. Commodities are starting to deteriorate." Port authorities in Odessa, Kherson, and Mykolayiv do not allow commodities to be loaded directly from railcar to ship, which causes massive delays in unloading. The situation at Port of Illichivsk, Ukraine's largest port, has improved. Ukraine's grain exports in March are likely to be cut. Ukraine's January wheat exports rose to 270,400 metric tons from 209,800 in December and 96,000 metric tons in January 1997, The Journal of Commerce reported.

South Caucasus & Central Asia

Georgian Pres. Says Russia Shelters Terrorists

· Georgian President Eduard SHEVARDNADZE today repeated accusations that Russia is sheltering international criminals and terrorists. In Tashkent SHEVARDNADZE said, "I state with full responsibility that Russia shelters terrorists. It doesn't befit a democratic country." SHEVARDNADZE made simi

lar statements before, accusing Russia of hiding former Georgian security chief Igor GIORGADZE, who is accused of masterminding a failed assassination bid against the Georgian leader. At the same time, SHEVARDNADZE emphasized that he did not intend to sever ties with Russia because of GIORGADZE. Moscow has repeatedly stated that GIORGADZE was not in Russia, despite live interviews on television with GIORGADZE at popular Russian locations. Russia insists he is living in Syria. However, a few weeks ago GIORGADZE's father departed for a trip to Russia. He pointed out that he has had several telephone conversations with his son, indicating that he is near Georgia. SHEVARDNADZE said, "Terrorism is the evil of our time. All the countries of our planet should unite in the struggle against this evil and pool their efforts in establishing peace and stability. Oddly, terrorists unite faster than we do. I am nursing an idea to conclude a treaty, or a convention against terrorism within the CIS framework." He stressed, "one should foremost get rid of the terrorists hiding on the post-Soviet territory." On Thursday, Russia deported Valery GABELIA to Georgia, who is charged with treason and financing both the failed assassination attempt on SHEVARDNADZE in February 1998, and the uprising in western Georgia in October of the same year. The Caucasus Press on Monday quoted Akaki ELIAVA who said that GABELIA did not play any role in the mutiny led by ELIAVA.

CIS Executive Secretary's Removal Criticized

· Uzbek President Islam KARIMOV met his visiting Georgian counterpart Eduard SHEVARDNADZE in Tashkent today where the two presidents discussed bilateral cooperation and problems of a regional and international character. Both Presidents criticized the methods by which Boris BEREZOVSKY's removal from the Commonwealth of Independent States (CIS) Executive Secretary was brought to the attention of Russian President Boris YELTSIN. According to KARIMOV, "it would have been much easier if chairman of the CIS Council Boris YELTSIN had met with BEREZOVSKY and just told him `you do not suit me.' I think that Boris Abramovich [BEREZOVSKY] would have immediately tendered his resignation." The Uzbek President raised several questions: "why would the [Russian] State Duma and others intervene in this issue? What does the Duma have to do with the executive secretary's fate. And what if the

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parliaments of all other CIS members start bothering with the issue?" SHEVARDNADZE stressed that he fully shares KARIMOV's view. He noted that, "The

post of the CIS executive secretary is not that high-ranking to make so much noise. One could have resolved the issue calmly, at the upcoming CIS summit." He compared this process to Politburo times when members voted on whether to pardon or punish representatives. SHEVARDNADZE expressed displeasure at the fact that BEREZOVSKY's resignation had not been coordinated with CIS heads in advance. In his view, this post should not be necessarily held by a Russian representative. KARIMOV emphasized that the relation between Russia and other CIS states will depend on the successor to Russian President Boris YELTSIN whose term of office expires in 2000. "Russia's relations, not only with Uzbekistan, but also with other CIS states will greatly depend on who will stand at Russia's helm." He noted that member states will be closely watching election campaigns. KARIMOV said he hopes to Russia will respect Uzbekistan as an equal partner.

OSCE To Review In Tajik Peace Process

· The Organization for Security and Cooperation in Europe (OSCE) has said it is committed to the Central Asian region and will review in the peace process in Tajikistan. Chairman of the OSCE permanent council, according to Ambassador Kay EIDE, arrived in Dushanbe to familiarize himself with the situation in the republic and to confirm the commitment by the OSCE to the peace process and democratic changes in the country. According to the ambassador, the OSCE decided to appoint a OSCE special representative in Central Asia. The OSCE will render above all assistance, both to Central Asia as well as to Tajikistan, in establishing political stability, observance of human rights, respect for rights of national minorities, creation of non-government institutes as well as strengthening of legislation and in holding just elections. The OSCE believes that Tajik parliamentary elections should be held in 1999, in which OSCE will help monitor and provide assistance. The chairman will be received by Tajik

President Emomali RAKHMONOV this afternoon.

Turkmen-Pakistan Sign Power Line Agmt

· Turkmenistan and Pakistan signed a memorandum of intention last week to build a power line to transmit surplus Turkmen electricity through Afghanistan. Reuters reported that the cost of the project to build a 1,150 kilometer (719 mile) line with an annual capacity of 1,000 megawatt-hours is estimated at $290 million. An energy and industry ministry spokesman said, "The energy transmitted annually will cover the deficit Pakistan will experience by the year 2005." Research institute Turkmenenergoproyekt and Turkish firm STFA are preparing the feasibility study for the electricity project. STFA, authorized by the Turkmen government to operate the country's electricity exports, is in talks with energy companies from the US, Japan, and South Korea to form a consortium to build the transmission line. Turkmenistan generated 9.2 billion kilowatt-hours of electricity in 1998.

Kyrgyzstan Suspends Two Commercial Banks

· Kyrgyzstan's National Bank (NB) has partly suspended the former Soviet republic's two major commercial banks for violating the country's financial legislation, its chairman Ulan SARBANOV told reporters today. Maksata was put on probation for six months and a provisional administration was appointed to Insana until June, SARBANOV said. "We had to do that because both banks had been carrying out financial operations, violating the republic's current legislation," which could have brought about a "deterioration in the financial situation in the country," he said. Partial suspension of financial activities of the banks will help keep them from insolvency and protect the country's banking complex from systemic crisis. "Last year's events, when Russia's crisis was one of the key factors influencing the situation in Kyrgyzstan, have led to pre-crisis trends in the banking system, and it will take great efforts to remove them," he said. The NB will prop-up the banking system this year.

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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