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, June 22, 1999

Russian Federation

Politics

Russia To Help Disarm The KLA

· Russian Foreign Minister Igor IVANOV said the immediate task is to mobilize resources and restore Yugoslavia. He said, "As a result of the war, the republic's economy and life-supporting systems were damaged badly...It is necessary to restore supplies of electricity, gas and water in Yugoslavia to let it get prepared properly for the winter." He noted to make these efforts more effective, Russia will take all necessary efforts to secure the disarmament of the Kosovo Liberation Army (KLA). IVANOV added that, "On Saturday, on Russia's initiative, the question about the disarmament of the Albanian separatists was raised in the UN Security Council. A provision on the disarmament of the KLA was included in a Security Council resolution on our initiative. It must be fulfilled."

Duma Overrides Presidential Veto On Banking

· The Russian State Duma today overrode a presidential veto on the law amending the federal law on banks and banking operations. The law was passed by the Duma in April and approved by the Federation Council in May. An amendment to it said that banks can establish correspondent relations with foreign banks registered in foreign offshore zones under a procedure set by the Central Bank. President Boris YELTSIN contends that the, "current legislation does not contain either the definition of offshore zones or their signs of inventory, and does not define the competence of any organ to legally define them." He added, "the sphere of effect and application of the federal law remains uncertain." The President believes that, "for effective implementation of this federal law, it is necessary to entitle a state organ with the right of determining an inventory of offshore zones, within the framework of

which differentiation of foreign banks registered in them would be conducted." The law will be sent to the Federation Council for further consideration.

Theater Director Kucher Murdered

· Prominent Russian theater director Igor KUCHER was beaten to death in his apartment in an apparent contract killing. Investigators report the director was struck several times and that his body was discovered Sunday night. KUCHER was a well-known director who was credited with leading the artistic revival of Theater on Taganskaya.

Chechen Security Chief Escapes Attack

· Chechnya's National Security Chief Ibrahim KHULIGOV narrowly escaped an attack on his home Monday by unidentified gunmen. He said that he hid in his bedroom, when the attackers opened fire with rocket propelled grenades and automatic weapons. Guards outside KHULIGOV's home returned fire. The Security Chief speculated that the attack was linked to a recent crackdown on criminal gangs in the region, in which several gang members were arrested and a stash of weapons seized.

Economy

Russian Shares Heat Up For Summer

· Shares on the Russian stock market are rising to levels not seen since before the crash in August, 1998. On Monday, the RTS index jumped 6.7 percent to another high for the year of 129.28, the Financial

Today's News Highlights

Russia

Ford To Build $150M Plant

Guide To Russian Prison Life

European Republics

Belarus-Lith Meet Over Debts

Power Linkage Tender Canceled

South Caucasus & Central Asia

Rus. Violates Georgian Airspace

Mitsubishi To Build New Wharf

Embezzelment In Defense Min.

Japan Grants Uzbek 470M Yen

Politics-Economics-Business

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Tuesday

June 22, 1999

Intercon's Daily

Times reported. Investors have been encouraged by news that the International Monetary Fund (IMF) will resume lending as early as the second half of July. The rise in global oil prices has also boosted Russia's energy sector and the economy as a whole. Shares in the United Energy Systems of Russia (UES) as well as companies with ADRs have performed well. James FENKNER, chief equity strategist from Troika Dialog, after receiving a warm reception in London said, "People no longer thought I was crazy to talk about Russia. I wasn't untouchable anymore." He added, "Everything points to a continued upward movement." However, Alexei ZABOTKINE a strategist with United Financial Group warns, "There is still potential for volatility in both directions." He points out that after the Summer, political uncertainties surround parliamentary elections could negatively influence the market.

Ruble = 24.23/$1.00 (NY rate)

Ruble = 24.23/$1.00 (CB rate)

Ruble = 25.23/1 euro (CB rate)

Russia To Submit Loan Proposal To IBRD

· First Deputy Prime Minister Viktor KHRISTENKO today said that Russia is prepared to submit new loan proposals and cooperation programs to the board of directors of the International Bank for Reconstruction and Development (IBRD). He said the programs' aim, "will be made not so much on budget-replacing [loan] as on investment projects." KHRISTENKO outlined possible loan requests, including a $300 million loan for a regional finance reform, a $400 million loan for the development of the federal treasury system, and another $400 million loan for highway renovation. The government is also considering applying for loans for renovation of water supply, sewage, and heat supply networks, and for safety of coal-mines, at $150 million each. The Economics Ministry projected a total $3.24 billion to be asked from IBRD in 1999.

Business

Luzhkov Bitter Over TV-6 Ownership

· Moscow Mayor Yuri LUZHKOV lashed out at the owner of Television Channel 6, business tycoon Boris BEREZOVSKY. Addressing the world congress of the Russian press, LUZHKOV said he regretted that TV-6 channel had ended up in the hands of BEREZOVSKY, who he said, "was not

objective." He added that BEREZOVSKY bought the TV-6, "to solve tasks that are different from those of the state and society." According to LUZHKOV, BEREZOVSKY represents those people who are trying to, "usurp power for their own use." The Russian media was a powerful influence in the presidential election of 1996. LUZHKOV is widely viewed as a presidential hopeful for the 2000 election. TV-6 chief Eduard SAGALAYEV promised that the channel would not be anti-LUZHKOV. The Mayor also claims that the Kremlin has launched a campaign against him. He said the reason behind the campaign is his, "objective and transparent" position on all that is happening in Russia.

Ford To Start Building Factory In Vsevolozhsk

· Ford Motor Company on Monday announced plans to start building a $150 million factory in Vsevolozhsk, outside St. Petersburg in July, 1999. The ZAO Ford Vsevolozhsk will be built on a plant formerly operated by engine manufacturer Russky Diesel. According to a Ford statement, the plant will have an initial capacity of 25,000 Ford Focus cars a year with production starting in the first half of 2001. Deputy Economics Minister Sergei MITIN, speaking at an international seminar on the production of car spare parts in Russia, said Ford will help Russia set up a high-tech assembly line for car-parts production. The announcement was made following a meeting of Ford executives and Prime Minister Sergei STEPASHIN, where the two sides reached an investment agreement. Ford CEO Jacques NASSER said, "A return to Russia as a producer is a very important step for Ford in reaching our goals of long-term development in Russia, and this factory will render an important service in understanding and following Russian consumers' needs." Russia's second biggest car-maker GAZ produced a Ford model in the 1930s, under the name GAZ. STEPASHIN said, "Ford cars are famous not only in Russia, but in the entire world. In the past, we could see them in Moscow only on postcards or at the US embassy. But when in the early nineties Fords began to be sold in Russia, we found out that it is indeed a good and reliable car." The plant, a joint venture between Ford and Banking House of St. Petersburg, will have a potential capacity of 100,000 cars a year. Russia and Ford may sign the deal within the week. Before signing the investment agreement, the sides will have to decide how many domestically-produced

When you need to know it as it happens

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Tuesday

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Intercon's Daily

components will be used in the production process. In addition, Ford plans to make components in Vsevolzhsk and sell them in Europe.

Tuesday Tid-Bit

Pasko Publishes Guide To Russian Jails

· Naval Officer and military journalist Grigory PASKO, who has spent over 18 months in jail, has published a guide to Russian prison life, which was published in Russian newspapers on Friday as "Jail University." PASKO is awaiting trial on spying charges because he filmed reports for Japanese television that accused the Russian Navy of dumping nuclear waste. He advises Russians, "Don't panic and try to keep your spirits up, even if they beat your back off with rubber sticks." He also has practical advice, "Remember, if you land in jail rarely get out in under half a year, so you have to be prepared...It's worth having your own mattress and blanket ready. Our prisons are poor, and you're unlikely to get anything decent." He also recommends bringing clothes, a spoon, a mug, a bowl, a shaving kit, sewing needles and their own food."

bidders," MALDEIKIS said. "We would like to raft a new tender without delays and I expect it to be relaunched within the next two months," he added. The previous government had said that nine potential bidders were eyeing the project, including UK National Power, Enron Europe and Hadslund. The deadline to submit the bids was Monday. The tender terms called for the winner to construct a 40 kilowatt power grid with no less than a 1,000 megawatt capacity. The bidders will be required to have international investment ratings and experience in cooperation with Polish energy company Polskie Sieci Elektroenergetyezne and Germany's Vereinie Energiewerke Aktien Geselschaft.

South Caucasus & Central Asia

Russian Jets Violated Georgian Air-Space

· According to a Georgian Foreign Ministry statement, "on June 18th, four Russian MiG-29 fighter jets entered the Georgian airspace without permission of Georgian authorities and left it in 37 minutes." Georgian Deputy Defense Minister Grigol KATAMADZE said four Russian MiG-29 fighters enter without permission from Georgian authorities and continued to invade Georgia's airspace, despite orders to turn back. According to KATAMADZE, the Russian planes flew from Millerovo airport in Russia's Rostov region to Erebuni airport in Armenia. However, the Foreign Ministry did not provide any documentary evidence to prove the fact and did not say whether the air defenses were put on alert and military aircraft were scrambled to force the fighters to land. The ground for the protest is radio interception of alleged talks between pilots. Georgian Deputy Foreign Minister Merab ANTADZE invited Russian ambassador to Georgia Feliks STANEVSKY to the Georgian Foreign Ministry and handed him the Foreign Ministry's note protesting the violation. This is not the first time that Russian aircraft has violated Georgian airspace. On February 26th, five MiG-29 fighter jets and one AN-12 military cargo plane crossed Georgian airspace on the way to Armenia. Similarly on March 6th, another AN-12 military cargo plane flew from Taganroges in Krasnoyarsk to an Armenian airport. Despite Georgia's protests, Russia continues to disrespect Georgian sovereign airspace. Bilateral ties have been complicated between Georgia and Russia over the presence of Russian peacekeepers which support separatists in Abkhazia, the

European Republics

Minsk-Vilnius Discuss Bilateral Relations

· Belarus Prime Minister Sergei LING is meeting in Vilnius with his Lithuanian counterpart Rolandas PAKSAS to discuss bilateral relations, primarily economic problems. According to Lithuanian estimates, Minsk owes Vilnius some $100 million for electricity supplies. Although accords were reached earlier on the procedure of repayment of Belarus' debt with goods, Lithuania is finding the process too slow and not suitable to its needs. Vilnius claims that Belarus is no hurry to demarcate the state border with Lithuania and is well behind the timetable approved by both countries. LING is also scheduled take part in the opening ceremony at the 4-day exhibition of Belarus goods in the Lithuanian capital.

Lithuania Cancels Power Linkage Tender

· Lithuanian Economics Minister Euenijus MALDEIKIS announced Monday that a tender for the construction of power lines linking the country's electricity grid to Western Europe was canceled due to a problem with the rules. "The terms were not clear enough and we want to draft another tender which would create more acceptable terms for potential

When you need to know it as it happens

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June 22, 1999

Intercon's Daily

illegal withdraw of billions-of-dollars-worth of weapons following the collapse of the Soviet Union, the occupation of four Russian military bases on Georgian territory, and the new information connecting high level Russian authorities to the planners of the averted coup d'etate, discovered by Georgian authorities in May. Russia has also criticized the expansion of NATO, to which Georgia has expressed an interest in joining.

In addition, KATAMADZE denied rumors that the Georgian Air Force is about to be liquidated. He said, "I can tell you our air defense has enough force and equipment. We appeal to Russian military officials not to repeat such acts." Georgia has 10 military aircraft and four helicopters at its disposal. Intercon sources report that parliamentary chairman of the defense and security committee Rezo ADAMIA pointed out the US has allocated $18 million towards the cost of building radar and other navigation facilities that will form the core of Georgia's air defense system.

Mitsubishi To Invest $65 Million In Georgia

· Japan's Mitsubishi Corporation will spend $65 million in building a new cargo wharf at the port of Poti on Georgia's Black Sea coast. In a company press release, Mitsubishi said that an agreement between the Georgian government and Mitsubishi for the building of the wharf was signed last week. Head of the port of Poti Dzhemal INAISHVILI said, "Construction could begin in November or December this year an be completed in two years." The length of the quay will be 350 meters and it will have modern Japanese equipment, including four cranes, two of 40 tons and two of 20 tons. About one million tons of cargo will be processed at the quay annually.

Azeri Defense Min. Accused Of Embezzlement

· Azeri parliament member Metleb MUTELLIMLI has charged the Defense Ministry, including Defense Minister Sefer ABIYEV, with embezzling large sums of money from the ministry. The Defense Ministry has vehemently denied the charges. This is not the first time the Defense establishment in Azer

baijan has been alleged to be involved in corruption. Investigators in the past discovered that former defense minister General MAMEDOV fled to Moscow with $84 million from the Azerbaijan Defense Ministry's coffers.

Japan To Grant Uzbekistan 470 Million Yen

· The Japanese Foreign Ministry announced that Japan will extend 470 million yen in grants to Uzbekistan to help increase food production. Japanese Ambassador to Uzbekistan Koichi OBATA and Uzbekistan's Deputy Chairman Bakhtiyer ALIMDZHANOV, who also serves as minister of agriculture and water resources, today exchanged documents on the grant in Tashkent. The Uzbekistan government had requested the grant-in-aid to purchase agricultural machinery to increase production of rice and wheat, the country's main food products. Uzbekistan has been politically stable under the leadership of President Islam KARIMOV since its independence in December 1991, but it still faces problems shifting into a market economy from a single industry of cotton production. Uzbekistan is promoting self-sufficiency in energy and food as the main pillars of its economic policy. Japan will assist Uzbekistan improve its self-sufficiency rate for food from its present level of 70 percent.

Kubis Resigns As Tajikistan UN Special Rep.

· UN Secretary-General Kofi ANNAN's Special Representative for Tajikistan, Jan KUBIS, submitted his resignation, the UN confirmed on Thursday. KUBIS, who is about to be appointed Secretary-General of the Organization for Security and Cooperation in Europe has served as Special Representative for Tajikistan since June 15, 1998. Effective Monday, he has given up the post. ANNAN expressed his gratitude to KUBIS for his dedicated service to the UN and to the cause of peace in Tajikistan. KUBIS worked to keep the peace process moving ahead, despite difficult circumstances. The UN chief looked forward to working closely with him on this and other issues in his new function. Consultations are under way concerning his successor.

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

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