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

Thursday, July 15, 1999

Russian Federation

Politics

Investigation Surrounds Kremlin Officials

· Prosecutors in Geneva on Wednesday opened a criminal money-laundering case against top Kremlin official Pavel BORODIN, his wife, and 22 other high ranking state officials. No charges have been filed yet, but the prosecutor's office is investigating claims of money-laundering into Swiss bank accounts by reviewing how these bank accounts were used. The Prosecutor's office declined to name the other officials, but Investigating officer Daniel DEVEAU confirmed that the suspects do not include anyone with the last name YELTSIN, DYACHENKO, or BEREZOVSKY. He said the office has no plans to question or seek extradition of any Russian officials. Swiss Attorney General Carla DELPONTE has come under fire for getting too involved in Russian politics. She and former prosecutor general Yuri SKURATOV shared information on various cases, most notably an investigation into the Swiss-based construction firm Mabetex. In March, Russian prosecutors seized documents from BORODIN's office related to Mabetex's renovation work. In April, a search of his apartment uncovered wire transfers to personal accounts in Switzerland, Liechtenstein and the Bahamas totaling $100 million. This week Russia's tax police raided a Moscow office of security firm Sokol-UNS and confiscated seals and letterhead from Mabetex. BORODIN could not be reached for comment. His office had not heard the news from Switzerland, but noted that BORODIN had left on a planned vacation. News of the investigation was broken by a Swiss newspaper and carried by NTV in its evening broadcast and The Moscow Times. However, wire services like Interfax and Itar-Tass failed to report on official allegations of money laundering that reach into the Kremlin itself.

Anti-Semitism On The Rise; Director Stabbed

· Moscow Prosecutor's Office is investigating the attack against Leopold KAIMOVSKY, the Director of the Jewish cultural center, in which a youth stabbed the director in the knee, thigh, shoulder, face, and stomach. KAIMOVSKY is in critical condition after surgery at Moscow's emergency Hospital No. 36. Nikita KRIVCHUN, who stabbed KAIMOVSKY, said he was not acting for any political group. He is likely to be charged with attempted murder motivated by ethnic, racial or religious hatred. Russia has been plagued by a wave of attacks against synagogues, including bomb blasts in May near the Choral Synagogue and another Moscow synagogue. Neo-Nazi groups have denounced Jews at public rallies, and Communist lawmaker Albert MAKASHOV and other parliamentary deputies have made cruel anti-Semitic remarks. Russia's chief Rabbi Adolf SHAYEVICH said, "This attack is the result of the general situation when such people as MAKASHOV...are not punished. They should sit next to this youth on the bench in the court." He added that, "Prosecutors do not see all the anti-Semitic slogans as crime, and these anti-Semitic slogans are everywhere." The Peoples Assembly called on the Russian law-enforcement agencies to protect all Russian citizens irrespective of their ethnic background from extremists and anti-Semitic minister of the Russian Federation Ramazan ABDULATIPOV said. "Indifference can cause a spread of ideological and national hostility," he stressed. "Anti-Semitism is the most sensitive indicator of ethnic rights and freedoms in every

Today's News Highlights

Russia

Negotiations With Creditor Clubs

Rosneft, Slavneft Sell-Off

European Republics

Lith. To Participate In NATO?

Ukrane To Repay ING Baring

South Caucasus & Central Asia

Targamadze Speaks On Coup

Maganese Plant Tender

Aliyev Sacks Finance Minister

Ivanov Visits Uzbek, Turmenistan

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country," ABDULATIPOV said.

Economy

Ruble = 24.36/$1.00 (NY rate)

Ruble = 24.34/$1.00 (CB rate)

Ruble = 24.87/1 euro (CB rate)

CB Proclaims Four Banks Bankrupt

· Russia's Central Bank has asked the Court of Arbitration to proclaim four major banks bankrupt. The four banks are UNEXIMbank, Mezhkombank, Promstroibank and Mosbusinessbank.

Negotiations With Creditor Clubs Scheduled

· Russian Finance Minister Mikhail KASYANOV and chairman of the advisory board of the London club of creditors jointly with the Deutsche Bank issued a statement on Wednesday stating that the London Club economic subcommittee will arrive in Moscow on July 19th to prepare the meeting scheduled for August 3rd, while talks with the Paris Club of creditors on restructuring the Soviet debt to start July 29th. KASYANOV said, "The approval [of a new lending program for Russia by the International Monetary Fund board], which we estimate at about 100 percent, will be followed by official negotiations with the Paris Club on the next day. The IMF board will meet in Washington on July 28th to review loans to Russia. KASYANOV believes that talks will not be completed until the first quarter of 2000. KASYANOV said the terms of the restructuring for the third MinFin bond tranche will be released after the talks. The talks with the London Club will include, "postponement of our Prins and IANs which we missed and which are still due," he added. According to the Russian Finance Ministry, Russia owes the London Club of private creditors, some $29.3 billion. Russia has other outstanding debts, including $17.6 billion to the IMF, $40 billion to the Paris Club, $6 billion to the World Bank and $21.5 billion for the humanitarian aid supplies, export loans and technical assistance provided by the West since 1991. The total Russian foreign debt inherited from the former USSR amounts to some $145 billion plus up to $60 billion in interest on debt servicing.

Business

Oligarchs To Take Over Gazprom?

· Kommersant Daily today reported that oil-to-media tycoon Boris BEREZOVSKY and oil baron

Roman ABRAMOVICH are working together to gain control over the financial flows of Russian gas monopoly Gazprom. The article cites as evidence the announcement of a general meeting of the company shareholders. The regular annual general assembly of shareholders of Gazprom was held on June 30th, but its results did not suit Fuel and Energy Minister Viktor KALYUZHNY. The Minister is linked to First Deputy Prime Minister Nikolai AKSENENKO, who in turn is said to be influenced by ABRAMOVICH. KALYUZHNY was denied a position on the board of directors by Prime Minister Sergei STEPASHIN, who sought to minimize ABRAMOVICH's influence. The State Property Ministry, which manages the state-owned shares in Gazprom, insisted on a new general assembly to ensure the sound control of Gazprom's finances ahead of elections. Kommersant said, "It is clear that the fight of ABRAMOVICH -BEREZOVSKY for Gazprom is going on in all directions."

Meanwhile, BEREZOVSKY recently purchased a 15 percent stake in the publishing house that produces Russian newspaper Kommersant Daily. He said he will not, "tolerate the biased approaches demonstrated" lately by the newspaper. BEREZOVSKY added that the purchase of the 15 percent stake will, "give our group the opportunity to be first in line to buy the remaining shares."

Stepashin Approves Rosneft, Slavneft Sale

· Russian Prime Minister Sergei STEPASHIN today gave the preliminary approval for the sale of stakes in oil companies Rosneft and Slavneft this year. The spokeswoman of the State Property Ministry said, "Yesterday we received verbal agreement from STEPASHIN to sell 25 percent plus one share in Rosneft and 19.86 percent of Slavneft." She added that the Property Ministry is waiting for an official order from the government to start pre-sale preparations. The government has attempted twice to sell 75 percent plus one share of Rosneft; once at $2.1 billion and a second time at $1.6 billion. However, both attempts failed as investors considered the price too high during low world oil prices. With the price of oil recovering, this may prove to be the right time for an oil sell-off. Potential buyers were seen to include Gazprom, Royal/ Dutch Shell, LUKoil, BP Amoco, and Sidanko. The Belarus-Russian company Slavneft has also been offered twice for sale;

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once at 1.9 billion rubles ($78.06 million) and the second time at 1.5 billion rubles. There were no bidders during either tender for Slavneft.

out that ING Baring will help the situation when it occurs. As of last week, Ukraine had $1.3 billion in hard-currency reserves, but the government wants to save those funds for other debt payments that are due later this year and in 2000.

South Caucasus & Central Asia

Targamadze Confirms Russian Coup Support

· Georgian Interior Minister Kakha TARGAMADZE discussed the current political and security situation in Georgia at the National Press Club in Washington today. He touched on aspects of the planned coup attempt on May 22nd and his trip to the US, in which he is seeking technical assistance to improve the efficiency of his ministry. He described the initial meetings as extremely positive, especially a meeting with FBI director Louis FREEH. Intercon asked TARGAMADZE if he could confirm information obtained by Intercon that he had presented to Russian Prime Minister Sergei STEPASHIN and Interior Minister Vladimir RUSHAILO evidence which linked coup planners with then prime minister Yevgeny PRIMAKOV and high ranking Russian military and intelligence officials. On May 22nd, over a dozen were arrested in Tbilisi for conspiracy against President Eduard SHEVARDNADZE and an attempt to overthrow the government. The arrests included high ranking defense ministry officials of Georgia and former associates of Igor GIORGADZE at the Georgian security ministry. GIORGADZE is wanted for the 1995 assassination attempt on SHEVARDNADZE. TARGAMADZE confirmed that detailed evidence had been provided to the Russian government concerning the active planning and participation of Russian officials with coup planners. He said that GIORGADZE, who travels with a Russian diplomatic passport, was the primary organizer. Conspiratorial meetings took place in Moscow, Minsk, Syria, and Beruit, Lebanon. He said that Georgia's MVD has established excellent working relations with Russia's Interior Ministry, but those relations did not extend into Russia's special intelligence services. He confirmed that Russia had been asked to cooperate with Georgian authorities in a number of areas. Georgia is waiting for a response. The Georgian Interior Minister expressed concern that these terrorist attempts would continue until GIORGADZE is extradited to Georgia and the Russian government takes firm and resolute steps to prevent such events in the future.

European Republics

Lithuania To Take Part In NATO Mission

· NATO Secretary General Javier SOLANA has repeated his invitation to Lithuania to participate in a peace-keeping operation conducted by NATO forces in Kosovo, the Lithuanian Foreign Ministry said today. On June 29th, the Lithuanian parliament authorized the Lithuanian Defense Ministry to send a platoon of 35 soldiers and officers to Kosovo. An agreement has been reached that the Lithuanian peace-keepers will operate as part of the Polish peace-keeping contingent deployed in the US responsibility zone. Lithuania had fully approved NATO military operations against Yugoslavia.

Ukraine To Pay 20 Percent Of ING Baring Bond

· Ukraine will repay with its own funds 20 percent of an overdue $155 million bond from ING Baring bank under a restructuring deal reached today. Head of the Finance Ministry's external debt department Vitaly LISOVENKO said the current bond holders, on which $163 million including interest was due on June 9th, might take part in refinancing the remaining 80 percent of the bond. Today's agreement pushed aside speculation that Ukraine may cross-default on sovereign Eurobonds. Dutch Banking group ING Barings has extended the deadline for the bond deal four times over two months of tough restructuring talks. A joint statement said the bond would be paid in full on August 2nd. The International Monetary Fund (IMF) has insisted that Ukraine not spend reserves to repay the bond. The sides agreed that Ukraine will make another issue of Eurobonds, nominated in German marks, to raise the money to meet the debt. LISOVENKO said, "Twenty percent will be paid by the MinFin, 80 percent will be refinanced. But it will be refinanced by a pool of investor among whom, possibly, will be investors who own this paper." He added, "I personally and my team...are very pleased with the results. They are for the good of Ukraine and of investors also. At last we have arrived at the forumla which suits both sides." Analysts predict that in 2000 Ukraine will face an even worse external debt situation. LISOVENKO points

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Georgia Plans Manganese Sell-Off

· Georgian Deputy Property Minister David GELASHVILI on Wednesday announced an international tender for a 75 percent stake in the country's largest manganese plant, Chiaturmarganets. He noted that the ministry is tendering the plant for the third time; the first tender was cancelled and there were no bidders at the second attempt. The first auction was announced last Spring, but the winner a Russian company Industry was unable to pay the promised $1 million for the stake due to financial problems following the economic crisis in Russia, Reuters reported. Chiaturmarganets was auctioned the second time in November, 1998. GELASHVILI said the decision for the current tender was based on investor interest, but did not provide any details. Bidders are required to submit plans to increase output of manganese concentrates to 50,000 tons and later to 200,000 tons, and to repay the plant's debt of 10 million lari ($5.1 million). The starting price is a token $20,000. The tender is open to foreign and domestic bidders. Bids will be accepted for the next month. Chiaturmarganets, located in Western Georgia, is at a standstill because of lack of funds.

Azeri-Romania Sign Defense Agreement

· The Azeri Defense Minister Colonel-General Safar Akhundbala ogly ABIYEV and Romanian counterpart Viktor BABYUK signed in Bucharest on Wednesday a cooperation agreement between their ministries. The framework agreement provides for cooperation in the field of military education, information and data protection, as well as military equipment. In September, a delegation of Romanian military experts will visit Baku to specify the plan for the development of cooperation between the armies of the two countries. Both sides reviewed aspects of regional security in the South Caucasus and the Balkans and stressed the need for cooperation with NATO within the framework of the Partnership for Peace program.

Aliyev Sacks Finance Minister

· Azeri President Geidar ALIYEV on Sunday dis

missed Fikret YUSIFOV from the post of finance minister and ordered an investigation into alleged abuses of power in both the finance and defense ministries. The Defense Ministry has accused the Finance Ministry of non-payment of funds to the budget, while the latter claims the former has misused government funds. Avaz ALEKPEROV, a trained economist who previously worked as chairman of the Fund for the Social Protection of the Population, was appointed to succeed YUSIFOV. The decision to remove YUSIFOV follows a sharp fall in Azerbaijan's manat currency last week. Azeri Central Bank chairman Elman RUSTAMOV said the drop in the manat had been planned for some time to defend the domestic market from cheap imports from Russia and Kazakhstan. The move to let the manat fall had been recommended by the IMF. The manat fell to 4.250 per dollar on last Thursday.

Ivanov To Visit Uzbekistan And Turkmenistan

· Russian Foreign Minister Igor IVANOV will make official visits to Uzbekistan on July 15th to 16th and Turkmenistan on July 16th to 17th. In Tashkent, IVANOV will participate in the meeting of the foreign ministers from Russia, Tajikistan and Uzbekistan within the framework of the declaration on comprehensive cooperation, signed by the presidents of the three countries in October 1998. The Russian minister and his Uzbek counterpart Abdulaziz KAMILOV will hold talks on Uzbek-Russian bilateral relations. The two ministers are also expected to discuss other questions, including issues of regional security and the situation in Afghanistan bordering Uzbekistan. The Foreign Ministry said, "Moscow attaches great significance to relations with Uzbekistan and Turkmenistan as with other Central Asia states." Russia hopes to strengthen relations with both nations and step up interaction. "As regards the forthcoming meeting between the Russian, Tajikistan and Uzbekistan foreign ministers, we understand that it has to start joint practical work on implementing the tripartite declaration in the interests of coordinating efforts on ensuring security and stability in the Central Asian region," the spokesman noted.

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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