DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

INTERCON INTERNATIONAL USA, INC., 725 15th STREET, N.W., SUITE 903,

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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Monday, July 19, 1999

Russian Federation

Politics

Chechnya Demands Explanation For Arrest

· On Friday, Russian police detained at Moscow's Vnukovo Airport Chechen Security Minister and presidential advisor Turpal-Ali ATGERIYEV, "as a leader of an armed attack on the Daghestani town of Kizlyar in January 1996," during which around 2,000 hostages were taken as a part of the 1994 to 1996 Chechen war. A warrant for his arrest was issued after the General Prosecutor's office opened a criminal case accusing ATGERIYEV under three articles of criminal code for banditry, abduction, and terrorism. His arrest comes after a week of talks in Moscow, where he had been trying to set up a meeting between Russian President Boris YELTSIN and Chechen President Aslan MASKHADOV. Oleg AKSENOV, however, stated he did not meet with any officials or visit any government office. Chechen Aslan MASKHADOV called the detention of a Chechen Minister in Moscow "illegal" and said the incident was aimed at disrupting a his planned meeting with YELTSIN. He demanded an explanation from Moscow and threatened to close its representative offices in Moscow and throughout Russia. Russian tycoon Boris BEREZOVSKY, who is instrumental in negotiations with Chechnya, said the arrest of ATGERIYEV was an "irresponsible step." He said that, "such actions can cause irreparable damage to relations between Russia and the Chechen Republic." ATGERIYEV's arrest threatens to increase tensions between the two sides after months of conflict and sporadic fighting. He was released on Saturday from the Matrosskaya Tishina prison. The Russian Interior Ministry said he was released only after providing information which could lead to the solving of other crimes and because he was view as not dangerous. Chechnya's Interior Minister Kazbek MAKHASHEV said, "If the Russians think they can

arrest the representatives of Chechnya and not be made responsible then they are deeply mistaken." Today, Chechen gunmen battled for 20 minutes with Russian security forces and helicopter gunships along the northern and northeast border of Chechnya, killing a Russian officer and wounding four soldiers. This attack follows one on Sunday, which killed four police officers and four women civilians.

Rus-Armenian Premiers To Meet In Moscow

· Visiting Armenian Prime Minister Vazgen SARKISYAN will meet with Russian Prime Minister Sergei STEPASHIN on Tuesday in Moscow. The two premiers will discuss bilateral and international issues, the state and prospects of military and technical cooperation as well as trade and economic ties. Later in the day, the Armenian Premier is expected to meet with Moscow Mayor Yuri LUZHKOV. On Wednesday, SARKISYAN will meet with Chairman of the board of the Russian Gazprom company Rem VYAKHIREV and then discuss the issues of military and technical cooperation with Russian First Deputy Defense Minister, Chief of the General Staff of Russia Anatoli KVASHNIN. During the visit, the Armenian Prime Minister will also meet with Russian Minister for Nuclear Energy Yevgeny ADAMOV and Minister for the CIS Affairs Leonid DRACHEVSKY.

Yeltsin Signs Foreign Insurers Laws

· Russian President Boris YELT-SIN has signed into law a bill which restricts foreign insurers from entering the domestic market. The law, criticized by the US, re

Today's News Highlights

Russia

FSB Expels US Aid Worker

Media Battle: ORT Vs. NTV

European Republics

Latvia Stocks End High Friday

Stepashin Visits Ukraine

South Caucasus & Central Asia

Georgia To Increase Oil Output

Turkey Gives Georgia Def. Grant

Lebed "Adores" Adjaria

Nagorno-Karabakh Talks

Politics-Economics-Business

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Intercon's Daily

quires foreign insurance companies in Russia to have a 25-year record of operations in their home country and a two-year record of activities in Russia. Reuters reports that the bill, aimed at protecting local insurers, limits foreign insurance companies' capital to 15 percent of all insurance company capital in the country. Germany's Allianz and Rus-AIG operate in Russia and their presence is limited by a 49 percent cap on foreign ownership of individual local providers. The US has warned that the law could harm Moscow's bid to join the World Trade Organization and disrupt US-Russian commercial relations.

FSB Expels US Aid Worker For Spying

· The Voronezh Regional Directorate of the Federal Security Service (FSB) expelled Justine HAMILTON, a US citizen, who had been living there for the past two years working on humanitarian assistance programs. According to Izvestiya, HAMILTON was the official representative to Voronezh of the state of Kansas. FSB officials suspect HAMILTON of compiling classified information on defense enterprises in Voronezh. They also noted that she was particularly interested in the region's ecological situation.

Economy

Ruble = 24.33/$1.00 (NY rate)

Ruble = 24.3/$1.00 (CB rate)

Ruble = 24.65/1 euro (CB rate)

Soltaganov Calls For Tax Collection Efficiency

· Head of the Federal Tax Police Service Vyacheslav SOLTAGANOV on Friday said that only one percent of Russians pay taxes honestly. Other individuals and legal entities either evade or do not pay taxes in full. SOLTAGANOV, attending a conference of tax inspectors of the 12 districts of the Volga region in Kazan, said that the tax police have uncovered 6,000 tax crimes in the first six months in 1999. He admitted that the tax police must be five or six times more efficient. "We need to develop a tax culture which nobody wants to recognize." Kazan, the capital of the Russian Autonomous Republic of Tatarstan, has been selected the venue for the regional tax conference because of its vast experience in combat against illegal alcohol trade and production. Moscow officials, including the tax and interior ministers, have paid several visits to Tatarstan which established the state monopoly on the production and sales of alcohol more than two years

ago. But, no steps have been taken by the federal center to apply this positive experience.

Russia Considers Oil Export Quotas

· Fuel and Energy Minister Viktor KALYUZHNY in an interview with Kommersant Daily on Friday said that in September Russia may return to oil export quotas and issue them to producers, if there is a need to improve the situation on the market. KALYUZHNY said, "It's much better to regulate through tariffs, but only in case the national economy is working normally." He is against a rise in duties. KALYUZHNY noted that, "A duty is easy to introduce but hard to lift." KALYUZHNY ruled out changes in the structure of the Unified Energy System monopoly headed by Anatoly CHUBAIS. "CHUBAIS and I have had three meetings and we have come to agreement on all issues. The UES of Russia has a multitude of promising plans to develop the energy system, but the plans are scattered. We will review all of them." He reiterated plans to join the Gazprom board of directors. He hopes to clarify the case of privately owned Itera, which sells 65 billion cubic meters of natural gas, while Gazprom has the government-run Mezhregiongaz and Gazexport companies to sell its product. "Questions cannot but arise when fixed assets of the state flow into Itera, a private company," KALYUZHNY said.

Russian First Deputy Prime Minister Viktor KHRISTENKO will chair a meeting of a governmental commission on foreign trade protective measures today to discuss extending export duties for oil and oil products. The meeting is expected to define the new structure of export duties. He said the world market prices for oil and oil products "are very beneficial for both workers of the oil industry and the budget." Exports account for 42 percent of Russia's gross domestic product (GDP), while the total volume of all export duties accounts for only one percent of GDP. In his words, a minor rise of export duties will pose no threat to the interests of Russian exporters.

Business

Transneft To Reschedule Meetings In Baku

· Russian pipeline monopoly Transneft has postponed talks in Baku on Azeri crude exports through Russia until an inter-governmental commission has been appointed. The Transneft delegation was due in Baku on July 12th for talks with Azeri State Oil

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Company, Socar, on tariffs, volumes of oil to be transported, and an alternative route to the Russian port of Novorossiisk bypassing the rebel region of Chechnya. Transneft spokesman Andrei VAZHNOV said the trip was postponed because the Russian Fuel and Energy Ministry failed to appoint its own members to the delegation. He said, "There was no point in having the meeting. We need the participation of the Russian government, and when that's sorted out then we'll be able to conduct serious talks with Azerbaijan." Frequent closures on the Russian line in the past six months have raised new issues which need to be discussed at a higher level. To date Transneft has shipped 1.4 million tons of Azeri crude through the pipeline and some 800,000 tons to be shipped by rail.

Media Battle: ORT Vs. NTV

· Russian Prime Minister Sergei STEPASHIN expressed his dissatisfaction over the information war unleashed by two national TV channels, ORT and NTV, run by media tycoons Boris BEREZOVSKY and Vladimir GUSINSKY. "The channels do nothing but attack each other. They do not cover important events as if there are no other problems in the country." The ORT attacked the NTV last week by saying the channel was all in debts. The NTV responded on Sunday by accusing ORT of manipulating figures and blasted BEREZOVSKY and Kremlin chief of staff Alexander VOLOSHIN who, it said, initiated the attack on GUSINSKY's Media-Most holding, of which NTV is a part. Izvestiya reported that the primary task for the Kremlin at present is to create "favorable information conditions" on the eve of elections, adding that BEREZOVSKY was working to create "an information monopoly."

in the European Union. He said his Cabinet would try to pass budget cuts worth 40 million to 80 million lats to make up for falling revenues.

Russia-Ukraine Reach Payment Agreement

· Russian Prime Minister Sergei STEPASHIN met with President Leonid KUCHMA and co-chaired the fifth sitting of the bilateral cooperation commission together with Ukrainian Prime Minister Valery PUSTOVOITENKO, during his trip to Kiev. KUCHMA described talks with STEPASHIN as, "good and positive." He said, "this will give an impetus to the solution of problems in Ukrainian-Russian relations." The President considered the development of political and economic relations with Russia as, "very important for Ukraine." He expressed concern about the financial crisis which had a negative impact on the strengthening of trade and economic cooperation between the two countries. The sides reached basic agreements for the Ukrainian government to payment the $1.8 billion debt for Russian fuel with goods and food and write off Russian defense orders worth $300 million. STEPASHIN said they are, "mutually beneficial and mutually acceptable terms." PUSTOVOITENKO is to visit Moscow next month to sign concrete debt repayment agreements which are important since some time ago Ukraine had already promised to repay the debt by supplying $1 billion worth of goods. Actual deliveries amounted only to $16 million. Before the visit, sources in the Russian delegation made it clear that Moscow was getting increasingly irritated with Ukraine's siphoning off natural gas from Russian export pipelines running through its territory. Since the beginning of this year alone, 2.5 billion cubic meters of natural gas have been stolen from the pipelines, which equals Russia's supplies to Lithuania. PUSTOVOITENKO said that in recent years, the trade turnover between Russia and Ukraine had dropped by $five billion, and totalled $12.5 billion in 1998. "Regrettably, at the beginning of this year the trade turnover fell by another $1.5 billion," he added. The Russian Prime Minister said he had reached an agreement on the payment of pensions to retired officers in Sevastopol. STEPASHIN inspected one of the warships of the Ukrainian Navy, and visited the Russian cruiser Admiral Golovko.

The Russian Foreign Ministry, ahead of the visit, said Moscow would stand by KUCHMA in the up

European Republics

Latvian Stocks End High, New Cabinet

· The Riga Stock Exchange on Friday ended in positive territory as turnover recovered slightly, reacting to news that the Latvian parliament approved the new Latvian government formed by three parties and led by Prime Minister Andris SHKELE. Total turnover rose to 25,503 lats from 8,800 lats on Thursday. The Bourse index closed up 1.37 percent, 2.28 points, at 168.90. SHKELE pledged that his government will revive the Baltic nation's struggling economy and keep it on the path toward membership

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coming presidential elections in Ukraine in October. On the idea of creating a union between Russia, Ukraine and Belarus, the President said, "I am not going to run for presidency for the second term to become somebody's vassal," adding that he "wants to build his own independent state." However, this "does not mean that we should not be friends with Russia, love it and cooperate with it and turn down to it," KUCHMA noted.

South Caucasus & Central Asia

Georgia Plans To Increase Oil Output

· Georgia's first deputy energy minister Teimuraz TSABADZE announced that Georgia plans to boost oil output this year. Georgia produced just 30,000 tons of oil (1,200 barrels per day) in the first half of 1999. "Of course, this figure of oil production is lower than we predicted, but we are relying on the results of further exploration [to give it a boost]." Georgia is waiting for the results of seismic surveys planned to begin this fall by a Georgian-US joint venture, Frontera Eastern Georgia. The joint venture is between Georgian State Oil Company Sanknavtobi and the Frontera Resources Company. Sanknavtobi has been transformed into a shareholding company under a law adopted by parliament. The state still has a 100 percent stake in the company. TSABADZE said five foreign firms had signed contracts with Georgia to develop onshore reserves. Three joint venture between Georgia and JKX, National Petroleum Ltd., and Frontera Resources are producing crude. Ramco Energy Plc has signed a joint venture with Georgia to explore and develop the Akhmeta field in eastern Georgia. First deputy energy minister TSABADZE estimated recoverable onshore oil reserves in Georgia at about 600 million tons.

Turkey Gives Georgia Third Defense Grant

· Senior Turkish and Georgian military officials are to sign an agreement on Ankara's allocation of a further $3.7 million for the Georgian Defense Ministry and borderguards. RFE\RL Newsline reported Turkey allocated $5.5 million to Georgia in 1998 and another $1.7 million last month.

Lebed Brings Mi-8 Helicopter to Adjaria

· Krasnoyarsk Governor Alexander LEBED arrived in Batumi for a two day visit. State Council chairman Aslan ABASHIDZE said that, "LEBED adores Adjaria." Intercon sources report that LEBED sold or transferred a Mi-8 helicopter to Adjaria. LEBED's deputy Shalva BREUS visited Adjaria in May to discuss prospects for joint ventures, including a joint airline. Krasnoyarsk intends to put up 25 percent of the funding.

Kocharyan-Aliyev Satisfied With Talks

· Armenian President Robert KOCHARYAN and Azerbaijani President Geidar ALIYEV Expressed satisfaction with their talks in Geneva over the disputed Nagorno-Karabakh region. However, neither side announced a breakthrough is the dispute. They agreed to continue talks in the future. KOCHARYAN stressed that the Azerbaijani President also shared his point of view to continue efforts to solve the Nagorno-Karabakh problem. He added that Nagorno-Karabakh leader Arkady GUKASYAN was informed about the meeting in Geneva and it is not ruled out that he will take part in the next meeting. "We agreed not to disclose the details of our talks," he said. ALIYEV said the talks focused on a wide range of issues concerning the peaceful settlement of the Nagorno-Karabakh conflict. He believes that both sides should make compromises, without which it is impossible to settle the conflict. The last initiatives put forth by the Minsk Group remain in force.

Turkmenistan Economy On A Rebound

· Turkmenistan's National Institute for Statistics and Prognosis announced last Monday that during the first half of the year, gross domestic product (GDP) increased by 15 percent, compared with 1998. Total GDP growth for 1998 was 5 percent. Oil and gas extraction for the first five months of 1999, rose by 10.7 percent, compared with 1998. Meanwhile, Turkmenistan recently completed its best-ever grain harvest of 1.5 million tons. That amount is enough to make Turkmenistan self-sufficient in grain for the second consecutive year.

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

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