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

Friday, July 23, 1999

MAKHASHEV met Thursday to discuss problems connected with preparations for the presidential meeting and economic and humanitarian cooperation between the Stavropol Territory and Chechnya.

DPR To Join All Russia Bloc

· The National Committee of the Democratic Party of Russia (DPR) adopted a statement on Thursday, supporting a move to leave the Voice of Russia political bloc and join the All Russia bloc. The DPR leaders point to their dissatisfaction with the Voice of Russia leaders, primarily Samara Governor Konstantin TITOV. In the opinion of the National Committee, the leaders of Voice of Russia, which was joined by DPR last spring, "did not ensure a professional preparation of the bloc for the electoral campaign" and took some steps, which run counter to the agreements, reached by the political organizations integrated into it. TITOV's decision on the creation by Voice of Russia of a coalition with Right Cause and New Force, announced by him in Salzburg, was the last straw, DPR leaders explain. The statement, adopted by the National Committee, stresses that the unification with right-wing parties is impermissible for DPR as a "party of state-minded democrats." The DPR decided to participate with All Russia bloc in the upcoming elections because, "this political structure corresponds in a better way to the program and goals of the party." According to Yuri KHATSENKOV, chairman of the DPR National Committee, the All Russia bloc suits the party, because "it can play a serious political role there."

Russian Federation

Politics

Stepashin Says No New War In Chechnya

· Russian Prime Minister Sergei STEPASHIN said today, "There will be no war in Chechnya, nobody wants to repeat the mistake twice." He added that the practice of hostage taking must be stopped. More than 700 people, including Russian Interior Ministry's envoy to Chechnya, Gennady SHPIGUN, were taken hostage this year alone. The 1994-1996 Chechen war ended with an agreement for an immediate withdrawal of Russian forces and the postponement of a decision on Chechnya's political status until December 2001. A number of recent attacks by rebels on Russian guard stations, along with the arrest of Chechen State Security Minister Turpal-Ali ATGERIYEV last Friday, have raised tensions between Chechnya and Russia.

Earlier this week, Chechnya threatened to close its mission in Moscow and throughout Russia, if it did not receive an explanation of the Minister's detention. Chechen representative Mairbek VACHAGAYEV said, "The office of President Aslan MASKHADOV and the Chechen government received today an official explanation from the Russian Cabinet, and the incident with the detention of ATGERIYEV can be regarded as closed." The Chechen chief mission will continue work as usual. VACHAGAYEV intends to fly to Grozny for consultations with MASKHADOV later this week to discuss, "a new formula and content of work of the chief mission in Moscow and the fate of 20 regional missions which are still closed." STEPASHIN said efforts are continuing to prepare a meeting between Russian President Boris YELTSIN and MASKHADOV. Minister for the Affairs of the Federation and Nationalities Vyacheslav MIKHAILOV and Chechen Deputy Prime Minister Kazbek

Today's News Highlights

Russia

Gov't Imposed Duties On Exports

Sidanko Gets External Manager

European Republics

Fuel Shortage Rocks Ukraine

Rus-Belarus Air Defense System

South Caucasus & Central Asia

Georgia Plans Power Sell-Off

NATO Invites Azeri To KFOR

EU Pleased with Azeri-Armenia

Kazakh Arrest Nuclear Smuggler

Politics-Economics-Business

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Friday

July 23, 1999

Intercon's Daily

Over 100 Grenades Stolen From Army

· Russian Prosecutors said on Wednesday more than 100 grenades had been stolen from a military unit in northeastern Russia. The theft took place near the town of Vyborg on the Finnish border in the Leningrad region, they said, adding that a criminal case was opened. An investigation established that the crime was committed in late June by two groups which do not appear to be connected. In the first case, two duty soldiers stole 52 grenades from the warehouse at night, and the following night two others stole 69 ones. Investigators believe that the perpetrators were going to sell the grenades. Several people, including civilians, have been arrested on suspicion of being involved in the thefts, and part of the grenades have been recovered.

Economy

Ruble = 24.24/$1.00 (NY rate)

Ruble = 24.3/$1.00 (CB rate)

Ruble =25.62/1 euro (CB rate)

Feb Mar Apr May Jun Jul

Gov't Imposes Duties On Oil Exports

· Deputy Trade Minister Dmitry SUKHOPAROV announced a decision at a meeting of the Russian government's commission on protective measures in foreign trade and the customs-tariffs policy to impose duties on exports of oil from Russia to countries of the Commonwealth of Independent States (CIS), except to the Customs Union members (Belarus, Kazakhstan, Kyrgyzstan, and Tajikistan) starting August 1st. According to SUKHOPAROV, analysis shows that since the beginning of 1999,

when export duties on raw materials were imposed, their exports to the West have sharply fallen simultaneously with growth of duty-free supplies to the CIS. Russian raw materials are re-exported through intermediaries from CIS states, which causes huge losses to the state budget. In order to avoid such situation in the future, it was decided to extend a duty-free regime the Customs Union members only.

Russia-China Commit To Boosting Trade

· Russia and China have reiterated their commitment to increase bilateral trade turnover after a two-year decline. According to Chinese customs officials, the bilateral trade turnover increased by 1.5 percent and reached $2.709 billion. Russia's exports to China grew up to $2.191 billion (34 percent) while China's exports to Russia dropped by 50 percent and amounted to $518 million. In 1997 the bilateral trade turnover reached $6.12 billion and in 1998 it dropped up to $5.5 billion. China predicts that these figures will remain unchanged before the end of the year. China points out that its stable national currency and the favorable customs policy will facilitate Russia's export to China. Custom officials also note that economic progress in Russia is a positive step toward strengthening trade relations. Russia and China seek to speed up economic reform aimed at economic globalization, improving trade conditions and growing high-tech products. The two countries are developing cooperation in such areas as the chemical, electronic and light industries, as well as they expand relations in the nuclear sphere.

Business

Court Appoints External Manager For Sidanko

· A Moscow arbitration court has appointed Stanislav Egoryshkov the external manager for bankrupt Russian oil company Sidanko for one year. Howard CHASE, director for external affairs for BP Amoco Russia, said, "Egoryshkov is the candidate recommended by the overwhelming majority of creditors. We are very pleased by the recognition given by the court to the recommendation of the creditors," Reuters reported. BP Amoco has a 10 percent stake in Sidanko and is leading the effort to make Sidanko solvent. In January, Sidanko was sued for bankruptcy by one of its creditors and in May the company was declared bankrupt. Creditors announced last week that they had reached an agreement on the terms of restructuring $217 million of debt and

When you need to know it as it happens

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injecting $64 million of new capital into the company. Because BP Amoco will put a disproportionate share into the Sidanko, its shareholding is expected to rise to approximately 25 percent. Creditors still need to formally sign a document outlining the terms of restructuring. Before that, they still need to settle separate bankruptcy disputes of Sidanko subsidiaries including production unit Chernogorneft. As soon a document is signed, creditors can ask the court to lift the external management from the company. CHASE said, "We would certainly hope to make substantial progress in the next few weeks."

signed after being prepared in Brussels in 1995. The group's executive headquarters will be in Kiev. Inogate will seek international investment into the modernization of oil and gas pipelines. Its signers pledged to accelerate market reforms in the energy-generating industry. Ukrainian President Leonid KUCHMA said the implementation of such a program is a practical step essential for members to initiate political and economic integration. Ukrainian Prime Minister Valery PUSTOVOITENKO said that now Ukrainian economic legislation will have to be adapted to European norms. European Union (EU) Commissioner Hans VAN DEN BROEK said that a pipeline crossing Ukraine's territory is vital for the development of a complete intercontinental oil and gas transportation network. The European Council has provided Ukraine with 5 million euros ($5.25 million) for the project. All EU members, Turkey and several other European countries sent observers to the program signing.

Ukraine CB Reserve Level

· The Ukrainian Central Bank's gross international reserves totaled $1.28 billion and liquid foreign reserves were $1.12 by July 16th, according to the Central Bank. Central Bank chairman Viktor YUSHCHENKO said this month that the Central Bank's gross international reserves were $1.3 billion as of July 8th, while liquid reserves were $1.12 billion. Central Bank reserves have boosted since the start of the year by hard currency purchases on the local market worth $521 million and $448 million received from the International Monetary Fund (IMF) under a loan program. Expert estimate that the Central Bank must repay about $700 million to the IMF this year.

Rus-Belarus Consider United Air Def. System

· Russia and Belarus plan to create a single regional air-defense system, the Interfax news agency reported Wednesday. The Russian Defense Ministry said an air force delegation flew to Minsk for consultations on the issue. This new system is believed to be more integrated than the air defense system of the Commonwealth of Independent States. The Russian delegation, led by Deputy Commander Lieutenant-General Yuri BONDAREV, will stay in Minsk until Saturday. The two sides will also discuss Belarus air defense units' participation in the Combat Cooperation '99 exercises to be held on the Ashuluk training

European Republics

Fuel Shortage Threatens Harvest And Currency

· A severe fuel shortage in Ukraine is threatening the country's harvest and has caused a 12 percent drop in the currency from 3.95 gryvnia to the dollar to 4.5 on Thursday. The shortages are causing havoc at fuel stations; one in seven stations were open in Kiev. The government is seizing cargoes of diesel and gasoline from private traders to supply farmers for the harvest. Regional governors have seized stores of grain due for private traders to ensure that state orders are filled. Approximately 5 million tons of grain could be lost out of the expected harvest of 25 million tons, according to Ivan MOZGOVOI head of the Union of Ukrainian Farmers in Kiev, the Financial Times reported. Western oil executives in Kiev believe crude supplies fell because Russia is exporting more oil rather than selling it domestically or to Ukraine. Traders accuse Ukraine's government of failing to sign contracts on time in March and April for the supply of fuel during the harvest season. The government is blaming traders and have launched investigations into eight oil trading companies. The government claims the oil companies are cornering the market forcing the shortage. The government has made emergency plans to import 70,000 tons of diesel fuel from Azerbaijan. It has also approved tax and duty cuts for fuel importers and producers to ease the shortage.

Ukraine Hosts Inogate Oil Transportation

· Kiev on Thursday hosted delegates from dozens of European and Central Asian countries to discuss the implementation of a trans-national program on transporting oil and natural gas from Central Asia to Europe. An agreement on the Inogate program was

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ground in the Astrakhan region on August 23rd.

South Caucasus & Central Asia

Georgia Plans Major Plant and Network Sell-Off

· On Monday, Georgia announced plans for an international tender to sell off or handover to investors control of most of its major power plants and distribution networks. The State Property Ministry said power generating facilities and distribution networks would be sold in two separate lots. Ministry spokeswoman Irma GOGOLADZE said investors would be required to purchase the two lots as complete packages, and could not buy individual items within them. The first lot includes an 80 percent share in the country's biggest thermal electric station TbilGRES and a 25-year lease on 100 percent of the shares in two big hydroelectric stations Khrami-1 and Khrami-2. Also included is a 75 percent stake in the electrical distribution system of the major industrial city of Rustavi, south of Tbilisi. The second lot includes 75 percent of the distribution network of Kutaisi and a 25-year lease on five hydroelectric stations in the west and central regions in the country. Potential buyers should submit bids to either the London or Tbilisi offices of Merrill Lynch before August 21st. Foreign and domestic bidders have equal rights under the rule of the tender. The government has been under pressure to privatize the sector as soon as possible.

NATO Invites Azeri To Take Part In KFOR

· NATO Secretary-General Javier SOLANA invited Azerbaijan to participate in the peacekeeping operation in Kosovo, Foreign Minister Tofik ZULFUGAROV said. The Azeri Defense Minister said that a total of 30 servicemen are ready to leave for Kosovo to participate in the peacekeeping operation together with the Turkish battalion. An agreement to this effect was reached earlier during the consultations with Turkish and NATO leaders. Azerbaijan has expressed a strong interest in joining NATO. It had also held consultations with Turkey and NATO to host some bases on its territory.

EU Pleased With Azeri-Armenian Summit

· The European Union (EU) is pleased with the beginning results from the meeting between Azeri President Geidar ALIYEV and Armenian President Robert KOCHARYAN held in Geneva last week. The EU called on these two nations to continue a dialogue in order to achieve a peaceful settlement of the conflict. "A global and lasting settlement is to be achieved through negotiations between all the parties involved in the framework" of the Minsk process of the Organization of Security and Cooperation in Europe, the EU said. ALIYEV and KOCHARYAN held a confidential meeting to discuss the Nagorno-Karabakh problem. Both Presidents described the meeting as very useful and said that they will continue consultations. Finland, which presides in the European Union, made a statement in which it urges Azerbaijan and Armenia to settle disagreements which prevent cooperation between the two countries. "The EU stands ready to support and help sustain the peace which the peoples of Armenia and Azerbaijan need and deserve, and applauds every effort of the two presidents and governments to achieve it," the declaration said. The EU said it views regional cooperation as an essential part of the political and economic development of the region and its integration into the world community.

Kazakhstan Arrests Nuclear Smuggler

· Kazakh Custom Police arrested a Russian military officer who was trying to smuggle a small amount of nuclear fuel to Uzbekistan. Captain Alexei KONKOV was detained at the Kazakh-Uzbek border late Wednesday. A radio-activity test revealed that a tin container he was carrying emitted more than 50 time natural radiation levels. The radioactive material inside the container was nuclear reactor fuel, believed to have been stolen from the Baikonur Cosmodrome, where KONKOV worked. Stories and documentation of unsafe nuclear plants and smugglers of nuclear and other toxic materials have been leaking out of Russia since 1991. However, Russian officials insist that weapons-grade nuclear material has never been stolen or sold.

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

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