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

Tuesday, July 6, 1999

everything. Our reaction, however, must be adequate: we must respond for every strike."

Yeltsin Plays Down Power Struggles

· Promoting the idea that a new regime will come from free and fair elections, Russian President Boris YELTSIN played down concerned that he would ban the Communist Party. He said he is ready to step down when his term expires next year and will turn over power, "with an easy mind." He stated, "New leaders, young and energetic and with new governing ideas, must emerge. We need fresh forces to tackle the new challenges of a new century." YELTSIN pointed out, "Two elections in one year is a serious load on the nation. Ahead of us are serious political battles, which, however, must not hamper normal economic development," referring to parliamentary elections in December and the presidential race next year. The President said he had an idea of who he would choose as a successor, but refused to comment. He said, "If I announce his name, he will not be able to live in peace." Commenting on rumors that a decree banning the Communist Party has already been written, YELTSIN said, "I think the Communists have banned themselves on their own. They have failed politically. They are losing chances of winning elections and of course are in need of scandals and would like to provoke the president into a fight. If they continue to fan hysteria, they will be brought to account, not by decree but in court."

Yeltsin Appoints Health Minister

· Russian President Boris YELT-SIN on Monday filled the last va

Russian Federation

Politics

Russian Forces Strike Chechen Rebels

· Russian Interior Minister Vladimir RUSHAILO said Russian forces launched a preemptive strike early Monday against 150 to 200 militants inside its breakaway Chechen republic, killing an unknown number of rebels. The operation involved helicopter gunships and mortars. Following a meeting in which he briefed President Boris YELTSIN on the attack, RUSHAILO said, "The militants sustained casualties. We know from intercepts of radio messages that a number of militants were killed. We will continue doing our best to prevent cross-border attacks from Chechnya on our checkpoints and civilians." The attack came only two days after the Interior Ministry threatened to use force against a, "concentration of guerrillas and hardware discovered through intelligence activities." His threat was met by a counter-threat from Chechnya over the weekend, with Chechen President Aslan MASKHADOV's press service releasing a statement saying that every explosion in Chechnya would be countered by 10 explosions in Russia. RUSHAILO characterized the strikes as, "a local operation to respond to the attacks on our checkpoints and roadblocks," rather than "strategic strikes on the Chechen territory." There have been frequent attacks on checkpoints and civilians in the areas along the administrative border with Chechnya in the past few months. A number of bomb explosions in Moscow, notably inside the reception center of the Federal Security Service (FSB) and the lobby of the Interior Ministry, were also believed to be connected to the Chechen militants. Russia dispatched a temporary group of 17,000 troops in the North Caucasus region, with 10,000 of them constantly deployed on the Chechen border. RUSHAILO said, "we must be ready for

Today's News Highlights

Russia

Sidanko Creditors Reach Agmt

Diamond Conference Opens

European Republics

Latvian Prime Minister Resigns

Yeltsin-Kuchma Informal Summit

South Caucasus & Central Asia

Georgia Calls For UN Support

Oil By Rail Encounters Problems

US Senate Adopt Silk Road Bill

Satellite Drops From Radar

Politics-Economics-Business

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Tuesday

July 6, 1999

Intercon's Daily

cancy in the Sergei STEPASHIN Cabinet of ministers by signing a decree appointing Yuri Leonidovich SHEVCHENKO as Health Minister. SHEVCHENKO as formerly the director of the St. Petersburg Military Medical Academy. YELTSIN dismissed the previous government on May 12th, accusing it of delaying reforms to the economy.

Economy

Ruble = 24.03/$1.00 (NY rate)

Ruble = 24.48/$1.00 (CB rate)

Ruble = 25.03/1 euro (CB rate)

Export Tariffs On Commodities To Remain

· First Deputy Prime Minister Viktor KHRISTENKO on Monday announced that export duties will remain at the present level in the year 2000 on commodities, but a duty on natural gas will be introduced. Timber export duties will be raised, while duties on products made of wood will be reduced. As for the oil sector, KHRISTENKO said export duties will be preserved at the present level. He added that the government had included revenues from the tariffs in next year's draft federal budget. Oleg TIMCHENKO, metals analyst at United Financial Group, said, "I don't think the government will lightly give up the chance to get some extra rubles...Of course companies will complain, but not much, as the tariffs are aimed at enterprises which gained from ruble devaluation." The measure was aimed at commodity exporters to hard currency markets which were expected to boost their profits after the ruble devaluation. In January, the government scrapped a five percent export tariff on natural gas, which it had set seven days earlier. Analysts suspect that the government is seeking tighter control over Gazprom, ahead of parliamentary and presidential elections. Gazprom accounts for approximately a quarter of all budget revenues.

Vneshtorgbank Pays $4 Million Eurobond

· Russia's Vneshtorgbank paid a $3.76 million quarterly coupon on a $200 million Eurobond issued in 1997. The two-year Eurobond matures in September. The coupon is set at 220 points above the London Interbank Offered Rate, payable quarterly, according to Dow Jones Newsline. Chase Manhattan Bank was lead manager of the bond issue. Earlier this year, Uneximbank and Rossiisky Kredit Bank, defaulted on their Eurobonds, blaming their financial troubles on the government's default on its treasury

debt last August an the devaluation of the ruble against the dollar.

Business

Renault Venture Signs Tax Deal

· The Financial Times reported that French carmarker Renault announced its Avtoframos joint venture with the Moscow City government has signed an agreement with Russia exempting Avtoframos from paying customs duties on the import of components and capital equipment for seven years. "This new phase will enable Renault to commit investments which should represent approximately $300 million over the duration of the agreement," Renault said. Production will initially take place in premises leased from Moskvitch, which is majority owned by the Moscow City government.

Sidanko Creditors Support Restructuring Plan

· Wolfgang RUTKE of Dresner Bank, chairman of Russia's fifth biggest oil producer Sidanko's creditor committee, said that 96 percent of creditors have approved the basic principles of debt restructuring, which may help drop bankruptcy proceedings against the company. Sidanko owes $400 million, $150 of it to foreign creditors. Howard CHASE, director of external relations for BP Amoco, which is owed about 5 percent of Sidanko's debt and is also owner of 10 percent of the company, said the end of bankruptcy proceedings, "is a step on the road [but] it's very much a work in progress." In addition to approving restructuring terms, shareholders indicated their willingness to inject new capital to keep the company operating. Technicalities of the restructuring will be ironed out at a final creditors meeting on July 16th, ahead of a court hearing on July 23rd. In January, Beta-Ekho launched bankruptcy proceedings against Sidanko for debts totaling around $20,000. BP Amoco took control over Sidanko's board in April, teaming up with other minority shareholders to take some control over the bankruptcy process. Tensions between BP Amoco and other western companies, and Interros, the Russian holding company which was Sidanko's largest shareholder, have defused.

Diamond Forum Opens In Moscow

· Heads of diamond exchanges and diamond producers from all over the world are gathering in Moscow today to attend the World Federation of Diamond Exchanges and the International Associa

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tion of Diamond Producers conference. Representatives from the world diamond monopoly DeBeers and Russia's major diamond producing company Alrosa will participate. The meeting attended by representatives from the presidential administration, both houses of parliament and the Cabinet, will review the results of diamond exchanges' activities in the outgoing century and will work out a concept for their activities in 2000. A round-table discussion will be devoted to the role of state support in the diamond business. Vice President of the Russian Alrosa diamond company Sergei ULIN said the conference will be "a major event for the world diamond businesses."

informal meeting in Moscow on Sunday at the Russian presidential residence Rus. Both sides expressed the need to boost cooperation. On Saturday, YELTSIN signed agreements on the Black Sea Fleet's division and presence on the territory of Ukraine. These laws were passed by the Russian State Duma on June 18th and Federation Council on June 25, 1999. KUCHMA said agreements reached at the meeting had to be specified and clarified during Russian Prime Minister Sergei STEPASHIN's upcoming visit to Kiev slated for July 15th and 16th.

The Presidents discussed the fuel and energy sector. Presidential spokesman Dmitry YAKUSHKIN said the question of Russian gas supplies to Ukraine will also be discussed in detail at the upcoming meeting of the intergovernmental commission in mid-July. STEPASHIN said Ukraine's debt to Russia for oil and gas supplies have reached $1 billion. STEPASHIN told the Federation Council on Saturday that it will be hard for Ukraine to pay the debt in cash. KUCHMA said that when Russia spoke about, "Ukraine's debt for gas supplies," Russia should remember its own debts to Ukraine's military-industrial complex. In addition, "we do not raise the question of prepayments for the transit of Russian gas, which would allow us to get more money needed to buy energy carriers on the world markets at lower prices, KUCHMA added. He said, "we understand the economic problems of the neighboring state."

South Caucasus & Central Asia

Georgia Calls For UN Support On Abkhazia

· Georgian President Eduard SHEVARDNADZE has declared that he intends to send a message addressed to the UN Secretary General and all members of the UN Security Council, asking to support Georgia's proposal on the ethnic cleansing against the Georgian population in Abkhazia in 1992-1993. He will demand that the facts of this genocide be officially recognized by the UN. The President on Monday said that, "this message would contain proper arguments and sufficient proofs so that the fact of ethnic cleansing against the Georgian population conducted in Abkhazia be recognized." He pointed out that the incidents of ethnic cleansing had been officially recognized at OSCE summits in Lisbon and Budapest. SHEVARDNADZE expressed the hope that Russia, "would support Georgia's just

European Republics

Latvia's Prime Minister Resigns

· Latvian Prime Minister Vilis KRISTOPANS announced his resignation on Monday saying, "There is only one reason for my resignation—the atmosphere of mistrust within my government." He added, "It is impossible to work with a party which behind my back signs a cooperation while, I am out of the country." KRISTOPANS discovered that one party of his coalition, Fatherland and Freedom Party, held talks and signed economic accords with the leading opposition party, People's Party, while he was attending an international economic forum in Salzburg, Austria. KRISTOPANS' coalition held 46 seats in the 100-seat legislature, between his Latvia's Way Party, Fatherland and Freedom Party, and New Party. People's Party had kept constant pressure on the government. The Cabinet was also forced to resign. KRISTOPANS' government failed to make significant progress on the privatization of Latvian Shipping Company and Latvenergo. KRISTOPANS said his Cabinet, formed last October, had successfully reduced the interest rate on state debts and the current balance of payment deficit, cut down inflation and brought about more investment. KRISTOPANS is a member of the Latvian Way Party, the ruling party for the past nine years. He believes his party may land in the opposition and he is going to resume his work as a deputy in parliament.

Yeltsin-Kuchma Hold Informal Summit

· Russian President Boris YELTSIN and Ukrainian President Leonid KUCHMA discussed bilateral relations and pressing international problems at their

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proposal at the UN Security Council." Georgian Foreign Minister Irakly MENAGARISHVILI supports the President's initiative, but said, "I would refrain from forecasts, but we have enough arguments to convince members of the UN security Council that such incidents took place." Around 300,000 residents of Abkhazia or about 60 percent of ethnic Georgians were forced to abandon their homes, escaping from Abkhazian and North Caucasian armed formations.

Oil By Rail Encounters Problems

· Russian transport company Transneft on July 3rd was expected to begin transporting oil from Baku to Novorossiisk via railroad, bypassing the unstable territory in Chechnya. Transneft said that it will take at least a week to adjust to the new route. Transneft was forced to close the Baku-Grozny-Novorossiisk pipeline on June 7th after repeated attacks on the pipeline by Chechen rebels. Under an agreement between Azerbaijan's state oil company (Socar), Azerbaijan's International Operational Company (AIOC), and the Russian Transneft, tariffs for oil deliveries remain unchanged at $15.67 per ton. However, last night the transportation of oil by rail was suspended in Daghestan's territory until today, as tanks at Makhachkala railway station were lacking. Problems and questions surrounding the new route will be clarified at a summit in Baku on July 12th between Socar, AIOC, and Transneft.

US Senate Adopts Silk Road Bill

· On June 30th, the US Senate passed the Silk Road Strategy Act sponsored by Republican Senator Sam BROWNBACK (Kansas). The bill provides for greater US involvement in strengthening the independence sovereignty of the countries of the South Caucasus and Central Asia as well as promoting regional cooperation. However, significance of the bill decreased as a result of striking a provision which would allow the US President to waive Section 907 based on national interest. This provision was excluded from the bill in a close vote following heated debate among the senators. Azeri Ambassador Hafiz

PASHAYEV said, "We welcome efforts by Senator BROWNBACK and his colleagues to secure US legislative support for the countries of the region in promoting peace, stability and cooperation." In a statement in the Azerbaijan Newsletter, he added, "At the same time, we are disappointed by the Senate decision to uphold the unjust and unfair sanctions on Azerbaijan, a country of crucial importance for any regional initiative, especially for the Silk Road, as underlined by Senator BROWNBACK. Continuous support from some senators for these unjustified restrictions is not only contrary to the US national interest, it also undermines its position as an honest broker in the peace process between Armenia and Azerbaijan."

Satellite Lost From Baikonur Cosmodrome

· A Russian military satellite launched from Baikonur Cosmodrome in Kazakhstan Monday evening disappeared from radar screens soon after liftoff. It failed to reach its preliminary orbit and is suspected of crashing in the remote Charyshsky district of the Altai region, Siberia. Ten minutes after the satellite was launched, its stopped responding to signals from mission control at Krunichev, and all communications signals from the satellite were lost. The liftoff had been delayed several times, with the latest postponement coming Sunday, when space officials decided that improvements were needed in the launch mechanism. The Raduga satellites assist Russia in detecting missiles; it has 34 already orbiting Earth. Yakov SHOIKHET, deputy head of the regional administration, has left in a helicopter to the survey the area for a crash site. SHOIKHET is in charge of health issues in the regional administration. He was an author of a program for the liquidation of aftermath of Soviet nuclear tests conducted near the city of Semipalatinsk.

CORRECTION: Parliamentary elections in Russia are scheduled for December 19th. In Friday's edition, we incorrectly reported that these elections were likely to be held on August 20th.

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

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