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

Friday, August 13, 1999

Russian Federation


Putin Plans To Strike Rebels Even In Chechnya

· Acting Prime Minister Vladimir PUTIN escalated tensions on the Daghestan-Chechen border today by declaring that he will carry out strikes on Islamic militants, who invaded the republic, wherever they may run. He said, "Chechnya is Russian territory, and we will strike guerrilla fighters wherever they are." The threat to strike in Chechnya was the strongest indication that the uprising in Daghestan could lead to a wider war, despite PUTIN's claim that Russia will drive out the rebels in less than two weeks. He said order would be restored in Dagestan "within the shortest possible time frame with the least number of casualties." PUTIN noted that a major offensive to drive out the rebels had begun. There has, however, been no report of any intensified fighting. Over the six days of fighting, Russia has conducted primarily an air campaign with planes, helicopters and artillery and more than 200 sorties. The Russian Interior Ministry claims that 150 rebels have been killed and 300 wounded. It also claimed that Russian forces had destroyed two rebel bases, four anti-aircraft guns and two trucks with militants inside. Today, five cargo planes arrived in Daghestan bringing additional troops, military hardware, and medical equipment. The Defense Ministry said it was working to fortify the strategic facilities in the region, including a mountain tunnel, that was seized. During a clearing operation in the Tsumadisnky district Daghestan police uncovered a depot of weapons and ammunition, containing two grenade-launchers, a large-bore submachine gun, a mortar, 90 mines, 20 thousand cartridges for fire arms, 200 mines for an underbarrel grenade-launcher, and 200 mines for an antitank grenade-launcher. The Daghestan fighting is viewed as the biggest challenge to Russian authority since the Chechen War in 1994 to 1996.

Right and Left Challenges To The Kremlin

· Political parties in Russia are consulting each other and forming alliances ahead of parliamentary elections in December, which will strongly influence Presidential elections in the Summer of 2000. Earlier this month the left-of-center alliance was formalized. It is officially named Our Fatherland is All Russia, founded by Moscow Mayor Yuri LUZHKOV and several regional governors. This party represents the biggest challenge to the Kremlin in the upcoming elections. On Wednesday, the party invited former prime minister Yevgeny PRIMAKOV to lead the movement. It is believed that he will accept the offer on Monday. This could lead to an internal struggle in the party between the egos of LUZHKOV and PRIMAKOV as well as between PRIMAKOV and the regional governors. PRIMAKOV has stated that regional governors should be appointed rather than elected. According to a VTsIOM poll conducted before the party alliance was forged, the Fatherland movement would win 28 percent of the vote if it was headed by PRIMAKOV, but would receive only 16 percent if he refused to join. Today, the Agrarian Party of Russia chairman Mikhail LAPSHIN is meeting with Georgy BOOS and Oleg MOROZOV, representatives of Our Fatherland is All Russia. It is believed that Agrarian Party is considering defecting from its alliance with the Communists and will review its stance at a party congress at the end of the month. Party members have noted that the decision is dependent on whether PRIM-AKOV will lead the alliance or not. LAPSHIN said,

Today's News Highlights


Japan Prepares Russian Grant

Yeltsin Meets With Arms Chief

Tyumen Sells Ruble Bond

European Republics

Kiev Ready For Loan Release

Kiev Pays Russia With Bombers

South Caucasus & Central Asia

Aliyev Meets US Congressmen

Kazakh Investigates MiG Sales

Uzbek Militants Seize Hostages




August 13, 1999

Intercon's Daily

"sober-minded segments of society must pool [their resources], forming a united bloc to drag the country out of the [current economic and political] crisis." He added that the alliance should be, "aimed at creation and development rather than mud-slinging and destruction." The Agrarian's change in alliance is sure to shock the Kremlin and devastate the Communist Party. The emerging combination of PRIMAKOV, LUZHKOV, and the regional governors together with the significant Agrarian vote means that the bloc is almost assured to win the largest number of seats in the new Russian State Duma.

The smaller and more youthful right-of-center party Just Cause, whose members include Boris NEMTSOV, Yegor GAIDAR, Anatoly CHUBAIS, and Boris FYODOROV, believe the liberal parties will unite before the parliamentary elections. NEMTSOV said the alliance could embrace the New Power Party, Voices of Russia, and Our Home is Russia. Kommersant Daily and the Moscow Times reported that Our Home is Russia and Voices of Russia have both rejected invitations to join the alliance. NEMTSOV added that the right-of-center party may follow the New Power's lead and invite former prime minister Sergei STEPASHIN to head the alliance. STEPASHIN is also being sought by Our Home is Russia and the Russian Regions. NEMTSOV said, "He [STEPASHIN] needs us and we need him. This is a rare occurrence in politics. STEPASHIN would not only preserve his political position, but would also have a powerful, political base for the presidential elections." NEMTSOV was confident in his party and hopes to win at least 15 percent of the vote in parliamentary elections. He added, "Everyone understands, even if they hate us, that we are the future of the country. The elections in Russia will not be between a Conservative and a Labor Party, but between the past and the future. It is TURGENEV's struggle between Fathers and Children."


London Creditors Presented Four Options

· Russia's Finance Minister Mikhail KASYANOV on Wednesday said that his ministry had presented the London Club of commercial creditors four options to restructure the Soviet debt. During the talks in Frankfurt Russia proposed to narrow its debt left over from the Soviet Union by reducing the cost of obligations. The London Club of creditors holds two

types of bonds issued by Vnesheconombank: the Prins on the principal debt, which are valued at 14 cents per nominal dollar, and the IANs on the accrued interest, worth 11 cents per nominal dollar. The reduction could be done in different ways. "A longer grace period is the first. It will delay the payment and reduce the debt. The second is to lower the interest rate for the first period. The third is a longer payment term. If these measures would be insufficient for Russia to service its debt without additional pressures on ability to carry out reforms and increase the economic growth, the fourth option—direct physical reduction of the total debt—is left," KASYANOV emphasized in an interview with Kommersant Daily.

Ruble = 24.9/$1.00 (NY rate)

Ruble = 24.88/$1.00 (CB rate)

Ruble = 26.6/1 euro (CB rate)

Mar Apr May Jun Jul Aug

Japan Prepared To Grant Russian $400 Million

· Japanese Deputy Chief Cabinet Secretary Muneo SUZUKI in Tokyo said the Japanese government is prepared to grant Russia another $400 million as part of a $1.5 billion credit promised last year. According to SUZUKI, Tokyo does not see any obstacles to the earliest granting the tranche to Russia. However, Moscow should prepare, above all, conditions for an efficient use of appropriated funds, he stressed without explaining what he had in mind specifically. This appears to be one of the topics on the agenda of the Russian-Japanese Intergovernmental Commission on Trade and Economic Questions, which will meet in Tokyo on September 1st and 2nd. The $1.5 billion credit was promised back in February 1998 in an untied form,

When you need to know it as it happens




August 13, 1999

Intercon's Daily

that is without an obligation to buy only Japanese goods. However, Tokyo appropriated these funds in conjunction with a program of the World Bank, aimed at updating the Russian mining industry. Release of the new installment was dependent on Russia reaching an agreement with the International Monetary Fund, the World Bank and the Paris Club.


Yeltsin Welcomes New Arms Chief

· Russian President Boris YELTSIN early this morning met with Alexei OGARYOV, the new director of the state-owned arms exporting company Rosvooruzheniye. OGARYOV said the President has requested regular monthly meetings for discussions on "problems of military-technical cooperation with foreign countries." He briefed YELTSIN on the "state of affairs on the sphere of military-technical cooperation and on the state of affairs in Rosvooruzheniye company after the change of the leadership." The President said he would come out with a decree on sales to foreign countries. It would not order changes in Rosvooruzheniye's operations, but would stipulate a simpler mechanism for obtaining permission documents from companies. He cited three problems of Rosvooruzheniye. One is "activation of the work in external markets, the return of positions lost there." The second is activation of the work with enterprises in the defense sector and the third is a "problem of the statute-and-law base." OGARYOV said Russia's arms trade could yield revenues making about 5 percent of Russia's total foreign trade proceeds.

Tyumen Oil Sells 46 Percent Of Ruble Bond

· Russia's sixth biggest oil producer, Tyumen Oil Company (TNK), sold 46 percent of its 2.5 billion ruble bond issues during its first round of session, which ended Tuesday. TNK spokesman Andrei KREVOROTOV said, "The company is satisfied with the results and hopes to sell the rest of the issue in the second tranche in mid-September." The price of the bonds, set at 91.2 of the nominal value of 1,000 rubles, with the yield of 12.5 percent, was based on bids at an auction in July. The five year bond carries a 7 percent coupon and puts option after two, three, and four years into maturity. They are held against currency risk and backed with oil export contracts to France's Total Fina. KREVOROTOV noted that about 30 percent of the bonds were sold to foreign

investors. The company plans to use the proceeds to upgrade its 2 million metric ton Ryazan refinery and develop its fast growing retail network.

European Republics

WB To Grant Ukraine Second Installment

· The deputy executive director of the World Bank, Tamara SOLYANIK, said the Bank is prepared to grant a second $100 million installment of the loan package for Ukraine for programs on restructuring its financial sector. According to her, Ukraine's Deputy Prime Minister Sergei TIGIPKO is due to meet the World Bank leadership during a visit of the Ukrainian governmental delegation to Washington for talks with the International Monetary Fund (IMF) on August 15th to 18th. An agreement on the financial restructuring program between the Ukrainian government and the World Bank was signed in 1998. The total amount of credit is $300 million, of which Ukraine has already received $100 million.

Ukraine To Pay Gas Debt With Bombers

· Russia has agreed to accept eight Tu-160 Blackjack bombers from Ukraine as payment for its debt to Russia for natural gas. According to Russia, Ukraine owes it $1.8 billion, while Ukraine believes its owes only $1 billion. Ukraine said the bombers are worth $25 million a piece. Ukraine typically pays for gas in barter, with the prices set about three times higher than the market price of the goods. Russia has cut supplies to Ukraine on a number of occasions because of gas debts. Colonel-General Anatoly SITNOV, Chief Armaments Officer of Russia's Armed Forces said the bombers will seriously enhance the combat potential of the air component of the country's nuclear triad. He added that, "what we shall receive from Ukraine will enable us to create a normal tactical group capable of accomplishing specific tasks." It is not clear what Russia will do with the aircraft, since they must be dismantled by December 2001 to comply with the Cooperative Treat Reduction Program with the US. The TU-160 was designed with an eye to the long term. The General's estimate is that the aircraft will be able to remain operational until 2010 to 2020 following, naturally, modernization and operational development. All the necessary infrastructure to refine the aircraft is Russian-made. The aircraft was developed mainly by Russian enterprises.

When you need to know it as it happens




August 13, 1999

Intercon's Daily

South Caucasus & Central Asia

Aliyev Meets US Congressional Delegation

· Azeri President Geidar ALIYEV held talks in Baku on Thursday with a visiting delegation of five US Congressmen who had previously visited Yerevan and the unrecognized Nagorno-Karabakh Republic. ALIYEV noted that bilateral relations are expanding, but complained at Congress' failure to repeal Section 907 of the Freedom Support Act, which bars direct US economic and military aid to Azerbaijan as long as the blockade of Armenia and Karabakh remains in force. The Congressmen called for the continued observance of the existing cease-fire and for further direct contacts between the presidents of Armenia and Azerbaijan in order to find a political solution to the Nagorno-Karabakh conflict, RFE\RL Newsline reported.

Kazakhstan Investigating MiGs Sale To N. Korea

· Kazakhstan's National Security Committee on Thursday opened a criminal investigation into the circumstances of an alleged sale of 30 MiG-21 Soviet-made fighter jets to North Korea. This action followed an official complaint from South Korea's Foreign Minister Hong SOON-YOUNG. He expressed "serious concern" over the possible transfer. South Korea's intelligence chief Chung YONG-TAEK said North Korea was assembling at least 30 MiG fighter jets with parts, that were determined by other Seoul officials to be from Kazakhstan. The Kazakh government has promised to thoroughly investigate the case, but has not officially commented on the allegations. On Monday, Kazakh President Nursultan NAZARBAYEV fired Defense Minister Mukhtar ALTYNBAYEV and the chairman of the State Security Committee Nurtai ABYKAYEV for "blatant violation of the rules of selling military equipment." This firing was supposedly linked to the transfer of MiGs to Yugoslavia which were intercepted during a refueling stop in Azerbaijan in March. During that investigation crew members claimed that the six disassembled MiGs were going North Korea, although others said that was the final destination

was the Czech Republic. If the allegations prove to be true, this would be the second arms transfer dispute with Kazakhstan this year. The US State Department spokesman James RUBIN said, "We have serious concerns about transfers of this kind, and we continue to monitor this case very, very, closely." US Vice President Al GORE discussed with NAZARBAYEV on Thursday bilateral, regional and international security issues.

Uzbek Militants Seize Four Kyrgyz Hostages

· Approximately 21 Uzbek gunmen coming from Tajikistan penetrated Kyrgyzstan and seized four officials who arrived for negotiations with them. On July 31st, the gunmen were demanding free passage to Uzbekistan. On August 5th, the head of the local Batkentsk administration Absamat MAMATALIYEV, a national security officer and two officers from the defense ministry left for talks with the gunmen, but did not come back. The gunmen are armed with Kalashnikov submachine and light machine guns, grenades and grenade launchers. The gunmen are staying close to the mountainous village of Zardaly. On Thursday, the terrorists seized a fifth hostage, a national security officer who used to be in charge of communication between the gang leaders and the Kyrgyz law enforcement agencies. They also released Colonel Mamat KONURBAYEV; he serves at the Kyrgyz Ministry of National Security. The terrorists are now demanding a large sum of hard currency. Uzbekistan's Foreign Minister Abdulaziz KAMILOV confirmed earlier reports that some of the militants are Uzbek citizens and members of the armed military formation of Djuma Namangani. He hopes that authorities will not give into terrorist demands, especially safe passage to Uzbekistan without disarming them first. Over 200 policemen are staying in Zardaly and may get air support if necessary. "We do not want to use force and hope that the armed men will leave our territory, but we have enough means to destroy them. We cannot allow blood to shed on the Kyrgyz soil," Bolot DZHANUZAKOV, the head of the defense department of the Kyrgyz presidential administration said.

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

available for non-profit institutions.

Daily Report on Russia is for the exclusive use of the subscriber only. Reproduction and/or distribution is not permitted without the expressed written consent of Intercon. Daily Report on Russia Ó copyright 1999, Intercon International, USA.

When you need to know it as it happens