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

Monday, August 16, 1999

one month. The MASKHADOV's decree said the, "party of war" in Russia wanted revenge for defeat in the 1994 to 1996 war in Chechnya, and to provoke tensions in the volatile North Caucasus. It stated, "[They] have created the threat of a new war in the Caucasus and the collapse of pervious agreements with the leadership of the Russian Federation and the Chechen Republic." The decree also imposes a curfew and a ban on all media except state-owned television. It ordered military units, especially on the border, to be on ready alert. Russian troops in five armored vehicles crossed into Chechnya on Friday and moved into an area where the rebels appear to have been based and trained. Chechnya insists it has nothing to do with the rebel incursion into Daghestan. The Islamic militants are led by former Chechen field commander Shamil BASAYEV and KHATTAB. They were shown on Russian television channels inspecting fighters as well as footage showing the destruction of Russian helicopters. Russia's Prime Minister Vladimir PUTIN has said that "international terrorists" are behind the conflict. KHATTAB is said to be of Jordanian origin and even Saudi-born Osama bin LADEN has been linked to supporting the gunmen in Daghestan. The Russian Foreign Ministry has warned Islamic states not to interfere in Russia's internal affairs or face "all the logical consequences." It did not specify which Moslem states it had in mind. But Russian officials have said that the many of the gunmen are from the Wahhabi sect, which is funded by Saudi Arabia and Kuwait.

Russia today resumed its air

Russian Federation


Putin Sails Through Duma Confirmation

· Russian President Boris YELTSIN's choice for prime minister and his anointed heir, Vladimir PUTIN was easily approved by the Russian State Duma today in a vote of 233 to 84. Approximately 120 deputies did not bother to vote. PUTIN only needed a majority of the 450-seat Duma and that even on Saturday seemed to be in place, since many of the parties had expressed their support. Many deputies felt the need to approve PUTIN to avoid a conflict with the Kremlin that could have led to the dissolution of the Duma. With parliamentary elections just around the corner on December 19th, deputies need the position to launch re-election campaigns rather voice a pointless challenge to the Kremlin. Their vote for PUTIN did not keep them from harshly criticizing YELTSIN's erratic behavior, his excessive firings, and his drive to protect his inner circle of power from scandalous investigations. Duma deputies believe that Sergei STEPASHIN was sacked purely for his failure to stop the formation of an anti-Kremlin political movement. PUTIN faces that challenge of slowing down the movement's influence as well as deal with the crisis in Daghestan. PUTIN promised to continue with STEPASHIN's policies. He pledged to pay off pensions, help the poor, improve the army's moral, and continue with market-oriented economic policies. PUTIN stressed stability, law and order, and continuity in reforms, but no big changes in the government. "One of the main tasks is to secure calm and order in the country."

Chechnya Declares State Of Emergency

· Chechen President Aslan MASKHADOV, fearing Russia's threat to crush Islamic militants wherever they may run, including in Chechnya, declared a state of emergency on Sunday from the period of

Today's News Highlights


2000 Budget Tough, Realistic

Gazprom Reports 1998 Losses

European Republics

Litimpeks Bank Closes

Kiev Seeks Renewed Lending

South Caucasus & Central Asia

Rus Experts Finish Investigation

Tajik-China Sign Border Agrmt

Caspian Development Service

Turkmen To Sue Ukraine?




August 16, 1999

Intercon's Daily

campaign against the Islamic rebels in Daghestan pounding them with Russian Su-25 jets and Mi-8 helicopters. The rebels are concentrated in the villages of Ansalta, Rahata, Tuban, and Shodroda. The Russian air force attacked 198 targets on Sunday, and destroyed two buses carrying militants. War planes also dropped mines to block possible rebel escape routes. Russian President Boris YELTSIN today said, "There will be tough measures in the North Caucasus and we will restore order there in Daghestan and other regions. But once again, I state it firmly as President: there will be no state of emergency."


Ruble = 25.05/$1.00 (NY rate)

Ruble = 24.86/$1.00 (CB rate)

Ruble = 26.3/1 euro (CB rate)

2000 Draft Budget Tough And Realistic

· Russian Tax Minister Alexander POCHINOK said the draft budget for 2000 is "hard, tough but realistic." He told the Ekho Moskvy radio station on Saturday that, "this budget is well balanced and reasonable, and I support it." He stressed that the draft budget for 2000 is not a "concession to international financial organizations. This is a professional budget for us ourselves, it allows us to collect more revenues and direct them to where we need them most. It is not a bad budget for the country and I am not sure that a better one can be worked out now." POCHINOK noted that there is no room for bargaining with the Russian State Duma. "I hope that the State Duma will treat the budget well because there is no skeleton in the cupboard," he added. The new budget sets the deficit at 1 percent to 2 percent for the first time.

Deputy Tax Minister Mikhail MOTORIN said on Friday Russia's tax legislation will witness major changes in 2000. The part of the Tax Code dealing with the profit tax and, probably, the value-added tax will hopefully be adopted in 2000, MOTORIN said. He noted that the road tax is likely to be 1 percent lower. "These changes have been written into the 2000 draft budget," he said. The government also intends to cancel the fuel tax, and increase the gasoline excise and introduce an oil-and-diesel excise instead. Several taxes will be abolished due to the introduction of the sale tax which will span all Russia by 2000, according to MOTORIN.

Tax Police To Investigate Major Payers

· The Russia's Tax Ministry is planning to inspect all divisions of major tax payers. It will investigate the assets of Unified Energy System of Russia to estimate how much taxes it is able to pay to the federal budget, Minister for Taxes and Duties Alexander POCHINOK said Thursday. The ministry has already began inspecting branches of Russia's oil and gas giant Gazprom. It is now considering an additional agreement on tax payments with that company, POCHINOK added. The Taxes Ministry continues to conduct investigations into the activities of banks. According to POCHINOK, several dozens of these banks owe 35 billion rubles (about $1.4 billion) to their creditors, including 17 billion rubles to the federal budget. "The Central Bank of Russia intensively revokes licenses from such unscrupulous banks," the Tax Minister noted.


Gazprom Reports 1998 Losses

· Russia's gas monopoly Gazprom on Friday reported that it lost 147 billion rubles or $5.9 billion in 1998 due to the nation's financial crisis and a slump in world energy prices. Gazprom in 1997 earned a profit of 20 billion rubles. The loss would be worth $800 million at current conversion rates, but about $3 billion at the conversion rate in effect in 1997. Gazprom calculated its figures using international accounting standards. A company statement said, "The operations of the group have been significantly affected by instability in the Russian Federation's economy, caused in part by its currency volatility, and may continue to be so for the foreseeable future." Gazprom holds about a third of the world's known gas reserves.

Russia Rejects Der Tagesspiegel Article

· Russia's Fuel an Energy Ministry have rejected to an article printed in German newspaper Der Tagesspiegel regarding Gazprom. The newspaper reported that Russian President Boris YELTSIN plans to renationalize Gazprom and that Fuel and Energy Minister Viktor KALYUZHNY would put forward the renationalization motion at the extraordinary shareholders meeting on August 26th. It said that KALYUZHNY will introduce a move to revoke government's trust agreement with Gazprom chief executive Rem VYAKHIREV that allows him to manage 35 percent of Gazprom's shares on behalf of the

When you need to know it as it happens




August 16, 1999

Intercon's Daily

government. The Wall Street Journal quoted the ministry's spokesman as saying, "This is nonsense," adding that Gazprom is a joint stock company of which the government owns a share. However, the spokesman said the issue of who will manage the shares may arise at the next board meeting."

South Caucasus & Central Asia

Russia Reaches Conclusions On Bombing

· A team of Russian military experts have concluded their investigation on the August 9th bombing of Zemo Omalo, in which three people were injured. The investigation has established that the one MiG-29 and two Su-25 fighter jets violated Georgian airspace dropping Soviet-made cluster bombs and land mines, which are banned by international conventions. It failed to confirm, however, that the three aircraft belonged to the Russian air force. The planes were said to have invaded Georgia's airspace near the village of Bochormi in the Akhmeta district that borders Chechnya and Dagestan, flying in from Russia and heading out towards Daghestan. Georgian Foreign Minister Irakly MENAGARISHVILI stressed that the investigation must find out whether it was a mistake or a planned action. The Russian General Staff spokesman said "air force planes are not fulfilling tasks in the airspace of Dagestan, and they cannot violate the air border of the states adjacent to Russia." Georgian parliament speaker Zurab ZHVANIA, state border guard department chief Valery CHKHEIDZE, interior troops commander Georgy SHERVASHIDZE, Health Minister Avtandil DZHORBENADZE and a group of medics flew to the Akhmeta District with the Russian team. The Russian experts came to Georgia under an agreement reached by Defense Minister David TEVZADZE and his Russian counterpart Igor SERGEYEV last Tuesday. The head of the group of experts, deputy chief navigator of the Russian air force Boris MASYAKIN, will report the results of the mission to SERGEYEV. The Russian team examined fragments of air bombs and interviewed local residents. MASYAKIN noted that the investigation of the incident would continue in Russia where air force units would be inspected and reports from Russian air-defense units that monitored airspace over the Georgian border in the Chechen-Daghestan direction would be examined.

Kidnappers Release Kyrgyz Hostages

· On Friday, 21 Uzbek kidnappers released four hostages they had been holding for two weeks. The captives included two defense ministry officers sent to hold talks with the kidnappers and the head of the local administration. The kidnappers had been demanding a large amount of hard currency and free passage to Uzbekistan. Kyrgyz government officials

European Republics

Litimpeks Bank Closed For Millions Of Debt

· The Central Bank of Lithuania has ordered a halt to nearly all activities at the troubled Litimpeks Bank, which ceased operating on Friday. The small bank, which accounts for only 2.6 percent of the banking market, faces liquidity, being unable to cover some 30 million litas ($7.5 million) of debt, RFE\RFL Newsline reported. The Central Bank stated that several foreign investors are interested in Litimpeks. However, they warned that if investors do not materialize soon, the bank could be liquidated.

Ukrainian Delegation Seeks Renewed Lending

· A Ukrainian government delegation, headed by Deputy Prime Minister Sergei TYHYPKO and including Finance Minister Igor MITYUKOV and Viktor YUSHCHENKO, are holding talks this week with the International Monetary Fund (IMF) in Washington, DC to discuss the disbursement of an IMF loan installment to Ukraine. On August 3rd, an IMF mission completed an analysis of Ukraine's implementation of the program provisions. At the end of August, the IMF Board of Directors will consider approving a third revision of the extended financing program. After that, the IMF could grant a regular installment of $180 million to Ukraine. Ukraine has been working to meet IMF program guidelines. Since September 1998, Ukraine has received $788 million worth of credits under the extended financing program, which is to provide an aggregate amount of $260 million. In May 1999, the IMF increased the program by $365 million.

TYHYPKO will also meet with the World Bank to agree on the date for releasing a $100 million installment under the so-called Financial Sector Adjustment Loan program. Meanwhile, the Ukrainian gryvnia has stabilized and returned below the government exchange limit of 4.6 gryvnia to $1. On Friday, the gryvnia was trading at 4.54 gryvnia to $1.

When you need to know it as it happens




August 16, 1999

Intercon's Daily

declined to release any information on the whereabouts of the kidnappers or the circumstances of the hostages' release. But Interfax quoted "unofficial sources" as saying that the Kyrgyz leadership had complied with the kidnappers' demand for a ransom. Police official from Batken are continuing talks with the kidnappers in the hope of persuading them either to surrender their weapons or to leave Kyrgyz territory. The country's top law enforcement officers remain in Batken.

Tajikistan-China Sign Border Agreement

· Chinese President JIANG Zemin and Tajik President Emomali RAKHMONOV signed at the Yellow Sea port of Dalian on Friday an agreement on the Chinese-Tajik state border marking sections going along the Karauzak pass and the river of Markansu. However, no agreement has been reached on the most difficult Pamir section. China disputes a considerable part of Gorny Badachsan. During RAKHMONOV's stay he will meet with Chinese leaders and both sides will have a wide-ranging exchange of views on bilateral, regional and international issues of common concern. Also discussed will be problems of combating drug trafficking and the situation in Afghanistan. RAKHMONOV said Tajikistan hopes to co-exist harmoniously with its great neighbor of China, and jointly explore mutually beneficial cooperation in various fields. Also on Friday, the two heads of state signed three more documents, including a joint declaration and inter-governmental agreements on a joint fight against drug trafficking and car travel between the two countries.

National Service Established For Caspian

· Turkmen President Saparmurat NIYAZOV decreed on Thursday to set up the National Service for the development of the Turkmen sector of the Caspian sea where potential oil reserves are estimated at 17 billion tons of conditional fuel. NIYAZOV told a government meeting that "the body is from now on responsible for designing and implementing state programs for the development of resources in the Turkmen sector of the Caspian sea". He added,

"Turkmenistan has considerable advantages in research and prospecting as it possesses 62 percent of the southern shelf of the Caspian sea where most oil accumulations are located." The service is to be headed by the President and will issue licenses for the development of all types of resources in the area, including fishing, for navigation, for the construction and operation of industrial objects there. It will have a Supreme Council and an executive board.

Turkmen Threatens To Sue Ukraine

· Turkmenistan is prepared to go to the court of arbitration over Ukraine's gas debt, according to a Foreign Ministry statement. "If Ukraine does not make constructive decisions shortly to pay off debts for the gas received this year," Turkmenistan will take the issue to court. Turkmen gas deliveries to Ukraine were carried out from January 1st to May 21st, 1999, in accordance with a bilateral agreement for the delivery of 20 billion cubic meters of gas in 1999. The intergovernmental agreement was signed by Ukrainian President Leonid KUCHMA and Turkmen President Saparmurat NIYAZOV. The buyer is the state-owned oil and gas company, Neftegas Ukrainy. Under the deal, it is to pay in hard currency for 40 percent of gas deliveries in commodities for 50 percent of deliveries, while the remaining ten percent are paid through investment projects by Ukrainian partners on Turkmen objects. The gas price on the Turkmen-Uzbek border totals $36 for 1,000 cubic meters. Debt problems emerged as early as May. On May 21, Turkmenistan had to cut off gas supplies to Ukraine following a halt in gas transit through Kazakhstan. As of August 12, Ukraine paid for only 9.9 percent of the gas deliveries. There have been no talks on the resumption of gas supplies to Ukraine up till now.

Daily Report on Russia & FSU

will not be published

during August 23rd to 27th

for Intercon's Summer Break

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