DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

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

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, September 20, 1999


more than 140 rebels in bombing raids over Chechnya. The Airstrikes hit four rebel tent camps five outposts, and 21 vehicles on the Chechen-Daghestan border. Chechnya has reported that the raids hit civilian villages. Chechnya also said that Russian troops have penetrated about one mile into their territory from Ingushetia and are digging in. Interfax reports that 243 Russian troops have died and 866 wounded with the rebels' losses reported to be 1,500. The latest attacks are in response not only to a militant build-up of about 2,000 inside of Chechnya, but also to a series of bombings in Moscow, Buinaksk, and Volgadonsk killing 300 civilians. Prime Minister Vladimir PUTIN has blamed these explosions on terrorists, namely Chechen militants. "The main thing now is consolidation of society in defense of our citizens against terror." The Federation Council met in closed session on Friday to support a clampdown aimed at "annihilation" the terrorist responsible for the bombing in Russia. Russia also plans to seal all its administrative borders and introduce an economic "quarantine." PUTIN's recent statements have expressed disregard for the Khasavyurt Agreement which ended the 1994 to 1996 Chechen War. He said the agreement has no legal force. "From a legal point of view, it is not an agreement. It was signed outside the legal field of Russia. It is some sort of moral obligation between the two sides." Under the agreement, Russian troops pulled out of Chechnya and put off independence talks until 2001. Approximately 30,000 federal troops equipped with armored vehicles and artillery were

Russian Federation

Politics

Russian Bombers Steered Away From Alaska

· On Thursday, two Russian Tu-95 bear bombers were identified on the radar screens at US Elmendorf Air Force base in Alaska. Two US F-15 fighter jets scrambled from the base to steer away and deter the foreign planes from entering US airspace. The Tu-95 aircraft were approximately 200 miles from the US coast, less than half an hour's flight at the bombers' estimated cruising speed of about 500 mph. They were still 635 miles from Anchorage. According to US officials at Elmendorf and the North American Aerospace Defense Command in Colorado Spring, both bombers turned south well before crossing into US airspace and were about 90 miles from the approaching F-15 fighters. They were identified as Tu-95 bombers with the help of Northwest Airlines; it is unclear how far the Northwest plane was from the two bombers. In June, two bear bombers flew close to the coastline of Iceland and were quickly escorted away by a pair of US Air Force F-15, acting on behalf of NATO. However, this is the first time in six years that bears bombers have been identified off the Alaskan coast. A Russian Defense Ministry spokesman on Saturday said, "The Air Force expresses surprise and regret at the interception of the Tu-95 aircraft, which were carrying out planned flights on the route of Ukrainka-Anadyr-Ukrainka. The aircraft were in neutral air space and the American fighters should not have intercepted them." Anadyr is on the far northeastern tip of Russia, opposite Alaska. The incident comes only days ahead of a Russian delegation visit to Kodiak, Alaska to tour the Coast Guard base and discuss tensions over water rights along the US-Russian border.

Airstrikes On Rebels Continue To Take Lives

· Russian troops on Sunday claimed to have killed

Today's News Highlights

Russia

Luzhkov's Wife Runs For Duma

Inflation-Industrial Output Outlook

Media-Most To Pay $42.2M Debt

European Republics

Belarus-IMF To Hold Loan Talks

Ukraine-Kazakh Sign Agreement

South Caucasus & Central Asia

AIOC Celebrates Five Years

OSCE Chairman In Baku

Kazakh Senate Results To Stand

Politics-Economics-Business

Page


Monday

September 20, 1999

Intercon's Daily

positioning themselves along the border between Daghestan and Chechnya, the Financial Times reported. The new positioning along with PUTIN's statements raise the prospect of another extended conflict. Chechen President Aslan MASKHADOV has called for meeting with President Boris YELTSIN or PUTIN. Preparations had been made for a meeting earlier this summer, but the recent events has pushed the timetable back. With the memory of the humiliation during the Chechen War still lingering, Russian military chiefs and politicians may be reluctant to launch a ground offensive targeted at Chechen militants. Alexander SOLZHENITSYN, the Nobel prize-winning writer, last week said Chechnya should be granted independence, but that all Chechens should then be sent back to Chechnya unless they could justify remaining in Russia. Businessman Boris BEREZOVSKY has called on the Kremlin to be prepared to hold talks with terrorists and warlords. "It is they [the warlords] who really rule Chechnya...It may be unpleasant for many but we have to speak to terrorists. He added that Palestinian President Yassar ARAFAT was once referred to as a terrorist.

Moscow police on Sunday identified a Chechen suspect named Achimes GOCHIVAYEV as leader of the terrorist gang behind the Two bomb attacks in Moscow over the last two weeks. They said he was helped by an Uzbek national Denis SAITAKOV. Police have also arrested two other Chechens, who are being questioned on their involvement.

The Political Vibe Runs In The Luzhkov Family

· Moscow Mayor Yuri LUZHKOV, speaking at a meeting with the students and professors at the Moscow State Technological University, announced on Friday that he would run for another term as mayor. The very next day his wife, Yelena BATURINA, announced she will run for Russia's State Duma for the impoverished province of Kalmykia, the Associated Press reported. It is unclear what ties she has with the barren region on the Caspian Sea. Not unlike her husband, she pledged to help build a Buddhist temple in Moscow, since Kalmykia residents are primarily Buddhist. LUZHKOV has implemented several construction projects to rebuild prominent Russian Orthodox Churches. BATURINA has said that she will run as an independent candidate. It is not clear whether or not she will affiliate with LUZHKOV's centrist All Russia-Fatherland Party. A

seat in the Duma would give BATURINA immunity from prosecution. Her company Inteko is among several hundred being investigated in a money laundering probe. Her business accounts are also under investigation by tax and security officials. LUZHKOV and BATURINA deny that Inteko did anything illegal. Earlier this summer, a search of her business coincided with the aftermath of some LUZHKOV anti-Kremlin statements. BATURINA insists the investigation into her businesses is not the reason behind her parliamentary bid.

Economy

Ruble = 25.41/$1.00 (NY rate)

Ruble = 25.41/$1.00 (CB rate)

Ruble = 26.43/1 euro (CB rate)

Russia's Inflation And Industrial Output Outlook

· Finance Minister Mikhail KASYANOV on Friday in a report to the parliamentary budget committee said that Russia's inflation will grow to more than 40 percent by the end of the year, higher than the 30 percent previously projected by the government. He told the committee that the government has the situation under control. Maintaining a low level of inflation is a condition set by the International Monetary Fund (IMF) for Russia to receive loans. KASYANOV predicted that inflation in 2000 will drop to around 20 percent. Although no major economic reforms have been implemented, Russia's economy is showing signs of improvement. He also pointed out that the government will have enough money to begin gradually repaying loans received from the Central Bank this year to pay off state debts.

The nation's industrial output increased 5.9 percent to 1.756 trillion rubles for the first 8 months of the year, according to the Russian Statistics Agency. As of August, production recovered by 16 percent compared to the same period in 1998. Among the fifteen major industries monitored by the statistics agency a slump in production in the period was identified in the printing industry 3.5 percent, and medicine 0.2 percent. The most significant rise in production at 30.1 percent was achieved by the microbiology, which is followed by the chemical and petrochemical industries 18.3 percent, forestry 14.3 percent, engineering and metal-working 10.3 percent, construction materials 10.2 percent, food industry 9.9 percent, glass, porcelain and semi-porcelain industry

When you need to know it as it happens

Politics-Economics-Business

Page


Monday

September 20, 1999

Intercon's Daily

9.7 percent and ferrous metallurgy 9.6 percent. The output of the ferrous metallurgy between January and August increased by 7.9 percent, textile 6.1 percent, flour-and- cereals and fodder industries 6.7 percent, fuel industry 1.6 percent, and power generation 0.2 percent.

Business

Media Most Forced To Pay $42.2M Debt

· The Moscow court of arbitration Thursday complied with the demand of Vneshekonombank that Media-Most company should meet its liabilities under a credit agreement and pay off the debt in the amount of $42.2 million, including the interest on credit. The court ruled to recover the debt from Media-Most and Bonum Company which acted as surety for Most's liabilities under the agreement.

signed a long-term bilateral cooperation program in Kiev. "There are no discrepancies between our countries. We are striving for cooperation," KUCHMA said after the signing. Ukraine is "interested in cooperation with Kazakhstan, especially in the fuel and energy field," he said. NAZARBAYEV said Kazakhstan might sell Ukraine 1.5 million tons of crude, but "it is necessary to come to terms with Russia about the quotas because oil is still being transported through its territory." However, oil will be running though the Azeri capital Baku and the Georgian port city of Poti to Ukraine beginning in 2001, which is why Kazakhstan is interested in the privatization of two Ukrainian oil refineries: in Kherson and Lisichansk. It has been pointed out that Kazakhstan is short of refining capacity, while Ukraine's Lisichansk refinery with a capacity of 16 million tons is standing idle. Kazakhstan's fast growing oil output could reach 230 million tons by 2012. NAZARBAYEV said Ukraine could be part of the TRASECA Transport Corridor Europe-Caucasus-Asia, which is a EU sponsored project that aims to forge a new Silk Road from Europe to Asia through the Caucasus and Central Asia. The two Presidents also signed agreements on fighting tax violations, customs cooperation, emergencies prevention, health care, banking and finances, and extradition of convicted criminals.

South Caucasus & Central Asia

AIOC Celebrates Five Year Anniversary

· Five years ago today, Azerbaijan International Operating Company (AIOC) signed an $11 billion oil contract, making Azerbaijan open to large foreign investment. Igor EFIMOFF, president of Pennzoil Caspian Corporation, with a 4.82 percent stake in AIOC, reflected, "once parliament ratified AIOC's production sharing agreement (PSA), it laid the groundwork for future PSAs and gave companies the security of knowing that their deals were enshrined in law." Since its inception, AIOC has invested $2 billion in renovating and building infrastructure, including drilling platforms and rigs, pipelines and two terminals. Azeri oil was first exported in November 1997 through a northern Russian route, but since earlier this year, AIOC has been shipping all of its 115,000 barrels per day through a second pipeline west through Georgia. AIOC president David WOODWARD said, "In a way AIOC has been a pilot project that has shown other western companies that

European Republics

IMF Calls For Belarus Reforms Before Loans

· The International Monetary Fund (IMF) has called on Belarus to implement economic reforms in order to win new loans. The IMF and Belarus leadership will discus economic policies at a meeting later this month in Washington. Belarus had said it will "insist and demand" the IMF lend it $230 million. Kathleen WHITE, an IMF spokeswoman, said "The Fund staff is looking forward to the visits of the Belarussian delegation...which will give staff an opportunity to evaluate the strength of the authorities' plans as well as the commitment to them at the highest level in Belarus for bringing down inflation, liberalization of the economy and structural reform." She added that, "clear implementation of comprehensive measures in these areas would be absolutely necessary for any consideration by the IMF of financial support for Belarus." Central Bank chief Pyotr PROKOPOVICH said that Belarus' economic policies were broadly in line with IMF requirements. He said, "We have decided to ask for financing under a Contingency and Compensatory Fund Facility loan and a stand-by program." The IMF's last loan to Belarus was for $270 million. Belarus only received $68 million of it because of failure to meet loan term

Ukraine-Kazakh Sign Cooperation Agmts.

· Ukrainian President Leonid KUCHMA and Kazakh counterpart Nursultan NAZARBAYEV on Friday

When you need to know it as it happens

Politics-Economics-Business

Page


Monday

September 20, 1999

Intercon's Daily

it's possible to work in Azerbaijan to the same standards they work anywhere else in the world."

While AIOC has achieved many successes over the last five years, it is holding back on what could be its most profitable investment. AIOC is refusing to committed to a proposed main export pipeline to carry Azeri oil from Baku to Ceyhan through Supsa. WOODWARD said that the consortium could not begin the first phase of development on three offshore fields until 2002 or an export solution to the transportation problem to western markets. AIOC, Azeri State Oil Company (Socar), and the Azeri, Turkish, and Georgian governments have been holding negotiations on and off on the subject, but have not been able to find common ground. WOODWARD said, "We need to discuss what level of commitment to Baku-Ceyhan there will be. We certainly haven't had the depth of discussion that are needed for these issues." All three governments support the Baku-Ceyhan as the one and only way out for Azeri crude. The question remaining is who will foot the $2.4 billion bill for the 2,000 kilometer pipeline and if there will be 6 billion barrels of committed reserves to make the pipeline viable. The AIOC as of now can only guarantee 4 billion of proven reserves. US Caspian Energy Resources Advisor to the President John WOLF said at the International Conference for a Peaceful Caucasus on Ways of Integration East-West that all other projects for transportation of crude to Turkey are economically inadvisable. He believes that, "it is necessary to directly start implementation of" Baku-Ceyhan, adding that the realization of such large energy projects will promote stability and peace in the region.

OSCE Chairman Visits Baku

· Norwegian Foreign Minister Knut VOLLEBAEK, who hold the rotating chairmanship in the Organization for Security and Cooperation in Europe (OSCE), on Friday arrived in Baku after visiting Yerevan and Tbilisi. He said positive changes might soon arise in the settlement of the Nagorno-Karabakh conflict. At

a meeting with Azeri Foreign Minister Tofik ZULFUGAROV, VOLLEBAEK said he highly assessed a direct dialogue between presidents of Azerbaijan and Armenia as one of the factors of success in the negotiating process. According to him, his bringing three Azeri POWs, released by Armenia, to Baku was a manifestation of such positive tendencies. The OSCE chairman assured that OSCE would do its utmost to reach the soonest solution in settling the conflict.

Beginning next week, VOLLEBAEK will start a five Central Asian nation tour. He will visit Turkmenistan, Uzbekistan, Tajikistan, Kyrgyzstan and Kazakhstan from September 28th to October 4th. VOLLEBAEK will meet the leadership of these countries, the foreign ministers, parliament members and will visit the OSCE missions in these states. Active work is being done by preparing the OSCE summit to be held in Istanbul on November 18th and 19th. The summit is expected to adopt a charter on European security.

Kazakh Senate Results To Stand

· Kazakhstan's Central Election Commission said it had discovered no serious violations during Friday's vote to the Senate, or upper parliamentary chamber, and that the results would remain. In the vote, 16 new senators were elected by deputies in city and regional assemblies. The Organization for Security and Cooperation in Europe (OSCE) said the election proceedings fell short of international standards, especially around Almaty. It said the vote was marred by pressure on voters not to support opposition candidates and reports of "illegal interference by local authorities." A group from the commission carried out an investigation and announced there was no basis for reviewing or recounting the votes. Kazakhstan has been sensitive to OSCE criticism, since it slammed the January presidential elections and refused to recognize the results. President Nursultan NAZARBAYEV won the vote by a landslide, after his main contender was banned from the ballot on a legal technicality.


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

Politics-Economics-Business

Page