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

Thursday, September 23, 1999

Russian Federation

Politics

Russian Air Force Bombs Chechen Airport

· Russian warplanes bombed the airport in Chechnya's capital today, killing one person and destroying the an Anontov An-2, a mall multi purpose aircraft and the only plane other than President Aslan MASKHADOV's official jet, which has been grounded for lack of spare parts. The warplanes also attacked arms depots at the airport, a radar stations believed to have been used by Chechen rebels, a fuel dump, an oil processing plant, and an electrical sub-station. It is not known what damage was done. These sorties have been the largest scaled attack on Grozny since the end of the 1994 to 1996 Chechen War and strongest indication that the two sides could be drawn into another long conflict. "The Russian Air Force will make air raids, in future too, on facilities which will be used by armed gangs in their interests," the Air Force press service stated. The Russian military had said it would carry out airstriked on militant targets even inside Chechnya. On Wednesday, the Air Force launched a further 30 attacks over Chechnya. Chechen militants, who Russia is blaming for five major explosions in Moscow and two southern cities, attacked three Russian border guard posts along the frontier with Chechnya. News of the attacks came as the Chechen government was already meeting in an emergency session to discuss its armed forces' readiness, "to rebuff the aggression of the Russian federation." Chechen officials say that the Russian Air Force are hitting civilian villages, instead of terrorist camps. Russian Prime Minister Vladimir PUTIN, who disavowed the 1996 peace accord last week, was also holding talks with senior ministers in Moscow. Deputy Interior Minister Igor ZUBOV said that troops were ready to enter Chechnya if necessary, but stressed that such a move would result in heavy losses and requires a political

decision. He noted that the border with Chechnya is now sufficiently controlled to limit possible further incursions by rebel movements. An estimated 5,000 to 7,000 rebels are said to be gathering along the border, preparing for another invasion. Alexander PIKAYEV, of the Moscow Carnegie Center, said, "Everything is pointing to the authorities using force against Chechnya. The only guarantee that there'll be no new invasion is the fact that the armed forces are so weak." Russia simply doesn't have the resources to launch a full-scale invasion of Chechnya or even seal off its border with Chechnya, The Wall Street Journal reported. A visit by Defense Minister Igor SERGEYEV to Switzerland, scheduled for September 23rd to 25th, has been canceled as the result of a, "difficult political situation in the country and the continuing operations of federal troops against illegal armed groups in the North Caucasus region," according to the Ministry.

New Political Bloc Formed: Unity

· A new election bloc named Unity has been formed by several regional governors to rival All Russia-Fatherland. Among those regional leaders who signed the appeal are the governors of Kursk, Kaliningrad, Belgorod, and Sverdlovsk Oblasts, Primorski Krai, and Chukchi Autonomous Okrug. Chukchi Governor Alexander NAZAROV said more than 50 members of the Federation Council have already joined the new bloc. Their aim is to make the next Russian State Duma free from political wrangling. "We offer quite apolitical people. We create this bloc to elect people to

Today's News Highlights

Russia

Constitutional Amendment Fails

EBRD Continues Rus Investment

European Republics

Yamal-Europe Section Opens

Ukraine To Sign PSA Law

South Caucasus & Central Asia

NATO To Increase Financing?

Baku-Ceyhan Talks Continue

Silk Road Administration Created

Uzbek-Egypt Sign Taxation Agmt

Politics-Economics-Business

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Thursday

September 23, 1999

Intercon's Daily

the Duma from our territories who are normal as well as industrious men and who now work and live among us," NAZAROV underlined. He flatly rejected suppositions that the creation of the new bloc was masterminded by well-known Russian tycoon Boris BEREZOVSKY. A founding congress will be held in the near future, at which time the bloc hopes to approve Emergencies Minister Sergei SHOIGU to lead the movement. SHOIGU has not been connected with any political forces during his years of work in the government. Therefore, governors "zeroed in on" him, since he is "not smeared with politics." SHOIGU stated, "I received this offer, I have not rejected it. But I have not given a final answer." NAZAROV said that the new bloc is necessary in order to counterbalance all parties and movements which are engaged in "political mongering," including Our Home is Russia led by former Prime Minister Viktor CHERNOMYRDIN and Voice of Russia organized by Samara Governor Konstantin TITOV.

Meanwhile, a new scandal rumor is spreading in Moscow about Mayor Yuri LUZHKOV, who founded the Fatherland Party. It has been reported that LUZHKOV bought a thoroughbred horse from Germany at an estimated price of $120,000 to $150,000, which was paid by the Bank of Moscow. The bank's president Andrei BORODIN said on Wednesday it is planning to file a suit against ORT Television for airing the story, adding that LUZHKOV was also angered by the publications. He said that the Bank of Moscow effects international payments daily on request of its clients, but it has never transferred money to a German stud farm, BORODIN stressed. The Bank of Moscow does not finance any political parties or groups, including the Fatherland movement headed by LUZHKOV. "Our work is based on the laws of banking activity," that is why the bank issues no "political" credits and will not do so in the future.

Amendment To Curb Presidential Powers Fails

· The Russian State Duma failed Wednesday to approve draft constitutional amendments that would require the Duma's consent for presidential appointments or dismissals of the prime minister, his deputies and seven key ministers. Only 221 deputies voted in favor of the draft, 79 less than the 300 votes required for its passage in the first reading. President Boris YELTSIN's representative in the Duma, Alexander KOTENKOV, opposed the amendments, say

ing they failed to foresee a situation if the Duma refuses to endorse a dismissal of the prime minister and other key ministers. In addition, the new measures would make government ministers dependent on parliament, KOTENKOV said.

Economy

Ruble = 25.31/$1.00 (NY rate)

Ruble = 25.29/$1.00 (CB rate)

Ruble = 26.41/1 euro (CB rate)

Kasyanov Negotiates With The London Club

· Russian Finance Minister Mikhail KASYANOV and Vneshekonombank president Andrei KOSTIN arrive in Frankfurt today for talks with the London Club of creditors. The one-day talks will center on the restructuring of the foreign debts of Russia and of the Soviet Union to which it is successor. The Russian side made its proposals last week, and their discussion will be continued. Details of the talks, are confidential and even their venue has not been disclosed. The talks of KASYANOV and KOSTIN with Western creditors will be difficult, the chief of the Deutsche Bank's Eastern Europe department, Andreas GUMMICH said. He added that Russia's key problem is its inability to service all of its foreign debt. This year the government can only afford to repay $9 billion of $17.5 billion. GUMMICH said he was surprised that Russia is still able to pay such a substantial amount. Differences from earlier talks on September 15 and 16th have emerged. The London Club is interested in transformation of the former Soviet Union's debt into Russian Eurobonds. However, Russia is unprepared for this and is negotiating for lower interest rates on loans, a write-off of over $10 billion of the debt and deferment of debt repayment for eight years, GUMMICH said.

EBRD To Continue Relations With Russia

· The European Bank for Reconstruction and Development (EBRD) said it will continue its cooperation with Russia and plans to invest $315 million to $420 million in the Russian economy. EBRD president Horst KELLER said in a report on the EBRD's financial state in the second quarter of 1999 published on Wednesday that despite the complicated investment situation in Russia, the bank is not going to quit Russia. The EBRD will concentrate on Russia's private sector. According to the report, the EBRD earned a $3.58 million profit in Russian in the second

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quarter. This indicates a radical improvement compared with the first quarter of 1999, when the EBRD suffered a $7.8 million loss caused partially by Russia's economic crisis. The EBRD has embarked on an new strategy which calls for balanced investment in Russia and Central Asia through projects in Central Asia and the Baltic republics. KELLER said the EBRD has the goal of getting over $2 billion in profit this year and over $3 billion in 2000.

Business

New Vneshtorgbank Chairman Appointed

· Central Bank chairman Viktor GERASHCHENKO said on Wednesday that the observer council of Russia's Vneshtorgbank has sacked its board chairman Dmitry TULIN and replaced him with Yuri PONOMARYOV. The council also introduced amendments to the bank's statute, reducing the number of board members from 11 to 5. GERASHCHENKO said, "The bank's most critical times are over," due to the aftermath of the August, 1998 economic crisis. PONOMARYOV, a graduated from the Moscow Financial Institute, worked in Vneshtorgbank from 1969 to 1980 and became general manager, in 1986. He has also worked in London as deputy chairman of the board of directors and general manager of the Moscow Popular Bank and at Eurobank.

$1.5 billion will be invested in Belarus alone. The builders will have to cross 200 kilometers of marshland , put up 75 bridges, and arrange ten railway and 42 automobile road crossings.

Ukraine To Sign PSA Law

· Ukrainian President Leonid KUCHMA is shortly expected to sign a long-awaited law on production sharing agreement (PSA), opening a new era of investment in the oil and gas industries. Deputy head of the National Agency for Reconstruction and European Integration Alexander SHAPOVALOV said, "I think it will be signed in the near future...if not this week then perhaps on Monday...Ukraine will make a very, very big step in the directions of attracting foreign investment for the development and processing of its natural resources." Ukraine's State Oil and Gas Committee estimates its crude oil reserves at 1.05 billion tons Big foreign firms have put their interest in these reserves on hold until PSAs can be issued. Ukraine is also rich in mineral deposits, titanium, uranium, and copper.

South Caucasus & Central Asia

Georgia-AES Negotiate Power Contract

· Georgian Deputy State Property Manager David GELASHVILI on Wednesday said that the tender commission has made a decision to start negotiations with Virginia-based AES Company on signing a contract on privatizing Georgia's energy distribution companies and energy general establishments united in the first lot. Prime News Agency reported that 75 percent of Rustavi Energy Company (Relasi) and 80 percent of Tbilisi Heat Power Station (TbilSRES) are to be sold from tender and 100 percent of Khrami-1 and Krami-2 hydro power stations are to be turned over for management for the next 25 years. GELASHVILI said that agreements with AES Company will be made by the end of next month.

NATO To Increase Financing For Georgia?

· Commander of south-east direction of NATO, Turkish general Tamer AKBASH plans to propose increase of financing for the Georgian Armed Forces partnership with NATO at the October session of NATO leadership. Head of NATO Partnership For Peace program under Georgian Armed Forces General Staff Irakli BATKUASHVILI said that the partner

European Republics

Yamal-Europe Pipeline Section Opens

· The first section of the new stretch of the transcontinental Yamal-Europe gas pipeline was officially opened on Tuesday near the Belarus town of Slonim. It runs from the compressor station in Nesvizh, Belarus to the Polish border. The pipeline stretches 209 kilometers long and will link up with the Polish section of the Yamal-Europe gas pipeline, which will be put into operation on today. It will be joined at Nesvizh to the already operating Torzhok-Minsk-Ivatsevich system. The project will allow Russia to annually export up to 30 billion cubic meters of gas to Europe not only across Ukraine, but also via Belarus and Poland. The total annual capacity of the system will amount to 68 billion cubic meters. The construction of the Belarus section of the Yamal-Europe pipeline is fully financed by Russian gas monopoly Gazprom and the Stroitransgaz Joint Stock Society is general contractor. Approximately

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ship of Georgian Defense Ministry is 70 percent financed by NATO. General AKBASH arrived on a working visit in Georgia September 19th. During the visit, the NATO general met with Georgian Defense Minister David TEVZADZE. General AKBASH departed from Tbilisi for Izmir Wednesday.

Baku-Ceyhan Negotiations Continue

· A new round of formal negotiation for the Baku-Ceyhan main export pipeline has resumed today in Ankara between the Turkish government and Azerbaijan working groups led by of the head of foreign investments department of Azeri State Oil Company (Socar) Valekh ALESKEROV. According to Azerbaijan International Operating Company (AIOC) president David WOODWARD, the sides are to discuss number of issues on final value of the project, transit tariffs, and documents that would outline a legal basis for the project. The problem is that Baku-Ceyhan pipeline can be commercially profitable only if 6 billion barrels of oil are transported, while reserves of Azeri-Chirag-Gyuneshli fields owned by AIOC only have 4 billion barrels of oil available. It is necessary to find additional 2 billion barrels of oil in Caspian basin, otherwise the project will appear commercially unprofitable. Turkish Energy Minister Cumhur ERSUMER predicts that the pipeline will be operational in 2004. He is hopeful about the outcome of the talks saying, "Everyone want as decision as soon as possible." The US supports that pipeline along this route because it will help stabilize the region and serve long-term US interest. Alternative routes will go from Baku to Iran or the Baku-Supsa route. WOODWARD has called for expanding the Supsa route, suggesting that it would be adequate to accommodate current low production volumes.

Silk Road Administrative Body Created

· At a three-day international meeting in Tashkent, which ended Wednesday, thirteen countries including China, Uzbekistan and Turkey vowed to revive the ancient Silk Road, a transport corridor linking Central Asia, the Caucasus region, and Europe. Participants agreed that the Silk Road is important

for improving the economic development of the countries along the route. Uzbek President Islam KARIMOV hailed the Silk Road for helping to economic and cultural development of many countries. Georgian President Eduard SHEVARDNADZE in a speech to the UN said that the Silk Road connecting East and West, North and South allows for the exchange of ideas and diffusion of cultures. Chinese Deputy Minister of Communications ZHANG Chunxian said China has signed agreements on transportation with Pakistan, Kazakhstan, Kyrgyzstan and Uzbekistan which opened up inland transport channel linking China with those countries, and represents an important step to revive the Silk Road. He said China hopes to promote auto transportation along the Silk route. The declaration of the meeting also said that settling disputes in border demarcation, removing contrived obstacles to transportation and creating a good transport environment are important to trade among the countries. The meeting proposed to set up a council of transportation and communications ministers of these countries, and a standing administration body.

Uzbek-Egypt Reach Taxation Agreement

· Uzbekistan and Egypt on Tuesday signed an agreement on avoiding double taxation in an effort to promote economic and investment cooperation between the two countries. The agreement was signed at the end of the second round of political consultations between the foreign ministries, co-chaired by Egyptian Assistant Foreign Minister Fathi EL-SHAZLI and Uzbek Deputy Foreign Minister Abdulsamad HEIDROV. During the meetings, the two sides discussed means of boosting bilateral relations and exchanged views on Asian and Middle East issues including the Arab-Israeli peace talks, Iraq and Afghanistan. HEIDROV, who arrived in Cairo on Monday for a three-day visit, said his country hopes for a visit by Egyptian President Hosni MUBARAK in the near future to bolster bilateral ties. Uzbekistan and Egypt are planning to sign 10 agreements on cooperation in various areas during the next round of political consultations in Tashkent.

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

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