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, September 7, 1999

Before the attacks this weekend, security forces were warned that rebels were gathering on the Chechen side. However, Russian military officials, said the frontier was tightly protected.

YELTSIN ahead of a meeting with Prime Minister Vladimir PUTIN stormed, "How did we lose a whole district in Daghestan? Why are there more terrorist acts in military compounds than in other places?...This can only be explained by the carelessness of the military." He ordered PUTIN to hold a meeting with top security officials today. PUTIN described both events as part of a guerrilla plan to establish a Muslim state in the multi-ethnic North Caucasus region. Both assaults are presumed to have been led by experience field general Shamil BASAYEV and Khattab. The Russian Interior Ministry noted and American Intelligence has confirmed that BASAYEV has been allocated $25 million by pro-Islamic representatives in Saudi Arabia and Pakistan. The ministry also points out that BASAYEV has spent only $600,000 to $800,000 during the Tsumadinsk and Botlikhi military campaigns. Russia is continuing its bombing campaigns against Islamic militants including raids on the areas along the border between Chechnya and Daghestan. Chechnya has expressed anger over recent airraids which killed close to 30 people. Russia believes that rebels have bases in Chechnya and receive reinforcements and supplies from there. Sebastian SMITH, an expert on the region, noted that the latest invasion of villages was in a more densely populated and industrialized area than the moun

Russian Federation

Politics

Yeltsin Scolds Military Over Daghestan

· Russian President Boris YELTSIN reprimanded the military for failing to prevent the second invasion into Daghestan by Islamic militants in just over one month. Late Saturday, two hours after a car bomb in the town of Buynaksk killed 64 people, mostly women and children, wounded hundreds, and destroyed a five story military housing complex, several hundred Islamic rebels seized the villages of Novolaksky, Chapaevo, Shushia, Akhar, Novoluki, Tukhchar, and Tamiakh villages. Russian Deputy Interior Minister Vladimir KOLESNIKOV said the explosion and the new attack were, "links in the same chain." Nobody has taken responsibility for the blast. The Federal Security Service (FSB) also discovered a truck loaded with explosives in another section of Buynaksk, between a military hospital and an army apartment building. The truck contained about a ton of an explosive blend of magnesium, carbon steel and TNT which was defused. FSB officers have identified its owner and are still hunting two more suspected bombers. Battles are underway in Karamakhi and Chabanmakhi villages in Buynaksk region of Daghestan. The militants were said to have Russian police totally surrounded in the village of Novolaksky. The rebels were stopped three miles from Khasavyurt, which sits on a strategic highway leading to Makhachkala, Daghestan's capital. The Russian Interior Ministry estimates that approximately two thousand extremist are involved in fighting against Federal forces in Daghestan and about five thousand rebels are waiting on the Chechen-Daghestan border. Russian security forces lost 15 men and 20 more were wounded in the first two days of fighting. In addition, three armored personnel carriers, and one tank were destroyed and three military helicopters were damaged by ground fire.

Today's News Highlights

Russia

Fatherland-All Russia Registers

Stroyev Attends Pipeline Launch

European Republics

Lith-Belarus On Electric Supplies

Czech-Ukraine Sign Protocol

South Caucasus & Central Asia

Armenia-Greece-Iran Hold Talks

CIS Industrial Growth

Militants Free Six Hostages

Turkmen-Iran To Build Dam

Politics-Economics-Business

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Tuesday

September 7, 1999

Intercon's Daily

tainous districts the rebels invaded in August. He warned that intensive bombardments would be more disruptive and likely to alienate the local population.

Shabdurasulov Reappointed To Administration

· Russian President Boris YELTSIN on Friday re-appointed Igor SHABDURASULOV as first deputy chief of the presidential administration. Prior to his new appointment, SHABDURASULOV was general director of Public Russian Television (ORT) for about a year. He has been YELTSIN's deputy chief of staff before. SHABDURASULOV was fired in 1998 after he told a newspaper that the President would not be able to maintain a full work schedule because of his poor health. Following a meeting with YELTSIN today, he said the President is, "fully informed about ratings of television companies, and knows that ORT is leading on this list." YELTSIN has ordered SHABDURASULOV to tackle a number difficult tasks, which he did not elaborate on. SHABDURASULOV said "concrete directions" of his work in the new post would be clear within days. YELTSIN also nominated Constantin ERNST to take SHAB-DURASULOV's place at ORT. ERNST, the network's general producer, must be elected to the post by the ORT board of directors.

CEC Registers Fatherland-All Russia

· On Saturday, the Russian Central Election Commission (CEC) registered the new alliance forged by Moscow Mayor Yuri LUZHKOV, former prime minister Yevgeny PRIMAKOV and some regional governors, called Fatherland-All Russia. The decision may be contested because Fatherland was registered on December 19, 1998. Under the law, parties and movements seeking to participate in the Duma elections must register no later than one year before the voting day, which will be December 19th. Discussions were heated at a CEC meeting on Saturday over which day makes it possible for the association to participate in the Duma elections: December 18th or 19th. According to CEC secretary Olga ZASTROZHNAYA, the last day of the registration under the law must be December 18th, 1998. However, the Justice Ministry, which is entrusted with drawing up the list of the movements seeking to participate in the polls, has included Fatherland in that list. CEC chairman Alexander VISHNYAKOV said he did not rule out that the decision could be contested in court. The head of the Fatherland's

election staff, Georgy BOOS, said the alliance is ready to present its candidate list early next week.

Meanwhile, the All-Russia public opinion poll center VTsIOM has noted that former prime minister PRIMAKOV has not added votes to Fatherland-All Russia. Previous polls showed that if PRIMAKOV joined the movement, its ratings would increase by 30 percent. According to the latest opinion poll by VTsIOM, held on August 20th to 24th, only four election blocs and alliances have chances to win seats in the State Duma. They include the Communist Party of the Russian Federation (CPRF), Fatherland-All Russia, Yabloko and the Liberal Democratic Party (LDPR). If elections were held last month, the Communist Party would receive 30 percent of the vote, Fatherland-All Russia 18 percent, Yabloko 10 percent, while Liberal Democratic Party 5 percent. One VTsIOM expert predicts that if Kemerovo governor Aman TULEYEV joined the Communists, their chances could grow by another 4 percent.

Economy

Ruble = 25.82/$1.00 (NY rate)

Ruble = 25.791.00 (CB rate)

Ruble = 27.25/1 euro (CB rate)

Investors Not Shocked By Scandal

· Investors in Russia are not shocked by the recent Bank of New York scandal, which has highlighted massive capital flight and illegitimate business practices. John-Paul SMITH a Russian analyst at Morgan Stanley Dean Witter said, "Investors in Russia are consenting adults who realize what the risks are. They have always known there has been a big flight of money offshore." While the Russian market should be protected by strong oil prices and a bounce in industrial output after last year's devaluation of the ruble in August 1998, investors still have some fears to overcome before they flock back to the market. One fear is the vulnerability of Russian computer systems to the Y2K millennium bug problem. Managing director of Alfa Bank, Mazim SHASHENKOV said, "At the moment people do not see any fundamental reason to invest in Russia. Until there is a change of political leadership, it is unlikely that the economy or the market will attract mainstream institutional investors," the Financial Times reported in an article.

When you need to know it as it happens

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Tuesday

September 7, 1999

Intercon's Daily

Stroyev Attends Pipeline Launch

· Speaker of the Federation Council Yegor STROYEV on Saturday attended the launching of the new Long-Yugan-Salerkhard gas pipeline in the Yamal Peninsula. Yamal specialists explained that the gas pipeline is linked to systems of gas pipelines running from Urengoi and will resolve the problem of supplying gas to the area. Its throughput capacity will be five billion cubic meters of gas annually. The construction of the 300-kilometer gas pipeline started in February 1995. Starting in 2000, gas will be delivered to the nearby towns of Labytnangakh and Kharpe. Salekhard is the capital of the autonomous area, producing 90 percent of Russian gas and supplying fuel both to Russia and other countries, was heated by fuel oil up to this time. STROYEV and Yamalo-Nenets Governor Yuri NEYELOV agree that the new route resolves, "a big social problem, doing justice to gas producers and local population."

Business

Russia-Germany Sign Joint MiG Agreement

· Russia's MAPO-MiG aircraft builder, Rosvooruzheniye state arms-trading company, and Germany's DASA aerospace company have signed a tentative agreement to jointly modernized a fleet of Soviet-made MiG-29 fighters to be used in the air forces of central and eastern European nations. The project will extend the lifetime of the planes through 2015 and reduce operating costs. Horst MUCHKELI, director general of MARS, a joint venture formed by the three companies noted there are political motives behind the agreement. He said, "We do not want the Americans to provide their new planes to these countries," which include Poland, Hungary, Bulgaria, Romania, and Slovakia.

and middlemen from the BaltikGem company. The sides are expected to continue their talks to elaborate some aspects of the Belarus debt repayment. Lithuania proposed to have its electricity be transmitted to Poland via Belarus free of charge. This project is expected to involve Russia's foreign trade company Energia, supplying electricity to Poland, might participate in the transit.

Czech-Ukraine Sign Military Protocol

· The Czech Republic and Ukraine signed a protocol on Wednesday on cooperation in military aviation. Czech Defense Minister Vladimir VETCHY signed the agreement, after meeting with his Ukrainian counterpart Alexander KUZMUK and First Deputy Prime Minister Anatoly KINACH. Ukraine expressed interest in expanding economic cooperation with the Czech Republic, which in now a NATO member. VETCHY also met with Prime Minister Valery PUSTOVOITENKO, Foreign Minister Boris TARASIUK, National Security Chief Volodimir GORBULIN and other officials during his visit. He toured military plants in Kiev and Kharkiv, a military school, and the National Defense Academy.

South Caucasus & Central Asia

Armenia-Iran-Greece Discuss Cooperation

· Foreign Ministers from Iran and Greece, Camal HARRAZI and Giorgios PAPANDREU, arrived in Yerevan today to meet with their Armenian counterpart. According to a Foreign ministry spokesman, the meeting will discuss tripartite cooperation in the energy sector, industrial technology, communication, ecology, health care, transport, and tourism among other issues. An Armenian spokesman said Armenia is especially interested in cooperating in the energy sector, and certain preparations for such cooperation have already been done. Negotiations on the construction of a gas pipeline from Iran to Armenia are in progress, he said, adding that the pipeline might be extended to Greece. Armenia, Iran and Greece, "have common interests and are developing their cooperation successfully enough," the spokesman said. He denied that the tripartite cooperation has anything to do with the military sphere. The cooperation is based on the principle of equal rights of the parties and is open for other countries to join, he stressed. The visiting Foreign Ministers will meet with Armenian President Robert KOCHARYAN on Wednesday.

European Republics

Lith-Belarus Electric Supply Debt

· Lithuania is prepared to resume its export of electricity to Belarus in the fourth quarter of 1999, if Belarus fulfills the schedule for repaying debts to Lithuania signed on Friday. Lithuania suspended electricity supplies to Belarus two months ago, because Belarus' debt to Lithuania exceeded 365 million litas. The debt schedule was drawn up by experts from the Lithuanian power company Litubusenergia, the Belarus concern Belenergo,

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Tuesday

September 7, 1999

Intercon's Daily

CIS States Post Industrial Growth

· In the first seven months of 1999, industrial growth occurred in eight of the twelve member countries of the Commonwealth of Independent States (CIS), according to the Russian Statistics Agency. Citing figures from the CIS Interstate Statistics Committee, the agency said the greatest industrial growth occurred in Tajikistan with 6.6 percent, Belarus with 6.5 percent, Armenia with 5.7 percent and Uzbekistan, with 5.6 percent. Industrial production increase in Russia by 4.5 percent, Azerbaijan by 2.7 percent, Georgia by 0.4 percent, and Ukraine by 0.3 percent. The CIS Statistics Committee has no information for Turkmenistan. The greatest increase in gross domestic product (GDP) in the first seven months of 1999, as compared with the same period last year, was achieved by Azerbaijan with 6 percent and Armenia with 5. 4 percent. In Kyrgyzstan, the GDP increased by 3.7 percent, in Tajikistan by 2.1 percent, and Belarus by 1.0 percent. In Ukraine, the GDP dropped 2.9 percent. According to preliminary figures, the GDP decreased by 3.3 percent in Kazakhstan and by 1 percent in Russia in the first half of 1999. The CIS Statistics Committee said that during the first seven months of the year, the highest rate of inflation was observed in Belarus at 97.2 percent. In Kyrgyzstan, consumer prices rose by 32.5 percent, Russia by 28 percent, Moldova by 25.6 percent, and Tajikistan, 23.2 percent. In Armenia, inflation stood at 0.9 percent from January to July, in Kazakhstan 12.9 percent, in Ukraine 7.5 percent. Meanwhile, consumer prices declined by 2.4 percent in Azerbaijan. There is no corresponding information for Georgia, Turkmenistan or Uzbekistan.

Militants Free Six Hostages

· Six Uzbek tourists, who had been taken hostage in Kyrgyz by Islamic militants, arrived in the Uzbek city of Fergana on Monday. The six tourists were kidnapped in Kyrgyzstan on August 21st. All of them are safe and will soon return to Tashkent where they live. The head of the tourist group, Ravel AHSANOV, said that the gunmen's treatment of them was rather tolerable, there was no physical violence, if not to

take into consideration attempts to put a psychological pressure on some of the hostages. In particular, the gunmen tried to persuade Russians who were in the group to adopt the Islam religion. According to AHSANOV, the tourists were kidnapped by a group of more than 40 gunmen who were well armed with Kalashnikov submachine guns, machine guns and grenade launchers. Among the group were snipers armed with optical-sight rifles. Meanwhile, Kyrgyz President Askar AKAYEV named security adviser Bolot DZHANUZAKOV, as head of the Kyrgyz Security Council. DZHANUZAKOV has played a key role coordinating the Kyrgyz efforts to flush out Islamic militants, who are hiding hostages in the remote mountains of the Batken region. His predecessor Esen TOPOYEV was appointed Defense Minister. TOPOYEV replaces Myrzakan SUBANOV, who was dismissed last month for failing to contain the crisis.

Turkmen-Iran To Finance Border Dam

· Turkmenistan and Iran have agreed to jointly finance the construction of a water reservoir and a Friendship Dam on the border river Tedzhen. An economic analysis and feasibility study of this project and subsequent steps to implement it were approved by the sides in Agashabat on Thursday night. Documents to this effect were signed by Turkmenistan's First Deputy Minister of Agriculture and Water Conservancy Kurban IBIDOV and Iranian Deputy Minister of Power Reza ZARGIYAR. The cost of the construction project will be more than $167 million and will take five years to build. The feasibility study was prepared by Turkmen specialists at the Turkmengiprovodkhoz, a water management project designing institute. The water reservoir is to have a capacity of 1.25 billion cubic meters of water, which will make it possible to irrigate 20,000 hectares of land on each side of the Turkmen-Iranian border.

Meanwhile, Russian Foreign Minister Igor IVANOV noted that, "a meeting of the Deputy Foreign Ministers of the five Caspian countries on the elaboration of a status of the Caspian Sea is to take place in Tehran in October this year."

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

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