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

Friday, October 1, 1999

eny PRIMAKOV was former head of SVR (external intelligence service); Sergei STEPASHIN was former head of FSB internal intelligence services and Interior Minister; and Prime Minister Vladimir PUTIN a former spy in Germany and head of FSB internal intelligence services.

Government Changes Approved

· Russian President Boris YELTSIN on Wednesday approved the resignation of Russia's envoy to the International Monetary Fund (IMF) Mikhail ZADORNOV, who abruptly resigned earlier this month. ZADORNOV said his resignation is not connected to the allegations that IMF loans were misused. He said he is stepping down to run for the parliament in December with the Yabloko Party. Vladimir STAROSTENKO, the Railway Minister in the Cabinet of Prime Minister Vladimir PUTIN, has resigned to return to his previous job as the head of the West Siberian Railway. According to First Deputy Prime Minister Nikolai AKSYONENKO, STAROSTENKO had himself requested resignation from YELTSIN and was relieved of his duties by presidential decree on September 16th. YELTSIN on Monday appointed Deputy Prime Minister Ilya KLEBANOV to be chairman of the inter-agency Commission for State Secrets. He replaces Vladimir BULGAK, who was relieved of his duties. The Commission for State Secrets was created in 1995 and has 20 members. Director of the Federal Security Service (FSB) Nikolai PATRUSHEV Thursday was elected chairman of the Commonwealth of Inde

Russian Federation

Politics

KGB-Style Tactics Enter Political Elections

· The typical US mud-slinging and spin political campaign tactics, which have spilled into Russia are taking on more Russian qualities. The new Russian political trend, based on the experience and background of many of the candidates, is to use KGB-style tactics to smear your opponent's reputation. These tactics include subterfuge, deception, disinformation, and exploitation of compromising material, whether real of falsified. Recent examples are the release of bugged telephone conversations between Kremlin business tycoon Boris BEREZOVSKY, who is running for a seat in the Russian State Duma, and various Chechen leaders, leading the media to report that he is helping fund the advances of Islamic militants into Daghestan, as well as a bogus website attacking the business practices and alleged nepotism of Moscow Mayor Yuri LUZHKOV, a possible presidential candidate, the Financial Times reported. ORT Television also ran a piece indicating that LUZHKOV paid an extraordinary amount for a thoroughbred horse from Germany financed by Andrei BATURIN from the Bank of Moscow. The Moscow Mayor was infuriated, claiming the ORT attack was aimed at discrediting his All Russia-Fatherland bloc. In addition to political campaigns, intelligence practices are invading businesses in corporate espionage schemes. This is apparent since almost every financial industrial group has hired former KGB officers to advance its own economic interests. A question of loyalty may complicate the relationship between the officers and their employers, because "serving intelligence officers have an overriding loyalty to the state rather than any individual." After three former secret service officers have served as prime minister, it is no wonder that the Russian media is infiltrated with disinformation. Yevg

Today's News Highlights

Russia

Sept. Revenue Targets Missed

Telecom IPO Closes Down

European Republics

LUKoil Places Demands On Lith.

Shevardnadze In Kiev Saturday

South Caucasus & Central Asia

Warrant Issued For Kakubava

New Shipping Scandal Evidence

Kazakh Prime Minister Resigns

Politics-Economics-Business

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Friday

October 1, 1999

Intercon's Daily

pendent States (CIS) Council of the leaders of the security and special services of the CIS member-states. The Council is meeting behind closed doors in the government residence on Kamenny Island in St. Petersburg to discuss aspects of the struggle with terrorism, cooperation in the field of economic security, and improvement of the information exchange system. During the two-day session, PATRUSHEV is scheduled to hold bilateral meetings with the heads of the special security services of Georgia and Azerbaijan.

Meanwhile, Izvestiya reported the Kremlin property manager Pavel BORODIN is considering running for the Russian State Duma seat in Tula. BORODIN is under investigation for accepting bribes from Swiss Mabetex in exchange for lucrative construction contracts. Also running for the Tula seat are YELTSIN's former bodyguard Alexander KORZHAKOV, and former defense minister Pavel GRACHEV. It has been rumored that BORODIN and Moscow Mayor Yuri LUZHKOV's wife, Yelena BATURINA, are running for Duma seats for immunity from prosecution.

Economy

Ruble = 6.881/$1.00 (NY rate)

Ruble = 25.2/$1.00 (CB rate)

Ruble = 27.02/1 euro (CB rate)

Apr May Jun Jul Aug Sep

Gov't Misses September Revenue Targets

· Moskovsky Komsomolets has reported that the chief revenue-collecting agencies of the Federal government, which include the Tax Ministry and the State Customs Committee, collected only 644 per

cent of targeted revenues. The Finance Ministry reports show that the Tax Ministry collected only 30.9 billion rubles ($1.2 billion) or 71 percent of planned amounts. The State Customs Committee, meanwhile, collected 8.9 billion rubles or 49.5 percent. State Customs Committee Chairman Mikhail VANIN said the customs agencies collected 12 billion rubles in September, instead of the 17.5 billion rubles planned. The chairman explains the gap occurred because imports have fallen in dollar terms by 50 percent compared with the same period in 1998. In a meeting with VANIN, Prime Minister Vladimir PUTIN called for boosting the ability to collect customs taxes and charges, stiffening customs procedures and improving customs and tariff policy in Russia.

Business

Golden Telecom IPO Closes Down

· In the first initial public offering (IPO) for a Russian company since the August, 1998 financial crisis, Golden Telecom Inc., which offers voice and data communications to businesses in Moscow, St. Petersburg, and Kiev, raised $55.8 million from US and European investors, but disappointed many overall. Underwriters led by Brear Stearns Co. and Deutche Bank cut the initial price per share from a predicted range of $18.50 to $16 to only $12 on Wednesday. After the issue was priced, the new stock slid to close at $8.56 on the Nasdaq Stock Market. This IPO is being closely watched by bankers as a barometer of investor demand for Russian risk. Paul PSAILA, a portfolio manager at Morgan Stanley Asset Management said, "It's still a difficult environment in which to persuade people to buy many Russian stocks. In particular, the regulatory regime when it comes to [rates] remains very murky. Utilities [in Russia] are still seen as a public service rather than as a business that should generate profits for shareholders." In addition to the IPO revenues Golden Telecom's majority owner Global TeleSystems Group Inc., of McLean, Virginia, invested an extra $80 million in new equity capital.

European Republics

LUKoil Makes Demands On Mazeikiu Sell-Off

· Russian oil giant LUKoil has demanded to be an "equal partner" in Lithuania's oil sector and is threatening to cut off crude oil supplies if it is not granted

When you need to know it as it happens

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that status. Mikhail MASHKOV, the representative of the Russian Gas and Industrialists Union to Lithuania, said Thursday that LUKoil, as the "world's leading oil company," is "not satisfied" with the "prospect of purchasing 10 percent" of Mazeikiu Nafta, RFE\RL Newsline. LUKoil is threatening to pull out of Lithuania and will supply only enough crude for the company's gas stations in that country, if it is not allowed to buy a one-third stake in Mazeikiu Nafta. Lithuania's parliament approved a package of bills aimed at facilitating the sale of the oil refinery's majority stake to US-based Williams International. Negotiations with Williams have proved difficult, but are now reaching the final stages.

Georgia-Ukraine Discuss Bilateral Projects

· Georgian President Eduard SHEVARDNADZE is scheduled to visit Ukraine on October 2nd and 3rd to discuss the operation of the Asia-Caucasus-Europe transportation corridor. President SHEVARDNADZE plans to discuss bilateral interaction within regional and international organizations, including GUUAM, a regional organization created by Georgia, Uzbekistan, Ukraine, Azerbaijan and Moldova. The Georgian President will hold talks with Ukrainian counterpart President Leonid KUCHMA, Prime Minister Valery PUSTOVOITENKO and parliament speaker Alexander TKACHENKO to discuss ways to overcome obstacles to the expansion of Ukrainian-Georgian cooperation. Discussions are expected to focus on the Black Sea section of the Eurasian transportation corridor where bilateral trade turnover dropped to $12.2 million in the first five months of the year compared to $14.5 million in the same period of 1998 due to tariff snags. President SHEVARDNADZE, KUCHMA and PUSTOVOITENKO will also talk about ways to increase maritime transportation and delivery of 100,000 tons of Ukrainian sugar to Georgia by ferry as well as possible Caspian oil shipment to Odessa and western Europe. Georgia and Ukraine are expected to sign a social-economic agreement on October 2nd, as well as a declarations on financial cooperation. The sides will also look into a dual visa regime. Ahead of the visit, Ukraine is studying the possibility of sending its peacekeeping forces to Abkhazia, if such decision is made by the UN or heads of CIS states, the ambassador of Ukraine Stepan VOLKOVETSKY told Prime News Agency. The decision will be based on the experience of Ukrainian troops in Pridnestrovye and

Bosnia. Ukraine is expected to mediate negotiations between Georgia and Abkhazia in Yalta this Autumn.

South Caucasus & Central Asia

Warrant For Kakubava Issued

· Georgia's State Security agency has issued a warrant for the arrest of Boris KAKUBAVA, although chairman of parliamentary faction Revival Jemal GOGITIDZE stated that KAKUBAVA is in Batumi. His deputy immunity was lifted by a parliamentary vote on September 10th, Prime News Agency reported. KAKUBAVA is wanted for his involvement and participation in the failed coup attempt in May, which was discovered by Georgian law enforcement bodies. The plan, which was financed by former chief of Georgian security service Igor GIORGADZE, included the assassination of Georgian President Eduard SHEVARDNADZE, parliamentary chairman Zurab ZHVANIA, and para-military infiltration of the parliament and the center of Tbilisi. Further investigation has obtained telephone recordings of KAKUBAVA and GIORGADZE, who is wanted on an Interpol warrant for his involvement in the assassination attempt on the life of SHEVARDNADZE in 1995. GIORGADZE's stance and reputation have been touted by the United Communist Party of Georgia and Public-Patriotic forces. Leaders of those organizations, including KAKUBAVA, Vakhtang GOGUADZE and Valery KVARATSKHELIA have met with GIORGADZE several times for receiving recommendations, particularly one time in Minsk. GOGUADZE and KVARATSKHELIA said they intend to sue SHEVARDNADZE, Prosecutor General Jamlet BABILASHVILI, chairman of state department of intelligence, state security minister, and Interior Minister Kakha TARGAMADZE next week, for a "slanderous campaign, persecution and oppression," in connection with the accusations. Investigation claims that they were charged with ideological rehabilitation of GIORGADZE in Georgian publicity.

While in Kiev attending the Council of CIS Interior Ministers, TARGAMADZE said that Georgian law enforcement agencies have determined GIORGADZE is hiding in Syria under a Russian name. Georgia has repeatedly demanded his extradition when he was in Russia, but with the help of Russian intelligence services he has been able to travel freely in and out of the country.

When you need to know it as it happens

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New Georgian Shipping Case Evidence

· An ongoing investigation into the business activities of the Georgian Shipping Company in Batumi has found evidence leading to the detention of 10 individuals for misappropriation of state funds from 1992 to 1998. The funds scandal with the Georgian Shipping Company, once one of the world's fifth largest marine merchants, first appeared in the press this Summer. With the chaos in USSR and Georgia and the independence of the Adjarian leadership many of the state owned company's vessels were sold off without the full knowledge and authorization of the Georgian central government. The ships were also leveraged for loans. It is estimated that revenues from the sale could have reach $150 million. Investigators are still tracking down where this money went, since it was not returned to the central government's coffers. Since the Georgian Shipping Company was based in Batumi, the focus of the investigation is on the Mayor of Batumi, chairman of the Supreme Council of Adjaria Aslan ABASHIDZE, and their agents, as well as members of the company's London-based office. The investigation has also uncovered the name of Girgor LUTCHANSKY. Attempts are being made to determine what if any involvement he has had in these criminal activities. The latest figures show that $50 million was misappropriated through the Georgian Shipping Company sales with a company debt totaling $120 million. Prosecutor General Jamlet BABILASHVILI said of law enforcement officers in Georgia are working with London intelligence services to determine which bank accounts are connected to financial violations and misappropriations. Wednesday, deputy head of Georgian prosecutor's office department Zurab TSINTSADZE accused ABASHIDZE of involvement in the misappropriation of Georgian Shipping Company funds and privy to foundation of criminal joint ventures of the shipping company with foreign firms, Prime News Agency reported. TSINTSADZE said criminal companies were being founded by direct involvement and influence of ABASHIDZE. He outlined details of how the Georgian Shipping Company misappropriated funds

through the Adjarian-Shipping Company and the fund's transfer to ABASHIDZE's Fund by Eurasia Service Company. The Georgian side was to give 3 vessels, $4 million each, to the joint venture. Georgia's share in Adjar-Shipping was 50 percent and each of the $4 million vessels were purchased by the company for $1. The latest twist in the scandal is that the Adjarian side believes the Prosecutor General's office is carrying out orders from the central government that are politically motivated and unreasonable. In an exclusive interview with Prime News Agency, Adjarian spokesman Giorgi TARGAMADZE said that the sentenced former interior minister of Georgia Temur KHACHISHVILI said at a trial in the Supreme Court last year, he was approached by three persons, including BABILASHVILI, on a deal for his freedom exchange for killing ABASHIDZE. BABILASHVILI denied this and stressed that the Georgian Shipping Company's case is criminal, not political.

Kazakhstan Prime Minister Resigns

· Kazakhstan's Prime Minister Nurlan BALGIMBAYEV abruptly resigned today, after popular support for his policies fell. He will return to his former position as head of state oil company KazakhOil. On Tuesday BALGIMBAYEV forced through the parliament an austere budget, in the face of a vote of no confidence. During his administration he has had to shore up Kazakhstan's economy in the wake of the Russian financial crisis, which shrank output by 2.5 percent in 1998. This forced him to devalue the tenge in April, causing a dramatic shift in the nation's standard of living. In a statement, he said that external factors had been largely responsible for the worsening economic crisis in Kazakhstan. BALGIMBAYEV announced his resignation to the Cabinet following a meeting with President Nursultan NAZARBAYEV. The President immediately appointed Deputy Prime Minister and Foreign Minister Kasymzhomart TOKAYEV as acting Prime Minister. NAZARBAYEV pointed out that the appointment of acting prime minister does not necessarily mean TOKAYEV will lead the next government.

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

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