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, October 12, 1999

well-armed militants now under direct command of the powerful warlords. Russia has responded to the offer by brushing it aside and moving its troops across the Terek River, as close as 25 kilometers outside of Grozny. Troops captured the western Nadterechny district, expanding the so-called buffer zone in the northern third of Chechnya. Russia previously aimed to create a limited security zone and ruled out any attempt to storm Grozny. Russian Defense Minister Igor SERGEYEV, however, hinted at broader goals. He said, "The troops will not stop; they will continue performing the tasks to eliminate band formations and terrorist groups in the Chechen territory." He added that the troops will be improving their positions in order to control the entire situation in Chechnya. Russia has appointed their own parallel local government for Chechnya headed by Malik SAYDULLAYEV, a Chechen businessman based in Moscow. It has even cut off a special direct line connection the Chechen administration with the Kremlin. A Russian general claimed on Monday that federal troops had surrounded the Chechen settlement of Goragorsky, where Chechen warlord Shamil BASAYEV is said to be trapped. Meanwhile, BASAYEV warned of new terrorist retaliations. He told Agence France Presse, "The Russian leadership will soon have the chance to demonstrate how it combats terrorism against Russian citizens."

CEC Refuses To Register LDPR

· The Russian Central Electoral Commission (CEC) refused to register the Liberal Democratic Party's (LDPR) federal voting list on grounds that, "inauthentic infor

Russian Federation

Politics

Yeltsin Hospitalized For Common Cold

· Russian President Boris YELTSIN was rushed to the Central Clinical Hospital on Saturday for treatment over the weekend for what the Health Minister Yuri SHEVCHENKO described as an, "ordinary banal cold." He was released on Monday. Doctors will continue to treat YELTSIN's cold and fever at his Gorky-9 residence. First deputy head of the Russian president's administration Igor SHABDURASULOV said there was no reason for the physicians to consult with US cardiologist Michael DEBAKEY on YELTSIN's condition. He did not state how long YELTSIN's recovery would take. He added that the President might decide to go on vacation in October, "but this decision has not been made yet." YELTSIN has had health problems for years, including heart trouble that led to multiple bypass surgery in 1996, conducted by DEBAKEY, and recurring bouts of pneumonia and respiratory infections. He has also suffered from back pain and a recurring ulcer in the past year. As is typical when YELTSIN is hospitalized, rumors of a worse condition, including a possible operation in Germany and that YELTSIN in fact was admitted to the hospital on Wednesday, surfaced in Moscow.

Russia Rejects Chechen Peace Plan

· Prime Minister Vladimir PUTIN has rejected a peace plan on Sunday offered by Chechen President Aslan MASKHADOV. PUTIN has ruled out negotiations with MASKHADOV unless his regime hands over those people Moscow believe to be responsible for attacks on Daghestan and apartment bombings throughout Russia. MASKHADOV offered to crack down on militant warlords, if Russia withdrew its troops from Chechen territory. Moscow doubts that MASKHADOV can take control of the

Today's News Highlights

Russia

Most Bank Raided

Berezovsky Denied Swiss Visa

European Republics

Ukraine Not To Join NATO

Vattenfall To Invest In Lithuania

South Caucasus & Central Asia

Frontera To Begin Drilling

Azeri Cabinet Passes Budget

New Kazakh PM Approved

Russia Arms Kyrgyz Troops

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October 12, 1999

Intercon's Daily

mation" had been provided by its candidates, including the party's top three. Party leader Vladimir ZHIRINOVSKY said he will contest the CEC's decision. He said LDPR will participate in the upcoming parliamentary elections slated for December 19th one way or another. Members of the LDPR will hold a congress on Wednesday to determine whether they will run in the elections as a political party under its present name of LDPR or as an election association under a different title, possibly a new bloc called ZHIRINOVSKY's Bloc. ZHIRINOVSKY noted that a new election bloc will adopt a "clean list" of candidates, which will include "the hungry, the undressed, the clean, the dumb and the angry." The CEC eliminated two of LDPR's candidate from the federal list. Krasnoyarsk businessman Anatoly BYKOV and incumbent State Duma deputy Mikhail MUSATOV, who occupied the second and the third slots in the party's federal list, were denied registration. They were eliminated from the list for providing wrong information about their property, which included BYKOV's old brick house with a total floor space of 610 square meters and MUSATOV did not declare his three Mercedes cars. Under Russia's election law, the party will be denied registration and participation in the elections slated for December 19th. The law says that if even one of the two three candidates is removed from the list without good reason, the entire list is denied registration. ZHIRINOVSKY demanded the return of the 2.08 million rubles election deposit from his party.

Economy

Ruble = 25.75/$1.00 (NY rate)

Ruble = 25.77/$1.00 (CB rate)

Ruble = 27.41/1 euro (CB rate)

Faith In Banks Diminishes; Licenses Lost

· A Moscow court on Thursday declared Agroprombank bankrupt, since it owes creditors a total of 17.7 billion rubles ($688 million). Agroprombank lost its operating license on July 30th, and soon afterward its sister bank, SBS-Agro sought to have it declared bankrupt. SBS-Agro was also one of Agroprombank's largest creditors. Central Bank Chairman Viktor GERASHCEHNKO said that his bank has provided 6.5 billion rubles to SBS-Agro since last October and that his bailout was justified because SBS-Agro is, "a large system-forming bank with a large number of branches."

Meanwhile, the number of Russian families with savings has declined from 14 percent in 1998 to 11 percent, according to polling data from the Russian Center for the Study of Public Opinion. The data also reveal that 53 percent of respondents believe that savings should be kept in hard currency, compared with 48 percent last year. The number of those keeping savings in cash declined to 16 percent from 21 percent, while only 1 percent use commercial banks, compared with 2 percent last year, RFE\RL Newsline reported.

Tax Police Raid Most Bank

· On October 5th, tax police and customs officials raided the offices of Vladimir GUSINSKY's Most Bank which owes customs authorities some 650 million rubles ($25.3 million), RFE/RL Newsline reported. A State Customs Committee spokesman told The Moscow Times on October 7th that if investigators find that Most has, "parked funds abroad instead of paying off debts, then sanctions will be imposed against the bank." A Most Bank spokesman accused the Kremlin of trying to pressure the Media-Most group through the bank.

Business

Lukoil-Neftokhim Reach Stake Sale Agreement

· Russia's largest oil company LUKoil and Bulgaria's oil processing complex Neftokhim have reached an agreement on the sale of a 58 percent stake in Neftokhim to LUKoil. The agreement is expected to be signed today in Burgas. On Friday, the Bulgarian Agency for Privatization approved the deal, recognizing the Russian company's win in an International tender for the privatization of the Neftokhim. A ceremony to finalize this big deal is expected to be attended by Bulgarian Prime Minister Ivan KOSTOV and Chairman of LUKoil Board of Directors Vagit ALEKPEROV.

Statoil Suspends Russian Operations

· The Norwegian state-owned gas and oil company Statoil has suspended its operations in Russia. Statoil vice president Bard JOHANSEN told the Norwegian newspaper Aftenposten that the company had to re-evaluate its interest in Russia after the introduction of new legislation. Under the new rules the oil company has to cover all prospecting expenses and if it is successful in finding new resources it must still compete for the license on the

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same terms as other interested parties. Statoil has withdrawn all of its non-Russian staff from its offices in Moscow and has suspended all other operations except those connected with Timan-Pechora Company, a cooperation of several western oil companies. Statoil's input in Timan-Pechora's activities is limited to Norwegian Krone 8 million per year.

Berezovsky Denied Swiss Visa

· The Swiss Foreign Ministry confirmed that Russian business tycoon Boris BEREZOVSKY's latest visa application had been unsuccessful. BEREZOVSKY's banking accounts are frozen in Switzerland. He is under investigation because of his business connection to two Swiss companies. In July, Swiss law enforcement officials raided the offices of Andava and Forus, upon the request of the Russian Prosecutor General's Office. The request stems from an investigation on the theft of $200 million from Russian state-owned Aeroflot Airline.

to invest between 2 to 3 billion Swedish Koronas in upgrading Lithuania's electricity distribution, following the passage of the country's legislation in line with European Union requirements. Vattenfall already has a presence in Lithuania and participates actively in its restructuring and reforms. Lithuania, like the other Baltic countries, is reorganizing its energy structure away from the old Soviet-style monopoly. Power companies are slowly being privatized, while the energy market is being deregulated. Vattenfall signed a distribution contract with the city of Kaunas, which by year's end will increased Vattenfall's investments in the Baltic countries to between 500 and 600 million Swedish Koronas.

South Caucasus & Central Asia

Frontera First Oil Expected In February

· Georgian-American oil-extracting company Frontera Eastern Georgia will start drilling its first oil bore-hole at Taribana field (Kakheti region, Eastern Georgia) on November 14th, deputy director general of the company Lameri SANIKIDZE announced, Prime News Agency reported. According to him, first oil is expected to be extracted in Mid-February. Director of state company Saknavtobi (Georgian Oil) Gia MAKHARADZE said the second stage of the program on 12th geological block in Gare Kakheti (Outer Kakheti) was worked out jointly with American co-founders from Frontera Resources Corporation. The company's objective is to confirm last year optimistic volume projections. Later drilling will start also at other bore-holes, MAKHARADZE stressed. By estimation of specialists supplies of oil in the given region make up approximately 600 million tons.

Azeri Cabinet Approves 2000 Budget Indicators

· On Friday, Azerbaijan's Cabinet endorsed the parameters of the 2000 budget. The 2000 budget foresees gross domestic product (GDP) growth of 8 percent, increases in industrial output and agricultural production of 3 percent and 4.5 percent, respectively. It also calls for a 10.5 percent increase in investment, 3 percent annual inflation, and a budget deficit equivalent to 2.6 percent of GDP.

Azeri-Armenia Hold Confidential Talks

· Azeri President Geidar ALIYEV and Armenian President Robert KOCHARYAN met for two hours Monday behind closed doors to discuss the settlement in Nagorno-Karabakh. The meeting on the

European Republics

Ukraine Has No Plans To Join NATO

· Ukrainian President Leonid KUCHMA, while in Russia on Tuesday, said Ukraine is not going to join NATO. "From no perspective is Ukraine going to join NATO," KUCHMA said. He added that Ukraine is in "normal" cooperation with NATO, whose level he said is no higher than Russia's. "Let us look at things realistically and correspondingly act realistically," the President said. In addition referring to the conflict in Chechnya he said, "We support Russia's activities aimed at establishing order on its own territory because separatism is the most horrible thing today. Separatism is a disease which destroys not only Russia's organism, but it eats away many world countries. The developments in Yugoslavia belong to one and the same chain of events. We can express our sympathies with Russia and wish it the soonest cessation of the conflict in the Caucasus, although we realize the entire complexity of this problem." KUCHMA attended a victory memorial at Prokhorovka Field in the Belgorod region, a wartime site of a battle that involved the ever largest number of tanks, a total of over 1,000 on Soviet and Nazi sides. The Belgorod region was on one of tracks of the fiercest fighting called the Kursk Bulge.

Vattenfall To Invest In Lith. Electricity Distrib.

· The Swedish power company Vattenfall is ready

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border between the two states was the fourth one over the recent three months. "It is important that we did not have to go to Geneva or some other place to meet," KOCHARYAN said. He added that a wide range of issues were discussed, but, "unfortunately, we can't elaborate." "We have analyzed in detail the problem, which has remained unresolved for so long," ALIYEV said. He called the talks, "very useful." He expressed confidence that it will take much time, more talks and mutual compromises to reach an agreement. KOCHARYAN noted that the sides should make compromises to settle the conflict and stressed the importance of continuing direct negotiations with the Azeri President. ALIYEV said he hopes to be able to report headway in the Karabakh peace process at an OSCE summit, which is due to be held in Istanbul on November 18th to 19th. However, the Azeri President pointed out that in the past the UN and the OSCE have failed to yield a solution to the conflict.

Kazakhstan New Appointments

· Kazakhstan's outgoing parliament today unanimously approved the candidacy of Foreign Minister Kasymzhomart TOKAYEV as the country's new prime minister. President Nursultan NAZARBAYEV had named TOKAYEV acting premier on October 1st, following the resignation of Nurlan BALGHIMBAYEV. TOKAYEV is a trained diplomat with little economic expertise. Parliamentary speaker Marat OSPANOV, who had been regarded as a possible successor to BALGHIMBAYEV, said that TOKAYEV was, "a suitable figure." OSPANOV argued that tensions between the parliament and the BALGHIMBAYEV cabinet deterred badly-needed foreign investment, which he hopes will now be forthcoming in the light of the international community's "recognition and trust" in TOKAYEV, RFE\RL Newsline reported. The joint parliamentary session also approved the appointment of Grigory MARCHENKO to head the country's National Bank. MARCHENKO worked professionally in the banking business for a long time, and then worked as Deputy Chairman of the National Bank and Chairman of the

National Commission for Securities. He has been an adviser to the President on financial matters. In the latter capacity he worked in the Deutsche Bank.

Kyrgyz To Pay $84M On Foreign Debt In 2000

· Kyrgyzstan has plans to pay $83.6 million on its foreign debt next year, according to the Finance Ministry. The bulk of the debt, $57 million, will be spent directly on paying off credits, while the rest of the money will pay the interest on the loans. In 2000, Turkey and Russia will receive at least $30 million. This year Kyrgyzstan only budgeted $50 million for its foreign debt. The Central Asian republic has only paid half that amount. The military conflict in southern Kyrgyzstan has demanded additional expenses. This is why many experts believe the unpaid portion of foreign debt will carry-over into next year. Kyrgyz Prime Minister Amangeldy MURALIYEV said that, "the next decade will face the peak in payments on foreign loans, which the republic took in mid-1990s." According to the Finance Ministry, Kyrgyz foreign debt amounts to about $1.6 billion.

Russian Arms Kyrgyz Against Rebels

· The first batch of weapons, equipment and winter uniforms were loaded on a Russian military plane and headed to Kyrgyzstan Friday, presidential spokesman Kanybek IMANALIYEV said. The cargo will be distributed among troops fighting rebels in southern Kyrgyzstan since August 22nd. Russian aid is provided for by the Collective Security Treaty signed by Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia and Tajikistan. Armenia, Kazakhstan and Uzbekistan have already provided Kyrgyzstan with military and technical assistance. Kyrgyzstan's Security Council Secretary General Bolot DJANUZAKOV warned that, "international terrorist groups" based in Afghanistan and Pakistan are ready to enter Kyrgyz territory in order to regain control of drug-smuggling routes. He added that Kyrgyz troops have closed in on the base where ethnic Uzbek guerrillas are believed to be holding hostages in the south of the country, leaving the guerrillas no option but to retreat into neighboring Tajikistan.

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

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