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 19, 1999

Russian Federation

Politics

G-8 Ministers Meet For Anti-Crime Conference

· Russian Prime Minister Vladimir PUTIN opened the G-8 conference on the fight against transnational organized crime in Moscow today with a pledge to end Russian money laundering and stop criminal funds from being funneled abroad. The conference also focuses on high-tech and economic crimes as well as international terrorism. He said Russia is prepared to, "tightly seal all sources of dirty money on its territory." Although his initial reaction to media allegations of the money laundering scandal at the Bank of New York was that it had been exaggerated, PUTIN has admitted that Russia has its own problems with financial crimes. He said that Russian investigators are probing several banks which are suspected of being involved in illegal fund transfers. US and European law enforcement agencies have been investigation money laundering cases which involve not only Russian businessmen, but also Kremlin officials. He said corruption was among major challenges to different countries and assured the G-8 ministers that Russia this year will sign the Convention of the Council of Europe on the struggle against corruption. PUTIN noted that the problem of corruption can only be resolved, "by methods of transparency, openness of economic ties. Only this approach can rule out the very possibility of corruption." He also read a message sent to the conference by President Boris YELTSIN who said, "Today crime has crossed the state borders. It has become a serious challenge to stability and future not of individual countries but of the entire mankind." PUTIN called for the pooling of efforts of all countries in the struggle against terrorism. Russia's acting prosecutor general Vladimir USTINOV called on the G-8 countries to handle terrorists in keeping with the principle, "extradite or subject to a court trial." On the

sidelines of the conference PUTIN will meet with US Attorney General Janet RENO to discuss cooperation between law enforcement agencies in the fight against international terrorism and money laundering. Comment: PUTIN's pledge will be difficult to achieve due to Russia's complicated tax and legal systems. The instilled practice of bribes, the vast network of organized crime groups, and the powerful oligarchs will do everything to prevent this from being accomplished. Russia has long made declarations against corruption, but it actually has dragged its feet in following through with law enforcement. The police raid earlier this month of Most Bank and Sobinbank, on suspicion of illegally transmitting money, is a step in the right direction. But was it politics or concern for criminal activity behind these actions?

Operation Whirlwind Seizes Explosives

· Russian Interior Minister Vladimir RUSHAILO said that operation Whirlwind, which was launched nation-wide after four apartment bombings, seized hundred of tons of explosives and weapons in an anti-terrorism sweep. He said that 515 tons of explosives, 4,000 detonating devices, and 7,000 firearms were confiscated during the period between September 15th and October 2nd. RUSHAILO also noted that two multi-ton caches of explosives were found in Moscow.

Police in Vladi-vostok arrested a person on Saturday who called in a bomb-scare at the Maritime territorial administration. The threat turned out to be false. Criminal proceedings

Today's News Highlights

Russia

Tupolev Planes Made In Iran?

Deliveries To Yugoslav Resumed

European Republics

Mazheikiu Nafta Sale In Doubt

Estonian Municipal Elections

South Caucasus & Central Asia

Terrorist Gives Details On Attack

BP Amoco Backs Baku-Ceyhan

Greece-Armenia Sign Agmt.

Kazakhstan's New Cabinet

Politics-Economics-Business

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October 19, 1999

Intercon's Daily

have been instituted against the individual. Local police today said that many specialists were busy searching the administration building after the call.

Duma To Consider Budget In First Reading

· The Russian State Duma's Budget and Finance Committee has recommend that the draft of the 2000 federal budget be passed in the first reading on Wednesday in a version offered by the trilateral Conciliatory commission that comprises representatives of the lower and upper houses of parliament and the government. Committee chairman, Alexander ZHUKOV said that today deputy groups and factions will determine how they will vote on the budget. He said he was sure the Budget and Finance Committee would do everything to prepare the draft for the second hearing at the plenary meeting on October 29th, if it is passed in the first reading.

Economy

Ruble = 25.88/$1.00 (NY rate)

Ruble = 25.83/$1.00 (CB rate)

Ruble = 27.95/1 euro (CB rate)

Vneshekonombank Accounts For $5B In Debts

· Vneshekonombank President Andrei KOSTIN on Monday said that the bank accounts for $5 billion of debts in loans apportioned to state-run enterprises in the former Soviet Union and businesses in post-Soviet Russia. He added that the bank had managed to recover about $100 million from indebted enterprises in 1999 and to settle $500 million debts of enterprises to Western banks through, "debt instruments." KOSTIN said, "This process is complex enough, and we are experiencing strong pressure, including political one, from regions that would want to somehow liquidate this debt." Vneshekonombank is pursuing 80 arbitration cases to retrieve debts. Many Western insurance companies, through which the loans come, are seeking collateral other than state guarantees.

About 40 Percent of Imports Are Illegal

· Chairman of the State Customs Committee (SCC) Mikhail VANIN in an interview with Izvesta Daily said that about 30 to 40 percent of imported goods are smuggled into Russia. He said that importers, as a practice, improperly declare prices, weight, and quantity of goods that come from abroad. "Our tariff is detailed and academic but it has nothing to do with

reality, and it does not work." VANIN said that the SCC has collected 125 billion rubles in the first nine months of 1999, well below targeted figures. According to its forecasts Russia planned to import some $28 billion of goods in 1999, while in reality the import will total about $21 billion. VANIN said customs privileges are excessive as well as volumes of humanitarian aid that come free from customs duties. "We import up to 60 percent of meat products marked as humanitarian aid, but from my standpoint all talks about the necessity of such aid are sheer propaganda. Particular businessmen make money on it," he claimed.

Business

Tupolev Planes To Be Produced In Iran

· General director of the Tupolev Aviation and Research Complex, Vasily ALEXANDROV, announced that Russia's designers of the modern 100-seat Tu-334 plane have worked out all technical details in an agreement for the production of the aircraft in Iran. He said a delegation of Russian specialists will go to Iran at the end October or the beginning of November to make the necessary preparations. "Scientific and technical questions have been solved. Now we have to work out financial problems," he said. In accordance with a Russian government resolution, the MAPO company will be in charge of the mass production of the Tu-334 and its versions. The certification testing of Tu-334 began last week. Chief designer Igor KALYGIN said the testing will not take a long time because the Tu-334 is based on its earlier version, Tu-204, which has been certified and is in use. Mass production could start as early as 2002.

Russia Resumes Gas Deliveries To Yugoslavia

· Russian gas monopoly Gazprom has resumed gas deliveries to Yugoslavia on Monday. Hungary reopened the Russian pipeline on its territory, which had been banned because of a Belgrade debt of $20 million. This was paid by Gazprom after a month of talks between the three companies. An agreement in principle to restart gas shipments was reached in September between Serbian Prime Minister Mirko MARJANOVI and Gazprom officials during his visit to Moscow. Gazprom is 38 percent state owned and chaired by former prime minister Viktor CHERNOMYRDIN, who served as Russia's mediator in the Kosovo conflict. Yugoslavia suffered severe short

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ages of oil and gas since NATO bombing earlier this year destroyed key refineries. Yugoslavia is under an oil and investment embargo advocated by the European Union during the Kosovo war. Hungary said it made its reasons for humanitarian reasons, based on 350,000 ethnic-Hungarians living in Yugoslavia. Resumed gas deliveries could alleviate opposition pressure for President Slobodan MILOSEVIC to step down.

percent in either district. The lowest turnout was in the city of Tartu, where only 38.4 percent voted. There were 12,801 candidates contesting 3,355 seats in 247 city and district local self-government bodies. Among political parties, Estonia's Centrist Party, which is in opposition to the government, won 21 of the 64 seats in the City Council. The Pro Patria Union came second with 14. This means that no single party has the 33 seats needed to form a majority city administration. In Tartu, meanwhile, incumbent mayor Andrus ANSIP and the Reform Party won 20 of the 49 seats, and the three-party national coalition has 35 of 49 seats in Tartu.

South Caucasus & Central Asia

Detained Terrorist Provides Details

· The Russian Federal Security Service (FSB) has learned new information about the assassination attempt on Georgian President Eduard SHEVARDNADZE in February, 1998, from the detained Georgian citizen Nugzar CHUKHUA, who participated in the attack. Chief of the FSB Public Relations Center, Alexander ZDANOVICH said the terrorist gave testimony about other members of the criminal gang who staged an armed attack on a motorcade of the Georgian President in Tbilisi and their preparations. In 1997, CHUKHUA, as a member of a group of nine Gamsakhurdia's followers led by ex-officer of the National Guards Gocha ESEBUA, escaped to Chechnya where he was trained at a terrorists' compound subordinate to terrorist Khattab, stationed in the area of the settlement of Serzhen Yurt. In a final stage of preparations for a terrorist act against SHEVARDNDAZE, the group of terrorists was joined by six Chechen militants who took part in the attempt. CHUKHUA will be turned over to the Georgian authorities, ZDANOVICH said. He refrained from giving the details of the operation conducted by FSB agents to capture the terrorist, adding that this would be brought to public knowledge later.

On another front, the State Security Ministry will launch an investigation into the sabotage which caused the breakdown Sunday at the tenth energy unit of Tbilisi Heat Power Station. First Deputy Fuel and Energy Minister Malkhaz KIPSHIDZE told Prime News Agency that the causes of the breakdown will be determined only after the rotor of the turbine of the energy unit cools down.

European Republics

Williams-Mazheikiu Nafta Sale In Doubt

· In a national television address on Monday, Lithuanian Prime Minister Rolandas PAKSAS, said that he will not sign an agreement on behalf of his government with the US Williams Company for the sale of 33 percent and operational control of Mazheikiu Nafta. The deal includes a one-time cash payment of 1.4 billion litas (about $350 million) by the government to boost the company's dwindling cash reserves. PAKSAS said the government could only pay that fee in installments. Earlier, Lithuanian President Valdas ADAMKUS and the parliament had approved the deal with Williams, describing them as, "a strategic investor," in the Mazheikiu Nafta oil complex which includes the Mazeikiajskij Oil Refinery, the Butinge oil terminal and the Birzaiskij oil pipeline. The Cabinet today voted to go ahead with the long-planned sale, with the agreement to be signed on October 29th as well as a Eurobond issue to raise the necessary cash. The details of the issue were not released yet. Differences on the privatization sale and the Cabinet's affirmative vote, may force PAKSAS to step down. Finance Minister Jonas LIONGINAS and Economics Minister Eugene MALDEIKIS resigned today over the dispute. Mazheikiu Nafta is a crucial contributor to the Baltic State's economy. It was the country's largest enterprise in terms of turnover in the first half of 1999, even though turnover slumped to 1.08 billion litas ($252 million) from 1.44 billion in 1998.

Estonian Municipal Election Results

· According to the Central Electoral Commission, 49.4 percent of all registered voters participated in municipal elections in Estonia on Sunday, down from 52.1 percent in the 1996 elections. Turnout was the highest in the rural areas of Polva and Jogeva counties, although that figure did not exceed 55

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Baku-Ceyhan Leadership Meets Over Pipeline

· Turkish President Suleyman DEMIREL met with his Azeri counterpart Geidar ALIYEV in Baku on Monday and discussed the Baku-Ceyhan pipeline for the transportation of large amounts of Caspian oil to Turkey's Mediterranean coast and the trans-Caspian gas line. Both leaders have lobbied for the Baku-Ceyhan pipeline, which will carry one million barrels per day. Disputable issued on the project have been worked out during three weeks of negotiations between working groups from Azerbaijan and Turkey. Draft agreements have been passed on to lawyers for verification and registration. Construction of the Baku-Ceyhan pipeline will cost approximately $2.4 billion. Turkey has agreed to pay any cost overruns above that price. Companies, however, are still hoping for alternative financing from international lending institutions. ALIYEV announced that the signing of these documents on the Baku-Ceyhan main export pipeline are scheduled to take place during the Organization for Security and Cooperation in Europe's summit of head of states to be held in Istanbul in on November 18th. The ultimate decision on the project will be made by Azerbaijan International Operating Company (AIOC).

BP Amoco Backs Baku-Ceyhan Pipeline

· BP Amoco, which leads the Azerbaijan International Operating Company (AIOC), has announced its support for the Baku-Ceyhan pipeline for the transport of Caspian oil to Turkey and then on to European markets. The AIOC had previously preferred expanding the Baku-Supsa line because it said the other route would not be justified by smaller than expected volumes of oil until 2007. BP Amoco spokesman said, "We have come to the conclusion that the Baku-Ceyhan pipeline is a strategic transportation route that should be built. We are willing to provide a lead to ensure that companies work with governments and multilateral financial institutions to find a way to finance such a pipeline." Industry analyst stress that the biggest problem is not getting the oil out of the ground, but transporting it out of the Caspian region. BP Amoco has also agreed to

negotiate additional oil volumes from Kazakhstan and Turkmenistan. US Secretary of Energy Bill RICHARDSON praised the decision and thanked BP Amoco's chief executive John BROWNE, "for his leadership in recognizing the importance of this project and for committing BP Amoco to contribute its oil volumes, to invest in the engineering and design of the entire Baku-Ceyhan line to help organize the shippers and the financing for an open-access pipeline project," The Wall Street Journal reported. In order for the pipeline to be commercially feasible, it must carry about 1 million barrels of oil per day. This has been a major concern along with transit fees for the AIOC. The consortium includes BP Amoco (34 percent), Unocal (10 percent), Exxon (7 percent), Pennzoil (5 percent), Turkish Petroleum (7 percent), Delta Hesse (2 percent), Azeri State Oil Company Socar (10 percent), LUKoil (10 percent), Statoil (9 percent), Itochu (4 percent), and Ramco (2 percent).

Greece-Armenia Sign Defense Cooperation

· Greece and Armenia on Monday in Athens signed a defense agreement to strengthen cooperation in training, research, information exchange and defense industry. The accord was reached during talks between Greek Defense Minister Akis TSOCHATZ-OPOULOS and his Armenian counterpart Vagarshak ARUTYUNYAN, which focused on regional security problems. Under the document, the defense branches of the two countries will cooperate in military training and research work as well as exchange information. Defense Minister TSOCHATZOPOULOS noted that each country has the prospect of an external threat that demands enhancement of its deterrent capabilities.

Nazarbayev Appoints New Cabinet

· Kazakh President NAZARBAYEV has appointed former first deputy prime minister Yerlan IDRISOV as Foreign Minister, head of the National Statistical Agency Zhaksybek KULEKEYEV as Economic Minister, Vladimir SHKOLNIK as Industry, Trade and Energy Minister, and Nikolai RADOSTOVETS as Labor and Social Protection Minister.

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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