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

Friday, October 22, 1999

the vehicle revealed a pistol, made in the Czech Republic. His personal apartment has also been searched. VACHAGAYEV was arrested on the decision of the investigator, in accordance with Article 122 of the Russian Penal Code, on suspicion of having committed a crime. Earlier VACHAGAYEV told Prime News Agency that Georgian and Chechnya must be allies in the Caucasus and to work for bringing peace to the region. "Russia will never give up the empire methods of government and the political authority of President Eduard SHEVARDNADZE may play a stabilizing role in the Caucasus." SHEVARDNADZE was tapped by MASKHADOV to act as a mediator to settle the conflict. The Georgian President said he would only act in that capacity if Russia agreed to it.

Primakov Refuses To Meet With Yeltsin

· A meeting between President Boris YELTSIN and former prime minister Yevgeny PRIMAKOV, who leads the powerful Fatherland-All Russia bloc, has been canceled, after PRIMAKOV refused the President's invitation. NTV reported that PRIMAKOV said he considered the meeting "inexpedient" as he does not share the policies carried out by the entourage of the President. He stated, "I do not in any way want to be associated with," the President's policies. In Saratov on Thursday, PRIMAKOV stressed that the military operation in Chechnya should not develop into a big war. "The war should target terrorists, but not a nationality or a people. That cannot happen and nobody will allow it to happen." Fatherland-All Rus

Russian Federation

Politics

Russia Admits To Grozny Special Operation

· After first claiming that it took no military actions against the capital of Chechnya and then pointing out that such an attack must have been "a showdown between rivaling rebel groups," Russia has admitted to launching "a special operation" against a militant arms depot in Grozny. It said the operation hurt no civilians. Late Thursday evening, approximately 10 missiles were dropped on an outdoor market, a maternity hospital and a bus terminal, killing an estimated 143 people and wounding 400 civilians. Another missile just barely missed the residence of Chechen President Aslan MASKHADOV. Russia stated that it was not aiming at civilians, but a terrorist target. It claims the market was a place where illegal arms were sold. Prime Minister Vladimir PUTIN, who is attending the Russian-European Union summit in Helsinki, said, "This is a weapon base, an arms warehouse. This is a place where bandit groups concentrate." When asked whether the special operation was authorized, he said the country's political leadership, "cannot authorize every operation" and that appropriate agencies are supposed to do so. Colonel Alexander DROBYSHEVSKY, Chief of the Air Force press service said Russian combat aviation did not make flights and did not fly any missions in the air space over Grozny over the past 24 hours. A spokesman for the Russian Air Force today said reports about the air strike allegedly committed by Russian aviation on Grozny were "disinformation" and are used to further damage Russia's reputation.

Meanwhile, the official representative of Chechen President Aslan MASKHADOV in Moscow, Mairbek VACHAGAYEV, has been arrested and detained in an investigation prison for three days. His car was stopped by police for a traffic violation. A search of

Today's News Highlights

Russia

WB Official Under Investigation

Tyumen Sale To Be Announced

European Republics

Russian Hands-over Radar Base

Belarus Issues Wage Decree

South Caucasus & Central Asia

Primakov Linked To Terrorists

Georgian Tax Collection Rises

Conoco Closes Baku Office

BP Amoco To Fund Pipeline

Politics-Economics-Business

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October 22, 1999

Intercon's Daily

sia, an anti-Kremlin electoral bloc, holds the leading position in public surveys on the eve of upcoming State Duma elections.

Yeltsin Appoints New Deputy Foreign Minister

· On Monday, President Boris YELTSIN appointed Grigory BERDENNIKOV as deputy foreign minister in charge of issues of the CIS. Upon graduation from the Moscow Institute of International Relations in 1973, he was offered a job at the Russian Foreign Ministry in the post of a duty referent at the Soviet mission at the UN. BERDENNIKOV worked at the Russian Foreign Ministry Department for international organizations, at the Soviet mission under the UN Department in Geneva, and at the Department for problems of disarmament and limitation of weapons of the Russian Foreign Ministry. In 1992-1993, BERDENNIKOV worked in the post of a deputy foreign minister, afterwards, he was appointed to the post of Russia's permanent envoy to the Conference on disarmament in Geneva. He was head of a Department for issues of security and disarmament of the Russian Foreign Ministry.

Economy

Ruble = 25.79/$1.00 (NY rate)

Ruble = 25.76/$1.00 (CB rate)

Ruble = 27.77/1 euro (CB rate)

May Jun Jul Aug Sep Oct

WB Investigates Insider Information Trader

· After receiving compromising documents, the World Bank has launched an investigation into the actions of former bank official Leonid GRIGORIEV, who provided Moscow-based Inkombank with in

sider tips on debt markets and acted as its liaison in the US from 1992 to 1997. GRIGORIEV served as a senior member of Russia's World Bank mission in Washington. He admits to assisting Inkombank, but denies providing confidential information or receiving regular payments. The World Bank has obtained documents labeled "strictly confidential" between GRIGORIEV and Inkombank's then-chairman Vladimir VINOGRADOV which offer insider tips. The Wall Street Journal reports that one correspondence predicted Inkombank could make a 40 percent profit if it quickly invested $10 million in defaulted Soviet-era debt. Two weeks after the memo was written, Inkombank negotiated a six-month buy option on $5 million of defaulted debt. Another memo provides a breakdown of GRIGORIEV's services to Inkombank, including information relating to the secondary debt market. He also served as an intermediary for Inkombank when it was trying to obtain a license to operate in the US. Andrei BUGROV, Russia's executive director to the World Bank who requested the internal inquiry to be conducted by Venable, Baetjer, Howard & Civiletti, said, "It's quite clear to me that it's a conflict of interest. It's a practice that's not allowed, and it's not tolerated here at all." He added that there has to be due process. While, GRIGORIEV's actions do not appear to have violated the law, the World Bank's own code of conduct, at the time, required board members and their senior officers to disclose, "any substantial direct or indirect personal interest in any matter known by him to be under consideration by the bank." The World Bank does not have any record of such a disclosure from GRIGORIEV. Inkombank was one of Russia's largest banks until it lost its license last year. GRIGORIEV works as director of the Bureau of Economic Analysis (BEA), a Moscow think-tank primarily funded through a World Bank loan. According to a bank press release, GRIGORIEV has been placed on administrative leave by the Board of BEA, pending the results of the investigation.

Business

Tyumen Buys Kondpetroleum For $52 Million

· Tyumen Oil Company on Thursday purchased Kondpetroleum, a bankrupt subsidiary of Sidanko, at an auction for $52 million, despite the starting price of $145 million. In a previous auction, the starting price of $170 million attracted no investors and

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subsequently had to be canceled. Kondpetroleum has proven and probable reserves of 609.5 million tons, or some 4.5 billion barrels. Tyumen said it would increase production at its new unit from 50,000 barrels to 60,000 barrels a day in 2000. Its maximum production capability could reach 200,000 barrels per day. The purchase is the latest in a series of blows for BP Amoco which learned that Sidanko subsidiary Chernogorneft will be auctioned on November 26th. BP Amoco said it will challenge the shareholder vote in court. Howard CHASE, BP Amoco Russia director of external affairs, said, "Sidanko is the major creditor of Kondpetroleum but has been consistently excluded by the regional courts from the bankruptcy process. We shall continue to look for every way to recover our debts," which total 800 million rubles.

Tyumen Tender To Be Announced

· A spokeswoman for the Russian State Property Ministry on Thursday said that it will soon announced a tender for a 49.5 percent stake in the Tyumen Oil Company. Natalya STARODUMOVA said, "The draft of a decree has been sent to the presidential administration and we expect it to be signed soon. It has already been endorsed by the Prime Minister Vladimir PUTIN. She declined to disclose the details. However, Tyumen deputy head Viktor VEKSELBERG predicted the starting price for the stake, including the value if the investment program, to reach $200 million. Tyumen, Russia's fifth largest oil company in terms of output, produced 19.7 million tons of crude in 1998. Its main production unit is Nizhnevartovskneftegaz. Novy Holding Company, founded by Alfa banking and industrial group and a joint venture Renova, holds the controlling stake in Tyumen Oil Company, Reuters reported.

the region, but retained the Skrunda base as part of an early warning system against launches of ballistic missiles by NATO, the United International Press reported. In 1998, Russia agreed to close down the station and begin dismantling equipment. Russia has scrambled to find a replacement to the gap in coverage left by the shutdown. Moscow said it will step up efforts to complete a new radar station in Belarus, which borders Latvia to the east. Latvia has applied to join both NATO and the European Union, but the Russian military presence was a major deterrent in achieving these goals. Latvian Foreign Ministry spokesman Janis SILIS said, "This is a very important day for Latvia. This marks the point when all Latvian territory is finally under our complete control." Thursday was the first time that Latvian officials and media were permitted on the base. The base includes a compound with houses numbering 540 apartments, a hotel, a polyclinic, a kindergarten for 140 children, two recreation centers seating 300 to 400 guests each, a canteen, eight warehouses, a bath house, a laundry, garages and other facilities.

Belarus Issues Wage Decree

· The Belarus President has issued a decree introducing the state regulation of wages paid by private entrepreneurs. Labor Ministry officials Alexander CHARNABRIVETS said that the decree is aimed at ensuring social justice in the private business sphere, RFE\RL Newsline reported. He said that workers at private companies have often complained that they are very poorly paid. Under the decree, wages in the private sector must be made in accordance with the so-called national scale of wage rates. Deputy chairman of the Belarus Union of Entrepreneurs Alexander PATUPA said the decree is another example of the anti-market policy of the Belarus government which aims to extend Soviet-era regulations to the private business sphere. Police have arrested 92 demonstrators who participated in the Minsk Freedom March and launched a criminal case against the march organizers.

South Caucasus & Central Asia

Primakov Linked To Assassination Attempts

· In an interview with Radio Liberty's Russian service former director of the US National Security Agency retired General-lieutenant William ODOM was asked what was the purpose of the Russian

European Republics

Russian Base Handed Over To Latvia

· The Russian military Thursday quietly handed over control of the former secret radar station at Skrunda, the last Russian military base in Latvia, to representatives of the Baltic state, ending a 60-year Soviet and Russian military presence in Latvia. After the three Baltic republics of Latvia, Lithuania and Estonia regained their independence from the Soviet Union in 1991, the Russian military pulled out of

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When you need to know it as it happens

Politics-Economics-Business

Friday

October 22, 1999

Intercon's Daily

military actions in Chechnya. He responded that the real purpose of the fighting is to embroil Georgia and Azerbaijan in a larger war. The General also pointed out it is well known that Russian forces have been behind numerous attempts to assassinate Georgian President Eduard SHEVARDNADZE. Russia continues to harbor Georgia's former security minister GIRORGADZE, who is wanted by Interpol for the 1995 assassination attempt against SHEVARDNADZE. General ODOM noted that Georgia was in possession of intelligence information that linked then Russian prime minister Yevgeny PRIMAKOV with, at the very least, knowledge and financial backing of those forces which were planning another attempt against SHEVARDNADZE's life. This was part of a larger coup d'etat plan against the democratically elected Georgian government, which was exposed in May of this year by the Georgian Security Services. Prime News Agency reported that Chairman of the intelligence department of Georgia Avtandil IOSELIANI stressed that "it is well known," that PRIMAKOV enjoys good relations with GIORGADZE.

Georgia Collects 60M Lari In Excise Taxes

· Over 60 million lari was transferred to the Georgian state budget from collection of excise tax on alcohol and tobacco products. Deputy head of excise tax service under the Finance Ministry Giorgi BEROZASHVILI said 55.3 million from the total of 61.1 million lari was received from realization of tobacco products, Prime News Agency reported. Prohibition of realizations of alcoholic products at Georgian territory came into force March 20th. Import of alcoholic drinks and tobacco products without excise tax was prohibited in Georgia starting February 1st. In the period of October 11th to 21st, the government collected 35 thousand lari from taxes on beer. BEROZASHVILI said that 34.9 thousand lari was received from local production units. According to him, the two largest firms ordering excise stamps are Kazbegi-Castel and Kutaisi company AIA.

Conoco Khazar To Close Its Baku Office

· Conoco Inc. will close the Baku office of its Conoco

Khazar Ltd. The company said the move was prompted by its lack of progress with the Azerbaijan State Oil Company (Socar), on a project to improve oil and gas recovery from the offshore Guneshli field. Conoco said it could not resolve differences with Socar over the commercial terms related to Conoco's investment in the project.

BP Amoco Agrees To Pipeline Cost Overruns

· Azeri President Geidar ALIYEV announced that BP Amoco has agreed to guarantee cost overruns above the planned price of $1 billion on the Azeri and the Georgian section of the $2.4 billion Baku-Ceyhan oil pipeline. He said he received the news in a letter from BP Amoco chief executive officer John BROWNE. The Azeri President also pointed out that Turkey has agreed to cover cost overruns about $1.4 billion, the expected cost of the Turkish section of the pipeline. On Monday, Turkish President Suleyman DEMIREL and ALIYEV agreed to sign four agreements on the Baku-Ceyhan pipeline in Istanbul in November during the summit of the Organization of Security and Cooperation in Europe (OSCE). BP Amoco is the operator of the $11 billion Azerbaijan International Operating Company (AIOC), which produces 115,000 barrels per day.

Kazakh Prime Minister Kasymzhomart TOKAYEV said that Kazakhstan welcomes the construction of Baku-Ceyhan. He said that he will hold consultations with Azerbaijan on the, "commercial advisability and the technical-economic feasibility of this project." The two former Soviet republics closely cooperate in energy transportation. Kazakhstan uses its port city of Akatau to send about 1.5 million tons of oil to Azerbaijan. Russian Fuel and Energy Minister KALYUZHNY denounced the pipeline. He stated he does, "not believe that the pipeline will ever be constructed" because it is based on politics rather than economics, RFE\RL Newsline reported. He stressed the "most beneficial" route for Caspian oil is across Russia. Azeri Prime Minister Artur RASI-ZADEH emphasized, "Our policy is aimed at diversifying ways if oil and gas deliveries."

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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