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

Monday, October 25, 1999

Russian Federation

Politics

Russian Troop Block Route To Ingushetia

· Russian troops continued to bombard Chechen villages and have sealed off the main road leading into the neighboring republic. President of Ingushetia Ruslan AUSHEV warned that blocking this route would prevent civilians from escaping the fighting. "These people now have no way of getting out of Chechnya. They are mostly women, children, and old people. The bandits are walking around as they please and the peaceful population is suffering most." AUSHEV added that Russia is operating like a "military dictatorship. They feel there is no control over them and that they can do anything they want." One Russian soldier explained that they had been ordered to not permit anyone to cross, saying, "We are standing here because we know that the area is full of Chechen fighters, and they could be passing themselves off as refugees." More than 160,000 people have fled Chechnya.

Russia's Federal Security Service (FSB) said the move was taken to reinforce the zone of security on the border to prevent rebels from entering neighboring regions to stage terrorist attacks. The FSB increased tensions inside Russia by saying it has received information on a new series of terrorists attacks. It has not released information on the targeted areas to prevent a chaotic atmosphere, the Financial Times reported. "Significantly, the bands' chiefs [Shamil] BASAYEV and KHATTAB assign them for concrete tasks to carry out sabotage and terrorist actions in Moscow, St. Petersburg, and other territories of Russia," the FSB said. Russian President Boris YELTSIN met with KREMLIN leaders to discuss their month-long offensive against terrorists in Chechnya. He endorsed the military action and praised the actions of Prime Minister

Vladimir PUTIN. "I fully support the results of this work." The Russian military claimed to have destroyed an anti-aircraft gun and two vehicles full of militants in strikes overnight.

Rushailo Meets With Freeh In Washington

· Russian Interior Minister Vladimir RUSHAILO is on an official visit to the US, which will focus on fighting organized crime and corruption, specifically in the area of money-laundering. RUSHAILO was invited to visit the US by Federal Bureau of Investigation Director Louis FREEH. Rushailo will meet with FREEH, Justice Secretary, Attorney General Janet RENO and, probably, Deputy Secretary of State Strobe TALBOTT today. One on major subjects of his talks will be Russia's military actions against Chechnya. RUSHAILO said he explained the full situation to the law enforcement bodies of the Group of Eight. He said, "I would like to remind one that Chechnya is in question not only in the context of fighting terrorism. Chechnya is an entity of the Russian Federation. All countries recognize this unconditionally." He said federal forces are bringing order to a Russian region where bases of terrorists and bandits had been operating for a period. Regrettably, Chechen President Aslan MASKHADOV has no real control of the situation, RUSHAILO said.

Economy

Gazprom Shares Missing Through Illegal Transfer

· Russia's law enforcement agencies working along side the National Association of Securities Market Partici

Today's News Highlights

Russia

Rus-Chinese Nuclear Plant

New Svyazinvest Director

European Republics

Group of Four Backs Marchuk

Crimea Pipeline Opens

Lith. Air Space Violated

South Caucasus & Central Asia

Refugees Fleeing South

Supplies To TbilSRES Resumes

BP Denies Covering Overruns

Politics-Economics-Business

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Monday

October 25, 1999

Intercon's Daily

pants (NAUFOR) are investigating whether Dmitry ARKIPOV, a former employee of Bank of New York in Moscow, stole shares of Russian gas monopoly Gazprom valued at more than $20 million, when he was general director of Financial Partners, a Moscow affiliate of Bank Austria Group. The Wall Street Journal reported that investigators have accused ARKIPOV of selling 108 million Gazprom shares held by Financial Partners in late April and early May. Proceeds from the share transfer are missing and the transaction was not discovered until July. According to a Financial Partners statement, Gazprom shares registered in its name had been, "improperly re-registered in the names of other parties." These shares formed the basis of a note sold to foreign investors. Russian investigators have frozen 80 million of those shares, which have changed hands several times since the transaction under investigation. Gazprom has long sought to restrict and limit foreign ownership through a controversial division between local shares and more expensive American Depository Shares. Financial Partners, established by Creditanstalt-Grant Investment Co., operated one of several investment vehicles created to help foreigners skirt these restrictions and purchase cheaper domestic stock. The case could be Russia's biggest stock scandal and is likely to embarrass Gazprom, which is nearly 40 percent owned by the Russian government.

Meanwhile, Russian First Deputy Prime Minister Viktor KHRISTENKO said Russian authorities, "are ready for the closet cooperation with the World Bank in the investigation of the facts names in the publication [The Wall Street Journal]" on the allegations that Leonid GIRGORIEV, a senior member of Russia's World Bank mission, passed confidential information and violated a conflict of interest. He is accused of sharing information on debt market investments to Inkombank and acting as their US liaison, while carrying out his duties at the bank mission.

Ruble = 25.76/$1.00 (NY rate)

Ruble = 25.71/$1.00 (CB rate)

Ruble = 27.46/1 euro (CB rate)

Business

Russia Helps To Build Chinese Nuclear Plant

· Russia is providing technical assistance for the massive construction of the four-unit Tianwang

nuclear power plant in the eastern China, which started on Wednesday. The first phase of the power plant will be completed in 2004, supplying more than 1 million kilowatts to rapidly developing coastal areas in eastern China once the first reactor comes on line. The second reactor should be completed by 2005. Russian Deputy Minister of Nuclear Energy Yevgeny RESHETNIKOV participated in a ceremony of launching the main volume of work at the construction site. He pointed out that 700 Russian firms participate in fulfilling the Chinese contract, providing jobs for 220,000 workers. "Pushing our technologies to China, we win a foothold not only on that market but also on markets of nearby Asian countries." Construction of the nuclear plant in Eastern China is conducted with a Russian government credit of $2.5 billion, which will be repaid with Chinese goods after commissioning of the two first power sets. The German Siemens company and several Finnish as well as French firms participate in implementing the contract. Russia is also helping Iran build a nuclear power plant in Bushehr, despite strong pressure from the US.

In addition, Russia will deliver about 40 its state-of-the-art Su-30MKK two-seat multipurpose fighter jets to China beginning next year. An agreement on the deliveries was reached during a visit to China by Deputy Prime Minister Ilya KLEBANOV. The planes will be adapted to requirements of the Chinese Air Force and differ from the Indian variant of the Su-30MKI. Russia and China are also negotiating a contract for deliveries of training and combat Su-27UBK jets for the Chinese army.

New Svyazinvest Director General Appointed

· Valery YASHIN has been appointed Director General of the Svyazinvest company at an extraordinary meeting of shareholders, Director of the Svyazinvest Board Vladimir BULGAK said. YASHIN is concurrently Director General and Board Chairman of the St. Petersburg Telephone Exchange Company, Board Chairman of the Telecominvest Company and non-state Pension Fund Telecom Soyuz. He is also a member of boards of a number of telecommunications companies of St. Petersburg. YASHIN's predecessor Oleg BELOV, who had been director general of the Svyazinvest since April 1999, resigned from his post. His resignation was demanded by the State Property Ministry, which is one of the biggest shareholders of the Svyazinvest.

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European Republics

Group Of Four Endorses Marchuk

· The "group of four" Ukrainian presidential candidates have chosen to place their common support behind former Prime Minister Yevhen MARCHUK, after talks that went past mid-night on Sunday. The three other members, Alexander TKACHENKO, Alexander MOROZ, and Vladimir OLIYNYK have not yet formally withdrawn from the 14-strong field of candidates. MARCHUK and his three allies announced their pact of mutual support in Late August, but had failed to name their favored candidate until now. Political analysts have predicted that the group of four candidate could pose a real challenge to incumbent President Leonid KUCHMA. Ukrainian opinion polls, place KUCHMA in first place, followed by Progressive Socialist leader Natalya VIRTRENKO and Communist Party chief Petro SYMONENKO. The election is set for Sunday October 31st. With the economy in decline, the election is not just about choosing a President, but will also determine whether Ukraine will look towards European and the Western market reforms or turn back to the Soviet past. Many of the candidates have platforms which include socialist measures, while KUCHMA and some centrist candidates are seeking pro-Western policies and market reforms.

Crimean Gas Pipeline Opens

· Ukrainian authorities, including President Leonid KUCHMA, attended the inaugural ceremonies of a pipeline providing natural gas to southeastern Crimea. Gas will be supplied through a pipeline lying from Crimea's Dzhankoi across the entire peninsula through Feodosia to the city of Kerch. KUCHMA lit a torch in Kerch symbolizing the completion of the what began as a 14-month project. He said, "This is not an ordinary event for the peninsula's residents." The 146-mile pipeline cost the equivalent of $60 million to build. Its construction was frozen in 1995 due to a lack of funds. Crimea's 2.6 million residents have coped with energy and hot water shortages.

Lithuania Protests Violation of Air Space

· Lithuania's Foreign Ministry on Sunday lodged a protest with the Russian Embassy over an alleged violation of Lithuanian air space by a Russian armed helicopter. The formal statement said, "Lithuania hopes that the details of this incident will be immedi

ately investigated, and such incursions won't be repeated any more." The Russian helicopter violated Lithuanian air space from Russia's Kaliningrad region. The Interfax news agency quoting Lithuanian sources said that the helicopter first landed at a secondary school stadium in the town of Jurbarkas, then took off again and finally exited Lithuanian air space. The Russian Defense Ministry, which first claimed that it has no information about such an incident, apologized for the incident through its embassy in Vilnius. The Russian embassy cited, "a partial loss of orientation" in space as the cause for the "non-intentional crossing of the border by the helicopter and its short-term stay on Lithuanian territory." Russian authorities, said the Ka-27 rescue helicopter, from the Russia's Baltic Fleet, was heading for Krasnoznamensk, a town in the Kaliningrad region near the Lithuanian-Russian border, to deliver emergency medical aid to a serviceman caught in a car accident.

South Caucasus & Central Asia

Georgian Opposition Buying Votes?

· In the decisive Georgia parliamentary election to be held on October 31st, Georgians will choose between the Citizens' Union of Georgia (CUG) led by President Eduard SHEVARDNADZE and the opposition bloc led by the Union of Georgia's Democratic Revival to represent them in the 250-seat parliament. That Union is headed by Chairman of the Supreme Council of the Adjarian Autonomous Republic Aslan ABASHIDZE. The President said that, "Many are trying to get into parliament by using money, buying people, blackmail." This he warns could allow criminals and the opposition parties to enter the parliament reversing Georgia's pro-Western orientation in favor of a pro-Russian course. He said, "If one gets into parliament as a result of force, by buying votes, that is a coup d'etat. You do not necessarily need weapons for a coup." He added that "When I speak of the danger of a parliamentary coup, I mean political parties and blocs supported by external forces, who want to change the course of Georgia." He has accused "external forces," namely Russia, of supporting ABASHIDZE. The Adjarian leader in return has accused SHEVARDNADZE of ordering dozens of assassination attempts against him. ABASHIDZE once claimed that two tourists wanting to take his picture were actually hired assas

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Intercon's Daily

sins, who used their camera flash to send out deadly rays designed to give him a heart attack. One voter said, "Many people are poor now, including me. I don't even have a house. But I see positive signs in our country, things are more stable now, so I'll vote for SHEVARDNADZE. ABASHIDZE is just a demagogue, and voting for his group is an empty protest," Reuters reported. CUG deputy party head and former state minister Niko LEKISHVILI said, "We believe in the end we will get a majority."

The electoral commissions and polling stations will function in Russia, Ukraine, Azerbaijan, Armenia, Austria, Lithuania, Uzbekistan, Greece, Turkey, the US, Germany, Great Britain, France, Italy, Israel, Switzerland and Belgium, according to the Georgian Central Electoral Commission.

Gas Supplies To TbilSRES Resumes

· Supplies of Russian natural gas to the largest Georgian heat power station TbilSRES were on Saturday. The power station is currently receiving 35,000 cubic meters of gas every hour. Resumption the supplies was negotiated during a telephone conversation between Georgian State Minister Vazha LORDKIPANIDZE and the heads of Itera company and Russian gas monopoly Gazprom. The State Minister promised that Georgia will start repaying the October gas debt of $ 1.5 million immediately. Several days ago, Russian side official warned Tbilisi that supplies of natural gas to Georgia would be cut off by Itera company on October 22, which was done. Itera sells about 900 million cubic meters of gas a year to Georgia.

Georgia To Keep Borders Open To Refugees

· Georgian President Eduard SHEVARDNADZE said that his nation will keep its borders open for Chechen refugees. He said, "As far as women, children, and elderly people are concerned, we cannot refuse them because the war sooner or later will be over and we must live in peace with the Chechens and other North Caucasus peoples." The escape route South to Georgia is a long and danger

ous hike across rugged, snow-capped mountains. First deputy head of the staff of state border guard department of Georgia Kornely SALIA told Prime News Agency that all the highland paths have been covered by snow. He noted that Chechen men 16 to 55 years old are not admitted to Georgia though the special block-post in the area of Georgian village Shatili. This is because by a Chechen presidential order men of that age are prohibited from leaving the territory of Chechnya. SHEVARDNADZE said, "We have one policy: we do not let armed people, so-called fighters, come through," our borders. Georgia has accepted 1,000 Chechen refugees. It has limited means to feed or house the new arrivals.

Meanwhile, three Georgian citizens have been bailed out after six months of captivity in Chechnya, Georgian television said today. The hostages were abducted in March in Vladikavkaz, the capital of North Ossetia, by unknown assailants and were later moved to Ingushetia and then to Chechnya. Details of their release have not been made public, but it was stressed that the bailout was made possible with the help of Chechen Vice President Vakha ARSANOV.

BP Denies Guaranteeing Pipeline Overruns

· On Friday, BP Amoco denied that it will cover costs overruns on the Azeri and Georgian sections of the proposed oil pipeline from Baku to Ceyhan. Azeri President Geidar ALIYEV announced on Thursday that had received a letter confirming this. A company spokesman in Baku said, "BP wishes to point out that no guarantee on costs have been made by the company...No such letter agreeing to such conditions has been issued by John BROWNE. BP Amoco supports the Baku-Ceyhan pipeline, but discussions on specific issues of guarantees and costs on the Azeri-Georgian sections of the pipeline have not taken place." BP Amoco said there has been some misunderstanding. The Azerbaijan International Operating Company (AIOC), led by BP Amoco, maintains that it wants to be sure that it has enough oil in place in the Caspian to make a new pipeline commercially viable.

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

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