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

Monday, October 4, 1999

their elected leader in times of trouble. Chechnya has also said it would welcome international observers to look for alleged rebel bases. MASKHADOV said, "let them show us where the terrorist bases are and we will destroy them ourselves. We would also welcome sending peacekeeping force to Chechnya under the auspices of the world community...I ask the West at least not to finance Russia's war with Chechnya." Chechnya has requested that Georgian President Eduard SHEVARDNADZE mediate between Moscow and Grozny. He met with vice President of Chechnya Vakha ARSANOV. SHEVARDNADZE said he is ready to participate as a mediator in the Chechen conflict settlement, "for peace in the Caucasus," only with Russia's consent.

Putin Calls For Money Laundering Commission

· After his meeting in the Kremlin with President Boris YELTSIN today, Prime Minister Vladimir PUTIN has called for the establishment of a commission to bridge the differences between the Cabinet and lawmakers on a bill against money laundering. YELTSIN previously rejected an initial version of the bill, proposed by the Russian State Duma, claiming it contradicted the Russian constitution and international agreements. PUTIN said that there was an understanding with speaker of the lower house Gennady SELEZNYOV that the problem was "merely a matter of juridical technicalities." PUTIN expressed the confidence that the new version of the draft law will be passed by the Duma shortly. The campaign to revive the bill, follows international criticism and alle

Russian Federation

Politics

Russian Troops Move Inside Chechnya

· Over the weekend Russian troops continued their air raids on the breakaway republic of Chechnya, even moving up to 10 kilometers inside Chechnya to the Naursky and Shelkovskaya districts. Moscow has stated that it will continue its bombing campaign against terrorist wherever they may be. It believes that the strikes are justified by the deaths of 350 people in apartment bombings in Russia by Islamic militants. Prime Minister Vladimir PUTIN on Friday met with members of Chechnya's former parliament, stating that they are the only legitimate authority in Chechnya. The parliament was disbanded after separatists took power in 1996. PUTIN has yet to meet with Chechen President Aslan MASKHADOV. The security zone to protect Russian territory from incursions of bands from Chechnya has been completed, according to commander of the federal forces in Daghestan Lieutenant-General Gennady TROSHEV. The general said the line coincides with the administrative border with Chechnya. At the same time, he did not deny that in some areas the troops had to move several kilometers into the territory of the Chechen Republic. Defense Minister Igor SERGEYEV added that whether the Chechen capital Grozny will be included in this security zone, "will depend on further developments." The local newspapers have speculated that the next army objective is to take the Terek River, 40 kilometers north of Grozny, this would form a natural boundary for a buffer zone. Federal troops on Friday opened tank fire from Ingushetia on Chechen targets. Meanwhile, MASKHADOV said, "Chechnya will not give up a single meter of its land." He denied his territory was used as training camps for "terrorists." He met with key ministers in an appeal to the region's political parties and warlords to rally behind

Today's News Highlights

Russia

New Anti-Corruption Committee

Export Oil Ban Lifted

Gazprom Cuts Chechen Fuel

European Republics

Baltic Defense Ministers Meet

Vitrenko Hit By Grenade

South Caucasus & Central Asia

Abkhazia Re-Elects Ardzinba

Azeri Villaged Bombed

UES Faisl To Agree On Debt

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gations of Russian money laundering at the Bank of New York. Russian officials have dismissed the accusations as a Western plot to damage Russia's reputation.

OSCE Secretary General To Visit Russia

· The Organization for Security and Cooperation in Europe's (OSCE) Secretary General Jan KUBIS is scheduled to arrive in Moscow today for an official visit. He will meet Russian Foreign Minister Igor IVANOV and Deputy head of the Russian president's administration Sergei PRIKHODKO. On Tuesday, KUBIS is to hold talks with Russian Deputy Foreign Minister Yevgeny GUSAROV. The same day the OSCE secretary general will meet with Leonid IVASHOV, chief of the Main Department of International Military Cooperation of the Russian Defense Ministry. On Wednesday, KUBIS will meet Minister for CIS Affairs Leonid DRACHEVSKY and Sergei PRIKHODKO. The OSCE secretary general will conclude his visit with a talk with deputy chairman of the Russian State Duma Defense Committee Alexei ARBATOV.

National Anti-Corruption Committee Established

· Russia has declared numerous campaigns against corruption that have failed to achieve results, but a new commission established by prominent Russian politicians, former intelligence chiefs, and lawyers hopes to be different. The national anti-corruption committee, headed by former prime minister Sergei STEPASHIN, reported that official graft costs the state as much as $20 billion a year. The group aims to help ordinary Russians get legal assistance to expose officials who demand bribes and other favors, The Wall Street Journal reported. It will also look into whether International Monetary Fund (IMF) loans were siphoned off through private accounts at the Bank of New York. The committee has been established as a non-governmental attack on corruption. Head of the Russian State Duma's Anti-Corruption Commission Alexander KULIKOV dismissed the new committee as an act of "political opportunism." He pointed out that one of the organizers is himself tainted by allegations of malfeasance.

Economy

Ruble = 25.2/$1.00 (NY rate)

Ruble = 25.49/$1.00 (CB rate)

Ruble = 27.32/1 euro (CB rate)

Russia Given Priority In Oil For Food Deal

· The largest Russian delegation since 1990, headed by Fuel and Energy Minister Viktor KALYUZHNY, arrived in Baghdad on Tuesday for the third session of the Iraqi-Russian Economic, Trade and Technical Joint Committee. The two sides discussed means of enhancing economic, commercial and technical cooperation between the two countries. Russia and Iran will discuss further oil and gas cooperation. Iraqi Oil Minister Amir Muhammad RASHID has said that Russian firms will be given priority in the UN Oil-for-Food program because of its efforts to lift sanctions. Russia is anxious for these sanctions to be lifted since Iraq owes it billions of dollars for past contracts. The Oil-for-Food deal would give the Iraqi government nearly $7 billion at its disposal every six months, if the UN removed its ceiling of $5.2 billion. Russia is already the largest importer of Iraqi crude, which Iraq claims eventually ends up in the US. The US prohibits its firms from directly dealing with Iraq. Russia and Iraq signed a contract to develop southern Iraq's West Qurna oil fields in March 1997 during the second session of their committee held in Baghdad. West Qurna oil fields, 500 kilometers south of Baghdad, have an estimated oil reserve of 7 billion to 8 billion barrels. Under the contract, Russia and Iraq will cooperate to develop the oil fields over 23 years. The sides will work to remove obstacles that have hindered the project, mainly international sanctions. About 70 percent of the contract awarded to LUKoil, while Zarubezhneft and Machineimport took 15 percent each.

Russia Lifts Total Ban On Fuel Exports

· Fuel and Energy Ministry lifted a total ban on fuel exports effective Friday , which were first imposed on September 10th. "The ministry has reviewed the situation and decided not to extend the total ban on fuel oil exports." However, that some oil refineries in Russia would be restricted to export only 10 percent of their oil production, with the remaining 90 percent to be sold domestically. Russia also has a ban on motor gasoline which is limited to exports of 30 percent. The Ministry did not state whether or not this ban would be lifted or revised.

Business

No Reshuffling Planned At Tyumenenergo

· Spokesman for the Unified Energy Systems of

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Russia (UES) Andrei TRAPEZNIKOV said rumors that the office of the Tyumenenergo Company was taken over by armed gunmen are untrue. General Director of Tyumenenergo Artem BIKOV on Friday said that no reshuffling in Tyumenenergo was planned. The key task of the company is to ensure a stable functioning of the Tyumen energy system in the winter season and to improve the financial standing of Tyumenenergo, 100 percent of whose stock belong to the UES. The UES Board met to decide on the terminated office of Tyumenenergo General Director BOGAN in connection with the expiration of his contract on October 1, 1999. The Board, thus, assumed the function of a general meeting of Tyumenenergo. Earlier this fall the termination of BOGAN's office was discussed by the Tyumenenergo Board, which authorized the Board of the UES to act on behalf of a Tyumenenergo general meeting. The UES Board elected A. BIKOV, First Deputy Chief of the Federal Service for Financial Receivership and Bankruptcy, as the new General Director of Tyumenenergo. For the past two years BIKOV was tackling regional problems, including the upgrading of energy companies.

Gazprom Shares Become Federal Property

· Russian Prime Minister Vladimir PUTIN signed a directive under which 35 percent of the Gazprom shares will become federal property. The directive was signed to fulfill Russian President Boris YELTSIN's decree, On federal ownership of part of the Gazprom joint-stock company stocks and shares. The decree said that decision was made on the government's proposal to ensure the state's economic security and also in view of the importance of the Gazprom joint-stock company as leading gas supplier to consumers in Russia and abroad.

Meanwhile, since September 30th, Gazprom has stopped gas deliveries to Chechnya. Gazprom chairman of the board Rem VYAKHIREV said that the cut off is not connected with the armed conflict. He said the reason is based on Chechnya's debt to Gazprom, which amounts to one billion rubles.

plans for defense cooperation in the year 2000. Estonia is represented at the conference by acting commander of this Baltic republic's defense forces Colonel Urmas ROOSMIYAGI, Latvia by commander of its defense forces Colonel Raimond GRAUBE and Lithuania by its army commander, Brigadier-General Jonas KRONKAITIS. Latvia, Lithuania and Estonia are currently implementing a number of joint projects in the defense sphere. The projects include the peacekeeping forces (BALBAT), airspace surveillance (BALTNET), de-mining of the territorial waters in the Baltic (BALTRON) and the training of the command staff (BALTDEFKOL). The process of implementation of these projects will also be discussed at the two-day conference.

Ukraine's Presidential Election Turns Violent

· After giving a speech in front of thousands in the industrial city of Kryvyi Rih, presidential candidate Natalya VITRENKO and a group of about 60 surrounding her were hit by home-made bombs, made out of nails and barbed wire. VITRENKO, who heads the Progressive Socialist Party and is running in second place after incumbent Leonid KUCHMA, was injured in the stomach and legs. Some 30 people were injured with 18 needing serious medical treatment in the hospital. Two suspects were detained several minutes after the blast. According to Deputy Interior Minister Mikhail KORNIYENKO, they are residents of Rostov-on-Don in Russia. VITRENKO's platform is primarily Marxists, playing on nostalgia, anti-Western sentiments, and pledges to support for the needy. Another presidential hopeful, former general of the Security Service Yevgeny MARCHUK, believes that, "the terrorist act against VITRENKO is also aimed against the elections at large. A political implication of the terrorist act is obvious." He add that the action aimed against a woman demonstrated, "the highest level of its contractors' cynicism." KUCHMA condemned the attack saying, "nobody, not any destructive forces, will destabilize the situation," in Ukraine. The presidential poll will be held in Ukraine on October 31st.

South Caucasus & Central Asia

Abkhazia Re-Elects Ardzinba Its Leader

· The self-proclaimed breakaway republic of Abkhazia re-elected Vladislav ARDZINBA, the only candidate, as president. In a move to make the vote

European Republics

Baltic Defense Conference Opens

· Defense Ministers from the Baltic states are attending a conference in Tallinn today to discuss

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appear more legitimate, authorities added a question as to whether citizens wanted to reinstate the STALIN-era 1925 constitution, which describes Abkhazia as an independent state. This referendum also past. ARDZINBA received 99 percent of the vote, and the referendum won the approval of 97 percent. Abkhazia's foreign minister Sergei SHAMBA said, "Georgia must put up with reality and recognize that Abkhazia is an independent state, and that its people have a right to elect a president." Approximately 69 percent of voters participated on Sunday.

Georgia and the United Nations Security Council passed a resolution on July 30th, calling the vote invalid. Georgian President Eduard SHEVARDNADZE ahead of elections condemned the vote, calling it a "farce" and later "meaningless." After the vote, the Georgian President said, "ARDZINBA has gained nothing from the elections. He was called chairman, now he is called president. He could call himself an emperor, but nothing is changed." He also added that the election did not have anything in common with democracy because the vote was taken only after an ethnic cleansing of the Georgians in the region. Tbilisi has had no control over Abkhazia since the 1992 to 1993 war, leaving the separatists backed by covert Russian military. Georgia's relations with Russia over Abkhazia have been strained. The Russian State Duma sent a delegation of observes to Sukhumi. Meanwhile, Russian Foreign Minister Igor IVANOV expressed his opposition to the vote, saying, "Russia, as well as all of the world community, does not recognize Abkhazia's independence." SHEVARDNADZE said, "It's a pity that a delegation of Russian State Duma arrived to elections in Sukhumi...such actions by Russian MPs should be considered as a completely unjustified and unfriendly step." In his national radio address, the President said that Russia's observers look more like a provocation, then a common curiosity, Prime News Agency reported. SHEVARDNADZE noted that it is necessary to "widen the circle of countries," promoting talks between Tbilisi and Sukhumi for the settlement of the Georgian-Abkhazian conflict. Com

ment: In an unusual step the Russian border guards removed controls of over the Russian-Abkhaz border, which in effect lifts the CIS economic blockade of Abkhazia. This has lead regional experts to wonder if Russia's real strategy in the region is to expand the war from the North to the South Caucasus, rather than bring the war to an end.

Azeri Village Bombed: Russian Mistake?

· The peaceful village of Gymyr, about 220 million northwest of Baku was bombed by a Russian warplane on Friday. There were no casualties, but some houses were severely damaged. The Russian Air Force has denied the claim. Russian Air Force Chief Colonel-General Anatoly KORNUKOV said, "There weren't, and there couldn't be, any Russian military aircraft in the region, not to mention them attacking anything." The Azeri region where the bomb allegedly fell is about 55 miles south of Chechnya. Azeri President Geidar ALIYEV dispatched Defense Military experts to the village to investigate. On August 9th, a Russian Su-25 jet dropped cluster bombs over the village of Zemo Omalo in Georgia. At first the Russian military denied this, but after the insistence of the Georgian government a joint investigation confirmed the cluster bombs were Soviet-made.

Rus-Kazakhstan Fails To Agree On Debt

· Unified Energy System of Russia (UES) has been unable to reach an agreement on mutual debt repayment with Kazakh authorities and private companies. UES has discussed the issue during a recent Russian visit. The UES insists that in order to pay back its debt, the Kazakh government should set up a Russian-Kazakh joint company on the basis of Hydro-Electric Power Plant Two in the city of Ekibastuz and the Vl-500 power line. UES expects to receive 51 percent of its shares, while Kazakhstan will have the remaining 49 percent. By this means, the Kazakhstanenergo company will repay its debt to UES. By September 1, 1999, Kazakh companies owed a total of $308.4 million to UES. Of that sum, Kazakhstanenergo owed $249 million and regional companies $59.4 million.

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

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