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

Thursday, October 7, 1999

Russian Federation

Politics

Electoral Panel Delays Registering Political Bloc

· Russia's Central Electoral Commission has postponed registering the anti-Kremlin political bloc, All Russia-Fatherland, for December's parliamentary elections due to minuscule technicalities. The commission said it was delaying registering the bloc because the candidates hadn't accurately declared the number and type of cars they owned. Candidates are required to submit detailed information on their possessions. Head of the Central Election Commission Alexander VESHNYAKOV explained on NTV Television , "For example, let's say one candidate declared he owned one car, a Lada, but the data of the government automobile inspectorate shows he has another, a Mitsubishi. We must figure this out," The Wall Street Journal reported. Moscow Mayor Yuri LUZHKOV, one of the bloc's founders, said that the Kremlin is trying to sabotage his bloc's campaign by planting negative stories about him in the press and sending tax inspectors to review the business activities of his wife, Yelena BATURINA. A new election alliance called the Bloc of General Andrei NIKOLAYEV and Academic Svyatoslav FEDOROV has been formed at its congress in Moscow on October 2nd. The bloc is composed of seven organizations: NIKOLAYEV's Union of People's Power and Labor, FEDOROV's Party of Workers' Self Rule, the Union of Realists, the Workers' Socialist Party, Russia's Hope, Russia's Engineering Progress, and Power, RFE\RL Newsline reported.

1996 Parliament Resumes Work In Moscow

· The 1996 parliament of Chechnya have resumed operations in Moscow. The parliament appeared to be extinct in October of 1996, after the opposition led by Aslan MASKHADOV came to power. It has issued a law on the state power

structure of Chechnya, calling for the forming of the State Council made up of 23 members. The parliament appointed Malik SAIDULLAYEV Chairman of the State Council of Chechnya. They also intend to ask Russian President Boris YELTSIN to vest SAIDULLAYEV with the powers of the Russian President's representative in Chechnya. Russian authorities, including Prime Minister Vladimir PUTIN, have recognized the 1996 parliament as the only legitimate power body in Chechnya.

PUTIN, Foreign Minister Igor IVANOV, First Vice-Prime Minister Viktor KHRISTENKO and Economics Minister Andrei SHAPOVALYANTS today are meeting with European Union (EU) representatives, Finnish Foreign Minister Tarja HALONEN, Portugese Foreign Minister, National Defense Minister Jaime GAMA, and European Commission member Chris PATTEN. Their talks will address Russia-European Union relations and the agenda of the EU summit on October 22nd as well as the situation in Chechnya. PATTEN believes that the use of force in Chechnya has been excessive. He intends to express his concern about the damage caused to the republic by combat actions and to demand that Moscow stick to the Khasavyurt agreements of 1996. The talks will be PATTEN's first in his capacity of the a European Commission member in charge of foreign policy.

Economy

Russia Pledges To Investigate Suspicious Banks

· Russia's Tax Minister Alexander POCHINOK Wednesday pledged to inves

Today's News Highlights

Russia

Republic Cuts Back Services

Putin Makes Economic Forecast

Gusinsky Buys CME Stake

European Republics

Ukraine-Estonia To Boost Trade

Belarus Opens Parliament

South Caucasus & Central Asia

Adjaria Gives In To Tbilisi

Georgia Wins WTO Membership

Tengizchevroil Builds Interest

Politics-Economics-Business

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Thursday

October 7, 1999

Intercon's Daily

tigate banks and businesses suspected of laundering money through the Bank of New York. Many politicians and businessmen believe the massive sums of money are linked to attempts to avoid customs duties and taxes. POCHINOK admitted that complicated loopholes in Russia's laws have helped businessmen avoid taxes thereby reducing revenues. He said, "If it were my will, I would have radically changed the legislation, curbing the opportunities for avoiding taxes." He added that his ministry will investigate suspicious-looking transactions by Russian companies and banks.

Following the public release of indictment charges against Lucy EDWARDS, Peter BERLIN, and Aleksey VOLKOV for operating without an authorized New York license, illegally transmitting money, and receiving illegal deposits, Russian police and tax officials raided the office of Sobinbank, a prominent Russian bank closely linked to the government. Sobinbank handles the State Customs Committee's accounts. Officers were interested in any documents connected with the activities of Flamingo Bank, an obscure bank that Russian federal prosecutors said earlier was under investigation for assisting exporters in avoiding paying Russian taxes by funneling money through foreign banks. Police even searched safety deposit boxes at Sobinbank, especially targeting those not rented out to customers, which could have been used as a hiding spot for dubious bank records. Andrei SEREBRENNIKOV, deputy chairman of the Sobinbank board, told Kommersant Daily, the bank has no relationship with Flamingo Bank, except through the interbank market.

Ruble = 25.78/$1.00 (NY rate)

Ruble = 25.72/$1.00 (CB rate)

Ruble = 27.54/1 euro (CB rate)

Republic National Consolidates Business

· Republic National Bank of New York is planning to close about 40 percent of its correspondent relationship with about 100 banks in the former Soviet Union, particularly Russia. This stems from concerns over how well its knows its customers and in an effort to reduce expenses. The bank, a unit of Republic New York, has been a major player in providing correspondent-banking services to those regions, with about 225 banking clients, The Wall Street Journal reported. A correspondent banking relationship facilitates international money trans

fers. A Republic National spokeswoman said, "We are still committed to the market, but on a consolidated basis." The pull back from the region comes at a time when many banks are reviewing their correspondent relationships in the wake of the Bank of New York scandal of alleged money laundering.

Putin Makes Economic Predictions

· Russian Prime Minister Vladimir PUTIN Monday made economic predictions based on Russia's positive improvements. He pointed to "tangible positive trends" in the Russian economy. "The gloomy forecasts" with regards to the prospects of Russia's economic development in the aftermath of the August financial crash of 1998, "have not come true," PUTIN said, addressing a meeting of the Consultative Council for foreign investments in Russia. The industrial production index stood at 106 percent in January-August 1999, a rise of 16 percent against the same period in 1998. The figure for 1999 is predicted to rise to 107 percent to 108 percent ,compared to the 1998 level, PUTIN stressed. In an attempt to clean up its international reputation among investors, he pledged that the government, "will respond to the worries of foreign investors," and adopt resolutions, "That will facilitate the implementation of tax laws already in force." The government will also work with the Central Bank to restructure the banking system. PUTIN said that foreign investment in Russia totals $27.8 billion, including $11.7 billion worth of direct investments, RFE\RL Newsline reported. He noted that it is important to draw foreign investment to the regional economies. Approximately, 49.4 percent of the volume of foreign investment remains in Moscow.

Business

Gusinsky Buys CME Stake

· Russian media oligarch Vladimir GUSINSKY has purchased a minority stake in the US-based media company Central European Media Enterprises (CME). According to filings with the US Securities and Exchange Commission, three companies controlled by GUSINSKY's Media Most group bought a 17.27 percent stake in CME for "approximately" $6.7 million. CME is owned by Ronald LAUDER, the her to cosmetics company Estee Lauder. It operates six television stations in central and eastern Europe. CME, which is listed on Nasdaq, earlier this year lost control over its most profitable

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venture NOVA TV, the largest television station in the Czech Republic. GUSINSKY's Media Most group controls NTV, the largest commercial television network in Russia and daily newspaper Segodnya.

production arrangements, and with Ukraine on streamlining the procedure for a change of citizenship. The session's agenda also includes draft laws concerning social welfare matters, measures to protect the State interests of Belarus in the maintenance of foreign trade relations, and artistic unions. The Belarus deputies will also participate in the Parliamentary Assembly of the Union of Belarus and Russia to be held after October 20th.

Meanwhile, political dissidents continue to mysteriously disappear. The latest disappearance happen on September 30th, when Viktor GONCHAR and Anatoly KRASOVSKY, a publisher, failed to return from their weekly baths. GONCHAR had predicted that a crackdown on dissidents was imminent. Their kidnapping brings the total to four since April. First to disappear was former chairwoman of the Central Bank Tamara VINNIKOVA who was under house arrest and armed government guard at the time. Former Interior Minister and campaign manager for an opposition politician, Yuri ZAKHARENKO, was the second to disappear. Another opposition leader, the speaker of the disbanded parliament fled to Lithuania saying he feared for his safety. GONCHAR was planning to meet with the disbanded parliament to select the opposition delegation for talks arranged by the OSCE with government officials.

South Caucasus & Central Asia

Adjaria Gives In To Georgian Amnesty Decree

· Security officials of Adjaria have given in to requests from Tbilisi and released convicts pardoned by Georgian President Eduard SHEVARDNADZE. Several convicts were released late Wednesday and more today. The pardon was signed by SHEVARDNADZE on October 1st for the release of 1,757 convicts, including 28 prisoners from Batumi. The Adjarian authorities had been refusing to abide by the President's ruling, a serious violation of Georgian law. Deputy prosecutor general Anzor BALUASHVILI said Adjarian authorities ignore Georgian President's decree despite the repeated appeals from Tbilisi. "They do not argue their anti-constitutional actions in any way," he said. Deputy Secretary of National Security Council of Georgia Rusudan BERIDZE described it as an unprecedented case in the history of international law. Adjaria's refusal caused a brief constitutional crisis, which would have forced Georgia's prosecutor general's

European Republics

Ukraine-Estonia To Boost Bilateral Trade

· Ukrainian Foreign Minister Boris TARASYUK met his visiting Estonian counterpart Toomas Hendrik ILVES on Monday to discuss ways to boost trade turnover between the two countries. This subject also dominated ILVES' talks with Prime Minister Valery PUSTOVOITENKO, Deputy Prime Minister Sergei TIGIPKO, and Foreign Economic Relations and Trade Minister Andrei GONCHARUK. He positively accessed the implementation of the free trade agreement signed two years ago. He said it, "works excellently." Trade turnover, however, between the two states dropped by half in the first half of the year as compared with the same period last year. Mutual trade turnover in 1998 amounted to $200 million. In line with the agreement, Ukraine will be exempt from additional customs charges which go into effect in Estonia in 2000. Last year, the countries reached an agreement on the implementation of some investment projects, including in hotel and housing construction, as well as the construction of petrol stations in Kiev, Donetsk, Zaporozhye, Dnepropetrovsk, Chernigov and Odessa. The two states also plan to cooperate in energy saving sphere. Estonia has also expressed readiness to participate in financing the last stage in the construction of the Odessa oil terminal Yuzhnyu.

Belarus Opens Parliamentary Session

· In accordance with the Constitution, the Belarus Parliamentary Assembly opened its Fall session Monday. More than 120 items, including six draft Codes, have been put on the agenda of the parliament. Draft electoral, investment, and banking codes will be given special attention. The deputies will consider about 20 international treaties, including those on ratification of the treaty on the customs union and common economic space, on ratification of an agreement on the establishment of a free trade area. The deputies plan to ratify the Belarus government's agreements with the Federal Republic of Yugoslavia on the cancellation of visas, with Lithuania on social security, with Russia on co-

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office to institute proceedings against the authorities of Adjaria and the governors of prisons, Prime News Agency reported.

Rus-Georgian Intelligence Ready To Cooperate

· Last week in Moscow, Georgia's deputy State Security Minister Simon NOZADZE met with chiefs of the Russian Federal Security Service (FSB) and Prime Minister Vladimir PUTIN and reached an agreement to cooperate on intelligence matters. NOZADZE said that the Russian side failed to present any concrete evidence that arms shipments and gunmen passed through Georgia to Chechnya, as claimed by the Russian side since the beginning of its air raids on Islamic militants hiding in Chechnya. Georgia has strongly denied such claims. Georgian Interior Minister Kakha TARGAMADZE said the rumors are being spread by someone who, "just wants to create tension in the relations between the two countries." Georgian President Eduard SHEVARDNADZE on September 29th said, "If weapons have turned up in Chechnya, including the most modern ones, they...seep from Russian bases and are sold by Russian military officers. There are no other sources." NOZADZE, nonetheless, expressed hope that real cooperation of the two intelligence services would promote the settlement of common problems in Georgia and Russia, connected to international terrorism.

Georgia Granted WTO Membership

· Member-states of the World Trade Organization (WTO) voted on Wednesday to accept Georgia's membership, after a remarkably quick application process of only 3 years. Ann ANDERSON, who heads a working group dealing with applications for WTO membership, announced the decision and that Georgia has met all the requirements to be admitted. Georgia's own parliament must ratify the Marakesh Agreement before full membership privileges are in force. If the ratification goes ahead swiftly Georgia, as a full-fledged WTO member, will be able to participate in a third meeting of trade ministers which will be held in Seattle in December, 1999.

Georgia's State Minister Vazha LORDKIPANIDZE told the WTO Council that Georgia regards its accession to WTO as a vitally important step for Georgia's economic growth. Georgian President Eduard SHEVARDNADZE said the WTO membership will let Georgia supply its products such as wine, agricultural products, manganese etc. to the world market and will promote attraction of investments to the economy of the country. Georgia has become the 136 member of the WTO. Two other former soviet republics are already full members of WTO, Latvia and Kyrgyzstan. The Geneva sitting will also consider the admission of Armenia, Moldova, Estonia and Lithuania to the World Trade Organization. Russia and Ukraine are far from winning clearance and have been in entry negotiations for six years.

Tengizchevroil Stake Generating Interest

· Outgoing chairman of the US oil company Chevron Kenneth DERR met with Kazakhstan's President Nursultan NAZARBAYEV on Tuesday and told him Chevron is interested in acquiring part of Kazakhstan's share in the Tengizchevroil project, if the government goes ahead with the sale of its 25 percent stake. Chevron is already the biggest foreign investor in some of the largest energy projects in Kazakhstan particularly the Tengizchevroil production venture and the CPC pipeline. Kazakhstan has received offers from several companies, including Russia's LUKoil, which together with Arco already has a 5 percent stake in Tengizchevroil.

Meanwhile, US oil company Texaco has completed phase one on the field appraisal program at the North Buzachi oilfield. One year ago, it purchased a 65 percent interest in the field. Its estimates shows reserves to be 1.5 to 3 billion barrels of crude. The vice president of Texaco North Buzachi Inc., said Kazakhstan is one of five focus areas Texaco has identified as having strong potential for future growth.

The Daily Report on Russia and FSU

will not be published on October 11th

in observance of Columbus Day

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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