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, November 1, 1999

Russian Federation

Politics

Russia Bombs Red Cross Convoy

· Chechnya's capital Grozny and its second largest city Gudermes continued to come under heavy air raids over the weekend. Russian troops have been closing in around the two cities, despite growing international criticism of its military action. Shock spread through out the world community, when the International Red Cross reported that a convoy of five vehicles, "clearly marked with the red cross emblem," were hit by a Russian air attack on Saturday. It is estimated that 25 people died as a result of the hit, including two Red Cross staffers. US State Department spokesman James RUBIN in a statement noted that a third staffer was wounded when a warplane opened fire on motor vehicles with clear markings of the organization. Approximately 70 people were wounded in the attack. The convoy, consisting of several trucks, was driving along the Nazran-Grozny highway, about 20 kilometers east of Grozny, when it was hit by missiles. The US administration expressed concern to the Russian government at this case and would like to receive an appropriate and thorough explanation. Earlier, the press service chief of the Russian Air Force, Colonel Alexander DROBYSHEVSKY said an air strike was inflicted on Friday on a convoy with gunmen and weapons on the Nazran-Grozny highway. This happened after a Russian Su-25 jet which buzzed over a convoy of trucks, was shot at from submachine guns. The Russian Air Force spokesman assured that the air raids were and will be made only on gunmen, their camps, bases and combat positions, and in no case on civilians. On Sunday, the Russian military denied allegations that air strikes hit a Red Cross convoy. It claimed that the reported were further disinformation spread by Chechen information terrorist Movladi UDUGOV. Later, Prime Minister Vladimir PUTIN

acknowledged that some error could have been made. However, he added, "Everything that concerns supposed attacks against civilians is the evil propaganda of terrorists."

CIS Reviews Relations With The EU

· Representatives of the Foreign Ministries of Azerbaijan, Armenia, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan and Ukraine met in Moscow on Wednesday to review the interaction of the Commonwealth of Independent States (CIS) in relations with the European Union (EU). The participants exchanged opinions on prospects for deepening the political dialogue and broadening trade and economic cooperation between the CIS and the EU. The Russian side informed its CIS partners on the results of the Russia-EU summit meeting which was held in Helsinki on October 22nd, and its strategy of developing relations between the Russia and the EU for 2000 to 2010. The consultations showed the closeness of the CIS countries' stands on a number of key issues which were discussed. The participants in the consultations are in favor of intensifying the interaction of the CIS member-countries in relations with the EU both on the bilateral and multilateral level.

Russia ranks second in the CIS on the rates of the industrial production growth in January to September 1999. The production growth in Russia totaled 7 percent in comparable prices, according to the Russian State Statistics Agency obtained from the CIS In

Today's News Highlights

Russia

Foreign Debt To Grow By 6.9%

Reforma Wins LUKoil Tender

ORT To Be Sanctioned?

European Republics

Ukraine Run-off Election Nov. 14

South Caucasus & Central Asia

CUG Wins 52 Percent Of Vote

Aliyev Meets Demirel In Ankara

Armenian Gunmen Charged

Politics-Economics-Business

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November 1, 1999

Intercon's Daily

terstate Statistics Committee. The first place is shared by Armenia and Belarus, which had industrial production growth of 7.6 percent in January-September 1999 as compared to the same period of 1998. The index was 6.8 percent in Tajikistan, 5.9 percent in Uzbekistan, 2.8 percent in Azerbaijan, 2.3 percent in Ukraine and 1.7 percent in Georgia. It did not change in Kazakhstan. A 12.8 percent decline in the industrial production was reported from Moldova, and it was a 4.6 percent decline in Kyrgyzstan.

Economy

Ruble = 26.05/$1.00 (NY rate)

Ruble = 26.19/$1.00 (CB rate)

Ruble = 27.49/1 euro (CB rate)

Foreign Debt To Grow By 6.9 Percent

· A draft borrowing program has been submitted to the Russian State Duma today, projecting a 6.9 percent increase in Russia's foreign debt, to $177.6 billion. The foreign debt is expected to rise by 6.1 percent this year, from $156.6 billion to $166.2 billion. Debts on loans from governments and states have grown by $2.9 billion, to $71.8 billion, and a further $6.5 billion increment is expected in 2000. Russia's debt on commercial bank loans have increased by $2 billion this year, to $38.1 billion, and are expected to grow to $40.6 billion in 2000. Debts to international financial institutions will rise to $22.4 billion and will build up by another $200 million in 2000. The government plans to issue a $200 million worth of foreign currency-denominated securities in 2000, with the total worth of debts on securities at $27.3 billion. The government's debt to the Central Bank, which stands at $6.8 billion, will remain unaltered in 2000. Russia is going to issue $400 million in loans to other states in 2000, with half of them to be repaid in two to ten years. The largest, $110 million loan is earmarked for Vietnam for technical assistance to imports of goods and services. A $50 million loan will be issued to Yugoslavia for the same purpose. A $124 million loan is planned for China for it to buy equipment for a nuclear power plant, $12 million for Bulgaria and $16 million for India for their importing equipment for nuclear energy sectors.

Business

Lukoil Stake Sold At Major Discount

· A little known Cyprus-based company, Reforma Investment, won the tender for a nine percent stake

in Russia's biggest oil company, LUKoil. The stake was sold by the Federal Property Fund on behalf of the Russian state. The sale, plus a one percent stake tender still ongoing, will reduce the state's holding from 28 percent to 18 percent. Reforma won the stake with a bid of just $5,000 above the starting price of $200 million. The winner is also required to invest $240 million. This money will be used to develop the company's West Siberian, Kazakhstan and Caspian Sea deposits. The price and investment commitment imply a price of just $6.56 per share, a 20 percent discount on LUKoil's closing price on Friday. Three weeks prior to the sale, traders reported a substantial selling of LUKoil shares, helping to keep the share price down, the Financial Times reported. The tender was determined to be legal, since there were two bidders. The second bidder, Cortinway Trading Ltd. also of Cyprus, put in an offer which was marginally lower than Reforma.

CEC Request Sanctions Against ORT

· The Central Election Commission (CEC) has decided to ask for the Press Ministry to issue sanctions against Russian Public Television, or ORT, and its commentator Sergei DORENKO. ORT general director Konstantin ERNST said he was surprised by the CEC decision. "We are surprised by selectivity of approaches and by the fact that ORT and the author of the program Sergei DORENKO have become a main target of today's decision of the Central Election Commission," ERNST said in an interview with Itar-Tass on Friday. The CEC has passed the decision to ask the Press Ministry to, "stop the unlawful agitation activity and hold ORT and Sergei DORENKO responsible." CEC chairman Alexander VESHNYAKOV said the commission has recognized the, "fact of a violation of pre-election agitation by ORT channel." He said the appeal to the Press Ministry sought, "measures to stop unlawful pre-election agitation. The law sets certain boundaries even for a journalist, and he must comply with them," VESHNYAKOV said. ERNST said only the court could rule whether a journalist violated the law. He stressed that it is up to the court to decide whether a statement by a journalist is election propaganda.

European Republics

Ukrainian Election Headed For Run-off

· Ukraine's incumbent President Leonid KUCHMA and his main opponent Communist leader Petro

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SYMONENKO are headed for a run-off election on November 14th, since none of the 13 candidates won a required 50 percent of the vote. With 96 percent of the vote counted, KUCHMA earned 37 percent of the vote, while SYMONENKO polled 23 percent. Socialist leader Alexander MOROZ has come in third with 11.2 percent of votes. The showing for Natalya VITRENKO, leader of the Progressive Socialist Party, has been 11 percent and for former Prime Minister Yevgeny MARCHUK 8 percent. Leaders of the fractured bloc Rukh, Gennady UDOVENKO and Yuri KOSTENKO, received respectively 2 percent and 1 percent of votes. The rest of 13 candidates rated below 1 percent. SYMONENKO earned the highest percentage of votes in Lugansk and Kirovograd regions and in the Crimea.

Parliament speaker Alexander TKACHENKO, who had registered for the elections, but withdrew for the benefit of SYMONENKO, predicted that the Communist leader would win in the second round. He said the electorate was pressured by authorities and mass media. TKACHENKO said he did not rule out that the pre-election coalition, which fell apart before the elections, would unite in the second round for SYMONENKO to win. Both candidates appear ready to forge alliances to boost their positions. MARCHUK said on Ukraine's 1 plus 1 television channel that elections "were not fair." He said that, "serious pressure was made on voters on the eve of the elections," adding "there are a thousand examples of intimidation of people, up to sacking from the job in case of not supporting a `right' candidate. This has transformed into an epidemic of fear." According to the Central Electoral Commission, 19 regions reported 37 complaints about breaking of the election law, but all the violations were inconsiderable. Over 500 foreign observers from 37 countries, including the US, Russia, Moldova, Lithuania, Canada and from the Council of Europe Parliamentary Assembly, monitored elections. About 75 percent of voters participated in the presidential elections on Sunday, far greater than the 1994 presidential election. The run-off election will likely bring out a show-down between pro-market reforms and a return to the Soviet past. KUCHMA vowed to follow cautious reforms and pro-Western policies. SYMONENKO tried to dispel fears of a Communist comeback, pledging to fight bureaucracy and protect honest businessmen.

South Caucasus & Central Asia

CUG Victorious In Parliamentary Elections

· Approximately, 70 percent of the eligible electorate participated in Georgia's third parliamentary election since gaining independence on Sunday. Of the 235 seats being contested, 150 will be distributed to party lists. To get a seat a party must win at least 7 percent of the national vote. The remaining 85 seats in the parliament, which has a five year term are won on a first past the post basis. The election was monitored by 150 Organization for Security and Cooperation in Europe (OSCE) and 500 Council of Europe observers. Preliminary results of the parliamentary elections are as follows: Citizens Union of Georgia (CUG) 42 percent of the vote; Revival Party (Batumi Alliance) 26.49 percent; Industry Will Save Georgia 6.9 percent; Labor Party 6.8 percent; National Democratic Party 4.59 percent; and People's Party with 4.2 percent. CUG did exceptionally well in voting in the regional districts. Of the 85 seats, the CUG has earned over 50 seats. Young leaders of the CUG, Revaz ADAMIA, SAKESHVILI, and BARAMIDZE all received positive endorsements from voters. Massive voting fraud were reported in Adjaria, where officials claim that 97 percent of the electorate voted for Aslan ABASHIDZE's party, the Batumi Alliance. Of the overall figure polled by Revival Party, 8 percent to 10 percent came from the Adjaria region. Therefore in reality, only 18 percent of that overall figure came from throughout Georgia. At a press conference Sunday, one of the leaders of the Citizens' Union of Georgia Nino BURJANADZE said a majority of violations during parliamentary elections were detected in the autonomy republic of Adjaria. According to her, international observers, registered in the Central Elections Commission were not admitted to monitor elections in Adjaria, Prime News Agency reported. If the Adjarian election was not rigged, it is believed that the CUG would have received a higher percent of the vote from that region. Foreign observers from the Adjarian election center are still returning to Tbilisi and will submit reports on the fairness of the election. Chief electoral officer Dzhumber LOMINADZE said about 50 complaints had been registered. But as the voting proceeded, he said the alleged violations would have no impact on the results. Votes are still being counted in traditional CUG strongholds. It is still likely that CUG will win even more seats in the parliament.

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Georgian President Eduard SHEVARDNADZE stressed that participation of certain parties in the executive branch structures will be determined after the consultations with the parliamentary majority.

The CUG increased its standing in the government and will have more seats in the new parliament than the outgoing parliament. ABASHIDZE, in some bizarre comments on Sunday, called for an alliance of the parties disenchanted with the standard of living in Georgia. He added that he would build a wall on the Adjarian border. The election was widely seen as a referendum on the President's seven-year rule and opposition leader ABASHIDZE. Prior to the vote, SHEVARDNADZE warned that, "This election may become the most decisive step in the democratic development of our country." The Georgian parliamentary elections show three main outcomes: ABASHIDZE failed to win strong support throughout Georgia. His career should be considered in deep decline. It was a major mistake for him to announce that he will run in next year's Presidential elections before the results of this vote were determined. Secondly, the vote shows that Georgian citizens have endorsed the SHEVARDNADZE government and has vowed to stay the course. The electorate, while it admits there are problems that need attention, voted to stick with the CUG. Finally, the move by 4,500 youths rejecting the Batumi Alliance and turning their backs on Russia's influence on Friday, shows that the next generation of Georgians are also seeking reforms, pro-Western integration, and democratic institutions.

Aliyev-Demirel Discuss Caucasus Situation

· Azeri President Geidar ALIYEV is meeting with Turkish President Suleyman DEMIREL today in Ankara. The focus of their talks will be the Caucasian situation and prospects for the Nagorno-Karabakh settlement in view of the Organization for Security and Cooperation in Europe (OSCE) summit scheduled for November 18th to 19th. They will also discuss Caspian oil supplies to international markets. Ankara and Baku favor the transportation of the

oil by the Baku-Ceyhan pipe through Turkish territory. An agreement to the effect will be signed during the Istanbul summit. A declaration of the Presidents of Azerbaijan, Georgia, Kazakhstan, Uzbekistan and Turkey and the US Energy Secretary was signed on October 29, 1998, to support the Baku-Ceyhan project, ALIYEV pointed out. The Azeri President still believes that the Azerbaijan International Operational Company (AIOC) is ready to take the risk in building the pipeline on territory of Azerbaijan and Georgia, while Turkey shall take the risk in building the pipeline on its territory. Turkey will cover the extra spending if the pipeline construction cost more than $2.4 billion ensured by the feasibility study, which had been drafted by that country. During his two day visit, ALIYEV will receive the Ataturk International Peace Award given to him in April 1999 for helping to strengthen the regional peace and stability. They will also celebrate DEMIREL's 75th birthday.

Armenian Gunmen Charged

· The Armenian Prosecutor General's office has issued formal charges today against the five terrorists who opened fire in the parliament last Wednesday killing the Prime Minister Vazgen SARKISYAN, parliament speaker Karen DEMIRCHYAN, a minister and five other members of parliament. A spokesman for the Prosecutor General's office, Gurgen AMBARYAN, said that the assailants had been charged with terrorism and murders with aggravating circumstances. They were also charged with weakening state power. The gunmen opened fire in the parliament last Wednesday killing eight and holding nearly 40 legislators hostage. After overnight negotiations directly with President Robert KOCHARYAN and promises of a national televised address and fair trial, the gunmen surrendered. If convicted the men face up to 15 years in prison or the death sentence. Armenian has upheld a moratorium on capital punishment since 1994. The charges were brought against the terrorists a day after the victims' funerals and three days of national mourning. Approximately 15,000 mourners came to Armenia's main square for the memorial services.

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

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