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

Thursday, November 11, 1999

ments where gunmen locations were spotted. The Russian military reported that Chechen terrorists are sustaining heavy losses and panic is growing among the armed separatists. They also claim that over 50 Chechen gunmen were killed Wednesday in a fighting in the south-western suburb of Gudermes, Chechnya's second largest city. Federal troops are digging in for the Winter, despite SERGEYEV's optimistic predictions. This is not the first time that the Russian military has acted on its own initiative without permission from the Kremlin. Earlier this year, Russian paratroopers seized the Pristina Airport. Later the Kremlin claimed President Boris YELTSIN had issued the order. Russian newspapers also have suggested that the President returned from his vacation in Sochi early, following threats from generals that they would resign if YELTSIN sacked Prime Minister Vladimir PUTIN. On Sunday, General Major Vladimir SHAMANOV said he would resign if the order was given to stop and negotiate with terrorists. Meanwhile, Chechen forces have not let up on their counter attacks. One Chechen commander said that his forces are ready to wage a guerrilla campaign for as long as Russian forces are in Chechnya.

Fire Engulfs FSB Headquarters Lubyanka

· Before dawn this morning a fire engulfed the second floor of the Russian Federal Security Service (FSB), formerly KGB headquarters on Moscow's Lubyanka Square. Firefighters rushed to the scene and fought to extinguish the blaze for over an

Russian Federation

Politics

NEWSFLASH

Russia Accuses America Of Aiding Rebels

· Russian National Television announced that 15,000 American-made military uniforms (BDUs) were seized at a Moscow airport today by Russian Customs. These BDUs were being transported to the American military attache in Georgia and were part of the $1.18 million order placed by the Georgian government for the Georgian military. This sensational and illegal seizure of military uniforms was claimed to be ultimately destined for Chechen rebel fighters. Comment: Once again, the Russian disinformation campaign is attempting to link Georgia with support of the Chechen rebels. But now, the target has been expanded to the US itself. This desperate act will clearly further inflame discussions at the Organization for Security and Cooperation in Europe (OSCE) summit in Istanbul and once again has been taken from a page of the Soviet Cold War.

Chechen Offensive To End Before 2000

· Russian Defense Minister Igor SERGEYEV today boasted that Russia's military offensive against Chechen terrorists will be over before the end of this year. However, the main Russian field commander Colonel-General Viktor KAZANTSEV told Trud newspaper that it could take one to three years to meet the goal of rooting out the rebels Moscow describes as "terrorist." The world community has criticized Russia's military action and called on it to hold peace talks with Chechen President Aslan MASKHADOV. Russia has ignored these calls and vowed to purse its military campaign until it has destroyed rebels blamed for the bomb attacks in Russian cities. Heavy artillery, missiles and aviation pounded outskirts of Chechen capital Grozny, Gudermes, Bamut, Samashki, Shali, Urus- Martan, and other settle

Today's News Highlights

Russia

Hope Rises On WB Relations

Berezovsky To Face Charges

Aeroflot Offices Raided In Italy

European Republics

Lazarenko Accounts Frozen

Dudenas Plans Fiscal Policy

South Caucasus & Central Asia

Russian Warns Of Terrorists

No Azeri-Armenian Peace Deal

Turkmen-Dragon Oil Sign PSA

Politics-Economics-Business

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Thursday

November 11, 1999

Intercon's Daily

hour and a half. A police spokesman said the fire began in one of offices on the second floor and spread to another office and the corridor and, through ventilation shafts, to parts of the third and fourth floors. Ten FSB officers were evacuated from windows down ladders of fire-engines from the six-story building. Three got minor injuries that were treated on the spot, and FSB officer Igor TRIFONOV suffered upper respiratory burns and was taken to intensive care. The building has been sealed off as investigators look for clues as to why the fire started. The State Fire Service said a short circuit or "violation of fire safety regulations." Arson is so far thought unlikely, although plausibility of it remains to be examined by specialists of the service's laboratory and by the FSB. The headquarters was used in Soviet-days as the notorious interrogation site which had execution cells in the basement. Lubyanka became the security services' headquarters after the 1918 Bolshevik revolution.

Economy

Ruble = 26.17/$1.00 (NY rate)

Ruble = 26.20/$1.00 (CB rate)

Ruble = 27.30/1 euro (CB rate)

Russia Optimistic On Receiving New WB Loan

· Russia's First Deputy Prime Minister Viktor KHRISTENKO on Wednesday said that Russia could count on additional $1.6 billion in loans from the World Bank, if its relations with that lending organization develop according to an optimistic scenario. He said the strategy of Russia's relations with the World Bank for 2000 to 2001 will be "fully ready by Friday" when a meeting with WB vice-president Johannes LINN is scheduled. The document contains three scenarios of such ties: an optimistic, a positive, and a minimal one. In case of an adverse development of the events, Russia will get only the remaining part of the loan for restructuring its economy, as well as money from the coal and social loans. If the situation develops positively, Russia may get additional $600 million as a guarantee fund from the World Bank for attracting private western credits into Russia's economy. In case of an optimistic scenario, apart from $600 million Russia may get an additional financial aid amounting to $1 billion. KHRISTENKO believes Russia may count on a next installment of $100 million for restructuring Russia's economy in December 1999 to January 2000. So far as the social

part of the coal loan is concerned, Russia may get $100 million in December, while the privatization coal loan - in January 2000. Focusing on the prospects of Russia getting the last 250-million-dollar tranche of the social loan on restructuring the social protection system, he said it is expected to arrive in January.

Business

Berezovsky May Face New Charges

· On Thursday, acting prosecutor and chief investigator on the stolen Aeroflot funds case, Nikolai VOLKOV, dropped the charges against oil-to-media tycoon Boris BEREZOVSKY. He said the investigation would continue against two top airline executives Nikolai GLUSHKOV and Alexander KRASNENKER. Now, VOLKOV has said that, "The only thing we have done is to drop one charge which was brought against [BEREZOVSKY] for carrying out an activity without a license." He added that the Aeroflot case was not closed and that, "Boris BEREZOVSKY remains the number one person in this affair." Russian investigators have alleged that BEREZOVSKY, GLUSHKOV, and KRASNENKER were responsible for the disappearance of $400 million of profits from Aeroflot and took $200 million in air traffic fees. VOLKOV said, "we have received documents from Switzerland, dated November 4th, which could serve as a basis for making much more serious accusations against him [BEREZOVSKY]." The prosecutor is scheduled to travel to Switzerland on November 20th to review evidence and take part in questioning.

Aeroflot Offices Raided In Protest

· Thirty young Italians invaded the representative office of Aeroflot, Russia's international airlines in Padua, Italy, last week to protest the operations of Russian federal forces in Chechnya. They remained on the grounds of Aeroflot for half an hour and quit after a telephone conversation with the Russian consul to Milan. The company's personnel called in police which stood by near the Aeroflot office while the invaders were inside. There was no damage to property and office equipment, but operations were paralyzed during the protest act. The leadership of Aeroflot said it saw the incident as a "blazing fact of unlawful interference in the activity of the air company" and expressed hopes that local authorities would take measures to avoid a repeat of the incident. Aeroflot said the incident was underlined by

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biased coverage of events in Chechnya by Western mass media that play down the menace emanating from Chechnya's terrorists.

make necessary adjustments despite waning popular support in the polls, with elections looming in 2000. The Lithuanian economy is still struggling to throw off the affects of the Russian financial crisis in August, 1998. Its gross domestic product (GDP) contracted 4.8 percent in the first half of this year, despite an official target of only 0.3 percent growth. The newly appointed Finance Minister DUDENAS said growth this year is unlikely, but is almost assured in 2000. Due to weak revenue collection, the previous government cut spending in the 1999 budget by 6.2 percent and more cuts are seen both for this year and the 2000 budget.

Unemployment Rises In Lithuania

· The number of Lithuanian staying out of work due to forced idle time, on forced vacation or partially employed is growing, according to the Ministry of Social Protection and Labor which published the results of a poll on the situation on the labor market. The ministry has been continuously observing 2,000 people since September 1996, and 2,400 respondents were polled in October this year. According to the poll results, 318 Lithuanian enterprises, engaging 13,560 people, faced employment problems as of November 1, 1999. The number of enterprises with such problems increased by 39 in October this year alone, and 1,200 people lost jobs during the same period. Russia's crisis took the Lithuanian authorities by surprise and damaged the country's economy, because of mismanagement and deficit of circulating capital resulted in the employment problems to 75.1 percent of those polled.

South Caucasus & Central Asia

Russia Warns Georgia Of Terrorists Fleeing

· Director of the Russian Federal border guard service of Konstantin TOTSKY said that his service is still obtaining information that gunmen and arms are entering Chechnya through the Chechen-Georgian border. Georgian officials have strongly denounced such accusations. TOTSKY told journalists today that, "in case of successful completion of the anti-terrorist operation in Chechnya the gunmen will be forced out to the territory of Georgia and the possible consequences of such development of events may be very serious for Georgia." TOTSKY and Georgian Border guard chief Valery CHKHEIDZE agreed that a Russian border guards will soon travel

European Republics

Lazarenko's Caribbean Accounts Frozen

· Authorities in the Caribbean nation of Antigua and Barbuda have frozen accounts traceable to former Ukrainian Prime Minister Pavlo LAZARENKO, after discovering links to his alleged money laundering scheme. LAZARENKO was arrested in February in California, where he is being held under a warrant seeking his extradition to Switzerland to face money laundering charges filed there. Antigua and Barbuda Prime Minister Lester BIRD's office in a statement said it had uncovered links between LAZARENKO's accounts in their country and others in Switzerland and Ukraine, and alleged that money was moved among the accounts in a way to conceal its origin. "The sums involved in the operation total in excess of $80 million and appear to be the proceeds of a major fraud in the Ukraine and money laundering in Switzerland. Ukraine has also accused LAZARENKO of taking bribes, stealing government money, and moving it out of the country through Swiss bank accounts. Antigua has offered assistance and offered to share information with these countries to further their investigation. BIRD said the scheme was discovered when Buro Fed Bank, an Antigua bank formerly known as the European Federal Bank, reported suspicious activity as required under the Caribbean nation's banking regulations. He added, "Antigua and Barbuda will not tolerate money laundering or any form of criminal financial activity in our jurisdiction." US and Britain have criticized the off shoring banking center for tolerating past money laundering operations. Antigua said it welcomes assistance from the US and Britain to improve controls on its banking sector.

Dudenas Pledges Tight Fiscal Policy

· Lithuania's Finance Minister Vytautas DUDENAS has pledged to follow a tight fiscal policy in order to bring the recessonary economy back on a progressive track. In a Reuters interview he said, "There is no option of being popular, populism can lead to even worse consequences. Sound finances are the first priority." His Homeland Union party is determined to

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Intercon's Daily

to the Chechen section to check the border arrangement. This arrangement was made after Russia and Georgia failed to reach an agreement on the joint protection of the Chechen section of their common border. CHKHEIDZE insisted that Georgia, "has sufficient means and forces to guard its borders." Meanwhile, Russian troops have mined roads and trails along the border. Russia has also called for talks on a visa regime with Georgia and Azerbaijan to keep terrorists out. Georgia has temporarily limited the issue of entry and transit visas to the citizens of 21 countries. The list includes, in particular, Afghanistan, Algeria, Bosnia-Herzegovina, Egypt, Iraq, Yemen, Jordan, Iran, Lebanon, Oman, Pakistan, Saudi Arabia, Syria, Sudan and others. None of the Commonwealth of Independent States are included the list. The visa restrictions were adopted by the Georgian side "in view of the complex situation in the North Caucasus."

No Azeri-Armenian Peace Agreement

· Azeri President Geidar ALIYEV on national television said, "No agreement will be signed with Armenia on the regulation of the Karabakh conflict at the [Organization for Security and Cooperation in Europe] Istanbul summit," next week. ALIYEV and Armenian President Robert KOCHARYAN said they would sign a joint declaration that would outline general principles of regulations on the Nagorno-Karabakh conflict. ALIYEV said that talks over the final agreement will continue. "When the settlement is ready it will be published and discussed in parliament and a referendum will be held. Only after that can a peace settlement be accepted by Azerbaijan." Talk of an imminent peace deal has angered Azeri opposition groups, which believe ALIYEV has made too many concessions to Armenia. About 40 political parties and groups issued a statement condemning ALIYEV's position on the Nagorno-Karabakh negotiations. A demonstration against ALIYEV's policy has been planned for November 14th.

RealAmerica To Acquire Caspian Sea Venture

· RealAmerica Company has reached an agreement

in principle to acquire Caspian Sea Ventures Corporation, which serves major oil companies with warehousing, maintenance, catering and American Bureau of Shipping (ABS) inspections. RealAmerica is an oilfield services company with interests in international transportation and freight forwarding. RealAmerica's subsidiary, Trucat International, Inc., had revenues in 1998 of $12 million. Caspian's gross sales in 1998 were $3.2 million. Caspian Sea Ventures has approval from ABS for certain testing services. David MARTIN, acting CFO of RealAmerica, stated "Caspian will be an excellent complement to Trucat and will offer economies through consolidation of operations in Azerbaijan." According to a company statement, Caspian's William HIGGINS said, "The transaction with RealAmerica Co. will involve an exchange of all the stock in Caspian for RealAmerica Co. common shares. Details of the purchase and officer responsibility will be further defined upon completion of documentation."

Turkmen Parliament Candidates Registered

· The period for registering candidates for the December 12th parliamentary election ended today. The electorate will elect 50 parliamentarians. All candidates are registered as independents because political parties are banned except the Democratic Party headed by President Saparmurat NIYAZOV. The President controls most branches of power in Turkmenistan. The parliament has been regarded by analysts as mainly a rubber-stamp body.

Turkmen-Dragon Oil Sign PSA

· Turkmenistan and United Arab Emirates-based Dragon Oil have signed a productions sharing agreement for oil exploration off the Turkmen Caspian coast. A Natural Resources Ministry spokesman today said, "President Saparmurat NIYAZOV and Dragon Oil's Hussein SULTAN signed a production sharing agreement to explore and dill oil in the LAM and Zhdanov Caspian sites with an estimated reserves of 80 million tons," for 25 years. Turkmenistan will receive 52 percent of the revenues, another quarter will go towards project expenses.

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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