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 15, 1999

the agencies had been only acting in a defensive manner and, "the time has come to assume an offensive." PUTIN said that organized criminal groupings have projected their influence not only to individual enterprises, but also to entire economic branches across the country, damaging the Russian economy, undermining Russia's international prestige and hampering Moscow's efforts to get foreign loans and investments. If no resolute measures are taken now to improve the situation, PUTIN warned, Russia will have a market economy governed by criminals. The Prime Minister said the country's shadow economy accounts for 40 percent of the gross domestic product (GDP) and that $1.5 billion to $2 billion left the country every month. He outlined three main goals: to reduce the so-called shadow sector, to prevent capital flight and to bar criminals from infiltrating power structures.

On Wednesday, Kenneth ROTH executive director of Human Rights watch revealed that Russian police routinely torture suspects to obtain confessions of criminal behavior and other economic crimes. He said the problem is not one or two bad officers. It's a systemic problem that requires a systemic solution." According to the group's report, suspects are beaten, asphyxiated, force to have excruciating electric shocks sent through electrodes inserted in their ears, or are hung from the ceiling by their arms handcuffed behind their backs. Russian experts estimate that half the people taken into custody are tortured. ROTH said, "nearly all case of torture are going unpun

Russian Federation

Politics

Cherkessia Seeks Secession

· Cherkesses and Abazins resumed their meeting in Cherkessk's central square on Monday urging for formal recognition of Cherkessia's separation from Karachayevo-Cherkessia, Russia's North Caucasus republic, Itar-Tass reported. The meeting takes further the stand-off that arose after Karachayevo-Cherkessia's May 16th presidential election in which Vladimir SEMYONOV, former commander of Russian ground troops and an ethnic Karachai, won leaving far behind his contender, Cherkessk's Mayor Stanislav DEREV, a Cherkess. Abazin and Cherkess communities protested SEMYONOV's presidency, claiming that his vote was rigged. The meeting, at which delegates of most of Abazin and Cherkess villages showed up, is expected to pass a resolution calling for a boycott of Karachayevo-Cherkessia's parliamentary elections due in December. A congress of leaders of Abazin and Cherkess movements and groups in September proclaimed a Cherkessia autonomy. Karachayevo-Cherkessia's Supreme Court annulled the congress' decision as contradicting the Russian Constitution. SEMYONOV assessed the resumption of the rally as an attempt at pressure on the federal commission formed by the Russian government to settle the socio-political situation in the Karachai-Cherkess Republic. The commission led by Russian First Deputy Premier Nikolai AKSYONENKO will arrive in the region this week.

Putin Calls For Corruption Crackdown

· Russian Prime Minister Vladimir PUTIN on Tuesday urged the country's law enforcement agencies to launch an offensive against organized crime and corruption. He said such an offensive should be as resolute as the military campaign against rebels in the breakaway republic of Chechnya. He said that

Today's News Highlights

Russia

London Club Talks Continue

Sputnik Bids On Chernogorneft

LUKoil Pipeline Construction

European Republics

Kuchma Wins Run-Off Election

South Caucasus & Central Asia

Georgia Increase Security

Azeri-WB Continue Relations

Turkmen Oil Extraction For 1999

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November 15, 1999

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ished. The Russian government will not even acknowledge that the problem exists."

Pyatigorsk Deputy Prosecutor Murdered

· Deputy prosecutor of Pyatigorsk in Essentuki, Vyacheslav ZHUKOV, on Thursday night was gunned down by four mobsters at point blank range in his home. He was killed by three different pistols. The killers hit his wife on the head, handcuffed her to domestic heating radiator, and fled in a Zhiguli car. The gunmen took away firearms as well as valuables and other things belonging to the deputy prosecutor. Police investigating the murder believe that the motive is not mere robbery and could be connected to his professional activities. ZHUKOV was in charge of investigation into several "notorious cases." Police General LAKHNO, who is in charge of this investigation, said a group of suspects, "has already been identified and is being narrowed down."

Economy

Ruble = 26.31/$1.00 (NY rate)

Ruble = 26.24/$1.00 (CB rate)

Ruble = 27.1/1 euro (CB rate)

Russia Expects IMF Loan By Year's End

· First Deputy Prime Minister Viktor KHRISTENKO, after meeting with the International Monetary Fund (IMF) representatives, said that Russia can expect to receive the second installment of the $4.5 billion loan before year's end. The loan was intended to repay previous debts to the Fund. Because the disbursement was frozen, Russia had to pay about $300 million due to the IMF in October from its own resources. He said, "In December, a (meeting) of the IMF board of directors will take place, with all ensuing pleasant consequences for us." He noted that all major issued had been resolved. "We have prepared a review on the fulfillment of conditions for the issuing of the regular tranche which the Fund's mission has assessed positively." KHRISTENKO added that Central Bank Chairman Viktor GERASHCHENKO and Prime Minister Vladimir PUTIN will sign a letter outlining the terms Russia will commit to in order to receive the next installment, as well as measures for further government and Central Bank reform.

Russia Optimistic On WB Support

· Russian Prime Minister Vladimir PUTIN met the World Bank's Europe and Central Asia vice presi

dent Johannes LINN in Moscow on Saturday. "Cooperation of Russia with the World Bank is developing fairly positively," PUTIN said. It is believed that Russia will receive the next installment of $100 million from the World Bank's third structural adjustment loan by the Spring of 2000. LINN said the World Bank was satisfied with the progress Russia has reached in meeting the terms of the second tranche of the coal loan and of the loan financing social and pension reforms. The World Bank is likely to approve the disbursement of two social installments of $50 million each, of the second coal loan and will extend the last $250 million installment of the loan for social and pension reforms in the beginning of 2000. However, the situation with the structural adjustment loan is not as good because the Russian government has failed to meet key conditions, including the restructuring of the banking sector. LINN said the total amount of the World Bank loans provided to Russia has reached $11 billion. First Deputy Prime Minister Viktor KHRISTENKO, Finance Minister Mikhail KASYANOV and Economics Minister Andrei SHAPOVALYANTS also attended the talks.

London Club Talks Continue

· The London Club of creditors and Russia will hold a new round of talks in Frankfurt on November 16th. The talks, to be chaired by Deutsche Bank of Germany, will be devoted to Russia's payment of the $32 billion debt. Finance Minister Mikhail KASYANOV said that Russia favors the writing-off of about 40 percent of debts of the former USSR within the framework of the London Club. On Thursday he said, "Russia may count on reaching an accord in principle with the London Club of creditors on a rescheduling of the debt of the former Soviet Union before the end of this year." KASYANOV added that at the beginning of the year 2000, Russia may also expect a legal formalisation of official documents to seal a procedure for restructuring of the Soviet debts.

Business

Sputnik Funds To Bid On Chernogorneft

· Sputnik Funds, which hold a 10 percent stake in Sidanko "through various structures," announced today that it will bid in an auction on November 26th for key Sidanko subsidiary Chernogorneft, fund spokesman Oleg SAPOZHNIKOV said. The fund is managed by Russian-American financier Boris JOR

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DAN and groups of wealthy investors such as US financier George SOROS. SAPORZHNIKOV said, "The Sputnik Group thinks Sidanko needs to keep the business of Chernogorneft within the company. Our participation in the auction is to save Sidanko," Russia's sixth-biggest oil producer. The minimum bid price for the Chernogorneft sale is $200 million. The subsidiary produced more than 6 million metric tons of oil in 1998, an output worth nearly $1 billion at current prices. This is the second Sidanko subsidiary to be sold off by creditors, following last month's sale of Kondpetroleum to rival Tyumen Oil Company (TNK). TNK has already expressed an interest in the Chernogorneft tender.

Golden Share In LUKoil Considered

· Deputy Property Minister German GREF Wednesday said that the Russian government wants to introduce a so-called "golden share" in domestic oil major LUKoil enabling it to veto any decision by LUKoil's board or shareholders. He said the State Property Ministry is considering introducing the "golden share." GREF said, "LUKoil wants the government to keep its powers and not to sell its whole stake." The government now holds a 17.6 percent stake in LUKoil, having sold a 9 percent stake at the end of October to an offshore firm, Reforma Investment Ltd. Another one percent of the state-owned stake is expected to be sold at the end of this month and another 10 percent in 2000. LUKoil produced 1.11 million barrels per day in 1998.

Meanwhile, the State Property Ministry announced that it will not sell the 2.5 percent stake in the giant gas monopoly, Gazprom. The government had been hoping to sell the stake and 3.37 percent of Gazprom stock to plug a budget deficit. GREF said, "The chances are that the sale of [the state's 49.8 percent stake in] Tyumen Oil Company will be the last sale of the year." That tender is set for December 22nd, with a starting price of $252 million. He added the equity sale in Slavneft and Rosneft is unlikely.

LUKoil Pipeline Construction To Begin

· Russia's largest oil company LUKoil's president Vagit ALEKPEROV said that construction of an oil connection to the Baltic pipeline system will begin this year. Under plans by the Transneft company, the construction of the pipeline system, which includes 450 kilometers of new pipes from the Kharyanga

village in the Komi Republic to the Baltic Sea and a terminal in Primorsk, the coast of the Gulf of Finland, will start in the first quarter of 2000 and last for 18 months. The first phase of the system will cost $460 million. Up to 12 million tons of oil from Russian northern fields can be exported by the system every year via Primorsk and in evasion of the Baltic republics at the first phase of the project. "The developments on the Lithuanian market of petroleum products prompted our quicker construction of terminals on the Baltic Sea coast," ALEKPEROV said. Russia must export its oil via its own ports, the Lukoil president said.

European Republics

Kuchma Wins Five More Years

· The Ukrainian Central Election Commission (CEC) has announced that with 97.5 percent of the votes counted, incumbent Leonid KUCHMA has won the second round of the Ukrainian presidential elections. He will serve a second five year-term. KUCHMA received 56.5 percent of the vote, while his opponent Communist Party leader Petro SYMONENKO polled only 37.8 percent. The elections started on October 31st with 13 candidates running in the first round. None of them obtained an absolute majority of the votes to win outright. As the two leading runners, KUCHMA and SYMONENKO competed in the second round. According to the Commission, of the electorate of 37 million, 73.8 percent turned out to cast their vote in the run-off election. SYMONENKO has already declared the election unfair, complaining that his access to the media had been curtailed and that the national media packed Ukrainians with anti-Communist propaganda. An international observer also voiced concern about the media. Dick THORNBURGH, head of the International Republican Institute delegation of observers, said Ukraine had still to make progress in guaranteeing a free and accessible press. He said, "There is a continuing concern among all observers about the way media have been utilized on behalf of the incumbent president." The CEC noted only minor irregularities in voting which it said would not change the final outcome. Voters have expressed that although KUCHMA has done nothing to prevent economic decline, he is seen as a guarantor of peace and domestic stability. Others expressed that he was the only alternative to a return to the Soviet past under

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SYMONENKO. KUCHMA's deputy campaign head Dmytro TABACHNYK said the President is planning to implement a new tax code, civil code, and land code. "These are his key priorities in the coming year. This will help move the country on the path toward Europe and integration into European structures. KUCHMA has blamed the parliament for the slow reform over the past five years. Several international leaders have congratulated KUCHMA on his win, including Georgian President SHEVARDNADZE and Russian President YELTSIN.

South Caucasus & Central Asia

Georgia Increases Pipeline Security

· Security for Georgia's top officials and the important economic establishments, including Baku-Supsa pipeline, has been doubled in Georgia, due to the information regarding the presence of Russian special unit Alfa on the Russian military base Vaziani, Georgian Foreign Minister Irakli MENAGARISHVILI said. Prime News Agency reported that the Foreign Minister refused to give any further information on additional security measures taken, although stressed that the fact of presence of the group Alfa in Georgia dictates the necessity of immediate settlement of issues, connected to dislocation of Russian military bases in Georgia. A Federal Security Service (FSB) spokesman on Saturday denied that an Alfa force had been sent to Georgia. MENAGARISHVILI believes that the functioning of those bases on Georgian territory must be immediately brought to coincidence with the norms of international law.

In the meantime, Georgian President Eduard SHEVARDNADZE confirmed today in his national radio address that the draft agreement on building the Main export pipeline Baku-Tbilisi-Ceyhan for transportation of Caspian oil will be signed by the presidents of Azerbaijan, Georgia, Turkey and the United States at the Organization for Security and Cooperation in Europe (OSCE) Summit in Istanbul on November 17th. Georgian President described as "quite successful" the preparation of the agreement on realization of another great project: building of the

Trans-Caspian gas-pipe from Turkmenistan through Azerbaijan and Georgia to Turkey. Signing of those agreements and the fact that Baku-Supsa pipeline already operates will let us say that the role and authority of Georgia has grown even more, President SHEVARDNADZE stressed.

WB To Continue Azeri Economic Support

· On Friday, Azeri Prime Minister Artur RASIZADE and World Bank Managing Director Sven SANDTROM met to strengthen Azerbaijan's relations with the financial institution. SANDSTROM reiterated the readiness of the World Bank Group to play a constructive role once a sustainable peace over Nagorno-Karabakh materializes. According to a World Bank press release, RASIZADE indicated that the Azeri authorities intended to pursue a lasting peaceful settlement as its top priority. SANDSTROM underlined that the World Bank Group would continue its strong support for economic development and poverty reduction in Azerbaijan. During the meeting, SANDSTROM expressed his strong hope for the continuation of the peace process in the Caucasus region, leading to a breakthrough in the Nagorno-Karabakh conflict. While the cease-fire has held now for five years, there is still no comprehensive peace agreement. He signaled the Bank's willingness to develop a Reconstruction and Rehabilitation Strategy as a peace agreement nears.

Turkmen Oil Extraction To Reach 7M Tons

· Oil extraction in Turkmenistan for 1999 is estimated by the Turkmenneft to reach 7 million tons. In the first ten months of this year, oil extraction reached 6 million tons, or 12 percent more than in 1998. The annual increase in the oil extraction over the past three years amounts to 600,000 to 800,000 tons. Mainly national oil extraction enterprises ensure the increase. Foreign companies, which are extracting oil in the territory of Turkmenistan, only plan to build up their production. Since the beginning of the year the Arab company Dragon Oil and the British company Monument have extracted only about 250,000 tons of oil in Turkmenistan.

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

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