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 18, 1999

Russian Federation

Politics

NEWSFLASH

Georgia-Russian Reach CFE Agreement

· On the sidelines of the Organization for Security and Cooperation in Europe (OSCE) summit, Georgia and Russia have reached an agreement on the Conventional Forces In Europe (CFE) levels. Russia has agreed to reduce its armored combat vehicles (ACV) by 248 and artillery pieces by 28. These pieces of equipment should come from the Vaziani military base outside of Tbilisi and Gudauta base in Abkhazia. Russia must completely shut down these bases in a year and a half. On Wednesday, the negotiations were held between Russian Defense Minister Igor SERGEYEV and Foreign Minister Igor IVANOV and Georgian Defense Minister David TEVZADZE and Foreign Ministers Irakly MENGARISHVILI. Today, the details of the agreement were hammered out by their deputies, as well as the Georgian Ambassador to Austria, who serves as the representative to OSCE, Levan MIKALADZE. This is a major diplomatic achievement for the Georgian government.

Yeltsin, Clinton Clash; OSCE Actions Lacking

· Russian President Boris YELTSIN and US President Bill CLINTON did not disappoint participants and analysts who were drawn to the Organization of Security and Cooperation in Europe (OSCE) summit by preludes that Russia would clash with not only the US but the rest of the world community over the offensive campaign against terrorists in Chechnya. Speaking first, YELTSIN blasted international leaders and organizations for raising concerns about Russia's methods. He said, "You have no right to criticize Russia for Chechnya...Long-term peace in the Chechen republic and the so-called peaceful negotiations with bandits are not one and the same

thing. And I urge that nobody should be under any illusion of this score. There will be no negotiations with bandits and murderers." He compared the Russian bombardments to NATO's actions in Kosovo. To which CLINTON gently rejected the comparison, saying he had to, "respectfully disagree with my friend, President YELTSIN." CLINTON warned Russia against fueling an, "endless cycle of violence," with the military offensive in Chechnya. He said, "If the attacks on civilians continue, the extremism Russia is trying to combat will only intensify." He said the campaign could backfire prompting, "ordinary Chechens who are not part of the terror or the resistance" to reject Russian rule.

Following their address to the OSCE summit, YELTSIN and CLINTON met behind closed doors for 45 minutes. CLINTON described the talks as "vigorous" adding, "We have a very good personal chemistry, but it didn't stop us from our clear disagreement here." YELTSIN's adviser Sergei PRIKHODOKO said the leaders discussed Chechnya, arms controls, and other issues." CLINTON said, "In order to isolate and undermine the terrorists there must be a political dialogue and a political settlement, not with terrorists, but with those who are willing to seek a political solution." Later, YELTSIN stormed out of his meetings with German and French leaders in behavior reminiscent of KRUSHCHEV at the UN. The action clearly was staged for internal domestic consumption.

What has been so far disappointing is the OSCE's lack of action. There are no

Today's News Highlights

Russia

Uneximbank Debt Plan Passes

Tatneft-Iraq Reach Oil Agmt.

Chechnya Gets Gazprom Gas

European Republics

Lith. Approves Butinge Terminal

Tallinn Borrows From Hansapank

South Caucasus & Central Asia

Georgia Ready For Russian Acts

Caspian Pipeline Agmt. Signed

Politics-Economics-Business

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Thursday

November 18, 1999

Intercon's Daily

plans for the OSCE to condemn Russia's battle against Chechen rebels, nor plans for a coordinated intervention or sanctions. OSCE chairman and Norwegian Foreign Minister Knut VOLLEBAEK said, "The situation in Chechnya gives reason for serious concern. We support Russia's territorial integrity. We acknowledge her legitimate right to combat the scourge of terrorism. But the means must be proportional to the threat." Washington has ruled out financial sanctions, saying that nearly all US financial aid to Russia goes to help it control nuclear materials or to non-governmental organizations promoting democracy, which both are in America's interests. Igor MALASHENKO, the deputy chairman of Media MOST holding company, said that, "today things are advancing to the self-isolation of Russia." He added that certain groups in Russia are interested in promoting this isolation because, "they have not learned to play according to the rules of the West, beginning with settling conflicts such as in Chechnya and ending with election organization and attitude to the media." He concluded, "the West is a devilish hindrance to them. They want to create in Russia a regime that could function without minding the West and then their interests would be guaranteed." Comment: The OSCE's inaction gives credence to the Russian campaign. The summit has only provided a stage for Russia to thumb its nose at the world and throw a temper tantrum that it is treated differently than other nations. It has called the west hypocritical to its stance on human rights. In addition, the final documents of the Conventional Forces In Europe (CFE) treaty, to be signed at the summit, increases the limits for Russia's armaments along its southern flank and which may, in fact, encourage those forces which seek to re-establish control of the independent countries of the South Caucasus and even Central Asia.

European Security Charter Signing Delayed

· The signing of the European Security Charter has been delayed until Friday at the Organization of Security and Cooperation in Europe (OSCE) summit. Chairman of OSCE Knut VOLLEBAEK gave no reason why the signing had been pushed back, but western delegation sources said Chechnya was at the root of the delay. One source said, "The postponement has to be seen in connection with the question of how the Chechnya issue can be appropriately dealt with in all the final summit documents."

Moscow wants no reference to Chechnya in OSCE declarations, while the rest of the delegates are pushing for a statement on the proportionate use of force and the protection of civilians. Russian Foreign Minister Igor IVANOV has said that such phases are "unacceptable for Russia." Russian President Boris YELTSIN called on participants to sign the Charter today, as it had been planned earlier. He said, "Russia regards it as sort of a code of honest and just relations over the entire space of the OSCE, as a code of not only rights but of mutual responsibility." The Russia delegation is leaving Istanbul tonight.

Economy

Ruble = 26.32/$1.00 (NY rate)

Ruble = 26.41/$1.00 (CB rate)

Ruble = 27.49/1 euro (CB rate)

Kasyanov Hoping For A Breakthrough Talks

· Russian Finance Minister Mikhail KASYANOV said he hoped for a breakthrough at the ongoing negotiations with the London Club of creditors in the restructuring of the former Soviet Union's debt to Western private banks, which are being held at Deutsche Bank headquarters. He said that the current round of the negotiations could be pivotal. "We would want to see a substantial movement forward. And there are all grounds for this. But at the present moment, it is difficult to say something definitive," he said. KASYANOV said the Russian delegation has presented serious arguments for restructuring the Soviet debt and the creditors had expressed an interest in their proposals. KASYANOV said the Russian side and the London Club were poised to reach an agreement by December 20th, in order to prepare necessary documents by the first quarter of 2000. Most of discussion concerns a 40 percent write-off of the $32 billion Soviet debt in exchange for guarantees to transform the rest of the debt into Russian debentures.

Uneximbank Debt Holders Approve Plan

· Debt holders of securities issued by Russia's Uneximbank have approved a restructuring plan. Holders of a $250 million eurobond approved the plan by 76.9 percent, while holders of $50 million in floating-rate notes approved it by 78.2 percent. Under the restructuring plan, Uneximbank will pay creditors 10 cents on the dollar and issue $130 million in new bonds, as well as form an investment

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company owned by creditors, to supervise the workout of assets, the Dow Jones Newsline reported. The bank will also ask the Central Bank to reinstate its license, which was revoked in June. Uneximbank owes $400 million to foreign creditors, including the Eurobond and floating-rate note holders, and $400 million to domestic creditors, as well as the $600 million on forward contracts. If the bank fulfills its restructuring deal, it would be the first major Russian bank to emerge from 1998's financial crisis, while satisfying its creditors. On Wednesday, Russia's Agency for Restructuring Credit Organizations presented its proposal to restructure another insolvent institution, Rossiisky Kredit. The bank's creditors will vote on the proposal in January.

Business

Tatneft-Iraq Reach Oil Agreement

· One of Russia's four biggest oil companies, Tatarstan's Tatneft, and Iraq have concluded an agreement on joint exploitation of oil fields, according to Tatneft director-general Shafagat TAKHAUTDINOV. Teams of leading specialists from Tatarstan will bore 45 wells in Iraq, and the payment for it will be made at the expense of exported oil. Since a UN sanction is imposed on Iraq, the agreement is concluded within the UN-accepted framework, the director-general said. Iraq has the biggest reserves of oil, about 16 billion tons, and it is important to have a staging area in the country for prospective long-term cooperation. Tatarstan also develops ties with other foreign countries, TAKHAUTDINOV said. Tatneft, together with Zarubezhneft, reached an agreement on economic cooperation with Iran. Tatarstan will introduce there the latest methods of boring. It will also supply oil equipment to Iran. Tatneft is greatly interested in cooperation with China, Mongolia, Italy and Egypt, and the company is working out programs of cooperation with the countries, the director-general added.

Gazprom Supplying Gas To Chechnya

· Russian gas monopoly Gazprom is daily providing Chechnya with 2 million cubic meters of natural gas. So far the total amount of supplies delivered in November equals 30 million cubic meters. Gazprom's press service noted that 20 populated localities of the Naursky, Shchyolkovsky and Nadterechny districts of Chechnya have been receiving natural gas from Russia. In the near future gas will be delivered

to the city of Gudermes, which has been "liberated" by Russian forces. Pipeline experts are testing and analyzing the state of the gas pipeline throughout Chechnya.

European Republics

Lith. Commission Approves Butinge Terminal

· Lithuania's state commission has granted a license to the Butinge oil terminal, the second outlet for Russian crude on the Baltic Sea coast. The terminal is part of the Mazheikiu Nafta oil refinery, now 33 percent owned by US-based Williams International. It is an onshore crude import-export terminal with a floating buoy and has a 160,000 barrel per day capacity. The company spokeswoman said, "The signing of the act will allow the terminal to operate at full strength with an export capacity of 5,000 cubic meters per hour, filling an 80,000 DWT tanker in 19 hours, putting the ship's servicing time at up to 30 hours." Construction on the terminal, which cost the Baltic state around $280 million, began in 1995, following political demands to secure a crude supply source other than Russia.

Tallin Takes Loan From Hansapank

· Tallinn Mayor Juri MOIS today signed an agreement for a 130 million kroon ($8.65 million) credit line with Hansapank. He stressed that Tallinn may not need the entire amount and that the loan may end up being much smaller, BNS reported. The move is controversial, as the previous city government, which was controlled by the opposition, was banned by the Finance Ministry from taking a similar loan from Hansapank. The composition of the current Tallinn City Government is similar to that of the ruling national coalition. MOIS, before entering politics, was a founder and chief executive officer of Hansapank.

South Caucasus & Central Asia

Georgia Prepares For More Rus. Provocations

· Georgian Interior Minister Kakha TARGAMADZE told the Prime news Agency that Georgian law enforcement agencies have obtained information that Russian intelligence may organize different types of provocations against the Georgian territories. He said that all the units of Georgian interior forces have been mobilized to prevent such a threat.

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The Minister believes that Russian intelligence may organize the provocation by help from Georgian citizens. Head of the press center for the Group of Russian Forces Alexander LUTSKEVICH has described reports that a special Alfa troop division is staying at the Vaziani military base nearby Tbilisi as an "insinuation." He said that the Group of Russian Forces believes in the principle, "of non-interference with the interior affairs of Georgia." LUTSKEVICH said that the next plane to arrive at Vaziani will be on November 24th.

Georgia has long called for the removal of the four Russian military bases from its territory. Georgian President Eduard SHEVARDNADZE has been working to develop relations with the West and NATO, while gradually easing the Russian troops out of Russia. Georgian officials are expected to raise this issue at the Organization for Security and Cooperation in Europe (OSCE) summit meeting in Istanbul this week. As part of the Conventional Forces In Europe (CFE) treaty to be signed at the summit, Georgia wants Russia to accept the principle that their forces should not exceed those of the modest Georgian military. According to deputy defense minister Grigol KATAMADZE, Russia has "two-three times" more weapons systems in Georgia, then Georgian Army. He stressed that if Russia does not agree to the suggestion of Georgia on handover of the military equipment exceeding the quotas, then Georgia will not permit it to be taken out of the country. Foreign Policy Advisor to the President, Archil GEGESHIDZE said, "Russia's broads strategy is to keep their numbers in the Caucasus and even increase these numbers. Agreeing to our proposals and starting a process of reduction is something that is against their long-term strategy," The New York Times reported. The Russian Defense Ministry is still denying Wednesday's attack by Russian Mi-8 and Mi-24 helicopters of Shatili 5 kilometers from the border and Georgitsminda about 12 kilometers from the border. This bombing follows a similar incident in Omalo on August 9th.

Historic Caspian Pipeline Agreement Signed

· The Presidents of Georgia, Azerbaijan, Turkey signed a series of agreements in Istanbul today for the building of a 1,730 kilometer pipeline connecting Baku to Ceyhan for the purpose of transporting Caspian oil to Western markets. US President Bill CLINTON observed the signing. The agreement marks a major victory for the CLINTON Administration, which has backed multiple pipelines for the Caspian region that avoid Russia and Iran and do not require tankers to navigate the Bosphorus straits. It believes the new route will lessen the former Soviet republics dependence on Russia for export routes. CLINTON said, "These pipelines will be an insurance policy for the entire world by helping to ensure our energy resource pass through multiple routes instead of a single chokepoint." The new route will also ease the US dependence on oil from the Middle East. The oil pipeline is expected to cost $2.4 billion. Turkish Energy Minister Cumhur ERSUMER on Wednesday revealed that the transit fees and tax rates will be 55 cents per barrel and 20 cents tax for the first 16 years. The oil pipeline still needs an assured supply of oil and financial backing to be commercially viable. Officials at BP Amoco have said that early estimates of oil reserves in the region may have been overstated. The pipeline needs to pump 1 million barrels of oil per day to be commercially viable. Azerbaijan is currently producing about 100,000 barrels of oil per day. Many oil experts are skeptical that the region will find reserves to make the pipeline commercially viable. Turkey has agreed to underwrite cost overruns on its part of the pipeline. The pipeline's commercial backers are a joint venture involving GE Capital, Bechtel, and Shell.

Russia has been a chief competitor against the deal and earlier this month launched a major lobbying campaign to persuade Azerbaijan to increase its oil export through Russia. Iran had favored an oil swap deal in which Azeri oil would be sold in northern Iran and oil from fields in southern Iran would be sold on Azerbaijan's behalf.

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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