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

Tuesday, November 2, 1999

Russian Federation

Politics

OSCE-UN To Observe Conditions In Chechnya

· Russian troops continue to bombard Grozny, Gudermes, Samashki, Staraya Sunzha, Petropvalovsky, Urus-Martan and Argun in Chechnya with jets and artillery, as Prime Minister Vladimir PUTIN and US President Bill CLINTON meet in Oslo today on the sidelines of the Middle East peace talks. White House spokesman Joe LOCKHART said, "the President is quite concerned about the escalating violence," in Chechnya. Another US official said, "The President will express his deep concern at the continuing violence and indiscriminate use of force. He'll be fairly tough on PUTIN." He added that the message from the US will be that Russia should take pro-active measures to engage Chechnya in peace talks and work toward a political solution. PUTIN on Monday, ruled out any political compromise with armed separatist leaders in Chechnya and vowed to "free" the small Caucasus republic from their control. "Political issues must and will be resolved through political means. But it is also clear that with terrorists no political issues can be resolved or discussed."

Ingvar HAVNEN, an official at the Norwegian Foreign Ministry, announced that Russia agreed to allow the presence of OSCE observers in Chechnya next week to assess the humanitarian situation there. This was reached in a conversation between Russian Foreign Minister Igor IVANOV and his Norwegian counterpart Knut VOLLEBAEK. IVANOV said, "Russia gave consent to receiving an OSCE mission in the coming days in the areas where displaced persons from Chechnya are accommodated — in Ingushetia, Daghestan and Chechen territory controlled by Federal troops." IVANOV shared this news with US Secretary of State Madeleine ALBRIGHT in a meeting this morning. She, "welcomed this move

by Russia, referring to it as a constructive one," he pointed out. In addition, a special UN commission along with a team from the Russian Emergency Ministry will leave for Ingushetia and Dagestan, adjacent to breakaway Chechnya, later this week to evaluate damage inflicted by hostilities and to make aid arrangements. Since the beginning of the standoff between federal troops and Islamic rebels in Chechnya over a month ago, 195,000 have left the region, more 170,000 of them have entered Ingushetia. As many as 12,304 refugees have left for Russia. Special tent towns numbering 741 tents in all are sheltering 6,328 people, and 123 railway carriages in Ingushetia's Sleptsovskaya Station are accommodating 6,642 refugees. Another 1,128 people have received shelter in makeshift housing in Ingushetia's Karabulag, where Slovak construction workers used to live. Emergency Minister Sergei SHOIGU said, "We must do everything possible to help the Chechen people who have had to flee their homes," particularly as Winter approaches. He also said additional amounts and forms of aid to those staying or returning to the Naursky, Shelkovskoy and Nadterechny regions of Chechnya, freed of gunmen, must be considered immediately. "We must seriously see to it that hospitals and schools re-open there, that people receive pensions and allowances and be provided with jobs," SHOIGU added. Ingushetian President Ruslan AUSHEV said, "The Russian military is just mocking civilians. What they do is an act of lawlessness." Today border crossings were closed in both directions,

Today's News Highlights

Russia

S&P Upgrade Samara Region

Bykov Detained In Hungary

European Republics

Williams Seals Refinery Deal

Adamkus Appoints New PM

Failed Latvian Bank Renewed

South Caucasus & Central Asia

OSCE Issues Elections Report

Chukhua Extradited To Georgia

Armenia To Form New Gov't

Politics-Economics-Business

Page

Tuesday

November 2, 1999

Intercon's Daily

after nearly 20,000 refugees entered Ingushetia on Monday.

Yeltsin-Kocharyan To Meet In Sochi

· Armenian President Robert KOCHARYAN will meet Russian President Boris YELTSIN in the seaside resort on Sochi, where he is vacationing, on November 5th. KOCHARYAN said he told YELTSIN, speaking of settlement in Nagorno-Karabakh, that "there is a cause to meet and talk." He said he had talked with YELTSIN on Wednesday, before the lethal arm attack on the Armenian parliament in which the Armenian prime minister and the parliament speaker were killed along with five other people. "The life goes on, and the settlement process should be attended to," the Armenian President said. "If no other surprises happen in the country, I need to go [to meet Yeltsin]," he said. KOCHARYAN reaffirmed Armenia's policy of strategic partnership and close cooperation with Russia.

Economy

Ruble = 26.07/$1.00 (NY rate)

Ruble = 26.37/$1.00 (CB rate)

Ruble = 27.78/1 euro (CB rate)

BONY Cuts Ties With Correspondent Banks

· The Bank of New York (BONY) has been notifying its correspondent banks in Russia and the former Soviet Union for the past month that it will be severing their relationship. Banks overseas must have a correspondent relationship with a licensed US bank to electronically conduct business in dollars. Money laundering specialists and banking regulators point out that correspondent links can be used to move or hide illegal money. BONY plans to cut the total number of correspondent banks from 300 to 70. The cutbacks are not expected to significantly impact BONY revenues, since many links being terminated had little activity. Republic National Bank of New York, a unit of Republic New York Corp., is also reducing its correspondent links by about 40 percent, from 225 to about 100. The action to sever ties with correspondent banks comes amid an international investigation into possible Russian money laundering of up to $7 billion through US banks.

Samara Region Upgraded By S&P

· Standard & Poor's (S&P) on Monday upgraded Samara, Russia's most active industrial regions, from CCC minus to CCC. This is the first region to be

upgraded since the financial crisis in 1998. S&P noted that Samara had improved economic conditions, maintained very low direct debt levels and good financial performance. The credit agency revived Samara's outlook from negative to stable. According to S&P, industrial output has bounced back from pre-crisis levels, growing 12.3 percent in the first nine months of 1999, after a 12 percent contractions in 1998, the Financial Times reported. This new figure includes a 13.3 percent increase in machinery production, which accounts for more than 50 percent of industrial output. AvtoVAZ car plant, which makes Ladas, is located in Samara and represents 20 percent of the region's tax revenues and 70 percent of Russian car production. The S&P warned that the rating still reflects significant risks, since Samara is vulnerable to economic problems throughout Russia. The new rating is largely attributed to Russia's most energetic market reform-minded governor, Konstantin TITOV. In London, recently TITOV endorsed market reforms and urged investors to deal directly with Samara.

Business

Tycoon Detained In Hungary

· Hungarian police arrested former board chairman of Russia's Krasnoyarsk aluminum plant, Anatoly BYKOV Friday night in Roeszke, a town 125 miles southeast of Budapest on the Hungarian-Yugoslav border. An Interpol warrant had been issued for BYKOV on charges of murder, money laundering, and arms trading. Hungarian National Police spokesman Colonel Laszlo GARAMVOELGYI said police are waiting for an official request for BYKOV's extradition form Moscow and plan to turn him over to Russian officials immediately. He added, "BYKOV has broken no Hungarian laws, and we have no reason to keep him any longer than necessary." Russian Interior Ministry's Main Directorate for Combating Organized Crime confirmed that BYKOV had been detained in Hungary and are preparing BYKOV's extradition papers. According to the Associated Press, BYKOV had been one of the top party lists candidates for nationalist Vladimir ZHIRONOVSKY's bloc in December's parliamentary elections. His failure to list one of his homes on an assets declaration has disqualified him. BYKOV had been a close ally of Krasnoyarsk Governor Alexander LEBED and reportedly helped finance his campaign last year.

When you need to know it as it happens

Politics-Economics-Business

Page

Tuesday

November 2, 1999

Intercon's Daily

ADAMKUS chose KUBILIUS because he supported the sale of Mazheikiu Nafta to Williams International. However, during his acceptance of the nomination for prime minister Friday, KUBILIUS ominously warned the President that the crisis caused by the terms of the refinery's sale was still not over, and that urgent measures would have to be taken to stabilize the national economy. A majority of Lithuanians oppose the sale of the refinery. PAKSAS had opposed the sale, but was overruled by his own Conservative Party, which holds a majority in Parliament. This prompted the prime minister's resignation and a government crisis, since his Cabinet must automatically resign. The finance and economics ministers resigned earlier in the week. In May, then Lithuanian prime minister Gediminas VAGNORIUS resigned over the same refinery sale.

Failed Latvian Bank Renewed

· Pirma Latvijas Komercbanka (PLKB) began operations on October 26th. PLKB is the successor to Rigas Komercbanka, which was declared insolvent earlier this year RFE/RL Newsline reported. Officials said on the first day of operations there were more deposits than withdrawals, LETA and BNS reported.

South Caucasus & Central Asia

OSCE Observers Report On Georgian Elections

· Georgian President Eduard SHEVARDNADZE's party, the Citizens Union of Georgia, earned 42 percent of the vote in parliamentary elections, overwhelming its main opponent the Revival Party of Adjarian leader Aslan ABASHIDZE which earned 26.5 percent. In a preliminary statement from the Organization for Security and Cooperation in Europe (OSCE) Election Observation Mission on the October 31st Georgian parliamentary elections obtained by Intercon sources, the OSCE reports that despite some irregularities, Georgian voters were able to cast their ballots freely. The report was issued with the help of the OSCE Office for Democratic Institutions and Human Rights (ODIHR) and the OSCE Parliamentary Assembly. Voting was not able to take place in Abkhazia and parts of South Ossetia. The election-related laws established an adequate framework to conduct genuine multi-party elections, provided that the legal provisions were applied in a uniform and transparent manner. It noted that fierce competition between the leading political parties and

European Republics

Williams-Mazheikiu Nafta Deal Sealed

· On Friday, after 22 months of negotiations, US Williams International completed its purchase 33 percent of Mazheikiu Nafta refinery for $150 million from the Lithuanian government. Half of the purchase price is due in cash now and the remainder in a debenture due in May, 2002. Both sides also lent the refinery $75 million. Williams will have operational control of the refinery, pipeline, and crude terminal. The deal allows for Williams to own a controlling interest within five years. The US company will implement a business plan to modernize the facilities and begin financial restructuring. Mazheikiu Nafta, the only oil refinery in the Baltic States, has a capacity of approximately 15 million tons per year, or 300,000 barrels per day. Williams will work with suppliers and customers to fully utilize the refinery's assets. The Cabinet on Friday voted to authorize acting Minister of Government Reform and Municipal Affairs Sigitas KAKTYS and acting Transportation Minister Rimantas DIDZIOKAS to sign the contracts on shares, investments, and management on behalf of the government. KAKTYS, who headed the negotiating team over the last week, said that Williams had made concessions to Lithuania during the final day of negotiations, lowering Lithuania's financial commitments by $9 million and extending the term for payments. On Saturday, the shareholders approved a new six-member supervisory council, which includes Williams representatives. The Council then appointed a new seven-member board, which is chaired by Williams International Executive Director Jim SCHEEL.

Adamkus Appoints New Prime Minister

· Lithuanian President Valdas ADAMKUS Friday appointed Deputy Speaker of Parliament Andrius KUBILIUS as the Baltic state's new prime minister, replacing Rolandas PAKSAS, who resigned Wednesday in protest of the sale of Mazheikiu Nafta to US Williams International. KUBILIUS, a leading member of the Conservative Party, is expected to form a new Cabinet this week, retaining most of the ministers, after he receives a virtually assured stamp of approval by Parliament. He said, "My rationale in accepting the nomination is that we immediately need to stabilize the political situation...and the not very stable financial environment." It is believed that

When you need to know it as it happens

Politics-Economics-Business

Page

Tuesday

November 2, 1999

Intercon's Daily

election blocs confirms that a political pluralism exists in Georgia, with a clear distinction between competing political interests. The pre-election period was marred by a few incidents of violence and intimidation. Freedom of movement was at times restricted, and on occasions these restrictions prevented political parties and observers from exercising their rights. Some elections administration lacked transparencies, particularly in the autonomous republic of Adjaria. The media also gave some advantages to the incumbents. On election day, the vote was conducted in a relatively peaceful manner and voters had a chance to freely cast their ballots. Foreign observers noted that the elections were conducted in accordance with the legal provisions. The Election Observation Mission urged the Georgian authorities to investigate violations of the law to improve the electoral legislation and to address inadequacies of the electoral administration in order to enhance public confidence in the election process. According to the report, polling in Samtskhe-Javakheti, Kvemo Kartli were less satisfactory, while polling in Adjaria was regarded as unsatisfactory. A final ODIHR report will be issued approximately one month after elections , which will include recommendations and a detailed analysis of the findings from all phases of the electoral process.

Russia Authorize Extradition Of Chukhua

· Nugzar CHUKHUA, who admitted to participating in the assassination attempt of Georgian President Eduard SHEVARDNADZE on February 9, 1998, is to be extradited to Georgian law enforcement bodies today. He was detained by Russian Federal Security Service (FSB) agents in August on charges of involvement in a blast in the market place in Vladikavkaz. The testimony given by CHUKHUA recorded on a video tape, which has been turned over to Georgian agencies, shows him confessing to having fired at a Mercedes, carrying SHEVARDNADZE, from grenade launcher "Mukha." CHUKHUA gave thorough testimony about other terrorists, including six Chechen terrorists, involved in the attack on SHEVARDNADZE's motorcade. He was among

nine GAMSAKHURDIA's followers trained at a military compound near the settlement of Serzhenj-Yurt supervised by Chechen field commander KHATTAB. After the assassination attempt collapsed, in which two SHEVARDNADZE's guards and one Chechen terrorist were killed, CHUKHUA had been in hiding on the territory of Chechnya.

Armenia Works To Form Government

· Armenian President Robert KOCHARYAN on Monday summoned an extraordinary session of the National Assembly to begin forming a new government on Tuesday. The parliament will have to elect new leaders to replace speaker Karen DEMIRCHYAN and both deputy speakers killed last Wednesday as a result of the terrorist action in the parliament hall of Armenia. Head of the parliamentary faction of communists Sergei BADALYAN pointed out that the convocation of an extraordinary meeting of the current session is impossible because the parliament has no chairman, or speaker, who under the Constitution has the right to call such a meeting. Therefore it was decided to convene an extraordinary session of the National Assembly. Leaders of all parties and groups have announced that the new leadership of parliament should be formed by the representatives of the bloc Unity, winner of parliamentary elections. Unity bloc has nominated the chairman of the Republican Party of Armenia Andranik MARKARYAN for the post of speaker. KOCHARYAN has said that the new head of government would be appointed right after the appointment of the head of parliament. The Armenian President is said to have already decided on the candidature for the post of prime minister, but his name has been withheld. Under the pressure of the Armed Forces, Armenian National Security Minister Serzh SARKISYAN tendered his resignation on Monday. The military demanded the removal of the interior minister, the national security minister and the prosecutor general in the wake of the terrorist act. The interior and security ministers were, "responsible to the people" for the tragedy, the Defense Minister said in his statement last Thursday. On Friday, Interior Minister Suren ABRAMYAN resigned.

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

available for non-profit institutions.

Daily Report on Russia is for the exclusive use of the subscriber only. Reproduction and/or distribution is not permitted without the expressed written consent of Intercon. Daily Report on Russia Ó copyright 1999, Intercon International, USA.

When you need to know it as it happens

Politics-Economics-Business

Page