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

Monday, November 29, 1999

Russian officials have said that warplanes are dropping leaflets over the city, offering safe passage through a special corridor. The new phase of fighting has produced a new wave of refugees. The border checkpoint with Ingushetia was closed today, with a line of civilians more than a half mile long waiting to cross. Authorities cited computer problems as the reason for the checkpoint closure, which will not let them properly register the refugees. On Sunday, almost 2,000 people left Chechnya. French Foreign Minister Hubert VEDRINE said, "This massive, indiscriminate, purely military escalation, with bombings, the consequences for the population, the 200,000 people forced to become refugees — we cannot believe that this will lead to a stable and durable situation." He added that the Organization for Security and Cooperation in Europe will strive to hold Russia to commitments made at the summit.

Yeltsin Falls Ill With Bronchitis

· Russian President Boris YELTSIN was rushed to the Central Clinical Hospital today and admitted for further treatment. On Thursday, the President came down with, what was diagnosed by doctors as a viral infection, and now may be full blown pneumonia. The President fell ill just hours before the signing of the Rus-Belarus Union, during a meeting with Prime Minister Vladimir PUTIN and other officials. Local media has speculated that the illness was caused by reluctance to sign the treaty on Friday. The Kremlin has denied any link between the two and said it has rescheduled the treaty signing for sometime in De

Russian Federation

Politics

Russia Starts Phase III In Chechen Offensive

· The Russian Army's first deputy chief of staff General Valery MANILOV announced on Friday the launching of phase III in the offensive against Chechen militants. Troops will now pursue the rebels into the mountains and shift their bombing campaign to the capital Grozny. Hinting that this will be the most intense fighting so far, the phase intends to "finish the destruction" of the Chechen fighters. Russian helicopters and fighter jets bombed the main streets of the city and pounded residential areas. About 260 people have died in heavy fighting since Thursday, Grozny Mayor Lecha DUDAYEV said. Some estimates put the death toll closer to 500. One artillery man said, "We told the civilians to leave Grozny and they didn't listen. Look. They're listening now." Troops claims to have destroyed two arms factories in Grozny, fuel storage facilities, and a communications station, as well as hitting bridges, seven rebel camps and two mountain bases." They are also fighting to cut off the last major supply route which connects Grozny with the rest of rebel-controlled Chechnya. Chechen commander Zelimkhan SHIMAYEV said that Urus-Martan suffered some serious damage inflicted by Russian forces. He, however, noted that the federal troops were poorly organized and are having trouble seizing the highway connecting Grozny and Urus-Martan. Russian troops outside of Tsentoroi destroyed an anti-aircraft gun and a mortar, and seized a high-caliber machine-gun, a space communications station and a reconnaissance armored vehicle with the inscription "Regiment of General DUDAYEV. Gudermes is an Impregnable Fortress." Russian officials have estimated there are 6,000 Chechen fighters in Grozny and 3,500 in Urus-Martan. The number of Russian troops sent to Chechnya is over 100,000.

Today's News Highlights

Russia

Loans Linked To Chechen War

TNK Wins Chernogorneft Sale

European Republics

NRG Invests In Power Plants

South Caucasus & Central Asia

Baramidze To Lead New Min.

Chechen Parliament In Georgia?

Azeri-Georgian Gas Group Meet

Turkmen Quits Border Treaty

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cember. YELTSIN's health has negatively affected his diplomatic schedule. He rarely works a full day at the Kremlin, though insists he is fit to carry out his full term of office.

Meanwhile, possible Reform Party candidate and US millionaire Donald TRUMP called YELTSIN a "disaster" and "one tough hombre, but certainly can't be there very much longer," because he suffers from "a major alcohol problem." If elected president, TRUMP said US aid, "would probably stop if it were up to me, until they straighten out their act."

Economy

Ruble = 26.43/$1.00 (NY rate)

Ruble = 26.42/$1.00 (CB rate)

Ruble = 26.75/1 euro (CB rate)

Lending Linked To Chechen Campaign

· On Saturday, in Madrid outgoing Director of the International Monetary Fund (IMF) Michel CAMDESSUS said that Russia's loans from the IMF were at risk as a result of a military campaign in Chechnya. "We cannot go forward with the financing if the rest of the world does not want to," CAMDESSUS said at a business seminar. He stated that the IMF board will take into consideration the world opinion, when it meets next month to decide whether Russia has fulfilled the technical requirements needed for the release of the next loan installment. "If Russia turns back or stops where it is now, this will mean first of all the termination of foreign investments and further reforms," CAMDESSUS said. "This is serious, however, it does not mean that we are ready to finance whatever one likes," he pointed out. CAMDESSUS admitted that he had experienced pressure from leaders of the US and European countries concerning his activities connected with Russia. Republican presidential contenders Texas Governor George W. BUSH and Arizona Senator John MCCAIN have openly called for ending IMF lending to Russia.

Russian Finance Minister Mikhail KASYANOV today expressed puzzlement in connection with CAMDESSUS' statement. He said, "We do not quite understand the Saturday statement by Michel CAMDESSUS who linked IMF financial aid to Russia with the ongoing anti-terrorist operation." He stressed that Russia is fulfilling its commitments to the IMF

program negotiated between the government and the international lending institution. Former prime minister and a leader of the Yabloko movement Sergei STEPASHIN said the linkage between IMF credits and Chechnya amounts to "political blackmail." Meanwhile, former prime minister Viktor CHERNOMYRDIN insisted that the IMF is a financial institution not a political organization. He pointed out that Russia continued to receive aid during the previous war in Chechnya.

Business

Tyumen Wins Chernogorneft Tender

· Despite an injunction applied for by Sputnik Fund and approved by a Siberian court, the controversial sale of Sidanko subsidiary, Chernogorneft, went forward on Friday. Sidanko rival and Russia's sixth largest oil company, Tyumen Oil Company won the tender. Tyumen's bid of $176 million for the oil production unit is estimated by analysts as being three times lower than its worth. Chernogorneft in 1998 pumped 20 million tons of oil. Bidders have claimed that Tyumen used its strong connections in the regional central government to ensure victory in the bankruptcy battle. The Nizhnevartovsk court, which on Tuesday granted the injunction, on Thursday ruled that the sale could go ahead. There were over 15 different injunctions from regional courts. Sputnik, which owns 10 percent of Sidanko, like BP Amoco, applied for the injunction on the ground that it had been refused access to key documentation necessary to make its bid. The government, while saying it will not interfere in the dispute, has tacitly endorsed Tyumen. The sale leaves Sidanko with just a quarter of its former crude oil assets.

While some investors have followed this controversial sale as a trial case for investor rights, other analysts believe that this case is simply one in which Tyumen outfoxed western investors, BP Amoco and Sputnik Fund. Tyumen was able to gain control of the bankruptcy proceedings of Chernogorneft, by purchasing two-thirds of its debts. Following its successful bid, Tyumen took an about face in its battle over Sidanko's assets and invited BP Amoco to help develop Chernogorneft's oil fields through a joint venture. President of Tyumen Simon KUKES said, "I don't believe we can develop the oil field effectively on our own. We need a strong partner, and BP has the know-how and expertise," The Wall Street Jour

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nal reported. It also pointed out that the sale burned BP Amoco, American investor George SOROS and the Harvard University Endowment (both part of Sputnik Funds), and the European Bank for Reconstruction and Development (EBRD), a creditor which is owed $35 million by Sidanko. BP Amoco's Howard CHASE said, "The bankruptcy process has not been run properly. Among other things he [Chernogorneft's external manager Alexander GORSHKOV] has not given proper consideration to proposals for an amicable settlement." EBRD in a statement said the sale was a "sham" and that the auction was, "in violation of a legal injunction issued earlier in the week and was wholly contrary to the concepts of fairness and transparency." Vladimir LEVCHENKO, the Chairman of the Russian Federal Property Fund, said that the auction had been legitimate. Tyumen has denied any illegal actions in the bankruptcy case or its bidding. CHASE said, "We believe the bankruptcy process was seriously flawed. BP Amoco will be carefully reviewing its business position in Russia in light of this sale."

Yeltsin Signs Into Law PSAs

· Russian President Boris YELTSIN signed two bills for the development of the Northern Territories and Priobskoye oil fields under Production Sharing Agreements (PSAs). The Northern Territories, a block of four oil fields in the Komi and Nenets region, has an estimated reserves of 4.4 billion barrels of crude. A joint venture between Russia's LUKoil and the US' Conoco will develop the deposit. The Priobskoye field in Western Siberia, has deposits of over 6.6 billion barrels, to be developed by Russia's Yukos. The Russian State Duma and Federation Council has already approved the two bills.

northeast of Estonia. Other issues that need to be resolved with NRG include the final purchase price of the 49 percent stake and the price of electricity for the consumer, RFE\RL Newsline reported.

South Caucasus & Central Asia

Baramidze To Lead New Ministry

· Georgian President Eduard SHEVARDNADZE plans to appointed George BARAMIDZE to head a new ministry, the Ministry of Revenue Collection. It has been created to oversee all tax collection. This will include customs and tax collection. Georgian Economics Minister Vladimir PAPAVA has come out against uniting the Customs and Tax Ministries, calling it unacceptable. He said, "Two ministries of finance may not function in Georgia," due to today's economic situation. BARAMIDZE was a member of the Georgian parliament in charge of the anti-corruption committee. He spearheaded investigations into a number of ministries. He has been elected under single mandate and ran a high profile campaign against Aslan ABASHIDZE's press spokesman Girogi TARGAMADZE. BARAMIDZE defeated him in Tbilisi.

Georgian Denies Meeting With Chechens

· Head of the press department of the Georgian parliament Sulkhan MELADZE flatly refuted on Sunday reports by some mass media, including Itar-Tass, that a delegation of the 1997 Chechen parliament is visiting Tbilisi and that "they are striving for Georgian authorities' support for denouncing actions by Russian armed forces in Chechnya." Spokesmen of various Georgian government organizations and offices also denied allegations about a visit by Chechen legislators to Tbilisi. The Tass article claimed that Chechen lawmakers held several meetings with Georgian parliament deputies, visited the missions of the OSCE and the International Red Cross Committee as well as other offices of international organizations in Tbilisi. It added that First Deputy Chief of the Russian General Staff Valery MANILOV said weapons, ammunition, mercenaries and cash are frequently dispatched from Georgia to Russia that is to Chechnya. According to MANILOV, 300 mercenaries crossed illegally the Chechen section of the Russian-Georgian border last week alone from countries other than former Soviet republics. The Russian Chief also noted that a major communications center of Islamic extremists started operat

European Republics

NRG To Invest In Estonian Power Plants

· Estonian government officials and the US company NRG Energy have agreed to invest $376 million in the Narva Power Plants (NEJ) over the next 15 years. NRG is negotiating with the Estonian government the purchase of a 49 percent stake in NEJ; those talks are scheduled to be wrapped up by the end of the year. The investment deal calls for the construction of two new energy blocs over the next five years at a cost of $220 million as well as modernizing two oil shale-firing power plants in the

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ing in the Georgian village of Shatili. The Georgian Communications Ministry denied that Chechen lawmakers allegedly requested Georgian assistance in providing adequate office equipment for a Chechen information center and a major communications center in Georgia. Deputy Communications Minister Gia KAKUBERI said, "even if we had received such a proposal from Chechen representatives, the reply would have been definitely negative." The Georgian Defense Ministry called the allegations "absurd."

The Georgian State Border Guard Department also noted, "There is no, and never was, a motorway from Chechnya to Georgia in the Argun Valley area, and therefore the movement of vehicles and people, especially at night and in snow at winter is nothing else but imagination." The statement appeared after Colonel-General Yevgeny BOLOKHVITIN, commander of the North Caucasus regional division of the Federal Border Guard Service, was quoted by media reports as saying that there were some "suspicious movement of vehicles and people at night near Shatili and the Argun Valley." Comment: As the bombardment of Chechnya continues so too does the propaganda campaign against Georgia. Russia has shown no indications of letting up on either front. A Georgian Foreign Ministry statement has called Russia to take all the necessary measures for preventing the "well planned propaganda campaign insulting to the Georgian people." The statement was released after the seizure of military cargo from Romania at the Moscow airport Sheremetyevo. Georgian authorities are in possession of a communication between two Russian employees of British Airways which appears to have lead to the detainment of Romanian cargo in Moscow, which was destined for Georgia. The note says that the one employee should take a special interest in this cargo because, as you know, our Georgia friends are helping support the Chechen bandits. The Russian State Customs Committee announced that the cargo was being sent from Romania through Georgia for Chechen gunmen. The opinion of some that Georgia is supporting Chechnya stated over and over again,

while using well staged seizures as a means for amplifying their disinformation campaign against Georgia, is unfortunately bearing fruit within the Russian population.

Azeri-Georgian Gas Group Meets

· On Sunday, an Azeri-Georgian group studying the transportation of Azeri gas to Georgia met in Baku. Azeri Prime Minister Artur RASIZADE said that the group is considering how to supply 300 million to 500 million cubic meters of gas to Georgia this Winter. He said, "We are also studying a Georgian proposal on the delivery of 3 million to 4 million cubic meters of gas to Tbilisi every day." Both proposals are contingent on two conditions. The first one is related to the repairs of the Baku-Kazi-Magomed-Tbilisi gas pipeline built in the middle of the 1970s and idle in the post-Soviet times. It will cost $2 million to restore the pipeline, and it is not hard to raise these funds, the Azeri official noted. The second problem is that Azerbaijan has a gas deficit. Azerbaijan extracts some 6 billion cubic meters of gas a year, which satisfies only 65 to 70 percent of its needs. In 12-18 months Azerbaijan is expected to have a large gas reserve thanks to the Shakh Deniz field discovered in the Caspian Azeri sector. Foreign and local experts estimate the field's stock at 700 billion cubic meters or 1 trillion cubic meters.

Turkmenistan Quits Russian Border Treaty

· Turkmenistan has followed through with actions initiated in May to allow the border treaty with Russia to lapse. Turkmenistan has formally pulled out of a treaty which allowed approximately 300 Russian troops to patrol its southern border with Iran and Afghanistan. A Turkmen Foreign Ministry official said, "During the years of independence we have formed a national army...now we can say with certainty that it exists and is ready for action." The move is consistent with its aim of reducing its dependence on Russia and promoting a neutral status. The Russian troops will be ordered to return to Russia between now and year's end. Russia has similar treaties with other former Soviet Republics.

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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