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

Friday, November 5, 1999

Russian Federation

Politics

US Condemns Use Of Indiscriminate Force

· US State Department advisor Stephen SESTANOVICH told the Senate Foreign Relations Committee that the CLINTON Administration condemns, "the use of indiscriminate force against innocent civilians," in Chechnya. He said, "While we share Russia's outrage over terrorism and respect its right to defend itself, the manner of the Russian government's response is deeply troubling." Yelena BONNER, widow of Soviet dissident and Nobel Peace Prize winner Andrei SAKHAROV said the current conflict in Chechnya is based on political aspirations, as was the first war. "The first war was needed in order to re-elect President [Boris] YELTSIN. This war is needed to raise the standing in the polls of the current prime minister, Vladimir PUTIN." Senator Richard LUGAR said, "The military and PUTIN have used this to their advantage," adding that Russia's behavior in Chechnya, "clearly a setback" for the Russian movement toward more democracy. BONNER noted that Russia has regressed. "Today, we have not a democratic state but a criminal-military state," she said. SESTANOVICH said, "The Russian government has a responsibility, indeed an obligation, to protect its citizens. But it also has a responsibility to avoid using indiscriminate force against them¾and to take steps aimed at a peaceful settlement." The hearing continued as Russia bombed bases and warehouses in villages to the southwest of Grozny.

Russia's military command in the North Caucasus has opened another passage point for civilians between Chechnya and the Stavropol Territory, in addition to the Kavkaz one checkpoint on the border of Ingushetia. Emergencies Minister Sergei SHOIGU has been assessing the situation in the temporary

camps and is urging refugees to be relocated to the liberated zones in Chechnya. He pointed out that security is guaranteed for people there. SHOIGU said that more check points would be created along the whole of the administrative border with Chechnya, which will be open 24 hours. The inspection of vehicles and the checking of documents, however, will be tightened.

Kocharyan-Yeltsin Discuss Nagorno-Karabakh

· Armenian President Robert KOCHARYAN today will meet Russian Foreign Minister Igor IVANOV before talking to Prime Minister Vladimir PUTIN, Kremlin spokesman Dmitry YAKUSHKIN said. A summit between KOCHARYAN and Russian President Boris YELTSIN, to be held in the Ogarevo residence instead of the Kremlin, will, "sum up the results" of his talks with IVANOV and PUTIN and focus on the settlement of the Nagorno-Karabakh conflict. YAKUSHKIN explained the new location of the meeting in order, "to hold it in a more informal and easy atmosphere." The KOCHARYAN-YELTSIN summit was originally planned to be held in Sochi. However, it was postponed because Yeltsin ended his brief vacation early. KOCHARYAN will be accompanied by Defense Minister Lieutenant-General Vagarshak ARUTYUNYAN and Foreign Minister Vartan OSKANYAN.

Economy

Duma Votes To Cut Income Taxes

· The Russian State Duma today in a vote of 330 to three with no abstentions cut income taxes, in a move to boost

Today's News Highlights

Russia

Media Most Accounts Frozen

BP To Withdraw From Russia?

European Republics

Estonia To Sell ETA In Auction

New Lith. Econ, Finance Mins.

AT&T To Sell Telecom Stakes

South Caucasus & Central Asia

Russia Demands Visa Regime

Turkey-Turkmen Pipeline Talks

Tajik Presidential Elections Sat.

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their popularity ahead of elections on December 18th. Their vote came in the third and final reading of the draft legislation. The bill must pass through the Federation Council before President Boris YELTSIN signs it into law or vetos it. The legislation cuts Russia's top income tax rate, while raising the level where incomes enter higher tax brackets. The Dow Jones Newswire reports that the upper threshold for the lowest, 12 percent, tax rate rises to an annual income of 50,000 rubles from the current level of 30,000 rubles. The current top rate of 35 percent on incomes over 150,000 rubles a year is cut to 30 percent, while a 45 percent tax rate set to be introduced on January 1, 2000 has been canceled.

Ruble = 26.24/$1.00 (NY rate)

Ruble = 26.23/$1.00 (CB rate)

Ruble = 27.18/1 euro (CB rate)

May Jun Jul Aug Sep Oct

State Bank Freezes Media Most Accounts

· State-owned Vneshekonombank has frozen 39 of Media Most's bank accounts, which many believe to be a retaliatory act for criticisms of the Kremlin and President Boris YELTSIN's circle of advisors aired on the television channel. Vneshekonombank claims that its actions are in line with "normal relations between a creditor and borrower." The bank is demanding the repayment of a $42.2 million loan to Media Most. It added that it may take legal action to seize property of the television operator if the loan isn't repaid in full. Media Most operates the television channel of NTV, which is closely tied to Moscow Mayor Yuri LUZHKOV. Media Most spokesman Dmitry OSTALSKY, "We see all this as political,

because the issue of the loan surfaced after NTV criticized the Presidential administration," The Wall Street Journal reported. Comment: This appears to be another effort by the Kremlin to wield its influence over the media ahead of parliamentary and presidential election. It is also restructuring board of directors of state-owned companies.

Business

BP Amoco Considers Pulling Out Of Sidanko

· BP Amoco on Thursday said it may consider pulling out of Russia, if oil company Sidanko loses control of the bankrupt subsidiary Chernogorneft. BP Amoco said it could not rule out withdrawing from Russia and writing off a $371 million investment. Director of External Relations for BP Amoco Russia, Howard CHASE said, "I think our position on Sidanko and the implications of that would then [if Sidanko loses control of Chernogorneft] be subject to very careful review. We would not exclude any possibilities." Chernogorneft is scheduled to be auctioned on November 26th. Sidanko's main rival Tyumen Oil Company has pushed for the auction and plans to purchase Chernogorneft, which is Sidanko's largest production unit. Without this subsidiary, Sidanko will effectively cease to exist as an integrated oil company. Against Sidanko and BP Amoco's wishes, another bankrupt subsidiary Kondpetroleum was sold in October to Tyumen. BP's other interests in Russia include a gasoline retail network, interest in a huge eastern Siberian gas field, Kovykta, and in a project offshore Sakhalin in the far east. Stephen O'SULLIVAN of the United Financial Group in Moscow, said "BP is operating in a hundred countries round the world. Companies like BP no longer have to be in Russia. It wouldn't be the first to say `Russia is no longer core to our business. In five years we'll be back but right now we have other opportunities.'"

European Republics

Estonia To Sell ETA In Open Auction

· The Estonian Privatization Agency on Monday announced that it is going to sell its state news agency ETA through an open auction. The starting price for the news agency has been set at 470,000 Estonian crowns (about $30,000). The date of the auction has not been announced but some media have already displayed interest in buying ETA in

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cluding Latvian news agency LETA, Estonian national radio and a commercial radio company. The government announced its decision to sell the loss making news agency in September. After ETA is sold the government will control only two radio stations and a TV channel. Baltic News Service will become a monopoly in the republican news market.

New Lith. Finance And Economic Ministers

· Newly confirmed Prime minister Andrius KUBILIUS has appointed US-trained banker Vyautaus DUDENAS, the founder of the Lithuania Stock Exchange as Finance Minister. He also picked head of computer and information technology company Alna, Valentinas MILAKNIS as Economics Minister. KUBILIUS said that DUDENAS will be responsible for restoring fiscal responsibility as Lithuania heads into key meetings with the International Monetary Fund over a structural adjustment loan. The rest of the cabinet is expected to be largely unchanged with foreign and defense ministers keeping their posts. KUBILIUS will present these appointments to President Valdas ADAMKUS today.

Ukraine To Supply Russia With Alumina

· The Krasnoyarsk Aluminum Smelter, one of Russia's largest producers, has signed a deal with Ukraine's Nikolayev Alumina Plant for 432,000 tons of alumina to be delivered through 2000. The move was attributed to the refusal of the neighboring Achinsk Alumina Plant to continue supplying Krasnoyarsk. "We are still not getting any alumina from Achinsk, while before the conflict started in August, we used to get about 50,000 tons per month," Dmitry CHECHKIN said. Beginning this month Ukraine will ship 36,000 tons to the plant, in addition to the 20,000 tons from the Bogoslovsky plant. He said that the smelter would also import by the end of the year 74,000 tons from New Zealand and Africa, which is 14,000 tons more than normal. "Our monthly requirements are 130,000 tons of alumina. Due to the switch to the new suppliers, alumina became more expensive to us. Now we pay $35 per ton more than when we were getting it from Achinsk," CHECHKIN said.

He added that the agreement reached with Nikolayev Alumina Plant is through 2000, because he is not certain the problem can be solved in an expedient fashion. The smelter and the regional government are struggling over control of the Achinsk Plant.

AT&T To Sell Ukraine Telecom Stakes

· AT&T will sell the Ukrainian government its 19.5 percent stake in telecommunications joint venture Utel. Andrei GRUNIN, chairman of Utel's supervisory council and AT&T's representative, said "we as shareholders have signed an agreement with Ukrtelekom on selling our entire stake in Utel." The long distance and international telecommunications operator, Utel was established in 1992 by Ukrtelekom, which holds a 51 percent stake, AT&T and Deutsche Telekom with 19.5 percent each, and Dutch Koninklijke PTT Nederland (KPN) with 10 percent. KPN is also prepared to sell its stake at the government's request. The government has been pushing foreign partners to sell stakes in Utel to state-owned telecommunications monopoly Ukrtelekom. GRUNIN declined to give financial details of the deal. Utel, whose net profits rose to $38.2 million in 1998 from $33 million in 1997, is among the best assets of Ukrtelekom. The government plans to privatize Ukrtelekom to help it meet $3.1 billion in foreign debt servicing.

South Caucasus & Central Asia

Russia Calls For Visa Regime With Georgia

· On Thursday, Russian Prime Minister Vladimir PUTIN said that Russia, "should immediately start talks with Georgia and, perhaps, with Azerbaijan about the introduction of the visa regime of entering Russia" due to the flow of refugees and gunmen from Chechnya. He explained that "control over the movements of Chechen terrorists became a problem" because of the existing visa-free regime of entering Russia for citizens of Georgia. He stressed that it was a temporary measure, which will be in effect, "until the end of the anti-terrorist operation in the Northern Caucasus." The visa issue was raised after Georgia and Russia failed to reach an agreement on a joint patrol on Georgia's border with Chechnya. Director of the Federal Border Service Konstantin TOTSKY said, "We have information about the penetration of terrorists to the Chechen Republic across the section of the border, guarded by Georgians." Russia, however, has failed to provide any evidence to back this claim.

The Russian Foreign Ministry has acted on PUTIN's orders by suggesting the two sides start negotiations on the issue of adopting visa regime. The Russian

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foreign ministry spokesman Vladimir RAKHMANIN said the new measure, "will not cause tension in the relations between Moscow and Tbilisi, as Russia and Georgia have common interests in bringing stability and security to the Caucasus." Chairman of the state border guard department of Georgia Valery CHKHEIDZE believes that adoption of visa regime between Georgia and Russia, "will promote establishment of better order at the state border." In an interview with Prime News Agency, CHKHEIDZE stressed that the visa regime must be adopted at the whole length of state border, including the Abkhazian portion. Chairman of the Georgian parliamentary defense and security committee Revaz ADAMIA stated that, "visa regulations between Georgia and Russia should be introduced not on a provisional, but permanent basis." According to him, that way, "Russia will recognize Georgia as a sovereign state."

Turkey-Turkmen Discuss Trans-Caspian Route

· Turkmen Deputy Prime Minister responsible for energy Yella GURBANMURADOV and officials of the PSG consortium in charge of the Turkmen gas project, arrived in Ankara to discuss the Trans-Caspian gas pipeline project to export Turkmen gas to Turkey via Azerbaijan and Georgia. Representatives from those four nations and the US presidential envoy on Caspian energy John WOLF held meetings on Thursday on the legal framework agreement on the project. Turkish undersecretary at the Energy Ministry Yurdakul YIGITGUDEN said that a framework for a $2.5 billion to $3 billion pipeline will be signed by the governments of Turkey, Georgia, Azerbaijan, and Turkmenistan during the November 8th to 19th summit of the Organization for Security and Cooperation in Europe. The project is sponsored by Bechtel, GE Capital and Shell. The Ankara meeting coincided with Turkish Prime Minister Bulent ECEVIT's trip to Moscow to discuss the Russian-Turkish Blue Stream project, which plans to transport gas to Turkey through an underwater pipeline. YIGITGUDEN reiterated assurances that Turkey needs supplies from both sources. ECEVIT said, "We need gas, from wherever it may come from.

These projects are not alternatives, they are complementary to one another."

Tajikistan Prepares For Presidential Election

· Chairman of Tajikistan's Central Electoral Commission Mirzoali BOLTUYEV on Wednesday said that Tajikistan is prepared for the presidential elections scheduled for Saturday. Voting tickets include the names of two presidential contenders, incumbent President Emomali RAKHMONOV and Economy and Foreign Economic Relations Minister Davlat ISMONOV of the Islamic Revival Party. On November 6th, approximately 2,831,000 voters are expected to come to the polling stations at 2,700 electoral districts, with seven of them located outside Tajikistan, BOLTUYEV said. The election will be valid if more than 50 percent of voters participate. It is almost certain that incumbent RAKHMONOV will win. Commenting on ISMONOV's reported withdrawal from the presidential race, he said the commission has never received such a request from the Minister, nor from the Islamic Renewal Party and, "therefore his name remains on the list." However, the unprecedented stalemate situation may affect the political reputation of Tajikistan. The government believes that ISMONOV's refusal to challenge the presidency is a deliberate attempt by the opposition to discredit the vote. Presidential defense advisor Mizrob KABIROV said Tajikistan remains calm ahead of elections. He added all, "political sides in the republic speak for progress of the peace process that has taken an irreversible character."

The Organization for Security and Cooperation in Europe (OSCE) will not send observers to the election, because of irregularities in the pre-election and the effective withdrawal of ISMONOV. The OSCE's decision was also prompted by discrimination of presidential candidates in access to the mass media. KABIROV pointed out that representatives from 10 countries including the Commonwealth of Independent States will monitor the elections. He said the observers will be free to visit any polling stations, "where they will want to observe."

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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