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

Wednesday, December 1, 1999


Russian Federation

Politics

BONY Employee Arrested For Lying

· Svetlana KUDRYAVTSEV, a former Bank of New York (BONY) employee, was arrested on Tuesday for lying to the Federal Bureau of Investigation (FBI) on the alleged laundering of $7 billion out of Russia and through the bank. Prior to being fired in September for failing to cooperate with investigators, KUDRYAVTSEV had worked in the BONY's Russia and East Europe department, where her superior was Lucy EDWARDS. EDWARDS, her husband Peter BERLIN, and Aleksey VOLKOV have been charged with illegally transferring $7 billion. KUDRYAVTSEV's lawyer Charles ADLER has claimed that KUDRYAVTSEV's was subject to a difficult interrogation. He said, "Svetlana KUDRYAVTSEV is not charged with any kind of financial crime. She is only charged with false statements to two FBI agents who subjected her to a surprise interrogation in a language with which she is not completely comfortable and which appears to have been designed to trap her." During the interview on August 24th, KUDRYAVTSEV said she had never received money from EDWARDS and BERLIN, despite evidence showing she had been paid at least $30,000 by the couple and Benex International Co., the wire transfer business under investigation. This is further proved by notations in her checkbook and a letter from EDWARD's father accompanied by a check from Petya or Peter. She also denied having heard of Benex, being close with BERLIN, or having knowledge of his business, according to a complaint filed in a New York Federal Court. Other BONY employees, however, have said that BERLIN and VOLKOV contacted KUDRYAVTSEV if they, "experienced problems with wire transfers involving his accounts," The Wall Street Journal reported. Agents also found at her desk an estimated 30 wire transfer

authorization forms, already signed by BERLIN. She also mislead FBI investigators as to how she was hired. KUDRYAVTSEV claimed she did not get her job through EDWARDS, however her employee application indicates she was "referred for employment" by EDWARDS. KUDRYAVTSEV has been released on a $30,000 bond, after handing in her passport.

The Russian Prosecutor General's officer confirmed that it will help US investigators in their probe into the alleged money laundering case. Vladimir MINAYEV, head of the prosecutor general's main investigation department, said that Russian officials will investigate in line with US requests for assistance and information.

Chechen Campaign To End In Three Months

· Russian Defense Minister Igor SERGEYEV today said that federal troops would seize within two or three days the Chechen town of Argun, the eastern gateway to the rebel-held regional capital Grozny. In addition, the Defense Minister said the military operation to exterminate the rebels in Chechnya will be completed in the next one to three months. Federal forces have sealed off Argun about 10 kilometers from Grozny and will capture it. Much of northern and central Chechnya is now under federal control after two months of the military campaign. "The bandits' situation is getting worse," SERGEYEV said. Chechen defenses and the militants stepped up their resistance to advancing federal forces in mountainous

Today's News Highlights

Russia

WB-Russia Reach Agreement

Volkov Seeks New Evidence

European Republics

Estonia Rated BBB By Fitch

Latvia Improves Investment

South Caucasus & Central Asia

Frontera Begin Drilling For Oil

Azeri Power Shift In The Works

Shanghi Five Meet In Bishkek

Karimov Registered For Election

Politics-Economics-Business

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Wednesday

December 1, 1999

Intercon's Daily

areas south of the capital. Urus-Martan has also been the site of heavy fighting. Russian forces have entered the third phase of the offensive, which aims to seize the mountainous area south of Chechnya and take control of the Chechen border with Georgia. Moscow says rebels and weapons have been flowing through that section of the border; a claim Georgia vehemently denies.

Gas Pipeline Explodes In Kirov

· The Russian State Technical Surveillance Committee has reported that an accident accompanied by a gas explosion has occurred on a gas pipeline in the Kirov region. No casualties have been reported. The Committee said that explosion was on the 379th kilometer of the first and second gas pipelines Perm-Kazan-Nizhny Novgorod running through a single corridor. As a result of the accident, gas supplies to the regional centers of Vyatskiye Polyany, Kukhmor, Tyulyachi, Arsk and the town of Zelenodolsk have been interrupted. A commission of the Russian Committee for Technical Surveillance with the participation of Gazprom experts has begun an investigation into the causes of the accident.

Bykov Seeks Refugee Status In Hungary

· Anatoly BYKOV, a Russian businessman, lawyer, and former director of Krasnoyarsk Aluminum Plant, who was arrested by Interpol in Hungary late in October, has appealed to the Hungarian authorities for the status of a refugee or displaced person, but not for political asylum. BYKOV is being held in one of the investigation prisons of Budapest. Last week, the Hungarian authorities received an official request of the Russian Prosecutor-General's Office for BYKOV's extradition. Peter ZAMECSNIK, coordinator of a group of Hungarian lawyers of the Russian businessman said that if BYKOV received the refugee status, he would be free to travel about the country and to go abroad, but not be extradited. Hungarian authorities have one month or two to reach their decision on his application. BYKOV is on the Russian wanted list on suspicion of corrupt deals and complicity in a murder.

Economy

Ruble = 26.53/$1.00 (NY rate)

Ruble = 26.75/$1.00 (CB rate)

Ruble = 27/1 euro (CB rate)

WB-Russia Reach Agmt. On Statistics System

· Russian ambassador to the US Yuri USHAKOV and Johannes LINN, World Bank Vice President for Europe and Central Asia on Tuesday signed an agreement for granting a $30 million loan to Russia to help develop a state statistics system. Russia will pay back the loan in 17 years, with a five-year grace period. LINN expressed hope that this would create a basis for better understanding of the social and economic situation in Russia, which would be closer in line with international standards. This is the first World Bank loan granted particularly for a statistics system. It provides for the changing of the data collection system on social and economic issues, and not only by the State Committee for Statistics, but also by a number of other institutions, specifically the Finance Ministry, the Ministry of Economy and the State Customs Committee. The funds will also be spent on the restructuring of the data processing system for the purpose of introducing a single method and of saving resources. Andrei BUGROV, World Bank managing director for Russia, added that the implementation of cooperation projects for the second coal loan, the third loan for the restructuring of the national economy and the social loan is continuing. The next $100 million installment of the coal loan is expected in December, and a $250 million installment of the loan for the social support of the population is expected in January or February. The third loan is lagging behind, with installment allocation not expected until the first quarter of 2000. The Board of Directors of the World Bank is going to discuss its strategy in Russia at its meeting late in December.

Business

Potanin Comments On BP Amoco's Strategy

· Russian businessman and president of financial industrial group Interros, Vladimir POTANIN, has reviewed BP Amoco's actions in the latest battle over Sidanko assets and believes that BP Amoco cannot fight Russian-style. He said, "BP is an oil company, not a military outfit. They don't feel comfortable in our wars — PR, legal, and others...that is the whole problem. They cannot change their standards because of some project in Russia...I think [BP Amoco] should continue its work, but I can't say how tired BP Amoco is." He added that he did not expect BP Amoco to maintain previous plans to increase Russian cooperation with Sidanko. While BP Amoco

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holds a 10 percent stake in Sidanko, Interros holds 44 percent and controls over 50 percent. Both have called illegal the sale of Sidanko subsidiary, Chernogorneft to rival Tyumen Oil Company for $176 million. POTANIN said his group would continue a suit challenging the decision to sale Chernogorneft. He also noted that Sidanko is working to conclude a deal in a week or two for the spinning off of far eastern companies, including Angarsk Refinery, giving controlling stakes to regional partners and governors.

Volkov Seeks Evidence Against Berezovsky

· Nikolai VOLKOV, the investigator in charge of the Aeroflot money laundering case, is in Switzerland collecting evidence, which he hopes will allow him to re-open a case against Russian business tycoon Boris BEREZOVSKY on charges of fraud and misappropriating about $9 million. Aeroflot executives Nikolai GLUSHKOV, Alexander KRASNENKER, and BEREZOVSKY had been charged with the stealing of $400 million of Aeroflot profits and with taking $200 million in air traffic fees. In November, the charges against BEREZOVSKY were dropped without explanation, fueling rumors that BEREZOVSKY used his insider ties to force authorities to drop the case. VOLKOV said that he dropped the charges because BEREZOVSKY had no official job at Aeroflot. BEREZOVSKY today said, "It's great progress - they were charging me with stealing $400 million, and after just one trip to Switzerland the volume shrank to $9 million. I'm sure that after the investigator's next trip to Switzerland the Prosecutor General's office will be owing me."

reinforced the country's economic and political orientation to the West. Accession to the European Union, which absorbs 70 percent of Estonia's merchandise exports, tops the political agenda. After the March 1999 ballot, three center-right parties formed a coalition government to replace the previous center-left cabinet. They are steering the country on a strict course to reduce the record 3.8 percent of gross domestic product (GDP) fiscal deficit. The government has very little debt, and nearly all its external obligations are multilateral. On a net basis, i.e. taking into account the Stabilization Reserve Fund held abroad, general government debt amounts to just 4.8 percent of GDP. Fitch points out that there is now little risk of a liquidity crisis as successive emerging markets crises in Asia and the CIS helped to restrain domestic demand and [partly] rectify Estonia's sizable external imbalances.

Latvia To Improve Business Environment

· Latvian Prime Minister Andris SHKELE on Tuesday pledged to improve the country's business environment to stimulate foreign investment. He said the fight against corruption and increased public sector transparency were high priorities on the government's agenda. SHKELE added that he is concerned with obstacles created by municipal administrators and monopolies that hinder investors' interest. Despite current concerns investors have noted progress in the business environment. Jukka HARMALA, president of the Scandinavian forest industry group Sotra Enso, said, " We have seen an improvement in real terms since our first meeting [with the government] last July...including a reduction of real estate tax."

Former Belarus Prime Minister Freed

· After eight months of being held in a Belarus prison, former prime minister Mikhail CHIGIR has been released. He was freed following strong criticism by European diplomats and a visit from the Organization for Security and Cooperation in Europe. CHIGIR will still face a trial on corruption charges. CHIGIR served a prime minister under President Alexander LUKASHENKO, but resigned in 1996 after the president disbanded the parliament and rewrote the constitution. He was arrested just after he registered to run in the opposition-sponsored presidential elections held in May. LUKASHENKO has cracked down on dissidents and several opposition leaders have been jailed or disappeared.

European Republics

Estonia's BBB Rating Affirmed

· Fitch IBCA, the international rating agency, has affirmed Estonia's long-term foreign currency rating at BBB. The short-and long-term local currency ratings were also affirmed at F3 and A, respectively. These ratings apply to all future senior and unsecured debt issues of Estonia. According to a Fitch IBCA press release, the economic crisis in Russia in the Fall of 1998, constituted a significant external shock for Estonia. Commonwealth of Independent States' (CIS) markets account for a mere 10 percent of Estonia's trade, half the pre-crisis level. This, along with strained relations with Russia, have

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South Caucasus & Central Asia

Frontera Eastern Georgia Begins Drilling

· The Georgia-American joint venture, Frontera Eastern Georgia, started drilling at the first oil bore-hole at Taribana field in Dedoplitskaro region Tuesday. Deputy director general of Frontera Eastern Georgia company Lameri SANIKIDZE told Prime News Agency that drilling works will start at other bore-holes in the immediate future. According to him, a 23-kilometer pipeline will be constructed for starting extraction of oil at the given field. The Frontera Eastern Georgia company was founded by the state company Saknavtobi (Georgian oil) and American Frontera Resources Corporation in 1997. Italian Saipen, a contractor of Frontera Eastern Georgia, carries out the drilling works. Georgian President Eduard SHEVARDNADZE attended the ceremony and said, "I am sure the results of drilling works will confirm the prognosis of specialists that supplies of oil at this field make up 600 million tons." He expressed gratitude to the foreign partners who believe they will discover big oil in Georgia. The President also pointed out that in the next few days Tbilisi Heat Power Station will being receiving up to 0.5 million cubic meters of natural gas daily from Ninotsminda in Southern Georgia, bordering Armenia.

Azeri Ruling Party Headed For Power Shift

· Ali HASSANOV, a member of the ruling party's political department and deputy of political ties in the presidential administration, has predicted a shift of power from Azeri President Geidar ALIYEV to his son Ilham ALIYEV. He said, "Ilham ALIYEV will be accepted into the ruling organs of the party's structure," at the party's congress on December 20th to 21st. Reuters reported that a new position of executive secretary and the head of the party's administration could be created. One western political analyst said, "A couple of ministers and advisers could lose their jobs and be replaced by people who are close friends of Ilham and his father wants to stack the government with supporters of his son." Ilham is the first deputy head of the Azerbaijan State Oil Company (Socar).

He lacks the charisma, support, and experience of his father, a veteran politician, former KGB general, and president of the state during the Soviet era. Comment: Any attempt to transfer power from father to son is likely to be met with strong opposition both from inside and outside the government. Earlier this year, an article in the New Azerbaijan Daily praised Ilham and suggested he had a genetic right to rule the mainly Moslem state of 8 million. Moves such as these will no doubt complicate Azerbaijan's efforts to repeal Sec. 907 of Freedom Support Act.

Shanghai Five Meet In Bishkek

· Heads of power structures and security councils of Kazakhstan, Kyrgyzstan, China, Russia and Tajikistan, the members of the so-called Shanghai Group of Five, opened a three-day session in of Bishkek on Tuesday to discuss a joint effort to fight crime. During the conference, representatives of the "Shanghai five" are expected to sign a joint memorandum on strengthening cooperation between the five countries in the struggle against international terrorism, religious extremism, illicit weapons trade, narcotics trafficking from Afghanistan and illegal immigration.

Karimov to Run For Second Term

· Uzbek President Islam KARIMOV last week officially declared his intention to run for a second term. He was nominated as a candidate by the National Democratic Party Fidokorlar (Selflessness). Fidokorlar is the fifth and latest of Uzbekistan's registered parties. KARIMOV predicts a successful future for the party. He was nominated as a presidential candidate by two other parties, but the agreed to run from Fidokorlar in the elections scheduled for January 9th. The Central Election Commission on November 25th announced KARIMOV's formal registration. He ran for his first term as a candidate of the Popular Democratic Party of Uzbekistan in December of 1991, of which he was then chairman. The party nominated for the new elections Abdulkhafiz DZHALALOV, leader of the party's parliamentary faction. The Central Election Commission confirmed that DZHALALOV was registered for the elections.


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

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