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

Tuesday, December 14, 1999

Chechen rebels claim they have shot down two Russian fighter jets and three helicopters during Monday's strikes on settlements in the Argun gorge. The Defense Ministry confirms the loss of the Su-25 "Frogfoot," which was on a reconnaissance mission, but said it had crashed due to a technical fault. Russian troops, who have captured nearly all the lowlands south of Grozny in the Chechen heartland, have now turned south, attacking a gorge leading to rebel strongholds in the mountains. Russian media reported that troops were sweeping through the town of Shali, the last major lowland town apart from Grozny they had yet to seize. Rebels had said they withdrew on Friday.

Topol-M Missile Test-Fired

· Russian Prime Minister Vladimir PUTIN and Defense Minister Igor SERGEYEV today watched a successful test-launch of Russia's advanced Topol-M missile. The intercontinental ballistic missile was launched from Russia's Arctic testing ground of Plesetsk and reached its target on Kamchatka, a peninsula in Russia's easternmost region. The missile traveled 3,400 miles to hit the target. The Topol or SS-27, is a three-stage, single warhead missile with a range of 6,200 miles. The missile is small and mobile, designed to be fired from trucks or other vehicles. Russia hopes to use the Topol-M as the backbone to its nuclear arsenal. Officials have said that approximately 72 percent of Russia's nuclear arsenal is past its intended life-service.

Russian Federation

Politics

Grozny To Be captured In Ten Days

· Russia's envoy to Chechnya Nikolai KOSHMA, at a meeting chaired by Prime Minister Vladimir PUTIN on Monday, said that Grozny will be captured in six to ten days. Defense Minister Igor SERGEYEV reiterated that there would be no frontal attack on Grozny, like the one in the 1994 to 1996 Chechen War, when Russian troops suffered heavy loses. The Chechen rebel Internet website Kavkaz.org has said that, "the storming of the Chechen capital is under way practically at full scale." A spokesman at Russia's Defense Ministry denied the report. "There is no fighting under way on the territory of Grozny," he said. Still sounds of bombing and heavy artillery continued in Grozny.

The city has been under siege for more than a week and has become the focus of international concern after Russia threatened an all-out air and artillery onslaught. Russia backed down from this ultimatum. Thousands of civilians are trapped in Grozny, which Russian troops surrounded earlier this month. Russia opened a second safe corridor for refugees to flee from Grozny on Saturday. Refugees have complained that they were attacked by Russians despite the offer of safe passage. The head of the Organization for Security and Cooperation in Europe (OSCE), Knut VOLLEBAEK, who was visiting Daghestan, urged both sides to declare a truce near Grozny and allow the tens of thousands of trapped civilians to escape. He said, "I'm appealing to the Russian authorities to start a round-the-clock cease-fire around Grozny so that civilians can really leave." VOLLEBAEK is due on Wednesday to visit Russian-controlled parts of Chechnya and the neighboring region of Ingushetia where more than 200,000 Chechen refugees have sought shelter. The

Today's News Highlights

Russia

Attempt On Ilyukin's Life

Media-Most Pays $42.2M Debt

European Republics

Parliament Rejects Premier

Ukraine Issues CDs

South Caucasus & Central Asia

IMF-Georgia Relations Continue

Azerei Sells First Oil For Profit

IMF Grants Kazakh $453M

People's Bank To Issue Bonds

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December 14, 1999

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OVR Plans Party Rally On Red Square

· Moscow Mayor Yuri LUZHKOV and former prime minister Yevgeny PRIMAKOV have planned a major rally just outside the Kremlin walls for today to bolster support for their struggling opposition movement Fatherland-All Russia (OVR) days before Russia's parliamentary election on December 19th. They are expecting 150,000 Muscovites to demonstrate with them against the Kremlin. The media has reported that 10,000 police had been assigned to keep order on Red Square around St. Basil's Cathedral. LUZHKOV promised there would be no disruptions to public order when trade union members gathered for the rally. The popularity and legitimacy of OVR party has dropped, in part due to Kremlin-backed media attacks. The semi-private ORT Television has tried to portray LUZHKOV as corrupt and PRIMAKOV as leaning too far to the left. The movement is in third place in most opinion polls ahead the election, behind the Communist Party and the pro-Kremlin Unity party. Allegations of dirty tricks and briberies have abounded in the run-up to the election, with many opposition parties saying there will be attempts to rig the outcome. Fatherland-All Russia emerged as the Kremlin's chief rival after it linked up with powerful regional bosses.

Assassination Attempt On Ilyukhin

· Moscow police are investigating an assassination attempt against State Duma Security Committee Chairman Viktor ILYUKHIN, of the Communist Party. On December 12th, an unknown assailant fired one bullet at the deputy. ILYUKHIN, who is also the leader of the Movement to Support the Army, was not hurt in the attack. He suggested that the attempt on his life was politically motivated, "I can only say that I am not a businessman or a financier. I'm involved in national politics," RFE\RL Newsline reported.

Economy

Ruble = 26.85/$1.00 (NY rate)

Ruble = 26.82/$1.00 (CB rate)

Ruble = 27.2/1 euro (CB rate)

Russian Plans 5 Percent Gas Exports

· First Deputy Prime Minister Viktor KHRISTENKO said the Russian government plans to introduce a gas exports due at an amount of 5 percent of the gas customs costs and no less than 2.5 euro per ton. The decision was made by a governmental commission

on protective measures in foreign trade and customs-tariff policy. The customs due, to be in effect for gas shipments outside the CIS Customs Union Boundaries, will add 10 billion rubles of revenues to the federal budget in 2000. Gazprom payments to the budget will increase by 6.6 billion rubles or 550 million rubles per month. The gas exports due may be changed in the first quarter of 2000, depending on the gads price on the world market. Prime Minister Vladimir PUTIN is expected to sign the gas exports dues this week.

Russia To Limit Steel Sales In The US

· The US Department of Commerce announced that Russia has agreed to limit steel shipments to the US to avert duties imposed by the US as high as 178 percent. A preliminary agreement caps shipments of cold-rolled, flat-rolled, carbon-quality steel used in products from automobiles to household appliances. In June, the Department of Commerce launched an anti-dumping case against Russia for selling cold-rolled steel in the US at below-fair-market value. The Wall Street Journal reported that Russian shipments would be limited initially to 340,000 metric tons a year with a minimum price set. In July, Russia agreed to halt shipments of hot-rolled steel this year and to gradually increase them over five years. US steel producers have protested the Department's decision to settle the case, arguing that the settlement undercuts US trade laws.

Business

Media Most Repays Vnesheconombank

· Media Most, a Russian holding company led by Vladimir GUSINSKY which owns national television channel NTV, has repaid $42.2 million owed to state-owned Vnesheconombank. Media Most said it repaid the debt in line with a court order. Media Most was previously given five days to repay the loan or face property arrests by court bailiffs, Russian media have reported. Vnesheconombank sued Media Most for missing interest and principal payments on $60 million in loans it called in July. A court later ruled Media Most must pay, even though it holds the same amount in unredeemed Finance Ministry bonds.

Gazprom's Export Revenues Drop

· Russia's gas monopoly Gazprom has reported its 1999 preliminary results. The data shows that Gazprom's revenues from gas exports have dropped

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December 14, 1999

Intercon's Daily

by $1 billion or 15 percent compared with last year, Kommersant Daily reported. World gas prices have fallen by 21 percent On 7 December, the Media-Most group announced that it plans to sell a 12 percent stake to Gazprom. Gazprom already owns a 30 percent stake in NTV, which is part of Media-Most. Other Media-Most properties are Sevodnya and the radio station Ekho Moskvy, RFE\RL Newsline reported.

described his meetings on Monday with a delegation of the International Monetary Fund (IMF) as "constructive." The President denied rumors that the Fund had stopped cooperation with Georgia. He said it was a, "complete lie." According to the President, Georgia has completely received the previous IMF credit in framework of structural adjustment program. The new program of cooperation with IMF is based on new principles. The President stressed that the IMF, "has changed tactics" with Georgia. From now on the IMF will wait for concrete suggestions from Georgian government and if the proposed program will be realistic the leadership of the Fund will decide upon its financing. "The Fund's mission does not come to Georgia with recipes. It expects realistic proposals from us," he said, adding that the next task is for the parliament to approve a realistic budget. He did not rule out that the government may have to cut funding for some industries in 2000. One of the priorities of the new program of cooperation with IMF will be the prevention of poverty, revival of the economy, and creation of the new social atmosphere in the country.

Director of the Second European Department of the IMF John ODLING-SMEE last week held meetings with SHEVARDNADZE, State Minister Vazha LORDKIPANIDZE, and chairman of the Georgian parliament Zurab ZHVANIA. The meeting focused on creating a three-year structural adjustment program and determining the direction of the new stage of cooperation for relations, necessary to analyze the causes of problems in financial sphere of Georgia and in fiscal policy of the country. "Georgian government realizes the necessity for radical reforms implemented in the tax policy, strengthening of prevention of corruption and shadow economy," LORDKIPANIDZE said. ODLING-SMEE stressed that economic growth of Georgia in 1997 was 10 percent and then it decreased to annual 3 percent. Growth of GDP made up 9 percent in 1997 and has not changed since then. ODLING-SMEE characterized the situation in Georgian economy as, "grave and almost in crisis." According to him, Georgian government must work for increase of investments, and of the role and importance of the state sector of economy. ODLING-SMEE believes that the climate for attraction of local and foreign investors to Georgia remains inefficient. He recommends that Georgia develop a land market and find a solution to the

European Republics

Ukrainian Parliament Rejects President's Choice

· The Ukrainian parliament today rejected President Leonid KUCHMA's proposal for outgoing Prime Minister Valery PUSTOVOITENKO to continue in his post. KUCHMA's proposal was backed by 206 deputies, 20 short of the 226 votes needed. Ahead of the vote, the President said, "I deliberately proposed and am proposing his [PUSTOVOITENKO's] candidacy for the post of prime minister." PUSTOVOITENKO pledged to make 2000 a pivotal year in the socio-economic sphere. He promised to clear the wage debt and transfer to, "new standards in the social sphere." PUSTOVOITENKO admitted that the government, which he has headed since July 1997, "has unresolved problems which threaten Ukraine's economic security." PUSTOVOITENKO's government resigned last month after KUCHMA was re-elected for a second presidential term, as is the constitutional procedure. He was Ukraine's seventh and longest-surviving prime minister since independence in 1991.

Ukraine's CB Issues CDs

· Ukraine's Central Bank certificates of deposit (CDs) maturing on December 14th, at an auction on Friday, yielded an average of 50 percent. The Central Bank did not release to the public any other details of the auction. The Central Bank on December 8th last auctioned CDs, which it uses to regulate cash in circulation and ease inflationary pressure on the gryvnia. At the previous auction the bank raised 187 million gryvnias selling CDs maturing on December 17th, which yielded 51 percent.

South Caucasus & Central Asia

IMF-Georgia Work On Three-Year Plan

· Georgian President Eduard SHEVARDNADZE

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serious problems in the energy sphere. The planned 2000-2002 program is a continuation of the policy of macro-economic stabilization of Georgia.

Itera Considers Cutting Off Supplies To Georgia

· An international corporation Itera is considering shutting off natural gas supplies to Georgia, which Georgian President Eduard SHEVARDNADZE warns could lead to a "catastrophe." The President stressed that cooperation with Gazprom and Itera is of vital necessity for Georgia, as there is no serious hope for own resources and help from Azerbaijan. President SHEVARDNADZE said that new Fuel and Energy Minister for Georgia David MIRTSKHULAVA has already invited Russian energy workers and gas workers to Tbilisi for talks to resolve the issue of Georgian debts, Prime News Agency reported. Russian supplies have reduced gas supplies to Georgia. Intercon sources report that Itera's stance may be used to influence a tender for the privatization of Georgia's gas distribution network, Tibilgaz. It may try to use its power to turn off the gas as a way to force the government to award them as the winner. Meanwhile, a report on the Georgian television station Rustavi-2 on Sunday suggested that Georgian officials orchestrated the crisis in order to gain control of key industries in Georgia.

Azerbaijan Sells First Oil For Profit

· Azerbaijan and the Azerbaijan International Operating Company (AIOC) sold its first oil for profit to the French-Belgian group Totalfina. The sale will boost the Azeri economy. The consortium is producing from an off-shore field and plans to develop other fields, with reserves totaling around 630 million tons. Patrick LANTINGER, the general manager Totalfina's operations in Azerbaijan said, "The oil will be lifted sometime between December 19th and 21st from Supsa, Georgia and will sell for around $25 million to $26 million." Totalfina won the tender for the right to purchase first "profit oil" from Socar. Oil for profit began flowing in the fourth quarter, when the consortium paid off its operating costs to date. Future revenues will be split 50-50, with half as profits and

half covering expenditures. Azeri officials hope to earn $10 billion from the consortium's sales in 2000.

Azerbaijan Appoints New Property Minister

· On December 6th, Azerbaijan appointed Farhad ALIYEV to head the State Property Committee, a government agency which oversees Azerbaijan's privatization program. ALIYEV previously served as Trade Minister.

IMF Approves $453M For Kazakhstan

· The International Monetary Fund (IMF) approved a $453 million loan for Kazakhstan on Monday, under the Extended Fund Facility. The IMF praised the government's policies which it said would cement, "sustainable, high-quality growth." The first installment of $35 million will be made available immediately. The IMF will release the rest of the loan over the next three years, provided economic policy remains oriented toward reform. "Directors welcomed the recent positive developments in Kazakhstan's economy and the authorities' commitment to achieve macro-economic stabilization and accelerate structural reforms," IMF Deputy Managing Director Shigemitsu SUGISAKI said. "They stressed that continuation of the present floating exchange rate regime, the pursuit of monetary policy geared to further reducing inflation and strict adherence to their fiscal consolidation objective will be essential to help achieve sustainable growth over the medium term." The IMF forecast Kazakh growth of 3 percent next year, rising to 3.5 percent in 2001 and 4 percent in 2002. The economy recorded zero growth in 1999, and it contracted 2.5 percent in 1998. The IMF said Kazakh inflation will fall to 9 percent in 2000, 6.5 percent in 2001, and 4 percent in 2002. Prices are set to rise 16.9 percent this year.

People's Bank Of Kazakhstan To Sell Bonds

· The People's Bank of Kazakhstan plans to sell $200 million of bonds in its first international bond sale. The amount of the sale will depend on market conditions. The People's Bank or one of its units will manage the sale of the bonds, with the sale proceeds to be reinvested in Kazakhstan.

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

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