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, December 20, 1999

Russian Federation

Politics

Duma Election: A Peaceful Revolution

· Approximately 51.5 percent of the Russian electorate went to the polls on Sunday to participate in voting for representatives to the Russian State Duma, the lower house of parliament. Moscow's news tonight, with 84 percent of the vote counted, reported the following results: the Communist party earned 24.22 percent of the vote, closely followed by Unity Party, led by Emergencies Minister Sergei SHOIGU, with 23.37 percent, and Fatherland-All Russia, led by former prime minister Yevgeny PRIMAKOV and Moscow Mayor Yuri LUZHKOV, with 12.64 percent. The Union of Right Forces, led by former prime minister Sergei KIRIYENKO, surprised most analysts by winning 8.72 percent of the vote. Prime Minister Vladimir PUTIN on Friday endorsed the reformist party's economic programs, giving it a boost surpassing the 5 percent hurdle to be represented in the Duma. Yabloko, led by Girgory YAVLINSKY, also gained ground winning 6.13 percent of the vote and the Liberal Democratic Party, led by Vladimir ZHIRONOVSKY, with 6.08 percent. Half of the Duma's 450 seats are decided on party lists and half on races in individual constituencies. Independent and centrist candidates were leading in almost 150 of the 225 races for individual seats. These include five former prime ministers, Viktor CHERNOMYRDIN, Sergei KIRIYENKO, Yevgeny PRIMAKOV, Sergei STEPASHIN, and Nikolai RYZHKOV, as well as former interior minister KULIKOV, and former chief of Gosplan MASLUKOV. Two infamous oligarchs were elected to the Duma for the first time; Roman AMBRAMOVICH in the Chukotka and Boris BEREZOVSKY in the North Caucasus region of Karachayevo-Cherkessia. Those who did not win independent seats of note include Sergei BABURIN, former St. Petersburg mayor Ana

toly SOBCHAK, Yuri LUZHKOV's wife, and YELTSIN allies Gennady BURBULIS and former deputy prime minister Vladimir SHUMEIKO.

The composition of the Duma is predicted to be 54 percent centrist and 40 percent to 45 percent leftist. The Communist Party will not be able to dominate the Duma, suggesting more cooperation between the parliament and President Boris YELTSIN and PUTIN. Economic reforms are likely to face less resistance. Fatherland-All Russia spokesman Sergei YASTRZHEMBSKY said, "Clearly the biggest development in this election will be that the Communists will no longer be able to dictate their conditions. This Duma will be fundamentally different from the last one." The Duma election, seen as a dress rehearsal for presidential elections in June, gave an incredible boost to PUTIN's campaign, consolidating his role, power, and influence. First deputy head of the presidential administration Igor SHABDURASULOV said, "In Russia a revolution has taken place, a peaceful one, but a revolution all the same. This is a colossal breakthrough."

There have been no official reports released by ballot observers. However, two regions have claimed ballot falsification and heavy rigging. In Bashkortostan, officials will submit a complaint to the Central Election Commission regarding election violations and calls for a re-vote. The results of that region showed that the Fatherland-All Russia party earned 30 percent of the vote, but this differed drastically with exit poll re

Today's News Highlights

Russia

Luzhkov Wins Mayoral Race

Tax Ministry On Commodities

European Republics

LUKoil To Deliver Oil Supplies

Lith. To Receive 29M Euros

South Caucasus & Central Asia

Border Fighting: Provocation

Georgia To Earn $500M On Gas

Turkmen-Gazprom Sign Deal

New Tajik PM Appointed

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sults. In the Moscow region, a run-off vote will determine the individual seat holder between Gennady SELEZNYOV and General GROMOV. Rigging was also reported in various election sites.

Luzhkov Easily Wins Moscow Mayoral Race

· Moscow Mayor Yuri LUZHKOV, known for the construction boom that transformed the city's skyline and filled in the potholes that scarred its streets, easily won re-election on Sunday. With 90 percent of the vote counted, LUZHKOV was in the lead with 71.5 percent of the vote, compared with his closest rival former Prime Minister Sergei KIRIYENKO with 11 percent. Despite a smear campaign initiated by pro-Kremlin television and newspapers accusing LUZHKOV of corruption and even murdering Radisson Hotel manager Paul TATUM, the Mayor was re-elected based on his popularity and the success in remodeling Moscow into a modern city. He issued warrants to built a marble and chrome shopping mall in the shadow of the Kremlin and rebuilt the Church of Christ the Savior on the Moscow river 60 years after it was destroyed by Communists. Tom ADSHEAD, political analyst at Troika Dialog brokerage in Moscow said, "He has a very strong electorate here and it shows he wasn't harmed" by criticism of his administration during the campaign.

Russian Continues To Pound Chechen Rebels

· On Saturday, Russian jets and helicopter gunships flew 60 sorties, striking rebel positions around Grozny and in the southern mountains. The Russians had eased their airstrikes and artillery barrages last week, saying civilians should leave Grozny or risk being killed. But they have kept up attacks in recent days, trying to soften the rebels' resistance. Russian Prime Minister Vladimir PUTIN says Russia will press its attack against the rebels. General Anatoly KVASHNIN, the army's chief of staff, said Sunday that the military would fight the rebels until they laid down their weapons, but he voiced hope that an increasing number of rebels would soon end their resistance. He also said that the military had met with representatives of the Chechen separatist leader, including two deputy prime ministers of Aslan MASKHADOV's cabinet and others. He said, "The discussions were concrete¾either they fully accept what the Russian President said in his statement or not. Everything else is not a subject for talks." President Boris YELTSIN has demanded that MASKHADOV turn over rebel fighters whom Russia

blames for bomb attacks on Russian cities, and that the rebels lay down their arms. The Chechen President has said he is prepared to make unspecified deep political concessions, but insists on having an international mediator attend any talks.

Economy

Ruble = 26.77/$1.00 (NY rate)

Ruble = 26.68/$1.00 (CB rate)

Ruble = 26.97/1 euro (CB rate)

Tax Ministry On Commodities Requirement

· Russia's Tax Ministry has proposed that commodity producers be required to sell at least 30 percent of output at domestic commodities exchanges beginning on January 1st. Included in the draft resolution are commodities such as crude oil, oil products, gas and gas condensate, grains and grains products, white and raw sugar, timber, ferrous, non-ferrous and precious metals, bauxite, and alumina. Reuters reported that there is no indication that the commodities sold would have to remain in Russia. The Tax Ministry confirmed the existence of the resolution, but declined to elaborate. "We will not comment on this document until it becomes a government resolution."

Business

Sidanko Shareholders To Reach Settlement

· Sidanko, a Russian oil producer with 10 percent-owned by BP Amoco, said its creditors will complete an agreement in January to end bankruptcy proceedings against it. The next creditors meeting is scheduled for January 14th. Sidanko owes $450 million to shareholders and a group of banks led by Dresdner Bank. It lost its key production unit, Chernogorneft, last month in a bankruptcy sale to rival Tyumen Oil Company, which was held over the protests of shareholders such as Interros, a Russian financial and industrial group, and BP Amoco. According to a company statement, "The biggest Russian and foreign creditors of Sidanko...are satisfied with the improvement in the company's finances and expect Sidanko will be able to settle its debts." Sidanko was pushed into bankruptcy proceedings last year because the low price of oil cut its export revenue and because of the mismanagement of its production subsidiaries, analysts said. Oil prices have since doubled, boosting revenue, while BP

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Amoco installed managers at the company, improving financial controls.

several Russian helicopters violated Georgian airspace three times in the area surrounding Shatili village, located near the Chechen section of the Georgian-Russian border. A filming crew of the Georgian television documented the helicopters trespassing. An eyewitness said that the Russian helicopters fired several unguided missiles at the woods adjoining Shatili. Georgian President Eduard SHEVARDNADZE said, "We will not leave this without a response...Some things do happen at war, which are either caused by error or result from someone's intention." Georgia has three times accused Russia of dropping bombs on its territory. Moscow has only apologized for one bombing.

In Moscow, Russian Prime Minister Vladimir PUTIN announced a large helicopter-borne operation to cut a vital road between Chechnya and Georgia. He said, "This operation could change the whole picture of the counter-terrorist operation in the North Caucasus." Rebel spokesman Movladi UDUGOV said the Russian forces dropped a brigade of several hundred soldiers about one mile from Georgia. Russian Deputy head of the general staff, Valery MANILOV said the troops would bar Chechen rebels from fleeing into Georgia. UDUGOV said that the border was the scene of fierce fighting and the Chechen fighters had shot down two Russian helicopters sent in as reinforcements. Russia has not commented on the loss of any helicopters. Top Chechen guerrilla commander Mumadi SAIDAYEV said the Chechen forces had "fully crushed" the contingent of paratroopers. Moscow has denied the report, admitting only that Chechens had attacked the paratroopers, but failed to dislodge them. Georgian border guards commander Korneli SALIA said, "I cannot comment on what's going on that side of border. It's not our territory. I was told that powerful explosions had been heard in Shatili during the day."

Georgia To Earn $500M From Gas Projects

· President of Georgia's International Gas Corporation Alexander GOTSIRIDZE on Saturday predicted that Georgia will earn about $500 million in profits per year from the implementation of three projects to transport Turkmen, Azeri, and Russian natural gas to Turkey and Europe. He noted that if all three projects are implemented the total volume of gas transit through Georgia will reach an estimated 70 billion cubic meters, including about 30

European Republics

LUKoil To Resume Oil Deliveries To Lithuania

· LUKoil Baltija, a unit of Russia's biggest oil company, Lukoil Holding, said it will deliver 196,000 tons of crude oil to Lithuania's Mazeikiu Nafta refinery to help keep it operational starting today. The refinery, 33 percent owned by Williams International Company, hasn't received enough oil to continue operations. Spokeswoman Virginija KRISTINAITIENE said everyday the refinery stands idle costs the company 1 million litas ($250,000). LUKoil in November said it would not continue working in Lithuania under the terms offered by Williams. Today's shipment has been offered to help smooth talks between the companies. LUKoil Baltija official Aleksandras JUOZAPAITIS said, "LUKoil understands the situation in Lithuania and will deliver 196,000 tons of crude on Monday in the event the technical documentation is prepared." LUKoil has asked its closest rival Yukos Oil Company to sell the oil to Mazeikiu, since LUKoil does not have any spare crude. The Lithuanian Economy Ministry last week said the refinery will have to buy crude from the west if LUKoil fails to submit a proposal on crude supplies. Williams bought 33 percent of Mazeikiu from the Lithuanian government in November and plans to raise its stake to 51 percent.

Lithuania To Receive 29M Euros

· Lithuania will receive 28.93 million euros ($29.57 million) to help the government prepare itself for eventual membership in the European Union (EU). The grant will help Lithuania reform its public institutions and improve its financial, legal, agricultural and other systems as it begins talks to join the 15-member EU. Lithuania is one of six countries invited this month in Helsinki to begin membership talks. The grant agreement was signed by the European Commission's head in Lithuania, Henrik SCHMIEGELOW and Lithuanian Foreign Minister Algirdas SAUDARGAS.

South Caucasus & Central Asia

Fighting On Border: Provocation For Georgia

· Georgian television on Friday reported that

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billion cubic meters under the Trans-Caspian project (Turkmen gas), 30 billion cubic meters under the Trans-Caucasian project (Azeri gas), and about nine billion cubic meters of gas under the Russian project. GOTSIRIDZE pointed out that the projects would be implemented gradually. He said the projects will create new jobs in Georgia, meet its energy needs, and boost businesses servicing the pipeline.

Itera To Resume Gas Supplies

· Georgian State Minister Vazha LORDKIPANIDZE, after holding a meeting with representatives of executive and legislative branches and Itera vice-president Valery OCHERTSOV, announced that Itera will resume former supplies of natural gas to Georgia today. The schedule of gas supplies and of payment have been determined during the negotiations, LORDKIPANIDZE said, stressing that Itera will continue supplying natural gas only in case of timely payment by Georgian side. Itera will supply Tbilisi's heat and power station with 3 million cubic meters of gas daily. He pointed out that the tariff for natural gas has been decreased from $50 to $45 for 1,000 cubic meters. Georgia has also agreed to repay last year's $60 million debt to Itera before May 2000.

Azerbaijan To Resume Privatization

· Azeri Prime Minister Artur RASIZADE announced that the country's privatization program will resume in 2000. The Azerbaijan Newsletter reported Azerbaijan's GDP growth for three quarters of 1999, reached 7 percent.

Turkmen-Gazprom Sign Export Agreement

· Rem VYAKHIREV, chief executive of Russian gas monopoly Gazprom, announced at a press conference on Saturday that Gazprom has signed an agreement to buy 20 billion cubic meters of gas from Turkmenistan in 2000 to ensure there is sufficient domestic supply and increase exports. Gazprom will pay $36 per 1,000 cubic meters of gas. The company will pay 40 percent in cash and 60 percent in goods and services. The key operator in the company will be Itera company. "Without gas from Turkmenistan, we wouldn't have enough supplies next winter,"

VYAKHIREV said. He also pointed out that Russia needs Turkmen gas exports because Ukraine has illegally commandeered up to 150 million cubic meters of gas per day from its pipelines to Europe. Gazprom provides about 30 percent of Europe's gas. Russia is under pressure from international lenders, including the International Monetary Fund, to reduce barter and increase cash payments. Gazprom will collect just 40 percent of payments in cash from customers in the former Soviet Union. Russia aims to improve that figure to 50 percent in 2000. Stephen O'SULLIVAN, director of research at United Financial Group said, "The pricing and nonpayment issues in the domestic gas market are a main, perhaps the single-biggest, challenge to Gazprom within Russia, constraining its ability to expand and capitalize on its strong reserves and infrastructure bases, targeted at the European market."

New Tajik Prime Minister Appointed

· Tajikistan's President Emomali RAKHMONOV today signed a decree relieving Yakhyo AZIMOV from the post of prime minister and appointing Akil AKILOV as his replacement. According to the Constitution, AZIMOV's term expired on November 6th together with the end of RAKHMONOV's first five year presidential term. RAKHMONOV was returned to power in an election which was RAKHMONOV's criticized in the West. AKILOV is the former deputy governor of the Leninabad province. Government policies over the next few years will be crucial to whether Tajikistan can preserve its fragile peace. AKILOV expressed complete support for RAKHMONOV's course for Tajikistan in domestic and external policies. He stressed he would exert every effort to implement economic reforms more effectively and to further promote them.

The Daily Report on Russia

and Former Soviet Republics

will not be published from

December 24th to January 3rd

for Intercon's Winter break

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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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.

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