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

Tuesday, December 21, 1999

Russian Duma Composition*

In 2000 Number of Seats

Communists 111

Unity 76

Fatherland-All Russia 62

Union Of Right Forces 29

Yabloko 22

Liberal Democratic Party 17

Independents 133

*The Wall Street Journal Europe reported

with 84 percent of the vote counted.

Elections Democratic; Coverage Biased

· International monitors observing Russia's State Duma elections on Monday said the voting represented a step forward in Russia's democratic process, but they were concerned about bias in the media during the campaign. The election was observed by hundreds of representatives from the European parliament, the Council of Europe, and the Organization for Security and Cooperation in Europe (OSCE). Helle DEGN, head of the OSCE observer team said, "the election system in the Russian Federation has reached a new level on its journey to sophistication." She added that, "The voting process has been technically correct and efficient." A preliminary report concluded the election was "competitive and pluralistic" and that a high turn out of 51.5 percent suggested, "confidence in the democratic process." Some observers reported policemen intimidating voters at polling stations, families publicly

Russian Federation


Russia Denies Civilian Massacre

· The Russian military today denied reports that its armed forces shot dead 40 civilians in the Russian occupied village of Alkhan-Yurt, southwest of Gronzy. News of this dramatic massacre was first reported by the British Broadcasting Corporation (BBC). BBC correspondent Paul WOOD said he had been told of the killings by Malik SAIDULAYEV, a Chechen businessman, who supports Russia against separatist guerrillas. The BBC said it had seen no physical evidence of the killings. The Russian Defense Ministry said the news report is, "another lie or simple provocation." The Ministry claims Russian, "troops are not fighting a peaceful population." The Russian side said its forces have seized the Severny [Northern] civilian airport. Fierce fighting has also been reported near the town of Serzhen-Yurt, where an estimated 500 rebels are battling with Russian troops. Despite heavy fog, Russian warplanes and armed helicopters flew 43 sorties on Monday, targeting the southern towns of Shatoi and Vedeno. Although the Defense Ministry has stressed that there are no military plans to storm Grozny, the RIA news agency quoted a military source saying operations to seize Grozny will begin this week using army and police commando units and pro-Moscow Chechen militia.

Russian Duma Composition

In 1995 Number of Seats

Communist 119

Our Home is Russia 52

Yabloko 44

Liberal Democratic Party 40

Agrarians 35

Russian Regions Group 36

People's Power 43

Independents 71

Today's News Highlights


Russia Marks Security Day

Dart Sells Oil Stakes

European Republics

Lith. Gas-Gazprom Sign Deal

Latvian Trade Looks Westward

South Caucasus & Central Asia

Tevzadze-Sergeyev Meet

Dragon Oil Borrows $60M

US-Kazakhstan Boost Relations




December 21, 1999

Intercon's Daily

discussing their choices before voting, and refusal by election officials to start vote-counting while international observers were present. The OSCE report also said officials had also harassed opposition supporters by dismissing them from their jobs or by arranging extraordinary tax inspections, administrative fines and, "criminal investigations that were subsequently proven groundless." Another team of long-term observers cited improper interference by regional authorities, rigid electoral laws which disqualified more than 100 candidates, and a focus on prominent individuals rather than political platforms. A study by the European Institute for the Media concluded that election coverage had been biased and deteriorated in character from the parliamentary campaign in 1995.

Russia Marks Day Of Security Bodies

· Russian President Boris YELTSIN and Prime Minister Vladimir PUTIN separately sent special messages to the Russian Federal Security Service, the KGB successor and other security agencies marking the Day of Security Bodies, referred to Chekist Day since the Communist Revolution on Saturday. YELTSIN in a statement said, "The history of the Federal Security Service is part of the country's history. Brilliant victories and bitter defeats are inseparable in it." PUTIN pointed out, "Several years ago we fell prey to an illusion that we have no enemies. We have paid dearly for this. Russia has its own national interests and we have to defend them." The Prime Minister also added, "The organs of state security have always guarded Russia's national interests, they should not be separated from the state and turned into a monster." Russia's post Cold War relations with the US have turned tense in the last 10 to 12 months. Moscow has opposed NATO expansion and the use of force against Serbs in Yugoslavia, while the US has denounced the indiscriminate military campaign in Chechnya. When YELTSIN came to power, he split the KGB into several bodies as Russia became independent. In recent years, some consolidation has occurred, while in other intelligence organization the separation has become more blurred and YELTSIN has appointed security agencies' top officers to administration positions including prime minister. Former KGB officers have infiltrated themselves into powerful business organizations and banks. Today, the distinction between former and current KGB officers

and even organized crime organizations has also become blurred, leading many to wonder if a line can be drawn between them.


Ruble = 26.72/$1.00 (NY rate)

Ruble = 26.78/$1.00 (CB rate)

Ruble = 27.02/1 euro (CB rate)

November Industrial Output Rises

· Russia's industrial production rose 12.9 percent in November in comparison to the same month in 1998. Production was led by wood processing, ferrous metals, and machinery. Producers benefited from the ruble's decline, which lowered production costs. November's industrial production increase follows a 10.3 percent rise in October from the same period a year ago, the State Statistics Agency said. The ruble fell more than 70 percent in 1998, when the government defaulted on Treasury bills. The plunge gave domestic producers a boost because their goods were cheaper compared with imports. Ferrous metals production is up 37.7 percent from November 1998, chemical and petrochemical industry output is up 24.8 percent. The machinery industry rose 22.8 percent versus last November, and paper and wood processing was up 28.4 percent.

Gov't To Revise Gazprom's Taxation

· The Russian government plans to create a special commission to revise the way it taxes the world's largest natural gas producer and Russia's biggest taxpayer, Gazprom. The Russian daily Vremya quoted First Deputy Prime Minister Viktor KHRISTENKO saying the commission will monitor the company's payments to the budget and help recover debts owed to Gazprom for export deliveries. A Tax Ministry agreement with Gazprom on the size of its monthly tax payments ends this month and the government has promised it won't extend the agreement, which is criticized by international financial organizations. The government will set up a mechanism to guarantee revenue from Gazprom. The government is taking steps to boost revenue in 2000, after the International Monetary Fund delayed a $640 million loan installment.


Dart Sells Oil Stakes To Sowerby And Benodet

· US billionaire investor Kenneth DART on Monday

When you need to know it as it happens




December 21, 1999

Intercon's Daily

sold his stakes in three subsidiaries of Yukos, Russia's second-largest oil producer, to Cyprus-based Sowerby Enterprises Ltd. and Benodet Investments Ltd., according to The Moscow Times. DART previously controlled more than 25 percent in Yuganskneftegaz, Samaraneftegaz, and Tomskneft. The size of the transaction, which has been not disclosed, was expected to exceed the market value of the whole of Yukos at the beginning of last week, about $120 million. Rumors of the sale boosted Yukos' shares to almost $265 million. DART had sued Yukos earlier for violating shareholders rights, in a dispute regarded as crucial in determining the rights of minority shareholders in Russia. The oil company had threatened to dilute his stake to no more than 7 percent to 8 percent by issuing more shares. DART had accused Mikhail KHODORKOVSKY, the controller of Yukos, of devaluing the companies subsidiaries and destroying shareholder value. In one particular case, Yuganskneftegaz, part owned by Yukos, was forced to sell its oil at a fixed ruble rate to Yukos, which would then re-sell the oil at market prices and the use of its revenues as it saw fit.

Today, Yukos said it will acquire the stakes sold by DART before year's end. It said it will purchase 25 percent of Yuganskneftegaz, 27 percent of Samaraneftegaz, and 23 percent of Tomskneft from the companies Sowerby Enterprises Ltd. and Benodet Investments Ltd. Yukos said it produced 40.7 million tons (297.1 million barrels) of oil in the first 11 months, compared with 41 million tons in the same period in 1998.

would like to be paid $76 per 1,000 cubic meters of gas. The Lithuanian side wanted to tie the cost of gas to that of other types of heating fuel since the firm was badly hit earlier this year when sagging mazut prices led to a sharp decline in gas consumption as many clients switched over to the heavy heating oil. Lithuanian Gas will buy 1.45 billion cubic meters in 2000 from Gazprom and through intermediaries Stella Vitae and Iteralit next year as gas imports to Lithuania gradually increase to 2.5 billion cubic meters in 2005. Lithuania imported 1.955 billion cubic meters of gas in the first 11 months of the year with Lithuanian Gas purchasing 358 million cubic meters from Gazprom, some 415 million from Stella Vitae and another 220 million from Iteralit.

Latvia's Trade Ties Look Westward

· Latvia's 10-month trade deficit narrowed, year-on-year, with imports dropping faster than exports, as the country continues to re-orient trade westward following the Russian financial crisis in 1998. According to the statistical office, during the period of January to October the trade shortfall stood at 547.4 million lats ($934.7 million) compared with 652.9 million lats for the same period in 1998. Imports for the period totaled 1.388 billion lats, some 10.9 percent lower, year-on-year, while exports came to 841.0 million lats, a fall of 7.1 percent. The data showed Russia, once the largest trade partner with Latvia, ranked fifth as an export destination accounting for only 6.7 percent of the total, down from 13 percent for the same period last year. Imports from the European Union were down slightly, but still accounted for 55.2 percent of the total and exports grew to 62.8 percent from 55.4 percent. Exports to the Commonwealth of Independent States fell 12.0 percent, down by nearly half, year-on-year, with imports easing to 14.4 percent from 15.5 percent. Latvia's main export products were timber at 37.6 percent of the total, textiles at 15.8 percent and metal and metal products at 11.3 percent. Its main imports were machine tools and machinery (22.1 percent), chemical products (12.1 percent) and minerals (10.4 percent) and vehicles (9.8 percent).

South Caucasus & Central Asia

Georgia-Russia Defense Ministers Meet

· Georgian Defense Minister David TEVZADZE is meeting with his Russian counterpart Igor

European Republics

Lith. Gas-Gazprom Sign Six Year Agreement

· State-owned utility Lithuanian Gas and Russia's gas monopoly Gazprom on Thursday signed a six year natural gas supply deal. "The price for the gas in the first half of next year will be fixed and for the next 18 months it will be calculated according to the mazut [heavy fuel oil] price in Rotterdam," Kestutis SCHUMACHERIS, the director general of Lithuanian Gas said. He declined to provide any further information on gas pricing for the next half saying only, "it will not be higher than in 1999." After two years, the prices may be re-negotiated, he added. The Economy Ministry said last week that Gazprom

When you need to know it as it happens




December 21, 1999

Intercon's Daily

SERGEYEV in Moscow today. The talks will focus on the formation of Georgian-Russian joint commission for realization of the withdrawal of Russian military bases from Georgia, made at the November Istanbul Summit of the Organization for Security and Cooperation in Europe (OSCE). At that summit documents were signed calling for Russia to withdraw from Vaziani and Gudauta military bases in Georgia before the end of 2001. TEVZADZE and SERGEYEV will also discuss the issues connected to the hand-over of Russian military establishments situated at Georgian territory to Georgian defense ministry and fate of Georgian military exhibits and military equipment detained by Russian customs workers in Sheremetyevo-2 airport last month. Ahead of the meeting, head of Main department for international military cooperation of Russian Defense Ministry Leonid IVASHOV said that the Ministry can not confirm the bombing of the village of Shatili by the Russian Airforce. He also stressed that "specialists must clear the given issue." He added that Russian paratroopers will not be dropped on Georgian territory. Regarding Friday's operation by Russian paratroopers on the territory of Chechnya, nearby the Russian-Georgian state border, IVASHOV expressed hope that Tbilisi would "understand the actions" of Russian Federal Forces, which closed the Chechen portion of Russian-Georgian border, preventing Chechen gunmen from entering Georgian territory. TEVZADZE is also in Moscow to attend a session of the Council of Commonwealth Independent States' Defense Ministers

Dragon Borrows $60M For Caspian Develop.

· Dublin-based oil producer, Dragon Oil Plc., signed and agreement with the European Bank for Reconstruction and Development (EBRD) today for a $60 million loan to develop Caspian Sea oilfields. The loan is to be repaid in August, 2005 and used to develop the Lam and Zhadanov fields off the coast of Turkmenistan. "The development plan to be financed through the loan includes the drilling of new wells using standard Western technology and the enhancement of production facilities," Dragon Oil

said. Oil prices have more than doubled from a 12-year low a year ago, prompting the company to rethink its policy of slowing down exploration in Turkmenistan. At the beginning of the year, Dragon decided to halve its investment in the region to $35 million in 1999. In August, Dragon's chairman said the company would step up work in Turkmenistan. Dragon replaced several executives and appointed a new chief executive, Ian BARON, to implement the new strategy.

Kazakh-US Strengthen Relations

· Kazakh President Nursultan NAZARBAYEV and US Vice President Al GORE on Monday reaffirmed relations and signed the final report of the sixth meeting of the US-Kazakhstan Joint Commission which calls for greater consular cooperation, bilateral efforts toward decommissioning a nuclear reactor, the transfer of nuclear safety technology, more small business assistance across borders, increased military contacts, and other issues. The commission also announced grants totaling $858,000 by the US Trade and Development Agency to help on energy, transportation, and gold mining projects. NAZARBAYEV stressed that Kazakhstan is reforming its trade policy to bring it in line with World Trade Organization rules and beefing up its election system to comply with the structures of the Organization for Security and Cooperation in Europe. GORE encouraged Kazakhstan to increase the role of the Baku-Ceyhan pipeline by increasing the transportation of Kazakh oil to Baku. NAZARBAYEV said Kazakhstan would require greater investment from abroad. The US is the largest source of foreign investment in oil-rich Kazakhstan. NAZARBAYEV will meet with US President Bill CLINTON today in the White House.

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

available for non-profit institutions.

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.

When you need to know it as it happens