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

Thursday, December 23, 1999

who were studying in a nearby tent. The Washington Times reports that the train stopped about three miles away for a few hours. When officials tried to move the locomotive, refugees stood in front of the tracks. Russian soldiers then fired warning shots above their heads and the tracks were cleared. The Emergency Ministry towed about 36 cars to Chechnya on Saturday with only a few refugees inside. Refugees said they do not want to return home because they fear fighting; they claim soldiers beat and kill civilians and have looted the abandoned towns and villages. In the Sputnik Camp near the border, a letter from Russian generals explains which regions are safe for residents to return. Camp officials said that refugees from those areas will no longer be entitled to food rations.

General Anatoly KVASHNIN, the chief of General Staff, has ordered an investigation into reports that Russian troops killed 41 civilians in the village of Alkhan-Yurt. The Defense Ministry said, "We have denied everything. Now there are checks going on but it is not a formal investigation." Malik SAIDULLAYEV, the head of the pro-Moscow State Council of Chechnya, a native of Alkhan-Yurt, told Interfax he had pictures and video footage of the killings as well as eyewitnesses. "Those responsible will have to face trial. It has to be done if the federal authorities and the country's leadership really want to win the trust of the Chechen people." Moscow's main envoy to Chechnya, Nikolai KOSHMAN, said the reports were not true.

Russian Federation

Politics

Organized Crime Funding US Campaigns

· The Washington-based non-profit group, the Center for Public Integrity, released a report earlier this week connecting Russian organized crime leaders to US political campaign contributions, the Financial Times reported. Their report has fueled concerns that money from Russian organized crime could be finding its way into the US political system, in an effort to win influence. The group has uncovered evidence that through his businesses Semyon KISLIN contributed $46,250 to Rudolph GIULIANI, the Republican Mayor of New York, in 1993 and 1997, and $8,000 to New York Democratic Senator Charles SCHUMER in 1998, as well as several other US political figures. KISLIN, who was identified by the Federal Bureau of Investigation as a crime member, also helped organize fund-raisers for GIULIANI's campaign. Jacob BOGATIN, an associate of suspected criminal Semyon MOGILEVICH, made donations to the National Republican Congressional Committee between 1996 and 1998. Election records show he contributed at least $2,750 to the Republican campaign, sometimes under the name of YBM Magnex, founded by BOGATIN and MOGILEVICH and closed down by US authorities for securities fraud in 1998. SCHUMER's office said that a background check on KISLIN came up clean. One spokesman said, "If any of these allegations prove true, we will absolutely return the money."

Russia Pulls Railcars Back To Chechnya

· Russia began a new operation on Friday to force refugees back to Chechnya by pulling the railroad cars, provided as temporary housing, along the tracks toward the war-torn republic. The unexpected movement of the railroad cars, where 7,000 refugees were living, separated parents from their children,

Today's News Highlights

Russia

IMF Team To Visit Late January

Gazprom Cuts Moldovan Gas

Shell Fails To Meet Investment

European Republics

Ukrainian Premier Approved

Lith. Narrows Telecom Advisors

South Caucasus & Central Asia

Russia Fires on Border Guards

Georgian Statement To OSCE

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Thursday

December 23, 1999

Intercon's Daily

US-Russia Have "Substantial Differences"

· US Deputy Secretary Strobe TALBOTT described today's talks with Russian Foreign Minister Igor IVANOV and Prime Minister Vladimir PUTIN on arms control and the military offensive in Chechnya as difficult. TALBOTT was briefed by PUTIN on the Chechen conflict, which military commanders believe will be finished in three weeks. TALBOTT told reporters after the meeting, "We've got substantial differences, indeed disagreements." He slammed Russia for breaking international norms during the Chechen war and also said arms control talks would have to continue, suggesting little progress was made to close a gap between the two over the 1972 Anti-Ballistic Missile Treaty. "We want very much to see Russia deal with what is a global problem...of extremism and terrorism, but to see that Russia deals with that problem in a fashion that meets international norms. And the feeling is that this standard has not been met." TALBOTT added, "Personally, I continue to hope that the Russian authorities will find a way of dealing with this problem that maximizes the possibilities for a political dialogue." The military campaign has been sharply criticized by the West, which recognizes Russia has the right to defend itself against rebels who Moscow says are terrorists, but says it should not use disproportionate force. US Defence Secretary William COHEN on Wednesday stressed, "There has to be a political settlement and we have been calling upon Russians to do precisely that." He added, "We understand that acts of terrorism cannot go without response but...we try to indicate to Russians that they have really stepped across the bounds of the international acceptable behavior in dealing with Chechnya." He stressed that there is much at stake economically, diplomatically in relations between the US and Russia. Defense Minister Igor SERGEYEV said that relations with the NATO alliance, "have apparently entered a new phase of getting colder. The alliance is trying to talk to Russia over the problem of Chechnya from the position of force." He added, "If we do not resolve this problem on the Russian territory, tomorrow similar problems will arise most acutely in Central Asia, Europe, and other regions on a much greater scale because terrorists will believe that the world community is unable to confront them."

Yeltsin Appoints New Deputy Interior Minister

· Russian President Boris YELTSIN on Wednes

day appointed Lieutenant-General Vladimir KOZLOV to the post of Russia's First Deputy Interior Minister. Prior to this appointment, KOZLOV headed the Interior Ministry's anti-mafia department.

Economy

Ruble = 26.74/$1.00 (NY rate)

Ruble = 26.76/$1.00 (CB rate)

Ruble = 27.13/1 euro (CB rate)

Increase of Gas Supplies To Turkey

· The volume of gas transported by the Russian gas line to Turkey will increase by 3.8 billion cubic meter (bcm) to 14 bcm starting in 2002, after a new compressor station is built in Ukraine. The 48-MegaWatt (MW) compressor station in the Tarutino region will be built by a consortium of firms from Russia, Ukraine and Turkey. Gokhan YARDIM, head of Turkey's state gas and oil pipeline concern Botas said $38.9 million of the $78-million price tag of the station will be financed by the European Bank for Reconstruction and Development (EBRD), $12 million from the Commerce and Development Bank of the Black Sea Economic Cooperation and the remaining from the assets of the consortium. The station will be built by the consortium's Gaztransit company set up in Ukraine in 1998, made up of Russia's gas giant Gazprom, Ukraine's Naftogaz, Turkey's Transbalkan and Turusgas, in which Botas holds a 35 percent stake. Construction for the compressor station is expected to begin in the first quarter of 2000. It is planned to take operation in March, 2001. The existing line runs from southern Russia and passes through Ukraine, Moldova, Romania, Bulgaria and terminates at Turkey's capital Ankara.

IMF Team To Visit In January

· Russian Finance Minister Mikhail KASYANOV said that an International Monetary Fund (IMF) team is expected to visit Russia in late January. However, he predict that the Fund will not release the next loan installment until March at the earliest. The Finance Minister said the team will review the remaining steps the government should take to reform the economy. The government's 2000 budget will also be discussed in detail. The IMF has said that Russia failed to meet required conditions for the release of the latest $640 million installment of Russia's $4.5 billion loan, delayed since September.

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Thursday

December 23, 1999

Intercon's Daily

St. Petersburg Transfers Eurobond Payment

· St. Petersburg city authorities transferred a $14.17 million Eurobond interest payment due on December 18th, the local government said. The transfer of a $300 million Eurobond payment went through on Monday. "St. Petersburg has been making all coupon payments on time and in full which confirms the city's reputation as a dependable and creditworthy borrower," the city's finance committee said. The 9.5 percent bond matures in 2002. After the government abandoned its support of the ruble in August 1998, foreign debt became more expensive to pay and cities such as St. Petersburg set aside more of their ruble-denominated tax revenue, which plummeted in dollar terms, to make payments, Bloomberg News reported. St. Petersburg sold the five-year Eurobond in June 1997 during the boom in Russian stock and bond markets when regions and companies could borrow on international financial markets at favorable rates.

Business

Gazprom Cuts Supplies To Moldova

· Russian gas monopoly Gazprom has suspended gas supplies to Moldova due to the country's rising fuel debts. Moldova owes Gazprom $303 million, including $113 million in fines. Dneister, Moldova's eastern breakaway region, owes Gazprom another $485 million. Moldova-Gaz, which is 51 percent owned by Gazprom, unites the country's gas production, transportation, and refining facilities. It was set up in April in exchange for writing off $60 million of Moldova's gas debts. Many companies and plants have suspended work because of gas shortages, and households are suffering from lack of heat.

Shell Fails To Meet Russian Investment Pledges

· Royal/Dutch Shell Group has failed to fulfill plans, made two years ago, to invest about $30 million in building 25 gas stations in St. Petersburg. In the past two years, the oil company has only built five gas stations. Royal/Dutch Shell's director for planning in St. Petersburg, Alexander UTKIN, said the company's expansion was slowed by a decline in consumer purchasing power and the high cost of building a Western standard gas station. The St. Petersburg's retail gasoline market has been targeted by organized crime and witnessed a number of high profile murders in the past two years.

Gov't To Sell LUKoil Stake

· A Russian government official on Wednesday said that it will sell one percent of Russia's biggest oil producer LUKoil at a cash auction. The starting price has been set at 190 rubles per share ($7.09). The Russian Federal Property Fund spokesman said, "We have such plans. It [the sale] may happen tomorrow, to the day after tomorrow, or at the beginning of the next week." The stake includes 0.353 percent of the company unsold at a November auction of another one percent. After this auction, the state will own about 16 percent of LUKoil shares.

UES Pushes Back Subsidiary Sell Offs

· The board of directors of the Unified Energy Systems of Russia (UES) have passed a decision to delay the sell off of its subsidiaries. According to the chairman of the board Valentin ZAVADNIKOV said, the program, which was greed upon with the International Monetary Fund (IMF), will be put off from April to August. He said the decision was made in part because of the IMF's tighter stance on Russia. UES also said it was unreasonable to offer its subsidiary sell offs ahead of the presidential elections. ZAVADNIKOV doubts that managers and workers of the subsidiaries will be able to buy out their companies from the state. He added that power generating services and electric networks are most likely to go to major outside investors.

European Republics

Ukraine Approves Banker As Premier

· Ukraine's parliament Tuesday approved Central Bank Chairman Viktor YUSHCHENKO as prime minister. His candidacy was supported by 296 deputies, well above the 226 votes needed for confirmation in the 450-seat legislature. YUSHCHENKO, who advocates radical market reforms, told the chamber he would reduce government intervention in the economy, consolidate state finances and promote privatization and land reform to reinforce the gryvnia currency and attract investment. He said, "I do not want to overdramatize the situation, but these [next few] months may turn out to he Ukraine's last chance. We should recognize the fact that all these years the country has been living beyond its means." He plans to present a program of action in February or March to be titled "1,000 days." He said the plan will be a, "transparent program of

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Thursday Intercon's Daily December 23, 1999

action of the government, clear to ordinary citizens." YUSHCHENKO was President Leonid KUCHMA's second nominee for prime minister after the parliament rejected his proposal for Valery PUSTOVOITENKO to remain in the post he had held since 1997. In line with Ukraine's post-Soviet constitution, YUSHCHENKO must now present to KUCHMA his cabinet list for approval. The banker's approval boosted the gryvnia from 5.42-5.52 gryvnia per dollar to 5.15-5.18 gryvnia per dollar on Tuesday. His efforts in introducing the currency made him known as the "father of the gryvnia." One colleague pointed out, "His task now is to focus on relations with the International Monetary Fund. If everything is good with the IMF, then it will be okay with the World Bank, and creditors will treat Ukraine in a different way."

Lithuania Narrows Advisors For Telecom Sale

· The Lithuania's State Assets Fund picked three foreign banks from a short-list of seven bidders to continue talks for the position of adviser in the sale of a stake in national phone company Lietuvos Telekomas. The country's state asset sale commission chose Deutsche Bank, Dresdner Kleinwort Benson with CAIB Investmentbank, and Nomura International Plc. The winner of the tender will be announced by December 25th, said Virgilijus PODERYS, chairman of the commission. The government expects to sell its remaining 35.2 percent of Lietuvos Telekomas on international markets and on Lithuania's stock exchange. According to preliminary estimates, the sale may raise between 1.4 billion and 2 billion litas. Amber Teleholding, a venture of Telia and Sonera Oyj, owns 60 percent of Telekomas, while about 5 percent is owned by former and current employees.

South Caucasus & Central Asia

Russian Fire Wounds Georgian Border Guards

· Four Georgian border guards Armaz TSIKLAURI, Joseph MELITSKAURI, Alexander AVAKOV and Giorgi ZESASHVILI were wounded at a checkpoint along the Chechen section of the Russian-Georgian border from rocket propelled grenades coming from the Russian side. One guard said, "the first rocket shot from the rocks exploded nearby the dislocation place of the special unit of Georgian

border guard department and the second one exploded by the camp of the border guards," according to the Prime News Agency. Russian border guard official Nikolai REZNICHENKO said that the Russian border guards who landed in the Argun gorge could not have been responsible for the incident as they were still not within range of Shatili. Georgian President Eduard SHEVARDNADZE chaired a session of the country's National Security Council later on Wednesday to assess the situation on the frontier with Russia. Kakha DOPIDZE a spokesman for Georgia's border guards said an investigation has been launched. Russia has already bombed Georgian territory three times during its offensive against Chechen rebels. According to a Georgian Foreign Ministry Statement, "The Russian side has not until now found it possible to admit the facts of the repeated bombing of the Georgian territory by the Russian Air Force, still stubbornly disclaiming the obvious facts in spite of the existence of the indisputable evidence and even witness in the person of the representatives of the diplomatic corps accredited in Tbilisi and journalists." Relations between the two states have become tense after accusations by Russia that Georgia is supporting and aiding Chechen rebels, as well as harboring the Chechen government in exile and international terrorists Osma BEN LADEN. Russia this week has stated it is considering trade restrictions with Georgia to counter its decision to revoke the free trade agreement in 1994. Georgian Foreign Ministry spokesman Avtandil NAPETVARIDZE denied that the Georgian Supreme Court had annulled the agreement and noted that it is not within the court's authority to do so. Georgian parliament chairman Zurab ZHVANIA regards the Russian accusations as a, "challenge to the sovereignty and independence of Georgia." US Senator Sam BROWNBACK of Kansas said, "It is time the US Administration made it clear to Russia that US support for Georgia is unequivocal and that any further military actions and attempts to intimidate Georgia are absolutely unacceptable and will carry a heavy cost...Russia must cease and desist in its blatant attempt to bully the Georgian nation." He added, "The Russian government is using the war in Chechnya as an excuse to intimidate and punish Georgia for its demands for full independence and sovereignty; for its refusal to allow Russian troops to use its territory to wage war against innocent

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civilians; for its demands to have unwanted Russian military bases removed from its sovereign territory; for its commitment to democracy and western values; for its pro-western positions; and for its support and desire to join NATO." (See Georgian Ambassador L. MIKELADZE statement to the OSCE)

BROWNBACK stressed, "We need to make it clear that threats against Georgian sovereignty and against President SHEVARDNADZE are absolutely unacceptable." Lawmaker and member of the parliamentary committee for defense and national security Irakli BATIASHVILI believes that a terrorist act against SHEVARDNADZE may be organized before the 2000 presidential elections in Georgia because Russia is not satisfied with the political course of Georgia. According to him, Russia has already chosen a successor for the post of Georgian president. "He is not Aslan ABASHIDZE, or Jumber PATIASHVILI, he is not in Russia, but in Tbilisi." BATIASHVILI declined to name the candidate for Georgian presidency, chosen by Russia. The daily Rezonansi suggests that Russian agents posing as Chechen militants may make an attempt on SHEVARDNADZE's life.

Ferry Route Resumed

· The Baku-Aktau ferry route, suspended at the end of November, will resume operation before the end of the year, Kazakh Ambassador to Azerbaijan Rashid IBRAEV told Prime News Agency. Temporary suspension of the route was caused by the necessity of strengthening customs and border guard services in Aktau seaport. IBRAEV also confirmed that the decision was, "connected to the events taking place in Chechnya." The ferry route was suspended after the Russian Federal Security Service (FSB) announced that Chechen gunmen used the ferry for escaping from Baku to Kazakhstan. The Baku Shipping Company insists that not a single Chechen was detected among the passengers of the ferry since it came into operation.

Kazakhstan President On Boosting Oil Exports

· Kazakh President Nursultan NAZARBAYEV said that Kazakhstan has plans to increase its oil exports by almost 20 percent in 2000, to help its economy achieve growth, The Wall Street Journal reported. A rise in exports through Russia and a port project

to be completed next year, will raise the country's output from 146 million to 175 million barrels a year. Kazakhstan has also reached an agreement with China to build a pipeline, which would export 1.2 billion barrels by 2007. A Chevron-led group of governments and companies is building a $2.4 billion pipeline to take Kazakh oil to international markets through the Black Sea port in Novorossiisk, Russia. Kazakhstan has found quantities of crude on land and produces about 220 million barrels annually, about a 20 percent increase from 1998. Kazakhstan's biggest problems is finding export routes for its growing production. NAZARBAYEV has signed a protocol in Istanbul backing the Baku-Ceyhan pipeline and repeated his support for the $2.4 billion project.

Tajik Reshuffles The Cabinet

· Tajikistan President Emomali RAKHMONOV reshuffled the government on Tuesday dismissing five deputy prime ministers, while appointing three new deputy prime ministers and changing several ministers. The changes followed after the appointment of Akil AKILOV as Tajikistan's new prime minister. The new deputy prime ministers are Mirzosharif ISLOMIDINOV, former deputy governor of Leninabad province, Nigina SHARAPOVA, a department head at the Dushanbe medical university, and the former security minister Saidamir ZUKHUROV. Major-General Khairiddin ABDURAKHIMOV, formerly security chief of Khatlon province, replaced ZUKHUROV at the security ministry. Interior Minister Khumdin SHARIPOV, Emergency Situations Minister Mirzo ZIYOYEV and Defense Minister Sherali KHAIRULLAYEV retained their portfolios. Only Khodzhi Akbar TURADZHONZODA and Zakir VAZIROV, representatives from the joint Tajik Opposition, have retained their posts in the government. They joined the government in accordance with a 30 percent quota for representatives of the opposition outlined in the peace deal signed in June, 1997.

The Daily Report on Russia

and Former Soviet Republics

will not be published from

December 24th to January 3rd

for Intercon's Winter break.

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December 23, 1999

Intercon's Daily

Statement by the Head of the Delegation of Georgia to the OSCE

Ambassador L. Mikeladze at the OSCE Permanent Council Meeting

Vienna December 23, 1999

Mr. Chairman,

First of all thank you for calling today's meeting. We understand that this is not the best time for such meetings, but nevertheless, let me express deep concern of my authorities on the recent developments with regard to the situation on the Chechen segment of the Georgian-Russian border. And this concern is based on a number of reasons.

First- military operation has already come very close to the Georgian border with all its consequences

Second- violation of Georgia's air space and territory and targeting its villages and population acquires regular character. Despite a number of evidences and eyewitnesses, Russia has rejected all these facts. Just yesterday, anti-tank guided missiles were fired into the border crossing area. Four Georgian border guards have been wounded.

Third- Statements of the ministry of Foreign Affairs of Russia and certain politicians are becoming more and more aggressive, cynical and provocative. Although none, I stress none, of their accusations have any ground.

This once again proves our concern, that there are certain forces in Russia, which are interested in the involvement of Georgia in the military operation in Chechnya. Indeed these concerns as well as appeals and letters of Georgian authorities to the UN with request to assist my country in the humanitarian field have caused the irritation of the Russian Federation. In our view the appeal of one of the member states of international community to the International Organizations for assistance and co-operation should not be interpreted as a hostile action, hostile to any of the country. In our understanding, above-said is an attempt to intimidate and punish Georgia for its neutrality and impartiality, for not allowing Russia to use the Georgian territory to wage its war in Chechnya. It is also ironic that we have been accused in what Georgia never did, but Russia did in Abkhazia. Let me once again state, that Georgian border is not transparent and neither, boeviks, nor arms and finances traffic through it - no single evidence of these facts exists.

We would like to once again stress that Georgia as a sovereign state has never allowed anybody to use its territory for military operations in connection with the ongoing conflict in the neighboring country and will not allow it in future. My authorities are extremely concerned with the growing confrontation. Georgia is interested in close co-operation with Russia. How can such a small and weak country as Georgia is, be interested in the confrontation with Russia. Indeed our goal is to cut down and stop this growing confrontation. We hope that today's Permanent Council will serve to this aim.

Although, the last developments do not help to conduct the OSCE observation function, we are convinced, that the establishment of wider and more intense monitoring by the OSCE on the border will prevent further escalation of existing complex situation, will not allow anybody to provoke dangerous developments and promote mutual confidence and co-operation. In this regard we have distributed the State mend of the Ministry of Foreign Affairs of Georgia for your consideration.

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