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

Friday, December 3, 1999

Russian Federation

Politics

Unity's Population Rises, Controversy Erupts

· According to a Public Opinion Foundation poll published on Thursday, the ratings of interregional and pro-Kremlin bloc Unity jumped from 8 percent to 14 percent within the past week, Interfax reported. Experts at the foundation believe that the movement's popularity was boosted by Prime Minister Vladimir PUTIN's statement that he personally will vote for Unity. The bloc ranks second behind the Communist Party, which has retained its 21 percent share of voter support for the December 19th parliamentary elections, while the Fatherland-All Russia (OVR) alliance is third, with its support dropping by 1 percentage point to 10 percent. Yabloko continues to have 8 percent support, while backing for the Union of Rightist Forces fell by 1 percentage point to 4 percent. Support for ZHIRINOVSKY's bloc remains at 4 percent. A party or bloc must win at least 5 percent of the vote to gain seats in the parliament.

Meanwhile, former prime minister and leader of OVR Yevgeny PRIMAKOV on Thursday said that Kremlin officials are trying to bribe his allies away form his political movement. OVR was created by PRIMAKOV and Moscow Mayor Yuri LUZHKOV as an anti-Kremlin political bloc. He said, "We have evidence, and with this evidence we will appeal to the Central Election Commission, the Prosecutor General's office, and international organizations, demanding accountability from those who give and those who take." He added that "there is no end to the dirty machinations" being used against the OVR. The Kremlin has not responded to the charge. PRIMAKOV said, "Coordination and organization [of this pressure] is handled by Alexander MAMUT, who calls himself an advisor to presidential administration head [Alexander] VOLOSHIN." MAMUT is also an oil

businessman. In addition, OVR's deputy head of the campaign Sergei YASTRZHEMBSKY accused the Kremlin of making "very lucrative proposals" to his candidates so that they would withdraw from the race. He said that candidates were offered large amounts of money, apartments in Moscow and St. Petersburg, and career promotions. OVR campaign manager Georgy BOOS maintains that OVR's enemies are aiming to get 25 percent of OVR candidates to withdraw so that the entire alliance will be forced to drop out of the State Duma elections

Explosion Leaves Thousands Without Gas

· The gas pipeline explosion which occurred on Wednesday on a pipeline between the central Russian region of Tatarstan and the western Ukrainian city of Uzhgorod has left approximately 24,000 people without gas supplies. Investigators believe an explosion first ripped through one of the eight branches of the pipeline, setting off a blast in a second branch, and badly damaging a third one, Itar-Tass reported. Emergency Ministry spokesman Vasily YURCHUK said that the explosion sent flames up 50 yards high and left two craters four yards deep and 24 yards wide. He added that the cause of the blast still remains unclear, but investigators have not ruled out sabotage. A spokesman for Gazprom, which runs the pipeline, said repairs would be completed today and a reserve pipeline will be used until the section is fully operational.

Russia Takes Argun? Casualties Rise

· Russian First Deputy Chief of General Staff Colonel General Valery MANILOV

Today's News Highlights

Russia

Romania Links To Soyuz Pipes

Tyumen On Chernogorneft Sale

European Republics

Latvia Passes 2000 Budget

Ukraine Hostile To Investors

South Caucasus & Central Asia

Rus Foriegn Min. Evacuation?

Putin Meets With CPC

Uzbek Parliamentary Elections

Politics-Economics-Business

Page

Friday

December 3, 1999

Intercon's Daily

said today that Russian forces have taken the strategic town of Argun, located just 6 miles outside of Grozny. Troops at dawn were beginning operations to clear it of Chechen rebels. General Gennady TROSHEV on NTV television said his forces were being welcomed by local people, although a long burst of machine-gun fire could be heard in the background. Chechen sources as saying that fighting around Argun is continuing. The rebels are well equipped with anti-aircraft systems, mortars, grenade launchers, and other small arms, but have small numbers of tanks and armored vehicles. Fighting was particularly intense around Grozny, Sahli, and Urus-Martan. Casualties in the campaign are rising. MANILOV said that the rebels had lost 100 men in Argun, while Russian losses were 34 wounded and four dead. These figures could not be confirmed. The Chechens, however, claim that 150 Russian soldiers had been killed. The Associated Press reported that up to 250 Russian soldiers were killed today when rebels surrounded their unit in a surprise attack near Urus-Martan. Ali DUDAROV, deputy interior minister of Ingushetia said a Russian officer told him that some 200 officers were killed in the attack and 50 more, who had been taken prisoner, were executed by having their throats slit.

A meeting of 19 NATO Defense Ministers issued a joint statement calling on Russian President Boris Yeltsin to end the "disproportionate and indiscriminate" use of force in Chechnya. The statement also called for urgent steps to reach a political solution to the conflict, in compliance with YELTSIN's commitment at the OSCE summit in Istanbul. The Council of Europe's designated commissioner for human rights Alvaro GIL-ROBLES after talks with Foreign Minister Igor IVANOV said, "it is obvious" that human rights violations are taking place in Chechnya. He said it is imperative to stop the war as soon as possible and begin a political dialogue.

Romania Links Up With Soyuz Pipeline

· Romania today celebrated the inauguration of a natural gas pipeline with an annual capacity of four billion cubic meters, liking up to the Ukrainian section of Russia's Soyuz gas pipeline. Romania's President Emil CONSTANTINESCU said at the opening ceremony, "This link will help us ensure a constant gas flow to this part of the country," Romania's northwest border with Ukraine. He added, "The

pipeline will also open an opportunity for Russia to export its gas to Yugoslavia, Austria, and Hungary through Romania." Romania financed the construction of the 38 kilometer pipeline. Earlier this year, Russia and Romania reach an agreement on the development of transit pipelines for natural gas across Romanian towards Greece, Macedonia, and Turkey by 2001. Russia then will be able to double its gas exports to Europe to reach 14 billion cubic meters annually. Romania has also committed itself to build a 200 kilometers pipeline in its southeastern region of Dobrogea, linking Ukraine's pipeline network to Bulgaria. Romania's annual gas output stands at some 15 billion cubic meters.

Economy

Ruble = 26.68/$1.00 (NY rate)

Ruble = 26.78/$1.00 (CB rate)

Ruble = 26.83/1 euro (CB rate)

Jun Jul Aug Sep Oct Nov

Duma Passes Draft Budget In Final Reading

· The Russian State Duma today passed the 2000 budget in its fourth and final reading in a vote of 308 to 52 with three abstentions. The budget, which will be sent to the Federation Council for a vote on December 22nd, passed despite a heated debate over tax havens. Deputies reached a compromise with the government to limit benefits for the ZATOs (Closed Administrative Territorial Districts). The government said the ZATO tax breaks, offered in the past to help the economies of areas deemed strategically important, could have cost the budget 40 billion rubles. The budget targets spending at 855.1 billion rubles ($26.7 billion at the projected exchange

When you need to know it as it happens

Politics-Economics-Business

Page

Friday

December 3, 1999

Intercon's Daily

rate of 32 rubles per dollar in 2000) and revenues are predicted to be 797.2 billion rubles, leaving a deficit of one percent of gross domestic product. On Monday, the Duma easily passed the draft budget in its third reading. Deputies voted 281 to 48 in favor of the draft budget. An extra session approved each article by article for next year expenses.

Business

Tyumen Defends The Chernogorneft Sale

· Chief executive of Tyumen Oil Company Simon KUKES on Wednesday defended the purchase of Sidanko subsidiary Chernogorneft last Friday for $176 million, by saying that its close understanding of the Russia's laws gave it an advantage. Chernogorneft creditors and shareholders have criticized the sale at a bankruptcy auction because they believe Chernogorneft's debts could have been restructured. KUKES denied that his company had broken any laws. "No. What people don't understand is that Russian law is sometimes controversial, and we have an excellent legal department." He added that criticism of the Chernogorneft purchase reflected a general anti-Russian feeling in Western public opinion. The sale was deeply protested by BP Amoco, the Harvard University Endowment, the Soros Management Fund, and the European Bank for Reconstruction and Development (EBRD), which called the sale a sham. KUKES repeated offers to enter into alliances with Chernogorneft investors to ensure they do not suffer any losses. He also expressed the opinion that serious foreign investors should not pull out of Russia. BP Amoco has avoided any comment on KUKES' proposal, but has said that it will totally re-evaluate its position in Russia. Tyumen in 1998 produced 395,000 barrels of oil per day. KUKES wants that figure to reach 800,000 within a year and a half. He also said that Tyumen's strategy will focus on business developments in Russia and possibly Ukraine and Belarus.

Abramovich Calls For More Business Influence

· Controversial and media-shy Russian business tycoon Roman ABRAMOVICH, who is running for a parliamentary seat in the Far Eastern autonomous region of Chukotka, in a rare interview with Vedomosti said that Russian major businesses should increase their influence over the government. The young businessman holds about 50 percent of outstanding

shares in Russian oil company Sibneft. He said, "What is favorable for Russian businesses should be favorable for the Russian government." He added that, "Russian business is interested in a stable Russia. We are investing money here. Therefore, it is in our interest to keep Russia strong and stable." ABRAMOVICH noted that business contacts and networks can be very helpful to push politicians toward economic reforms. He said, "I can't say that there is a market economy in Russia yet. Therefore, [political] connections are very important." It should be noted that oil-to-media tycoon and Kremlin insider Boris BEREZOVSKY, a known friend of ABRAMOVICH, is also running for a Russian State Duma seat. Many believe their motivation to become involved in politics is really based on the need to cover themselves from investigation and arrest with the protection of deputies' immunity.

European Republics

Latvian Parliament Passes Budget

· Latvian lawmakers on Wednesday approved the 2000 budget in its final reading by a vote of 61 to 31. Expenditures are projected to be 1.433 billion lats ($2.43 billion) and revenues at 1.366 billion lats, resulting in a deficit of 2 percent of the expected gross domestic product (GDP). Defense spending increased to 44.05 million lats, or 1.1 percent of GDP. As the session took place, protesters, including striking teachers, demonstrated outside the parliament against the bill.

WB Reviews Ukrainian Reforms

· World Bank acting director for Ukraine Lily CHU on Thursday said hat Ukraine could receive as much as $800 million in loans in 2000, if it fulfills its reform promises. She said, "We would expect in the low case scenario perhaps $100 million in lending, perhaps as much as $200 million in that case. It could go up to a range of lending that might reach as high as $800 million if reforms are very active." CHU said that the World Bank and Ukrainian government have been negotiating up to 30 more possible projects in a range of sectors, including an $18 million energy efficiency project for the Kiev area, set for approval in January. However, the World Bank is urging newly re-elected President Leonid KUCHMA to act swiftly on his reform promises. CHU also pointed out that Ukraine is one of the most hostile places for foreign

When you need to know it as it happens

Politics-Economics-Business

Page

Friday

December 3, 1999

Intercon's Daily

investors throughout the former Soviet Union due to slow reforms, complex regulations, and tax laws. She said that Ukraine requires investors to follow too many licenses regulations and inspections, and a complicated tax system.

South Caucasus & Central Asia

Russian Foreign Min. Considers Evacuation

· Itar-Tass news agency reported that the Russian Foreign Ministry is considering removing personnel and their families from Georgia because of the threat of terrorism against the Russian Embassy in Georgia. The Georgian Foreign Ministry denies that there is any evidence of terrorism against the Russia Embassy. The Georgian side has asked for clarification. Russian Ambassador to Georgia Felix STANEVSKY said he can neither confirm, nor deny reports on the possible evacuation of the families of Russian diplomats from Tbilisi, Prime News Agency reported. Georgian deputy head of Government Security Service Zaur KELAPTRISHVILI said security of the Russian Embassy in Tbilisi and Ambassador's residence had been doubled in Mid-November, after an appeal from Russia. Russia explained the need for strengthening security due to supposed reports on possible provocation by Chechen gunmen. This includes a Chechen attempt to stage an acquisition of arms from the Russian military base at Vaziani.

Comment: This appears to be another example of Russia's disinformation campaign which portrays Georgia as a dangerous place for Russians and that Georgia is aiding the Chechen rebels. The cumulative effects of these stories is to encourage attempt anti- Georgian sentiments in Russian and provide a possible condition for more drastic actions.

Putin-CPC Discuss Pipeline Construction

· Russian Prime Minister Vladimir PUTIN on Thursday met with the Caspian Pipeline Consortium's (CPC) largest shareholder companies to discuss progress on the construction of the pipe

line being built from Kazakhstan to the Black Sea port of Novorossiisk. The pipeline will transport oil pumped by Chevron at the Tengiz oil fields in western Kazakhstan and is scheduled to be operational in October, 2001. The pipeline will have a capacity of 560,000 barrels per day. He said that the project was of crucial economic and geopolitical importance to Russia. The Prime Minister promised to fix import problem that are inhibiting construction of the $2.3 billion pipeline. Representatives of the CPC said strict currency controls set by Russia's Central Bank are complicating the consortium's ability to import equipment and could soon cause serious delays in the construction. The operating company is subject to currency controls that require importers to receive their goods within 90 days of making payment. The Wall Street Journal reported that much of the custom-made equipment used by the CPC takes nine to 15 month to build and deliver. Russia expressed its desire to use the pipeline to transport Azeri oil. Consortium members were reluctant to discuss this possibility. Vagit ALEKPEROV, head of Russia's LUKoil company, said, "We believe that for the coming 10 or 15 years two pipeline¾Baku-Supsa and Baku-Novorossiisk¾are enough to carry all oil extracted on Azeri territory."

Uzbek Parliamentary Elections On Sunday

· Uzbekistan is gearing up for parliamentary elections scheduled for Sunday, which analysts regret will do little to bring the Central Asian state out of isolation. Five parties are contesting the election to the 250-seat single chamber Oli Mazhlis parliament, all of which are perceived of having ties with Uzbek President Islam KARIMOV. The parliament has few powers to challenge KARIMOV. Many opposition leaders have been jailed, exiled, or threatened not to run. Mikhail ARDZHINOV, head of Tashkent-based Independent Agency for Human Rights said, "We cannot expect an authoritarian regime to hold democratic elections. First, the Oli Mazhlis is a servant of the executive, second, all the parties are pocket organizations and third, the election campaigning puts even Soviet-era election to shame."

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

Politics-Economics-Business

Page