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

Monday, December 6, 1999

that Chechen fighters would shift the war into terrain unfavorable to the Russian troops. He said, "We will fight using the tactics of guerrilla war. Largely retreating from the cities and towns, we will pull Russian troops into the mountains."

Moscow Chief Of Police Fired

· Russian President Boris YELTSIN, from his hospital bed on Saturday, fired General Nikolai KULIKOV from his posts as deputy interior minister and Moscow's police chief. A terse presidential statement did not give a reason for the dismissal. Interior Ministry spokesman Oleg AKSYONOV said KULIKOV was dismissed for the unsatisfactory work of the Moscow police department and "numerous mistakes in its organization." An administrative review showed that the Moscow police force were unable to prevent terrorist acts.

Moscow Mayor Yuri LUZHKOV on Sunday said he would seek KULIKOV's reinstatement through the courts. The Mayor claims that KULIKOV's dismissal violated the Constitution and manifested a disregard for the position of city authorities. LUZHKOV was not consulted and did not give his consent for the sacking. He said, "it was a political action, not a check on the competence of the Moscow police chief." He also added this action to the list of several other claims that the Kremlin has launched an offensive against him and his Fatherland Party. KULIKOV has been replaced by Major General Viktor SHVIDKIN, He was in charge of police in Moscow's northwestern administrative district.

Russian Federation

Politics

Refugee Massacre Outside Grozny

· RFE\RL Newsline has reported that Russian Federal troops slaughtered 40 refugees at point blank range on the outskirts of Grozny. A wounded survivor described the massacre to reporters saying that masked Russian troops had opened fire on a column of civilians fleeing the city in buses and cars. She said, "They shot from their rifles right at point blank. They checked the cars. They saw that dead people were lying there. They did not explain anything. They were all in masks, and so satisfied, as if that was the way it should be. I do not know such cruel people, that everyone had to die." She added that soldiers were wearing the badges of the Russian OMON special police. If confirmed, this would be the first such large-scale massacre by troops on the ground. The Defense Ministry said it could not be blamed for the attack because their forces had not yet entered that area. Russian news agency RIA quoted Alexander VEKLICH, a spokesman for Russia's North Caucasus forces said, "This information is a total lie."

Conflicts in information is also being reported on the number of casualties from the Russian military offensive. The military has denied reports of heavy casualties. However, Major General Sergei MAKAROV, said the army was short of man power. The military has been sending in conscripts who have only served six months in the army. That practice contradicts promises that only trained soldiers, with at least a year in service, would be sent to Chechnya.

Russian artillery shelled Grozny and warplanes dropped bombs, targeting ammunition depots, rebel command headquarters and communication centers. Chechen President Aslan MASKHADOV warned

Today's News Highlights

Russia

Safra's Death By Rus. Mafia?

Oil Director Killed In Moscow

European Republics

Rus-Ukraine Talk On Gas Transit

Estonia Sees Economic Growth

South Caucasus & Central Asia

Russian Threat Spreads South

Uzbek Parliamentary Elections

Kazakh Receives $160M

Kazakh-US Commission To Meet

Politics-Economics-Business

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December 6, 1999

Intercon's Daily

Safra's Death Linked To Russian Mafia?

· Syrian-born international financier and founder of the Republic National Bank of New York, Edmund SAFRA was killed Thursday, after two masked men broke the tight 24-hour security surrounding his penthouse apartment in Monaco and set it a blaze. Police believe SAFRA died from suffocation after seeking safety in a bulletproof bathroom. Suspicions of a contract killing have led investigators to speculate that SAFRA had crossed elements of the Russian Mafia. SAFRA's Republic National Bank of New York had been closely working with the US Federal Bureau of Investigation (FBI) on suspected Russian money laundering operations. Leigh ROBERTSON, general manager of SAFRA Republic Holdings, which controls the financier's European operations told the Financial Times, "In August we noticed something unusual in one of the bank accounts and alerted the US authorities." The bank's assistance with the FBI led to the investigation of a Russian money laundering scheme at the Bank of New York. SAFRA's bank had also closed or was closing most of its Russian accounts. It had suffered from big trading losses in Russia due to the financial crisis in 1998. When asked about the possibility of Russian Mafia involvement, Monaco's prosecutor general Daniel SERDET, laughed and said there is, "no evidence to suggest that." However, US and British law enforcement officials suspect the killing is linked to providing information on the Russian money laundering scandal. SAFRA, although an honorary chairman of the bank, had a hands-on approach to the affairs of his financial institutions. Therefore, anyone holding a grudge because of alleged or threatened exposure of their banking activity would have directed their vengeance at him personally, the Financial Times reported. The latest news, reports that SAFRA's male nurse admitted to lighting the fire, in an act of revenge against another staff member. He said he did not intend to harm or kill SAFRA.

Economy

Ruble = 26.01/$1.00 (NY rate)

Ruble =26.83/$1.00 (CB rate)

Ruble = 27.41/1 euro (CB rate)

EBRD To Increase Investment

· The European Bank For Reconstruction and Development's (EBRD) president Horst KEHLER, after meeting today with Russian Economics Minis

ter Andrei SHAPOVALYANTS, said that bank plans to increase the volume of its investment to $400 million to $600 million in 2000 and up to $1 billion in 2003. The total EBRD investment his year will reach $180 million to $190 million. The amount of investment KEHLER notes will depend on the improvement in the business environment which is unfavorable for foreign companies now. According to him, the problems encountered by companies are the impossibility of predicting the normative base, state interference and corruption. He said, "The investment climate is not improving. And Chernogorneft is an example of it even deteriorating." The sale of Sidanko subsidiary Chernogorneft went against the wishes of some shareholders and creditors, in which proceeds of the sale went to pay debts to the EBRD and other creditors. KEHLER will issue a protest to Prime Minister Vladimir PUTIN, calling for, "a thorough review of this [bankruptcy] process to figure out what went wrong and who was responsible." Nevertheless, the EBRD confirms its support for Russia.

Russian Economic Indicators

· Deputy Tax Minister Mikhail MOTORIN said on Thursday that Russia's budget revenues in November were over 60 billion rubles. This is a 9.3 percent increase over the October level. MOTORIN also predicted that budget revenues in December would remain at this level. He noted that the largest portion of revenues was collected by the Tax Ministry. In October, budget revenues reached 54.9 billion rubles or 13.1 percent of the gross domestic product. The budget surplus in October was 1.9 billion rubles. Russian gold and currency reserves decreased by 1.7 percent and amounted to $11.6 billion in the period from November 19th to 26th, according to information of the Department of External and Public Relations of the Central Bank.

Business

Russian Oil Man Killed By Gunmen

· Director of Russian oil company Georesurs Alexander YASHCHENKO, two of his bodyguards and his driver were shot to death on Friday while traveling on Moscow's Kiev Highway. Unidentified gunmen standing on an overpass opened fire on YASHCHENKO's car and them rushed down to the car to finish the deal. The gunmen surrounded the car and fired a few more rounds. The motive is unclear, but is suspected of being related to the oil

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business. Georesurs is based in the Siberian city of Khanty-Mansiisk, the heart of one of Russia's most oil-rich regions and home to several oil companies.

damage caused by snowstorms, which erode ground underneath a 60-meter portion of the Baku-Supsa pipeline. According to Vice-president of Georgian International Oil Corporation Irakli KELBAKIANI, all the necessary repair works have already been completed. In addition, concrete barriers were build around the pipeline in the flooded area. Georgian President Eduard SHEVARDNADZE, Azerbaijan International Operation Consortium president David WOODWARD and president of Georgian International Oil Corporation Giorgi CHANTURIA met on Friday in Tbilisi to discuss the pipelines. Today, SHEVARDNADZE said Georgia has planned to double the security of Baku-Supsa pipeline from natural calamities. He believes that planners of the pipeline made a mistake by not considering the security of the pipeline from natural calamities as necessary.

Threat Of Russian Offensive Spreads

· Georgian President Eduard SHEVARDNADZE said that if Russia's military offensive against Chechen terrorists extends into Georgian territory it would mean an aggression against a sovereign, independent state. He said there are no reasons for Russia to take such steps. The President said that the Russian government does not plan to take aggressive actions against Georgia as "it would be suicide for Russia, as aggressors always end their history badly." Georgian President believes that Russia does not wish to have an image of an aggressor at the end of the Millenium. Russian Foreign Minister Igor IVANOV said, "Russia is interested to see the Caucasus as a zone of stability, prosperity, and security." He added, "The North Caucasus is a pressing issue. It is a zone of increased instability, with a lot of conflicts demanding regional cooperation between states to look for ways to resolve problems and create a system of regional stability. The US State Department on Friday, however, expressed great concern that the conflict could spread from Russia to Georgia and oil-rich Azerbaijan. The Georgian Foreign Ministry reiterated today that there is no threat to Russian diplomats and their families in Tbilisi. Comment: While IVANOV's comments are reasonable and a true assessment of the current Caucasus situation, Russia's actions do not reflect their peaceful intentions. Since the Russian military campaign against Chechen rebels, Russia has bombed two Georgian villages, Omalo

European Republics

Ukraine-Russia Discuss Gas Supplies

· Ukraine's state oil and gas company Naftogaz Ukrainy on Friday said that it expects to receive 31.5 billion cubic meters of Russia gas in 1999, as payment for Russia's gas transit across Ukraine's territory. Head of the company's economic department Volodymyr YENA said Ukraine had initially expected only 30 billion cubic meters of gas. He said Russia may cut its transits to Europe across Ukraine by 10 to 15 percent in 2000, Russian gas monopoly Gazprom has opened the Rus-Belarus pipeline. Gazprom, however, predicts that exports via Ukraine will drop from 90 percent to 30 percent, according to a company board member Yuri KOMAROV. He said, "It is abnormal that 90 percent of Russian gas exports are done via one country, which takes liberties as regards its obligations." YENA did not predict the volume of gas payments for transits in 2000. Ukraine's transit tariffs for Russian gas have been worth $1.09 per 1,000 cubic meters transported over 100 kilometers. Ukraine needs about 75 billion cubic meters of gas per year. Domestic production totals 18 billion cubic meters, with the rest coming from Russia.

Economic Growth Returns To Estonia

· Economic growth returned to Estonia for the first time since the Russian financial crisis in August 1998. The State Statistics Office said, "After a period of decline of three quarters we can see a growth tendency in our economy. In the fourth quarter of 1998, gross domestic product fell 0.7 percent, dropped further in the first quarter by 5.6 percent, and fell 2.3 percent in the second quarter. In the third quarter of 1999, gross domestic product was up 0.2 percent year-on-year in July to September. This is the first economic growth reported by any of the three Baltic states, since the Russian crisis.

South Caucasus & Central Asia

Baku-Supsa Oil Transit Resumes

· The transportation of early Caspian oil via the Baku-Supsa route resumed on Sunday. Transport of the oil was suspended on November 20th due to the

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and Shitili, and invaded Georgia's airspace to attack targets in Chechnya. These actions speak louder than the Foreign Minister's words and lead the US to be skeptical of Russia's military aims.

Uzbek Election Turnout Reaches 93 Percent

· The Uzbek Central Election Commission reported today that turn out for the Uzbek parliamentary elections on Sunday totaled more than 93 percent of the nation's 12.7 million electorate. Only a 50 percent turnout was necessary to make the election valid. All seats were contested in single-mandate constituencies. Five political parties, none of which is in opposition to the country's leadership, participated in the poll. They include the People's Democratic Party of Uzbekistan, Justice Social Democratic Party, the Progress of Fatherland Party made up of mostly entrepreneurs, the Selflessness National-Democratic Party ,and the small National Renaissance Party. The Organization Security and Cooperation in Europe (OSCE) sent only a 17-person assessment mission, rather than a fully-fledged observer mission, saying that given the ban on two opposition parties the election process could not be considered democratic. The organization noted that there had been, "restrictions on the fundamental freedoms necessary for the emergence of genuine opposition." The 250-seat parliament plays only a minor role in President Islam KARIMOV's stronghold on the government. It is mostly a rubber-stamp chamber. Head of the OSCE's Limited Assessment Mission Madeleine WILKENS said, "The commitments for a free, fair, equal, transparent and accountable election were breached." Uzbek authorities say it will take decades to fully implement the democratic process and that KARIMOV's rule is designed to counter security threats posed by ethnic tensions and religious extremism.

Kazakh To Receive $160M In EBRD

· Kazakh President Nursultan NAZARBAYEV on Friday in Almaty met with the European Bank for Reconstruction and Development's (EBRD) president Horst KEHLER to discuss financial cooperation

and assistance. Both sides signed an agreement whereby EBRD will advance loans totaling $160 million to Kazakhstan's railways and energy sectors and Kazakhtelecom. The Kazakh President said, "The further cooperation with the Authoritative bank has great prospects. Kazakhstan will continue an active policy of the liberalization of economic and finances...Bearing in mind these are beneficial credits given for a period of seven to ten years, naturally, they are profitable for us." The EBRD has given a positive assessment of the market reforms in Kazakhstan. NAZARBAYEV noted that Kazakhstan ranks amongst the world's top 20 on the amount of direct investment and its is the first in the Commonwealth of Independent States on the amount of direct investments per capita.

NAZARBAYEV also met with the Foreign Investors' Council. He predicted that gross domestic product should increase by 1 percent in 1999, compared with a fall of 2.5 percent in 1998. He further noted that gold and foreign currency reserves are rising and that the national currency is stable, but also conceded that economic recovery could be jeopardized by the negative trade balance or by acute social problems.

US-Kazakh Commission To Meet In Washington

· US Vice President Al GORE announced that the US-Kazakhstan Commission will meet in Washington on December 20th. GORE and Kazakhstan's President Nursultan NAZARBAYEV will chair the session and review the Commission's work in areas such as security and defense, economic and political reform, and trade and investment. GORE and NAZARBAYEV will also hold one-on-one meetings on matters of bilateral concern. The US and Kazakhstan established the Commission in November, 1994. The Commission meets once a year, alternating between Washington and Almaty. It is composed of working groups on political and security issues, economic reform, defense, environment, science and technology, and business development. The Commission last met in Kazakhstan in November, 1998, led by Ambassador Stephen SESTANOVICH.

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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