DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Tuesday, February 1, 2000

sions into Daghestan and the apartment bombings were planned by the Kremlin, but carried out by Chechen warlords. Boris KAGALITSKY, a member of the Russian Academy of Science Institute of Comparative Politics said a source had provided him with information that the invasion of Daghestan by Shamil BASAYEV was pre-arranged with the head of the presidential administration Alexander VOLOSHIN, BASAYEV, and Anton SURIKOV, a former official belonging to the army's special services, at a meeting in France in July. [NB: In September, an article published in Izvestiya claimed that a meeting occurred between BASAYEV and members of the presidential administration at the home of Adnan KASHOGHI in Niece, France, supposedly to plan the Daghestan invasion.] It is important to note that BASAYEV and Khattab managed to escape the wrath of federal troops during the invasion. He added the apartment bombings were arranged by the GRU, which hired a gang controlled by Shirvani BASAYEV, the brother of Chechen warlord Shamil BASAYEV, to plant the bombs.

Speculation is rising that the entire military offensive was planned and has been used as a tool to influence the parliamentary and early presidential elections. Retired Colonel Alexander SHILIN, a military analysts with the weekly Moskovskiye Novosti, said, "I am absolutely convinced that from the very beginning the war was planned as a powerful and extremely cynical Kremlin PR campaign. It became clear to everybody quite a while ago that notorious [Chechen]

Russian Federation

Politics

New Truth Revealed On Chechen Actions

· Former prime minister Sergei STEPASHIN on Thursday revealed an astounding new truth about the motives and preparations of the Russian military campaign against Chechen rebels. He said that the offensive which began in September had been planned at least five months earlier, before the invasion by Chechens in Daghestan when he was still serving as the Interior Minister and acting President Vladimir PUTIN was serving as head of the Federal Security Service (FSB). STEPASHIN noted that the military action was developed, during a meeting with the inner Cabinet, army and security chiefs, after the kidnapping of a Russian general by Chechen bandits. He said that in March there was already a plan to create a, "buffer zone" occupied by federal troops in the northern third of Chechnya, as far as the Terek River. The Russian government, after achieving this position, said it was moving on with Phase II of the operation. STEPASHIN remarked that passing into the southern section of Chechnya diverged from the original plan. He said that active preparations continued throughout his term as prime minister and that he had played a central role in organizing the military build up. Some analysts believe that STEPASHIN was sacked because he was unwilling to play the Kremlin's PR war game. He said, "Terrorist camps throughout Chechnya were to be discovered and destroyed. But there was not supposed to be full-scale hostilities." He earlier said, "The plan of action in [Chechnya] was being elaborated starting in March. We were planning to reach the Terek in August to September. This would have happened even if there had been no explosions in Moscow."

Analysts are reviewing more evidence that the inva

Today's News Highlights

Russia

Babitsky To Be Questioned

Russia Hopes For WB Loans

Gazprom-UES To Restructure

European Republics

Ukrainian Rival Parliament Mtgs.

Lith To Keep Gas Majority Stake

South Caucasus & Central Asia

US To Grant $108M In Aid

UNOMIG Mandate Extended

New US Ambassador To Azeri

Politics-Economics-Business

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Tuesday

February 1, 2000

Intercon's Daily

terrorist [Shamil] BASAYEV and Khattab were puppets used by their masters in Moscow to make this war as popular as possible with the Russian public." The coincidence, that the military offensive had plans to fly a Russian flag over Grozny the day before the parliamentary elections and that PUTIN during his first day as acting president presented soldiers with military issued hunting knives, is hard to miss. STEPASHIN rejects any connection between the military action and the elections. However, he predicts the military phase will continue until Grozny has been captured within another six to eight weeks. This timing coincides with the presidential elections, precluding that PUTIN will bring peace to the region, tipping the scales of the vote in his favor.

Chechen Rebels Withdraw From Grozny

· Approximately 2,000 Chechen rebels have abandoned Grozny and broken through federal lines and escaped, as part of a tactical move. Chechen rebel spokesman Movladi UDUGOV said by satellite telephone from an undisclosed location that, "The withdrawal was carried out in an orderly fashion. They have been completely withdrawn from the city." The Chechen fighters started leaving Grozny on Monday with the exodus continuing overnight, according to rebel commanders and residents in nearby villages. Several prominent Chechen commanders were killed or badly wounded when a large contingent of rebels blundered into a minefield on the edge of Grozny. Among the Chechen commanders reportedly killed were Aslanbek ISMAILOV, who had headed Grozny's defenses, Khunkar-Pasha ISRAPILOV, and Grozny Mayor Lecha DUDAYEV. Chechen field commander Shamil BASAYEV was reportedly badly wounded when his car was blown up by a mine. Dozens more fighters were killed or wounded when Russian artillery pounded the rebel force trapped in the minefield. The rebels were regrouping in Alkhan-Kala and heading for rebel positions in the southern mountains. Others said they were heading for their native villages. Russia however maintains that the fierce fighting is still going on in the capital city. Russia's information spokesman on Chechnya Sergei YASTRZHEMBSKY said troops have captured the strategic Minutka Square¾a roundabout giving access to the center of the city. Colonel General Viktor KAZANTSEV said today, "There has been a turning-point in fighting for Grozny...The taking of this city is a matter of the nearest days." Nikolai KOSHMAN,

Moscow's top civilian representative in Chechnya, said Russia was gradually restoring "normal life" to those areas of the region under Russian control. He said, "I am not mistaken in saying that we know the huge responsibility we face [in reconstructing Chechnya]." KOSHMAN said the biggest worry was how much money it would take to rebuild Grozny. Questions are raised as to how the fighters broke through Russian lines so easily and evaded capture.

Detained Journalist To Be Questioned

· The Russian Interior Ministry admitted on Friday that Radio Liberty (RFE\RL) reported Andrei BABITSKY has been detained in Grozny for not obtaining proper accreditation to report from the war zone. BABITSKY had been missing since mid-January. Russia's acting prosecutor-general, Vladimir USTINOV, who is traveling to Chechnya to investigate the case, said that BABITSKY was being detained for 10 days beginning last Thursday. The Kremlin's official spokesman on Chechnya Sergei YASTRZHEMBSKY, however, said the issue was not BABITSKY's accreditation, but whether he had, "permission to be on the grounds of a military unit." He added that the journalist, while in Grozny, was under the protection of a rebel leader. The Russian government has accused BABITSKY in the past of backing the rebels. The journalist has been a hard critic of Russia's military campaign in Chechnya. The director of broadcasting for Radio Free Europe/Radio Liberty called the allegations against BABITSKY absurd and said the station still did not know exactly where he was. "Our position is that we think these charges are absurd and should be dropped immediately and Andrei be allowed to return to Moscow," Jeff TRIMBLE said.

Putin Appoints New Media Head

· Acting President Vladimir PUTIN has taken another step in controlling Russia's media and using it to influence the early presidential elections. He signed a decree naming Oleg DOBRODEYEV, one of the founders of NTV commercial television, to head the All-Russia Television and Radio Company (VGTRK), which runs RTR Television and Radio Russia. DOBRODEYEV replaced head of VGTRK, Mikhail SHVYDKOI, who was relieved of his duties, "in connection with a transfer to a new post." Control of Russia's three main television networks has proven to be the most decisive factor in previous elections

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in a vast country with few alternative sources of information NTV, the only major station not directly tied to the state, was the only one of the three not to join a Kremlin-scripted smear campaign against PUTIN's political rivals during the parliamentary elections in December. Andrei ZOLOTOV, a media critic at the English-language daily Moscow Times, said bringing DOBRODEYEV from NTV to the state-run media could boost the government channel's reputation. DOBRODEYEV, "is a person with an impeccable reputation in the Russian media community and somebody who has always advocated a very professional approach to news," said ZOLOTOV. However, he said it could also signal worries within the NTV management over how far it should go in challenging PUTIN, now seen as runaway favorite to win the March election, Reuters reported. "It means that DOBRODEYEV has ultimately preferred to work for the government."

Economy

Ruble = 28.55/$1.00 (NY rate)

Ruble = 28.57/$1.00 (CB rate)

Ruble = 27.79/1 euro (CB rate)

Russia Hopes To Receive WB Loans

· First Deputy Prime Minister and Finance Minister Mikhail KASYANOV is still optimistic that Russia will receive a $350 million loan from the World Bank, but realizes the funds will not likely come in February. World Bank President James WOLFENSOHN is scheduled to arrive in Moscow for talks with Russian officials. The World Bank has agreed to lend Russia a total $1.6 billion, made up of $1.1 billion from the Third Structural Adjustment Loan (SAL-3) and two lots of $250 million from a coal loan and a Social Protection Adjustment Loan (SPAL). KASYANOV said he expected tough talks on the SAL-3 loan because Russia had failed to implement necessary structural reforms. He added that the situation with the coal and social protection loan is much better. Russia has to pay about $3 billion in foreign debts in the first quarter. KASYANOV said on Monday the government had made all due payments in January and hoped to meet payments in February and March.

Business

Gazprom, UES Consider Restructuring

· Russia's gas monopoly Gazprom may be headed

for a break-up which would have a major impact on gas production, exports, the national economy, revenues and even campaign contributions. Chief executive officer Rem VYAKHIREV warned that the gas production would remain part of Gazprom, but the transport and maintenance could spin off into a separate company. Analysts believe a restructuring of Gazprom could greatly improve efficiency and competition. VYAKHIREV spoke ahead of a meeting with the Fuel and Energy Ministry to be held this month. At that meeting oil companies will discuss prospects for gaining rights to pump the gas they produce into the country's pipeline network and sell it directly, the Financial Times reported.

The board of directors of the Unified Energy System of Russia (UES) will consider a program for the company's restructuring in March. A vote to approve the program is planned to be taken at the annual shareholders' meeting in August. The restructuring could include the privatization of a number of subsidiary energy holdings. Deputy board chairman Valentin ZAVADNIKOV met with foreign shareholders from Britain, Germany, and the US. He said they expressed concern about how the rights of minority shareholders would be protected during the restructuring.

European Republics

Ukraine's Split Parliament Opens Two Sessions

· Deputies of Ukraine's parliament, which walked out of a session on January 20th after speaker Alexander TKACHENKO blocked an attempt to remove him, today will open their own session and elect an alternative speaker. Acting rebel speaker, Viktor MEDVEDCHUK, said his group will vote on its own agenda, electing a new full-time speaker, heads of committees and house-keeping issues. The rebel deputies, made up of about 243 center and right wing lawmakers, will meet in the Ukrainian House exhibition hall, while TKACHENKO presides over the remaining 180-leftist deputies in parliament. TKACHENKO's parliament will not be able to open his session and pass legislation if less than 226 deputies attend. TKACHENKO's supporters plan to ask the Constitutional Court to rule on the legality of his dismissal, but the court could take several weeks to hand down a decision. KUCHMA has announced his support for the rebel deputies and claims that the

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leftist-leaning parliament is stalling market reforms. As the conflict continues, concern is growing that the country's democracy and economy will suffer. President KUCHMA's spokesman Alexander MARTYNENKO said, "I think this issue will be resolved somehow this week."

Lithuania To Keep Gas Majority Stake

· The Lithuanian government has decided to maintain a majority stake in the state utility Lithuanian Gas. It will still seek a strategic investor to purchase a minority stake. Government spokesman Audrius BACIULIS said, "The principle notion is that when privatizing Lithuanian Gas the controlling package will remain in the state's hands." He added, "Lithuania will be looking for a strategic investor who would be able to invest $300 to $500 million into the whole sector. The investor would be granted operational rights." The proposal will be presented to the full Cabinet for approval on Wednesday. After that approval, the government will launch a tender to seek a financial adviser on the sell off, BACIULIS said. The size of the minority stake to be offered has not been determined. Earlier the government had discussed selling a roughly one-third stake through a new share issue.

South Caucasus & Central Asia

US Allocates $108M In Aid For Georgia

· The US plans to allocate $108 million in aid to Georgia in 2000. Georgian Foreign Minister Irakli MENAGARISHVILI said the US has increased the volume of aid to several countries, including Georgia this year. He said one of the priority directions of the US program is the development of Georgia's border guard service. Approximately, $25 million have been allocated for the cause. The US will also finance the development of democratic processes underway in Georgia, settlement of problems in the Customs service, economic and military building, MENAGARISHVILI stressed.

In 1999, Georgia received $20 million in foreign aid

to build its armed forces. Defense Ministry spokesman Koba LIKLIKADZE said the US provided more than 8,000 pairs of military shoes and 3,000 uniforms for Georgia. Washington plans to hand over six military transport helicopters to Georgia this year. Up to 600 Georgian military trainees are studying at military colleges in Ukraine, Turkey, Germany, Russia, the US, Romania, and the Czech Republic.

UN Extends Observer Mission Mandate

· The UN Security Council on Monday unanimously approved a six-month renewal until July 31st of the 101-member UN Observer Mission in Georgia (UNOMIG). The mission is charged with trying to keep peace between the Georgian government and Abkhazian separatists. The Council's renewed resolution demanded that both sides observe the 1994 Moscow agreement on a cease-fire and separation of forces as well as encouraged Georgia and Abkhazia to renew their commitment to reaching a peaceful settlement. It reiterated that the Security Council considers it, "unacceptable and illegitimate the holding of self-styled elections and referendum" in Abkhazia, which were held on October 3, 1999. The resolution reaffirmed the "unacceptability of the demographic changes resulting from the conflict," and the "imprescriptible right of all refugees and displaced persons" to return to their homes under a security guarantee. The Council pointed out that it will review the UNOMIG operation at the end of the current mandate, "in the light of steps taken by the parties to achieve a comprehensive settlement."

New US Ambassador To Azerbaijan Nominated

· The White House announced on Monday that US President Bill CLINTON will nominate career foreign service diplomat Ross WILSON to be US ambassador to Azerbaijan. WILSON, a two-time veteran of the US embassy in Moscow, currently serves as principal deputy to the US ambassador-at-large for the former Soviet republics. WILSON, who joined the foreign service in 1979, has also served in US embassies in Prague, then capital of Czechoslovakia, and Australia.

Paul M. Joyal, President, Editor in Chief Clifton F. von Kann, Publisher Jennifer M. Rhodes, Principal Editor

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