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

Thursday, February 10, 2000

Russian Federation

Politics

Bomb Scare Proved False

· The Russian bomb squad and an anti-terrorist team of the Federal Security Service (FSB) were called on Wednesday to the Bee Line Company office on Tverskaya-Yamskaya Street in Moscow, after receiving a call that two unidentified persons had planted a bag in front of the company's doors. The signal on the explosive device was found to have been incorrectly set, the device was remove, and the alert was called off. The FSB teams worked along side of police units and the Emergency Situations Ministry officers at the scene of the incident. The building on Tverskaya-Yamskaya Street also hosts the Interfax news agency office, a number of banks, cafes and restaurants. A sniffer dog initially indicated that there were other explosive substances in the building, but after a thorough check specialists stated to the contrary. Acting President Vladimir PUTIN earlier had warned of terrorist acts in response to the military action in Chechnya. This incident could have merely been set by criminal gangs as a scare tactic to one of the businesses in the building.

Russia Media Protests For Babitsky

· The Russian media have stepped up their expressions of concern over the hand-over and fate of Radio Liberty (RFE\RL Newsline) journalist Andrei BABITSKY. Journalists have submitted a letter of declaration which was published in several newspapers, calling on the government to explain its actions. It said, "Until the truth is told about this story, including from BABITSKY himself, then we have grounds to consider that the Russian authorities are not only repudiating the principle of the defense of free speech, but of the elementary observance of the law...Such a power is called totalitarian." The US

State Department also came out calling for further clarification of BABITSKY's hand-over. State Department spokesman James RUBIN said, "The Russian government is responsible for the safety and well-being of BABITSKY; it is time for Russian officials to come clean...We call on the government to conduct an unbiased investigation and, where necessary, to punish those guilty of wrongful acts." Members of the US Congress, which funds RFE/RL, have sent a letter to Acting Russian President Vladimir PUTIN asking him to do everything in his power to free BABITSKY. The journalist disappeared almost a month ago; then the Russian military said it was holding him while he was investigated for collaborating with the Chechen militants; a week ago, Russian TV broadcast a video that seemed to show BABITSKY being exchanged with Chechen militants for Russian prisoners. Head of the Chechen militia Bislan GANTAMIROV said neither he nor his people had detained or arrested BABITSKY. "All reports on this and accusations against us are a total invention, the aim of which is to increase tension and discredit me personally and the fighters of our militia," he said.

Chechen Rebels Ambush Russian Train

· The Defense Ministry today confirmed reports that Chechen rebels had ambushed a train in a Russian-controlled region of Chechnya; it declined to disclose more details. The Russian media reports that Chechen rebels detonated three remote-controlled mines under the train's locomotive and opened fire from four directions, proving thatthe rebels can freely

Today's News Highlights

Russia

Russia Approves WB Loan Plan

Shares Slip On Gazprom Rumor

European Republics

Lazarenko To Be Extradited

Lupynis Dead At 62

South Caucasus & Central Asia

Georgia's State Of The Nation

Socar Seeks Oil To Import

Uzbek Considers Visa Regime

Politics-Economics-Business

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Thursday

February 10, 2000

Intercon's Daily

move in the region. Fighting continued for hours until the federal troops drove back the militants. No casualty figures were reported for either side. The train was being used to repair railroad tracks north of the capital, Grozny. A second train sent to back up the first was also damaged when the rebels launched rocket-propelled grenades at its engine. These attacks were the first big rebel attacks, since they abandoned the capital, lending credence to their threats to continue a wide-ranging guerrilla war. The military estimates that 7,000 rebels remain in the south, where the mountainous terrain will pose a major obstacle to any Russian advance, the Associated Press reported. Despite the recent attack and remaining rebels, the Defense Ministry said that it can soon cut levels of troops to half, about 50,000.

Economy

Ruble = 28.69/$1.00 (NY rate)

Ruble = 28.68/$1.00 (CB rate)

Ruble = 28.32/1 euro (CB rate)

Russian Economy Growing?

· Russian Economics Minister Andrei SHAPOVALYANTS Wednesday said that Russia expects to attract $5 billion of foreign direct investment in 2000. Foreign direct investment in the Russian economy amounted to $3.1 billion in the first nine months of 1999, more than double the amount of foreign investments for all of 1998. The Economics Minister noted that figures for the entire year has not yet been complied. "Russian investments in the economy will rise by 5 percent this year from last year's results," said SHAPOVALYANTS, adding that the government would also like to see more Russians invest their savings "in the economy" rather stuff their cash under mattresses at home. The Russian government plans to provide 15 billion rubles ($522.8 million) in investment guaranties for Russian investors this year so it can attract domestic investments worth about 30 billion rubles. SHAPOVALYANTS said that figures may become more optimistic if the government succeeds in improving the investment climate and resolving the foreign debt problem. The Ministry expects growth in gross domestic product this year of 1.5 percent, inflation of 18 percent to 20 percent and industrial output growth of 4.0 percent. First Deputy Minister of Finance Alexei KUDRIN said Russian gross domestic product grew between 2.8 percent and 3.2 per

cent to between $190 billion and $200 billion in 1999, compared with 1998. Industrial output rose 8.1 percent last year, compared with 1998.

Russia Approves WB Loan Plan

· The Russian government today approved a plan to borrow $30 million from the World Bank to finance regional budget reforms. The loan, to be repaid within 17 years with a five-year grace period, was approved by the World Bank last December. The World Bank also plans to finance educational reforms in Russian regions. The World Bank plans to allocate three loans this year to the Samara and Yaroslavl regions and to the Republic of Chuvashia for restructuring regional education systems. According to Mary CANNING, education program team leader for Russia, "It will not be an adjustment loan. This is going to be an investment in each region. It will be three small sub-loans to invest in essential equipment, refurbishing of schools and teachers' training." The World Bank helped the Russian government to get a $900,000 grant from the government of Japan to prepare these projects with regional administrations, and the bank expects to evaluate and select some of them by July.

Business

Rumors Of Split Hurts Gazprom

· Rumors last week that Russia's gas monopoly Gazprom was considering plans to restructure, splitting its production unit from its pipeline and distribution system, sent the company's shares falling by nearly 8 percent on the Moscow Stock Exchange on Friday. The shares are continuing to fall, losing about a third of their value. Chief executive of Gazprom Rem VYAKHIREV ambiguously said there were plans this year to divide Gazprom employees between, "those who make money and those who help make money," the Financial Times reported. On Tuesday, Gazprom clarified that it would retain 100 percent of any new subsidiaries and focus on hiving off the maintenance and technical services, not splitting production from distribution. The first blipped about a possible restructuring occurred in December, when VYAKHIREV, after meeting with then prime minister Vladimir PUTIN, said he might leave Gazprom ahead of his planned retirement in 2001. He also hinted that he might start his own gas company with other top Gazprom executives. Possible replacements for VYAKHIREV are Fuel and

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Energy Minister Viktor KALYZHNY, who is unlikely to retain his post in the new government, and head of the presidential administration Alexander VOLOSHIN. One analyst suggested that the rumors were meant to pacify the government and International Monetary Fund, which have been calling for transparency measures. In this case, their preventative plans may have damaged Gazprom's standing.

Svyazinvest Forecasts 13.9 Billion Ruble Profit

· Svyazinvest, the holding company for Russia's telephone operators, estimates that its net profit in 2000 will total 13.9 billion rubles ($484.8 million). That figure represents a 12 percent increase from the previous year. The company expects gross income of 66.8 billion rubles this year. Mustcom Ltd., a Cyprus-based company that financier George SOROS helped set up, bought 25 percent plus one share of Svyazinvest in 1997 for about $1.8 billion, which is considered one of the company's worst investments.

Inkombank To Sue Sibneft

· Inkombank, which owes foreign and domestic investors about $1.37 billion, plans to sue Sibneft, Russia's sixth-largest oil producer, to recover $30 million in debts, Russian daily Vedomsti reported. The debt is for equipment delivered to the oil company's Omsk Refinery in 1998. Inkombank is seeking recovery to cover claims by Italy's Banca Nazionale Del Lavoro SpA and Banca Commerciale Italiana, which used to be partners of Inkombank and initially paid for the equipment delivery. Sibneft recently said it increased its stake in the Omsk Refinery and Omsknefteprodukt marketing units to 80 percent as it moves to consolidate assets and lift the company's market value.

currency transactions from which he is believed to have gained hundreds of millions of dollars. The money was presumably deposited his foreign bank accounts or the accounts of his accomplices. Potebenko noted he had evidence that huge sums had also been transferred to personal bank accounts of the parliament deputies, but did not disclose their names because of the investigation. LAZARENKO also used government money to fund reconstruction of his apartment and the building of a new dacha. LAZARENKO is currently seeking a political asylum in the United States. The US authorities arrested him for the violation of the visa regime. Hearings on his case have been postponed many times.

Ukrainian Anatoly Lupynis Dies

· Anatoly LUPYNIS, a Ukrainian nationalist leader who spent 27 years in Soviet labor camps and prisons, has died at age 62. LUPYNIS was a dissident who fought against communist ideology. He was first arrested in 1956 on charges of anti-Soviet propaganda. He nearly lost his sight and used crutches after being released from his final prison term in 1983, but that did not stop him from continuing his dissident activities, the Associated Press reported. LUPYNIS was among the founders of Popular Rukh, Soviet-era Ukraine's top pro-independence movement, which was formed in the late 1980s. He also was among the founders of the nationalist Ukrainian National Assembly He was also active in groups such as Memorial, which is dedicated to preserving the memory of people killed or persecuted by the Soviet regime. Details on the cause of death and his surviving family members were not immediately available.

South Caucasus & Central Asia

President Gives State Of The Nation Address

· Georgian President Eduard SHEVARDNADZE on Wednesday, in his annual address to parliament on the political and economic well being of the nation, expressed his hope that Georgia will become a partner with the world community in the new century. He said, "Georgia will become a strong country in some four to five years and will make the transition from the rank of an aid recipient to the rank of a reliable partner." To achieve this, the President noted that 2000 will be critical to Georgia's progress. He said the Georgian government had worked out a

European Republics

Lazarenko To Be Extradited To Ukraine

· Ukraine's Prosecutor General Mikhail POTEBENKO on Wednesday said that former prime minister Pavel LAZARENKO will be extradited to Ukraine by the US authorities via Switzerland to face charges of laundering huge sums of money. He did not name any specific extradition date, but said "LAZARENKO would face trial within six weeks after he appears on the Ukrainian territory." The former prime minister has been accused of illegal foreign

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new national security concept and overhaul the country's security structure.

Speaking about corruption and graft, SHEVARDNADZE pledged to fight corruption. He pointed out that, "We [Georgia] still have not managed to get the budget in order. Corruption and smuggling inflict serious losses to the state budget. The government and the International Monetary Fund have agreed to a draft 2000 budget. The country's 260 million lari ($132 million) wage and pension arrears, which resulted from a budgetary crisis last year, should be paid off as a priority, he said. Heavy shortfalls in tax collection and widespread corruption had been the main reasons for the crisis. Georgia's tax collection rate is the world's lowest, at 9 percent of gross domestic product (GDP). He said GDP rose 3 percent in 1999, industrial output rose 7.5 percent and the consumer price index stood at 10.7 percent.

SHEVARDNADZE said peace in the turbulent Caucasus region¾scene of eight wars in the last decade including Russia's ongoing conflict in Chechnya¾was a serious concern not only for the region but for all of Europe. "Movement for stability and peace in the Caucasus has already begun but it needs political and economic support."

Socar Seeks Oil To Import

· Elshad NASSIROV, the head of Azerbaijan's State Oil Company (Socar's) foreign economic relations department, said Socar is looking to buy, swap or barter a consignment of crude or fuel oil for power generation in Azerbaijan. He said, "We don't have enough crude oil to provide for increasing demand at our power stations this winter and have asked other Caspian producers to propose some solutions. Azerbaijan, which produces around nine million tons of crude per year (180,000 barrels per day), has already had to halt exports and divert all its production to refineries to process into fuel oil for power generation. In the summer Azerbaijan exports most of its fuel oil production because of a lack of storage space, importing 150,000 to 230,000 tons of fuel oil in the

winter when energy consumption more than doubles. This winter Socar received only 50,000 tons of fuel oil and state power generator Azerenergy has had to ration electricity in some regions to 13 hours a day. According to NASSIROV the government has asked Caspian producers for up to 200,000 tons of fuel oil, or the appropriate amount of crude for refineries. Rising oil prices makes it difficult for Azerbaijan, a cash-strapped country, to afford large quantities. Oil prices have increased to $27 per barrel. NASSIROV said the company is hoping for a swap or barter deals, since, "we don't yet know how Azerbaijan will pay," outright for the oil.

Kazakh-Uzbek Open Border Talks

· Kazakhstan and Uzbekistan today opened talks in Tashkent over demarcating the border between the two nations. Kazakh Foreign Minister Yerlan IDRISOV said, "This is a complicated process, and will definitely take more than a year." Kazakhstan's Foreign Ministry sent a note of protest to Uzbekistan last month after it accused Tashkent of setting up border signs without consultation. IDRISOV told reporters then that Kazakhstan would not give Uzbekistan "an inch of land." The government has since toned down its statements. The border issue is sensitive since the disputed areas are densely populated and contain fertile land.

Uzbek Considers Visa Regime

· The Uzbek Foreign Ministry said that Uzbekistan is considering pulling out of a no-visa pact with the Commonwealth of Independent States (CIS) to boost security and clamp down on smuggling. The Foreign Ministry has sent letters to Kyrgyzstan, Tajikistan and Kazakhstan to get their opinion on imposing mutual visa requirements. It was unclear if the changes to the 1992 agreement would be limited to citizens of these countries or extend to the rest of the Commonwealth of Independent States (CIS), which groups 12 former Soviet republics. Turkmenistan pulled out of the agreement last year, and other CIS countries, including Kazakhstan and Russia, recently stopped recognizing transit visas issued by CIS nations.

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

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