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 24, 2000

opinions without interference and to seek, receive and impart information and ideas through any media regardless of frontiers.'"

In a new twist, Chechen Vice President Vakha ARSANOV admitted that he had been offered $2.5 million if he agreed to spread false information that BABITSKY was in his custody. He refused the offer and did not reveal the names of those who confronted him. However, he did indicate that the intermediaries were connected to the Russian military or secret service. ARSANOV added that the same proposal was made to Chechen State Security Minister Turpal Ali ARSANOV and other rebel field commanders. BABITSKY's whereabouts remain unknown.

Putin To Hold Talks With Chechens?

· Acting Russian President Vladimir PUTIN today said there were "forces" in Chechnya, with whom Russia might hold talks on the republic's future status, but did not elaborate. He noted that Chechnya might get some kind of an autonomous status after the military operation against separatists is completed. He said, "There are a lot of ways and means of solving problems on the principles of giving some kind of an autonomous status and such solutions will be found." PUTIN said Russia did not consider the military operation in Chechnya as a fight against the Chechen people. "Nobody has ever set the goal of enslaving the Chechen people or making them feel defeated," he said. PUTIN stressed, "We

Russian Federation

Politics

Senate Introduces A Resolution On Babitsky

· The US Senate today is scheduled to introduce a resolution submitted by Senator Jesse HELMS, Senator Joe BIDEN, and others on Radio Free Liberty journalist Andrei BABITSKY, who was arrested in Chechnya by Russian forces in mid-January and then allegedly turned over to Chechen rebels in exchange for Russian soldiers on February 3rd. The resolution chronologically describes the events surrounding BABITSKY's disappearance, which began in December, 1999. It notes that on February 3rd, "Russian presidential spokesman Sergei YASTRZHEMBSKY said that Russian officials exchanged BABITSKY for 3 [three] Russian prisoners of war and on the same day, Vladimir USTINOV, acting Russian prosecutor general, said BABITSKY had been released and had gone over to the Chechens on his own accord." The resolution points out that Russia's actions violate the Geneva conventions or which Russia is a signatory. It called Russia's detention of BABITSKY and its misinformation surrounding his whereabouts as "reprehensible treatment of a civilian in a conflict zone in violation of the Geneva Conventions and applicable protocols." It adds that Russia's actions demonstrate its "intolerance towards a free and open press." The resolution demands that the Russian government take measures to secure BABITSKY's safe return to his family. Finally, it says, "The Russian authorities should immediately halt their harassment of journalists, foreign and domestic, who cover the war in Chechnya and any other event in the Russian Federation and should fully adhere to the Universal Declaration of Human Rights, which declares in Article 19 that `everyone as the right to freedom of opinion and expression; this right includes the freedom to hold

Today's News Highlights

Russia

Russia Issues New T-Bills

Sibneft Backs Away From Sales

European Republics

Kuchma Addresses Parliament

Estonia Marks Independence

Lith. Loans Refinery $21.5M

South Caucasus & Central Asia

Georgia Seals Chechen Border

Baku-Ceyhan Talks End

Politics-Economics-Business

Page

Thursday

February 24, 2000

Intercon's Daily

clearly made a big mistake when we abandoned this territory and left it without any control following the 1994 to 1996 war...First of all, we've made a mistake toward the Chechen people, because they became hostages to those bandits and terrorists."

Meanwhile, Russian troops have seized the town of Shatoi, the rebels' last major command post. The loss of the strategically-positioned Shatoi could seriously damage the rebels' ability to fight. Federal forces continued to rely heavily on aviation, with warplanes and helicopter gunners flying more than 120 combat missions since Wednesday. Military commanders estimate that 7,000 to 8,000 rebels remain in Chechnya's southern mountains. Roads and escape routes today remain sealed. Civilian traffic was banned over fears of violence linked to Wednesday's anniversary of the 1944 deportation of Chechens to Central Asia under Soviet dictator Josef STALIN. Normal traffic would resume and checkpoints on the Chechen-Ingush border will reopen on Friday. Security also has been tightened at airports and train stations across Russia and police were placed on alert.

Today in Velostock, Poland, a group of young Poles raided the Russian consulate. They tore down the Russian flag and stomped on it. They raised the Chechen Flag claiming that the were pro-Chechen. Video of these events were broadcast on ORT Television's evening news program.

Chubais To Be Sacked?

· Russian Communist Party leader Gennady ZYUGANOV on Monday in a letter to acting President Vladimir PUTIN, his political opponent, called for the dismissal of Anatoly CHUBAIS, chief executive of Russia's national power grid Unified Energy System (UES). He said, "CHUBAIS and our government have again decided to plunge Russian into darkness again," alluding to suspicious relations. CHUBAIS has expressed support for the Union of Right Forces and PUTIN, who also hails from St. Petersburg. ZYUGANOV said CHUBAIS should be removed, "for attempting to break up the single energy complex, threatening national security." CHUBAIS has long been a target of the Communist Party, which accuses him of selling state assets cheaply when he was in charge of Russia's privatization program. UES controls almost every local power utility in

Russia's 89 regions as well as the national power grid. CHUBAIS says UES has become more efficient since he took over the reins in 1998. ZYUGANOV called for a state program to preserve and develop Russia's energy network and to determine which enterprises should not be privatized.

Economy

Ruble = 28.83/$1.00 (NY rate)

Ruble = 28.81/$1.00 (CB rate)

Ruble = 28.88/1 euro (CB rate)

Russia Issues New T-Bills Since Default

· Russia for the first time since defaulting on treasury bills in August, 1998, issued new treasury bills on Wednesday. Demand for the T-bills far exceeded the amount offered. Analysts said the demand for T-bills was based on investors' decision to use their money, rather than the attractiveness of the Russian securities, which are one of the world's lowest rated. Domestic banks bought $76 million of the $86 million worth of three-month T-bills offered Wednesday. Bids exceeded $241 million. The new issue was possible despite a rock-bottom credit rating because government restrictions have limited Russian investors' options, analysts said. Eric KRAUS, chief strategist with Nikoil Capital Markets, a Moscow-based brokerage said unlike the previous treasury bill market, Wednesday's limited issue was designed to control inflation by removing rubles from the economy rather than plugging holes in the budget. Investors bought the three-month paper at 20.10 percent annual yield, which is about the same as the expected inflation rate. A better investment would be buying dollars and stashing them in a safe, KRAUS said. But currency restrictions implemented after the 1998 crash stifle dollar purchases for banks.

Business

Gazprom To Increase Domestic Trading

· Russia's natural gas monopoly, Gazprom's board of directors agreed to increase the number of domestic stock exchanges where the company's shares are traded and take steps to increase the trading of its stock. The board reviewed a Gazprom proposal to sell American depository receipts (ADRs) over the next three years. Foreign investors are permitted to hold as much as 20 percent stake in Gazprom under Russian law, although special government resolu

When you need to know it as it happens

Politics-Economics-Business

Page

Thursday

February 24, 2000

Intercon's Daily

tions are required to sell more company shares to non-resident companies. Gazprom has issued a proposal to the government for the sale of ADRs representing a 14.5 percent stake over three years. The stake would be valued at about $2.86 billion, based on today's ADR price. Gazprom ADRs rose by 0.3 percent, or 2 cents, to $8.38. The company's ADRs fell 22 percent since Gazprom announced its plans to sell more ADRs in mid-January. One ADR represents 10 domestic shares. The government earlier said it would sell two state-owned stakes in the company¾a 2.5 percent and a 0.87 percent stake¾in the second half of this year.

Sibneft Distances Itself From Aluminum Sales

· Sibneft president Eugene SHVIDLER said that the oil company is not involved in the purchase of Russia's two largest aluminum smelters. He said, "The aluminum acquisition is a private transaction by Sibneft shareholders. It does not involve the company in any way...Sibneft is not financing the deal nor using its balance sheet. Sibneft does not and will not own shares in any of these aluminum businesses, nor does it have any plans to diversify into the aluminum industry." SHVIDLER said on February 11th that company shareholders had bought majority interests in Bratsk and Krasnoyarsk Aluminum Plants, a minority interest in Krasnoyarsk Hydropower Station, and nearly half of Achinsk Alumina Plant. On the same day, the owner of Novokuznetsk Aluminum Plant, the country's fifth largest, said it had sold a controlling interest in the plant to LogoVaz, founded by prominent businessman Boris BEREZOVSKY. President of the Sibirsky Aluminum Group Oleg DERIPASKA called for an investigation into the sales to determine whether they had taken place under anti-monopoly legislation.

for economic growth at 6 percent to 7 percent. The Ukrainian President called on the parliament to accelerate state asset sales and strengthen anti-corruption laws to help spur economic growth. This year, the country plans to start selling its phone and utilities stakes, although it should be more open to foreign investment, KUCHMA said. KUCHMA added Ukraine is not likely to face new parliamentary elections any time soon, though he didn't rescind a decree ordering an April 16th nationwide referendum on whether the President should dissolve the parliament and have a right to dissolve parliaments in the future. The current parliament, which is more pro-reform, has already approved a balanced budget plan for 2000.

Estonia Celebrates Independence

· Tens of thousands of Estonians gathered in Tallinn to attend the annual ceremony marking Estonia's Independence Day. Government workers, deputies, politicians and public leaders attended the ceremony, during which the national flag was raised over the ancient Long Herman Tower. The flag-raising tradition originated on February 24, 1918, when the independence of the Estonian Republic was proclaimed. On that day the Union of National Salvation declared Estonia a sovereign state. This happened just a few hours before the German army marched into the city. Although there are no detailed records, it is claimed that future Estonian President Konstantin PJATS said when the flag was being raised, "Even if we have only one day left, it is ours." The Germans, who took Tallinn in the evening of that day, removed the flag from the tower. It reappeared there two years later when the Tartu Peace Treaty was signed with Soviet Russia in 1920 and Estonia was internationally recognized as a sovereign state.

Lithuania Lends Refinery $21.5 Million

· The Lithuanian government is prepared to lend $21.5 million to Mazeikiu Nafta as part of the funding reached under the sales agreement with US-based Williams Company last fall. The seven-year loan, with an annual interest rate of 10 percent, will be financed from the government's recent 250 million-euro ($251 million) Eurobond issue, the Finance Ministry said. The loan marks the last installment in the $323.98 million loan to Mazeikiu Nafta. The oil refinery will use the cash to boost working capital and investment projects. The press commented that the

European Republics

Kuchma Gives Annual Address

· Ukrainian President Leonid KUCHMA gave his annual address to parliament on Tuesday. He outlined the key objectives for reform in Ukraine. KUCHMA said that economic growth, efficient monetary policy, restructuring the energy sector, and the creation of a more attractive investment environment as his main priorities. He predicted that gross domestic product would grow at 1 percent this year, the Financial Times reported. However, he set a target

When you need to know it as it happens

Politics-Economics-Business

Page

Thursday

February 24, 2000

Intercon's Daily

government may not be able to recover all the loans issued to Mazeikiu Nafta, as according to the agreement, in case the concern experiences losses they are to be covered by the state. Williams International acquired a 33 percent stake in Mazeikiu Nafta at the end of October, 1999, for $150 million.

South Caucasus & Central Asia

Georgia Seals Border With Russia

· Georgian President Eduard SHEVARDNADZE today said that the Chechen border with Georgia has been closed to prevent the fighting between Russian troops and Chechen rebels from spilling over into his nation. Georgia's Border Guard Department has enhanced the guarding of the Georgia's borders near the high-mountain village of Omalo and the Chechen sector of the Russian-Georgian border. The border guarding is being enhanced to prevent Chechen militants from crossing into Georgia. The Georgian President called on the international community to increase its efforts to end the fighting before it destabilizes Georgia. Tbilisi fears it could be drawn into conflict with Moscow if rebels cross the frontier to evade pursuing Russian troops or try to set up bases on Georgian territory. SHEVARDNADZE said, "We have hope and confidence that it [the war] will be over soon and with the least possible casualties." International monitors from the Organization for Security and Cooperation in Europe (OSCE) have been stationed on the border since January under an agreement to reassure Russia that Georgia is playing no part in the Chechnya conflict.

The US in a State Department statement released on Wednesday said, "We strongly support the OSCE's plan to send an assessment team to the region to begin planning for an enhanced monitoring presence in the spring. This OSCE effort will contribute to transparency on this sensitive border and bolster stability in the Caucasus region...We will be sending American observers shortly." State Department spokesman James RUBIN added, "Supporting Georgia's sovereignty and territorial integrity is a

central element of US policy in the Caucasus region, and we remain deeply concerned about the potential for spillover of violence from the North Caucasus into Georgia. We note Acting Russian President [Vladimir] PUTIN's December 11, 1999, statement that `Russia will never cross the border of a sovereign state.'"

Baku-Ceyhan Talks End; Problems Remain

· Representatives from Georgia, Azerbaijan, and Turkey along with businessmen and oil experts ended ten days of negotiations in Baku without resolving the major stalling issues for the construction of the 1,730 kilometer (1,081 mile) oil pipeline linking Baku-Tbilisi-Ceyhan. Adviser to the Georgian Embassy in Baku Mamuka BALAVADZE said, "there are still a number of essential questions that we need to continue discussing." The talks will resume on February 26th in Istanbul, focusing two main issues concerning liability and traiffs as well as the remaining details on land and environmental matters. Georgia is demanding a higher share in tariff revenues because its section of the pipeline will not produce the upstream and downstream additional revenues that Azerbaijan and Turkey will enjoy. It would like to increase its share to $0.20 per barrel. Azerbaijan wants to earn $.11 per barrel. Turkey receives $1.59 per barrel of the total $2.58 tariff. Georgia has also insisted it will take responsibility for security on its section of the line, but not liability. After these issues have been resolved, the legal frameworks for the pipeline project must be approved by the parliaments of Azerbaijan, Turkey and Georgia before a sponsor group can proceed with the project. In addition, the deal must be determined to be commercially viable. It is believed that the pipeline will carry oil produced by the BP Amoco led Azerbaijan International Operating Company (AIOC). An additional 200,000 barrels per day (bpd) is needed to make the pipeline commercially viable. AIOC hopes to boost production to 800,000 bpd by 2007 to 2008 from its current rate of 115,000 bpd. The US has supported the Baku-Ceyhan project as a part of its efforts to promote a system of multiple pipelines that avoid Russia and Iran.

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 2000, Intercon International, USA.

When you need to know it as it happens

Politics-Economics-Business

Page