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

Friday, February 25, 2000

HAWKES, a Human Rights Watch researcher, told Reuters. He said an autopsy of the bodies should be conducted to determine how they died and that these and other allegations of abuses needed to be thoroughly investigated.

European Union foreign policy chief Javier SOLANA today expressed great concern at reports of mass executions by Russian soldiers in Chechnya. He said, "I am very concerned about the reports, accompanied by shocking images, of apparent human rights abuses in Chechnya...Clearly after a proper assessment of these reports the EU will have to consider what might be an appropriate response." He added, "An early, independent investigation is vital in order to establish these facts beyond doubt. I urge Russia to cooperate fully with such an investigation and bring to justice any person implicated in these apparent crimes." The Russian government now says the tapes will be fully investigated and the criminals handed over to the military prosecutor.

Putin Outlines His Vision For Russia

· Russia's leading presidential candidate, acting President Vladimir PUTIN in an open letter to the voters published in several Russian daily newspapers, expressed his goals for the nation, but did little to reveal how would achieve them. He acknowledged that his program still is not complete. PUTIN expressed support for market reforms. He said that Russia's main problems are a weak state, crime, corruption and lack of protection for businesses. PUTIN

NEWSFLASH

Babitsky Says He Will Be Home Soon

· Radio Liberty journalist Andrei BABITSKY telephoned his wife Ludmilla today, after being seized by Russian forces in Chechnya in mid-January and turned over to Chechen gunmen on February 3rd. He said he was calling from the Interior Ministry press center in Makhachkala. Ludmilla BABITSKY said, "The conversation was very brief. I asked about his health and he told me everything was all right and he hoped to be home soon... He said he had been in Chechnya all this time," Reuters reported.

Russian Federation

Politics

Mass Grave In Chechnya To Be Investigated

· Russian and Western television broadcast disturbing footage on Thursday night, showing Russian soldiers piling bodies into a mass grave. Some of the bodies were in military uniforms with their feet and hands bound with barb-wire. The bondage suggests that the Chechens did not die in combat. At least one of the bodies was mutilated. In one sequence, a body was ruthlessly dragged behind a truck. The Russian Interior Ministry and the newly appointed Human Rights representative initially called the footage, from a Germany's N24 television station, propaganda. Later, Kremlin spokesman on Chechnya Sergei YASTRZHEMBSKY said the allegations are serious. Alexander ZDANOVICH, spokesman for Russia's Federal Security Service (FSB) said, "It is too early to draw a full conclusion." He added that the tape was a "falsification" and that the dead Chechens must have been fighters killed in battle. "The film looks extremely authentic, it looks very detailed and raises a lot of very, very serious questions about the treatment of Chechen prisoners of war," Malcolm

Today's News Highlights

Russia

Ivanov Postpones Trip to Poland

Rostelecom-ML Reach Agmt.

LUKoil Streamlines Operations

European Republics

Noika Wins Estonian Contract

NGZ Resumes Supplies To Rus.

South Caucasus & Central Asia

Foreign Investment Falls

Tajik Parliamentary Elections

Kyrgyz Run-off Vote Scheduled

Politics-Economics-Business

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Friday

February 25, 2000

Intercon's Daily

pointed out that the military success in Chechnya is an example as to how order might be re-gained in Russia. The former head of the successor to the Soviet-era KGB said he was aware of the misgivings of some Russians over calls for more order, but they had nothing to fear. "The stronger the state, the freer the individual." He wrote, "We have to say out loud: we are a rich country of poor people, a country of paradoxes, social, economic and cultural, rather than political in nature...We need strict state control, but that alone is not much...The essence of state regulation is not in stifling the market...but on the contrary, helping it to stand on its feet." PUTIN expressed concern around poor tax collection. He stressed, "The key decision of all of our economic policy is that it should be more profitable to work honestly than to steal." Recent polls show PUTIN getting as much as 60 percent of the votes in the 11-candidate election to take place on March 26th. Communist Party leader Gennady ZYUGANOV is PUTIN's nearest challenger with the support of 20 percent or less of voters.

Ivanov Postpones Trip To Russia

· Russian Foreign Minister Igor IVANOV postponed his trip to Poland planned for March 3rd, after one of Russia's consulates outside of Warsaw was attacked by protesters. He said it would be "inappropriate" to make the trip after the incident, when demonstrators against Russia's war in Chechnya ripped up the Russian flag replaced it with pro-Chechen banners and painted a swastika on the consulate in the western city of Poznan. Moscow also decided to recall its ambassador from Poland. Poland has apologized for the attack on the Russian consulate.

Economy

Palladium Volumes To Resume In Three Weeks

· Commenting on the decree for the export of palladium, First Deputy Prime Minister and Finance Minister Mikhail KASYANOV Thursday said, "Within two, maximum three weeks, Russian supplies will start, and their volumes will be set taking the market situation into account." He added that all the documents were in order and that no delays are expected. Palladium hit an all-time high of over $800 per ounce earlier this week in part due to a lack of metal from Russia, which accounts for around two thirds of global supply. In January, the price of one ounce of

palladium stood at $450. On Wednesday, Tokyo's commodity exchange (Tocom) changed the rule on palladium futures and froze prices, in a move to lower prices. It is believed that the price rise has been caused in part by trading houses which artificially tightened futures market conditions. Analysts suspect that some trading houses were acting on behalf of non-Japanese investors, including hedge funds. European markets fixed the price of palladium at $700. Platinum was fixed at $478 an ounce, the lowest since January 27th, down $15 or three percent from the previous fix of $493.

Ruble = 28.8/$1.00 (NY rate)

Ruble = 28.7/$1.00 (CB rate)

Ruble = 27.97/1 euro (CB rate)

Sep Oct Nov Dec Jan Feb

Business

Rostelecom Reaches Agmt. With Merrill Lynch

· Rostelecom, Russia's long-distance telephone service provider, reached an agreement with Merrill Lynch & Co. for the restructuring of $100 million in debt. According to Roman KREININ, Rostelecom's deputy director the debt will be paid over four to six years. Rostelecom was due to pay the debt to Merrill Lynch in mid- February. Rostelecom shares have risen 32.3 percent so far this year.

LUKoil Streamlines Operations

· Russia's largest oil producer LUKoil has reorganized its international petroleum trading units to streamline operations. The new structure plans to almost triple oil products exports. The oil company said it merged its "complicated structure" of trade

When you need to know it as it happens

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February 25, 2000

Intercon's Daily

offices under a single unit called LUKoil International Trading and Services Co., or Litasco, which will export 30 million tons of oil and 15 million tons of oil products. LUKoil First Vice President Ralif SAFIN said the reorganization, "would make it the biggest trading company in Europe." LUKoil wants to boost its international sales of oil products above last year's 5.5 percent growth rate. LUKoil exported 30.7 million tons of crude in 1999, down 5.9 percent from 32.7 million tons in 1998. At the same time, exports of oil products grew to 4 million tons from 2.6 million tons in 1998. LUKoil said that it collected $500 million from marketing crude and products at the Russian domestic market. Litasco takes over the overseas activities of Austria-based LUKoil-International GmbH, which has supervised about 80 affiliated companies abroad through three holding companies: LUKoil-Investholding, in charge of investment projects and petroleum marketing; LUKoil-Projectholding, in charge of foreign joint ventures; and LUKoil-Tradingholding, in charge of trading activities. The final structure of LUKoil's overseas units and their activities will be presented in March.

provide fast internet access and interconnected LAN services in the capital city of Tallinn and the services will be later expanded to cover the rest of Estonia. Nokia will deliver its Nokia D50e Digital Subscriber Line Access Multiplexer (DSLAM), a range of Nokia M ADSL network terminals, and the Nokia R300 Remote Access Node. The agreement also covers roll-out and consultation services. Estonian Telephone Company Technical Director Irina MOROZOVA says, "Internet penetration in Estonia is continuing to grow at an exceptional rate and IP access is one of the fastest growing segments in our service portfolio. With Nokia's Broadband IP Access solution we will be able to offer flexible high speed Internet access to our customers, or tailored, advanced IP services." Nokia, headquartered in Finland, is the leading mobile phone supplier and a leading supplier of mobile, fixed and IP networks, related services as well as multimedia terminals. In 1999, net sales totaled 19.8 billion euro ($19.9 billion).

NGZ To Resume Alumina Supplies To Russia

· Ukraine's Mykolayivsky Hlynozemny Zavod (NGZ), the only alumina producer in the nation, said on Thursday it will resume supplies to Russia's Krasnoyarsk smelter before the end of the month. Company spokesman Olexiy PETROV said, "We have proposed a price to Krasnoyarsk and are ready to resume alumina supplies once they have agreed to our terms." He noted that a schedule of deliveries has been drawn up for a total of 20,000 tons of alumina in February. Ukraine made its first delivery to Krasnoyarsk last July, signing a contract to supply up to 150,000 tons in 1999, but deliveries were suspended last December when the government appointed new management at NGZ. PETROV gave no details of the proposed price, but industry sources have put it at $210 per ton on the Ukrainian-Russian border. He added that the terms proposed to Krasnoyarsk were the same as those in place with other Russian aluminum smelters which use alumina from Ukraine. "We hope Krasnoyarsk will agree to our terms and we will enjoy a long cooperation," he said. The company has said that this year it planned to sell alumina to Russia's Novokuznetsk, Volgograd, Bratsk, and Sayansk aluminum smelters as well as to Tajikistan. NGZ produced 992,000 tons of alumina in 1999 compared with 1.064 million tons in 1998.

European Republics

Nafta Stake Circulation Restricted

· The Lithuanian government today said it plans to transfer its 58 percent holding in oil concern Mazeikiu Nafta to a special account that will restrict its circulation. In a statement to the Cabinet, the Economics Ministry said, "The shares will be exempt from sale, transfer or mortgage or any other transaction without written approval of US Williams International company." Lithuania on October 29, 1999 sold a 33 percent stake and operational control in Mazeikiu Nafta, a combined refinery, terminal and pipeline system, to Tulsa-based Williams Company Inc. The Cabinet needs to approve the move in its meeting on March 1st.

Nokia Wins Estonian DSL Contract

· Nokia, a world leader in the supply of Digital Subscriber Line (DSL) products and technology, has been chosen by the Estonian Telephone Company, Ltd., (East Telefon) to supply a range of DSL and IP access products for the delivery of broadband based services throughout Estonia. According to a company press release, the Estonian Telephone Company will use the Nokia system solution to initially

When you need to know it as it happens

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South Caucasus & Central Asia

Azeri Foreign Investment Down 26 Percent

· Foreign Investment in Azerbaijan dropped 26 percent in 1999 to $1.09 billion. Deputy Economics Minister Oktai AKHVERDIYEV said that figure is set to rise in 2000, predicting that it will reach $1.68 billion, including $930 million in the Caspian State's key oil sector. He said, "The main reason for the drop in foreign investment in 1999 was the world financial crisis and the fall in the oil price, which made many companies cautious, although investment picked up in the second half of the year," Reuters reported. AKHVERDIYEV pointed out that 18 percent of Azerbaijan's gross domestic product (GDP) comes from oil. "Including the oil sector, in 1999 the rate of GDP growth was 7.4 percent and without the oil sector it was 4.8 percent." Total GDP in 1999 reached 16.6 trillion manats. Direct foreign investment, which does not include credits, fell by 35 percent year-on-year to $937 million. Oil sector investment dropped to $545 million, 39 percent less than in 1998. The biggest investor in the oil sector was the Azerbaijan International Operating Company (AIOC), led by BP Amoco, which spent $341 million in 1999

Tajik Parliamentary Elections On Sunday

· Tajikistan is holding parliamentary elections on Sunday for its Mazhilisi Namayondagon, the lower chamber. The following are the parties are contesting the election: Justice Party, Communist Party, Democratic Party, Peoples' Democratic Party, Socialist Party, and the Islamic Renaissance Party. The vote goes part way to creating a bicameral legislature, replacing the current single chamber system, and allows for political parties to vie for some seats directly for the first time since Tajikistan declared independence from Moscow in 1991. The election to the Mazhilis Milli, the upper chamber, is scheduled for March 23rd. In addition to over 100 candidates running for 22 party seats, there are 223 candidates contesting the remaining 41 seats set aside for single-member constituencies. The chamber is

elected for a five-year period. Only those parties which win more than five percent of the vote will be allotted seats on a proportional basis. If no party wins over five percent a new party list election will be held. Preliminary results are expected on Monday. Approximately 2.8 million residents will participate in the vote. The Organization for Security and Cooperation in Europe will have a full team of observers in Tajikistan. The United Nations has also sent a team to monitor the vote.

Tajik Prepares Security For Sunday Elections

· Tajik President Emomali RAKHMONOV ordered his government on Tuesday to step up security measures before Sunday's election to the lower parliamentary chamber in Tajikistan. According to RAKHMONOV's press secretary Zafar SAIDOV, "At a meeting of the Security Council in Dushanbe, RAKHMONOV ordered all power ministries to take additional steps to protect the law and safety of citizens on the eve of and on the day of the election." Widespread fighting between Moscow-backed government troops and the Islamic-led opposition in Tajikistan's civil war ended with a 1997 cease-fire agreement, but murders and kidnappings are rife due to a thriving drugs trade and warlords who control remote areas. Deputy Security Minister and parliamentary candidate Shamsullo DZHABIROV died last week of wounds sustained in a grenade attack on his car in Dushanbe. RAKHMONOV said the attack was an act of sabotage aimed at disrupting the vote. The election is being tagged as part of the final phase of Tajikistan's fragile peace process.

Kyrgyz Run-Off Election Scheduled

· The Kyrgyz Central Election Commission on Thursday said the second round of voting in its parliamentary election will be held on March 12th. The vote is especially important to candidates hoping to use a seat in the nation's bicameral legislature as a springboard for their campaigns for the presidency in a ballot likely to be held in December. The second round is a runoff between the two top leaders in the first vote.

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

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