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

Tuesday, February 29, 2000

Putin Distances Himself From Oligarchs

· Acting President Vladimir PUTIN and Communist Party head Gennady ZYUGANOV on Monday agreed that Russia must eliminate the influence of the "oligarchs." PUTIN said, "It is crucial for us to create equal conditions for all, so that nobody can attach himself to the power and use these advantages for himself...not a single clan, not a single oligarch...all should be equally distanced from power. In November, PUTIN attempted to distance himself from business tycoon Boris BEREZOVSKY, who has been closely linked to former president Boris YELTSIN's inner circle. PUTIN added that Russia needs, "not simply to knock off [corrupt officials], but to know who must be knocked off and in what way." ZYUGANOV meanwhile told a news conference that he is fighting "fat cats." Other government officials and previous prime ministers have taken tough stances on corruption, but no one has taken action. Government policies are widely believed to be manipulated by a group of "oligarchs"¾powerful tycoons with close government connections¾who are widely despised in Russia.

Industrialists argue that the oligarchs have corrupted the country's political system and prevent further growth in their companies, claiming it is being checked by Russia's lawless business climate. Many young entrepreneurs have banned together and formed the 2015 club to demand political change. Many "oligarchs" have been able to thrive on vague laws, malleable courts, and the corrupt bureaucracy. Joel

Russian Federation

Politics

Babitsky Returns Home In Moscow

· Radio Free Europe/Radio Liberty journalist Andrei BABITSKY was flown to Moscow this morning after Acting Russian President Vladimir PUTIN said on Monday, "I don't think the law enforcement agencies need to keep him behind bars." He was placed on an empty plane en route to Moscow, without being allowed to contact his wife and lawyer, who were seeking his release. BABITSKY was permitted to go home, but his travel has been restricted until the investigation is complete. The controversial reporter had been missing in Chechnya since mid-January. He was detained by the Russian military and exchanged for Russian prisoners of war with Chechen fighters on February 3rd. BABITSKY reappeared in Makhachkala, Daghestan on Friday and was arrested by Russian forces for possessing and using a false passport.

Today, BABITSKY described his time in detention, which was spent in northern Chechnya. He said, "I can say to you that at first I was not in the hands of the special security forces but of sadists who detained me at the Chernokozovo concentration camp." He said that his beatings at the camp were not torturous, but part of a "routine light initiation which everyone without exception goes through when they arrive there." He told Radio Liberty, "I intend to inform society as fully as possible about what happened to me and about what is happening in Chechnya, what I have seen. I think that this is not only a guarantee of safety for me and my family but in a certain way it could also influence the situation, with arbitrary rule on a monstrous scale and the nightmare which is happening in Chechnya." It is quite clear that the international pressure calling for BABITSKY's release has worked.

Today's News Highlights

Russia

Aluminum Sales Investigated

Sony To Form Russian Affiliate

European Republics

Eesti Telekom Reports Profits

IMF Funds Scandal Expands

South Caucasus & Central Asia

Georgia Passes 2000 Budget

Statoil Considers Azeri Gas

Armenian Cabinet Reshuffled

Tajik Pro-Gov't Party In Lead

Politics-Economics-Business

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Tuesday

February 29, 2000

Intercon's Daily

HELLMAN, an expert at the European Bank for Reconstruction and Development (EBRD), said that Russia has lacked a powerful trade associations to represent the collective interests of smaller businesses, leaving the field clear for the huge oil, gas, and mineral companies to "capture the state," the Financial Times reported. Other experts have called for clear laws, a shift in mentality, new values, and a greater sense of trust, responsibility and individualism in society.

Economy

Ruble = 28.66/$1.00 (NY rate)

Ruble = 28.69/$1.00 (CB rate)

Ruble = 27.77/1 euro (CB rate)

Russia May Borrow From Central Bank

· First Deputy Prime Minister and Finance Minister Mikhail KASYANOV on Monday said that the Russian government may borrow from the Central Bank to cover "serious funding shortages" next month. Earlier this year, the government predicted it could make it through the winter and spring without new borrowing. The government's finances have benefited from high world prices for oil¾Russia's main export, but now it fears that foreign debt payments in March may require the government to dip into Central Bank reserves. Russia is due to make about $3 billion in foreign debt payments in the first quarter. In 1999, the Russian government borrowed $4.5 billion from the Central Bank. KASYANOV did not specify how much may have to be borrowed this time.

Anti-Monopoly To Investigate Aluminum Sales

· Russia's Anti-Monopoly Minister Ilya YUZHANOV on Friday launched an investigation into the recent sale of sizable stakes in the Bratsk and Krasnoyarsk Aluminum smelters, the Novokuznetsk Aluminum Plant, and the Achinsk Alumina Plant to identify the buyers. The plants account for over 60 percent of total output. He said, "The investigation may take weeks or even months, especially because no one is exactly bringing us information on a silver platter." He suggested that it is likely that a "smokescreen of paperwork" has been created by offshore companies and dummy corporations in order to make it difficult to determine who exactly participated in the deal, RFE\RL Newsline reported. Sibneft president Eugene SHVIDLER said that individual company shareholders had bought majority interests in Russia's

two biggest aluminum plants, Bratsk and Krasnoyarsk, a minority interest in Krasnoyarsk Hydropower Station and nearly half of Achinsk Alumina Plant. The same day a spokesman for the owner of Novokuznetsk Aluminum Plant, the country's fifth largest, said it had sold a controlling interest in the plant to LogoVaz, a car dealership founded by prominent businessman Boris BEREZOVSKY. But no documentary proof that the transactions have taken place has been made public so far, Reuters reported. The investigation has led YUZHANOV to discover that a little known bank, East Siberian Commercial Bank, owned 84.5 of Krasnoyarsk Aluminum Plant and on February 25th it bought a 9.5 percent stake in Achinsk Alumina Plant. The Ministry earlier said that by March 7th, it would make a decision about whether or not the deals violate Russian anti-monopoly regulations.

Business

Sony Music To Form Russian Affiliate

· Sony Corporation announced it has formed Sony Music Entertainment Russia, a wholly owned Russian unit, The Wall Street Journal Europe reported, citing Paul RUSSELL, chairman of Sony Music Entertainment Europe. The Moscow-based affiliate, which will be a unit of Sony Music Entertainment Europe with 14 staff members, will be headed by Managing Director Andrei SUMIN. The unit will have an artist and repertory department, to sign and work with local artists, while Sony will increase the range of its CDs sold in the country. Sony will license sound compression technology to Texas Instruments and six other Japanese and American companies.

Volzhsky Announces 159 Percent Output Rise

· Volzhsky Truboprovodny Zavod, which produces about 13 percent of all pipes in Russia, announced a 159 percent rise in output to 403,000 tons of pipes in 1999. The company's revenue tripled to 3.8 billion rubles ($150 million) last year. Volzhsky Truboprovodny said that increased pipe exports and a $90 million contract with the Caspian Pipeline Consortium were the cause of the revenue increase. Rosneft, Russia's state-owned oil producer, is prepared to give up 2.7 million tons of its allocation in the Caspian Pipeline Consortium, which is due to deliver crude from Kazakhstan to a Black Sea port in 2001.

When you need to know it as it happens

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Tuesday

February 29, 2000

Intercon's Daily

GAZ Proposes Debt Swap With EBRD

· Gorkovsky Avtomobilny Zavod (GAZ) has proposed a debt swap for equity to the European Bank for Reconstruction and Development (EBRD). Under the proposal, EBRD would take a stake in GAZ, Russia's second-biggest car-maker, in exchange for payments on a $65 million loan. GAZ stopped paying on the loan, which is due in 2003, last year. Alexander ANDREEV, an analyst at Moscow-based Brunswick Warburg brokerage said, "An equity swap has been one of the possible options...The EBRD will most likely agree to this sooner or later." Production grew 8 percent last year from 1998 on increased demand for GAZ minibuses and trucks. The company said it will cut back plans to increase production this year as it anticipates a decline in demand. GAZ has built a new production line for the new Volga-3111, which will cost more than double old models, or about $10,000. GAZ plans to produce 2,800 new Volgas this year and will start selling them from April, said Inna PETROVA, director of the company's press service. GAZ's total outstanding debt is estimated at $120 million, including ruble and foreign currency loans. That includes a $15 million loan from Russia's Avtobank, provided in 1996 as part of parallel financing with the EBRD. GAZ also took a five-month 250 million ruble ($8.7 million) loan last year from Sberbank, Russia's state savings bank, due this month which will likely will be extended

lenging but it could go up further because of the general positive sentiment behind all East European telecom stocks."

CSFB Implicated Further In IMF Funds Scandal

· Questions surrounding Credit Suisse First Boston's CSFB involvement in Ukraine's use of loans from the International Monetary Fund (IMF) in risky investments are growing. The Financial Times first broke the story of the latest monetary scandal in which Ukraine's Central Bank transferred hundreds of millions of dollars in hard currency reserves through CSFB in order to conceal investments and mislead the Fund about the Central Bank's foreign currency reserves. The newspaper now reports that the Ukrainian Central Bank performed a set of further transactions through CSFB in effect transferring millions of dollars in hard currency reserves to one of Russia's largest commercial banks. CSFB took the Central Bank deposits and extended an equivalent credit line to the Russian bank. The total amount of Ukrainian reserves tied up in the transactions is said to be over $100 million. In each of these transactions, CSFB earned a substantial commission, while taking on little or none of the risk. CSFB declined to comment on any aspect of its relations with Ukraine's Central Bank and has refused to cooperate on requests for information.

South Caucasus & Central Asia

Georgia Approves Budget In First Reading

· The Georgian parliament on February 22nd finally approved the 2000 draft budget in its first reading. The budget calls for 883 million lari ($420 million) in revenues and 1.255 billion lari in expenditures, resulting in a deficit of 381 million lari. Georgia and the IMF reached an agreement in January that annual inflation should not exceed 7 percent. State Minister Vazha LORDKIPANIDZE pointed out that the planned expenditure takes into account 110 million lari to pay for pension and wage arrears. It also includes 173 million lari to pay off Georgia's foreign debt, which totals $2.39 billion. The 2000 targets appear to be optimistic, since Georgia collected only 631.5 million lari in 1999 far from the revenue target of 942.45 million lari. The majority party in parliament Union of Citizens of Georgia and Union for Revival and Union of Manufacturers voted against the draft, claiming that it did not provide sufficient funding for

European Republics

Estonian Telekom Profits Rise

· Estonian Eesti Telekom reported an 82.4 percent rise in net consolidated profits on Monday but its stock price fell amid some disappointment that the results didn't meet predictions. Telekom, a holding firm for fixed line Eesti Telefon and Eesti Mobiiltelefon and 49 percent owned by Finland's Sonera and Sweden's Telia, posted 1999 profits of 580.3 million kroons ($36 million), up from 318.2 million kroons in 1998. The company said earnings per share were up 10 percent at 4.78 kroons. Its earnings before interest, tax, depreciation and amortization (EBITDA) margin rose to 51 percent from 49 percent. However, Telekom stock fell to close down 1.17 percent at 147.25 kroons in Tallinn, Reuters reported. One Helsinki-based analyst said, "It is positive compared to last year but...I would have expected slightly more [profits]...Current valuation levels seem quite chal

When you need to know it as it happens

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February 29, 2000

Intercon's Daily

reforms. Chairman of the parliament's Defense and Security Committee Revaz ADAMIA has complained that the 10 million lari allocated for the protection of Georgia's state budget is totally inadequate. One Western analyst described the budget crisis as, "the mother of all the evils" currently besetting the Georgian economy, RFE\RL Newsline reported.

Statoil To Invest In Azeri Gas

· Statoil, Norway's state-owned oil company, said it is considering taking part in gas exports from an Azerbaijan offshore project to Turkey. Statoil Chief Executive Olav FJELL said, "We are ready to share the project, if commercial conditions meet our interests." The discovery of gas at the Shah-Deniz field offshore from Azerbaijan made the region especially important for gas business. BP Amoco earlier said it expects to start exporting natural gas to Turkey from its Shah-Deniz deposit exploration project in the Caspian Sea by 2002. Statoil presented a feasibility study on commercial gas use in Azerbaijan in September last year. The project was developed in cooperation with BP Amoco, State Oil Company of Azerbaijan (Socar), and Azerigaz, Azerbaijan's gas distribution company. Statoil plans to invest $110 million in Azerbaijan project this year, FJELL said. Statoil holds a 8.56 percent stake in Azeri-Chirag-Guneshli oil field exploration project, 25.5 percent in Shah Deniz deposit and 15 percent in the Alov deposit oil and gas offshore exploration project in Azerbaijan.

Armenian Ministries Cut From 24 To 17

· Armenian President Robert KOCHARYAN fired seven ministers and reorganized the working of government in a Cabinet shuffle Monday, a presidential spokesman said. The President cut the number of ministers from 24 to 17 in an effort to make the government more efficient, according to presidential spokesman Vage GABRIELYAN. He said, "It is not a new government but a renewed one...The president hopes the changes in the government will improve the economic situation in the country." GABRIELYAN added that the shake-up also created

a wider base of support for government in the parliament. For the first time since independence from the Soviet Union in 1991, a member of the Armenian Communist Party was appointed to a ministerial post. KOCHARYAN approved Leonid AKOPYAN as the Minister of Regional Development. The Finance Ministry was merged with the Economics Ministry. Several other ministries were also merged. Key ministers including foreign affairs, defense, national security and the interior retained their posts. GABRIELYAN said the coalition government "can improve the social and economic situation for the population." The changes, which were proposed by Prime Minister Aram SARKISYAN after consultations with leaders of Armenia's main political parties, do not require approval by parliament.

Tajik Pro-Gov't Party Leads Vote

· The chief of the Central Election Commission, Mirzoali BOLTUYEV announced that, "According to the preliminary results of the vote count, the People's Democratic Party has received about 70 percent." The pro-government party is far ahead of its five rivals in the race for the 22 seats allotted to political parties, with the Communist Party in second and the Islamic Renaissance Party (IRP) in third. IRP has complained that Sunday's vote had been reduced to a farce. A spokesman for IRP Makhmadali KHAITOV said, "The election was neither democratic nor free¾it was totally falsified...It was even worse than the presidential vote." Senior Communist Party member Tuigun KARIMOV said there was widespread vote rigging and that party representatives were prevented from monitoring the ballot in some polling stations. Apart from the seats allotted to parties, a further 212 people are contesting 41 single-member constituency seats. A joint monitoring mission of the UN and OSCE said Sunday's high turnout figure of 87 percent cast doubt over the integrity of the voting results. "In general, political plurality was ensured...However, Tajikistan must improve the process in order to meet the minimum democratic standards for equal, fair, free, secret, transparent and accountable elections."

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

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