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

Wednesday, February 9, 2000

has described BABITSKY's hand-over as voluntary and has submitted a written statement signed by the journalist. Genri REZNIK, a lawyer for US-sponsored Radio Liberty said the swap, "could not even be characterized as barbarity, but as savagery." BABITSKY's colleagues called the document an "unprofessional fabrication." "If it had been done professionally, BABITSKY would have read on camera the statement that he has supposedly written," Radio Liberty's Moscow bureau chief, Savic SHUSTER said. Boris PUSTINTSEV, head of the civil rights group Citizens' Watch in a Moscow Times article wrote that, "It is now clear that the rather mystical exchange...is a sleight of hand meant to conceal an obviously unlawful action¾or, more likely, a heinous crime." He added that the case illustrated the heavy-handed methods of acting President Vladimir PUTIN, a former KGB officer.

Putin Reshuffles Regional Representatives

· Acting President Vladimir PUTIN sacked 17 presidential representatives to Russia's regions, Segodnya reported on February 3rd. Among those dismissed were Sergei KIZIN from Belgorod Oblast, Valeri BORODULIN from Samara Oblast, Valeri ADROV from Astrakhan Oblast, and Vladimir SHAPOVALENKO from Orenburg Oblast. Aleksandr KOSARIKOV was relieved from his post in Nizhnii Novgorod Oblast, having been elected to the Russian State Duma. PUTIN dismissed Sergei TSYPLYAEV from his post as representative and replaced him with Aleksandr BESPALOV, a former colleague

Russian Federation

Politics

New Footage Of Babitsky Broadcast

· Russia's commercial NTV Television showed today the latest footage of RFE\RL (Radio Liberty) correspondent Andrei BABITSKY since he was handed-over to a Chechen gang in exchange for three Russian soldiers last week. The new footage shows BABITSKY sitting in front of a white wall, with a white handkerchief in his hand. According to a transcript of the video he said, "It is February 6, 2000...I am relatively all right. The only problem is time because the circumstances are such that I cannot immediately return home...It is all right here as far as it can be normal amid warfare. People, who are with me, are trying to help me...The only problem is that I really want home, I want all this to end as soon as possible. Do not worry, I will be back home soon." While the video gives hope to some, the only indication of date is given by BABITSKY. He specifically states the date, but the entire video could have been scripted and pre-recorded. Questions remain as to how the video made it to Moscow.

NTV said an unknown person turned up on Tuesday in the Moscow office of the British Broadcasting Corporation (BBC) offering the tape. On advice from the BBC, the tape was distributed to Radio Liberty and it was later obtained by NTV. BABITSKY was seized in Chechnya by Russian troops, after he criticized the military campaign and reported Russian losses in a rebel attack in December on Minutka Square in Grozny. The Russian military initially denied its troops entered the square, although several journalists counted the bodies of more than 100 soldiers. BABITSKY also gave the rebels a lot of coverage at a time when the government was urging reporters not to put "terrorists" on the air. Russian presidential spokesman Sergei YASTRZHEMBSKY

Today's News Highlights

Russia

London Talks Resume Thursday

Siberia-Beijing Pipeline Planned

European Republics

Belarus Predicts GDP Growth

Centrist Control Parliament

South Caucasus & Central Asia

Aeroflot-Georgian Air Agreement

Opposition Barred In Kyrgyz

Uzbek Plans For $940M Investmt

Politics-Economics-Business

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February 9, 2000

Intercon's Daily

of PUTIN's in the St. Petersburg mayoral administration. Representatives in Kursk and Kemerovo were also dismissed, according to Komsomolskaya Pravda. According to that daily, most observers link the large-scale firings to the Kremlin's desire to strengthen its role in relations with the regions.

Economy

Ruble = 28.72/$1.00 (NY rate)

Ruble = 28.65/$1.00 (CB rate)

Ruble = 28.44/1 euro (CB rate)

London Club Talks Resume This Week

· Russia and the London Club of commercial creditors are heading for another round of talks on Thursday in Frankfurt. Russia's lead negotiator, First Deputy Prime Minister and Finance Minister Mikhail KASYANOV, has already said he hopes a deal will be reached on restructuring the $32 billion of Soviet-era debt at the talks to be held in Frankfurt. Head of Russia's Vneshekonombank, the state debt agent, Andrei KOSTIN said, "We have every reason to believe that an agreement will be reached at the end of the week. He said Russia had a preliminary accord with the London Club, although differences remained over the amount of debt forgiveness and interest rates. Russia is asking investors to write-off 40 percent of the face value of the debt, while foreign banks are reluctant to give Russia more than 35 percent. Talks were called off last December. KOSTIN added, "There will be no major concessions by the Russian Federation side, but there will be compromises, more on form than on substance...We think no fewer than 70 percent of holders (of the debt) will support the decision." KASYANOV hopes a deal can be reached before the early presidential elections on March 26th. An agreement is important for Russia to regain investors' confidence and allow the government to return to international markets for the first time since it defaulted on $40 billion in Treasury debt in August 1998.

Business

Yukos-Transneft To Build Pipeline To China

· Russia's second-largest oil producer Yukos has reached an agreement with state-controlled pipeline monopoly Transneft to build a $1.7 billion oil pipeline linking Angarsk in eastern Siberia to Beijing, China. The pipeline is scheduled to begin operating in 2004

and will have an initial capacity of 10 million metric tons per year, increasing to 30 million tons per year by 2010. The oil will come from Yukos controlled companies Tomskneft and Yuganskneftegaz. The project was first discussed last February between Yukos, Transneft, and the China National Petroleum Corporation. The move committing construction to timeline was reached Monday after reviewing feasibility tests. Financial terms for the pipeline have yet to be worked out, but a Yukos spokesman said Russia and China will each pay $850 million toward the pipeline's construction. Oil industry specialists have expressed concerns as to whether the market for Russian oil in this Chinese region is enough to substantiate such an investment. Stephen O'SULLIVAN of the United Financial Group said that pipeline is risky because of uncertainty over future prices. "They can afford it today, when oil costs $27 a barrel. But can they in a more normal environment, when the price falls to $18? They'd be better off reinvesting their profits in increase production," he told The Wall Street Journal.

Lukoil Predicts Profits For 2000

· Russia's largest oil producer LUKoil predicts that net profit in 2000 will remain at about the same level, with forecasts of net income totaling between $1.1 billion to $1.3 billion on projected revenue of between $9 billion and $12 billion. The company expects world oil prices to remain at current levels, despite a possible increase of crude exports from Iraq. LUKoil said it had $2.5 billion of outstanding debts as of January. The oil producer estimates the value of its debts will decline by 8 percent to $2.3 billion in 2000. Its crude production costs declined by 2.7 times last year to $1.80 per barrel because of the ruble plunge in 1998. LUKoil's output in 1999 grew 1.1 percent to 67.9 million tons of oil from 67.1 million in 1998. The company produced about 22 percent of Russia's total crude output. It also produced 4.2 billion cubic meters of gas in 1999 up 9 percent from 3.8 billion in 1998. LUKoil exported 30.7 million tons of crude in 1999 down 5.9 percent from 32.7 million tons in 1998. The company's oil products export grew by 5.5 percent to 4 million tons from 2.6 million tons in 1998. LUKoil said that it collected $500 million from marketing crude and products on the domestic market. The company processed 24.6 million tons of crude at its refineries in 1999 up 35.6 percent from 18.1 million in 1998. LUKoil secured control over

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Ukhta Refinery following its Komitek acquisition and bought three refineries in Eastern Europe.

Aluminium Output To Remain Steady

· Russia's second biggest aluminium producer, Krasnoyarsk, does not intend to cut output this year despite a lack of raw materials from some of its traditional alumina suppliers. Krasnoyarsk spokesman Dmitry CHECKIN said, "We are not planning to reduce output this year and in 2000 we will produce no less metal than in 1999." Krasnoyarsk produced 841,039 tons of aluminium in 1999, up from 809,124 tons in 1998, Reuters reported. Last September Achinsk, Russia's largest alumina plant and a major supplier of Krasnoyarsk, halted shipments due to a conflict over Achinsk management. But Krasnoyarsk managed to find alternative sources of supplies, including from Ukraine. However, Ukraine's only alumina producer, Mykolayivsky, this year will not supply Krasnoyarsk. CHECKIN said, "We are getting alumina from both within the former Soviet Union and outside in sufficient volumes." CHECKIN added that despite the problem of getting high-quality alumina at the end of last year, 99 percent of aluminum produced by the plant was top grade.

Soviet government. The people will govern honestly." Ukraine's parliament split into two factions late last month, each vying for legitimacy. The split occurred on January 20 when leftist speaker Alexander TKACHENKO refused to put to a vote a motion calling for his own removal. President Leonid KUCHMA has the right to dissolve the parliament if it fails to hold a legal session within 30 days. The United States last week warned Ukraine against letting the dispute hold up radical reforms in key sectors aimed at reversing eight years of economic decline since the end of the Soviet Union. Economic Minister Sergei TYHYPKO said, "We need political stability. We need cooperation between the government and the parliamentary majority...to adopt a realistic budget."

Belarus Predicts 60 Percent Growth in 2010

· The Belarus' government predicts that the gross domestic product (GDP) to increase by 60 percent to 80 percent over the next 10 years. Government spokesman Ivan ZNATKEVICH said the optimistic forecast was based on the government's program of development until 2010 which would be submitted to President Alexander LUKASHENKO for approval in a month. Belarus' GDP grew by three percent in 1999, after an eight percent rise in 1998. Officials pride themselves on sustained economic growth, while the country's economic model has been criticized by the West, the World Bank and the International Monetary Fund, which have frozen their loan programs with Belarus. The government has been criticized for interfering in the economy, rigidly regulating prices, creating soaring inflation by relying on printing money, privatizing too slowly and maintaining a multiple exchange rate mechanism.

South Caucasus & Central Asia

Georgians Oppose Visa Proposal

· According to a telephone poll of 400 Georgian citizens of Tbilisi conducted by Neya-Intermedia company, 52 percent of the residents oppose the proposal to impose a visa regime for trips to Russia. Approximately 31 percent favored the visa and 17 percent were unable to give an opinion. More than 60 percent of visas' opponents say that a visa will limit traveling from one country to the other, while 53 percent of visas' supporters think the measure will upgrade the border control and measures on contra

European Republics

Centrists Gain Control Of The Parliament

· Centrist and right-wing deputies stormed Ukraine's parliament on Tuesday to gain control and seize the speaker's chair from their leftist rivals, who had been holding a week-long sit-in. The majority parliament, who had been meeting in a nearby Exhibit Hall, carried out legislative business, as left-wing deputies shouted, banged tables in protest, and waved communist flags. An introductory speech by Ivan PLYUSHCH, elected speaker by the centrist group, was drowned out as leftists chanted, "Shame!" and "Thieves!" Small scuffles broke out after the rightist claimed control over the parliament. Communist party leader Petro SYMONENKO said, "This is sheer banditry. They seized the session hall and paramilitary guards are everywhere." Leader of the Progressive Socialist Party Natalia VITRENKO called on the a crowd of 300 supports to rebel against the KUCHMA government. She said, "if there are 150,000 patriots who blocked all the roads to parliament then we could impeach the president, abolish the executive branch, return power to the people and install fair

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band, drug trafficking, prostitution and crime. Georgian President Eduard SHEVARDNADZE on Monday said Georgia, "views the regime of visas as a violation of the CIS (Commonwealth of Independent States) principles."

Aeroflot-Georgian Airlines Sign Agreement

· Russian international airlines Aeroflot and Georgian Airlines signed a strategic cooperation agreement on Tuesday. The air companies focused on unified standards in transportation of passengers and maintenance of machinery. They agreed to raise reliability, efficiency and quality of air transportation. Aeroflot will make Georgian airplanes' arrival times convenient so that passengers can board flights to other Russian towns, the Commonwealth of Independent States (CIS), or abroad. The same will be done by Georgian Airlines for Aeroflot. The two companies will use their offices abroad for commercial and technical servicing of airplanes, recognize each other's transportation documents and jointly use the Moscow-Tbilisi-Moscow route. The Aeroflot open joint stock company was registered in 1994. It has 126 airplanes, including 27 foreign-made, and makes flights to 70 countries of the world. Georgian Airlines was formed in 1999 through merging of one state and two private companies. It acquired a status of the leading transporter of Georgia in October 1999. The company has three Tu-154 airplanes, one Tu-134, one U-62, one Yak-40 and one Boeing 737 500. It makes flights to seven countries.

Kyrgyz Opposition Barred From Elections

· A Kyrgyzstan court barred members of a major opposition party from running in a parliamentary election, raising concerns about the state of democracy. Judge Nailya ASSEINOVA said, "The court has reversed the decision of the Central Election Commission to register the party list of the Democratic Movement of Kyrgyzstan (DDK)." The election commission initially registered DDK candidates, including the former Kyrgyz Vice President Felix KULOV. The court later ruled that the party congress at which they were selected did not have the legal minimum

quorum. "This is a campaign to persecute so-called unsuitable candidates, to ensure they don't get into parliament," DDK leader Zhipar ZHEKSHEYEV told Reuters. He added that the party will appeal to the Supreme Court. US Vice President Al GORE has written Kyrgyzstan's President Askar AKAYEV expressing hope that Kyrgyzstan could resolve its pre-election hurdles. "These elections must be carried out with the strictest adherence to international norms and standards," AKAYEV said. KULOV is AKAYEV's most vocal critic and a likely challenger for his post in the December presidential election. The Organization for Security and Cooperation in Europe (OSCE) said it was concerned that the ruling could "undermine the election process and the trust of the voters." The OSCE plans to send a full observer mission to Kyrgyzstan, after refusing to recognize a number of other parliamentary and presidential elections in the region.

Uzbek Predicts Foreign Investment Of $940M

· The Uzbekistan government plans to attract 180.5 billion sums ($940 million) in foreign investment and credits this year, around half last year's 1999 target. The dollar equivalent was based on a forecast exchange rate for 2000 of 192 Uzbek sums per dollar versus the current official rate of 142.80 and a black market level of around 820. Initial targets last year for foreign investment and credits were $1.8 billion at the official rate. Total capital expenditures this year, including by domestic firms, from budget funds and lending by local banks, was pegged at 667 billion sums. A modest six percent of the total was expected to come from direct foreign investment and credits and a further 21 percent from foreign investment and credits guaranteed by the state. Foreign capital under state guarantee, worth around $750 million at the official exchange rate, would be spent on 52 projects, including the Shurtansk liquefied gas and polyethylene plant and the Fergana Oil Refinery. Direct foreign investment and lending worth around $200 million has been earmarked for 39 projects including oil, agricultural machinery and consumer goods.

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

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