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, March 14, 2000

Russian Federation

Politics

Reformers Endorse Putin

· Two weeks ahead of the presidential election, top Russian reformers announced their support for acting President Vladimir PUTIN. Former prime minister Sergei KIRIYENKO, a leader of the Union of Right Forces party, announced on ORT Television Sunday that two branches of the party would support PUTIN's presidential bid. KIRIYENKO gave no specific reason for the decision, saying only that he was supporting PUTIN, "not as a person, but as an institution of power." The Union of Right Forces is in an awkward position, since one of its leaders, Samara governor Konstantin TITOV, is also running for president. TITOV is an aggressive reformer who has criticized PUTIN for calling for stricter state control over some industries, the Associated Press reported. PUTIN has been vague about his plans for Russia's crippled economy, but has said he would generally continue reforms.

Polls show PUTIN getting up to 60 percent of the vote, with his nearest challenger, Communist leader Gennady ZYUGANOV, receiving about 20 percent. Eleven candidates are running in the March 26th election. The campaigning has been mostly uneventful because PUTIN has been so far in the lead since he took over as acting president when Boris YELTSIN resigned December 31st. The Central Election Commission on Monday ruled that a new book In The First Person, containing a series of interviews with PUTIN, should be considered campaign propaganda. The Commission declared that the costs of publishing the book should be borne by PUTIN's campaign office. It was originally planned to be sold at 20 to 25 rubles with 50,000 to be printed, but will now be sold by PUTIN's campaign headquarters for 17 rubles each.

Questions Of Sabotage Surround Yak-40 Crash

· Russian officers investigating the crash of the Yak-40 on Thursday, which killed all nine people on board, have ruled out that a bomb was involved, but have not excluded the possibility of sabotage or technical failure. Speculation that the crash was not an accident but caused by a bomb or sabotage was raised because prominent Moscow investigative journalist Artyom BOROVIK of Top Secret and Ziya BAZHAYEV, president of the Oil Alliance Company were on board and both men had received numerous death threats. Russian security official said last week that BAZHAYEV, a native of the breakaway republic of Chechnya, had been pressured by separatists to help finance their fight against Russian troops. But his relatives have denied he received threats from Chechen rebels. The plane was en route to Kiev, where BAZHAYEV was to hold business talks and BOROVIK to work on a story about a Ukrainian plant that reportedly is being taken over by a Russian financial group. Among those who paid respect at BOROVIK's funeral were Moscow Mayor Yuri LUZHKOV, former Prime Minister Yevgeny PRIMAKOV, and prominent liberal lawmaker Grigory YAVLINSKY. BAZHAYEV was to be buried Sunday in his native Chechnya. The plane lacked a cockpit voice recorder that could have shed light on the crash, and investigators were still busy deciphering the flight data recorder. They have questioned airport personnel who prepared the jet for the flight. The Yak-40 is a reliable aircraft of Russian airlines, and crashes involving the model are rare. The

Today's News Highlights

Russia

Tyumen To Borrow $300M

EBRD To Lend LUKoil $150M

European Republics

Belarus Lowers Key Rate

Kiev Not To Hand Over Stakes

South Caucasus & Central Asia

Charges Against Raduyev

7th Supsa Tanker Filled

Philip Morris To Open Factory

Kyrgyz Elections Marred

Politics-Economics-Business

Page

Tuesday

March 14, 2000

Intercon's Daily

plane that crashed was 24 years old, but the aircraft owner, the Vologda flying division, insisted the jet was in sound condition after a thorough overhaul.

Economy

Ruble = 28.5/$1.00 (NY rate)

Ruble = 28.48/$1.00 (CB rate)

Ruble = 27.57/1 euro (CB rate)

Russia Extends GKO-OFZ Deadline

· The Russian government announced on Monday that it has extended until July 1st the deadline for restructuring government paper issued before the August, 1998 economic crisis. A previous offer to participate in the restructuring of GKO treasury bills and OFZ bonds set a deadline of May 1, 1999, which was then extended until the end of last year. A total of 3.4 billion rubles ($119 million) of the GKOs and OFZs remain unrestructured since the government first offered to restructure about 188.1 billion rubles of the paper after a failure to service them following the crisis. Most investors, which include both local and major foreign banks, have already swapped the paper into a combination of new securities and cash. The restructuring program was harshly criticized by foreign holders who called it confiscatory. Under the plan, investors get 10 percent in ruble cash up front, 20 percent in couponless bonds, and 70 percent in bonds with a sliding coupon.

Russian Hopes For WB Coal Loan Release

· Russian Acting President Vladimir PUTIN and World Bank President James WOLFENSOHN met on Saturday in St. Petersburg to discuss the upcoming release of two loans from the bank. Russia hopes to get $100 million under a so-called coal loan this month and $250 million of a Social Protection Adjustment Loan in April. Both can be withheld if Russia fails to meet certain requirements. These include closing unproductive mines, paying laid-off workers, moving away from subsidizing uneconomic production, increasing the management of subsidies, and completing a survey on the social impact of restructuring. World Bank director for Russia Michael CARTER declined to comment on whether any funds would be released this month. Deputy Prime Minister Viktor KHRISTENKO has reviewed the progress of the two projects. He said, "There has been a huge amount of work by the bank, by Russia, which has

succeeded in improving their quality." The World Bank last Fall put on hold the next $100 million installment of the third structural adjustment loan (SAL-3) for $1.5 billion, of which $1.1 billion has not been disbursed. The World Bank and Japan, which co-lends with the bank, are the only major foreign partners actively lending to Russia.

Business

Tyumen To Borrow $300M From Sberbank

· Tyumen Oil Company, Russia's fifth-largest oil producer, plans to borrow $300 million from state-controlled Sberbank to finance various oil and gas projects. The bank later also may lend an additional $200 million to Tyumen, which is in negotiations to increase cooperation with BP Amoco in Russia, for developing oil fields and improving refineries. An initial $78 million four-year loan will be used to develop the Koshilskoe oil field in Russia's Khanti-Mansiysk region in Siberia. Tyumen President Simon KUKES said, "Today's agreement shows the Russian economy is substantially improving and Sberbank understands that leading Russian companies need project financing, which is more difficult to raise, than trade financing." He added that the project will create 1,000 jobs in Siberia over the next two and a half years and boost its production by 1.2 million tons of oil a year. The Sberbank offer comes after the US Export-Import Bank in December decided not to consider a proposal to approve about $500 million in loan guarantees for the sale of US-made equipment to Tyumen.

EBRD Ready To Lend LUKoil $150 Million

· The European Bank for Reconstruction and Development's (EBRD) directors have approved in principle one of its largest loans to Russia's biggest oil producer LUKoil. The three-year $150 million loan will provide working capital for LUKoil, the Financial Times reported. EBRD directors met with LUKoil representatives this weekend to negotiate the details. The funds are tied to conditions, which include publishing results in US accounting standards and disclosing the beneficial owners of a 9 percent stake sold in 1999 to two obscure Cyprus-based companies. The new loan signals renewed confidence in the Russian economy. Peter BOONE of Brunswick Warburg brokerage in Moscow said, "In the past two months there has been such a

When you need to know it as it happens

Politics-Economics-Business

Page

Tuesday

March 14, 2000

Intercon's Daily

change in the economic data. We're going to have a big rally. Too many things are working too well now."

South Caucasus & Central Asia

Georgia Considers Charges Against Raduyev

· Georgian law enforcement agencies are considering instituting criminal proceedings against Chechen field commander Salman RADUYEV, who was seized by Russian Federal Security officers and taken to Moscow for questioning. RADUYEV has claimed responsibility for the assassination attempt against Georgian President Eduard SHEVARDNADZE on February 9, 1998, in Tbilisi. Special investigator of the Georgian Prosecutor General's Office, Georgy NOZADZE said, "the Georgian Prosecutor General's Office is ready to properly respond to possible new materials or information obtained during the questioning of RADUYEV who has been detained and taken to Moscow." He noted that there are some facts that need clarification and questions regarding the involvement and whereabouts of some individuals. Georgian investigators believe that those who participated in the attack were trained at one of the bases in Chechnya and possibly by RADUYEV.

Supsa Terminal Loads 7th Tanker

· The seventh tanker of 2000 has been filled with over 130,000 tons of Caspian oil at the Supsa terminal on March 12th. Georgian International Oil Corporation told the Prime News Agency that the oil owned by Exxon has been transported to Italy. Supsa oil terminal was launched last April and filled 31 tankers in 1999. Transit of one barrel of crude oil via Georgian territory costs 18 cents.

Geocell To Extend Georgian Coverage

· Cellular telephone communication network GEOCELL will cover the whole territory of Georgia before the end of the year, including the highland regions, according to Prime News Agency. As of now, GEOCELL covers 40 percent of Georgian territory. GEOCELL company, the first GSM-operator in Georgia was founded by the Georgian Ministry of Communication and Turkish company Gurtell in September, 1996.

Turkmen To Announce Gas Tender

· Turkmenistan plans to announce its second international offshore oil and gas tender on Thursday, the same day as the opening of the Central Asian state's annual energy industry conference. Arslan NEPESOV, head of the Chamber of Trade

European Republics

Belarus Cuts Key Rate To 150 Percent

· Belarus' Central Bank on Monday said it would lower its main refinancing rate from 175 percent to 150 percent starting March 15th. One reason for this is the slowing of consumer price inflation in February. The Bank last changed the refinancing rate on February 21st, raising it to 175 percent. This year it plans to set its refinancing rate independently based on annualized inflation rates rather than after consultations with the government as was previously the practice. Official refinancing rates in Belarus are used by commercial banks mostly as a reference in setting their own interest rates. Central Bank has promised tough measures to curb high inflation and stabilize its ruble currency this year. According to preliminary data from the Statistics Ministry, consumer price growth slowed to about 10 percent in February from 14.1 percent in January.

Ukraine Never To Give Stakes For Debt

· On Friday, Ukrainian President Leonid KUCHMA rejected an offer by Russia to pay off Ukraine's multi-million dollar debt for gas supplies by handing over stakes in its top companies. The President said, "There can be no question of handing over Ukrainian companies to repay gas debts." He added it would be, "simply inappropriately and rudely" to raise the issue of the gas debts in this way. Ukrainian Prime Minister Viktor YUSHCHENKO and Russian First Deputy Prime Minister Mikhail KASYANOV agreed at a meeting in Kiev last month that Ukraine's gas debt totaled at least $1.4 billion as of February 1, 2000. But a final figure has not been agreed to. KUCHMA said, "I have given a special order to the government to review and agree the amount of the total debt for Russian gas and divide it between the state and commercial firms." He has also called for a specific payment schedule to be drawn up. Ukraine has already implemented several alternatives to paying off the Russian debt with cash. It recently handed over 11 strategic bombers to Russia to write off several hundred million dollars of the debt. Ukraine, which consumes around 70 to 75 billion cubic meters of gas a year, imports 55 billion cubic meters from Russia.

When you need to know it as it happens

Politics-Economics-Business

Page

Tuesday

March 14, 2000

Intercon's Daily

and Industry, said that US geological firm Western Geophysical will present its findings of gas reserves. No further details were available, but according to a previously state program, the tender would include the Yegegapan, Kelzhebash, Zemzen, Bars and Durna acreages located in shallow waters. The tender will not include territory disputed by other countries bordering the Caspian Sea. Turkmenistan and Azerbaijan have argued bitterly over a number of Caspian oil and gas deposits, including those already being developed by the giant Azerbaijan International Operating Company consortium. Two international firms are currently operating off the shores of Turkmenistan — Ireland-based Dragon Oil and Malaysian state oil firm Petronas.

Philip Morris To Open Factory In Kazakhstan

· Philip Morris, the world's largest tobacco company by sales, plans to open a $340 million plant in Kazakhstan in May. The factory will make tobacco products to be sold in Kazakhstan and other Central Asian republics. It will also consider using its production in Kazakhstan to export tobacco products to Russia. Bob MAY, director of corporate affairs for Philip Morris Central Asia said, "The new plant takes care of the Kazakh market and gives us the potential to export to neighboring markets." Philip Morris entered the Kazakh market in 1993, buying up a number of local tobacco producers. Today, it claims 80 percent of the local market, making and selling Madeo and international brands such as L&M and Chesterfield. Philip Morris has also invested about $500 million in Russia in the past five years, including the recent opening of a $330 million plant outside of St. Petersburg. It is also completing the $170 million expansion of its plant in the Krasnodar region in southern Russia.

Tajik-Kyrgyzstan-China Agree On Borders

· Tajikistan, Kyrgyzstan and China have reached an agreement on the point of convergence of their borders. The border accord has been in principle agreed upon during a meeting of a law group within the frame of joint border talks of Kazakhstan, Kyr

gyzstan, Tajikistan and Russia with China. Diplomatic sources said that the accord will be signed at a Shanghai Five summit to be held in Dushanbe in May. A Russian participant in the talks said the joint delegation of Russia, Kazakhstan, Kyrgyzstan and Tajikistan is a, "unique mechanism having no analogues in the world for solving border issues." He said it is, "the sole mechanism within the framework of the CIS which works with a high effectiveness and simultaneously is a part of the mechanism of the `Shanghai Five'."

Kyrgyz Elections Preliminary Results

· The Kyrgyz Central Election Commission released preliminary results on Monday for Sunday's second-round parliamentary elections, which showed that candidates supported by President Askar AKAYEV had taken a majority in the 105-seat legislature. Election monitors have accused the government of interfering in the elections. Violations of the vote include ballots pre-marked endorsing AKAYEV's candidates, according to the Organization for Security and Cooperation in Europe (OSCE). The monitoring group said, "The positive conditions for fair and competitive elections, which the existing legislation could have ensured, have been undermined."

The OSCE statement added, "There are again serious concerns regarding the election in [Felix KULOV's] Constituency 44, where there was a significant increase in the number of advance voters [and] reports of pressure on the electorate...These factors raise serious questions regarding the results in this district." KULOV's failure to win a seat in the Legislative Assembly came two days after Daniyar USENOV, also a prominent critic AKAYEV, was controversially barred from taking part in the second round. Seventy-seven of the 90 directly-elected legislative seats were at stake, after no candidate won a majority in those districts in the first round in February. The government first drew fire prior to the voting when the courts disqualified nine opposition candidates on what the observers characterized as trivial charges. Four more cases are still pending.

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