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

Thursday, March 16, 2000

statements declaring his distance from the influence of the oligarchs. He has pledged to cut down on corruption which is synonymous with the so-called business activity of these oligarchs. One analysts warns, that PUTIN should not alienate this infamous group of businessmen, since they control Russia's richest banks, media empires, its oil and gas giants, its lucrative aluminum industry. Georgy PAVLOV of the Russian-European Center for Economic Policy said, "He can't make them disappear. They will still have their fortunes and their important companies. But they won't be able to call themselves oligarchs anymore...[PUTIN] will put them in their place."

Media Bans Interviews With Chechen Rebels

· The Russian Press Ministry warned the media that quoting Chechen rebel leaders or showing them on TV violates the law on fighting terrorism. Russian Mass Media and Press Minister Mikhail LESIN said quoting suspected terrorists in print or allowing them to speak on television or radio is forbidden. Deputy Minister for Mass Media and the Press Mikhail SESLAVINSKY said Elected Chechen President Aslan MASKHADOV and Chechen warlord Shamil BASAYEV were among those barred from the media because they are wanted on terrorism charges. The Russian military earlier detained Andrei BABITSKY, a reporter for US-funded Radio Liberty who was covering the war, accusing him of collaborating with rebels. After holding him for several weeks without permitting him to contact his family, employer or lawyer, the military admitted to detaining him and then claimed that

Russian Federation

Politics

Fatherland Supports Putin? Oligarchs Are Wary

· After harshly criticizing acting President Valdimir PUTIN and his party of support Unity in the past, Moscow Mayor Yuri LUZHKOV now says his party Fatherland is prepared to endorse the former KGB spy in his bid to win the presidency. The Mayor noted that the views of his party and PUTIN have grow increasingly close. He said, "We do not push this extended hand away and we are prepared to shake it as a sign of our partnership." However, the Mayor on Wednesday stopped short of outright endorsement. He said Fatherland's support depends on PUTIN taking a strong position on fighting corruption and the influence of Russia's powerful oligarch business tycoons. PUTIN must also commit to mobilizing resources for social services, LUZHKOV said. Earlier this week, former prime minister Sergei KIRIYENKO said two branches of the Union of Right Forces will support PUTIN, even though one of its own members is also running in the election. PUTIN's popularity is so wide-spread that he has launched a very limited campaign. He has no posters, no bill boards, and will not debate his opponents on television. PUTIN has also so vaguely outlined his plans for Russia that any citizen can find a part of his policy to support¾ from market reforms to a strong state.

In the previous election, former president Boris YELTSIN counted on the deep pockets of Russia's seven wealthiest businessmen to fund his campaign. In return, the oligarchs influenced major policy decisions during YELTSIN's second term. This time around the situation appears to different with the power and influence lying in PUTIN's hands only. PUTIN is so popular that he doesn't need the oligarchs' millions and has not accepted offers of help. In addition, the acting President has issued

Today's News Highlights

Russia

Tyumen Agrees To Refinery

Sibneft To Increase Investment

European Republics

Belarus March Ends Peacefully

Estonia Calls Spy Case Fiction

Kuchma Signs Troops Order

South Caucasus & Central Asia

Georgia-Adjaria Hold Talks

Ukraine-Azeri On Energy

Kazakh Hopes For Capital

Politics-Economics-Business

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Thursday

March 16, 2000

Intercon's Daily

BABITSKY volunteered to be exchanged to Chechen rebels for Russian prisoners of war.

Chechen Operation Continues Crackdown

· Russian military commanders have vowed that leaders of the Chechen rebels will eventually be "destroyed or captured." They claim that 5,000 rebels were still at large in Chechnya, including about 300 in the devastated capital Grozny, now nominally in Russian hands. Russian attacks are being focused just outside the village of Sharo-Argun, deep in the Argun gorge, where rebels and federal troops have been fighting. Deputy Interior Minister Igor ZUBOV said Russia knew the whereabouts of rebel leaders Shamil BASAYEV and KHATTAB. "We know that they are in the southern part of the Argun gorge but this is tens of kilometers away in an inaccessible and well fortified place where there are many caves...Nevertheless, they will all be destroyed or captured." Earlier this week, a special team of Federal Security Service (FSB) seized Chechen commander Salman RADUYEV, who faces a trial for his terrorist actions, bombing of two railroad stations, and involvement in the assassination attempt on Eduard SHEVARDNADZE.

Economy

Ruble = 28.46/$1.00 (NY rate)

Ruble = 28.4/$1.00 (CB rate)

Ruble = 27.58/1 euro (CB rate)

New Measures To Improve Investment Climate

· In the weeks leading up to the presidential election, the Russian government has been approving measures to improve the investment climate. First Deputy Prime Minister and Finance Minister Mikhail KASYANOV told a conference of top investors that beginning April 1st, Russia will introduce a fivefold increase in allowed tax deductions on advertising, employee training and other business expenses. This will help make advertising more affordable for consumer-goods companies, while potentially boosting ad agencies and other media outlets. Russia is also establishing a new agency for solving tax disputes between the government and investors. The government will develop legislation for the agency, which will review investor claims a couple of times a week. KASYANOV also said that Russia's tax loopholes need to be fixed with legislation. Bill KINSEY, chief executive office of Ernst & Young

International and head of the Foreign Investment Advisory Council said that this measure is, "a very clear step in the direction we've been recommending¾we think it's a very positive step," The Wall Street Journal reported.

Acting President Vladimir PUTIN told the same conference that Russia's investment climate is improving. He estimated foreign direct investment would increase 16 percent to reach $5 billion this year. PUTIN stressed that attracting domestic investment, including billions of dollars of flight capital, is his top priority. "Foreign investment is important, but internal reserves are the main thing," He pledged "in the near future" to curb capital flight, battle corruption and improve tax- and land-reform laws. PUTIN has yet to announce an economic program. Foreign direct investment (FDI) picked up 27 percent in 1999 compared with the period right after the 1998 crisis. The government expects Russia to attract $5 billion of FDI in 2000, beating 1999 by $740 million.

Business

Tyumen Agrees To Ukrainian Refinery Terms

· Tyumen Oil Company, Russia's fifth-largest oil producer, has agreed to terms for the purchase of a 67.4 percent stake in Ukrainian refinery Lisichansk Naftaoorgsintez, also known as LiNOS, in a competition to be held by the Ukrainian State Property Fund. The oil company proposes paying $5 million for the stake and returning $50 of debts to Westdeutsche Landesbank of Germany and $120 million to the refinery's commercial creditors. Tyumen has also proposed supplying 4 million tons of oil per year to LiNOS over five years. Tyumen President Simon KUKES said his company is trying to position itself as the top refiner in Ukraine and also wants to control a fuel retail chain in order to ensure the quality of the oil products supplied.

Moscow Oil Company Buys Gas Stations

· Moscow Oil Company, will acquire 131 filling stations and a fuel storage site from Moskovskaya Toplivnaya Kompaniya, in which Most Group, a Russian media and banking company, holds a 50 percent stake. The Moscow city administration already has transferred its 50 percent stake in Moskovskaya Toplivnaya Kompaniya to Central Fuel Company. The final transaction worth $100 million will be completed by June. Moscow's city-

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owned Central Fuel Company was transferred to Moscow Oil Company last year.

Sibneft To Increase Investment

· Sibneft, Russia's sixth-biggest oil producer, said it plans to increase investments in its production and refining subsidiaries this year, particularly to Sibneft-Noyabrskneftegaz with an investment of $220 million in 2000, three times higher than last year. The oil company also plans to invest 3 billion rubles ($105.2 million) in its Sibneft-Omsky NPZ refinery this year, up four times from 1999. Sibneft President Yevgeny SHVIDLER said, "Sibneft economic strategy is to maximize the effective operation of production." Sibneft-Noyabrskneftegaz plans to produce 16.5 million tons of oil this year, up 1.2 percent from last year's output. The oil company will export its first 75,000 tons of crude through Lithuania's Butinge terminal on the Baltic Sea on March 25th. The terminal has a capacity to ship 8 million tons per year.

parliamentary election in October and to denounce an agreement signed last December to create a "union state" with Russia.

Estonian Spy Row Pure Propaganda

· Russia today down played the arrest of a Russian citizen on alleged spying charges. The Russian Federal Security Service for counter-intelligence (FSB) said the citizen was working for Britain with the assistance of Estonia's intelligence service. FSB spokesman Alexander ZDANOVICH said, "I cannot say anything on this matter. There is a specific international aspect to it...We have said everything that can be made public." Spokesmen for Britain's Foreign Office in London and the Estonian government declined to comment. Unlike previous espionage rows, all mention of the latest incident was dropped on Russian television. Espionage coups are generally accompanied by blanket coverage of officials displaying evidence of wrongdoing. Nezavisimaya Gazeta reported, "Official documents show that for Estonia, Russia is the main potential threat...Gathering information on their neighbors is therefore the principal mission of the Estonian intelligence services." In Tallinn, an intelligence source told Eesti Paevaleht the arrest was "purely posturing by Moscow and London and Estonia has been dragged in so it could be seen in a bad light." The intelligence source added, "It is incomprehensible that a Russian citizen could spy in Tallinn against Russia." Russia's relations with the Baltic states are strained because of their efforts to join NATO. Estonia also believes that the spy affair has been revealed in order to coincide with the upcoming presidential election in Russia.

Kuchma Signs Law on Foreign Troops

· Ukrainian President Leonid KUCHMA on Tuesday signed a law regarding the stay of foreign troops in Ukraine. The law bans access and stay in Ukraine of foreign troops armed with nuclear, chemical or other weapons of mass destruction. It also banned to have the same kinds of weapons on naval ships and submarines. Under the law, Ukraine may introduce additional measures and even ban the stay of foreign troops in case state of emergency is introduced in the republic. Ukraine reserves the right to denounce an agreement on the stay of foreign troops, if other states threaten its national interests, interfere in its internal affairs, direct actions against third countries or have come into conflict with those states.

European Republics

Minsk Protest Ends Peacefully

· Approximately, 20,000 protesters demonstrated in the streets of Minsk in opposition of President Alexander Lukashenko calling for his resignation. The march was conducted in a peaceful manner. A similar march in October ended in a bloody clash between police and stone-throwing demonstrators. Some of the marchers carried huge caricature masks of LUKASHENKO, Josef STALIN and Adolf HITLER. Others bore the red-and-white opposition flags banned by LUKASHENKO. Protesters chanted, "Long live Belarus" and banners read, "To Europe without LUKASHENKO," and "Freedom." The Associated Press quoted said Yuri KHADYKA, one of the leaders of the opposition Belarus People's Front saying, "We came here to protest against the state we live in. We are sick and tired of empty promises of a man who was elected president by mistake. Belarus needs changes and it will have a happy future." LUKASHENKO has ordered many crackdown against opponents. In fact, several political opponents have disappeared or been detained in prison. Belarus' small but vocal opposition rejects constitutional changes made after a 1996 referendum which allowed LUKASHENKO to disband parliament and boost his powers and term of office. It was staging the marches to demand a free and fair

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South Caucasus & Central Asia

Georgia-Adjaria Discuss Budget Payments

· Georgian Minister of Tax Revenues Michael MACHAVARIANI and chairman of the Supreme Council of Adjaria Aslan ABASHIDZE will meet at the end of the week to discuss the operation of British company ITS in the autonomy republic and relations of the central budget and of the budget of Adjaria. MACHAVARIANI told Prime News Agency that revenues from Adjaria must be 55 million lari, by the budget-2000 adopted by Georgian parliament. According to MACHAVARIANI, the Supreme Council of Adjaria has meanwhile set the revenues of the autonomy republic to 35 million lari. "Necessary corrections must be made, otherwise the parameters of the central and Adjarian budgets will not coincide," MACHAVARIANI said.

Kuchma Stresses Energy In Azeri Visit

· Ukrainian President Leonid KUCHMA left Tbilisi today for Baku where he will hold negotiations with Azeri President Geidar ALIYEV. Their talks will focus on joint participation in transport and energy projects. According to official sources in Azerbaijan and in the Ukrainian Embassy, the two leaders will discuss prospects for transportation of Caspian energy resources to East and Central European countries, mainly along the Baku-Supsa-Odessa-Brodi route to Poland. The first stretch of this route¾the Baku-Supsa pipeline with the capacity of pumping five million tons of oil per annum became operational in April, 1999, It has since delivered about 100 thousand barrels of hydrocarbon to the terminal near the Port of Poti in Georgia. Poti has been linked by ferry to the port of Ilyichevsk near Odessa, Ukraine since April, 1999, and is now being used to deliver Azeri petroleum products to Ukraine. In the first three months of this year, Azerbaijan supplied Ukraine with 15,000 tons of diesel fuel for agriculture, out of a total of 500,000 tons it will deliver this year. Ukraine imports some 85 percent of its energy requirements, mainly from Russia, and hopes to diversify its sources of supply to reduce its dependence on Russia. Cargo

turnover between Ukraine and Azerbaijan decreased by 41 percent in 1999, compared to 1998. Ukraine and Azerbaijan are expected to sign a political agreement and a long-term economic agreement for a period until 2009. Ukraine's Ambassador to Baku Boris ALEKSENKO said, "We see the visit as the next step in strengthening and developing bilateral relations between Ukraine and Azerbaijan." The visit to Azerbaijan will end on March 17th.

In Georgia, KUCHMA and Georgian President Eduard SHEVARDNADZE discussed the development of the regional consultative association GUUAM which involves Georgia, Ukraine, Uzbekistan, Azerbaijan and Moldova. KUCHMA said, "I think each side is free to choose its form of regional cooperation which is useful and necessary...We want regional cooperation to take clear shape and serve the interests of all participating countries." SHEVARDNADZE noted there is very little military perspective in the association's plans.

Kazakh Hopes To Raise Capital

· Kazakh Deputy Prime Minister Yerzhan UTEMBAYEV today said that Kazakhstan expects to raise $200 million to $500 million on the international capital markets this year. He believes this could be raised through a eurobond issue. He said that a lead manager for an expected eurobond issue had been chosen, but declined to say who it was. Bankers in London said earlier this week that Deutsche Bank and JP Morgan were tipped as front-runners to lead the issue. Financial sources in Kazakhstan said the issue was expected to be for around $350 million, although UTEMBAYEV declined to give further details. The oil-rich Central Asian state tapped the international bond market in September when it issued $200 million of five-year bonds, but was forced to pay a heavy premium of 825 basis points over Treasuries to attract investors. Reuters reported that proceeds from the new issue will be used to pay off existing debt. Kazakhstan owes $473.3 million this year in foreign debt obligations, down from $643.1 million in 1999.

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

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