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

Thursday, March 2, 2000

Russian Federation

Politics

Babitsky's Captors FSB Agents?

· Speaking for the first time in a news conference since being released from custody, Radio Liberty reporter Andrei BABITSKY said he believes that he was held by Russian agents in Chechnya and that he had not been turned over to Chechen rebels. It appears that these agents confiscated his identify papers and forged an Azeri passport so that Interior Ministry officers could have grounds to arrest him, when he surfaced in Daghestan on February 25th. BABITSKY said that he was handed over to a group, who identified themselves as loyalists of a pro-Moscow warlord named Adam DENIEV and refused to set him free. He added that his captors forced him to ask Radio Liberty for a ransom of $2 million and make other pledges under the threat of a gun. DENIEV denied BABITSKY's account, calling it "groundless."

The Radio Liberty reporter revealed that he sensed numerous indications his captors were agents of the Federal Security Service (FSB), the KGB's main successor. He said one of his wards spoke in Russian secret services jargon and made other blunders betraying his connections. FSB spokesman Alexander ZDANOVICH also denied BABITSKY's account that Russia agents had him in custody the entire time. "It cannot be ruled out that [BABITSKY and Radio Liberty] are working up means of discrediting the Russian policy in Chechnya." The reporter also appeared for questioning at the Interior Ministry on Wednesday, but the investigator agreed to postpone the procedure because of BABITSKY's poor physical condition.

US Gives IRC $2.4M For Chechen Refugees

· The US government, on Tuesday in response to

an appeal for food and other relief supplies for 150,000 people displaced by the conflict in Chechnya, gave the International Red Cross (IRC) $2.4 million in aid. The State Department said the money would pay for food, medical supplies, water and sanitation needs, emergency winter assistance and rehabilitation programs for the displaced. It said Russia bore primary responsibility for the displaced people, but the IRC's work was a useful supplement. According to a State Department statement, "The Russian government's military campaign in Chechnya is creating a cycle of violence with far-reaching humanitarian implications. Russia must also address the long-term social and economic issues that lie at the root of unrest in the North Caucasus."

Economy

Ruble = 28.64/$1.00 (NY rate)

Ruble = 28.56/$1.00 (CB rate)

Ruble = 27.58/1 euro (CB rate)

WB To Lend Regions $300 Million

· The World Bank's regional project coordinator Stephan TITOV said the Bank is prepared to lend Russian $300 million over five to seven years to reform regional financing. The 2000 Russian budget already has a $60 million installment written in from the loan, which will be received into the Russian federal budget and then distributed by a fund managed by the Finance Ministry. According to TITOV, the loans will be provided to help regional investment and

Today's News Highlights

Russia

Tyumen To Expand In Ukraine

Special Poll On Chechen War

European Republics

NATO Holds Session In Kiev

IMF Approves Credit For Estonia

South Caucasus & Central Asia

Kalicki Assesses Georgian Econ

Trans-Caspian Capacity Dispute

Tajik Pro-Gov't Wins Election

US To Fund Kazakh Gas Study

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Thursday

March 2, 2000

Intercon's Daily

state programs for small businesses and mortgages. In December, the World Bank released $100 million loan to help the Russian government reform the coal industry that triggered an additional $100 million loan from Japan.

Russia Arms Exports Reach $3 Billion

· Foreign Trade Minister Mikhail FRADKOV announced that Russia exported $3 billion worth of arms and military equipment in 1999. He said that military equipment accounted for 40 percent of Russia's export of machinery and technologies. FRADKOV, however, added that the foreign trade level is still below the nation's potential. He believes that construction projects abroad offer great opportunities for increasing export. Technical assistance to China and India in building nuclear power plants alone is estimated at $4 billion. FRADKOV believes that the government should step up assistance to Russian organizations in building facilities in other countries. Government loans should be extended for periods longer than twelve months.

US Ambassador to China Joseph PRUEHER said on Monday that military ties between Russia and China were a "relationship of convenience" and need not alarm Washington. He added, "I don't think we need to be too wound up about Russian-Chinese relations...The Russians want cash, the Chinese want military equipment...The military equipment is not that wonderful." China had ordered two of the Sovremenny-class destroyers equipped with ship-to-ship missiles capable of evading missile defenses on US carrier fleets. Earlier this month, it was negotiating for two more. However, he warned that the US should closely monitor transfers of unconventional military technology between Russia and China.

Business

Tyumen Plans To Expand In Ukraine

· Tyumen Oil Company, Russia's fifth-largest oil producer, said it plans to secure a 25 percent to 30 percent share of Ukrainian oil products market. The oil company plans to bid for 67 percent of state-owned Lisichansk Naftaoorgsintez, a Ukrainian refinery also known as LiNOS, and Oriana Petrochemical Company in Ukraine. Tyumen agreed to supply 3 million tons of oil to Galichina, which operates the Drohobychsky Oil Refinery in Ukraine.

Alfa-Nafta, a company affiliated with Alfa Group, Tyumen's major shareholder, holds 26 percent in Naftokhimik Pricarpatya, which operates the Nadvornyansky Oil Refinery in Ukraine.

Gazprom To Sell More Shares In ADRs

· Russia's gas monopoly Gazprom on Wednesday submitted to the State Property Ministry its proposal to sell additional shares in the West through American Depository Receipts (ADRs). The plan, approved by the Gazprom board of directors in February, calls for increasing the share of foreign capital in the company from 14 percent to 20 percent. Gazprom board chairman Viktor CHERNOMYRDIN said the program takes into account the position of Gazprom stocks on the internal and foreign markets. "The sale of Gazprom shares is too complex an issue, we can't make a mistake," he stressed. The State Property Ministry pointed out that the 1997 law on privatization does not provide for the sale of shares through ADRs. The process to amend the law is likely to take more than six months.

Special Report

Russian Public Opinion Poll On Chechnya

· The All-Russian Center for Public Opinion conducted a survey of over 1,600 people between February 18th and 24th on their views on the conflict in Chechnya. The Center then compared their results with previous polls earlier in February, in January, and with the statistics from the 1996 Chechen war under former President Boris YELTSIN. The results have a margin error of 3.8 percent.

Do you think Russian troops should advance forward into Chechnya or should Russia start negotiations?

February 11 to 14 and February 18 to 21

Troops should advance forward 70% and 70%

Russia should start negotiations 22% and 23%

Difficult to answer 8% and 7%

Do you think Chechnya should have the same rights as the other Russian regions or should it be governed directly from Moscow?

Yes and More Yes than No 53%

No and More No than Yes 25%

Difficult to answer 22%

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Are Russian troops close to victory?

Jan. Feb.

Troops are very close or close to victory 30% 40%

Hard to say if close or far from victory 31% 25%

Troops are very far or far from victory 23% 20%

There is no victory in such operations 5% 4%

Difficult to answer 11% 11%

How would you estimate the actions of Vladimir Putin on Chechnya?

Putin, 2000 (Yeltsin, 1996)

Very good or good 52% (6%)

Satisfactory or Unsatisfactory 40% (82%)

Difficult to answer 12% (12%)

How would you estimate the actions of the Russian army in Chechnya?

2000 (1996)

Very good or good 57% (13%)

Satisfactory or Unsatisfactory 35% (68%)

Difficult to answer 8% (19%)

a $39 million stand-by credit for Estonia to support the government's economic program for the next two years. Estonia will treat the 18-month credit as a back-up fund, and doesn't intend to draw on the money. The loan will be used to support economic stability and the completion of structural reforms. Estonia Prime Minister Mart LAAR and Bank of Estonia governor Vahur KRAFT in a letter requesting the credit said, "We will reduce the budget deficit, and initiate a number of key long-term reforms, including in public finances and administration, the pension system, and the financial sector as well as further restructuring and privatization of the few large infrastructure companies still in state hands." Estonia hopes to enact the reforms so it can meet European Union membership requirements by 2003. The IMF expects Estonia's real GDP to grow 4 percent in 2000 and about 6 percent in 2001 from negative growth in 1999. Estonia, which owes the IMF $23 million from previous loans, also has sought to reduce its budget deficit. Estonia aims to reduce the budget deficit to 1.25 percent of GDP this year from a deficit of 4.8 percent of GDP last year.

South Caucasus & Central Asia

Kalicki Positively Assesses Georgian Economy

· US Department of Commerce Advisor Jan KALICKI during a visit to Georgia, positively assessed Georgia's current economic situation. However, he encouraged Georgian authorities to take action against crime, corruption, and border smuggling. He hopes that measures will be stepped-up following the presidential election on April 9th. He stressed the importance of deepening the Georgian-American economic cooperation and pipeline issues connected to western projects. KALICKI met with Georgian President Eduard SHEVARDNADZE, State Minister Vazha LORDKIPANIDZE, and the heads of Georgia's economic ministries.

Georgia Hopes For Trans-Caspian Settlement

· Georgian President Eduard SHEVARDNADZE on Tuesday met with Edward SMITH, head of the US consortium PSG, which is negotiating with the Turkmen government to build the planned Trans-Caspian gas export pipeline. The Georgian President assured SMITH that Georgia will not create obstacles to implementation of the project. He expressed hope that Azerbaijan and Turkmenistan will

European Republics

NATO Holds Meeting In Ukraine

· NATO ambassadors from 19 member states and NATO Secretary-General Lord ROBERTSON opened a two-day meeting in Kiev on Wednesday to hold a working session. The gathering is the first meeting of the NATO-Ukraine Commission to be held in the Ukrainian capital, following 15 sessions in Brussels. "We have a unique opportunity to contribute to Euro-Atlantic stability," ROBERTSON told those who participated. He noted that the meeting was as "historic" and being held in "recognition of special partnership between NATO and Ukraine," RFE\RL Newsline reported. Ukrainian Foreign Minister Boris TARASYUK, who read a letter from President Leonid KUCHMA to the meeting, said "Ukraine is ready to further deepen its relations with the alliance." Ukrainian Parliament speaker Ivan PLYUSHCH, stressed NATO-Ukraine military cooperation was a cornerstone of the giant republic's security plan. ROBERTSON will also meet with Ukrainian Prime Minister Viktor YUSHCHENKO and Defense Minister Alexander KUZMUK.

IMF Approves $39 Million Credit To Estonia

· The International Monetary Fund (IMF) approved

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reach an agreement over the use of the planned pipeline. Azerbaijan has stated that it wants to increase its share of the throughput volume in the pipeline to 50 percent; a position supported by the US. Turkmenistan has said it will allow Azerbaijan to transport only 5 billion cubic meters of the 16 billion cubic meters per year capacity.

Turkmenistan's Oil and Gas Minister Reidjepbai ORAZOV has said that Azerbaijan's demand violates the Declaration of Intent signed last November by the governments of Turkmenistan, Azerbaijan, Georgia and Turkey, RFE\RL Newsline reported. He further pointed out that by adding "a political dimension" to the pipeline negotiations, Azerbaijan and Georgia risk thwarting the entire project and thus losing out on needed transit tariffs. Ashgabat had suggested that Baku and Tbilisi use those tariffs to repay their respective debts to Turkmenistan for supplies of natural gas for domestic consumption. The combined debts of the two countries since 1995 amount to some $400 million.

Turkish President Suleyman DEMIREL has tried to mediate between the two sides, but he is also actively involved in the competing pipeline project called the Blue Stream. On Monday and Tuesday, DEMIREL met with Russian Deputy Prime Minister Ilya KLEBANOV, pledging their commitment to the Blue Stream project.

Tajik Pro-Government Party Declared Victor

· The Central Electoral Commission (CEC) on Wednesday announced the results of Tajikistan's first parliamentary election. It declared that the Popular Democratic Party of Tajikistan, which supports President Emomali RAKHMONOV, won with nearly 65 percent of the vote, followed by the Communist Party with 20 percent, and the opposition Islamic Revival Party (IRP) with about 8 percent. The IRP is the main member of the United Tajik Opposition, an Islamic-led coalition which fought Moscow-backed government troops during a five year civil war ending in 1997. International observers praised Sunday's

election. According to a joint statement by observers from the UN and the Organization for Security and Cooperation in Europe, "The most significant accomplishment in this peace-building step was the inclusion of the former warring parties and others in the electoral process." A repeat vote will be held March 12th in 13 districts where none of the candidates managed to receive the more than 50 percent of the vote required to get a parliamentary seat. The CEC reported that about 93 percent of Tajikistan's 2.8 million registered voters cast ballots on Sunday. Observers warned that the "extremely high" voter turnout could indicate possible fraud. Both the IRP and Communists have criticized the ballot, saying that there was widespread vote-rigging and interference by pro-government officials at a local level. The first joint session of the new bicameral legislature officially completes the peace process set in motion by a cease-fire agreement signed in June 1997. The election to the upper chamber is set for March 23rd. The bicameral system replaces the current single-chamber parliament.

USTDA To Fund Kazakh Gas Study

· The US Trade and Development Agency said Monday it will provide $600,000 to pay for a feasibility study for the development of Kazakhstan's natural gas sector. The study will determine the best use of Kazakhstan's natural gas and natural gas liquids. The agency said a grant agreement is expected to be signed soon between the development agency and Kazakhstan, after which the government of Kazakhstan will select a US firm to conduct the study. Interested firms have until March 15th to submit bids for the study, Reuters reported. According to the US Energy Department, Kazakhstan contains up to 83 trillion cubic feet of natural gas. However, the Kazakh gas sector faces a lack of infrastructure, particularly pipelines. Although six gas pipelines connect Kazakhstan to other Central Asian republics and Russia, gas producing areas within Kazakhstan in the west are not connected to consuming areas in the populous southeast and industrial north.

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

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