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

Wednesday, March 22, 2000

Russian Federation

Politics

Yavlinsky Paid Agent Of Foreign Powers?

· Russian Channel One in its coverstory tonight revealed that foreign agencies and foundations have contributed to Yabloko leader Girgory YAVLINSKY's presidential campaign. They cited that the Soros Foundation contributed up to $10 million, as well as the Freidrich Ebert Foundation and many others. The news report pointed out that YAVLINSKY had far exceed the time on television and radio programs and space in newspapers provided by the state. It said that his campaign had out spent the financial obligations of the state. Russian law declares that people supported by foreign money are not eligible to run for the presidency. Investigation and legal action against YAVLINSKY may follow pending initial questioning. YAVLINSKY, who is ranked third in presidential opinion polls with as much as 10 percent of the vote, has been fiercely critical of acting President Vladimir PUTIN, particularly on his commitment to and plans for market reforms. It is believed that YAVLINSKY's popularity may errode PUTIN's chances of winning the presidential election outright on March 26th.

Presidential Candidate Pool Narrows

· With only four days left before Russian voters head to the polls to elect a new president, the field of 12 candidates has been diminished. On Tuesday, Yevgeny SAVOSTYANOV dropped out of the race and put his support in favor of Grigory YAVLINSKY, leader of Yabloko party. SAVOSTYANOV announced his decision during a television debate that included YAVLINSKY and Samara Governor Konstantin TITOV, who also is a candidate. SAVOSTYANOV's announcement came just after Liberal Democratic Party leader Vladimir ZHIRINOVSKY hinted he may withdraw and place his support behind Communist

Party leader Gennady ZYUGANOV and YAVLINSKY. Tuesday was the deadline to withdraw before names were placed on ballot cards. Acting President Vladimir PUTIN is the outright front runner, followed in a distance second by ZYUGANOV and in third by YAVLINSKY. PUTIN's popularity has wavered around 50 percent to 60 percent. Despite this, the Central Election Commission is not convinced the acting president will sweep to power without a runoff race. "I would say that as of today the chance of a second round is fairly high," Chairman VESHNYAKOV said in an interview to Izvestia.

PUTIN has predicted that if Russia failed to elect him outright in the first round, a second round would cost $36 million. "This is nearly as much as all the pensions paid in the Moscow region," he said in an interview broadcast on ORT. The Central Electoral Commission said the first round of the presidential election would cost about $62 million, while the second round to take place on April 16th would cost about $29 million. If there was no second round, the money would be returned to the federal budget.

Russian troops in Chechnya have already voted. However, for the remaining citizens there voting will be extremely difficult. The Organization for Security and Cooperation in Europe (OSCE) mission said it was even impossible to carry out a normal election campaign in the southern republic, though it still sent observers to monitor the voting. According to an OSCE press release, "the ongoing military campaign in

Today's News Highlights

Russia

Russian Flag Over Chechen City

St. Pete. Telecoms Merge

Ikea Opens First Russian Store

European Republics

CSFB Under Investigation

Estonian Economic Figures

South Caucasus & Central Asia

Karabakh Leader Wounded

Sec. Council To Sign Agreement

Trans-Caspian Plan Proposed

Politics-Economics-Business

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Wednesday

March 22, 2000

Intercon's Daily

separate districts and heightened security measures make a normal environment for elections impossible."

Russia Raises Flag Over Chechen Village

· Federal troops raised a tri-colored Russian flag over the Chechen village of Komsomolskoye at the entrance of Argun Gorge, after two fierce weeks of fighting. NTV television aired footage of the flag, but also reported that air raids and artillery attacks are still on-going. Around 30 rebels were killed and 40 captured in a three-hour battle Monday night when they tried to break through federal forces towards the nearby town of Urus-Martan. Russian commanders are expecting more than 150 rebels to surrender within the next few days. Rebel commander Ruslan GELAYEV was reported still to be holed up in Komsomolskoye. The Russian military estimates that 1,500 rebels are hiding in the remote southern mountains out of a total remaining force of 2,500. Western human rights organizations and international councils have launched allegations that Russian troops carried out atrocities against civilians. However, the military prosecutor's office said it had determined that no army troops had taken part in the murder of civilians in a district in the Chechen capital Grozny, although it could not speak for Interior Ministry troops, who are also serving in the campaign. Human rights groups have said around 130 civilians died at the hands of Russian forces in the village of Alkhan-Yurt and in two districts of the Chechen capital Grozny¾Staropromyslovsky in January and Aldi in February.

Meanwhile, the Russian military prosecutor general's office has denied the reports that a group of Russian Army officers tried to sell a large shipment of rocket missiles to Chechen gunmen. Representatives of the military prosecutor's office say that the tape aired by one of Russian television channels, shows the September 1997 events, when three officers of Krasnodar military unit of Russian Army attempted to sell 180 rocket missiles to Abkhazian separatists for 2 billion rubles. The officers were arrested then.

Economy

Ruble = 28.38/$1.00 (NY rate)

Ruble = 28.37/$1.00 (CB rate)

Ruble = 27.29/1 euro (CB rate)

Rossiisky Kredit To Restructure Debt

· Russia's Agency for Restructuring Credit Organizations (ARCO) today is working with creditors of defunct bank Rossiisky Kredit on terms to improved the restructuring of nearly $1 billion in debt. An ARCO statement did not indicate when creditors will vote on the new proposal. Under the new terms, foreign lenders, who make up some 50 percent of the bank's creditors, would receive 10 percent of their original investment in cash, compared with 5 percent under the previous offer. Lenders would receive an additional 20 percent of their investment in the form of hard-currency-denominated promissory notes with maturities of three to six years, compared with 15 percent under the previous offer, and the remainder in 10-year, ruble-denominated paper. Russian creditors will be offered the same terms.

BONY's ADR Monopoly May Be Challenged

· Bank of New York's near-monopoly as an agent for American depository receipts of Russian shares may soon be challenged by European rivals, The Wall Street Journal reported, citing Irina MAKARENKO, head of investor relations at Russia's Unified Energy Systems (UES). UES' ADRs are currently handled by the bank. Acting as an agent for Russian ADRs is the Bank of New York's central business in the region. It acts on behalf of 50 Russian companies, with a further 10 to 15 companies expected to join by the end of 2000. MAKARENKO said the utility is considering other options and has reviewed offers from Deutsche Bank, as well as a Russian unit of JP Morgan & Co.

Business

St. Petersburg's Telecoms To Merge

· St. Petersburg's three largest telecommunications companies will merge to create a company with a $450 million market value, The Moscow Times reported. St. Petersburg Telephone, or PTS, will acquire St. Petersburg National-International Telephone, or SPMMT, and St. Petersburg Telegraph in a stock swap. PTS runs St. Petersburg's city telephone network and SPMMT provides long-distance services for St. Petersburg's 5 million residents. Investment banks and brokerages working in Russia expect more telecom mergers in Russia this year.

When you need to know it as it happens

Politics-Economics-Business

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Wednesday

March 22, 2000

Intercon's Daily

Ikea Opens First Store In Russia

· Swedish-based Ikea opened its first store in Russia on the outskirts of Moscow, after over 12 years of talks interrupted by political uncertainty, economic instability and bureaucratic obstruction. Ikea has invested more than 1 billion Swedish krona ($1.1 billion) in Russia and now hopes to open five more stores in the near future. Ikea's founder Ingvar KAMPRAD said, "We have big ambitions in Russia...We are bringing not just a company, but a culture, a lifestyle. And we are here to stay." The new store focuses on home-assembly furniture and on furniture that could be purchased by lower-income Russians. Last July, the government agreed to reduce customs duties on Ikea's furniture imports from as high as 100 percent to 20 percent of cost prices. The store will also be selling domestically produced furniture, which will represent 8 percent of Ikea's initial stock. Plans are developing to increase Russian-made goods to 30 percent. Ikea selected 550 employees from an applicant pool of 16,000; only 27 employees are foreigners. The new store was packed with crowds and roads to the store were jammed with traffic for miles. The newest problem for the store is a dispute with Moscow city government for the building of a bridge over the adjacent highway to ease traffic jams. After today's showing, maybe the government will be more convinced.

Bratsky Managers Consider Stakes Sell-off

· Top managers of Bratsky Alyuminievy Zavod, Russia's top aluminum producer, are in talks to sell their combined 30 percent stake in the aluminum company. Alfa Group, a financial industrial group, has been named in Kommersant Daily as a possible buyer. Bratsky Alyuminievy board Chairman Yuri SHLYAIFSHTEIN refused to comment on the possible sale. Shareholders of Sibneft, Russia's sixth-largest oil producer, have purchased stakes in Russian aluminum companies including Bratsky Alyuminievy from Trans-World Group, and its former partners in Russia.

tral Bank between 1997 and 1998. It is believed that Ukraine's Central Bank executed a series of transactions to artificially strengthen its foreign currency reserves to obtain IMF loans. Credit Suisse will be questioned on allegations that some funds may have been deposited at CSFB. The allegations have drawn denials from Ukrainian and CSFB officials. The IMF has delayed further loans to Ukraine until a second audit of Central Bank activity in 1997 and 1998 by the accounting firm PricewaterhouseCoopers is completed. Swiss investigators will determine whether the CSFB's activities were in accordance with Ukrainian law or the regulations of international organizations. Credit Suisse doesn't plan to testify about the alleged transactions to a committee of the US Congress that had invited Chairman Rainer GUT to appear at a hearing scheduled for Thursday. Credit Suisse told the House Banking Committee that it's barred from publicly discussing its relationship with the Central Bank by a confidentiality agreement that is enforced under banking laws of Switzerland as well as Cyprus, where the accounts under investigation were located. Since then, Ukraine has granted Credit Suisse a waiver to discuss the case privately with members and staff, but stopped short of granting permission to testify in public.

Estonian Economic Indicators

· Estonia's Statistical Office reported that industrial sales rose 2.6 percent in February from January. The rise was led by manufacturing, growing 14.4 percent higher than in the period last year. A month ago, industrial sales fell 8.7 percent from the previous month and rose 12.8 percent from a year earlier. Manufacturing sales rose the most, increasing 6.5 percent in the month and 19.6 percent in the year. Mining fell 7.8 percent in February from January and rose 15.8 percent from February, 1999. Energy fell 12.2 percent in the month and 5.8 percent in the year. During the first two months of 2000, industrial sales rose 13.8 percent from the same period of 1999.

South Caucasus & Central Asia

Karabakh Leader Wounded In Attack

· Arkady GUKASYAN, the leader of Nagorno-Karabakh was seriously wounded in an assassination attempt late Tuesday night in Stepanakert. GUKASYAN's car had come under fire from small arms. He was hit in the leg, shattering the bone and has undergone surgery. He is expected to be trans

European Republics

Swiss Regulator Investigates CSFB

· The Swiss Banking Commission said it will examine Credit Suisse First Boston's (CSFB), an investment branch of Credit Suisse Group, possible involvement in an alleged diversion to gain International Monetary Fund (IMF) loans by Ukraine's Cen

When you need to know it as it happens

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March 22, 2000

Intercon's Daily

ported to Yerevan for further medical treatment. GUKASYAN's driver was hit in the head and chest and his bodyguard was hit in the spine. The bodyguards fired back at the attackers, who quickly fled the scene. The gunmen shot at GUKASYAN's Mercedes from two points in central Stepanakert. Armenian President Robert KOCHARYAN condemned the attack and offered to help investigate. Prosecutor general's office of Nagorno-Karabakh has opened a criminal case, an operative group of inquiry has been set up. Several suspects have already been detained by Armenia's security officials, including the former defense minister of unrecognized Nagorno-Karabakh Republic, Samvel BABAYAN and his brother Stepanakert mayor Karen BABAYAN. Prime News Agency also reports that about 20 of BABAYAN's supporters have also been arrested. GUKASYAN and BABAYAN are locked in a power struggle for control of the region. GUKASYAN dismissed BABAYAN from his post in December.

Karabakh, populated predominantly by ethnic Armenians, has been a cause of a long-running conflict between Armenia and Azerbaijan. Karabakh is formally a part of Azerbaijan. The Armenian and Azeri leaders have recently made progress in attempts to resolve the longstanding dispute over the territory. Approximately, 35,000 people died in fighting over the territory in the 1980s and 1990s, one of the worst conflicts to break out in the ex-Soviet Union. BABAYAN has fiercely opposed any compromise with Azerbaijan to formally end to the war, which has economically crippled both nations. The latest peace proposals mediated by the OSCE envisage Karabakh remaining part of Azerbaijan only in legal terms while preserving its de facto sovereignty and close relationship with Armenia, Reuters reported.

Security Councils To Sign Agreement.

· The secretaries of the Security Councils of post-Soviet countries will meet in Moscow on April 7th to 10th to sign a multilateral cooperation agreement. The agreement will address setting up a comprehensive security system in Central Asia, Russian Secu

rity Council Secretary Sergei IVANOV said. "This system should include a series of sweeping measures...We shall be constantly exchanging information and defining priorities in discussing problems, depending on changes in the situation." He added, "The functions of our organizations include defining the strategic directions of cooperation and keeping interaction between various ministries going." The Collective Security Treaty's members are Armenia, Kazakhstan, Kyrgyzstan, Uzbekistan, Russia, Tajikistan, Belarus, Azerbaijan and Georgia.

Trans-Caspian Group Files Final Proposal

· The Trans Caspian Gas Pipeline group, which includes the Royal/Dutch Shell, has filed its final proposal on Monday to build the $2.2 billion Caspian gas pipeline with Turkmenistan's President Saparmurat NIYAZOV, The Wall Street Journal reported. The President has delayed making a decision pending further clarification of the terms. The group, which also include PSG International Ltd., jointly owned by Bechtel Enterprises Inc. and General Electric Co. of the US, set a target to deliver Turkmen gas to Turkey by the end of 2002, at a rate of 16 billion cubic meters of gas annually. The Trans Caspian Gas Pipeline group's mandate to deliver Turkmen gas to Turkey expired in February.

This plan is facing competition and is lagging behind a rival group building the Blue Stream gas pipeline project. Russia's Gazprom has indicated it can deliver gas by 2001 through an underwater pipeline. In addition, Italy-based Eni, is considering laying telephone cables under the Black Sea as part of the Blue Stream project. Gazprom and Eni have already secured part of the financing needed for the project. The race to deliver gas to Turkey first has captivated many businessmen and industry analysts in the region. In a new development, BP Amoco discovered large deposits of natural gas in Azerbaijan closer to Turkey than the resources in Turkmenistan. Azerbaijan's new desire to use part of the capacity of any trans-Caspian pipeline for its own exports has created tensions with Turkmenistan.

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

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