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

Monday, April 24, 2000

Russian Federation

Politics

Chechen Rebels Attack Russian Convoy

· The Russian military is claiming that 15 soldiers were killed and six vehicles completely destroyed in a Chechen rebel attack on an army column Sunday outside of Serzhen-Yurt, about 25 km (16 miles) southeast of the regional capital Grozny. However, rebel spokesman Movladi UDUGOV claims 80 soldiers had been killed and 13 vehicles, including tanks and armored cars, wrecked. He said, "The armored column was totally destroyed." The military also said 15 rebels had been killed, in contrast to UDUGOV's claim that none had died. UDUGOV said the rebel unit that carried out the attack was part of a force under the command of well-known field commander Shamil BASAYEV. Russian news agencies quoted the military as saying the column had been made up of a paratroop unit, which was escorting arms and supplies for troops in the Serzhen-Yurt region.

The recent fighting has undermined any talk of a truce in the region and Chechen President Aslan MASKHADOV denied ordering a cease-fire. "They did not understand me properly," MASKHADOV was quoted by Radio Liberty as saying of an interview. He said he was ready for a cease-fire, if both sides agreed to stop the fighting and if negotiations were held. "So, on a unilateral cease-fire, there was nothing about that," he said.

New Military Doctrine Approved

· President-elect Vladimir PUTIN on Friday signed a decree enacting a new Security Council military doctrine, which upgrades the role of nuclear weapons. The new doctrine, which replaces a 1993 version, envisages the possible first use of nuclear weapons by Russia to deter a mass conventional attack. It recognizes the potential threats posed by

both NATO and Islamic terrorists. It further broadens the criteria, which would permit Russia to employ nuclear weapons. Western officials have criticized the doctrine, saying it is too confrontational, and have called for a revised version stressing cooperation with the West. Security Council Secretary Sergei IVANOV said the new military doctrine was defensive in nature. Colonel General Leonid IVASHOV, chief of the Russian Defense Ministry's Main Board for International Military Cooperation, said, "Russian nuclear weapons can be used only against an aggressor using weapons of mass destruction against Russia or in a critical situation in the event of a large-scale aggression against Russia." PUTIN said the new doctrine is Moscow's response to changes in the strategic landscape, including NATO's bombing campaign last year against Yugoslavia and tensions in Central Asian states. The military doctrine follows a broader national security concept already approved. The new military doctrine coincided with the Russian State Duma's approval of the Comprehensive Test Ban Treaty (CTBT).

Bykov Taken Into Custody In Moscow

· Anatoly BYKOV, the former chairman of the Board of Directors of the Krasnoyarsk Aluminum Plant wanted on money laundering charges, was extradited from Hungary to Moscow Friday. He was whisked away at the airport by law enforcement officers, who were tipped by a "reliable source" that his life was in jeopardy. An officer, disguised

Today's News Highlights

Russia

GDP Reaches 7 Percent

AvotVAZ Owes $102M In Taxes

European Republics

Belarus Interior Min. Sacked

Ukraine CB To Close 38 Banks

South Caucasus & Central Asia

Georgia Detains Uranium

Aliyev Appoints New Cabinet

Azer. Approves Exploration Deal

Tractebel To Pull Out Of Kazakh

Politics-Economics-Business

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Monday

April 24, 2000

Intercon's Daily

as BYKOV, took his place and posed for media cameras. BYKOV is being held at a detention center in Moscow. The Territorial Procurator's Office had instituted criminal proceedings against BYKOV in mid-1999 for suspected crimes stipulated by Article 174, Part II of the Russian Criminal Code¾"legalization of money or other property acquired by illegal means and in particularly large dimensions." These charges were based on the results of the investigation of several crimes committed in the coal, aluminum and energy sectors of Krasnoyarsk Territory. A commission of the Russian Interior Ministry investigated these crimes.

BYKOV was arrested on October 29th when he entered Hungary from Yugoslavia, using his own passport. He applied for asylum in Hungary, but the Supreme Court rejected his request. BYKOV believes the charges against him are politically motivated, stemming from a disagreement with Siberian Governor Alexander LEBED, formerly his close ally. On April 12th, Justice Minister Ibolya DAVID signed the final orders for his extradition. Hungary's condition for extradition was that if BYKOV receives a death sentence, it would not be carried out.

Economy

Ruble = 28.78/$1.00 (NY rate)

Ruble = 28.54/$1.00 (CB rate)

Ruble = 26.80/1 euro (CB rate)

Russian GDP Reaches 7 Percent

· Russia's State Statistics Committee today released a report showing that the economy grew between 6 percent to 7 percent in the first quarter, after a three percent fall in the same period last year. Committee head Vladimir SOKOLIN said, "The calculations we have so far let us say GDP [gross domestic product] growth will be higher than six percent." He added, "I think it will be around seven percent, although it is difficult to make forecasts in this breakthrough period for the economy." President-elect Vladimir PUTIN said last week Russia's quarterly GDP would be around eight percent. SOKOLIN also forecast Russia's foreign trade surplus would shrink in the next few months due to lower world prices for oil, one of the country's main export items. The surplus was $4.2 billion in February. SOKOLIN also said that consumer price inflation would quicken to 0.7 percent to 0.8 percent

in April and would be 0.1 or 0.2 percent higher than that in May, due to seasonal factors. Inflation was estimated at 0.6 percent in March.

Russia Approves $30 Billion Euorbond

· The Russian government on Thursday approved a Eurobond issue of up to $30 billion to restructure Soviet-era debt to the London Club under a deal reached in February. According to a government statement, "At the government meeting it was decided to approve... a total volume of up to $30 billion of international bonds to be issued to settle the debt, owed by the former Soviet Union to... the London Club of commercial creditors." The issue would cover principal debt and overdue interest payments. The London Club agreed in February to write off more than 35 percent of Russia's $32 billion Soviet-era debt in exchange for 10 and 30-year Eurobonds. The debt was previously restructured in 1997 into bonds known as PRINs, which represent the principle of the debt, and IANs, which cover overdue interest. Russia's debt negotiators have said the deal was likely to be closed by late May.

Business

AvtoVAZ Owes $102M In Taxes

· Russian Tax authorities said AvtoVAZ, the country's biggest automaker, has avoided paying taxes and its tax debts have mounted, The Moscow Times reported. Tax Minister Alexander POCHINOK said the Ministry is planning to recalculate the company's debts and said only 1996 and 1997 transactions have been checked. He predicts that 1998 payments may reveal more violations. The company denied any violations. AvtoVAZ has tax arrears of about 2.9 billion rubles ($102 million). It agreed with the government to reschedule over 10 years in exchange for a controlling stake in the company as a collateral.

Sibintek Internet Project Delayed

· Yukos Oil Co., Russia's number two oil producer, suffered a setback in its plan to create an Internet venture called Sibintek. Key managers threatened to leave the project because of restrictions and corporate requirements set on the project. Yukos allocated $10 million to the venture last year, which is intended to provide jobs for its employees in west Siberia. Sibintek managers are keen to develop business within the project and have found US

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investors willing to spend $30 million on the new Internet projects. Yukos Chief Executive Mikhail KHODORKOVSKY said that Russian companies have a chance to catch up with western competitors in the development of Internet and software projects.

Rosneft To Join Rus-Chinese Oil Project

· Rosneft, Russia's state-owned oil company, plans to join projects to deliver oil and gas from eastern Siberia to China. Rosneft has sent a proposals to Yukos Oil Co. in which the state company would get a stake of 3 million tons per year in Yukos' planned oil pipeline to China. This has the capacity to transport 20 million tons of crude annually. Rosneft also intends to join the Rusia Petroleum project, which is exploring the Kovyktinskoye gas field and will ship the output to China starting from 2005. Rosneft and its subsidiary Sakhalin-morneftegaz have stakes in Sakhalin island oil and gas projects in the Russian Far East, which intend to market their output in South East Asia.

The opposition has demanded dialogue with LUKASHENKO ahead of parliamentary polls scheduled for this autumn. They want to make sure the campaign is free and fair with equal access to the state-controlled media.

Ukraine's CB May Close 38 Banks

· Ukraine's Central Bank on Friday said may soon close most of the country's 38 commercial banks under Central Bank management due to their liquidity and solvency problems. Deputy central bank chairman Yaroslav SOLTIS told Reuters, "There will be 122 or 125 working banks left…If the bank is ill with such a disease as illiquidity or insolvency, then they [such banks] should be closed." Central Bank data indicate there are 161 commercial banks in Ukraine with a total charter capital of about $549 million. Many Ukrainian banks struggled to meet the minimum capital requirement of one million euro in the domestic gryvnia currency.

Lithuanian Foreign Minister Visits The US

· The Foreign Minister of Lithuania Algirdas SAUDARGAS is scheduled to arrive in the US on an official visit from April 24^th to 28^th. He will visit New York City, Chicago, and Washington DC. According to the Lithuanian Embassy, while in Washington, Foreign Minister SAUDARGAS will consult with US administration officials, politicians, and think-tank representatives on a range of bilateral and multilateral issues, including Lithuania's prospects for NATO membership.

South Caucasus & Central Asia

Adjaria Confiscates Uranium Container

· Adjarian law enforcement officers have confiscated a container with 920 grams of uranium. This batch of nuclear material and an earlier kilogram of material, discovered on April 19^th, will be transported from Georgia with the assistance of specialists from the International Agency of Atomic Energy. Deputy head of the Radiation Center of the Environmental Protection and Natural Resources Ministry Soso KAKUSHADZE told Prime News Agency that the monitoring and analysis tests of the uranium at the nuclear reactor to determine the potency is to be completed in Tbilisi on Tuesday. The uranium was smuggled into Georgia to be transported abroad by four Georgian citizens.

European Republics

Belarus Interior Minister Sacked

· Belarus President Alexander LUKA-SHENKO on Monday accepted the forced resignation of Interior Minister Yuri SIVAKOV, who was criticized over the break up of an opposition rally on March 25th. LUKASHENKO's press service said SIVAKOV had tendered his resignation due to poor health, but sources close to the former minister do not believe this to be the case. SIVAKOV's Ministry ordered the police to beat and detain hundreds of protesters, including foreign parliamentarians and Russian journalists. SIVAKOV has been replaced by his deputy, Valery UDOVIKOV.

Meanwhile, the opposition is planning to hold another protest march on April 26^th. Government authorities have not granted the demonstrators permission for the rally. The Minsk authorities have banned marches in the downtown section of the capital, saying they cause traffic problems. The organizers said they hoped to avoid the kind of clashes with police, which took place during an unsanctioned protest in March. "We are confident that the events of March 25^th will not be repeated," the nationalist Belarus Popular Front (BPF) said.

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April 24, 2000

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New Azeri Cabinet Appointments

· Azeri President Geidar ALIYEV on April 19^th appointed Fikret MAMEDOV as Justice Minister and Gulzar RZAYEVA as Chairman of the Court of Appeals. MAMEDOV previously served as Deputy Prosecutor General and RZAYEVA's prior position was severing as acting Chair of the Supreme Court. The Azeri President also appointed Husingulu BAGIROV as Minister of Trade.

Azer. Ratifies Caspian Exploration Contract

· The Azeri parliament has ratified a $4.5 billion contract to develop two exploration blocks in the Caspian Sea offshore Azerbaijan. Exxon Mobil Corp. and Conoco Inc. will pay $75 million for the right to develop the deposit. Exxon has 30 percent, Conoco holds 20 percent and State Oil Company of Azerbaijan (Socar) holds 50 percent stake of the venture aimed to develop the Mashal and Zafar blocks, estimated to have 100 million tons of crude reserves. Socar President Natik ALIYEV said, "The conclusion of the contract has heralded launching of operations of a new company in Azerbaijan." Russian and Kazakhstan companies have recently discovered new potential oil fields in the northern region of the sea. The exploration venture's foreign partners will pay $22 million to the Azerbaijan government in addition to the $75 million, said ALIYEV. Productive horizons are expected to lie at depths of 2,100 meters within Zafar, and 5,000-6,100 meters within Mashal. The exploration period will take three years when two exploration wells must be drilled.

Meanwhile, Russian President-elect Vladimir PUTIN Friday said that foreign competitors are increasingly dominating the Caspian region. He said, "We should develop a clear understanding of the fact that the interest of our partners, Turkey, the UK and the US are displaying toward the Caspian resources is not accidental. It is largely due to our passivity," Financial Times reported. PUTIN urged Russian domestic companies to take a more active role in the region. He hinted that he would appoint a special representative to the oil-rich Caspian region.

Communists Rally For Rus-Belarus Union

· Armenia's Communist Party staged a rally on Friday in Yerevan to demand the nation join the Rus-Belarus Union. Approximately, 12,000 people participated in the march, many were elderly people nostalgic for the Soviet days. They carried red flags and banners reading "Our salvation is in the union." Communist lawmaker Perch BOSHNAGYAN said an initiative group had collected one million signatures in support of a referendum on the issue of Armenia joining the union. Foreign Minister Vardan OSKANYAN said this week the issue was not on the agenda, Reuters reported. The Communist Party is the second biggest party in parliament after the ruling Unity bloc. Russia and Belarus have set up joint institutions to oversee economic and political integration. But Moscow has dismissed Minsk's call for a united armed force under joint command.

Tractebel May Pull Out Of Kazakh Pipeline

· Tractebel, an energy unit of Suez Lyonnaise des Eaux, is considering withdrawing from running a gas pipeline in Kazakhstan. The company has lost considerable money in its operations, an estimated $36 million over the last two years. In addition, Tractebel said government interference threatened as much as $500 million in investment. Tractebel could cede its control to Russian gas monopoly Gazprom. A spokesman quoted Prime Minister Kasymzhomart TOKAYEV as saying Tractebel was holding negotiations with Gazprom, though he did not give details of the discussions and the Belgian firm previously has denied planning to sell out to Gazprom. The government spokesman said, "The Prime Minister expressed his regret that Tractebel might leave, because it's a fairly good company, but it did not fulfill [conditions], and the population has a negative attitude to its activities." He did not say what conditions Tractebel had not fulfilled. Tractebel had no comment at the present time. Tractebel runs Intergas Central Asia JSC, which has a 20-year concession to run two natural gas pipelines, and Almaty Power Consolidated, which provides heat and electricity to Almaty.

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

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