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, April 25, 2000

Russian Federation

Politics

France Calls On G-7 To Help Russia

· French Finance Minister Laurent FABIUS and Foreign Minister Hubert VEDRINE wrote in London's Financial Times that they have asked the Group of Seven industrialized nations and the European Union to cooperate with the new government of Russian President-Elect Vladimir PUTIN. They warned, "The ills of an unstable Russia may also spill over into Europe. The question is not whether to help Russia, but how to do so." The ministers claimed that the time has come to base relations with Russia on a set of guidelines for cooperation. "Greater emphasis should be put on Russia's building and strengthening effective state structures, and developing a stable and transparent legal framework. Russia must commit itself to the rule of law…crucial Russian reforms must be completed before it is too late. These include overhauling the tax system and customs tariffs; fighting corruption and money laundering; restructuring the banking system to allow greater transparency and accountability; providing investors with stability and legal security; enacting reliable land ownership rules; building a respected and functioning judiciary; and providing social security." FABIUS and VEDRINE stressed that reforms must be completed before it is too late. The ministers also indicated that the interests of European security cannot be met solely vis-à-vis a US-Russian dialogue. "There cannot be real security and stability on the European continent without a positive contribution by a cooperative Russia. This is unlikely to happen if poverty, misrule, and instability prosper in Russia."

Russia Prepares For New Chechen Attack

· Russian military commanders have estimated that nearly 500 rebels have infiltrated Grozny,

Interfax reported. It also notes that some rebels never left Grozny, once it was captured by federal troops in February. These rebels have been avoiding troops through a system of underground tunnels. Russian forces in Grozny have found more than 300 kilograms of explosives and detonators that the rebels had planned to use for guerilla-style attacks. A series of attacks on convoys and checkpoints appear to be threatening the possibility for peace talks with the rebels. Interior Minister Vladimir RUSHAILO insists, "For negotiations to take place, [Chechen President Aslan] MASKHADOV has to fulfill a whole array of demands¾give up the leaders of illegal bandit formations, quickly free all hostages held in Chechnya, and other conditions." He added, "Those conditions probably won't be fulfilled, so it's unlikely that negotiations will be held at all."

RUSHAILO also indicated that Russia is tightening security in Chechnya. He made the order based on information that rebels will try to, "overshadow the holiday events," to celebrate the 55th anniversary of the Red Army's defeat of the Nazis in World War II on May 9^th. RUSHAILO said the government would focus on preventing attacks. Meanwhile Russian military sources, speaking under condition of anonymity, told The Associated Press that all movement would be restricted in Chechnya through May 10^th.

Ivanov Makes US Visit

· Russian Foreign Minister Igor IVANOV and his delegation left New York today for Washington,

Today's News Highlights

Russia

Russia In Line With Budget

Gov't Doesn't Need CB Reserves

KamAZ Settles Debts

European Republics

Belarus Lifts March Ban

Test Missile Veers Off Course

South Caucasus & Central Asia

Rus-Georgia On Base Removal

Itera Waits Debt Proposals

Kazakh-Uzbek Border Dispute

Politics-Economics-Business

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April 25, 2000

Intercon's Daily

DC. IVANOV will meet with US President Bill CLINTON on Wednesday and other top administrative officials, including US Secretary of State Madeleine ALBRIGHT. The meetings are in preparation for CLINTON's summit with President-elect Vladimir PUTIN in June. IVANOV will also meet with Senate Republican majority leader Trent LOTT, Democratic majority leader Thomas DASCHLE and chairmen of key Senate committees. He will also confer with House of Representatives Speaker Dennis HASTERT. During the visit, IVANOV plans to meet his counterparts of Azerbaijan, Ireland, Sweden and Australia, as well as of Germany and Japan. IVANOV has already attended a UN meeting to review the Nuclear Non-Proliferation Treaty. He presented UN Secretary-General Kofi ANNAN with a letter from PUTIN. In the last two weeks, the Russian State Duma ratified the START II arms reduction treaty and the comprehensive nuclear test ban treaty (CTBT). IVANOV will return to Moscow on April 28^th.

Economy

Ruble = 28.57/$1.00 (NY rate)

Ruble = 28.48/$1.00 (CB rate)

Ruble = 26.22/1 euro (CB rate)

Russia In Line With Tight Budget

· Russian Tax Minister Alexander POCHINOK said the government will meet its projected 2000 budget revenue, even if it doesn't receive loans from international lending organizations. He stressed the importance of the Russian State Duma approving the main sections of the second part of the tax code and amend the first part of the code before the end of the spring session. He said this way the 2001 budget can be redrafted. POCHINOK has predicted that the budget will post a preliminary surplus and have a real surplus, "in some months." He said, "For the first time in 10 years the Russian budget is being fulfilled completely." The 2000 budget factors in more than $4 billion dollars in foreign loans from multilateral organizations, but improved tax collection and high world commodity prices in the first quarter gave the budget a surplus of $210 million, the Dow Jones Newswire reported. In previous years, the government failed to raise enough money to fully fund the budget, often forcing delays in paying salaries, pensions and other payments, and took on huge foreign debt.

Russia Not To Borrow From CB In May

· Russia's Finance Minister and First Deputy Prime Minister Mikhail KASYANOV on Monday stated that the government will not borrow from the Central Bank in May to repay foreign debts. Russia is due to repay $3.1 billion in foreign debt in the second quarter, including $1.0 billion in April, $1.25 billion in May and $0.85 billion in June. KASYANOV has said if the government managed to repay May debts without Central Bank borrowing, it would easily do the same in June. The government has not borrowed from the Central Bank so far this month. The government had to resort to Central Bank hard currency reserves for foreign debt servicing after the 1998 ruble devaluation.

Business

KamAZ Settles Debts

· Russian truck maker KamAZ reached a debt restructuring agreement with state-controlled Vnesheconombank and Sberbank. Ivan KOSTIN, the company's general director, said the banks agreed to convert KamAZ debts into common shares in the company on terms similar to those offered to other major creditors. He added the banks will get convertible KamAZ bonds for the amount of the debt owed, each of which is convertible into one common share. The European Bank for Reconstruction and Development said it agreed on a plan to reschedule half the $141 million owed to it by KamAZ, with the rest converted into equity.

Lenenergo Restructures Debt

· Lenenergo has agreed to restructure 1.3 billion rubles ($45.5 million) in debt the city government owes the monopoly power utility in St. Petersburg and the Leningrad region. Under the agreement, the debt from unpaid electricity and heating bills should be paid off by the end of 2003, with 600 million rubles due this year. At the same time, Lenenergo's tax bill will be reduced. "The debt will be paid off by cash payments, as well as using a variety of cash surrogates that will include nullifying the company's tax debt to the city, as well as its debt to Mezhregiongas [a local subsidiary of Gazprom]," Lenenergo said in a statement. Lenenergo said it is operating at a loss in large part due to federally regulated electricity rates. Lenenergo is owed a total of 4.5 billion rubles from customers, but the utility in turn owes 7.3 billion rubles, of which nearly half that debt is owed

When you need to know it as it happens

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to local subsidiaries of Gazprom for supplies of natural gas. Lenenergo is enforcing power cut offs for customers who do not pay their bills.

Ukraine Admits Missile Veered Off Course

· Ukraine's Defense Ministry on Monday said last week's deadly explosion in an apartment block, which killed three people and injured five, was caused by a stray missile, fired during a military exercise 80 miles away. The surface-to-surface missile was fired from the Honcharyvsky training ground in northern Ukraine and ripped through the apartment building in Brovary seven minutes after launching. Ministry spokesman Serhiy NAGORYANSKY declined to comment on the reasons for the missile's malfunction and its deviation from the set trajectory. Ukraine still owns more than 500 Tochka-M missiles, designed in Soviet times to hit enemy positions with surgical precision, but the service-life of most has expired. The Tochka-M missile can hit targets within a range of about 120 km. The Brovary explosion was at first suspected to have been caused by illegally stored ammunition.

Meanwhile, an unarmed Russian navy missile fired during a Black Sea exercise accidentally slammed into a Ukrainian passenger ship, injuring five people. The accident happened during the Russian Black Sea Fleet exercises about 48 kilometers from Donuzlav in the Crimea. The cause of the accident is still under investigation, but preliminary reports said the Ukrainian vessel inadvertently entered the training area, which had been closed to navigation by the Black Sea Fleet. A Russian Strizh-3 rocket spun out of control and exploded after its launch from a Russian military site in Kazakhstan near the Caspian Sea on Friday. No casualties were reported. Kazakh Foreign Minister Yerlan IDRISOV has demanded that Russia refrain from rocket launches from the Russian air defense test site in Ashuluk.

South Caucasus & Central Asia

Rus-Georgia Negotiate On Base Removal

· Russian and Georgian government representatives held talks in Moscow last Thursday on plans to withdraw Russian troops from military bases in Georgia. The Georgian side was represented by Foreign Minister Irakly MENAGARISHVILI and Defense Minister David TEVZADZE, while the Russian side was headed by Deputy Prime Minister Ilia KLEBANOV. The two sides signed a protocol to reduce the amount of equipment at its military

European Republics

Belarus Lifts Demonstration Ban

· Minsk authorities have lifted a ban on a march planned for Wednesday by opponents of President Alexander LUKASHENKO. The march in Minsk is an annual event to mark the anniversary of the 1986 blast at Chernobyl nuclear power plant in neighboring Ukraine, but the opposition hopes it will also increase pressure on LUKASHENKO for political dialogue before the upcoming parliamentary elections. Many people were beaten and arrested at an unsanctioned protest in March, further tarnishing Belarus' image. Opposition leaders said they had agreed to compromise on original plans for the rally by holding it on the outskirts of Minsk rather than in the city center, as first intended. Two opposition leaders began trial on Monday on charges of organizing unsanctioned rallies and disturbing public order. Nikolai STATKEVICH, leader of the Social Democratic party, and Valery SHCHUKIN, a member of the opposition parliament dissolved by LUKASHENKO, face up to three years in prison if found guilty, Reuters reported.

DCC Buys Ericsson Equipment

· Ukraine's Digital Cellular Communications (DCC) will buy $32.5 million of equipment from Sweden's Ericsson, the world's third-largest maker of cellular phones. Demand for mobile telephones is growing this year as the Ukrainian economy expands, said Alexander SHYSHKOV, marketing director at Donetsk-based DCC. He said, "We are developing our network in order to cover more territories of the country and improve the quality of our services." DCC's cell phone network covers Ukraine's regions of Donetsk, Dniproperovsk, Kharkiv, Kiev, Odessa and Crimea and plans to cover regions of Luhansk, Poltava, Zaporizhzhia and Mykolaiv by the end of the year. The company plans to spend another $100 million by 2004 to buy more digital equipment from Ericsson. The company, which has operated in Ukraine since 1995, expects the number of its clients to double by the end of the year from the current 45,000 clients, SHYSHKOV said, adding that the company had 15,000 clients in the same period of 1998.

When you need to know it as it happens

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bases and close the Vaziani and Gudauta by June 1, 2001. Intercon sources report that the Russian side tired to extend the stay of the bases for an additional 25 years, particularly the Gudauta base. Russia claimed that the they could not guarantee the security of the removal of their troops. Because of this, Russia said their troops would have to remain. The Georgian side then indicated that if Russia was concerned with the protection of their troops as they withdraw, Georgia would to go to the international community to request additional security assistance. At that point, the Russian insistence on a 25-year extension was dropped. The Georgian side initially demanded that Russia withdraw all four of its bases. But the Russian representatives were only prepared to abide by a bilateral agreement signed in November, 1999 at the Organization for Security and Cooperation in Europe (OSCE) summit. The two other bases, Akhalkalaki and Batumi, will remain a source of further discussion. The two delegations also agreed to draft a program of bilateral military cooperation.

During the visit, Moscow also handed over to Georgia military equipment and uniforms confiscated in last year from a military exhibition cargo. In addition, the Russian Federal Border Guard Service and Georgian Border Guards agreed on further measures for coordination of joint actions at the border of the Chechen territory and Georgia.

Itera Waits For Debt Restructure Proposals

· Itera, a natural gas trading company closely linked to Russian gas monopoly Gazprom, is waiting to receive debt restructuring proposals from Georgia and Armenia. These debts total $100 million. Itera supplies Georgia with 1 million cubic meters of gas per day and Armenia with 1.3 million cubic meters of gas per day. Georgia owes Itera $70 million, while Armenia owes $30 million. Itera cut deliveries to the two countries by half on April 15^th. Itera spokesman Nikolai SEMENENKO said, "We warned them that we would cut them off last week…We stepped back now and won't cut them

off entirely as we are interested in that market." Itera's subsidiary Itera-Holding markets the company's gas in the former Soviet Union. Itera serves as an exclusive gas exporter both to Armenia and Georgia. Gas deliveries to Armenia are shipped through Georgia. Itera holds a 10 percent stake in Armrosgazprom , Armenia's gas distribution company, with the rest equally shared by the Armenian government and Gazprom. Itera and Gazprom are negotiating with the Georgian government to set up a gas distribution company called Gruzrosgazprom in Georgia. Itera markets its gas via Gruzgaz, a joint venture equally held with the Russian-UK Interpack venture. Itera also plans to acquire a 51 percent stake in the state-owned Tbilgaz, which markets gas in the Georgian capital of Tbilisi.

Kazakh- Uzbek On Border Dispute

· Kazakhstan and Uzbekistan Monday tried to defuse a territorial dispute by saying they would cooperate on marking out the borders between their nations. The Kazakh-Uzbek borderline was blurred when the two were apart of the Soviet Union. The border issue is a sensitive one in part because the disputed areas hold fertile land. Kazakhstan had previously complained that its neighbor was setting up border posts without consultation. Kazakh Foreign Minister Yerlan IDRISOV told a joint news briefing with Uzbekistan's ambassador that he hoped the process of demarcating the border would now proceed smoothly in spite of difficulties in densely populated areas. Earlier IDRISOV had accused Uzbekistan of taking Kazakh land. He claimed that Kazakhstan would not "cede an inch of land" to Uzbekistan. Kazakh media have reported that 53,000 acres of border areas, including several villages, were now in Uzbekistan because of arbitrary border posts set up by the Uzbeks. Reuters reported that Uzbek ambassador Turdykul BUTAYAROV rejected the charge, saying there were no "disagreements" between the sides and scolded the Kazakh media for what he called "speculation."

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

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