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 3, 2000

RUSSIAN FEDERATION

Politics

Military Confusion Made Ambush Easy

The Russian Defense Ministry admitted on Sunday that the extent of last week's ambush by Chechen rebels near the village of Vedeno, which killed as many as 43 Russian soldiers, was due to confusion in the military command, policed equipped lightly with little protection, and the decision to travel on a road which was not controlled by Russian troops. Defense Minister Igor SERGEYEV said, "The reason for what took place is insufficiently firm central command." He said that the ministry will launch an inquiry the mishap. He added, "We are ready to expose these mistakes since if problems and mistakes are not revealed, it will be impossible to eliminate them." The lack of coordination between the Russian Armu and Interior Ministry forces has been a major factor in the Russia's errors and oversights. Chechen rebels appear to have targeted this weakness, as they continue their attacks, despite Russia's superior firepower and outnumbering forces. The New York Times reports that Russians intercepted rebel radio communications signaling that a convoy of troops was headed their way. Major Alexander STEPANETS said, "We heard, `Thirty people are headed your way...They have grenade launchers. Try to seize them intact if you can.'" It is unclear why the military failed to warn its convoy of the trap that lay ahead. Governor of the Perm region, where the division of soldiers was from said, "The military should not be allowed to fall into the same trap twice when planning such serious operations." Russian troops have fallen victim to similar attacks on March 2nd in Grozny and February 29th in the southern Chechen mountains. The bodies of at least 27 Russian police, thought missing were found on Saturday, from this latest devastating ambush.

Putin Pushes Strengthening Nuclear Sector

Russian President-elect Vladimir PUTIN stressed Friday that Russia should effectively restructure and convert the defense sector's nuclear industry. He said, "Today we need a well thought-out and wise conversion, taking into account all the economic and social consequences. If we continue to drag out conversion, then further infusions of budget funds will be ineffective." Russia's nuclear power plants are suffering from a lack of funding and revenues from consumers who fail to pay their bills. PUTIN also pointed out that, "Low rates are a serious problem. Exporters should not have to provide low rates... Our foreign partners are not averse to taking advantage of that situation. Often they who deliver raw materials to Russia and process them here operate parasitically." He stressed that atomic energy is very important to Russia's fuel and energy sector. Defense Minister Igor Sergeyev noted that a key goal for this year is to keep the central nuclear test site in Novaya Zemlya in operating condition. He also emphasized the need for better social security for those working in the nuclear arms complex. "Nuclear safety depends directly on that," he said.

Yeltsin's Immunity Maintained

Russian State Duma on Wednesday, in a vote of 144 votes to 136 with 27 abstentions, rejected a Communist bid to lift former President Boris YELTSIN's immunity from prosecution. The vote fell short of the 226 votes needed for pas

Today's News Highlights

Russia

Economic Indicators

US Lifts Ex-Im Loan Ban

European Republics

Ukraine's CB Reserves Rises

South Caucasus & Central Asia

Uzbekistan Cuts Interest Rates

Radioactive Cargo Detained

Politics-Economics-Business

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Monday

April 3, 2000

Intercon's Daily

sage. President-elect Vladimir PUTIN issued a decree protecting ex-presidents, including YELTSIN and his family, from prosecution within hours of his appointment as acting president on December 31, 1999. The Communist Party had proposed to refer the decree to the Constitutional Court, calling it unconstitutional. The Communists, which launched an impeachment bid last year on various charges, objected to immunity for YELTSIN because allegations that his administration was corrupt and mismanaged state funds. Yegor LIGACHEV of the Communist Party said, "He [YELTSIN] should answer for the destruction of the country and of the economy." Pro-Putin lawmakers dominate the present Duma, elected in December, though the Communists remain the single largest bloc. Former prime minister Sergei KIRIYENKO, who leads the liberal Union of Right Forces faction, said, "We may have a different attitude to YELTSIN, but he was the first popularly elected president of Russia. Let's leave him alone. It's not just a political and a legal, but a moral issue."

Economy

Russia to Receive $100M Japanese Loan

Russian Deputy Prime Minister Viktor KHRISTENKO today announced that Russia will receive a $100 million loan installment from the Japanese government. The loans from Japan are tied to the lending program of the World Bank, which recently released a $100 million coal-loan installment to Russia. "We are grateful to Japan for the support, consistency and firmness of its position, aimed at expanding cooperation with Russia," KHRISTENKO said. 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.

Economic Indicators

Russia's money supply expanded by 400 million rubles ($14 million) in the week ending March 27th, according to the Central Bank said. The money supply, which includes cash currency in circulation plus required reserves, grew to 323.7 billion rubles from 323.3 billion rubles on March 20th. Russian foreign currency and gold reserves totaled $15.1 billion on March 24th, the highest level since the government's Treasury debt default in August 1998, as soaring oil prices boosted export revenue.

Business

Block To Ex-Im Bank Loans Lifted

The US State Department on Friday decided to lift its objections to two Export-Import Bank loan guarantees totaling $500 million to upgrade a Russian refinery and oil field with US technology. The two loans were blocked in December, 1999, for the sake of the US',"national interest." James HARMON, president of the Export-Import Bank, said in a statement he Russia's fifth-largest oil producer, was "pleased" with the decision, and he, "expects the board of directors will take this matter up at its earliest possible opportunity." The next board meeting is April 14th. Tyumen Oil Company (TNK), welcomed the decision. TNK President and CEO Simon KUKES in a company press release said, "These loan guarantees will create thousands of jobs in the United States and Russia and enable significant cooperation with Western partners on technical and managerial levels...Broadly speaking, these projects will also help integrate Russia even further into the world economy." The loans will be used to upgrade Tyumen's Ryazan refinery near Moscow and to rehabilitate the giant Samotlor oil field in western Siberia. ABB Lummus Global, part of ABB Ltd., will use $198 million in Export-Import loan guarantees to modernize Ryazan, with the goal of making it one of the best refineries in Russia. TNK has an additional $70 million in syndicated loans from private banks to upgrade the Ryazan refinery. Part of the loan will be used to purchase refinery and exploration equipment from Dallas-based Halliburton Co.

This is the largest US-supported loan to a Russian business since the financial disaster of 1998, when the ruble collapsed. The loan is seen by some as a sign of encouragement and in improved relations between the United States and Russia. The Export-Import Bank's financial package includes a separate $295 million loan and a $203 million loan. The Russian government, which had owned 49 percent of Tyumen, sold its shares to private investors after the Export-Import Bank withheld the loan guarantees late last year.

EUROPEAN REPUBLICS

Ukraine Boosts CB Reserves

The Ukrainian Central Bank's gross hard

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Monday

April 3, 2000

Intercon's Daily

currency reserves, which exclude gold, rose from $1.144 billion on March 3rd to $1.194 billion on March 31st. Sergei YAREMENKO, head of the bank's currency regulation department, said the rise in reserves was largely due to the Central Bank's purchase of hard currency on the interbank market. He said hard currency purchases had exceeded sales by $312 million since the start of the year. The gryvnia's official fix slipped to 5.4299 to the dollar today compared to 5.2163 to the dollar on December 31, 1999. Ukraine, which faces a total of $3.1 billion in foreign debt payments due this year, expects to close on April 7th a deal to restructure $2.6 billion in short-term commercial debt for a new seven-year Eurobond. Ukraine also has plans to approach the Paris Club of creditors to reschedule $500 million in debts due this year, if the International Monetary Fund resumes its $2.6 billion loan program to Ukraine, Reuters reported. The three-year Extended Fund Facility loan program was frozen in September 1998 over lax reforms.

SOUTH CAUCASUS & CENTRAL ASIA

Uzbekistan Cuts Interest Rates

Uzbekistan lowered its refinancing interest rate from 36 percent to 30 percent retroactively effective on April 1st, the Central Bank said in a statement released today. The measure follows a presidential decree, providing for a floating system of refinancing rates, which will be changed every month, in accordance with inflation and the situation on domestic currency markets. The refinancing rate was last changed in 1997.

Radioactive Cargo Detained in Uzbekistan

Uzbek Customs authorities on Saturday detained a truck on the Uzbek-Kazakhstan border carrying 10 lead containers with radioactive material inside that were bound for Pakistan. The State Customs office said the truck driver is an Iranian citizen who presented Uzbek officials with a declaration saying his cargo consisted of stainless steel metal. However, a check by Uzbek customs and

security officials revealed a level of radiation that exceeded allowed norms. The freight receiver was identified as the Ahmad Jean Hadji MOHAMMAD firm in the Pakistani town of Quetta. An investigation has been launched, but no information will be released until all details and circumstances are fully understood. Because the containers posed a threat to the environment, the trailer with the containers was expelled back to Kazakh territory. After the Soviet collapse in 1991, Kazakhstan declared itself a neutral and non-nuclear country and turned over its Soviet-made nuclear weapons to Russia. The US is helping the country destroy remaining weapons facilities. Western nations have expressed concern over the possible leak of nuclear weapons technology to such countries as Pakistan and Iran.

Ar-Namys Party Moves Underground

The Ar-Namys Party, which supports former vice president and its leader Felix KULOV, after determining that the political environment in Kyrgyzstan is threatening, has decided to operate underground. It cites the controversial outcome of the parliamentary poll, the arrest of its leader, and the persecution of its members as reasons for the decision. A party resolution approved on Sunday states, "As it is impossible to function in the conditions of terror unleashed by the [President Askar] AKAYEV regime...when no one is safe from arrest, we decided that the primary party organizations would work illegally from now." It said that from now on only the main committee of the party would be legally registered. KULOV, the biggest potential challenger to AKAYEV in the presidential election later this year, is still being held in prison. He is accused by security officials of involvement in a plot to assassinate the President. Ar-Namys followers have responded to his detention by holding a series of pickets and demonstrations around the country. Several KULOV supporters have also been arrested. One party member said, "We do not trust AKAYEV as they have arrested our leader and we are prohibited from protesting."

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

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