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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Thursday, May 25, 2000

tions are being felt worldwide. Yugoslavia's Defense Minister General Dragolub OJDANIC, who has been indicted by the war crime tribunal in The Hague, held meetings with the Russian Defense Minister and the Army's Chief of Staff and was welcomed with full military honors. OJDANIC is accused of, "crimes against humanity and violations of the laws or customs of war." During the war in Kosovo, he commanded units that drove Albanians from their homes; killed citizens execution style; and packed the rest on trains, depriving them of food or water." While in the Kremlin, Russian authorities failed to arrest him, as they are required to do as members of the UN. The US has protested OJDANIC's five-day visit and criticized Russia's close relations with Serbia's Slobodan MILOSEVIC. Russia has recently granted Belgrade a loan for $102 million. It has also offered to sell it oil at below market prices, The Washington Post reported.

On Wednesday, Foreign Minister Igor IVANOV told NATO counterparts that OJDANIC's visit was the result of "internal technical hitch" and that measures have been taken to ensure that such an incident would not happen again. He added that officials in the Defense Ministry had been disciplined for inviting an indicted Yugoslav war criminal to the Kremlin. Today, the Defense Ministry said it had no plans to reprimand any officers over the controversial visit. A Defense Ministry spokesman said, "We won't be punishing anybody. Our minister has said nothing, no official statements have been

Russian Federation


Regional Envoys Receive More Power

· President Vladimir PUTIN today announced that he plans to promote his seven new regional envoys to positions on the Security Council advisory body. The envoys created in a May 18th decree will serve as the Kremlin's eyes, ears, and voice in seven huge administrative zones, diminishing the role of governors and local administrations. The envoys include former Prime Minister Sergei KIRIYENKO (Volga region, including Moslem Tatarstan), General Viktor KAZANTSEV (North Caucasus region, including Rostov-on-Don and Chechnya), Federal Security Service's (FSB) first deputy director Viktor CHERKESOV (St. Petersburg), military commander Konstantin PULIKOVSKY (Russian Far East and be based in Vladivostok), First Deputy Interior Minister Pyotr LATYSHEV (Urals region), former minister in charge of relations with the Commonwealth of Independent States Leonid DRACHEVSKY (Siberia region), and Georgy POLTAVCHENKO (Moscow region). Earlier decrees call for the power to dismiss governors and remove them from the Federation Council. PUTIN has also order the regions to bring their legislation in line with federal legislation. Political analysts view PUTIN's moves as a direct assault on the governors' status and privileges. PUTIN said, "I will meet regularly with my representatives to the regions and intend this week to prepare and sign a decree to bring them into the Security Council." The envoys' inclusion in the Security Council further boosts their status and puts them alongside key figures such as the foreign and defense ministers.

Ojdanic Visit Sparks Split Between Ministries

· Earlier this month, Moscow invited a criminal into the Kremlin. This is not the first time, but its implica

Today's News Highlights


Gorbachev Sets Up New Party

Putin Backs Flat Tax Plan

AvtoVAZ Plays Down Tax Raid

European Republics

Ukraine-IMF To Meet In June

South Caucasus & Central Asia

Georgia Denies Russian Claims

Turkey Grants $4M To Georgia

Azeri Resumes Fuel Supplies

Uzbek-Daewoo Receives Credit




May 25, 2000

Intercon's Daily

made." He added that the ministry had made no mistake in issuing the invitation to OJDANIC. The incident has revived a split between Russia's foreign and defense ministries. IVANOV also slammed the war crime's tribunal, which Russia had supported in creating. He said that the tribunal was acting, "not so much in a judicial way as political." He criticized the tribunal for focusing too much on Kosovo, when it was initially set up to deal with war crimes in Bosnia, the Financial Times reported. One expert opined that the attack was launched because of fears that Russia itself will be subjected to the war crimes tribunal for atrocities in Chechnya.

Gorbachev Registers New Political Party

· Former Soviet President Mikhail GORBACHEV announced today that the Justice Ministry officially registered a new national political party, the Russian Social Democratic Party. This will allow the party to participate in future election. He said the party would focus on supporting liberal ideas and ending extremism. The Social Democratic Party was formed in the run-up to last December's parliamentary election, although the party did not run. "Just the idea of social democracy will help deliver the country from extremes, integrating liberal values and taking the best of the past,'' he said. GORBACHEV, admired in the West for his role in ending the Cold War, is not popular with Russian citizens. Last month, he agreed to head a media-monitoring group sponsored by commercial NTV after gun-toting police raided the headquarters of the station's parent company, Media-Most. Many commentators saw the raid as a blow to press freedom, although the police said it was part of a bona fide criminal investigation. GORBACHEV announced his support for PUTIN, but warned against resorting to authoritarian methods in trying to restore stability and the country's global clout. Some Russian politicians have expressed fears that PUTIN may reverse some of the democratic reforms of the post-Soviet era. GORBACHEV voiced hope that PUTIN will meet public expectations by reviving the moribund economy and combating rampant corruption. He urged PUTIN to clarify his intentions, saying that the current uncertainty feeds concern. GORBACHEV added, "We must dispel the myth that a strong state must be dictatorial…A strong state envisages active regional and municipal authorities, and a free press."

On May 12th, GORBACHEV attended a ceremony to open a new building for his think-tank. The building was funded by a Turkish firm with the help of proceeds from his books and donations from well wishers. Among those attending the ceremony were Ted TURNER, founder of the Cable News Network (CNN), former prime minister Yevgeny PRIMAKOV, a long list of academics, led by Alexander YAKOVLEV, a top ideologist of perestroika reforms, and former Israeli Prime Minister Shimon PERES. President Vladimir PUTIN did not attend, but NTV Television said his bodyguards had examined the building to ensure it was safe.

Putin Completes Cabinet Formation

· President Vladimir PUTIN on Saturday completed forming his new Cabinet with the appointment of Alexei GORDEYEV as a deputy prime minister and Agricultural Minister and Alexander GAVRIN as Energy Minister. Most of the ministers in the new Cabinet are holdovers from Boris YELTSIN's government, including Defense Minister Igor SERGEYEV, Foreign Minister Igor IVANOV, Interior Minister Vladimir RUSHAILO, and Emergency Minister Sergei SHOIGU. German GREF was named Economics and Trade Minister and Alexei KUDRIN was appointed as deputy prime minister and Finance Minister. PUTIN reduced the number of ministers from 30 to 24, and the number of federal agencies was cut from 39 to 33. The new government has five deputy prime ministers instead of seven and the position of first deputy premier was eliminated.

PUTIN also appointed Lieutenant-General Sergei LEBEDEV as director of Russia's Foreign Intelligence Service (SVR). LEBEDEV served in Germany in the 1980s and has been the official representative of Russia's Intelligent Service in the US since 1998. LEBEDEV replaces Vyacheslav TRUBNIKOV, nominee of the previous Kremlin leader, Boris YELTSIN. General Yuri KOBALADZE, former head of the SVR press office said LEBEDEV's work record in Europe was an important factor in the nomination, along with his close association with PUTIN.

Putin Backs Bill For Flat Income Tax

· President Vladimir PUTIN's administration today outlined plans to establish a flat 13 percent income tax rate, instead of the current scale ranging from

When you need to know it as it happens




May 25, 2000

Intercon's Daily

12 percent to 30 percent. To counter this the government plans to eliminate special exemptions and privileges granted to companies. This is the first step by the administration to streamline the system and eliminating ineffective taxes. Prime Minister Mikhail KASYANOV stating that the time had come for action said that the new tax rates, "will stimulate production, broaden the tax base and encourage economic growth." He admitted that the recent economic growth due to high oil prices and the impact of the 1998 ruble devaluation is not sustainable and needed further structural reforms. Economists have cited Russia's high taxes and convoluted tax laws as a major drag on the economy. Massive tax evasion keeps necessary revenues from government coffers. The government believes that lowering the income tax would encourage both individuals and companies to declare their real wages. The government plans to increase its efforts to catch tax evaders. Advisors have also proposed increasing easier taxes to collect, such as taxes on gasoline, which would increase six-fold, and the sales tax on tobacco, which would double. PUTIN has expressed his support for the single tax rate in a letter to the State Duma, which called on deputies to approve the proposal. The budget committee of the State Duma is scheduled to discuss the plan later today. The State Duma needs to pass the bill before a July break if next year's budget are to include these changes.


Ruble = 28/$1.00 (NY rate)

Ruble = 28.3/$1.00 (CB rate)

Ruble = 25.76/1 euro (CB rate)

France Illegally Froze Russian Accounts

· The French government today admitted that a Paris court illegally froze Russian state bank accounts in a trade dispute launched by Swiss firm Noga. The action came in response to a case in which Noga is seeking $63 million in debts from Moscow over oil-for-foodstuffs deals in 1991-1992. Similar procedures are under way in other countries including the US and Luxembourg. Russian Foreign Minister Igor IVANOV said the freezing of accounts, "was done in violation of all norms. The French side has officially acknowledged it is a violation…Now we are conducting negotiations with

the government of France to correct this violation and end this illegal seizure of assets of the embassy and other Russian entities." Other Russian entities affected by the French court ruling are Rosneft, Slavneft, and Vneshekonombank, although Rosneft officials denied their accounts have been affected. Nessim GAON, Noga's owner, told Reuters on Wednesday the claim had been approved by a Stockholm arbitration court in 1997 and that Russia had already defended itself in court and failed. "We can take anything of theirs," he said, adding he was ready to negotiate all the same on the claim and another $1.4 billion claim still in arbitration in Stockholm. "They can't come now and use politics to stop justice taking its course. They know about everything that has been done." GAON pointed out he can seize state accounts because Russia gave up its right to sovereign immunity in the original deal. Constantin PETRICHENKO, a spokesman for the Russian embassy in France on Wednesday said Russia regarded the seizure as a violation of the Vienna convention governing diplomatic status and relations.


AvtoVAZ Plays Down Tax Police Raids

· AvtoVAZ, Russia's biggest carmaker, denied any wrongdoing after tax police this week raided the carmaker's offices across the country saying the probe was connected to "widespread" tax evasion. AvtoVAZ executives played down the raids conducted in 42 offices in 26 Russian regions, and called them a regular inspection. Tax police said AvtoVAZ is being investigated for alleged "fraud, failure to repatriate profits made abroad and failure to pay taxes." General Motors Corp. (GM), the world's largest automaker, said in March it would decide in the next few months on going ahead with a $500 million joint venture with AvtoVAZ.

Gazprom-LUKoil-Yukos Form Caspian JV

· Russian gas monopoly Gazprom and oil producers LUKoil and Yukos have reached an agreement to form a joint venture to explore hydrocarbon deposits in the Caspian Sea. "We have an agreement to form a joint venture in the North Caspian in which the three companies will have equal stakes," a spokesman for LUKoil told Reuters. "In fact, we agreed to study forming a joint venture about a year

When you need to know it as it happens



Thursday Intercon's Daily May 25, 2000

ago. But something seems to have moved there," Yukos spokesman Andrei KRASNOV. Both declined to provide details of the agreement and Gazprom was not immediately available for comment.

Tyumen To Sell Corporate Bonds

· Tyumen Oil Co., Russia's fifth-largest oil producer, will sell 4 billion rubles ($141.3 million) in corporate bonds. The sale plan, approved by the board of directors, has already been submitted to the Federal Securities Commission for registration. The three-year bonds with a 1,000-ruble nominal price will have a put option after the first and the second year. Tyumen sold 5 billion rubles in bonds early this year and late last year.

Lesin Wants All Internet Media Registered

· Russia's Mass Media Minister Mikhail LESIN on Wednesday announced that all Internet-based Russian media outlets should be registered. He said there are many sites on the Internet that claim to be news agencies or newspapers and have business licenses, but aren't registered officially as media companies. "As long as they identify themselves as mass media outlets, they should be subject to registration in compliance with the established order," LESIN said. Earlier this month, Russian police, masked and wielding automatic weapons, seized computers, files and recording equipment from Media Most, operator of the biggest independent TV station, as well as a radio station, newspapers and magazines.

reforms of the agriculture and energy sector, privatization and trade issues. Ukraine is anxious for the IMF to renew lending under a $2.6 billion loan Extended Fund Facility (EFF) program. However its failure to fulfill IMF requirements and the investigative audit of the Central Bank which showed that Ukraine misled the IMF about the size of reserves, has the hampered its resumption. First deputy prime minister Yuri YEKHANUROV said Ukraine asked the IMF to drop some conditions for new loans, including a requirement that the government eliminate tax privileges for companies operating in a tax-free zone, and cut export fees on sunflower seeds, livestock and animal skins. He said, "Today, Ukraine cannot solve these problems."

South Caucasus & Central Asia

Georgia Denounces Russian Propaganda

· Georgian Border Guard Chief Lieutenant General Valery CHKHEIDZE strongly denounced Russian accusations that Chechen rebels and Afghan Taleban were able to freely travel through Georgia. He said Russia's claims are an attempt to smear Georgia's reputation. He said, "They aim to discredit Georgia, trying to portray it as an unstable country which serves as a haven for terrorists…This is a well-planned, long-term action of certain circles in Russia." CHKHEIDZE specifically denied Russian allegations that representatives of Afghanistan's Taleban movement had passed through Georgia to Chechnya. Russian officials have accused the Taleban of aiding the rebels and threatened to respond with air strikes on Afghanistan. Since the beginning of Russia's military offensive in Chechnya, Russia has accused Georgia of failing to stop militants and weapons crossing its mountainous border with Chechnya. The tense border situation has caused concern that the conflict might spread, and observers from the Organization for Security and Cooperation in Europe are stationed on the border. Georgia is receiving money and equipment from the US to help it patrol the border. The Russian side is patrolled by an armed detachment of the Russian Federal Border Service (FPS). Chief of the FPS training administration, Lieutenant-General Nikolai LEPYOSHKIN said that, "border guards in Chechnya are reinforced well with

European Republics

Ukraine-IMF To Resume Talks In June

· The International Monetary Fund (IMF) and Ukraine's government agreed on Wednesday to continue holding talks, after Ukraine failed to meet key requirements necessary for the resumption of lending. Head of the IMF's second European Department John ODLING-SMEE praised the rise in Ukraine's industrial production, which grew 8.8 percent in March compared to February. The Fund also approved of Ukraine's efforts to plug holds in its 2000 budget. ODLING-SMEE said, "This is not only a sign that some things are beginning to go well; it also creates room to move ahead faster with reforms." Talks focused on budget implementation, balancing income and expenditure,




May 25, 2000

Intercon's Daily

manpower as well as weapons and material." Apart from firearms and portable anti-tank grenade launchers, border guards use against gunmen 82mm mortars and coupled 23mm anti-aircraft systems ZU-23. Russian Federal Border Guard Service head Konstantin TOTSKY is scheduled to meet with CHKHEIDZE in early June. They will discuss developing cooperation between their respective border guard units.

Turkey Grants $4M Military Aid To Georgia

· Chief of Turkey's General Headquarters General Hurshit TOLON announced Wednesday, after meeting with Georgian military officials in Tbilisi, that Turkey will provide Georgia with $4 million in military aid. The funds will go toward modernizing Georgia's 11th motorized infantry brigade, based in the village of Koda outside the capital Tbilisi. The brigade will receive military and communications equipment. Georgia's Deputy Defense Minister Grigol KATAMADZE said some of the grant will go toward improving the brigade's headquarters, cafeteria and barracks, and to modernizing a textile factory making military uniforms. The new aid follows the announcement earlier this month of a $20 million US grant to improve Georgia's border guards units. Georgia, wedged between giant Russia to the north and unstable Armenia and Azerbaijan to the south, has sought Western assistance in building up its armed forces. Georgian President Eduard SHEVARDNADZE said Georgia aims to apply for NATO membership by 2005.

Azerbaijan To Supply Fuel To Ukraine

· Azerbaijan is expected to resume diesel fuel supplies to Ukraine June 1st and sell about 330,000 tons of the fuel by the end of the year, Ukrainian daily newspaper Kievskie Vedomosti reported, citing Viktor RZHATKEVYCH, head of Ukraine's Ukrresursy company for natural resources. The supplies were postponed earlier this year, after Ukraine failed to pay on time for the delivered fuel. Ukraine plans by June to pay $8.3 million owed to Azerbaijan for fuel and expects to

receive between 50,000 tons to 60,000 tons of diesel fuel a month this year from Azerbaijan, RZHATKEVYCH said. Ukraine, which depends on oil and oil products supplies from abroad for more than 80 percent of its overall needs, said it is eager to secure stable supplies of diesel fuel for this year's harvest.

Uzbek-Daewoo Project Receives $35M Credit

· South Korea's Export-Import Bank has granted Uzbekistan a $35.9 million credit to finance the manufacture of a new car model at the Uzbek-Daewoo joint venture. Alidzhon MAMAYUSUPOV, in charge of foreign economic relations and new projects at Uzbek-Daewoo told Reuters that the Ex-Im Bank had signed a credit agreement with Uzbekistan's National Bank for Foreign Economic Activity. He said the entire project for producing Daewoo's Matiz model would cost $42.2 million. The Uzbek side will contribute approximately, $6.3 million of that figure. The plant will start producing parts for up to 60,000 Matiz cars starting this autumn. The first Matiz car will roll off the conveyor in 2001. Daewoo and Uzavtoprom in 1996 built a $650 million car plant in Uzbekistan's Andizhan province, with a capacity of 200,000 cars annually.

Turkey To Buy Part Of Kyrgyz Bourse

· The Istanbul Stock Exchange is preparing to buy a 27 percent stake in the stock exchange in Kyrgyzstan, Sabah reported, citing ISE Chairman Osman BIRSEN. The Istanbul bourse is also planning similar partnerships in Azerbaijan and Kazakhstan, two other Turkic nations. A meeting between Turkey's Capital Markets Board and Nasdaq Stock Market officials is expected to take place July 31st and August 1st in New York to discuss the possible creation of a Nasdaq-type stock market for technology-related companies in Turkey.

The Daily Report On Russia and FSU

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