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, May 3, 2000

vital military labs. The CLINTON administration, while seeking to spend at least $220 million between 2000 and 2004, argued that the risk of not helping 15,000 impoverished germ-weapon scientists and technicians far outweighs the risks of doing so. The US has hoped that its funds will help employ scientists and convert such military labs for commercial use. The fear is that scientists desperate for employment will look to rogue states such as Iran, which offer lucrative salaries in Russian terms. The CLINTON administration has already provided about $20 million between the fiscal years 1994 and 1999 to support collaborative research redirecting former germ-weapons scientists to peaceful research activities.

Rebels Murder Local Mayor

· Rebel fighters pulled Alman MESIYEV, mayor of the town of Khattuni in the southern region of Vedeno from his car and shot him execution-style on Saturday, the Russian military headquarters said. Russian commanders believe this is part of a campaign to terrorize local officials and keep them from cooperating with federal forces. MESIYEV had worked with federal troops in efforts to oust rebel fighters from Vedeno. Rebels also killed three traffic police officers in a northern area federal forces had claimed to control. At the same time, prominent Chechen Islamic leader, Mufti Akhmad Alidkhadzhi KADYROV, said his guards detained two Chechens with explosives who were allegedly trying to assassinate him. Rebel leaders dis

Russian Federation

Politics

Leaked Plans Show Return To Soviet Past

· Kommersant Daily and NTV Television reported today that some leaked Kremlin documents demonstrate that President-elect Vladimir PUTIN has plans to centralize power. The documents detail how the government and the Kremlin administration will be organized. The plans are to expand the presidential administration's power and authority in Moscow and the regions. Documents also propose increasing the number of post directly reporting to the president and for merging the Security Council into the administration. The program also calls for having the Federal Security Service (FSB) work together with the administration. The Kremlin will take the leading role in all Russian and domestic and foreign issues. The government will be assigned a limited role; it will only concentrate on managing the economic affairs of the country. NTV's anchorman commented that everything will be subordinate to the Kremlin just like in the Soviet days, hinting at a return to KGB-Communist style leadership.

GAO Says Russia Could Divert Funds

· According to a General Accounting Office (GAO) report to be published later this week, Russia could divert US funds to help Russian scientists and weapon labs to make germ weapons. Although the report cites no evidence of such misuse, the auditing agency said there is no way to prevent Russian scientists from, "potentially using their skills or research outputs to later work on offensive weapons activities at any of the Russian military institutes that remain closed to the United Sates," according to an early edition of the report obtained by The New York Times. Russia has been unwilling to allow foreign scientists to visit and inspect four

Today's News Highlights

Russia

GAZ To Settle EBRD Debts

Russia Raises Energy Prices

European Republics

Baltic Exchanges To Join Norex

Three Presid. Celebrate Victory

South Caucasus & Central Asia

OSCE To Boost Border Mission

Shevardnadze Forming Gov't

Armenian Political Crisis

Russia Raises Kazakh Quotas

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May 3, 2000

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missed KADYROV last year after he met with Russia's prime minister. Chechnya's rebel leaders called the meeting a betrayal, the Associated Press reported. Russian Su-25 attack planes, Su-24 bombers, An-30 and An-26 reconnaissance planes and Mi-24 helicopter gunships targeted rebel formations on the Chechen stretch of the Russian-Georgian border, in the Argun gorge and in Vedeno and Nozhai-Yurt districts. The federal military said they are conducting special operations now to capture the main rebel ringleaders.

Meanwhile, Chechen President Aslan MASKHADOV said talks are underway to arrange a meeting with Russian President-Elect Vladimir PUTIN, French news agency Agence France-Presse reported. PUTIN said last month that talks are only possible after the release of all hostages from Chechnya and the surrender of those responsible for a series of apartment bombings in Moscow and southern Russia that killed about 300 people last year. MASKHADOV has sent his wife, Kusama, and daughter, Fatima, to Georgia on Tuesday. It has been reported that the two have already traveled to Turkey with plans to head to Malaysia. They are not expected to return to Chechnya until mid-May.

Economy

Ruble = 28.43/$1.00 (NY rate)

Ruble = 28.37/$1.00 (CB rate)

Ruble = 25.37/1 euro (CB rate)

Russia Begins New Millennium With Growth

· Russian Economics Minister Andrei SHAPOVALYANTS told an international conference on market economy and modern financial and banking problems in Amsterdam on Tuesday that Russia entered the new millennium with economic growth. He said that the gross domestic product (GDP) of Russia went up by 3.2 percent in 1999 as compared to 1998. Industrial production growth exceeded 8 percent. In the first quarter of 2000, industrial production reached nearly 12 percent. SHAPOVALYANTS cites three factors leading to increased industrial production: the activity of export-oriented industries; the replacement of imported merchandise by Russian-made products; an improvement in the financial position of industrial enterprises and a growth of their circulating assets, Itar-Tass reported. The Economics Minister noted

that consumer price inflation has slowed down. The Central Bank and the Cabinet have been cooperating on a balanced financial, monetary and credit policy. The Economics Minister also points out that the positive changes in Russia's economy were prompted by the devaluation in the ruble in 1998.

Business

GAZ To Settle EBRD Debt In October

· Gorkovsky Avtomobilny Zavod (GAZ), Russia's second-biggest carmaker, plans to reach a loan rescheduling agreement with the European Bank for Reconstruction and Development (EBRD) by October. GAZ and the EBRD have already agreed in general on ways to restructure the debt, said Anatoly GORNEV, the company's economic director. The lawyers of both companies are now working out the relevant documents, GORNEV said. In February, GAZ said it proposed that the EBRD take a stake in the company in exchange for payments on a $65 million loan. Meanwhile, GAZ will pay an annual regular cash dividend of 3 rubles per common share and 12 rubles per preferred share with the stock trading ex-dividend starting March 2^nd.

Russia Raises Electricity And Gas Prices

· Russia boosted electricity by 35 percent and gas prices by 21 percent for industry and 15 percent for individuals beginning May 1^st to help Gazprom and Unified Energy Systems (UES) cover costs. Vladimir KARABUTOV, deputy head of the Federal Energy Commission gas industry department warned, "There can be one more gas prices increase later this year." Gazprom requested a 42 percent increase in gas prices last month. The company has said production is down because it lacks funds to invest in extracting natural gas from deposits. Domestic industrial and household consumers owe more than 100 billion rubles ($3.51 million) in overdue payments to Gazprom. The rate increase comes after UES and Gazprom agreed to boost gas deliveries to power utilities by 2.2 billion cubic meters of gas to a total 24.2 billion cubic meters in the second quarter. State-owned companies and government agencies owe 15 billion rubles to UES and 1.3 billion rubles to Gazprom.

Putin Merges Two Special Exporters

· President-elect Vladimir PUTIN on April 28^th signed a decree merging Promexport and Russian

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Technologies into a single entity. The newly- merged enterprise will join Rosvoorozhenie as the government's weapons exporting arm, RFE/RL Newsline reported. Sources at Rosvooruzhenie said that this move will strengthen presidential control over military cooperation agreements. Promexport and Russian Technologies were created in August, 1997, when Yevgenii ANANEV was named to head Rosvooruzhenie. ANANEV told Interfax at that time that the reorganization was aimed at, "formalizing and simplifying the system of concluding [defense] contracts."

unveiling of a monument to servicemen, and tour the Prokhorovka Field cultural and historical estate.

Prior to the ceremonies, the presidents are expected to discuss the results of PUTIN's recent visits to Minsk and Kiev. KUCHMA said he would continue a dialogue between PUTIN and he, which began last week. He said, "the main thing is that strategically we have no differences which could substantially influence bilateral relations."

South Caucasus & Central Asia

OSCE Chief Reflects On Regional Security

· Georgian Foreign Minister Irakly MENAGARISHVILI and OSCE Chairwoman, Austrian Foreign Minister Benita FERRERO-WALDNER met on Tuesday to discuss regional security, particularly the Chechen conflict raging just north of Georgia. MENAGARISHVILI briefed the OSCE chief "Georgian idea of reasons, progress and probable settlement ways of the Chechen conflict," the Foreign Ministry press service said. The two agreed that, "the Chechen conflict is both a Russian and regional problem." FERRERO-WALDNER expressed fear that the military operation in Chechnya could spill over into neighboring Georgia. She said the OSCE would boost its small observer force on the Georgian-Chechen border from 12 to 24 because of the continued fighting between Russian troops and Chechen separatists. "After long discussions in the permanent council in Vienna, finally we succeeded in getting an expansion of the border monitoring mission," FERRERO-WALDNER said after meeting Georgian President Eduard SHEVARDNADZE. "I think this is the reason for the mission because there is a real danger [of a spillover], and of course for that reason the mission is here." Today, the OSCE chief will fly to the border area for a first-hand assessment.

Shevardnadze To Form New Government

· Georgian State Minister Vazha LORDKIPANIDZE and all 21 government ministers have submitted their resignations to President Eduard SHEVARDNADZE, in accordance with the Constitution. The State Minister said the President will present the new government to the parliament on May 14^th. He predicted that the composition will be reduced to 15 minister. LORDKIPANIDZE also said

European Republics

Baltic Exchanges Join Norex Alliance

· The Tallinn Stock Exchange in Estonia, the Riga Stock Exchange in Latvia, and the National Stock Exchange of Lithuania on Tuesday signed a letter of intent to join Norex, the Nordic exchange alliance. The Baltic exchanges will share a common equity and bond-trading platform with the existing members of the alliance beginning in mid-2001. This will make it easier for companies of these countries to attract capital and give residents a better outlet to invest abroad. "This will bring the Baltic markets into a new era and make it easy to invest in the best Baltic companies," said Gert TIIVAS, head of the Tallinn Exchange. The next step is to integrate legislation with trading rules and European standards. These measures and amendments have to be passed by parliament. At the end of 1999 Tallinn had a market capitalization of 1.79 billion euros, Riga 882 million euros, and Vilnius 535 million euros, the Financial Times reported. In January, a list of Baltic blue-chip companies was introduced. The Tallinn Stock Exchange Main Index rose 26 percent in the first four months of 2000, while Lithuania's Litin-G Index climbed 2.6 percent and Latvia's Rici Index advanced 8.5 percent.

Putin, Kuchma, Lukashenko Celebrate Victory

· Russia's President-elect Vladimir PUTIN, Belarus President Alexander LUKASHENKO and Ukrainian President Leonid KUCHMA today are attending celebration festivities in Prokhorovka Township, Belgorod Region, on the occasion of the 55th anniversary of the Victory in the 1941-1945 Great Patriotic War. The three presidents will participate in an Easter prayer service, attend an

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that the government will likely include representatives from Adjaria. SHEVARDNADZE met with outgoing ministers on Tuesday and thanked them for their work. The President has promised the Georgian people to shed the corrupt officials from his government.

Itera Resumes Gas Supplies

· Starting today, Itera will resume supplies of natural gas to Tbilisi. Tbilgas (Tbilisi Gas) said the capitol will be receiving 4 million cubic meters of gas daily effective today. The agreement on the resumption of the supplies of natural gas was achieved at the April 27^th Moscow negotiations of Georgian delegation with Itera leadership. Itera cut off the natural gas supplies to Georgia, due to the $70 million debt of Georgia to the company.

Armenia Struggles Through Political Crisis

· Armenian President Robert KOCHARYAN fired Defense Minister Vagharshak ARUTYUNYAN and Prime Minister Aram SARKISYAN, forcing the entire government to step down according to the Constitution. He fired SARKISYAN for allowing the former Soviet republic's economy to deteriorate and ignoring discord in the military. Tensions had been mounting between KOCHARYAN and SARKISYAN over some controversial Cabinet appointments. "Our constitution requires tight cooperation between the president and government. Unfortunately, this did not occur," KOCHARYAN said. Fearing a rebellion, KOCHARYAN has also tightened security around government buildings. Armenia's political battles have plunged the nation into a crisis. KOCHARYAN said, "Political games, from certain ministers within the government, have begun to become a way of life, and all of the country's economic problems are increasing because of this. What is happening in our country is directly shaking the foundations of our state." The President stressed he believed that certain ministers had been scheming against him. Anger with KOCHARYAN has been building, and some legislators have called for his impeachment, accusing

him of barring a prosecutor from hearings on the parliament massacre of October, 1999. Communist lawmaker Khoren SARKISYAN criticized KOCHARYAN's dismissal of the government. He has collected 21 signatures in support of impeachment proceedings.

First Deputy Defense Minister and the Army's chief of staff Lieutenant General Mikhail ARUTYUNYAN has taken over duties of acting defense minister. KOCHARYAN plans to be in parliament Thursday to discuss forming a new government, Interfax said. He is holding talks with Unity Bloc with represents the majority in parliament. A new government must be formed during the next 20 days. Local analysts believe that the Ministers of the Interior, Foreign Affairs, National Security, Industry and Trade, Finance and Economics, and Justice will retain their posts in a new government.

The sacking follows complications surrounding the investigation into the fatal shooting in the parliament in 1999. Last week Gagik DHANGIRYAN resigned as head of the inquiry after being forbidden to address parliament on his findings. One theory circulating in Yerevan is that the killings were a Russian-inspired plot to destabilize Armenia, its military ally, to stop it signing a peace deal with Azerbaijan to end a long war over the disputed Nagorno-Karabakh region.

Russia Raises Kazakh Oil Quota

· Russia raised the annual oil transit quota for Kazakhstan companies by 47 percent to 14 million tons, according to Kazakhstan Minister of Energy Nurlan KAPPAROV. Kazakhstan previously was allowed an annual quota of 9.5 million tons of crude. In 1999, Kazakhstan produced 30 million tons of oil, of which 20.6 million were exported. Russian oil producers stand to loose $1 billion in revenue for every 10 million tons of Kazakh oil exported through Russia because oil companies must share export outlets, Mikhail KHODORKOVSKY, chief executive at Yukos Oil Co. said earlier.

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

Daily Report on Russia is published Monday-Friday (excluding holidays), by Intercon International, USA. Subscription price for Washington, D.C. Metro area: $950.00 per year. A discount is

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