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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Tuesday, May 30, 2000

Vladimir PUTIN on Monday in Moscow. PUTIN declared that, "Russia has accorded and will continue to accord vital importance to its relationship with Europe." He stressed that Europe is Russia's "top priority," because of its "location, its culture, and its attitude toward economic integration." The new President also promised to fully investigate allegations of war crimes and human rights abuses in Chechnya. "All violations of law in Chechnya, whoever has committed them, will be resolutely stamped out," PUTIN said. However he said, "We are categorically against using the thesis of human rights as a pretext to prevent Russia from restoring order in the region." The EU has cut assistance to Russia, accusing Moscow of human rights violations and disproportionate use of force in Chechnya. SOLANA has expressed that he, "would like to see humanitarian aid arriving without difficulty from the European Union." He added, "we want to know more about the plans of President Vladimir PUTIN for reforming the Russian economy."

Prime Minister KASYANOV, Deputy Prime Minister Viktor KHRISTENKO, Foreign Minister Igor IVANOV, and presidential envoy to the Group of Seven, Andrei ILLARIONOV led negotiations for the Russian side, at this first meeting between the new PUTIN administration and the EU. Other topics included Russia's defense policy, political enlargements, anti-dumping agreements, and the crack down on media organizations, which threatens the free press.

Russian Federation


Putin Reappoints Controversial Chief Of Staff

· Quietly over the weekend, Russian President Vladimir PUTIN, reappointed the controversial Kremlin chief of staff, Alexander VOLOSHIN, who served under former president Boris YELTSIN and is closely linked to Russia's oligarchs including Boris BEREZOVSKY. VOLOSHIN was the center of YELTSIN's "family" of advisers. Russian politicians and analysts had been waiting to see if PUTIN would rehire VOLOSHIN and other senior figures from the previous administration as a test of whether he would act independently and tackle the corruption that spread under YELTSIN. Former prosecutor general Yuri SKRATOV has alleged that VOLOSHIN was involved in the illegal actions connected to YELTSIN's family and senior members of the former administration. VOLOSHIN has worked in the presidential administration since 1997 and has been chief of staff since early 1999. Comment: This appointment should once and for all clear out any doubt analysts had been holding out on where PUTIN's loyalties would lie.

On Saturday, PUTIN also reappointed Sergei IVANOV as secretary of Russia's Security Council and signed a decree to include the presidential representatives of Russia's seven new super-districts on the Council. IVANOV, like PUTIN and many in the new administration, used to work in the Federal Security Service (FSB).

EU-Moscow Summit Builds New Relations

· European Union (EU) President Romano PRODI and External Relations Commissioner Chris PATTEN, EU Foreign advisor Javier SOLANA, Portuguese Prime Minister Antonio GUTERRES, and other high level officials met with Russian President

Today's News Highlights


Russia Makes IMF Payment

Kristall Raided By Police

European Republics

Ukraine To Cut Army By 2005

Estonian-Latvian Energy Ties

South Caucasus & Central Asia

Yarov To Visit Tbilisi

Baku Host Pipeline Investors

Kazakh To Cut Refinancing Rate

Shanghai Five To Meet In July




May 30, 2000

Intercon's Daily

Strategy In Chechnya To Change?

· Russian federal forces came under attack on Friday and over the weekend in the capital Grozny, Gudermes, and Argun. Reports differ on the number of soldiers killed and injured. Kremlin spokesman on Chechnya Sergei YASTRZHEMBSKY has denied that up to 60 Russian servicemen were killed on Friday. In addition, Grozny's military commandant Major-General Vasilii PRIZEMLIN, denied that large numbers of rebels failed to leave the capital in February and have since then remained in hiding underground, launching nighttime raids. Russian forces targeted the Nozhai-Yurt and Vedeno districts, which are believed to have some of the largest rebel presences in the region. One soldier was wounded as federal troops came under rebel fire 22 times, according to officials at Russian headquarters in Mozdok.

General Gennady TROSHEV said that Russia may change its strategy in Chechnya soon. He believes that Russian troops should consider initiating peace talks with the rebels after the field commanders are wiped out. TROSHEV ruled out talks with top rebel leaders, including Chechen President Aslan MASKHADOV. Moscow wants to negotiate "with those Chechens who understand, not those with weapons in their hands." Moscow says the rebels must lay down their weapons and abandon their drive for independence. It also says they must turn in suspected hostage-takers who made Chechnya extremely dangerous for both Russians and foreigners in the years after it gained de-facto independence in an earlier 1994-96 war. Russia relies on air and artillery raids on the rebels, who strike back with ambushes on Russian convoys, often behind federal lines. Russian SU-25 and Su-24 attack jets flew 18 combat missions since Sunday against targets in the Argun and Vedeno gorges, two key rebel refuges. Helicopters flew about 50 close support missions


Ruble = 28.27/$1.00 (NY rate)

Ruble = 28.21/$1.00 (CB rate)

Ruble = 26.31/1 euro (CB rate)

Russia Makes Scheduled Payment To IMF

· The Finance Ministry said it is prepared today to make a $59 million payment to the International

Monetary Fund (IMF). The spokesman noted that the funds for the payment had earlier been set aside. The next payment, of an unspecified size, will be made on June 10th. Russia has arranged or made five repayments to the IMF this month, including the one today. This month's total payment reached 327,904,319 SDRs, or about $430 million. Russia, the Fund's largest single borrower, has paid about $1.3 billion to the IMF in the first four months of this year out of $3.6 billion due to be repaid in 2000. The government had hoped to use new IMF loans to make payments on previous credits, but the Fund suspended the previous refinancing arrangement last year, saying Russia had failed to implement agreed structural reform measures.

Gavrin Supports Market Economy

· Russia's new Energy Minister Alexander GAVRIN in a Vedomosti newspaper interview said that he supports a market economy, but with some limitations. He said, World experience shows the advantage of a market economy over strict state regulation, and with this one must agree…But given the specifics of Russia, the energy sector cannot simply be unleashed into a market pure and simple, this could have very serious consequences. In the energy sector one must move gradually, starting with a scientific approach to a shift to the market, while preserving the regulatory functions of the state." He said the state would continue to regulate oil exports, because without this mechanism there could be serious domestic shortages. The state would also continue to regulate oil deliveries to the agricultural sector, the army and other "power structures," and to northern regions for building winter fuel reserves. GAVRIN also expressed interest in streamlining the use of energy resources of several former Soviet republics. "Yes, the idea is very interesting...we must create the most advantageous terms for attracting energy resources from our neighbors¾Kazakhstan, Uzbekistan, Turkmenistan, Azerbaijan. This concerns both oil in transit and raw materials for domestic consumption in Russia."


Slavneft Hopes to Win $6M Iranian Oil Contract

· Russian-Belarus oil producer, Slavneft, has bid on a contract to service oil fields in Iran and increase

When you need to know it as it happens




May 30, 2000

Intercon's Daily

output from the wells. After talks with the Iranian government, the company is confident it will win the $6 million contract. The oil company's maintenance subsidiary, Slavneftstroi, will also submit bids to build pipelines in Iran. "The sides agreed to create several joint ventures, which will work on the back-pay principle," said the oil company in a statement. "Slavneft assured [Iranian officials] that its specialists will arrive to Iran within three weeks to start." Slavneft has already held talks with the over possible service contracts and exploration for crude reserves. Russian companies are hoping to get a piece of Iran's $1.5 billion budget for its oil industry over the next five years. Tatneft, Russia's number four oil producer, is active in providing field services to National Iranian Oil Co., that nation's state- owned producer. LUKoil, Russia's top oil producer, is studying the possibility of securing three deposits for exploration in Iran. Executives of Rosneft, Russia's state-owned oil producer, also paid a visit to Iran, though they have yet to have any major success. At the same time, Gazprom, Russia's natural gas monopoly, in cooperation with Total Fina Elf are the front-running companies bidding for the $1.5 billion development of phases of Iran's South Pars gas field.

Symbol Of Russia Kristall Raided By Police

· Russian police raided the nation's biggest vodka producer, Kristall, after workers protested a management change. It is estimated that hundreds of the factory's 1,350 workers challenged a decision Monday to fire General Director Yuri ERMILOV and replace him with Alexander ROMANOV, former vice president of oil company Rosneft. The State Property Ministry said ERMILOV was dismissed for health reasons and because of the company's poor results in the past year. Workers claim the move illegal and unfair. Sergei NIKULTSEV, deputy director of Kristall said, "Kristall is not just an ordinary alcohol producer ¾it is a symbol of Russia. Currently we are the most prosperous vodka plant in Russia. . . I find it ridiculous — an oilman at the head of a vodka plant?" The company is Russia's third- biggest exporter after LUKoil Holding and Gazprom, the natural gas monopoly. In 1993, the government put its majority stake in Kristall under Moscow city management. The Kremlin, which is setting up a state vodka producing holding company, now wants to take back its stake in Kristall, maker of

Stolichnaya, Moscovskaya and other brands, Bloomberg News reported.

European Republics

Ukraine To Reduce Army By 2005

· Ukraine's Defense Ministry today announced that it plans to cut its armed forces by 40,000 servicemen to 370,000 over the next five years. Ministry spokesman Serhiy NAHORYANSKY told Reuters the cuts would be made under the state's new military reform concept. The first 10,000 servicemen could be cut as early as year's end. NAKORYANSKY said, "We have proposed this new concept of reforming our armed forces in the light of profound changes in the political and military situation in Europe and planned reforms in NATO." The ministry was also planning to drop Soviet-era compulsory military service and put the army on contract footing by 2005. Today, 25,000 soldiers and sergeants serve on contract in Ukraine. Ukraine is eager to build relations with Europe and NATO.

Belarus-Ukraine Sign Accords

· Belarus President Alexander LUKASHENKO and Ukrainian President Leonid KUCHMA, met in Brest on Saturday. The two leaders signed accords on mutual debts and border issues, RFE\RL Newsline reported. No details of the accords have been made public. KUCHMA said after the meeting that Russia pursues its own political interests in the CIS [Commonwealth of Independent State] while failing to promote genuine economic integration. "All the CIS countries have ratified the free trade accord, only Russia is undecided. What customs union can we speak of?" LUKASHENKO added, "This is the main problem, a stumbling block.... He [KUCHMA] is right."

Estonia-Latvia Push For Energy Ties

· Estonian Economics Minister Mihkel PARNOJA and Latvian Economics Minister Aigars KALVITIS on Friday signed a letter of intent pledging closer cooperation in the energy sector. Many analysts say this agreement foreshadows a merger of the power companies Eesti Energia and Latvenergo. Estonian Prime Minister LAAR stressed that Lithuania should also take part in the common Baltic energy market after officials in Vilnius voiced anger at being left out in this deal. PARNOJA said

When you need to know it as it happens




May 30, 2000

Intercon's Daily

Lithuania was excluded because Swedish company Vattenfall has a 10 percent stake in Lietuvos Energija, while the other two are fully state-owned.

South Caucasus & Central Asia

CIS Exec. Secretary Visit Downplayed

· The Executive Secretary of the Commonwealth of Independent State (CIS) Yuri YAROV is scheduled to arrive in Georgia tonight. He will meet with Georgian President Eduard SHEVARDNADZE, State Minister Giorgi ARSENISHVILI, Foreign Minister Irakli MENAGARISHVILI, Special Affairs Minister Malkhaz KAKABADZE, Chairman of Abkhazian government in exile Londer TSAAVA, and special representative of the UN Secretary General for Abkhazia Dieter BODEN. Chairman of the parliamentary subcommittee for CIS affairs Irakli GOGAVA will raise his concern to YAROV surrounding the withdrawal of Georgia from the Commonwealth, if Russia introduces a visa regime with Georgia. GOGAVA considers the CIS as a body that does not work effectively to solve serious regional projects, including the settlement of the Abkhaz conflict. He does not expect YAROV's visit to yield any significant results. YAROV will also visit Sukhumi and meet with Abkhaz leader Vladislav ARDZINBA.

Georgia Installs Border Monitoring System

· Georgian border guards installed American sensor systems in frontier village Shatili. Prime News Agency reported that the state border guard department of Georgia, a border guard post coinciding with international standards will be opened in Shatili in the immediate future. The US has allocated $3 million to modernize border control operations. Shatili is a remote village near the border with Chechnya, which was bombed in 1999 by Russian fighter jets.

Baku-Ceyhan Seeks Investors

· Azerbaijan State Oil Company (Socar) on Monday hosted more than 35 companies and major oil consortiums operating in Azerbaijan and Kazakhstan at a meeting to discuss financing the multi-

billion dollar pipeline project from the Caspian Sea to a Turkish port. The Baku-Tbilisi-Ceyhan pipeline is 2,000 kilometers long and is estimated to cost nearly $2 billion. The meeting in Baku follows ratification by the Azeri parliament of the package of legal agreements surrounding the project. Georgia and Turkey's parliaments are expected to approve the package of agreements in the next two weeks. Investors remain skeptical that the volumes of oil being pumped through the pipeline will be commercially viable. Socar officials remain optimistic, particularly after news of a large oil find in Kazakhstan's offshore Kashagan field. However, Azeri officials have been forced to admit that the pipeline will already face delays in production. Negotiating and attracting financing is expected to take up to a year.

Kazakhstan To Cut Refinancing Rate?

· Kazakh Economics Minister Zhaksybek KULEKEYEV on Monday said that the Central Bank is considering cutting the refinancing rate from 16 percent to 12 percent to 14 percent by year's end. He told the parliament, "If inflation by year-end is 8 to 10 percent, then the refinancing rate will fall to 12 percent, and if inflation is 10 to 11 percent, then the refinancing rate will be 14 percent." The Central Bank, which sets interest rates, lowered the refinancing rate in April from 18 percent to 16 percent. KULEKEYEV said the government expected year-end inflation levels to be 8.0 percent, compared to the 9.5 percent forecast in the 2000 budget. The Central Asian state has had 3.5 percent inflation since the beginning of the year. In 1999, inflation was 17.8 percent, Reuters reported.

Shanghai Five Sets Date For Next Summit

· Kazakh Foreign Minister Yerlan IDRISOV said over the weekend that Russia, China and three Central Asian states forming the so-called Shanghai Five will hold its next summit in the Tajik capital Dushanbe on July 5th. Originally set up to tackle border issues, its focus has shifted to security in the volatile region. IDRISOV said that leaders of all countries will attend the summit.

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

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When you need to know it as it happens