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

Wednesday, May 31, 2000

six injured. Four of the injured were in critical condition. An Emergencies Ministry spokeswoman said that investigation into the explosion has been launched. The Ministry is declaring the blast a terrorist act. Regional governor Nikolai MAKSYUTA linked the attack to Russia's military campaign in Chechnya. The army unit based in the nearby barracks has taken part in combat in Chechnya, NTV said. A total of 2,284 army servicemen died and 6,645 were wounded in the North Caucasus since the start of fighting last August, said General Valery MANILOV, deputy chief of the army staff. Chechen President Aslan MASKHADOV said that nearly 40,000 civilians have been killed.

Russian Political Parties Come and Go

· On Saturday, the pro-Kremlin movement Unity turned itself into a political party at its founding congress. The party will be able to contest national, parliamentary, regional and local elections. The Unity Party stands for a strong and effective state, the protections of private property, and the pursuit of liberal economic reforms. It also supports an equal playing field for the economy, defense of investors' rights, and a re-balancing of the relationship between the regions and the center, the Financial Times reported. The transformation was unanimously approved. President Vladimir PUTIN addressed the 1,500 delegates in the Kremlin's congress hall. He hailed the decision as a step toward forming a stable party system and made clear he would continue to work with the group. Analysts have

Russian Federation

Politics

Officials Killed In Remote Bomb Explosion

· Sergei ZVEREV, a Deputy Envoy to Chechnya, and Nurseda KHABUSEYEVA, Assistant Mayor of Grozny, were killed late Tuesday in a terrorist attack in the suburb Chernorechya. Grozny Mayor Supyan MOKHCHAYEV was injured during the attack. Two remote-controlled landmines blew up the Mayor's car, while gunmen with automatic weapons fired upon it from a house located in the woods near the road. ZVERYEV was deputy to Nikolai KOSHMAN, Russia's chief envoy in Chechnya. Musa DZHAMALKHANOV, a spokesman for Russia's temporary administration in Chechnya said, "It's a tragedy for us. We have a good idea who did this and the criminals will by all means be caught and punished." Russian government spokesman Sergei YASTRZHEMBSKY said the attack appeared to have been an assassination attempt against the mayor, saying he had long been a target of rebel forces. This devastating attack once again highlights the ability of rebels to penetrate supposed Russian-controlled areas in Chechnya. It demonstrates that federal forces have failed to crush the rebels' operations despite months of fighting. Scores of Russian soldiers and police officers have been killed in rebel ambushes in recent months. Russian checkpoints and vehicles in Grozny itself have come under fire and three police officers were killed in an ambush in the city over the weekend.

Meanwhile in Volgograd, "a remote-controlled mine tied to a tree" near a military base went off when a military detachment was marching past. The Emergencies Ministry first reported that at least three soldiers were killed and 15 wounded in a bomb blast in the southern Russian city of Volgograd. The numbers have since been reduced to one dead and

Today's News Highlights

Russia

Economic Growth Could Halt

MTS Seeks US IPO

European Republics

CB Candidate Withdraws

Ukraine Discusses Bank Laws

South Caucasus & Central Asia

4th Supsa Oil Tanker Filled

Trans-Caspian Pipeline Delayed

CIS Reports Economic Statistics

Kyrgyz Security Not Threatened

Politics-Economics-Business

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Wednesday

May 31, 2000

Intercon's Daily

compared Unity to the old Soviet Communist Party. Unity's faction leader in the State Duma, Boris GRYZHLOV rejected this comparison, claiming that Unity, "rejects all forms of monopolization of political life" and that Unity's principles are incompatible with "the notorious `democratic centralism." Sergei SHOIGU, who was re-elected as the new party's leader, said that with 128,000 members Unity is the second largest party in Russia after the Communist Party. SHOIGU said the party must mend the rift between state and society.

GRYZHLOV declared that "the range of views in Russia should be limited to two or three parties" and that Unity will occupy "the center" of the country's political spectrum. He said, "The political spectrum is becoming clearer. The left is held by the Communist Party. The Center is being consolidated by Unity, which is the governing party. There may also be a party of the right based on the Union of Right Forces. So in the parliamentary elections in 2003 there will probably be only two to three parties."

Meanwhile, Our Home is Russia (NDR) and All Russia are considering joining the Unity party. NDR leader Viktor CHERNOMYRDIN said that the three organizations plan to form a single party. Kommersant-Daily on Saturday reported that the eighth congress of NDR voted to end their existence as NDR and join Unity. The chairman of NDR's executive committee, Yevgeny TROFIMOV, was elected a member of Unity's Political Council while CHERNOMYRDIN was elected a member of its Observer Council. Vladimir RYZHKOV, head of the NDR faction in the previous State Duma, said he had declined to join Unity due to personal reasons. By absorbing these smaller parties, Unity will expand its power base in the parliament.

Economy

Ruble = 28.25/$1.00 (NY rate)

Ruble = 28.24/$1.00 (CB rate)

Ruble = 26.43/1 euro (CB rate)

Illarionov Warns Economy May Slow

· Russian presidential economic advisor on the Group of Seven industrialized countries Andrei ILLARIONOV on Tuesday warned that Russia's economic growth may slow down. High export revenues and the forced devaluation of the ruble in

1998 has boosted the economy. He believes that the economic growth could halt, if budgetary spending is not cut. ILLARIONOV noted that industrial output growth slowed in April in month-on-month terms and gross domestic product (GDP) grew by an impressive 7.8 percent in the first quarter of 2000, but was expected to lose some steam in the second quarter. GDP for 2000 had been predicted to reach 4 to 5 percent. In 1999, GDP reached 3.2 percent. He said, "If these negative trends prevail, economic growth may considerably slow down in the nearest future, or even halt." ILLARIONOV suggests that the government reduce taxes and cut budget spending to 20 percent of GDP from the current 38 percent to provide for rapid economic growth, or at least to 30 percent to achieve sustainable growth. He also urged the government to finalize its long-awaited economic program by the end of June.

Business

Mobile TeleSystems Seeks US IPO

· Mobile TeleSystems (MTS) Open Joint Stock Co., the big Russian provider of mobile cellular communications services, on Tuesday filed for an initial public offering in the US. The Moscow-based company is planning to offer 15,010,612 American Depositary Shares (ADS), representing 300,212,240 common shares, in a range of $21.43 to $23.75 per ADS, according to a filing with the US Securities and Exchange Commission, Reuters reported. If granted, the IPO will be handled by Deutsche Banc Alex Brown, ING Barings, Credit Suisse First Boston, JP Morgan Securities, RC Securities and Salomon Smith Barney. The new entity would be listed on the New York Stock Exchange under the symbol MBT. MTS uses technology based exclusively on the Global System for Mobile Communications (GSM), the most widely used mobile cellular standard in the world. In 1999, the telecom company had about 307,000 subscribers. It is the largest mobile cellular operator in the country in terms of net revenues, generating $358 million in 1999 compared to the $226 million posted by its biggest competitor, VimpelCom. MTS predicts that it will gain about $300 million to $333 million in net proceeds from the IPO. These funs would be used to invest in the network's infrastructures in the Moscow license area and to expand business in regional license areas. Mobile

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TeleSystems outlined a number of risks in its prospectus, warning that, "continued governmental instability or an increase in the influence of the Communist Party could adversely affect the value of foreign investments in Russia and the value of our ADSs." It also noted, "An intensification of liquidity problems or a further deterioration of the Russian banking system could materially adversely affect our operations and financial performance, our ability to withdraw our bank deposits and the ability of our customers to pay amounts due." Deuteche Telekom owns a 49 percent stake in MTS, with the rest of the company's holdings linked to Moscow Mayor Yuri LUZHKOV.

Meanwhile, a mobile telephone operating license has been granted to Moscow's third telecom company, Sonic Duo. The licensing was so sudden news of it surprised Sonic Duo. Finland's Sonera, owner of a 35 percent stake, still has not confirmed the Communication Ministry's announcement on May 18^th. The government appears to have made a snap decision, without alternative bids, the Financial Times reported. Vimpelcom's Chief Operating Officer Jo LUNDER questioned the need for a third licensed operator, when competition is already intense for mobile subscribers. MTS mentioned in its IPO filing that, "The federal government's involvement with Sonic Duo could give it a substantial competitive advantage over us, including an uneven regulatory playing field.

Toomas KABIN, and acting head Peter LOHMUS. The council's first choice, Vello VENSEL, approved by the president, stepped down for health reasons just a few days before he was to take the post.

Ukraine's Deputies Debate Bank Laws

· Today, the Ukrainian parliament is debating draft laws on banks and banking activity. Volodymyr KROTYUK, head of the Central Bank's legal department said he hoped the parliament would pass the legislation in its first reading. This legislation must be in place for the disbursement of the final installment of a World Bank $300 million financial sector adjustment loan. KROTYUK noted that the law on insuring individual deposits will be discussed at a government meeting prior to being submitted to the parliament. A World Bank monitoring mission is expected in Kiev on June 5^th. The loan expires on June 30^th.

South Caucasus & Central Asia

Supsa Terminal Fills 4^th Tanker In May

· The Georgian terminal at Supsa has completed filling its fourth tanker in May with 130,000 tons of Caspian crude oil on Sunday. According to Georgian International Oil Corporation (GIOC), Russian oil company LUKoil owns the crude in this last tanker. The oil terminal in Supsa was launched on April 17, 1999.

Council of Europe Commissioner To Visit Tbilisi

· Commissioner of the Council of Europe for Human Rights Alvaro HIL-ROBLES is scheduled to begin a 10-day official visit to Georgia on Thursday. According to Prime News Agency, he will meet with Georgian President Eduard SHEVARDNADZE, Chairman of Parliament Zurab ZHVANIA, State Minister Giorgi ARSENISHVILI, Special Affairs Minister Malkhaz KAKABADZE, Foreign Minister Irakli MENAGARISHVILI, Justice Minister Jony KHETSURIANI, Refugees and Settlement Minister Valery VASHAKIDZE, Interior Minister Kakha TARGAMADZE, and chairman of the state department of intelligence Avtandil IOSELIANI. HIL-ROBLES will visit the Pankisi valley villages and Shatili village at the Chechen portion of Georgian-Russian border, as well as, Kutaisi, Zugdidi, Sukhumi, and Abkhazia. He will met with the governments of the Imereti and Samegrelo-Zemo Svaneti regions.

European Republics

Estonian CB Candidate Withdraws

· Former Estonian Finance Minister Mart OPMANN, the controversial nominee to head the Central Bank, on Monday withdrew his name from consideration for that post. OPMANN, who was proposed by the Central Bank's governing board, was rejected by President Lennart MERI earlier this month. OPMANN said the reason for his withdrawal was the extreme pressure placed on him. He also said he did not want to become involved in a legal challenge against the government and President. The Central Bank governing council must now for the third time this month conduct a search for new candidates. Alternative candidates to replace outgoing Central Bank chief Vahur KRAFT include, former candidate Kalev KUKK, émigré economist

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Wednesday

May 31, 2000

Intercon's Daily

Trans-Caspian Pipeline Not Expected Until 2006

· Azerbaijan State Oil Company (Socar) officials on Tuesday admitted that the pipeline from Turkmenistan to Turkey will not be completed before 2006. Socar's chief of foreign investment Valekh ALESKEROV told a news conference, "The Trans-Caspian gas pipeline cannot physically be ready before 2006 and that will only be if all the agreements are reached this year." The $2.0 billion pipeline to deliver 16 billion cubic meters (bcm) per year of gas from Turkmenistan to Turkey was originally slated for completion in 2002. Two weeks ago, the project hit a new hurdle when Turkmenistan pledged to send Russia additional gas supplies. ALESKEROV pointed out that Turkey will be able to receive gas supplies from Azeri gas field Shakh Deniz by the end of 2002. In February, Shakh Deniz consortium leader BP Amoco announced the outline of a $1.3 billion plan to renovate and upgrade an existing gas pipeline from Azerbaijan to Turkey, with first deliveries from the offshore gas field due in the winter of 2002 to 2003. BP Amoco will complete pipeline testing by fall and then issue a tender on laying pipe, modernization of the existing line and construction of the remaining 280-kilometer section through Georgia. Turkey is responsible for building its sections from Georgia to Erzerum.

CIS Industrial Production, GDP Levels

· Russia's State Statistics Committee has released a report showing the industrial production growth level and gross domestic product figures for the nations of the Commonwealth of Independent States (CIS). The top three nations are as Kazakhstan with 15.2 percent, followed by Georgia with 14.1 percent, and Russia in third with 11.9 percent. Other production figures are as follows: Ukraine (9.7 percent), Tajikistan (8.7 percent), Belarus (7.5 percent), Azerbaijan (3.5 percent), Moldova (3.3 percent), and Armenia (0.3 percent). A first-quarter decline in industrial production, by 4.8 percent, has been registered only in Kyrgyzstan. Turkmenistan's figure is not available. Gross domestic product growth figures are: Kazakhstan (9.1 percent),

Azerbaijan (6.5 percent), Belarus (6 percent), Ukraine (5.6 percent), Georgia (4.4 percent), Tajikistan (3.8 percent), Uzbekistan (3 percent) and Kyrgyzstan (1 percent).

Kazakhstan Privatization Must Be Stepped Up

· Kazakh Prime Minister Kasymzhomart TOKAYEV told a Cabinet meeting on Monday that the pace of privatization must be stepped up. He said revenues from privatization during the first three months of this year amounted to only 11 percent of the targeted amount. Two weeks earlier, Finance Minister Mazhit ESENBAYEV had similarly told the parliament that the budget might only collect two thirds of planned privatization revenues this year as a result of the previous government's decision to drop four large metallurgical combines from the list of enterprises to be privatized. TOKAYEV has called for an investigation into the activities of the previous heads of the Finance Ministry's Property and Privatization Committee, RFE/RL Newsline reported.

Tajik Denies Kyrgyz Security Concerns

· Tajikistan's Foreign Ministry spokesman Igor SATTAROV said there is no reason for Kyrgyzstan to fear for its security. He denied reports that hundreds of rebel gunmen were gathering at its border with Kyrgyzstan. SATTAROV said, "At present there are absolutely no terrorists or any other kind of armed groups [in Tajikistan] which could threaten the security of neighboring republics." Earlier Kyrgyz Security Council chief Bolot DZHANUZAKOV said, "A lot of work has been done by Tajik President Emomali RAKHMONOV, the government, and security organs, and most of the gunmen have indeed left for Afghanistan. But we have information that unfortunately some of the gunmen remain in Tajikistan's mountainous Karategin Valley. There are about 400 to 700 of them." Last summer, rebels invaded Kyrgyzstan, holding several people hostage. That militant group, led by Uzbek rebel Dzhuma NAMANAGANI, attempted to cross into Uzbekistan via Kyrgyzstan. NAMANAGANI is wanted in Uzbekistan for plotting to overthrow the government.

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

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