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

Friday, June 9, 2000

and PUTIN's move will only increase their determination to fight for independence. Two Interior Ministry soldiers were killed and a third was wounded in a bomb blast Thursday night in the Chechen capital, Grozny. The device exploded in the courtyard of a building. Demolition units have defused bombs in Grozny and two other Chechen towns. Rebels continue to use hit-and-run attacks on Russian forces in the region.

Kremlin Finds No "Deliberate Violations"

· President Vladimir PUTIN's chief property manager Vladimir KOZHIN has conducted an audit of Kremlin assets which revealed no "deliberate violations," to support allegations of corruption under the Boris YELTSIN administration. He said that the audit only showed that ineffective management led to lost profits. Former property manager Pavel BORODIN has been accused of taking bribes from Swiss construction firm, Mabetex, and made money available to YELTSIN and his daughters. Swiss prosecutors have issued an arrest warrant for BORODIN, charging him of money laundering through Swiss banks. BORODIN has denied the allegations and said they were aimed to smear Russia. YELTSIN and his family have denied any wrongdoing. When YETSIN resigned from office on December 31, 1999, he and his family received a lifetime of immunity from prosecution. BORODIN had presided over the Kremlin property empire, including government buildings, resorts, hotels, planes and other assets with an estimated value

Russian Federation

Politics

Chechnya Under Direct Presidential Rule

· President Vladimir PUTIN on Thursday announced his decision to impose direct presidential over Chechnya. The move suspends Chechnya's status as one of the 89 republics and prevents it from holding its own regional elections. The Associated Press points out that Russian-held areas of Chechnya are already under the presidency's direct rule and PUTIN's move merely formalizes and prolongs the Kremlin's control. This will allow him to set up a temporary government replacing those regional officials, PUTIN labeled as bandits. It also gives him a more formal direct say in day-to-day decision-making. PUTIN is due to name his envoy to Chechnya shortly. Russian media said he might choose Nikolai KOSHMAN, head of the previous Chechnya administration, which had more modest powers. Lawmakers today expressed support for the decision. Duma deputy Nikolai SHAKLEIN said the bill was, "a justifiable and necessary move of the head of state… Only the Russian president can resolve the issue." Security Council's Sergei IVANOV said, "Fighting can continue a long time. You recall how long it raged in tsarist times," referring to Russia's decades-long bid to subdue Chechnya in the 19th century. It appears that the Kremlin is finally resigning itself to a long conflict with the Chechen terrorists, who they once declared would be eradicate in two weeks. Head of the Federal Security Service (FSB) Nikolai PATRUSHEV predicted direct rule would continue for several years while the republic was returned to normal. "We should arrange things in such a way that the population should work and be engaged in productive business."

The rebels show no sign of giving up their struggle

Today's News Highlights

Russia

Debt Negotiations In Germany?

LUKoil To Issue New Shares

European Republics

Ukraine To Sell Metal Plant

Ukraine-WB On Development

South Caucasus & Central Asia

Giorgadze Opens Moscow Office

Udugov OnCaucasus Relations

Chevron To Boost Tengiz Oil

Akayev Promises Fair Elections

Politics-Economics-Business

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Friday

June 9, 2000

Intercon's Daily

of several billion dollars. KOZHIN said that Kremlin holdings include about 200 commercial companies, some of which have proven ineffective and were closed after the audit. PUTIN has named combating official corruption as one of his top priorities. Many have been questioned this, particularly after PUTIN rehired BORODIN in a new official capacity and kept several top members of YELTSIN's scandal-tinged administration. Four of KOZHIN's eight deputies worked under BORODIN, including one reportedly linked to the Mabetex case, the Associated Press reported.

Economy

Ruble = 28.27/$1.00 (NY rate)

Ruble = 28.36/$1.00 (CB rate)

Ruble = 27.05/1 euro (CB rate)

Berlin Visit Could Touch On Debt Reduction

· Russia's Finance Minister Alexei KUDRIN will accompany President Vladimir PUTIN, when he visits Germany on June 14^th. Many speculate this is a sign that a reduction in Russia's debt will be discussed with German officials. Germany is Russia's biggest creditor with German private lenders account for some half of all Moscow's debts. Moscow's ambassador to Berlin Sergei KRYLOV said, "There won't be any discussion of any new credits." He added, however that PUTIN and German Chancellor Gerhard SCHROEDER could discuss, "how debts will be paid off, over what maturity, under what conditions." Concrete debt details

will be the focus of ministers and financial specialists, including KUDRIN and Economic Development Minister German GREF. Germany has come out strongly against writing off any part of Russia's $43 billion of sovereign debt to the Paris Club of state lenders. The London Club has already agreed to write off 36.5 percent of Russia's $32 billion of debts to private creditors.

Kalyuzhny Against State Oil Company

· Viktor KALYUZHNY, one of five deputy prime ministers in the new government, has stated that he is against creating a state oil company, which would combine Rosneft, Slavneft, and Onaco. He pointed out that competition was the best way of ensuring competitive prices to allow the state to provide adequate fuel supplies. KALYUZHNY said, "From the point of view of state demand for fuel, there's nothing more advantageous than having as broad a market as possible, with the highest possible number of participants…To regulate the market it's necessary to create a state reserve with strategic stocks of fuel, grain and so on...But to do this there's absolutely no need for a state oil company. All arguments in favor of a state oil company don't stand up to criticism, and I for one think such a company is not necessary."

Business

DaimlerChrysler Opens New Moscow Office

· German-US auto giant DaimlerChrysler opened a state-of-the-art office building in Moscow on Thursday, while its chief executive urged Russia to introduce more market reforms. Juergen SCHREMPP believes that Russia's outlook is optimistic. He said, "Companies can only invest where the political, economic and legal framework is in place. I am sure that these conditions will be fulfilled step by step and with clear direction…Foreign capital alone will not solve the problems here. The Russian government knows it must modernize the economic structures in this country." Moscow Mayor Yuri LUZHKOV thanked the car-maker for sticking with Russia through its financial crisis in 1998 and reiterated that the business environment in Russia is improving. Foreign Minister Igor IVANOV pointed out that the office opening comes just days before President Vladimir PUTIN's visit to Germany. SCHREMPP then noted that the German part of the

When you need to know it as it happens

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company had roots in Russia stretching back to the 19th century and said Gottlieb DAIMLER had come up with the idea of the internal combustion engine for a car while stuck in a railway carriage somewhere in Russia in 1881.

LUKoil To Issue New Shares

· · LUKoil Holding's shareholders voted to issue 35 million new common shares to buy Arkhangelsk-geoldobycha, an Arctic exploration company, and other sales and refinery units, The Moscow Times reported. The new shares represent 4.29 percent of LUKoil's current 815.6 million shares. LUKoil will use 18.6 million of the shares to expand its production base, while it said the remaining 16.4 million will be sold on "the open market at a maximum price in a public offering."

lead into a new lending package in the fall. Ukrainian Prime Minister Viktor YUSHCHENKO announced the agreement after meeting with the World Bank's Vice President for Europe and Central Asia, Johannes LINN, World Bank director for Ukraine and Belarus, Luca BARBONE, deputies Yulia TYMOSHENKO and Mykola HLADIY, Central Banker Volodymyr STELMAKH, and Finance Minister Ihor MITIUKOV. "The goal of my visit is to determine whether Ukraine's government is ready to proceed with economic and social reforms and whether the parliament and society support these reforms," LINN said. BARBONE noted that reviews had found that World Bank loans, such as separate $300 million loans to remove trade barriers, sell-off state-owned companies, develop the capital market and remove price controls, have failed. He said, "We've had very disappointing results, especially with our traditional adjustment lending." The World Bank suspended loans to Ukraine after the International Monetary Fund (IMF) froze a lending package because of slow reforms. The IMF is also reviewing an audit of Ukraine's Central Bank, following accusations that the Bank misused loans and overstated its hard currency reserves to the IMF. The audit found no mishandling of loans, but that the reserves were inflated by $713 million in order to win new loans in 1997. The World Bank has ordered an audit by the Deloitte & Touche firm into use of its loans with results expected by July.

South Caucasus & Central Asia

Giorgadze To Establish Moscow Office

· Chairman of the United Communist Party of Georgia Panteleimon GIORGADZE intends to open in Moscow the foreign bureau of the Public-Patriotic forces of Georgia. GIORGADZE told Prime News Agency, the negotiations have already been held in Moscow. According to him, the main goal of the bureau will be strengthening of friendly and neighborly relations with Russian people. GIORGADZE noted that during his visit to Moscow he met with his son, former chief of Georgian Security Ministry Igor GIORGADZE, who is wanted by the Interpol and Georgian law enforcing bodies for the organizing terrorist acts against Georgian President Eduard SHEVARDNADZE, including the assassination attempt in August, 1995, and other schemes to re

European Republics

Itera To Supply Gas To Ukraine

· Itera will supply gas to Ukrainian industrial companies through next year, according to Ukrainian Prime Minister Viktor YUSHCHENKO. Itera will use its own gas resources for the supplies and is expected to charge Ukraine $45 per 1,000 cubic meters of gas, YUSHCHENKO said, according to the news agency. The government will have another round of talks with Itera executives on June 12th in Kiev, deputy prime minister Yulia TIMOSHENKO said. Itera plans to produce as much as 20 billion cubic meters of gas this year and increase production to up to 70 billion to 80 billion cubic meters of gas over the next seven to 10 years.

Ukraine To Sell Metal Rolling Plant

· Ukraine's State Property Fund on Wednesday said that it will sell a 53.98 percent stake in its Donetsky metal rolling plant through a privatization tender in July. The starting price of the stake is set at 3.549 million gryvnias ($652,246. The plant's charter capital, defined as the number of shares multiplied by the face value of one share, is 5.717 million gryvnias. After the sale, the state plans to keep a 25 percent stake in the company, located in eastern Ukraine.

WB-Ukraine Agree on Development Strategy

· Ukraine and the World Bank on Thursday reached an agreement on broad economic development goals for Ukraine, which could eventually

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move him from office. Igor GIORGADZE fled Georgia on Russian military aircraft, just before being arrested by Georgian law enforcement authorities in 1995. He is currently wanted under an Interpol warrant [A-641/12-1995] issued September 26, 1995. Georgia's Prosecutor General's office has repeatedly issued requests for Igor GIORGADZE's extradition. All have come to no avail, as Russian Security forces claim that they cannot locate Igor GIORGADZE and deny that he is residing on its territory. He has been observed at public places in Russia, as well as Belarus, Syria, and Armenia.

Chechens Fear Conflict Will Spread

· In an exclusive interview with Prime News Agency, Chechen spokesman Movladi UDUGOV warned that Russia continues to pursue a colonial policy aimed at re-establishing its power within its Soviet-era borders. When asked about Georgia's offer to mediate in talks to end the military conflict in Chechnya, he said, "Georgia is ready to act a mediator in the settlement of relations of Russia and Chechen State. Kremlin blocks all those initiatives. Moscow imagines that after defeating Chechnya it will be able to strengthen its influence in the Trans-Caucasus and return Georgia and Azerbaijan under its protection. That is why the processes underway in Chechnya have affected and will affect Georgia and the whole Trans-Caucasus." He believes that Georgia and Chechnya should pursue their friendly relations, despite the situation with Russia. Regarding the resumption of Georgian-Abkhazian conflict, UDUGOV noted that the, "conflict is profitable for Russia. We have information confirming that Russian side is preparing plans for gaining control over Tbilisi. As for the Chechens, we have always announced that the Caucasus peoples must settle their problems without Russia. In that case Georgians and Abkhazians will not have any problems. Chechnya is ready to actively mediate in that process."

Chevron To Boost Tengiz Output

· Moustafa HABIB, general manager of marketing

and transportation at Chevron Overseas Petroleum Inc. said that Chevron will step up production at the giant Tengiz field in Kazakhstan by 50,000 barrels per day (bpd) in the next few weeks. This increase will take output to 260,000 barrels per day (bpd) from the current 210,000 bpd. Production is then expected to rise to 370,000 bpd by 2004. He added, "As part of the expansion that we see on the field we will be adding three new drilling rigs this year to develop the Korolev field next to Tengiz in order to add significant new reserves." The Tengiz field, with estimated reserves of six to nine billion barrels, accounts for one third of Kazakh oil production. Chevron is a 50 percent shareholder in Tengizchevroil, the joint venture developing the field. Other partners are ExxonMobil with 25 percent, Kazakhstan with 20 percent and Russian-US LUKArco, which holds the remaining five percent.

Akayev Vows To Hold Fair Elections

· Kyrgyz President Askar AKAYEV vowed on Thursday that the presidential election scheduled for later this year would be democratic and contested by more than one candidate. AKAYEV's commitment to democratic principles were questioned when two of his political opponents were barred from contesting the parliamentary elections. The two were later put in jail, sparking weeks of protests. AKAYEV told a meeting of officials to smooth out the election process , "As the guarantor of the constitution, I consider it my duty in Kyrgyzstan to conduct democratic elections giving alternatives." On Wednesday, the Organization for Security and Cooperation in Europe (OSCE) and opposition groups refused to take part in the meeting, citing that the government changed the conditions for the meeting. Six political parties and five non-governmental organizations turned down invitations to take part in the conference. AKAYEV noted that Kyrgyzstan still hopes to get help from OSCE electoral observers. Kazakhstan and Tajikistan last year held Presidential elections and an Uzbek poll in January 2000. All were criticized by the OSCE for failing to meet international democratic standards.

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

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