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

Monday, July 10, 2000

Rostov-on-Don killed eight people on Sunday. The attacks outside of Chechnya has raised fears that the rebels are expanding the range of their hit-and-run styled tactics. Six people died in the Vladikavkaz blast with 16 wounded. Vladikavkaz was the scene of a devastating explosion in March 1999, which killed 50 and injured over 150 people in the market place. Two people were injured and two killed in a bomb in Rostov-on-Don. Vladikavkaz is the capital of the North Ossetia region and Rostov-on-Don is the base of Viktor KAZANTSEV, who was appointed to represent President Vladimir PUTIN in the North Caucasus. Local police say both attacks cannot be linked to rebel forces, but the military is not ruling out any connection. Federal forces are boosting security in troubled areas as well as surveillance at checkpoints. Rebels have consistently passed through checkpoints and moved about in Russian controlled areas disguised as civilians.

Putin's First State Of The Nation Address

· Russian President Vladimir PUTIN gave his first state of the nation address on Saturday to a joint session of Russia's parliament. PUTIN stressed the need to centralize authority by citing social and economic problems. He said, "The only real choice for Russia is to be a strong country, strong and sure of itself." He noted, "The regions should not compete for power, but attract investment in their natural resources...We created little islands of power, but there were no bridges to connect them." PUTIN said that Russia should be ruled by strong

Russian Federation

Politics

Top Businessman Shot Dead On Way To Work

· Oleg BELONENKO, the general director of Uralskie Mashinostroitelnye Zavody (Uralmash), Russia's top machinery producer that also makes components for weapons, died after he was shot in the head this morning. The regional Interior Ministry said unknown gunmen shot at BELONENKO's car as he was driving to the company plant in Yekaterinburg. His driver also was also killed in the crossfire. An investigation into the shooting incident has been opened. Witnesses saw two men in track suits with hoods running away after the shooting, NTV Television reported. The assailants were not identified. Police suspect that the murders are linked to an organized crime group. "This is not an ordinary murder," said Valery GORELOV, spokesman for the local police department. "We are investigating if there were any threats and also are checking [BELONEKO's] latest meetings."

BELONENKO's murder comes just days before President Vladimir PUTIN is scheduled to travel to the region to visit a major international weapons exhibition and promote Russia's heavy industry. Uralmash makes excavators, oilrigs and steel rollers in its massive workshops in the Ural Mountains. It gained fame when Russian scientists took over the firm in the early 1990s, acquiring stock in privatization auctions and on the market. The company, a unit of Uralmash-Izhora, also has contracts for nuclear reactors in China and Iran and is used by the government for arms production. Uralmash also holds contracts with the US construction company Caterpillar.

Chechen Rebels Attack Russian Convoy

· Two separate bombings in Vladikavkaz and

Today's News Highlights

Russia

Kasyanov Worried About Taxes

Lenenergo Appoints UES Exec.

European Republics

Baltic Pipeline Decision

Ukraine Passes Anti-Corruption

South Caucasus & Central Asia

Eliava Killed In Shoot Out

Georgia To Reduce Forces

Russia To Form Caspian Center

Uzbek-France Sign Agreement

Politics-Economics-Business

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Monday

July 10, 2000

Intercon's Daily

laws that are enforced. PUTIN called for less state interference in the economy and said many government-controlled businesses were ineffective. "The signs of growth are extremely slight. As in the period of recovery in 1997, they are on thin ice...Current growth is only to a small extent due to the renewal of reforms. To a great degree it is the result of favorable external economic conditions." He stated that the he still backs pro-reform and pro-democracy solutions, stressing the need for freedom of speech. PUTIN said that Russia will continue to build its education and health care sector. Regarding the war in Chechnya, the Russian President said, the situation had become "complicated." He added that, "The unity of Russia is strengthened by the patriotic nature of our people, by our cultural traditions, memories."

Economy

Ruble = 27.97/$1.00 (NY rate)

Ruble = 27.98/$1.00 (CB rate)

Ruble = 26.67/1 euro (CB rate)

Kasyanov Expresses Concern Over Reforms

· Russian Prime Minister Mikhail KASYANOV said the government will ask the Russian State Duma to reconsider its decision to reject a key component of tax reform. He stressed that the government wants the tax bill passed in its entirety. The lower house of parliament on July 5^th voted to keep a one percent tax on turnover. The government believes this tax is inefficient and can lead to practices of fraud. KASYANOV said, "The latest Duma decision fuelled concerns and...led us to the thought that this event raised worries about the fate of the tax reform." The Federation Council has appealed the Duma to raise the turnover tax to 2 percent. However, KASYANOV points out that only 60 percent of the existing turnover tax, which in theory should bring in 50 billion rubles ($1.8 billion) annually, could be effectively collected. Of that he said more than half was not paid in cash, Reuters reported. "It is inexplicable why replacing this tax with a transparent excise duty, which is fully paid in cash and then goes to governors to be used for similar aims, should not work," he said. The turnover tax is the first main conflict between the Duma and the government of Vladimir PUTIN. KASYANOV has called on the Duma to reconsider its decision in a second reading on July 19^th.

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European Republics

Baltic Pipeline System On Schedule

· Russian Deputy Prime Minister Viktor KHRISTENKO has said that the Russian State Duma will make a decision on a the Baltic pipeline system this week. The government decree will outline the further financing of the pipeline system, including the tariff for the transit of oil, commercial credits, as well as possible tax credits. The construction on the Baltic line has a total cost of $460 million, which is now funded by Transneft. KHRISTENKO confirmed that the construction of the Baltic pipeline system is, "proceeding on schedule," to be completed by December 31, 2001.

Ukraine To Confiscate Some Lazarenko Money

· Ukraine's Prosecutor General Mikhail POTEBENKO on Friday announced at a news conference that some of the money squandered by former prime minister Pavel LAZARENKO kept in Swiss accounts will be returned to Ukraine. About 10 million Swiss francs (6-7 million dollars) are kept in the accounts. POTEBENKO noted that the money would be returned to Ukraine with the exception of 200,000 Swiss francs in legal expenses of Switzerland.

A Swiss court has pronounced LAZARENKO guilty of money laundering and sentenced him to 18 months of imprisonment. LAZARENKO is currently severing a sentence in a San Francisco prison. He has been charged with once count of conspiracy, seven counts of money laundering, and 23 counts of transporting stolen property.

Ukraine Approves Anti-Corruption Plan

· The Ukrainian Cabinet approved a package of measures to tackle corruption this year. The plan is expected to restore investors' confidence in the economy. According to Prime Minister Viktor YUSHCHENKO, Ukraine plans to set up a National Anti-Corruption Committee. He added that the government wants to make state-asset sales more transparent and speed up other reforms. US President Bill CLINTON called on Ukraine's leaders during his June 5^th trip to Kiev to increase the fight against corruption, which is one of the key reasons investors cite for their hesitance in the doing business in the country.

South Caucasus & Central Asia

Eliava Killed After Seizing Hostages

· A special counter-terrorist force from the Georgian State Security Ministry on Sunday shot and killed the former leader of a 1998 armed revolt Akaki ELIAVA and a close associate Gocha GVILAVA in a covert operation after rebels seized four police hostages in Zestafoni. The rebels failed to surrender illegally-held guns, after five hours of negotiations and were attempting to leave area. Interior Minister Kakha TARGAMADZE pointed out that, "Security forces had no other option but to open fire." Prosecutor general of Georgia Jamlet BABILASHVILI noted that ELIAVA and followers carried illegally weapons, seized hostages, and had not intentions of reconciling with the state. He added that the group had an illegal armed formation, with their own uniforms. The bodies of ELIAVA and GVILAVA were transported to Tbilisi, along with two rebel members captured by special forces. Prime News Agency reported that up to 40 rebel members are gathering in Zugdidi and Senaki.

ELIAVA, an army officer and ally of former nationalist president Zviad GAMSAKHURDIA, led a failed two-day military mutiny in western Georgia in October 1998 aimed at the reinstating the first post-Soviet leader's government. Georgian President Eduard SHEVARDNADZE had granted ELIAVA and his supporters a pardoned for the earlier mutiny.

Georgia To Reduce National Armed Forces

· The Georgian parliament on June 28^th approved a bill to reduce the manpower of the national armed forces. According to the bill, the Georgian Army, Interior Forces, and Border Guard Forces will be reduces from 47,500 to 38,414. Prime News Agency also reported specifically that Georgia's Defense Ministry will be trimmed down from 27,000 to 20,000; Interior Forces from 7,900 to 6,4000; and Border Guard Forces from 9,508 to 8,708. However, the State Security Ministry will be increase, under the same law, from 3,006 to 3,306.

Aliyev Sets Parliamentary Election

· Azeri President Geidar ALIYEV has scheduled parliamentary elections for November 5^th. He also approved a new election law that has angered opposition parties considering a poll boycott. Elec

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tions in Azerbaijan have always been a sensitive issue. Top opposition parties, unhappy with the new election law passed in parliament, said they would consider boycotting the election, as they did a 1998 presidential vote, Reuters reported. Their major complaint is that the new law failed to increase the number of candidates running on party lists from 25 to 50. Parties loyal to ALIYEV dominate parliament, where opposition groups hold only 20 seats, out of the 125-seat parliament. Head of the opposition National Independence Party Etibar MAMDEOV said, "The law places a big question mark over our participation in the parliamentary election." International observers have strongly criticized the one parliamentary and two presidential elections held since Azerbaijan gained independence in 1991.

Russia To Form Caspian Center In Baku

· Russian Deputy Foreign Minister Viktor KALYUZHNY said after negotiations with Kazakh Prime Minister Kasymzhomart TOKAYEV on Friday announced that Russia will form a strategic and economic center for the Caspian Sea in Baku. The center could monitor the Caspian region and make the Caspian databank. Russia also proposed using the Caspian disputable resources on the 50/50 principle. He remarked, "We have concluded that the middle line problem is solved automatically be the formula accepted. KALYUZHNY will tour Caspian states to inform them about Russia's proposals. He will go to Baku on July 12-13^th, Turkmenistan on July 17-18^th and Teheran on July 25-27^th.

Sestanovich Meets With Niyazov

· Adviser to the US Secretary of State Steven SESTANOVICH arrived in Ashkhabad on Sunday and is holding special talks with Turkmen President Saparmurat NIYAZOV today. They will discuss reviving the Turkmenistan-Azerbaijan-Georgia-Turkey natural gas pipeline project. The project has been supported by the US administration. An international consortium engaged in the project lost some of its influence, after the Turkmen govern

ment refused to extend the terms of their cooperation in February of this year. Trans-Caspian pipeline is sponsored by only one foreign entity, British-Dutch Shell Co. President NIYAZOV met Shell president Din MEGAT last week to discuss further steps in the development of the Trans-Caspian natural gas pipeline project.

Uzbek-France Sign Military Cooperation

· Uzbek Defense Minister Yuri Agzamov and his French counterpart Alain Richard on Saturday in Tashkent signed an agreement on the creation of the joint commission on military- technical cooperation and defense technologies. The defense ministries of the two countries agreed to develop cooperation and exchange experience on the reform of armed forces, the training of servicemen and other fields. RICHARD also met with Uzbek President Islam KARIMOV, who stressed that military cooperation will be an important step towards further development of relations between Uzbekistan and France. KARIMOV and RICHARD discussed bilateral issues and views on security and stability in Central Asia.

HEADLINE SHORTS

· Russian State Duma rejected a plan to restore the statue of the Cheka secret police founder, Felix DZERZHINSKY.

· PUTIN to press US President Bill CLINTON on Missile Defense System, after a third test to shoot down a missile failed on Saturday. The Defense System would cost the US $60 billion.

· G-7 governments placed Russia on an international "hit list" of countries with lax laws on money laundering. They threatened to cut alleged violators off from the international banking system as well as International Monetary Fund loans of they do not bring themselves into compliance.

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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