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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Thursday, July 20, 2000

Russian Federation


Russians Killed In Chechen Rebels Attacks

· At least eight Russian soldiers were killed and 11 wounded, during four clashes around Grozny on Wednesday. Two servicemen were killed and four wounded near Chiri-Yurt, two killed and four wounded in Argun, two soldiers killed and three wounded near Gekhi, and one serviceman killed and another wounded in Dzhalka. Rebels fired on Russian positions at least 15 times over the preceding 24 hours, with seven of the attacks occurring in Grozny. Separately, five rebels were killed in a battle at Nozhai-Yurt in the southern mountains. Rebels no longer mount large-scale operations, but attacks by small, fast-moving bands have inflicted a steady stream of casualties on Russian troops. A series of coordinated suicide truck bomb attacks on July 2 killed and wounded scores of troops. Russian aircraft on Thursday bombarded rebels' suspected mountain hideouts in the south, while artillery pounded regions southeast of Grozny.

A power struggle between the pro-Moscow administrator Akhmad KADYROV and his deputy Bislan GANTAMIROV, a convicted embezzler and former mayor of Grozny has undermined this week's attacks. KADYROV accused GANTAMIROV of "armed mutiny," when GANTAMIROV ordered men to "clear out" Gudermes of terrorist, not excluding KADYROV's own staff. The two are scheduled to meet at Russia's Mozdok military headquarters just outside Chechnya today. General Viktor KAZANTSEV, the Kremlin's special envoy to Chechnya, would try to defuse the row.

State Duma Approves New Tax Code

· The Russian State Duma on Wednesday, in a vote of 234 to 111, passed a new tax code, that aims

to stimulate the economy by easing tax burdens on business, but raises revenues by implementing a flat personal income tax of 13 percent. The government made some concessions, however, agreeing to keep a turnover tax in place, but reducing it from 4 percent to 1 percent. It also approved a tax on turnover of one percent for road construction and maintenance, down from 2.5 percent previously, valid until 2002. The social tax was raised from 2 percent to 5 percent for the next two years. It also approved payment of Value Added Tax in the country of delivery in trade with the Commonwealth of Independent States starting July 1, 2001. Former Russian first deputy prime minister and chief executive of national power grid UES Anatoly CHUBAIS described the government's tax reform package as, "a very advanced model type of tax regime. This is something which is at the center of reform which should be supported." By adopting these new tax measures, the government hopes to continue the trend of economic growth and balanced budget and meet requirements of international lenders. The Federation Council must still approve the tax bill, which will be met by stiff opposition on July 26th. The Federation Council has been fighting against moves by President Vladimir PUTIN to curb their powers. The Duma on Wednesday voted to override an upper house veto to block this initiative. First Deputy Finance Minister Sergei SHATALOV said a vote by the Duma on Wednesday to overrule the Council's veto on a law empowering PUTIN to sack governors who sit in the up

Today's News Highlights


IMF Reviews Russian Economy

Gusinsky's Property Seized

European Republics

Estonian June Economic Figures

UrkTelecom Chief Resigns

South Caucasus & Central Asia

Rus-US On Withdrawal Money

EBRD To Invest InGeorgia

Turkmen To Sign Boeing Deal

Nazarbayev Presid. For Life




July 20, 2000

Intercon's Daily

per house would make it less willing to pass the tax bills. "We still hope that these tax laws, which are necessary for everyone, will be approved. Although we are not sure."

House Bans Debt Relief For Russia

· The US House of Representatives in a vote of 275 to 146 passed a bill to try and prevent the US from rescheduling $100 million in Russian debt, until Moscow closes and intelligence listening station in Cuba. The bill seeks to bar the CLINTON administration from agreeing to allow Russia to postpone payment of $485 million in bilateral Soviet-era debts owed to the US. Chairman of the House International Relations Committee Benjamin GILMAN (Rep-NY) said, "This is about espionage. If we are to have a new relationship with Russia and if the Russian government seeks the support of our nation such as debt relief, then it's time they heard from our government about those actions that we do not appreciate. Supporting the [President Fidel] CASTRO regime and spying on American citizens and our companies are not appreciated." Reuters reports that Republicans cited intelligence reports showing that Moscow pays the government of Cuba some $200 million a year to run the spy center, which collects intelligence on US military activities, ordinary American citizens and private companies, particularly those in the high-tech industry. A similar measure to block postponement of Russian debt repayments is also moving through the Senate, sponsored by conservative Senator Jesse HELMS (Rep-NC). Republicans have argued for months that alleviating Russia's debt burden simply frees up funds for Moscow to use for malevolent purposes, such as prosecuting the war in Chechnya and providing aid to Serbia's President Slobodan MILOSEVIC.


Ruble = 27.75/$1.00 (NY rate)

Ruble = 27.52/$1.00 (CB rate)

Ruble = 25.65/1 euro (CB rate)

IMF Mission Concludes Review Of Economy

· An International Monetary Fund (IMF) mission concluded talks with Russian officials Tuesday. In conclusion of its review of the Russian economy, the IMF team welcomed Russia's improved economic indicators, but criticized the lack of structural

reforms. The team held a final round of talks with government and Central Bank officials on Tuesday. The mission concluded that, provided these challenges were effectively addressed, the outlook was for continued growth and progress in lowering inflation," it said. The IMF board will consider these results in September. The government expects gross domestic product to grow as much as five percent this year, after 3.2 percent growth in 1999. Inflation has remained relatively low this year despite an increase in money supply. The head of the State Statistics Committee, Vladimir SOKOLIN, was quoted on Tuesday as saying consumer price inflation in July may fall to 2.0 percent month-on-month from 2.6 percent in June, Reuters reported. It is likely that IMF Director Horst KOEHLER will present this report to the Group of Seven most industrialized nations at this weekend's summit in Okinawa.


Russia To Seize Gusinsky's Property

· Valery NIKOLAYEV, a senior prosecutor with the Russian Prosecutor General's Office, said Wednesday that investigators intend to freeze all of Media Most chairman Vladimir GUSINSKY's assets, both at home and abroad. Investigators on Wednesday began compiling an inventory of his belongings at his home in Chigasovo, a Moscow suburb. NIKOLAYEV warned that the confiscation could cover GUSINSKY's assets and property abroad, including, "securities, bank accounts, airplanes, yachts, estates." He said Russia would appeal to Interpol for help. GUSINSKY's lawyer Pavel ASTAKHOV has said that a plot of land and a house owned by GUSINSKY in Moscow region's Sakharovsky district have already been seized. He called the seizure an attempt to, "control GUSINSKY's personal life, as GUSINSKY will not be able to use anything in the house without the investigators' permission." The seizure will not include his businesses: Media-Most, NTV Television network, Ekho Moskvy radio, and a number of publishing and satellite television interests. Prosecutors have charged GUSINSKY with cheating the state out of $10 million in a privatization deal for Russkoye Video. GUSINSKY has denied any wrongdoing, saying the case really targets his media outlets, which have been critical of the Kremlin.

When you need to know it as it happens




July 20, 2000

Intercon's Daily

for his resignation. However, it should be noted that he will take a position as vice president at Ukraine's most successful telecommunications joint venture, Utel, which the government plans to merge wholly with UkrTelecom. NETUDYKHATA will still exert influence over the restructuring of the industry before the phone company's sale as an executive of Utel, a long-distance phone service provider that is 51 percent owned by UkrTelecom. Ivan KOMPAN, head of Wood & Co. brokerage in Kiev speculated, "The resignation is possibly linked to the future privatization of UkrTelecom…It's obvious that whether the country sells the company successfully will also depend on UkrTelecom's management team." NETUDYKHATA has a familiar grasp on the merger negotiations, since he helped create Utel in 1992. It is believed that NETUDYKHATA is maneuvering himself to take advantage of the merger.

The Ukrainian parliament last week approved that sale of a minority stake in UkrTelecom. The country has not decided on how big a stake, although analysts predict it could be at least 25 percent plus one share, valued at $548 million. Stanyslav DOVHYI, a minister for science and technology in Ukraine's previous Cabinet, will replace NETUDYKHATA.

Ukraine To Privatize Energy Companies

· The Ukrainian State Property Fund on Tuesday announced a plan to privatize seven electricity distribution companies, meeting a demand by the International Monetary Fund and other creditors. The decree to sell the government's entire stake in the companies was signed last week. The decree changed a 1999 plan that obliged the state to retain 25 percent of regional energy distributors. The companies are considered attractive properties as each holds a monopoly or near monopoly on electricity supplies in its region. The privatization plan is expected to attract foreign investors, who have, in the past, declared Ukraine's energy sector inefficient and criticized Ukraine's ever-changing privatization rules. The sale is expected to take place before the end of the year, said Alexander BAZAROV, head of Credit Suisse First Boston's Ukraine subsidiary, which is advising the government on selling the stakes.

European Republics

Estonian Economic Indicators Pick Up

· Estonia's Statistics Department released a reports showing economic growth in June. Estonian prices rose a monthly 0.2 percent in June, with textile and clothing manufacturing and meat production prices rising the most. Consumer inflation and construction prices also rose. The annual rise in June was 4.7 percent, unchanged from May and in line with expectations. Analysts said the rise shows a rebound in the economy, which contracted 1.1 percent in 1999, is firmly taking root. Estonian export prices in June showed a year-on-year rise of 6.6 percent, down slightly from a 7.5 percent rise in May, but strongly up on the 1.9 percent decline in June 1999. The office also said the consumer prices index in the second quarter rose 0.8 percent, quarter-on-quarter, and by 3.1 percent year-on-year. Optiva Pank analyst Katrin TINN said, "Our forecast is that consumer prices will show a five percent increase by year-end depending on how administrative prices move." The construction industry is seen as traditionally lagging behind any overall economic rise or fall. Sector prices in the first quarter rose 1.4 percent, quarter-on-quarter, and by 2.1 percent, year-on-year.

Rus-Ukraine To Make Simba Cars

· Avtoahrehat, a Ukrainian automaker based in eastern Ukraine, will begin producing new Simba cars with Russia's Ulianovskiy Avtomobilnyi Zavod later this year. The Simba car is the 10th model designed jointly by Russian and Ukrainian plants. Earlier this year, another Ukrainian carmaker, Lutskyi Avtomobilnyi Zavod, said it plans to begin producing Russian cars to meet demand in Ukraine's domestic market. Earlier this month, Ukraine's lawmakers approved in the first reading a law restricting used car imports to Ukraine, which is expected to help boost demand for domestically made vehicles when approved in the final reading in the fall.

UkrTelecom Chief Resigns

· UkrTelecom's chief executive Leonid NETUDYKHATA stepped down today ahead of plans for the sale and reorganization of the company. NETUDYKHATA, who has been head of the state-owned telecom since 1997, gave no reason



When you need to know it as it happens


July 20, 2000

Intercon's Daily

South Caucasus & Central Asia

Rus-US Hold Talks On Base Withdrawal Funds

· A group of US experts led by Special Adviser to the President William TAYLOR arrived in Moscow on Tuesday to hold talks on financial assistance to be used for the withdrawal of Russian military from Georgia. Under an understanding reached by Russia and Georgia at the summit of the Organization for Security and Cooperation in Europe in Istanbul last year, Russia will cut its military hardware in Georgia to the level set by the Conventional Forces in Europe (CFE) by the end of this year. According to the Russian Foreign Ministry, "Technical details related to the transfer of funds from the United States to be spent in financing the withdrawal of Russian military hardware stationed on Georgian territory," will be discussed. The ministry added, "It is a question of allocating some $10 million to Moscow and Tbilisi, the bulk of which will be given to Russia." Russia must withdrawal its military bases at Gudauta and Vaziani by June, 2001.

EBRD To Provide Funding To Georgia

· The European Bank for Reconstruction and Development (EBRD), following a visit from Georgian President Eduard SHEVARDNADZE, pledged to increase investment in Georgia's private sector or strategically important public projects. The new EBRD President Jean LEMIERRE said after meeting with SHEVARDNADZE that key areas were energy, transport and wine. "Georgia's economic stability is impressive, although it is under threat from a large budget deficit and poor tax collection," LEMIERRE said. The Georgian government recently pledged to cut spending by some $496 million in order to get support from the International Monetary Fund and other bodies. LEMIERRE also said the EBRD would support efforts to erase corruption in Georgia. According to the EBRD's own figures in a study produced with the World Bank for the EBRD's annual transition report Geor

gia extracted the largest amount of bribes as a percentage of annual company revenues at 8.1 percent.

Turkmen To Sign $78 Million Deal With Boeing

· Turkmenistan has signed a $78 million deal to buy from Boeing Corp. three 110-seat B-717 short-haul aircraft for national flag carrier Turkmenkhovaellary. According to an airline official, the three Boeing-717 planes will be delivered to Turkmenistan by 2001 and will bring the number of Boeings in the airline's fleet to 10. The aircraft are to be used on domestic routes. Turkmenkhovaellary has three Boeing-757 and three Boeing-737 aircraft. It signed a deal for a fourth Boeing-757 plane at the end of 1999. The National Statistics Agency estimates the airline carried a total 612,000 passengers in the first half of 2000 and 5,000 tons of cargo. Turkmenkhovaellary flies to 11 international destinations in Asia and Europe and plans to inaugurate flights to New York later this year. It said profits in the first half of 2000 stood at $3.9 million.

Kazakh President's Lifetime Power Legal

· Kazakhstan's Constitutional Council has ruled that a bill to grant lifelong privileges and powers to President Nursultan NAZARBAYEV is legal. "The council recognizes as constitutional the law on the First President of Kazakhstan," the body said in a resolution published today. The ruling brings the bill a step closer to being signed into law after being approved by both houses of parliament last month, Reuters reported. Opposition leaders have attacked the bill, calling it an attempt by NAZARBAYEV to maintain his grip on power. It has also been a source of criticism by western countries and international institutions. The bill allows NAZARBAYEV to become a permanent member of the Defense Council and in the People's Assembly, a consultative body grouping Kazakhstan's ethnic communities. NAZARBAYEV has tried to distance himself from the bill, but said he would have no alternative but to sign if the Constitutional Council approved it.

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