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

Thursday, July 27, 2000

Siberian Prosecutor General Official Killed

· Yuri BEDERIN, the chief prosecutor of an oil-rich Siberian province, was shot to death on Wednesday as he was entering his apartment in Khanty-Mansiisk. When BEDERIN entered the building, the killer came from behind and fired at him from close range, pumping three bullets from his 5.45mm Margulin gun into BEDERIN's head. Investigators suggested it was a contract hit, possibly connected to BEDERIN's work. Vladimir KAZAKOV of Russia's Prosecutor General's office flew to the region to investigate the death of his colleague. Before his death, BEDERIN had been conducting several major criminal investigations of the 1990s, including the killing of Vladimir PETUKHOV, the former mayor of the oil-rich city of Nefteyugansk, and the attempt to kill Yuri TIMASHKOV, the mayor of nearby Nizhnevartovsk. Both investigations were nearing their conclusions. Investigators are also looking into the possibility of links to drug lords. Khanty-Mansiisk region is one of the top areas in Russia where drug abuse is growing. According to RTR, Chechen and Ingush drug lords have monopolized narcotics trade in the region, with Tajikistan and Afghanistan nationals often acting as their distributors. Consequently, BEDERIN's campaign to corner regional narco-mafia might have served as the motive for his murder. United Press International reported.

Russian Independent Radio Chief Killed

·Sergei NOVIKOV, the owner of the only independent radio station in Russia's Smolensk province Vesna, was

Russian Federation

Politics

Gusinsky Case Dropped; Lack Of Evidence

· The Prosecutor General late Wednesday dropped its criminal case against Media Most's chairman Vladimir GUSINSKY, which accused him of cheating the government out of $10 million in a privatization sale for Russian Video. GUSINKSY was arrested on June 13^th and held for four days. In recent weeks, his television station NTV had its offices search multiple times and the assets in his homes documented, leading many to speculate that they would be seized. GUSINSKY was also summoned on numerous occasions for questioning. The Prosecutor General's office sent GUSINSKY a short statement claiming that the case was to be closed due to lack of evidence. GUSINSKY's lawyers had earlier called the state's evidence against them "laughable." Andrei RYABOV of the Carnegie Endowment, speculated that GUSINSKY may have agreed to temper his criticism of the Kremlin. "Perhaps there were negotiations of some kind…The problem with GUSINSKY was always purely political, not economic like with the other oligarchs."

GUSINSKY has denied any wrongdoing, saying the case really targets his media outlets, which have criticized the Kremlin. The case against GUSINSKY provoked international outrage and stoked fears that the government of President Vladimir PUTIN was intent on muzzling the media. Media Most includes NTV Television Station, Ekho of Moskvy radio, Sevodnya, and several newspapers. The case was closed just ahead of a meeting planned Friday between PUTIN and many of Russia's most powerful businessmen. GUSINSKY's travel restrictions were lifted and GUSINSKY left for Spain to be with his family.

Today's News Highlights

Russia

FC Passes Putin's Tax Reforms

Kukes Joins Parker Drilling

European Republics

KamAz-Crimean Joint Venture

Ukraine-Turmen Gas Deal

South Caucasus & Central Asia

22nd Supsa Tanker Filled

Base Withdrawal Preparations

US-Armenian Border Control

Golden Telecom Buys Nursat

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Thursday

July 27, 2000

Intercon's Daily

found dead this morning in the stairwell of his apartment with four gunshot wounds. Police have opened an investigation, but have reached no conclusion on the motive. NOVIKOV's colleagues believe their boss was targeted for his political views. He recently participated in a controversial television program on corruption in the local government. Olga ELGUDINA, the station's publishing editor, told Moscow's Ekho Moskvy radio that the station had made enemies in the powerful regional administration by airing corruption allegations. "From the moment it was founded, the station has stood in open opposition to the regional administration," she said. NOVIKOV was also a director of a glass factory. The Interior Ministry noted that the murder had all the hallmarks of a professional contract killing.

Spy For Britain Sentenced

· A Moscow city court today sentenced Platon OBUKHOV, a former junior Russian diplomat, to 11 years in prison for spying for Britain. OBUKHOV, son of a former deputy foreign minister and top arms control negotiator, had worked in the prestigious North America section of the Foreign Ministry before he was arrested in 1996. OBUKHOV is the second Russian diplomat charged with spying to receive a court decision this week. On Tuesday, the Supreme Court threw out a 12-year sentence against Valentin MOISEYEV, charged with spying for South Korea in a case dating from 1998.

Economy

Ruble = 27.6/$1.00 (NY rate)

Ruble = 27.75/$1.00 (CB rate)

Ruble = 25.89/1 euro (CB rate)

Federation Council Approves Tax Reforms

· Russia's Federation Council, in a vote of 128 to 13, with nine abstentions, on Wednesday approved Russian President Vladimir PUTIN's radical tax reforms package. The legislation will now go to the President for signing and will become effective in 2001. The main part of the legislation replaces the sliding income tax range from 12 to 30 percent with the new 13 percent flat tax and a reduction in tax on company turnover from 4 percent to 1 percent. The government hopes that this will increase tax collection and shift the burden from corporate to personal tax, the Financial Times reported. The tax package

should also reduce the tax burden by 2.5 percent of gross domestic product and create incentives to operate outside of the "shadow economy." It further includes the introduction of a unified social tax. Economists point out that the legislation is crucial to stimulate growth and balance the budget. The vote surprised many analysts, who predicted that the Federation Council would reject the tax package, after the rights of governors to sit in the upper chamber was eliminated. The governors had also complained that the reforms would fill federal government coffers at the expense of the regions. Prime Minister Mikhail KASYANOV and Finance Minister Alexei KUDRIN lobbied the governors ahead of the vote. KASYANOV stressed that no region would suffer. KUDRIN said, "If you fail to adopt the law on implementation [of the tax measures], which states that it takes effect from January 1, the president will sign the Tax Code, bringing it into effect from about October 1^st [2000]." Federation Council speaker Yegor STROYEV said a special conciliation commission could iron out any remaining differences. Philip POOLE, an analyst at ING Barings pointed out that PUTIN was able to pass the legislation through parliament with a heavy lobbying effort in four months, whereas former president Boris YELTSIN's conflict with the Russian State Duma stalled such reforms for 10 years.

Business

Kukes Appointed To US Oil Drilling Board

· Simon KUKES, president and CEO of Russia's Tyumen Oil Company (TNK), has been elected to serve on the Board of Directors of Parker Drilling Co., a global provider of drilling services and rental tools for the energy industry. The board voted to increase the number of directors to nine and approved the nomination of KUKES to fill the position. KUKES attended his first Board of Directors meeting at Parker Drilling on Wednesday, becoming what is believed to be the first Russian CEO on the corporate board of a major American company listed on the New York Stock Exchange. Robert L. PARKER Jr., president and CEO for Parker Drilling said, "Simon KUKES can help Parker maintain and expand its role as the dominant Western contractor in the Caspian and Kazakhstan Regions. Mr. KUKES was elected to Parker's Board of Directors to offer support and insight into our current involvement in

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the former Soviet Union markets and as we develop our strategy regarding the surrounding region. He will be a good facilitator of Parker's strategy going forward and serve as a catalyst to help meet our strategic and operational goals," according to a company press release. "I see big opportunities for Parker to grow internationally," KUKES said. TNK is one of the world's top 15 private oil companies. Parker Drilling has been active in the former Soviet Union for more than 10 years and an industry pioneer in opening new drilling markets in countries such as Russia, China and Vietnam. Parker has ongoing projects in the Caspian Region, Kazakhstan, Russia and Sakhalin Island.

Nuclear Plant Sue Lenenergo Over Debts

· Leningrad Atomic Power Station (LAES) is suing Lenenergo to recover 697 million rubles ($25.17 million) owed by St. Petersburg's power utility for electricity supplies. LAES filed the suit on July 21^st in the St. Petersburg Arbitration Court as a last measure. A Lenenergo spokeswoman Natalia NIKOFOROVA said the company has not seen the suit. She said it's unable to pay the debt because of money owed to Lenenergo from its own customers. "We have threatened to sue Lenenergo for more than a year for not paying their electricity bills, and we are finally doing it because we are sick of their nonpayment," said Nikolai YESALUOV, a LAES spokesman. Russia's biggest utilities and power generators are cracking down on nonpaying customers, including households and distributors such as Lenenergo, as the industry struggles with billions of rubles in unpaid bills. Lenenergo itself began switching off power to nonpaying customers in June, as it also struggles to pay its debts to Unified Energy Systems, the national power grid. Customers owe 4.5 billion rubles ($159.3 million) to Lenenergo, which itself is 7.3 billion rubles in debt.

The action comes as Lenenergo officials are in London to attract buyers to its planned sale of American depositary receipts later this year.

trucks, Vechernie Vesti newspaper reported. The new company, Krym-KamAZ, plans to produce 200 trucks during the first year of operations, 700 trucks the following year, and will be doubling output during the next few years. The company expects a return on investment in three years, as it also will be producing in Ukraine parts for the trucks, which is seen to make Ukrainian-made vehicles cheaper on the domestic market and boost sales. Earlier this month, Ukraine's lawmakers gave preliminary approval to a bill restricting used-car imports to help boost demand for domestically made vehicles; final approval could come in the fall.

Ukraine-Turkmen Reach Gas Agreement

· Ukraine's Deputy Prime Minister Yulia TIMOSHENKO and Turkmen officials reached an agreement in Ashgabat this week, whereby Turkmenistan will reschedule again Ukraine's debt for gas supplies. The debt of $211 million for supplies in 1993 to 1994 will be rescheduled for two years. Turkmenistan agreed to resume gas shipments to Ukraine later this year. Turkmenistan stopped gas supplies to Ukraine in May last year, after the country paid for only 10 percent of supplies made in the first four months of 1999 and accumulated $280 million in unpaid bills. Ukraine will pay $42 per 1,000 cubic meters of gas at the border between Turkmenistan and Uzbekistan, which means the price would increase to $90 at Ukraine's border due to the transportation cost. It also agreed to buy 20 billion cubic meters of Turkmen gas before the end of the year and purchase as much as 50 billion cubic meters a year by 2010. Ukrainian President Leonid KUCHMA has criticized this decision and has refused to sign any documents on the agreement, Bloomberg News reported.

South Caucasus & Central Asia

22^nd Suspa Oil Tanker Filled

· The 22^nd Caspian crude oil tanker for this year was loaded Wednesday at the Supsa terminal. An estimated 138 thousand tons of Caspian oil, property of company Exxon, were shipped to Italy, the head expert of Georgian International Oil Corporation Dito NADIRADZE informed Prime News Agency. Transit price of 1 barrel oil on Georgia territory is 18 cents. The total number of tankers loaded at Supsa terminal since its opening reached 53.

European Republics

KamAZ Sets Up Ukrainian Joint Venture

· Russia's KamAZ has set up a joint venture in Ukraine's Crimean autonomic republic to produce

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Base Withdrawal Talks In Moscow

· A group of experts from the Defense Ministry and International Affairs Ministry are meeting in Moscow to finish preparations for the third round of Georgia-Russian negotiations on military questions, particularly the Russia withdrawal of two military bases from Georgia. The withdrawal of Russian military forces should start on August 1^st, Prime News Agency reported. Russian bases in Vaziani and Gudauta are to be fully withdrawn by July 1, 2001.

Adviser to Georgian President Shalva PICHKHADZE has stressed that Georgian authorities will not change Russian army bases into NATO bases. He described as nonsense the statements of the opposition that supposedly Georgian President Eduard SHEVARDNADZE is having secret negotiations with NATO authorities. "Elementary logic can tell that NATO, avoiding a confrontation with Russia will not take a step of this nature and provoke the situation," PICHKHADZE said. He added that a project to build an international airport at the Vaziani base has been discussed.

US To Assist Armenia With Border Control

· The US will provide Armenia with $300,000 worth of equipment and training to improve border control, Defense Secretary William COHEN announced on Monday. He said the equipment will include nuclear and contraband detection kits to help Armenian authorities stop unauthorized movement of nuclear, chemical and biological weapons and components. He said the US has similar agreement with nine other countries, "that want to work with us to control weapons of mass destruction." COHEN noted that no US troops will be sent to Armenia in connection with the agreement on controlling weapons of mass destruction. Armenian Defense Minister Sergei SARKISYAN said that his country expects to develop military-to-military relations with the US once the conflict between Armenia and neighboring Azerbaijan over Nagorno-Karabakh is resolved. Armenia has had a cease-fire with Azerbaijan for five years, but has failed to resolve disputes over

independence claims by Nagorno-Karabakh. The presidents of Armenia and Azerbaijan have held at least three one-on-one negotiations to resolve the conflict. No great progress has been made on a peace settlement, however, in recent weeks Armenia has handed over several prisoners of war to Azerbaijan.

Golden Telecom To Purchase Nursat

· Golden Telecom, Inc., a leading facilities-based provider of integrated telecommunications and Internet services throughout Russia and other countries of the Commonwealth of Independent States (CIS), Wednesday announced it is acquiring Nursat, the largest alternative integrated voice, data and Internet service provider in Kazakhstan. Golden Telecom will acquire 60 percent of Nursat shares for $10.1 million from Lucent Technologies International Inc., Kazinformtelecom and the Defense Enterprise Fund. The Defense Enterprise Fund's shares in Nursat will be acquired with Golden Telecom shares. Golden Telecom will also have the option to acquire an additional 20 percent from Kazinformtelecom. The remaining 20 percent of the shares belong to the State Property Committee of Kazakhstan. Stewart REICH, Golden Telecom Chief Executive Officer and President said in a company press release, "The acquisition of NURSAT represents an excellent opportunity for Golden Telecom to expand its footprint in the strategically important CIS market…This transaction, when completed, combined with our already existing capabilities in Kazakhstan, will make Golden Telecom the largest independent voice and data operator and largest ISP in terms of customer base, network coverage, and range of services." Sabet ZHAKIPBEKOV, President of Nursat, stated, "Nursat is excited to have Golden Telecom become the major shareholder. Given Golden's financial strength and operating ability, Nursat will be able to more aggressively meet the Kazakh market's demand for Internet and telecommunications services and also extend our position as Kazakhstan's leading alternative full service provider."

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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