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

Thursday, July 6, 2000

operations. The Chechen rebels' website said more bomb attacks were planned against Russian military targets and that a further 37 would-be suicide bombers had been recruited, bringing the total number ready to lay down their lives to 577.

Journalists Issue "Enemies Of The Press" List

· The Russian Union of Journalists has issued a blacklist or "enemies of the press" list of officials, who have failed in protecting the free press or blocked the media's efforts to serve Russia's fledgling democracy. Union Secretary Igor YAKOVENKO noted that there are real people working to suppress the media. The Union agreed these orchestrators need to be named. At the top of the list is Russia's Press and Information Minister Mikhail LESIN, who was criticized for outlawing television broadcasts of interviews with rebel leaders in the break away republic of Chechnya. President Vladimir PUTIN tied with the country's Prosecutor General, Vladimir USTINOV for second place. Oleg PANFILOV, director of the Center for Journalism in Extreme Situations said, "Especially since PUTIN came to power, we see the government trying to limit the rights of journalists." The Associated Press points out that while PUTIN states that a free press is crucial to democracy, he has been criticized for the arrests of Media Most's Vladimir GUSINSKY and Radio Liberty reporter Andrei BABITSKY. Also on the list was Kirsan ILYUMZHINOV, president of the Russian republic of Kalmykia. In 1998, Larisa YUDINA, the editor of an opposition newspaper

Russian Federation

Politics

More Force, Chechens Warn Of More Bombs

· Following a wave of suicide bomb attacks in Chechnya, Russian President Vladimir PUTIN made an unscheduled stop in Mozdok to admonish military commanders. "Many of the losses could have been avoided. For this we need discipline, professionalism and responsibility," PUTIN said. He ordered officials to boost security efforts. Hours after the order, a bomb exploded in Daghestan killing two people. PUTIN also held talks with his Defense and Interior Ministers, a top Kremlin envoy to the North Caucasus and other regional leaders. He strongly reminded Defense Minister Igor SERGEYEV that he was still in overall charge of the war and that other officials had to obey him. SERGEYEV and other Russian officials had also blamed the suicide bombings on a lack of discipline among troops, including heavy drinking and bribe-taking. The truck drivers made it past military checkpoints and into cities the Russians claim to control. PUTIN told Interior Minister Vladimir RUSHAILO he must act quicker to build forces from locals rather than drafting in police from other regions. "People from the local population know better who is a real bandit and terrorist." Russian troops have detained more than 200 people in Chechnya and Daghestan on suspicions of involvement in the deadliest suicide bombing attack at a military hostel in Argun.

Meanwhile, Kremlin spokesman Sergei YASTRZHEMBSKY confirmed that federal forces had obtained information that rebels were preparing more terrorist attacks. "As long as those men, such as BASAYEV, KHATTAB, BARAYEV, remain at large, we can expect a stealthy attack at any time," he said, adding that neutralizing these men is the main purpose of the current federal special

Today's News Highlights

Russia

Consumer Prices Rise In June

Duma Approves Fuel Tax

European Republics

Polish-Ukrainian Pipeline Agmt.

Ukrainian Inflation Rises

South Caucasus & Central Asia

Taxes, Customs Revenues Rise

Black Sea Joint Naval Force

Statoil Focuses On Caspian

Shanghai Five Meet In Dushanbe

Politics-Economics-Business

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Thursday

July 6, 2000

Intercon's Daily

in Kalmykia, was found stabbed to death after reporting on alleged misuse of public funds. Former regional government officials have been convicted of the killing.

Gusinsky Questioned Again, Aide Arrested

· Media Most chairman Vladimir GUSINSKY appeared for questioning for a second time before the Prosecutor General on Tuesday. GUSINSKY was arrested on June 13^th and imprisoned for several days. He was released on bail, after pledging not to leave the country during the investigation. His controversial arrest sparked protests and criticism from the Western nations, fearing a censure of the free press. Media Most is the Russia's sole national independent press. GUSINSKY's lawyer, Pavel ASTAKHOV believes that the prosecution is dragging out the case merely to deprive his client of his freedom. Another lawyer, Genri REZNIK said GUSINSKY was continuing to refuse to answer the prosecutors' questions, which he said had failed to prove any criminal wrongdoing. GUSINSKY has accused President Vladimir PUTIN of being behind his arrest and says the Kremlin is intent on destroying his media outlets. GUSINSKY's media empire has aired strong commentary and criticism of the government's policy, particularly concerning the war in Chechnya.

Today, Russia's Prosecutor General detained Mikhail ALEXANDROV, an aide to GUSINSKY, at his apartment, which was immediately searched. ALEXANDROV was detained in connection with an investigation, involving invasion of privacy allegedly committed by employees of Media Most's security department. Other reports state he is being detained on suspicion of obtaining, storing, and selling weapons. Interfax news agency quoted the prosecutor's office as saying there was no connection between the two cases.

Economy

Ruble = 28.05/$1.00 (NY rate)

Ruble = 27.98/$1.00 (CB rate)

Ruble = 26.59/1 euro (CB rate)

Consume Inflation Rises In June

· Russian consumer price growth accelerated from May through June, at the fastest pace this year. This was driven by higher food prices and an

in flow of dollars. According to the State Statistics Committee, consumer prices rose 2.6 percent in June from 1.8 percent in May, and 9.5 percent in the first half. Inflation for the entire year was predicted to be 18 percent. In May, monthly inflation was 1.8 percent. The price of sugar rose 23.7 percent in June from the month earlier, while bread rose as much as 5.3 percent. Poultry and fish products rose as much as 9.8 percent. Food prices rose 3.3 percent in June from the month before. Peter BOTOUCHAROV, assistant director for global research at Dresdner Kleinwort Benson explains, "High soft commodity prices means Russia is experiencing imported inflation from things like sugar and grain. A second reason is the inflow of dollars resulting from a huge trade surplus."

The rise in Russian consumer inflation has not drawn great concern. An International Monetary Fund (IMF) official Martin GILMAN said, "We do not consider it a problem so far, because temporary inflation rate growth for one or two months is not critical, given that so far the inflation rate has been lower than those stipulated in the budget." However, GILMAN said consumer prices would be one of the subjects to be discussed by an IMF mission when it came to Moscow on July 11^th for a week's stay, Reuters reported. The mission's visit will focus on preparing an annual report on the Russian economy. GILMAN noted the mission will also discuss the 2001 budget draft and the government's 18-month economic program approved conceptually last week.

Duma Initially Approves Fuel Tax

· The Russian State Duma approved on Wednesday a rise in excise duties beginning January, 2001 in first and second readings of government tax legislation. Duties on low octane gas will rise to 1,350 rubles ($48.2) per ton from 450 rubles, while high-grade octane excise duties will jump to 1,850 rubles from 585 rubles. A new 550 rubles per ton excise duty on gas oil was also approved. The Duma also supported government plans to increase excise duties on beer, tobacco and jewelry and a change in the system of duties imposed on automobiles. In addition a 1 percent tax on the use of national roads will remain in place until 2003. Deputies agreed to abolish a 1.5 percent tax on the use of utilities' services starting in 2001. The Duma

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must pass the bills in a third reading and the Federation Council has to approve them before the president signs them into law. Oil company executives warned that the new increased taxes on gas will encourage the transport companies to use more diesel, which can lead to worse pollution.

Business

Yukos Increases Stake In Orenburgneft

· Yukos Oil Company, Russia's second-biggest oil producer, increased its stake in Orenburgneft, a major oil-producing subsidiary of state-owned Onako, from 16 percent to 25 percent for an undisclosed amount. Orenburgneft produced 7.46 million tons (54.7 million barrels) of oil last year. Yukos hopes to gain greater control of the producer's operations. The Anti-Monopoly Ministry has cleared Yukos to purchase as much as 62 percent of Orenburgneft. The government plans to sell as much as 85 percent of Onako, which holds 38 percent of the subsidiary. Both Yukos and Russia's top oil producer LUKoil said they plan to participate in the Onako sale. "We have consultations with LUKoil over a joint participation in Onako privatization," said Maxim PUCHKOV, Yukos spokesman. State Property Minister Farit GAZIZULLIN has set the Onako stake's asking price at about $400 million.

leads for the transportation of Caspian oil through its territory to Europe.

Ukraine's Inflation Rises

· Ukraine's State Statistics Committee announced on Wednesday that Ukraine's inflation reached 3.7 percent in June. Food prices increased by 3.3 percent in June, compared with 3.1 percent in May, non-food goods rose by 0.7 percent as against 0.4 percent in May, while services went up 6 percent, compared with 1.1 percent in the previous month. The inflation rate for June doubled what the Economics Ministry had earlier predicted. The inflation rate was 1.7 percent in April, 2 percent in March, 3.3 percent in February and 4.6 percent in January. Annual inflation was 19.2 percent in 1999 and 20 percent in 1998. The government now predicts an inflation rate of 18.5 percent for 2000, instead of an earlier forecast of 15.9 percent due to rises in housing and utility costs and as a result of money printing at the end of 1999.

South Caucasus & Central Asia

Georgian Tax And Customs Revenues Rise

· Georgian Tax Revenues Minister Michael MACHAVARIANI announced that the tax and customs collections for the month of June had positively increased. The Tax Department transferred 39,545,000 lari to the budget, fulfilling its targeted revenues by 100 percent. The Customs Department transferred 26,400,000 lari to the budget, exceeding its 22,300,000 lari target. ITS' Georgia director General Neville BISSETT said ITS issued 679 invoices on $51 million worth of good imported into Georgia. Prime News Agency reported that the Customs Department was to collect $10.5 million from imported goods in June. In May, ITS issued 532 invoices on goods worth $29 million, with $7.5 million collected in taxes. In April, ITS issued 465 invoices on goods worth $24 million, allowing the Customs Department to collect $7.2 million in taxes. BISSETT predicts a further growth of imports and revenues. ITS seeks to improve its tax collection by investing in equipment to make invoicing more efficient.

Similarly, MACHAVARIANI is seeking to make the Tax Revenues Ministry more efficient by testing and assessing its employees. The process will begin in

European Republics

Ukraine-Poland Reach Pipeline Agreement

· Ukraine's President Leonid KUCHMA and Poland's Speaker of the Parliament Maciej PLAZYNSKI agreed that both countries should work to attract foreign investments to construct the Odessa-Brody-Gdansk oil pipeline, during a meeting earlier this week in Kiev, according to Ukrainian daily newspaper Fakty i Komentariyi. The pipeline, designed to carry oil from the Black Sea port of Odessa to the Polish port city of Gdansk in northern Poland, must transport at least 20 million tons (146.6 million barrels) of oil a year to be profitable, Yevhen MARCHUK, head of Ukraine's National Security and Defense Council said. Construction of the pipeline is one of the priorities of Poland's foreign policy, Marek SIWIEC, adviser to Poland's president said. Ukraine has actively been pursuing

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Kvemo Kartli in August and in Tbilisi in September.

Black Sea State Form Naval Task Force

· Turkey, Russia, Ukraine, Romania, Georgia and Bulgaria have signed an agreement in the Turkish capital last week to form a joint naval task force. The force would conduct regional search and rescue operations, mine clearance and environmental protection operations as well as international operations under the mandate of the United Nations or the Organization for Security and Cooperation in Europe (OSCE). The agreement is aimed at improving relations among neighbor countries, while strengthening regional peace and security. Meanwhile, Georgia is preparing to celebrate the Georgian Navy Forces on Friday. The Defense Ministry will hold celebrations in Poti, which Georgian Defense Minister David TEVZADZE is expected to attend. The Georgian Navy Forces currently own 15 vessels and military boats.

Statoil Aims To Be A Top Caspian Energy Co.

· Norway's Statoil announced on Wednesday plans to target the Caspian region and become one of the top three energy companies there. Statoil executive vice president of international exploration and production activities Rolf Magne LARSEN will move to the company's Baku office to head the Caspian development strategy, the Financial Times reported. Statoil has a 4.76 percent in Kazakhstan's Kashagan oil field, which is estimated to hold 50 billion barrels of oil. It also has a 8.56 percent stake in Azerbaijan's Chirag off shore field, which is estimated to contain 4.6 billion barrels; a 25.5 percent stake in Shah Deniz exploration area, which could contain 2.4 billion barrels; and a 15 percent stake in Alov, Araz, and Sharg prospects. Statoil has already committed NKr 20 billion ($2.3 billion) of investment in Azerbaijan over the next 10 years. One Statoil official said, "We don't yet know the exact amount of investment that will be required because the Kashagan discovery [in Kazakhstan] and others in Azerbaijan have not been confirmed. But we would expect to spend between $3 and $4

per barrel of oil."

Shanghai Five Summit Meets In Dushanbe

· Central Asian leaders from Russia, China, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan met in Dushanbe for on Wednesday for a one-day summit of the "Shanghai Five." Uzbek President Islam KARIMOV was joining the group as an observer, with interest in becoming a member. The leaders agreed to set up an anti-terrorist center in Bishkek, Kyrgyzstan. The center would fight separatism and religious extremism. Talks also focused on international terrorism, regional stability, and drug and weapons trafficking. Russian Foreign Minister Igor IVANOV said, "International terrorism is not something that has been dreamed up but something real. So the countries are coordinating how to act in case of some openly aggressive threats from extremist organizations." Kremlin spokesman Alexei GROMOV cited PUTIN as saying, "It is not enough to destroy terrorists, we need to disarm their ideology." According to a joint statement by the five presidents, the Central Asian nations oppose, "intervention into the internal affairs of other states, including under the pretext of `humanitarian intervention' and `human rights protection." The statement appears to refer to the US campaign in Kosovo and western criticism of the countries' human rights records. The five countries also rejected changes to the 1972 Anti-Ballistic Missile (ABM) treaty as proposed by the US to accommodate its National Missile Defense system. The Central Asian nations agreed that the ABM treaty is, "a cornerstone of world strategic stability." The joint statement said, "The countries stress the absolute necessity of maintaining and observing closely the ABM treaty."

The war-torn capital of Tajikistan beefed up security measures for the summit, including blocking off corridors of the city for Chinese President JIANG Zemin's Mercedes motorcade and two helicopters accompanying Russian President Vladimir PUTIN's plane.

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

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