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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

Tuesday, August 15, 2000

a malfunction, with no additional details. Later, it was believed that the submarine had collided with a foreign body or vessel. Rumors of flooding persist. It is now believed that a torpedo launched during the training exercises exploded in its firing tube. US Intelligence reports that two US ships monitoring training exercises heard a major explosion late Saturday. A US Navy spokeswoman said Monday US Naval Ship Loyal, that gathers underwater acoustical data, was about 250 miles away from the Russian submarine when it went down. The Russian navy is reporting that several missiles and bombs were fired during the training exercises and that there is no indication the explosion heard by US intelligence ships was linked to the Kursk. Bellona, a Norwegian environmental organization, said it had information that the sub sank on Saturday. One Defense company source said, "He did not exclude the possibility that the damage to the nose section of the sub was caused by an explosion in that section," Itar-Tass reported.

Defense Minister Igor SERGEYEV has said that a rescue effort is underway, but navy commander Vladimir KUROYEDOV was quoted as saying the rescue would not likely begin in full-force until nightfall. SERGEYEV said rescuers would first attempt to evacuate the crew, and then discuss raising the crippled vessel, which has lain on the seabed with no power since Sunday. Rescuers have discussed using a pressurized diving bell to bring up the 10 to 15 crewmembers at a time. Hoisting the vessel ap

Russian Federation

NEWSFLASH

First Submarine Rescue Attempt Fails

· The Russian military has been very tight lipped about the Kursk rescue effort in the Barents Sea. The first attempt to dock a rescue capsule on the grounded submarine has failed due to heavy storms. It is reported that a second capsule has been sent down, just two hours after the failure. Efforts to reach the vessel to attach air and power lines had failed. A rescue bell or capsule can only carry 20 people at a time and takes up to seven hours to rise to the surface to avoid decompression sickness. Conflicting reports on what caused the accident and the conditions inside the submarine remain.

Politics

Rescue Efforts Hampered By Weather

· At least 10 Russian navy ships have sailed to a site in the Barents Sea, where an Oscar II submarine, named Kursk, has sunk to the bottom of the sea. The nuclear submarine had been engaged in training exercises. Although it was not carrying any nuclear weapons, it has been forced to shutdown its nuclear reactors. No radiation leakages have been detected. The Kursk represents the height of Russia's nuclear submarine technology. Unmanned mini-submarines have surveyed the Kursk, leaning 60 degrees on its port side, to determine the extent of damage and the feasibility for an evacuation plan for the more than 100 sailors trapped aboard. The surveys provided data that the submarine is in a very hazardous condition and according to the head of the naval ministry it is suffering from "severe damage." Naval officials said the bow was damaged in two places.

Initial reports said that the submarine suffered from

Today's News Highlights

Russia

Swiss IMF PRobe Continues

Tsar Nicholas II Canonized

European Republics

Estonian Energy Sale Approved

Ukrainian Balanced Budget?

Odessa-Brodi Pipeline Update

South Caucasus & Central Asia

Baku-Suspa Fills 56th Tanker

EBRD Interested In Azeri Bank

Kyrgyz Troops Battle Rebels

Politics-Economics-Business

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Tuesday

August 15, 2000

Intercon's Daily

pears impossible, since Russia does not possess equipment needed to lift a 14,000-ton submarine from the seabed. The US, Britain, and France offered to help by providing their own specialized deep-sea rescue equipment, but Russia has turned it down. The navy has yet to make public details of its rescue plans. The navy said a storm over the Arctic Barents Sea was hampering rescue operations. Storms have torn-off several of the rescue ships' anchors. Only the huge missile cruiser Peter the Great and anti-submarine ship Admiral Chubachenko could resist the waves. Navy commander Admiral Vladimir KUROYEDOV said, "The prognosis for the possible consequences of the accident at the Kursk on the lives of its crew appear very grim." He added, "The chances for a favorable outcome of the rescue operation are largely decided by the situation inside the submarine."

Chechen Rebels Attack Russian Convoy

· Following a claim on Saturday by civilian leader in Chechnya, Mufti Akhmad KADYROV that the Chechen rebels were too scattered to threaten Russian troops, a Russian convoy near Grozny was ambushed. The attack killed 3 soldiers and wounded 10. In addition, two armored personnel carriers were attacked, when passing through the village of Prigorodnoye just outside Grozny. Russian troops returned fire, and the battle continued for 40 minutes, the Associated Press reported. On Sunday, KADYROV went back on television to urge rebel President Aslan MASKHADOV to leave Chechnya.

Meanwhile, the US is contributing another $2.6 million to assist more than 250,000 people displaced by the conflict in Chechnya. This brings the US total of cash and other aid to more than $21 million. Of the $2.6 million, $880,000 will help support UN refugees programs in Russia, $565,000 for refugees in Georgia, $505,000 for the UN Children's Fund, $447,000 for the World Health Organization and $260,000 for the UN office that coordinates humanitarian affairs.

Economy

Ruble = 27.72/$1.00 (NY rate)

Ruble = 27.80/$1.00 (CB rate)

Ruble = 25.39/1 euro (CB rate)

Swiss Magistrate Raids Bank In IMF Probe

· Following up on the investigation of the Bank of New York Russian money-laundering scheme, Swiss magistrate Laurent KASPER-ANSERMET ordered that two banks be raided. The probe centers on whether $4.8 billion of International Monetary Fund (IMF) loans were diverted to secret Swiss bank accounts. During the raids last week at two banks in Ticino, which KASPER-ANSERMET declined to name, the judge said he seized bank documents that may help his probe, but declined to give details. KASPER-ANSERMET, who has already frozen just under $20 million at a dozen Swiss banks as part of his investigation into the Bank of New York affair, said he had some evidence on possible Swiss connections to the multi-billion-dollar scam, Reuters reported. KASPER-ANSERMET is traveling to the US today to seek US cooperation with his probe. He will meet with the US Attorney's Office for the Southern District of New York, but declined to say whether he would meet with Fund officials. He said, "US investigators have not cooperated with us on this case so far. But now our investigation is widening and their cooperation is really necessary. That is why I am going to the United States." In February, a former Bank of New York executive, LUCY EDWARDS, and her husband, Peter BERLIN, pleaded guilty in a US court to being involved in a $7 billion international money laundering scheme.

Business

Tyumen To Bid For Onaco

· Tyumen Oil Company, Russia's fifth oil producer, applied to the Anti-Monopoly Ministry for permission to bid on a majority stake in state-owned oil company Onaco. Yukos Oil Company and Sibneft, number two and number six oil producers, teamed up last week with Stroitrangaz, a pipeline builder, to bid jointly for the same sale. Evrotek, a minor Russian oil producer, and LUKoil Holding, Russia's top oil company, also said they plan to participate in the auction of an 85 percent stake of the state-owned company. The Russian government will sell the stake in Onaco at a starting price of $425.3 million on September 19^th. Bids will be accepted until September 14^th. Onaco, which extracts oil in the Orenburg region bordering Kazakhstan, produced 159,700 barrels per day of crude in 1999.

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	Tuesday		August 15, 2000
	Intercon's Daily
	Tuesday Tid-Bits Nicholas II Canonized · At a Bishops' Council in Moscow on Monday, the Russia's Orthodox Church decided that Tsar Nicholas II should be canonized. Patriarch Alexy II, the head of the Russian Orthodox Church, said "He is now a saint." Nicholas, Empress Alexandra, Tsarevitch Alexei, Princesses Olga, Tatyana, Maria and Anastasia were declared to be martyrs. According to an Ekho Moskvy poll, exactly half of the 2,000 respondents opposed the Tsar's canonization, while the other half supported it. Although Nicholas was reviled by many, he and his family deserved sainthood for their, "meekness during imprisonment and poise and acceptance of their martyrs' death," according to a Church statement. Church officials have recorded miracles associated with the Tsar, including icon portraits of him that "weeps" beads of fragrant liquid. Such phenomena led the Russian Orthodox Church Abroad, opposed to the Soviet state, to canonize him in 1981. The bishops also approved the names of 860 other martyrs. The meeting, in Moscow's Christ the Savior Cathedral, was one of the Church's largest ever declarations of saints and martyrs.	against Economics Minister Mihkel PARNOJA over his handling of the sale. No date for the vote has been set and unless another extraordinary session was called it would not happen before deputies return from their summer break next month, Reuters reported. Mitiukov To Submit Balanced Budget · Ukrainian Finance Minister Igor MITIUKOV said the ministry will submit a balanced 2001 budget plan for Cabinet approval later this week. The government also plans to continue transferring some money from the central budget to the local budgets, MITIUKOV said. He added that the transfers will be, first of all, aimed at making social payments. Ukraine, which approved a balanced budget plan for this year, said it posted budget surplus of 0.9 percent of gross domestic product in the January to June period. Odessa-Brodi Pipeline Nears Completion · Ukraine's Ambassador to Azerbaijan Boris ALEXENKO has announced that 500 kilometers of the Odessa-Brodi pipeline has been built. Its total length will be 667 kilometers. The pipeline is planned to be finished for year 2001 together with terminal South. Transportation scheme of the Caspian crude oil on Ukraine territory includes its export through Baku-Supsa pipeline and then by tankers to terminal South in Odessa. At that point, the oil will be pumped through the new pipeline Odessa-Brodi, which will be switched to the pipeline Friendship to take oil to the Polish Adamov Gate, Prime News Agency reported. The pipeline has a capacity to pump 40 million tons of oil per year. On the first stage it will be 12 million tons. South Caucasus & Central Asia 56^th Supsa Tanker Filled · The Supsa Oil Terminal has filled its 56^th tanker. It transported 140,000 tons of Caspian crude oil, under the ownership of Socar (Azerbaijan State Oil Company). Head expert of Georgian International Oil Corporation Dito NADIRADZE confirmed these figures with Prime News Agency. EBRD Seeks Stake In Azeri Bank · Azerbaijan's Privatization Minister Farkhad ALIYEV said today the European Bank for Reconstruction and Development (EBRD) had offered to
	European Republics Estonia Approves Energy Stake Sale · The council of Estonian Energia on Monday gave its approval for a $70.5 million deal to sell stakes in two major power plants to NRG Energy Inc. According to a statement, "the terms will be no worse than those confirmed by the government on June 27^th and agreed with NRG...on August 1^st." "NRG will pay a total of $70.5 million for 49 percent of shares in Narva Elektrijaamad (Narva Power Stations), of which $60.5 million will be a down payment," Eesti Energia said in a statement outlining conditions. The Estonian government in June announced that it had reached agreement over the fundamentals of the sale with NRG, but opposition to the sale sparked national concern. Opposition to the deal has been voiced by Estonian President Lennart MERI, several business groups and opposition parties who have argued it will hurt the economy and consumers by restricting competition. At an extraordinary sitting of parliament earlier on Monday the opposition presented a confidence motion

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Tuesday

August 15, 2000

Intercon's Daily

buy from the government a 25 percent stake in the country's leading bank. The government plans to sell 45.2 percent of International Bank of Azerbaijan, in which it holds a 50.2 percent share. The privatization, a condition for loans from international institutions, has been delayed since 1998. "We received the offer 10 days ago and are now preparing our answer," the Privatization Minister told a news conference, regarding the EBRD offer. There was no immediate comment from the EBRD. ALIYEV was unable to say when privatization of the bank would take place. "I think it will happen soon, but I can't say exactly when," he said.

Kyrgyz Clash With Rebels Insurgents

· Kyrgyz Federal troops are fighting rebel insurgents in the Batken region in the south of the Central Asian republic. Fighting in Kyrgyzstan has killed at least 10 soldiers since it began on Friday. Kyrgyz Defense Minister Esen TOPOYEV had taken command of government forces fighting in high mountain peaks against rebels. He said military supplies were being flown to the region. Up to 50 gunmen have fought with Kyrgyz troops since Friday. The Defense Ministry reports that up to 40 rebels are dead and the rest have split into two separate groups. "As a result of an intensification of the fighting, the majority of the bandit groups have been destroyed." Kyrgyz president's press secretary Osmonakun IBRAIMOV reported that the invading gunmen belong to the so-called Islamic Movement of Uzbekistan and intended to infiltrate into that republic across the southern border of Kyrgyzstan. Officials in Uzbekistan said another group was spotted in its eastern region after crossing from Tajikistan, Reuters reported. Uzbek forces have been in action in Uzbekistan's own southern mountains this week, fighting other rebels that the country says attacked from Tajikistan. Tajikistan denies this and claims it has strengthened its border guard units. Last year a group of several hundred rebels, also from the Islamic Movement of Uzbekistan, crossed into the Batken region from their bases in northern Tajikistan and took four Japanese geolo

gists hostage. The captives were later released and the rebels retreated. Uzbekistan blames Tajikistan's United Tajik Opposition (UTO) for harboring armed groups in remote regions, saying that they are bent on destabilizing the situation in the volatile, oil-rich region of Central Asia. On Friday, Russian forces guarding Tajikistan's mountainous border with Afghanistan also said they had repelled a group of 40 fighters trying to cross the frontier.

The Associated Press on Monday that more than 25 Kyrgyz troops had been killed. Another eight troops from neighboring Uzbekistan have also been killed. Intensive shelling against the rebels resumed this morning, as Kyrgyz troops push the rebels back toward the Tajik border. Kyrgyz Security Council Chief Bolot DZHANUZAKOV said the militants are attempting to cross back into Tajikistan, but all directions for the retreat have been cut off by the Kyrgyz army. "Our main task today is not to let militants escape and liquidate all of them." The nationalities of members of the terrorist gang include Tajiks, Uzbeks, Arabs, Chechens, Russians and Ukrainians, Itar-Tass reported. All are well armed and were trained at rebel military compounds.

Defense, interior and national security ministers of the Kyrgyzstan, Uzbekistan, and Tajikistan held an emergency meeting in Batken on Saturday and agreed to confront the threat jointly, setting up a headquarters in Tajikistan. It is believed that the Islamic Movement aims to create a new religious state on the territory of Kyrgyzstan, Uzbekistan and Tajikistan. The issue of the Central Asian states' vulnerability will most likely be raised at Commonwealth of Independent States summit in Yalta on August 18^th and 19^th.

The Daily Report on Russia and the FSU

will not be published

from August 21^st to August 25^th

for Intercon's summer break.

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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