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, August 7, 2000

Russian Federation

Politics

Rebel Commander Surrenders?

· Russia's military command has reported that senior Chechen rebel Ibragim KHULTYGOV surrendered. There was no confirmation from the rebels that KHULTYGOV had surrendered and the reports did not say when or why he laid down arms. KHULTYGOV had been Chechnya's security chief in a de facto government under President Aslan MASKHADOV and a field commander in charge of a group of fighters, Reuters reported. Interfax news agency quoted Kremlin spokesman, Sergei YASTRZHEMBSKY, as saying another rebel commander, Musali KHASKHANOV, had been captured.

Meanwhile, rebels attacked Russian troops in Grozny, Argun, and at dozens of federal checkpoints. Federal forces clashed with rebels in the village of Petropavkovsk northeast of Grozny, killing 22 rebels. Russian officials claim that a gang of 100 rebels had been destroyed. Powerful strikes were delivered against rebel groups in the north and northwest of Gudermes, Nozhai-Yurt, and Urus-Martan districts. A Russian Mi-8 helicopter was forced to make an emergency landing in Ingushetia, after coming under fire. Only one of the 16 paratroopers on board was seriously injured.

Predictions that rebels would launch a new offensive to mark the anniversary of the 1996 retaking of Grozny from Russian troops did not come true. As speculation grew, Russian soldiers were put on high alert in their fortified defenses in Grozny. Moscow's number two official in southern Chechnya, Vladimir BOKOVIKOV, pledged on Sunday that there would be no repeat of Russia's 1996 withdrawal from the region, sparked by an assault on

Grozny. "The troops have entered Chechnya forever…One should hold no hope they will leave it ever again."

Russian Generals Accused Of Graft

· Russia's military prosecutors on Friday launched an investigation against four generals over the disappearance of $450 million from the armed forces' budget. Military investigator Sergei USHAKOV confirmed that the Defense Ministry's financial chief Colonel-General Georgy OLEINIK, his chief accountant Yevgeny DATSKO and two of his department chiefs Leonid GERASIMENKO and Anatoly VOROBYOV are being investigated. However, he declined to describe what crime they committed because the investigation is ongoing. He stressed, "They have not been charged with any crime…The generals are working." Under scrutiny is a complicated series of financial transactions involving Ukrainian military construction supplies, foreign and Russian companies as well as the ministry's finance department. If charged, Reuters reported, these generals would be the most senior military men indicted in post-Soviet Russia. Corruption is a major problem in the military due to the low salary levels.

Economy

Palladium Falls On Prospects For Russian Supplies

· The price of palladium fell almost 8 percent to a two-week low, after Russia offered supplies following a one-month freeze on

Today's News Highlights

Russia

Kristall Distillery Raided

UES Drops Demand For Mtg.

European Republics

KGB Agents Turn Themselves In

Lith-Kazakh Reach Oil Contract

Samoilov Assassinated In Minsk

South Caucasus & Central Asia

Red Cross Workers Go Missing

US-Georgian Naval Exercises

Kazakh Restricts Oil Supplies

Politics-Economics-Business

Page

Monday

August 7, 2000

Intercon's Daily

deliveries. Norilsk Nickel, which can export the metal only through Almazyuvelirexport, has restrained exports so far this year to keep prices high. Palladium for immediate delivery fell $63, or 7.8 percent, to $745 an ounce in London when it was "fixed," this morning. Russia's government exporting agency Almazyuvelirexport may have judged last week's record prices unsustainable, traders said. "They tend to offer a small amount of palladium to take the steam off the market," said Ross NORMAN, an analyst at TheBullionDesk.com. Traders expect Russia will also resume exports to Japan, the second-biggest palladium exporter. Russia is in talks with Japanese buyers over palladium deliveries for the rest of the year. A contract is to be signed shortly with shipments probably beginning in September or October. Russia supplies two- thirds of the world's metal, used by carmakers to reduce pollution as well as by dentists and jewelers. Spot palladium surged to all-time fixing high of $855 an ounce in London last Wednesday while spot platinum jumped to a 12-year fixing high of $612 on the same day.

Ruble = 27.75/$1.00 (NY rate)

Ruble = 27.73/$1.00 (CB rate)

Ruble = 25.22/1 euro (CB rate)

Business

Tax Raid, Management Dispute At Kristall

· Kristall Distillery, the maker of Stolichnaya Vodka and other leading brands, was hit on Friday with a double whammy: a tax police raid and management dispute. Russia's Tax Police on Friday raided Kristall Distillery, seizing documents in connection to an audit conducted earlier this year that uncovered financial wrongdoing, including underreporting of profits. Tax police have become increasingly visible in recent weeks, taking part in several high-profile raids. However, several of these cases have been dropped due to lack of evidence, including cases against Media Most, AvtoVAZ, LUKoil, and Norilsk Nickel.

Kristall, which is 51-percent owned by the Russian government, has been embroiled in a management dispute since hundreds of the factory's 1,350 workers challenged a decision to fire Yuri ERMILOV, then general director of Kristall, and replace him with Alexander ROMANOV. Since May, Vladimir

SVIRSKY, whom ERMILOV appointed acting general director, has run the plant. SVIRSKY decided not to attend a board of directors' meeting to discuss the management situation. While he was out of the factory, 20 bodyguards carrying machine guns escorted ROMANOV into the factory. ROMANOV was ousted as general director of Kristall by a July court ruling. When SVIRSKY returned, he was not allowed in the building. On Saturday, SVIRSKY returned with his own guards and took over the company's accounting office. ROMANOV threatened to have the company's bank accounts blocked in retaliation. SVIRSKY on Saturday told NTV Television that he sent appeals to the prosecutor general's office, the Moscow prosecutor's office and the Interior Ministry to have ROMANOV removed, the Associated Press reported. ROMANOV said the move was aimed at "re-establishing the state's ownership."

Golden Telecom To Buy Agama

· Golden Telecom Inc. agreed to acquire the Agama family of Russian Web properties, including Aport, Atrus, and Omen, from Digital Holdings Corp., a technology investment company, for $25 million. The purchase price will consist of $12.5 million in cash and the rest in Golden Telecom shares. Golden Telecom has about 24.1 million shares outstanding, the Dow Jones Newswire reported. Shares of Golden Telecom were recently trading at 28 3/4, down 1, or 3.4 percent, on Nasdaq volume of 700 shares. Average daily volume is 35,384 shares. In a press release on July 31^st, Golden Telecom said Aport is a top-rated bilingual Russian search engine. Atrus.ru, or us, is an online directory and network listing more than 35,000 Web sites in both Russian and English. Omen.ru is a Russian entertainment portal for younger audiences. Golden Telecom plans to market these businesses as distinct brands powered by the company's premier Russia-On-Line network. Golden Telecom is a facilities-based provider of integrated telecommunications and Internet services in Russia, Europe, and Asia.

UES Foreign Shareholders Withdraw Demand

· Unified Energy Systems (UES) said minority shareholders withdrew their demand to call an extraordinary meeting to strengthen their rights and seek the removal of Chief Executive Anatoly

When you need to know it as it happens

Politics-Economics-Business

Page

Monday

August 7, 2000

Intercon's Daily

CHUBAIS. UES said last week it had received a request for the meeting from holders of UES' American depositary receipts, representing an 18 percent stake, and would call the meeting in September. However, a clerical error in the formal request overstated holdings in the company. Shareholders now plan to pursue talks with the government, which owns 52 percent of UES, to set the agenda for a future extraordinary shareholders' meeting, Bloomberg News reported. The minority shareholders are concerned a planned reorganization will hurt their investment. Shareholders have said they're concerned the plan to break up the monopoly would allow assets to be sold cheaply and undercut the value of their holdings. The outcome of their calls to remove CHUBAIS is seen as a key test of shareholder rights in Russia. "We will be working with the government to reach an agreement on what will be best for the company and for the shareholders," said Bill BROWDER, who manages $450 million at Hermitage Capital Management in Moscow. CHUBAIS, however has said, "The company restructuring is not a question of bargaining…it will happen for sure and will be handled by me…We are ready to have constructive negotiations with the most dissident shareholders."

While informers must register themselves, most job restrictions don't apply to them. Supporters of the law say it's needed to ensure that ex-agents do not sabotage national security. But some critics charge the laws are unnecessary and vindictive.

Lithuania Reaches Oil Deal With Kazakhstan

· Mazeikiu Nafta has signed a three-year contract to buy crude oil from Karazhanbasmunai (KBM), a Kazakh oil producer operated by Canadian Nations Energy. Under the agreement, Mazeikiu Nafta, which is 33 percent-owned by Williams Group International Inc., will receive 70,000 tons of crude oil a month beginning in September from KBM. Future supplies are expected to reach 100,000 to 120,000 tons a month. Randy MAJORS, general manager for Williams' Lithuanian operations said, "This is an important step providing firm ground for the financial stability of Mazeikiu Nafta." He added, "We see KBM, together with other Kazakh oil companies as perspective and important partners." The oil contract will be further discussed when Kazakh Deputy Prime Minister Daniyal AKHMETOV and top oil representatives visit Lithuania in October. It is also contingent on reaching a transit agreement with Russia. According to a company statement, "Negotiations with Transneft...will be the next step in assuring implementation of the project." Mazeikiu Nafta expects to further increase crude oil supplies from Kazakh oil companies after the shipping capacity of the Atyrau-Samara pipeline is increased. Mazeikiu Nafta received over 600,000 tons of Kazakh crude last year, Bloomberg News reported. In 1999 alone the refinery lost 56 days of operation due to irregular flows of crude from Russia, its primary source. The agreement is expected to help stabilize Mazeikiu, which contributes almost 10 percent of Lithuania's industrial output.

Russian National Unity Leader Murdered

· Gleb SAMOILOV, leader of the Russian National Unity, which is not registered in Belarus, was assassinated in Minsk on Saturday. His body was found near his apartment with three knife wounds to the heart. Chief of the murder department of the Minsk Sergei KOLBASOV said that according to Preliminary investigation, SAMOILOV left his house in the morning after receiving a call. His body was found a short while later by neighbors. Meanwhile, the director of a glass factory Vladimir ZAPOLSKY

European Republics

KGB Agents Turn Themselves In

· As of Sunday, an estimated 1,400 Lithuanians identified themselves to the government as former KGB agents and informers. A law passed in February gave Lithuanians until Saturday to file detailed confessions about their collaborations with the security service of the former Soviet Union. Identities and confessions were put in a confidential database. Collaborators who didn't voluntarily come forward risk losing their jobs, if evidence later points to their KGB links. Their names also would be made public. A final surge of people coming in to the special commission to confess brought the total number to 1,400, said Algirdas KATKUS, head of parliament's security committee. "They were waiting for the very last day just like students before the examination," he told the Associated Press. KATKUS said the deadline won't be extended. "Six months is more than enough to confess your deeds and mistakes." The law bans former KGB employees from most public and even some private jobs.

When you need to know it as it happens

Politics-Economics-Business

Page

Monday

August 7, 2000

Intercon's Daily

was killed Friday in the city of Gomel. His body was found in the hallway of his apartment with three shots to his head.

South Caucasus & Central Asia

Red Cross Workers Disappear In Georgia

· Akhmeta regional police have sent an elite group of 32 members on a search for three missing International Committee of Red Cross (ICRC) employees in the Pankisi valley Friday evening. The employees have been identified as Yuri DARCHIYEV of Georgia, Sophie PROKOFIEV of France and Natalie ZELINO of Italy. Head of Akhmeta regional administration Nugzar AVALIANI believes the workers were kidnapped. The three workers visited the valley without warning the local police. The ICRC delegates were going to the village of Duisi to organize transport for 15 children to attend a Georgian Red Cross summer camp in Kobuleti on the Black Sea coast as well as monitoring the refugee situation. Duisi was the last place where they were sighted. Police have found the car with the their identification cards and personal things at the roadside near the village of Omalo, which is on the Chechen stretch of the Georgian-Russian border. The car was not damaged, but their walkie-talkie no longer worked. President Eduard SHEVARDNADZE is hopeful that the search will bring results in the next few days. He stressed that "acts of provocation of this sort" will not affect the attitude of the country's population and authorities to the Kistin Chechens and refugees from Chechnya residing in the Akhmeta district of Georgia. He said the kidnapping, "will not destabilize the situation in this region of Georgia." In the course of this year, the ICRC activities in the area have focused on sanitation work, rehabilitating and installing drinking water networks, and offering its traditional tracing services for families split up by the war.

US-Georgia Conduct Naval Exercises

· The US and Georgia conducted a one-day joint

naval exercise near the Georgian Black Sea port of Poti Saturday. The maneuver involved seven ships from the Georgian navy, three Georgian coast guard vessels and a US missile frigate that entered Georgia's territorial waters on August 1^st for a friendly visit, according to the Georgian Defense Ministry. The two countries' navy servicemen practiced interaction in a search and rescue operation at sea. After the end of the maneuver Saturday night, the US warship left Georgian waters for its base in Norfolk, Virginia. The exercise was held within the framework of agreements on bilateral cooperation between the two countries.

Kazakhstan To Supply Domestic Refineries

· The Kazakh government on Friday ordered 13 oil companies to divert some of their crude output to domestic refineries during the month of August to ease an oil product shortage. A total of 688,000 tons of crude, around a quarter of Kazakhstan's monthly output, must be supplied to the country's three refineries in Pavlodar in the north, Atyrau in the west and Chimkent in the south. These refineries have been operating below capacity, as oil producers export their crude abroad, taking advantage of the world's high prices. State oil company Kazakhoil and Hurricane Kumkol Munai, run by Canada's Hurricane Hydrocarbons Ltd, have been ordered to supply 150,000 tons each to the domestic market this month. Kazakhstan introduced an export quota at the start of the year to maintain supplies to the domestic market, but it was lifted when Western investors complained bitterly. First Deputy Prime Minister Alexander PAVLOV said, "We are talking about an incredibly serious matter which the government aims to resolve in a no less serious manner, adopting decisive, important measures." The government is particularly concerned at the shortage of oil products at a time when the annual grain harvesting campaign gets into full swing. Farmers have been complaining that fields of wheat have been left to rot due to the lack of fuel, Reuters reported.

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

available for non-profit institutions.

Daily Report on Russia is for the exclusive use of the subscriber only. Reproduction and/or distribution is not permitted without the expressed written consent of Intercon. Daily Report on Russia Ó copyright 2000, Intercon International, USA.

When you need to know it as it happens

Politics-Economics-Business

Page