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, October 12, 2000

Russian Federation

Politics

Grozny Car Bomb Kills 15

· An estimated 15 people died in Grozny, when a military jeep exploded near a building housing the Oktyabrsky permanent regional department for internal affairs. The vehicle belongs to Grozny Prosecutor's Office and all the three employees of the office inside were killed. It is assumed that the car was blown up with a remote-controlled device. An aide to the Kremlin's Chechnya spokesman Sergei YASTRZHEMBSKY said most of the victims were civilians and that the death toll could still rise as many of the severely wounded are being treated in the hospital. Russian soldiers and policemen continue to die every week in rebel hit-and-run attacks and mine explosions. The latest incident appeared to be one of the worst since the spring months when rebels attacked several Russian military convoys, killing scores of people. On Tuesday, three Russian soldiers were killed in Grozny when rebels ambushed an armored personnel carrier, crippling it with an explosion and bombarding it with grenades. The two other attacks were in the southeastern Shatoi district, where one serviceman was killed and one was wounded, and the southern Vedeno Gorge, where three were wounded. Rebel commander Musa DZHAMALKHANOV said six rebels and more than 20 Russian soldiers were killed Tuesday when the militants attacked an army column in the Nozhai-Yurt district of southeastern Chechnya. Both sides routinely exaggerate enemy losses.

Gas Explosion Kills Three

· A gas explosion in an apartment building in Barnaul, near the Kazakh border, Wednesday night killed three people. Five more residents were taken to the hospital after the blast, which destroyed three

apartments and seriously damaged two. The explosion, which came soon after gas supplies that had been cut off were fully restored to Barnaul, may have been caused by residents illegally tapping gas lines, said Vladimir GERMANENKO, a deputy governor for the Altai region told NTV. In late 1996, a gas explosion at Priozersk, north of St. Petersburg, killed more than 20 people after a family cut off by the local gas company set up their own gas siphon. Many residents rely on gas for cooking and heating.

Rus-Kyrgyz Reach Military-Technical Agmts.

· While Russian President Vladimir PUTIN is attending high-level talks with five regional leaders today in Bishkek, Russia and Kyrgyzstan have reached an agreement on two documents to broaden military-technical cooperation. Kyrgyz Defense Minister Esen TOPOYEV said the documents might be signed as early as October 20^th. The agreements envisage technical security measures on Kyrgyzstan's southern border and modernization and repair of communications line on the Kyrgyz-Chinese stretch of the border. Russia will also supply armaments to Kyrgyzstan at the ex-works prices of manufacturing plants. Kyrgyzstan is supposed to buy, among other types of armament, SU-25 aircraft, helicopter gunships, and armored vehicles for combat operations in mountainous terrain from Russia. Russian Defense Minister Igor SERGEYEV, who is currently here to participate in the session of the Collective Security Council, also confirmed on Wednesday the

Today's News Highlights

Russia

Russia's 13 Percent Flat Tax

Russia Invests In Four Reactors

State-Bank Sues Media Most

European Republics

EBRD To Lend To Ukrrechflot

Lith. Draft Budget Approved

South Caucasus & Central Asia

Georgia Captures Four Fugitives

Guliyev Arrest Warrent Issued

Azeri-Turkey Near Gas Agrmt.

Politics-Economics-Business

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Thursday

October 12, 2000

Intercon's Daily

possibility of giving military-technical assistance to the republic. He said, "at present the Russian Defense Ministry awaits classification as to types of armament from its Kyrgyz counterparts."

Economy

Ruble = 27.86/$1.00 (NY rate)

Ruble = 27.91/$1.00 (CB rate)

Ruble = 24.09/1 euro (CB rate)

Russia To Have 13 Percent Flat Tax

· Finance Minister Alexei KUDRIN Tuesday said that Russia would stick with its 13 percent flat income tax, despite speculation it would be raised as soon as more people start declaring their real incomes. The new tax, to take effect in 2001, replaces a progressive system with rates ranging from 12 percent¾covering about 90 percent of the population¾to 35 percent. The idea behind the flat tax was to get more people to disclose their real incomes in a country where tax evasion is rampant, and to spur economic growth. Analysts have speculated the tax is designed to coax the country's new rich into entering the tax system before officials raise rates. But KUDRIN said the flat tax was permanent. "Talk about taking more from the rich simply isn't serious," the Associated Press reported KUDRIN saying.

Russia To Invest In Four Reactors By 2006

· Russia's Nuclear Power Minister Yevgeny ADAMOV announced that Russia plans to spend about 53 billion rubles ($1.9 billion) over the next five years to complete reactors at four nuclear power stations. Russia plans to complete two nuclear reactors at an existing power station in the south Russian city of Rostov on Don by 2006, one at a power station in Russia's Baltic Sea enclave of Kaliningrad., and another at a station in the Kursk region. The investment is part of government plans to triple nuclear power-generated electricity by 2030, at a cost of about $25 billion. ADAMOV said, "We need funds to finance growth in nuclear energy production." He added that if the Federal Energy Commission permits an increase of 1 cent per kilowatt hour in electricity rates, Russia will earn about $1.3 billion annually, enough to help finance expansion. Russian nuclear power plants produced 103 million megawatts per hour in 1998, and will produce 130 million megawatts per hour by the end

of 2000, Bloomberg News reported. Russia's commitment to build and expand its nuclear power industry comes as some other European countries are scaling back, such as nearby Lithuania, which said it's establishing a fund to close down its Soviet-built Ignalina NPP nuclear power plant. Regardless of Europe's efforts, Russian President Vladimir PUTIN in March said, "The atomic industry sector is one of our strategic interests, and its success will determine our status as a world power."

Business

Vneshekonombank Sues Media Most

· Following orders from the Russian Finance Ministry, state-owned Vneshekonombank filed a suit against Bonum-1, a Media Most subsidiary, for $30 million in overdue loans. Vneshekonombank chief Andrei KOSTIN said Media Most owes his bank a total of $142.5 million, and that it plans to file more suits to demand payment, the Associated Press reported. He stressed that Vneshekonombank had acted as the government's agent. The $30 million was used to launch a communications satellite and build ground facilities. Media Most said it made payments on the loan in bonds issued by Vneshekonombank that the bank refuses to accept. It said the suit, filed Wednesday in a Moscow court, was the latest in a series of attacks from the government as it tries to stifle one of the few Russian media organizations critical of President Vladimir PUTIN, Bloomberg News reported. Media Most spokesman Dmitry OSTALSKY said, "The Kremlin is not happy with us and is using every weapon it can against us—both economic and political." Last month, PUTIN and Prime Minister Mikhail KASYANOV said politicians should stay out of disputes between companies such as Media Most and Gazprom, in which the state owns a 38.3 percent stake. Gazprom said it wants to get control of Media Most in order to sell it to a foreign investor to recover overdue debts. Prosecutors are also investigation Gazprom's claim that Media Most illegally transferred assets abroad to hide them from the gas monopoly. Federal prosecutors this week summonsed Media Most's chairman Vladimir GUSINSKY to appear for questioning over a criminal fraud case they opened against Media Most. GUSINSKY last week failed to answer a similar summons.

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Thursday

October 12, 2000

Intercon's Daily

European Republics

EBRD To Lend To Ukrainian Shippers

· The European Bank for Reconstruction and Development (EBRD) agreed to lend $17.1 million to Ukrrechflot, a Ukrainian shipping company. According to company Vice President Pavlo PODLESNYI, Ukrrechflot expects to sign the loan agreement on October 18^th to 20^th. It plans to use the money to finance construction of seven new ships, two of which the company plans to buy from Romanian shipbuilders. The Bank began to lend to Ukrrechflot in 1995, when it agreed to release $45.6 million in credits to the company. Earlier this month, the EBRD agreed to release a one-year, $100 million loan to Ukraine's four state power plants, which have 55 percent of the country's electricity generating capacity, in order to help them replenish their fuel reserves before the winter.

Kuchma Appoints Central Bank Council

· Ukrainian President Leonid KUCHMA appointed half of a new Central Bank council on Wednesday in a move, which appears to be aimed at improving the stability of bank policy. Presidential spokesman Alexander MARTYNENKO said KUCHMA had appointed a mix of parliamentarians and presidential advisers to the new council, which is chaired by the Central Bank chief and has 14 other members, half appointed by parliament and half by the President. Analysts said the council would guarantee the continuation and stability of the Central Bank's policies. "The aim is to create a very respected body....which will guarantee there will be no sharp moves in the Central Bank policies," Ruslan PIONTKIVSKY, a senior economist at the Independent Center of Prospective Studies told Reuters. The council will oversee Ukraine's monetary and credit strategy while the Central Bank board will be in charge of working out concrete steps. KUCHMA's representatives will be presidential advisers Anatoly HALCHYNSKY and Sergei OSYKA, Finance Minister Igor MITYUKOV, parliamentarians Valeri KHOROSHKOVSKY, and Igor SHAROV, UkrSibbank Vice-president Ernest HALIEV and Chernihiv regional administration head Mykola BUTKO.

Lithuanian Draft Budget Approved

· Lithuania's outgoing government on Wednesday approved a 2001 draft budget with a deficit of 678 million litas ($169.5 million). This will cut the gap

relative to gross domestic product (GDP). Outgoing Prime Minister Andrius KUBILIUS said, "Such a budget deficit will allow us to keep the country's fiscal deficit just below 1.5 percent of GDP versus 3.3 percent this year and that will provide favorable conditions for further economic development." He added, "If the new government sticks to our major principle to live according to income, I see no big possibilities for major budget figures to change." KUBILIUS' fiscally conservative government swept out of office in a general election on October 8^th drafted the budget. Lithuania and the International Monetary Fund (IMF) last week agreed that the general government's fiscal deficit will not exceed 1.4 percent of GDP, now seen at 47.4 billion litas ($11.85 billion) in 2001. The budget is based on the latest economy ministry forecast that Lithuania's GDP will grow some 3.5 percent in 2001 after growing 2.1 percent this year. Lithuania's economy shrank 4.1 percent in the full year 1999 amid a prolonged recession. Lithuania's 2000 state budget allows for an 800 million litas financial deficit, equal to 1.8 percent of GDP with revenues planned at 6.05 billion litas and expenditure at 6.85 billion. The new budget takes into account the nation's interest in joining the European Union and NATO and improving the business environment and information technology development. The government must submit the budget bill to parliament by October 17^th.

South Caucasus & Central Asia

Georgian Captures Four Jail Escapees

· Georgian Security Forces today captured four of the twelve jail breakers, who escaped from the maximum-security Republic Prison Hospital in Tbilisi on Sunday October 1^st. Interior Minister Kakha TARGAMADZE announced at a press-conference that Guram ABSANDZE, a former finance minister accused of organizing an attack on Georgian President Eduard SHEVARDNADZE in 1998, Vakhtang (Loti) KOBALIA, former Commander in Chief of the National Guard under the late President Zviad GAMSAKHURDIA, Zurab EJIBIA, who fired an anti-tank missile at the presidential motorcade in February 1998, and another unnamed criminal were arrested. KOBALIA was sentenced to death for treason and for murdering a journalist working for an American television company, but his sentence was commuted to life imprisonment. Interior Minis

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try officers received information for police in Racha, Ambrolauri region that six of the escapees were staying at a home in town. Two of the six escaped into the forest while the operation was underway. There were no casualties during the capture. A machine-gun, Winchester hunting gun and a handgun have been confiscated from the convicts. There is no information on Khvicha PIRTSKHALAVA, who may have been spotted in Racha. Prime News Agency reported that two of the jail breakers had changed their appearance, for example KOBALIA had shaved off his trademark beard. The Interior Ministry hopes to round up the remaining fugitives, which they believe are hiding out in the surrounding hills. The four criminals have been sent to Tbilisi where they are being detained in a holding cell. Following their escape from the prison hospital, the twelve convicts decided to hide in Western Georgia, but at the last moment they changed the preliminarily determined route of escape and headed in direction of Sachkhere by bus. State Security Minister Vakhtang KUTATELADZE said that several people aided the convicts in their escape, one of which has been detained. Specials agents had been looking for the criminals in the Ambrolauri region for the last five days.

Supsa Fills 31^st Oil Tanker This Year

· The 31st tanker has been filled with Caspian crude oil in Supsa at this year. Georgian International Oil Corporation (GIOC) told Prime News Agency that 137 tons of crude, owned by Exxon company have been transported to Italy. The Supsa oil terminal was opened last April and has filled 63 tankers with Caspian crude oil. GIOC also pointed out that .075 million tons of Caspian crude oil have been pumped through Supsa oil terminal since its opening, with 3.728 million tons of oil transported in the first nine months of this year.

Azeri Court Orders The Arrest Of Guliyev

· An Azerbaijani court has issued an arrest warrant for opposition leader and former parliament speaker Rasul GULIYEV on charges of attempted coup and

embezzlement. GULIYEV, who has lived in the US since 1996, is accused of misappropriating $30 million worth of government funds and embezzled $74 million in state oil products and plotting to overthrow President Geidar ALIYEV in March 2000. Others named in the coup attempt are former chief of police of Gandzha Natik EFENDIEV and the commander of one of the military subdivisions of the Tertera division Rasim AKPEROV. According to the information contained in the arrest authorization, the coup was to be carried out by a quick reaction military group, formed by person dissatisfied with the regime. GULIYEV has said that he is not surprised the authorities wanted to "settle scores" with him. GULIYEV is running for parliament in the November 5^th election for the Democratic Party of Azerbaijan. The government initially banned the Democratic Party and nine other opposition parties from running in the parliamentary election, but the Central Election Commission lifted the ban earlier this week after international criticism. GULIYEV's party insists that he cannot be arrested, but the Azeri law is complicated on this issue as he has legal immunity until the end of the election process.

Azeri-Turkey Near Gas Agreement

· President of the State Oil Company of the Azerbaijan Republic (Socar) Natik ALIYEV said that Azerbaijan and Turkey were close to reaching an agreement on a contract to ship between 2 billion and 4 billion cubic meters (bcm) of gas a year to Turkey. First shipments would come in 2002 to 2003 and would rise by 2 bcm a year thereafter. ALIYEV hopes a final accord with Turkey will be reached by year's end. The gas would come from the Shah Deniz gas field lying in Azerbaijan's sector of the Caspian Sea and would be priced at international market levels. Norwegian engineering firm Kvaerner is currently winding up an early study for the shipping of gas through the Baku-Tbilisi-Erzurum gas pipeline. Shah Deniz is estimated to hold as much as 700 bcm of gas and 300 million metric tons of gas condensates.

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

Oleg D. Kalugin, Content Advisor Jennifer M. Rhodes, Principal Editor

Tatyana Kortova, Contributing Editor

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