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, October 3, 2000

Russian Federation

Politics

Russia's Bio-Chemical Warfare Alive And Well

· At a conference "Weapons of Mass Destruction," sponsored by Jane's, a frightening description was provided was provided by Professor Christopher J. DAVIS of Veridian Systems in his paper "Inside Pandora's Box." DAVIS explained how Russia's biological and chemical warfare programs are still very much active, an unaddressed central element of Russia's global war fighting arsenal.

In 1969, President Richard NIXON unilaterally terminated the US biological and chemical warfare development programs. The Soviets refused to believe this was the case and continued their active offensive development program. In 1972 under international pressure, the Soviet Union signed the Biological and Toxin Weapons Convention, agreeing to end their program, but did nothing to comply with the treaty other than hide the program. The failure of the West to appreciate the size and scope of the program only became fully appreciate with the collapse of the Soviet Union. The program grew to employ over 60,000 people at 52 sites throughout the Soviet Union. Originally managed by the Ministry of Defense, it became an independent organization with the active involvement of the military, military industrial commission (VPK), and went directly up to the office of the President. The Soviets attempted to conceal the true nature of the program by shifting it from the Ministry of Defense to Bio-Preparat (Chief Directorate for Bio Preparation), a so-called pharmaceutical organization. Behind this façade, a huge program was created to develop biological and chemical weapons. Research into the development of antibiotic resistant plagues, advanced microbe dispersal methods, self-mutat

ing viruses, the use of genetically altering techniques were experimented and created.

In 1992, a defector came to the West who exposed the full frightening scope of the program. He was former Senior Deputy Director of Bio-Preparat, Kanadjan ALIBEKOV. He revealed that Russia was still engaged in offensive biological and chemical programs since the collapse of the Soviet Union. He indicated that the Bio-Preparat organization was also working on developing miniaturized, mobile chemical and biological production capability for deception. The program continued to research stronger more virulent plagues, which were resistant to antidotes, as well as plans for biological and chemical weapons war mobilization and surge capacity. Russian research and development was not limited to attacks against humans. It also included research on anti-crop, anti-plant, and anti-livestock biological weapons. Bio-Preparat developed frightening so-called "ethnic" and "sleeper" weapons. A "sleeper weapon" is designed to be distributed in advance of hostilities. The target people would be exposed to a substance which attaches itself to human DNA. Later, an additional harmless substance is exposed to the target audience, which activates the sleeper weapon. This could cause death, illness, behavioral changes, infertility or a specific disability. When former Russian President Boris YELTSIN was confronted about this on-going horrendous operation, in a closed door meeting with British officials, he stated, `the influence of

Today's News Highlights

Russia

Russia Pays London Club

Putin: Hero Of New School Book

European Republics

Lith. Ready To Join WTO in 2001

Ukraine Hopes For Energy Loans

South Caucasus & Central Asia

Rus-Georgia Smuggling Issues

Search For Fugitives Continues

Azeri Forms Sponsor Group

Politics-Economics-Business

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Tuesday

October 3, 2000

Intercon's Daily

various substances on human genes would be transferred to genetic work on livestock breeding.' This frightening admission appears to have gone unchallenged. What YELTSIN was actually referring to was never fully determined. The mere thought that biological warfare research and experimentation on human genes was undertaken on such a massive scale is mind boggling. It is little consolation that the research efforts have been shifted to animal genetics. Professor DAVIS said these questions remain open and extremely troubling. The thought that Russia may continue to pursue offensive biological capability with self-mutating characteristics for plague and the development of human genome attachment, remains one of the most frightening stories of the Cold War that has failed to go away.

Economy

Ruble = 27.78/$1.00 (NY rate)

Ruble = 27.79/$1.00 (CB rate)

Ruble = 24.35/1 euro (CB rate)

Russia To Pay London Club Eurobond

· The Russian Finance Ministry has paid its first coupons of $311.24 million on Eurobonds issued in a swap for Soviet-era London Club debt, a ministry official announced on Monday. The payment, made on Friday, included $105.18 million to holders of the $2.8 billion 2010 Eurobond and $206.06 million to holders of a 2030 Eurobond worth $18.2 billion. Russia and the London Club of commercial creditors agreed earlier this year to restructure $32 billion in Soviet-era debt, which was reduced by 36.5 percent and rescheduled over 30 years.

Business

ExxonMobil On Results Of Appraisal Well

· ExxonMobil said its first appraisal oil well tapped a deposit that flowed at 6,000 barrels a day at Sakhalin 1 project in the Far East of Russia, Bloomberg News reported last week. The Chaivo 6 test well was drilled in 15 meters of water to a total depth of 3,075 meters on the west flank of the Chaivo field, discovered in 1979 by Soviet geologists. Vladimir Nosov, an analyst at Chase brokerage, said that one appraisal well isn't enough to precisely estimate a deposit's reserves. According to government data, Sakhalin 1 holds an estimate

341.1 million tons of oil reserves and 425 billion cubic meters of gas. ExxonMobil is considering plans to build a pipeline to supply gas to Japan's market. Sakhalin 1 is being developed under production sharing terms, which provide tax breaks to investors. According to The Wall Street Journal Europe, Exxon Neftegas operates the Sakhalin 1 project and has a 30 percent stake. Sodeco, a consortium of Japanese companies, holds 30 percent, while Russia's SMNG-Shelf owns 23 percent, and Rosneft-Sakhalin owns 17 percent.

Tuesday Tid-Bit

Putin: A Hero In New School Textbook

· Following the tradition of Little Vladimir I. LENIN, Russian President Vladimir PUTIN is the main focus of a new children's textbook, meant to educate children of their rights, civic information, and that their president is responsible for "everything in the country," under the 1989 UN Convention on the Rights of the Child. The book, distributed by the Unity Party to nearly 10,000 St. Petersburg schoolchildren, is illustrated with pictures and aphorisms to make the official UN text at an understandable level for kids. Describing the young life of PUTIN, the text points out that, "Volodya [another nickname for Vladimir] was a genuine fighter with a strong character, that he would fight until the end and never give up," and "He helped good people and very much disliked bad people." It later adds, "And he is still not afraid of anything. He flies in fighter planes, skis down mountains and goes where there is fighting to stop wars." In the end it says, "Then he had so many friends _ the entire country of Russia, and they elected him President. Now everyone says: Russia, PUTIN, Unity! Russia is a great country and everybody says, everything will be good!"

The booklet has been criticized as political propaganda and an attempt to win voters at a young age. Vladimir IVCHENKO, Vice President of the Regional Development Fund, explained that, "This is not a political advertisement. We had the best intentions in showing children their rights, their national symbols, and the president who is responsible for defending those rights." He later added, "As for the Unity pages, we wanted to point out to the children who can help them. Besides, we have nothing to be ashamed of in what we do."

When you need to know it as it happens

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European Republics

Lithuania Prepared To Join WTO

· Lithuania is prepared to join the World Trade Organization (WTO), after completing its multilateral negotiations with the Geneva-based watchdog that have lasted six years. Lithuania's negotiations had been held up on difficulties with trading partners over agricultural subsidies. In the multilateral agreement with the WTO, trade officials said Lithuania committed itself to eliminating export subsidies upon accession and to reducing its domestic support to agriculture by 20 percent in the next five years. There are two countries left with which Lithuania has yet to conclude bilateral entry talks, the Czech Republic and Slovakia, but trade diplomats said these negotiations were likely to be completed soon, Reuters reported. Lithuania expects to join the 138-member trade organization next May. The Baltic State is waiting for a formal endorsement by the WTO's ruling general council in December. After that approval, Lithuania's parliament must still ratify the membership agreement by May 2001. Lithuania will officially join the WTO 30-days after domestic ratification. Latvia, Kyrgyzstan, Estonia and Georgia are already members of the trade body. China, Russia, Armenia, and Moldova are also seeking WTO memberships.

Ukraine Hopes For Energy Loans

· Ukrainian Finance Minister Igor MITYUKOV said that the nation hopes to receive $170 million in loans from foreign lenders to finance its ailing energy sector by the end of the year. The Finance Minister said that an agreement on the loans had been reached during talks with the World Bank (WB) and European Bank for Reconstruction and Development (EBRD) officials at the WB and International Monetary Fund (IMF) annual meeting in Prague. He said, "Talks with the European Bank for Reconstruction and Development resulted in a complete agreement on terms required for the disbursement of a $100 million loan to finance fuel purchases in the autumn and winter season." MITYUKOV added that the EBRD, which initially planned to give a one-year loan to buy fuel for thermal electricity generators and replace capacities to be lost in the Chernobyl nuclear plant closure, would disclose the wording of its document following recommendations from the IMF. MITYUKOV said Ukraine had pledged to

meet a number of additional conditions in reforming its energy sector to qualify for the loan. "We hope the EBRD board of directors will take a positive decision next week," he said. MITYUKOV also said the WB had agreed to disburse the last $70 million tranche under a coal sector loan. The WB followed the IMF and froze lending to Ukraine last September due to slow reforms.

South Caucasus & Central Asia

Rus-Georgia Issue Accusations Of Smuggling

· The Governor of the west Georgian region of Mingrelia and Upper Svaneti Bondo DJIKIA, in a letter to commander of the CIS peacekeeping force deployed along the border between Abkhazia and the rest of Georgia Major General Sergei KOROBKO, accused the peacekeepers of cooperating with criminal groups engaged in smuggling stolen vehicles, the Caucasus Press reported. Those peacekeepers are all Russian servicemen. KOROBKO, in turn, claimed that the Georgian police connive with the smugglers, RFE\RL Newsline reported. However, it appears not only that Russian troops are involved in smuggling, but Intercon sources report that recently a number of caravans of vehicles from South Ossetia were stopped in Georgia by Customs officials for smuggling cigarettes. Multiple caravans refused to heed Georgian Customs Officials' orders. Intercon sources report that they were being escorted by officials of the Georgian Security Ministry.

Search For Prison Escapees Continues

· The law enforcing agencies are continuing their search for 12 fugitives, who escaped the maximum security Republic Prison Hospital on Sunday. The escapees include 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, his top ally Feniks (Georgy) GULUA, and Zurab EJIBIA, who fired an anti-tank missile at the presidential motorcade in February, 1998. Investigators are still examining a 30-meter tunnel, which initially was believed to be the escape route. However, experts including Interior Minister Kakha TARGAMADZE have stated that the tunnel from the hospital ward to

When you need to know it as it happens

Politics-Economics-Business

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the nearby forest could not have been possible dug in one day. Intercon sources report that one week prior to the escape, EJIBIA stabbed himself ostensibly as a protest, in order to be placed in the prison hospital. Suspicion leads investigators to believe that the inmates had outside and inside help in their escape. Advocates of the Zviadist convicts have presumed that the escapees are trying to reach Chechnya, a reliable shelter for ABSANDZE, GULUA, and EJIBIA. Law enforcement officers have also staked out the Pankisi valley. The head of Akhmeta region police Temur ARABULI told Prime News Agency, there was an operative information that the escaped convicts would attempt to hide there.

The chairman of the Georgian Justice Ministry's penitentiary department, Givi KVARELASHVILI, tendered resignation on Monday in connection with the prison break. Georgian Justice Minister Joni KHETSURIANI will accept his resignation today. KHETSURIANI has already fired the head of the Prison Hospital Naulis KOBULIA. Approximately nine members of the hospital personnel are being held for questioning, including the hospital administrator Tengiz KIRTADZE, doctor on duty Revaz ZHGENTI, and deputy chief doctor. TARGAMADZE has also accused the administration of the prison hospital of reporting the escape so late. He said one of the 12 inmates who escaped from Tbilisi's prison hospital on October 1^st is an expert in digging underground tunnels. He said this inmate had managed to escape from a Russian prison by digging an underground tunnel of more than 10 meters, Itar-Tass reported.

Azeri Form Caspian Pipeline Sponsor Group

· Azerbaijan State Oil Company (Socar) President Natik ALIYEV announced today that Azerbaijan has formed a group of sponsors to support the $2.4 billion Baku-Tbilisi-Ceyhan pipeline. He expects that the Azerbaijan International Operating Company (AIOC) consortium, which includes BP Amoco, will sign an agreement with Socar, and

Azerbaijan's President Geidar ALIYEV in the next few days, Reuters reported. Nine of the members of the consortium, operating on the Azeri-Chirag-Guneshli offshore oilfields, the source of the pipeline, have already agreed to join the group. AIOC members "America's ExxonMobil and Russia's LUKoil are wavering, but I still think we'll be able to reach an agreement," Socar President ALIYEV said. ExxonMobil's President K. Terry KOONCE, at the end of September, said that ExxonMobil has the responsibility to its shareholders to ensure that Baku-Ceyhan is feasible and an economically viable investment. ExxonMobil requires, "a pipeline outlet be economically viable and that it have the right kind of [oil] reserves to back it up. And we're not entirely convinced that Baku-Ceyhan has reached that point yet." ALIYEV today said, "Our position is very firm, there will be a Baku-Ceyhan pipeline." US Energy Department aid David GOLDWYN said that the building of the Baku-Ceyhan pipeline is "necessary." He said that the variety of the routes is one of an important conditions for the safety of the infrastructure of the region, its development. According to his data, the oil extraction from the Caspian Sea might come close to almost 4 million barrels a day, and export - more than 3 million barrels a day by the year 2010, Prime News Agency reported. After the agreement has been signed tenders will be thrown open to Azeri and Georgian contractors. At the same time, a foreign bank credit will be sought for construction. Members of the group of sponsors will automatically become members of a company called Main Export Pipeline, which will be controlled by Socar. The group will provide $20 million for six months of "basic engineering work," after which "detailed engineering work" will take about 12 months. Work is not expected to start before 2004.

The Daily Report on Russia and the Former Soviet Republics

will not be published on Monday October 9^th

in observance of Columbus Day

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

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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