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

Tuesday, November 7, 2000

Russian Federation

Politics

Chechen Car Bomb Narrowly Misses Official

· A car bomb exploded Monday in Gudermes, Chechnya's second-largest city, narrowly missing Malika GAZIMIYEVA, a pro-Moscow official known for her strong anti-rebel stance. She escaped with minor injuries. The explosives, packed in a parked car on a street leading to her office and apparently detonated by remote control, injured her driver and bodyguard. They were taken to a hospital. GAZIMIYEVA is among a small group in Chechnya who support Russia's campaign to smash a rebel insurgency. She is reported to have once said that Chechen women should be killed because they give birth to militants; she has been the target of previous attacks. Rebel attacks killed 12 Russian soldiers over the past 24 hours. Another two Russian policemen were killed Monday in an ambush in the Urus-Martan district. The military said two soldiers died and five were wounded in a firefight Sunday in the center of the capital Grozny. The Russian soldiers were pinned down near their armored personnel carrier for two hours waiting for reinforcements. The Russian military offensive in Chechnya has been carried out for nearly 14 months.

Soviet Diehards Celebrate Revolution Day

· Approximately 5,000 Communists carrying banners with Soviet patriotic phrases and emblems, pictures of Vladimir LENIN and Joseph STALIN, and red flowers and flags marched across a bridge outside the Kremlin, and headed to Red Square to mark the 83^rd anniversary of the Russian Revolution. Red Square, site of massive Revolution Day military parades during Soviet times, was closed to the marchers and cordoned off by rows of riot police. The demonstrators were lead by Communist leader Gennady ZYUGANOV. The protestors

lamented their diminishing political clout and the loss of Soviet-era subsidies and stability. A poll conducted by the Center for Russian Public Opinion and Market Research found that 51 percent of respondents considered November 7^th as an ordinary day off, while 31.6 percent remembered that it is the anniversary of the Russian Revolution. The holiday has been renamed "Day of Reconciliation and Accord." It remains a holiday in Russia, but not in many former Soviet Republics. Demonstrations were also observed in Tula, Volgograd, and Kursk.

Meanwhile, in Kiev approximately 3,000 mostly elderly people marched through the streets, protesting against worsening living conditions and carrying banners that called for the restoration of the Soviet Union. It is the first time that the anniversary of the Bolshevik revolution is not marked by an official holiday in Ukraine.

Run-off Elections Strengthen Putin's Hold

· The second round of elections for governors in Russia boosted the Russian President Vladimir PUTIN's influence, by electing several of his allies and a communist. The southern Kursk region elected Communist Alexander MIKHAILOV in a run-off election, which was contested by the incumbent Alexander RUTSKOI. The incumbent was disqualified hours before the first round two weeks ago for submitting incorrect information about his property. RUTSKOI appealed to the Supreme Court, but they did not overturn the ruling. In the Baltic Sea enclave of

Today's News Highlights

Russia

Financial Intelligence Service?

EU-Russia Gas Cooperation

European Republics

Estonia's Economy Strengthens

South Caucasus & Central Asia

Slanderous Article Attacks CUG

Azeri Elections Flawed

Pakistan-Turkmen Gas Talks

Turkmen Gas Output Doubles

Politics-Economics-Business

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Tuesday

November 7, 2000

Intercon's Daily

Kaliningrad, the commander of the Baltic Fleet, Vladimir YEGOROV, led the voting with 38 percent. PUTIN has backed YEGOROV against the current governor, Leonid GORBENKO. A third poll in Magadan, site of Stalinist camps in the Far East, gave easy victory to the incumbent, Valentin TSVETKOV. Since his election in March, PUTIN has set about cutting Russia's governors down to size, hammering through legislation to remove them from the Federation Council and threatening them with removal if they broke laws. PUTIN's actions directly conflict with his predecessor Boris YELTSIN, who granted governors extensive control.

Economy

A New Financial Intelligence Service?

· Head of Russia's Tax Police Vyacheslav SOLTAGANOV on Friday called for the creation of a financial intelligence service that would track the flow of money, in an effort to combat money laundering and tax evasion. The financial intelligence service, which could operate as a branch of the Finance Ministry or the Central Bank, would be notified of any transaction exceeding $5,000. SOLTAGANOV said, "The financial intelligence service would monitor, among other things, payments, transactions with securities and real estate, check them against addresses, names, accounts and types of commodities. Thus, a whole monitoring system would be developed allowing the definition of accounts, names and banks to which significant financial flows are directed." The Associated Press noted that Russian law already requires banks to report any transaction exceeding $10,000 to the authorities and government agencies, including SOLTAGANOV's Tax Police. Strict laws and a massive tax police force have proven unable to stem massive money laundering and capital flight from Russia. SOLTAGANOV argued that civilians must staff the new service and keep it separate from the police, but wouldn't explain why that would boost its effectiveness or make it less prone to the rampant corruption that hinders law enforcement in Russia. SOLTAGANOV pointed out that he does not foresee the creation of a financial intelligence service within the Tax Police. He explained, "If we do that, tomorrow everyone will start yelling that we are forming a police state and people in uniforms want to look through everyone's keyhole."

Ruble = 27.85/$1.00 (NY rate)

Ruble = 27.79/$1.00 (CB rate)

Ruble = 23.90/1 euro (CB rate)

Business

Gazprom Attempts To Prevent TVK Sale

· Russia's gas monopoly Gazprom started legal action to stop Borsodchem, Hungary's second chemicals maker, from selling a stake in larger supplier TVK. Gazprom's Dublin-registered affiliate Milford Holdings Ltd. bought 25 percent of Borsodchem in September and said it would challenge the chemical maker's sale of 15 percent of TVK to Mol, Hungary's oil and gas monopoly. Milford started legal action in the Borsod region courts in northeastern Hungary. Mol, which owns 33 percent of TVK and has options to raise its stake to a majority, wants to increase its control over one of its biggest customers. At the same time, Gazprom wants to gain influence over TVK to expand its petrochemicals business, Bloomberg News reported. Borsodchem shares fell 5.2 percent, or 450 forint, to 8,230 forint on Monday. The company probably will imply third-quarter profit more than doubled to 3.75 billion forint ($12 million) from 1.44 billion forint in the same period a year ago, according to the average estimate of five analysts polled by Bloomberg News.

EU-Russia Commit To Gas Cooperation

· At the European Union-Russia Summit last month in Paris political leaders committed to increase EU imports of Russian gas over the next 20 years. Royal Dutch/Shell has stated that it plans to participate projects to increase Russia's energy exports to Western Europe. Rein TAMBOEZER, Shell Exploration and Production Services (RF) BV president, told Kommersant Daily, "We must become an inalienable part of Russia's gas exports to foreign markets and to reach this goal our joint projects with Gazprom must be implemented." Shell and Russia's gas giant Gazprom signed an agreement in June on the terms of joint development of the Arctic Zapolyarnoye gas field, which has reserves equivalent to around 750 million tons of oil. "We plan to begin investing in this project in the next year. Its annual output will be 13-14 billion cubic meters," TAMBOEZER said. Capital investment required to develop the field, which Gazprom plans to bring on-stream by the end of 2001, is

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estimated at $1 billion. TAMBOEZER said Shell would assume the lion's share of expenditures. Shell has already invested $0.7 billion in oil and gas sector in Russia. Shell has a 62 percent stake in the Sakhalin 2 offshore oil project in Russia's far east.

period, continued oil price growth pressure is expected which should this year bring average CPI growth of four percent," the Central Bank said.

South Caucasus & Central Asia

Slanderous Article Attacks Zhvania

· A slanderous article, attacking Chairman of the parliament Zurab ZHVANIA, was published today in Literaturuli Sakartvelo. The article accused the Chairman of the parliament of being a homosexual as well as several member of the Citizens' Union Party (CUG). It claimed that these men were intent on introducing NATO to Georgia and forming closer ties with the West. The article asserts that only in submission to Russia and its policies directives can Georgia as a nation survive. The chairman of the parliamentary committee for defense and national security Giorgi BARAMIDZE, who described the article as being against the nation's interests, demanded that the State Security release the author's name. Intercon sources report that the article was written by Vahtang CHKUASELI, who heads the Conflict Resolution Institute in Moscow. CHKUASELI is described by one Intercon source as an officer in the Russian Security Service. BARAMIDZE said at a plenary session today that it is clear that the direct author of the article cooperates with the intelligence services of Russia. He said that it is necessary to determine whether the editor of the given newspaper, chairman of the Union of Writers of Georgia Tamaz TSIVTSIVADZE is behind the given article or not. It should be noted that Literaturuli Sakartvelo receives funding support from the Georgian government. The newspaper also published an article before the last presidential elections concerning a well-known Russian intelligence disinformation story related to the last will and testament of Allen DULLES. The article claimed that US intelligence should attempt to undermine the Soviet Union through the moral corruption of the young. The article further claimed that this was the method being applied by young reformist members of the CUG. BARAMIDZE and other leaders of the CUG Party have admonished the newspaper for allowing such an article to be printed.

Azeri Election Flawed

· International election observers have reported that Sunday's parliamentary elections in Azerbaijan

European Republics

Estonia's Economy Strengthens

· Estonia's trade gap widened in September year-on-year but analysts said it was not a problem amid an economic pick up that saw exports rise 48 percent over the same period and imports grow 40 percent. The Estonian Statistics Office said the trade gap totaled 1.246 billion kroons ($68.9 million) in September, down from a revised 1.365 billion kroons in August, but up from a 1.059 billion kroons deficit in September 1999. Handelsbanken analyst Gunnar TERSMAN said, "I would pay more attention to (the rise in exports) than the trade gap itself because this is a really positive sign the economy is on the right track and continuing to integrate with the international and EU economies." Reuters reported that total trade in September was worth 10.8 million kroons, up from 9.0 billion kroons in September 1999. Exports were worth 4.801 billion kroons, up annually from 3.986 billion kroons. Imports were worth 6.047 billion kroons, up annually from 5.045 billion kroons. The European Union (EU) accounted for 75 percent of the country's exports in September, up from 63 percent in September 1999. The CIS took four percent of Estonian exports in September, down from 12 percent a year ago.

Estonia's Central Bank is sticking to its forecast of 4 percent average growth in the consumer price index (CPI) this year, despite higher than expected inflation last month. Estonian consumer prices climbed faster than expected to a year high in October, led by an increase in transport costs. CPI rose 0.9 percent, month-on-month, in October, putting the annual inflation rate at 5.4 percent. In September, consumer prices rose 0.4 percent from the previous month and were 4.7 percent higher than a year earlier. Communications prices rose the most in October, climbing 6.1 percent from September, the office said. Transportation prices rose 1.7 percent, while prices for food and non-alcoholic beverages, as well as for recreation and culture rose 1 percent. "For this fall and winter

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were flawed. Paula KOKKONEN, the head of a 150-member monitoring mission sent by the Organization for Security and Cooperation in Europe (OSCE) said, "The elections were marred by numerous instances of serious irregularities, in particular a completely flawed counting process, manipulated turnout figures, production of either false protocols or no protocols at all, multiple voting and series of apparently identical signatures on the voter lists…Elections in Azerbaijan fell short of international standards and significant improvements will have to be achieved in order to meet such standards for democratic elections." Azeri Foreign Minister Vilayat GULIYEV played down the irregularities. He said such "mistakes and defects" could happen in any democratic country. With 80 percent of the vote counted, the Central Election Commission announced that the ruling New Azerbaijan (Yeni) had garnered 70.8 percent of the vote; the Popular Front Party won 6.8 percent; the Musavat Party earned 4.9 percent; and National Independence Party lay fourth with 3.88 percent. KOKKONEN said turnout was much lower than the 72 percent figure given by officials. The criticism of the poll may affect today's debate by Council of Europe foreign ministers on whether to admit Azerbaijan and its neighbor Armenia to the European human rights forum. The Council's parliamentary assembly set free and fair parliamentary elections as a condition of entry. The European members had hoped that admitting Azerbaijan and Armenia could help bring peace between the two nations, the Financial Times reported. The election has been viewed by many as an opportunity for the ruling party to appoint Ilkam ALIYEV, the President's son, as speaker to the parliament. If President Geidar ALIYEV were become ill or die, power would be transferred through the speaker position to his son. ALIYEV, who has undergone heart surgery and reportedly is ill, surprised the media by announcing that he intends to seek a third term as president in 2003. He also expressed that he thought his son was not interested in the speaker position.

Pakistan-Turkmenistan To Resume Gas Talks

· General Pervez Musharraf, Chief Executive of Pakistani National Security Council, and Turkmen President Saparmurat Niyazov met briefly on Monday and renewed talks on building a connecting gas pipeline, Reuters reported today. Commenting on the meeting, Pakistani Foreign Minister Abdul Sattar said, "We welcomed the opportunity for very substantive conversations between the two leaders. We continue to hope that we can build a gas pipeline from Turkmenistan to Pakistan." Pakistan has a growing demand for gas, and Turkmenistan has colossal reserves, but no access to southern markets because of war-torn neighboring Afghanistan. "We believe that gas will be the fuel of the 21^st century and we would very much like to be a part of transit and import arrangements for gas from Turkmenistan, and eventually oil from Kazakhstan," SATTAR added. Trans-Afghan gas line still remains a preferred route, but according to SATTAR, "we have also considered the idea of a pipeline from Turkmenistan to Iran and then to Afghanistan and Pakistan." Pakistan hopes it will become an energy bridge between the resources of Central Asia and South Asia's growing markets.

Turkmen Gas Output Doubles

· Turkmenistan produced 37 billion cubic meters (bcm) of gas in the first 10 months of this year, doubling the volume produced in the same period of 1999. "A significant quantity of this was earmarked for export, mostly to Russia, over 20 billion cubic meters," a government official said. Turkmenistan produced more than 80 bcm per year of gas in Soviet times, but output declined sharply over recent years. A price row led Turkmenistan to stop exports through Russia altogether in the late 1990s, Reuters reported. Turkmen President Saparmurat NIYAZOV and Russia's Vladimir PUTIN reached a new contract earlier this year. Turkmenistan plans to raise output to 85 bcm, including 70 bcm for export, by 2005, with a figure of 120 bcm, including 100 bcm for export, planned by 2010.

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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