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

Wednesday, September 22, 1999

Russian Federation

Politics

Ivanov Addresses UN General Assembly

· Addressing the 54th UN General Assembly session, Russian Foreign Minister Igor IVANOV said that Russia favors a multi-polar world base on accepted international laws. "Our country pursues a foreign policy, working in many directions, and the purpose of our foreign policy is the establishment of equal and mutually advantageous relations with all the countries of the world and the consolidation of international security and stability." He added that, "A world without wars or conflicts, a world with democracy and prosperity should be the top priority for all nations and states." Speaking about separatism, he said that "the world community and the UN, in the first place, should resolutely put an end to all manifestations of separatism, should defend firmly and consistently the principles of sovereignty and territorial integrity of countries, as well as the inviolability of their borders." IVANOV pointed to the fact that "aggressive separatism has turned into one of the main sources of domestic conflicts and regional instability." IVANOV also commented on Russia's observance of the non-proliferation regime and its support of reduction and limitation of nuclear arsenals. He said, "We realize the importance of the early ratification of the START-II treaty and of the beginning of talks on the START-III treaty, within the framework of which Russia would be ready to further reduce considerably its strategic offensive armaments on a reciprocal basis." He also took the opportunity to point out that such progress can happen only if there is strict observance of the existing agreements in this sphere, primarily of the Anti-Ballistic Missile Treaty. IVANOV called for ways to improve the Security Council, making it more representative. He also noted that the UN, "should be ready to give timely and correct answers to

challenges set by globalization before humanity." "The evolution of the theory and practice of modern peacekeeping confirms that the key role played by the UN in this field has no alternatives," he pointed out. On Tuesday, Russia paid a total of $31 million to the UN for peace-keeping operations in the Middle East, Angola, the Central African Republic, Sierra Leone, Somalia, Western Sahara, Bosnia-Herzegovina, Cyprus, Georgia, Kosovo, Tajikistan, Haiti and other places. Russia will still have arrears to the UN mission in Somalia, which began in April 1992. Moscow believes that the UN should continue to play an important role in finding solutions in Tajikistan and Georgia's Abkhazia. IVANOV today is meeting with US Security Council chairman Sandy BERGER at the White House.

Russia Against New Iraq Weapons Inspections

· Russia, along with several other UN Security Council members with the veto vote, are blocking a British-Dutch plan supported by the US to resume UN weapons inspections in Iraq, after a nine month lapse. The other security members holding out are China and France, although the latter has been rumored to be moving in the US direction. British Foreign Secretary Robin COOK said, "We are working very hard to regain the consensus," to send inspectors back to Iraq. US Secretary of State Madeleine ALBRIGHT met stiff resistance after hours of talks with Russian Foreign Minister Igor IVANOV in New York. Russia is in favor of lifting economic sanctions as soon as Iraq accepts a new team

Today's News Highlights

Russia

Interpol Warrants For Warlords

Menatep Heads For Bankruptcy

Svyazinvest Head To Be Sacked

European Republics

Lith CB Approves Bank Merger

South Caucasus & Central Asia

Urainium Smugglers Caught

Frontera Begins Oil Drilling

AIOC Delays Main Export Route

Exxon-Socar Hold Gas Talks

Politics-Economics-Business

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of weapons inspectors, while the US is calling for full compliance with UN inspections before removing sanctions. IVANOV said, "Sanctions are an extreme measure. The council, for its part, should be guided by clear criteria for imposition and lifting of sanctions and should not allow any free interpretation of adopted decisions, much less allow their use by anyone for selfish political or economic ends." ALBRIGHT has also sought support from representatives of the 10 non-permanent members of the Security Council; among them only Malaysia is against resumed inspections. Assistant Secretary of State Martin INDYK said there is, "very real concern, particularly in the last year, about what he [Saddam HUSSEIN] was concealing and what he was doing that the inspectors could not get access to." He added, "We do not, at this point, have evidence of any kind," that Saddam is building biological or chemical weapons.

Interpol Issues Warrants For Rebels

· Russian authorities have asked Interpol to arrest 18 warlords who masterminded incursions fro Chechnya to Dagestan in August and September. Those on the wanted list include Jordanian KHATTAB and Russian citizens Zelimkhan YANDARBIYEV and the BASAYEV brothers, Shamil and Shirvani of Chechen descent. Their photos and information depicting their crimes were sent to Interpol. About 200 people are on the federal wanted list for crimes committed during hostilities in Dagestan. Comment: If Russia is so concerned about terrorist and separatists on the loose, it should take the first step in making the world a safer place by deporting Igor GIORGADZE, who is known to be hiding out in Moscow. An Interpol warrant for his arrest has been issued because of his involvement in the 1995 assassination attempt on Georgian President Eduard SHEVARDNADZE's life.

Economy

Ruble = 25.34/$1.00 (NY rate)

Ruble = 25.34/$1.00 (CB rate)

Ruble = 26.58/1 euro (CB rate)

London Club To Consider Russia's Proposal

· Russian Finance Minister Mikhail KASYANOV on Tuesday said that the next round of negotiations between Russia and the London Club of creditors will be held on September 23rd, in Frankfurt. The Committee of creditors of the London Club, which

comprises ten biggest western banks, this week has already delivered its conclusions on Russia's proposals on restructuring debts of the former Soviet Union, worked out by the time of the previous stage of the talks. "To write off the debt is not an end in itself for us. However, we proposed to our creditors such a version of easing the debt burden and the further implementation of reforms with due account for a social aspect." He stressed that expenses for the debt service must be considerably less than the planned one which will, "consume 70 percent of Russia's budget revenue." The Finance Minister indicated that in compliance with the budget-2000 it is planned to direct 27 percent of all revenue to the foreign debt service. KASYANOV believes, the essential part of the talks on restructuring the foreign debt is to reach a compromise on interest rates which must be at the level "lower than market ones." Russia's total debt to the club is estimated at about $32.3 billion; this figure debts of the former Soviet which was inherited by Russia. He stated, is not ready to suggest to the London Club of creditors the restructuring of debts of the former USSR into Russia's Eurobond issue.

Meanwhile, Russia and the Paris Club have concluded their talks on the restructuring of debts by the end of 2000 on Monday. Russia will pay $620 million to the Paris Club over the next two years, with payments beginning in October.

Business

Menatep Creditors Vote For Bankruptcy

· Menatep's temporary manager Alexei KARMANOV said today that 99 percent of the bank's creditors have voted for bankruptcy and the liquidation of the institution's assets. In May, the Central Bank revoked Menatep's license. He said, "Unfortunately, Menatep's current financial situation gave creditors no other option than to call for bankruptcy...But the most difficult part of our work has been trying to find Menatep's assets abroad." Bank officials denied that the bank had refused to provide temporary administrators with information about its funds in foreign banks. Menatep, once the fifth largest bank before the Russian financial crisis, has assets at about 40 billion rubles which are almost equal to the total sum of debts to creditors. KARMANOV noted that these assets are largely a part of Menatep's loan portfolio and are unlikely to be

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honored. Menatep St. Petersburg, an independent "sister" bank, has taken over most of Menatep's business since August, 1998.

Shake-ups Predicted For State Enterprises

· Russian First Deputy Prime Minister Nikolai AKSYONENKO has called for changes in the top management of state controlled enterprises, particularly telecommunications company Svyazinvest and oil companies Rosneft and Slavneft. An extraordinary shareholders' meeting has been set for October 21st to consider replacing Svyazinvest head Oleg BELOV with Valery YASHIN, who is president of St. Petersburg telephone operator PTS. AKSYONEN-KO, who was behind the controversial ousting of the president of state-owned oil pipeline operator Transneft last week, said, "It is a shame what is going on in the sphere of Russian telecommunications. The leaders, doing that now, are responsible and if a decision to replace them is taken, I think it will be rightful." Svyazinvest was unavailable for comment. Svyazinvest is 25 percent owned by a Cyprus-based consortium, Mustcom, which includes US business investor George SOROS, Russia's Uneximbank, and MFK Renaissance. Many speculate that the number of reshuffling of top managers at state-owned enterprises is part of preparations for the upcoming parliamentary and presidential elections. These new managers will help ensure that pro-Kremlin candidates receive campaign contributions.

Yeltsin Appoints New Promexport Director

· Russian President Boris YELTSIN last week signed a decreed to appoint Sergei CHEMEZOV new general director of the Promexport federal unitary enterprise. CHEMEZOV replaced Vyacheslav FILIMONOV, who requested to relieve him of his duties. Promexport is a state enterprise that mediates the foreign sales of arms and military hardware, accessories, spare parts and ammunition discarded by the Russian armed forces in the course of the military reform.

in the Baltics, behind Estonia's Hansapank. Concerns were voiced earlier by banking regulators about the proposed merger of Lithuania's second and fourth largest banks and the implications that would have on the market. However, Central Bank chairman Reinoldijus SHARKINAS said, "Now we will have a strong private bank...which should be able to attract cheaper credits and withstand easier different external shocks." The friendly merger ends a bitter battle of hostile take over bids volleyed back and forth over the summer. The merger is still subject to approval by the competition authority, which is scheduled to make its ruling on October 1st.

South Caucasus & Central Asia

Checkpoint Detains Uranium Smugglers

· Four Georgian citizens were detained Monday night at the Suarpi checkpoint on the Georgian-Turkish border for attempting to smuggle 1 kilogram of radioactive Uranium-235 out of the country. They were arrested by the officers of terrorism department of the ministry of state security of Georgia and coinciding services of Adjarian republic. Head of Atom Center of the Institute of Physics of the Academy of Sciences of Georgia Shukri ABRAMIDZE believes the radioactive substance was to be sold to Iran. He added that 1 kilogram of detained uranium is "a serious load which is of big commercial interest," Prime News Agency reported. ABRAMIDZE, member of governmental commission for research of radioactive situation at former Soviet military establishments in Georgia excludes that uranium-235 could come from Russian military bases. "Uranium could have been brought to Georgia, a transit country in this case, from one of the Northern countries." ABRAMIDZE demands immediate creation of a special service for control of transit of nuclear loads through Georgian territory. "Formation of such service could be financed by the USA, which is interested in nuclear security in the region." The detained carriers, described as being intermediaries, admitted they planned to sell the uranium for $ 170,000.

Frontera Eastern Georgia Begins Drilling

· Georgian-US oil company Frontera Eastern Georgia will start drilling at the first oil bore-hole in Taribani field. As the director general of state company Saknavtobi Giorgi MAKHARADZE said the company's first oil is to start flowing three months

European Republics

Lith. CB Approves Major Bank Merger

· The Lithuanian Central Bank on Thursday approved Vilniaus Bank's request to purchase rival Hermis. After the merger, Vilniaus Bankas, with assets of 5.56 billion litas ($1.39 billion) about 44 percent of the market, will be the second largest bank

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after drilling starts. The volume of extraction is calculated to 150 tons daily. According to MAKHARADZE second stage of the program provides for continuation of seismic research in Gare Kakheti region of Georgia using ultra modern technology, Prime News Agency reported. After that drilling will start also at other bore-holes. Frontera Eastern Georgian specialists have researched that supplies of oil at Taribani field total 600 million tons.

AIOC Delays Main Export Pipeline

· The steering committee for BP-Amoco-led Azerbaijan International Operating Company (AIOC) on Tuesday announced that they have set their main expenditure for at $154 million for the 2000 budget, further delaying plans to build the main export pipeline. AIOC and Azerbaijan State Oil Company (Socar) have failed to reach an agreement on the $3 billion Baku-Ceyhan pipeline to transport Azeri oil to western markets. President of AIOC David WOODWARD noted that it is important to find an interim export solution until the main export pipeline can be built. AIOC, reluctant to commit its 4 billion barrels of recoverable reserves as part of a necessary 6 billion barrels needed to make the Baku-Ceyhan route viable, has expressed that it is prepared to finance a $700 million upgrade of the existing Baku-Supsa pipeline. This would boost that line's capacity to 300,000 barrels per day from 115,000 barrels per day. US Caspian energy presidential advisor John WOLF said, "The problem in the negotiations [between AIOC and Socar] is probably that AIOC companies believe exporting to Supsa is the appropriate solution, and they have been insisting that this is the only option to which they are prepared to commit." He added that in the view of the Presidents of Turkey, Georgia, and Azerbaijan the Baku-Supsa expansion option is not on the table for discussion. Turkey has estimated the cost of the Baku-Ceyhan pipeline to be closer to $2.4 billion and has guaranteed cost and overrun coverage, but no companies are coming forward to fund it. WOLF noted that the Export-Import Bank could become, "actively involved to the extent that is appropriate."

While in Moscow, WOLF rejected accusations from Russia that the US was trying to hinder its ambitious Blue Stream pipeline project with Turkey. The Russian Foreign Ministry said Washington was trying to stop the project by using "political and other leverage." WOLF said the US wasn't trying to interfere with the Blue Stream project, adding that Washington is concentrating its efforts on the Baku-Ceyhan pipeline. The Blue Stream project along with the Yamal-Europe project is expected to increase Russian gas monopoly Gazprom's exports by 20 percent in 2010. Following AIOC's fifth anniversary celebrations, Russian Fuel and Energy Minister Viktor KALYUZHNY told Azeri President Geidar ALIYEV that construction on a new oil pipeline bypassing Chechnya for the transportation of Azerbaijan's Caspian oil will take six to eight months. He proposed that Azerbaijan's oil deliveries to Russia through the Baku-Novorossiisk pipeline be increased under a bilateral cooperation program. This would compensate Russia's fuel shortages in the South and expand Azerbaijan State Oil Company's operations.

Exxon-Socar Begin Gas Export Talks

· Exxon and Azerbaijan State Oil Company (Socar) has started talks on exporting the nation's gas resources. Exxon Azerbaijan Operating Company (EAOP) has completed a two phase joint gas study with Socar. According to a company statement, "Gas marketing and the assessment of export pipeline options are of immediate priority and Exxon stands ready to work with Socar and others in the industry to accomplish these important tasks." Azerbaijan produces 5.2 billion cubic meters per year and believes that output will increase as Socar officials estimate that there are up to 3.5 trillion cubic meters of gas in the Caspian's Azeri sector. Some 20 percent of Azeri's current gas production is a by product of oil produced by a BP-Amoco led foreign oil consortium. Azeri officials have said there is enough gas to begin exporting 500 million cubic meters of gas per year to Turkey. Gas exportation, however, requires significant investment in the nation's gas industry.

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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