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, November 23, 1999

Russian Federation

Politics

DOE Confirms Commitment To Uranium Deal

· US Energy Secretary Bill RICHARDSON said that the US is firmly determined to continue implementation of the intergovernmental agreement with Russia on the use of the highly-enriched uranium (HEU) released from nuclear charges and hopes that "any problems" in this direction will be resolved. His comments follow reports that the company privatized by the CLINTON Administration, US Enrichment Corporation (USEC), is threatening to pull out of the deal unless it receives more aid from the federal government. USEC is having financial difficulties due to the reduction of the world nuclear fuel prices. At present it has to sell low-enriched uranium (LEU) to nuclear power plants on the domestic market at a lower price than it pays the Russian partners under the effective agreement. The contract is in force for another two years, and the Russian side refuses to revise its terms and conditions. According to USEC expert estimates, its losses can run to over $200 million. USEC is looking for the CLINTON Administration to fill the gap with an aid package for the company. RICHARDSON is proposing to accept $40 million of liability for the cleanup and disposal of USEC's nuclear waste instead. USEC said this offer was unacceptable. The Department of Energy (DOE) was also seeking a commitment from the company to keep its two nuclear enrichment plants in Portsmouth, Ohio and Paducah, Kentucky open until 2004. The Administration is working to find a substitution if the USEC's board decides to drop the $12 billion Russian uranium deal. Charles YULISH, USEC's spokesman, said the board must decide by December 1st whether to pull our of the contract or not. USEC has been buying its own shares in an attempt to shore up its market price.

Russia-Iran Discuss Bushehr Project

· Russian Atomic Energy Minister Yevgeny ADAMOV met Iranian Vice President and chairman of Iran's Atomic Energy Organization Gholam Reza AGAZADEH on November 15th to discuss the construction of the first reactor of a nuclear power plant in Bushehr, Iran. They noted that there have been no major deviations from the schedule. The first reactor of the Bushehr nuclear power plant should be completed by the middle of 2004. Over 1,000 Russian specialists are currently at work in Bushehr. Russia began to build the reactor in 1998. The total cost of the work is about $2 billion. The initial contract and development work was started by Germany's Siemens. However, it withdrew from the project in 1976, under US pressure. Russian specialists hope that after the construction in Bushehr is over Iran will buy fuel in Russia. The Iranian delegation led by AGAZADEH visited the machine-building plant in Elektrostal, Moscow region, which makes nuclear fuel for atomic stations. On Wednesday, the Iranian delegation visited the Institute of Nuclear Research in Dubna and meet Vice President of the Russian Academy of Sciences Nikolai LAVEROV. The Atomic Ministry said, "Other issues, including international ones, were not discussed at the meeting."

Russian Foreign Minister Igor IVANOV will make a one-day working visit to Iran on Sunday, November 28th to discuss with Iranian officials the development of relations between Moscow and Teheran. Talks will also focus on a number of regional and inter

Today's News Highlights

Russia

IMF Loans Monitored By Rus-US

LUKoil ADRs In 2000?

European Republics

Kuchma-Gore Comm.Concludes

Rus-Belarus Union Treaty

South Caucasus & Central Asia

GUUAM To Meet In Tbilisi

Rus-Azeri Communications Agmt

US Imposes Sanctions

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November 23, 1999

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national problems, including joint projects, the crisis in Afghanistan and last week's summit of the Organization for Security and Cooperation in Europe. IVANOV will make the visit on the invitation of his Iranian counterpart Kamal KHARRAZI.

Economy

Ruble = 26.49/$1.00 (NY rate)

Ruble = 26.47/$1.00 (CB rate)

Ruble = 27.3/1 euro (CB rate)

Joint Commission Monitors IMF Loans

· Russian and US lawmakers met in Moscow on Monday to review Moscow's handling of credits from the International Monetary Fund (IMF). The two sides focused on a $4.8 billion loan installment that Russia received over the 1998 summer, only weeks before the financial crisis. There have been allegations that the money helped bail out prominent businessmen and bankers with close government connections and could have better been spent in an effort to stabilize the economy. The US delegation includes seven Congressmen led by Curt WELDON (Rep. Pennsylvania). In September, WELDON joined members of the House Banking Committee in expressing anger over allegations that high-ranking Russian officials had siphoned between $10 billion and $20 billion in IMF aid money and laundered it through US banks. A decision to set up a bilateral commission to monitor Russia's use of international credits is to be adopted at the concluding meeting on Wednesday. The IMF halted loans to Russia last year and resumed lending this year. The latest installment of $640 million has been delayed as the Fund seeks assurances about the government's economic program. The US is the largest IMF donor and Russia is the Fund's largest debtor.

The US State Department spokesman James RUBIN said the US will not use aid cuts as a threat to force Russia to negotiate an end to fighting in Chechnya. "It would be counterproductive to not provide (this funding)," he said. RUBIN's comments follows calls by the representative of Chechnya to the US to suspend the rendering of financial aid to Russia until Moscow agrees to negotiations with Grozny. US aid to Russia will top $1.24 billion this year. Most of the aid, approximately $1.1 billion, is aimed at stopping the spread of nuclear weapons and providing humanitarian assistance.

Putin Contradicts Himself On State Control

· Russian Prime Minister Vladimir PUTIN said he opposes any attempts to reverse Russia's sell-off of state assets and return privatized companies to state control. The Wall Street Journal reports that his comments are designed to reassure investors troubled by a series of bitter disputes over ownership of privatized companies, similar to the Lomonosov Porcelain Factory. He said, "There can be no question of deprivatization or redistribution of property. However, today he confirmed that the Russian government was "considering a possibility of the creation of a state oil company." A deciding factor he said would be if it is "economically reasonable" or not. PUTIN reminded about plans of the privatization of the Rosneft and Slavneft companies and said that he had personally ordered not to sell this year part of the Rosneft block of shares which belongs to the state. As far as Slavneft is concerned, we should analyze the situation most carefully, he said.

Business

Government Considers LUKoil ADR Sale

· Federal Property Fund Chairman Igor SHUVALOV announced that the Russian government is considering selling 9 percent of Russia's largest oil company LUKoil through a placement of American Depository Receipts (ADRs) in 2000. He was unavailable for further comment. Before an issue is possible, LUKoil must produce data up to international accounting standards for the past three years and Russia will have to amend its privatization laws. In 1996, LUKoil issued level-3 ADRs, which at the time accounted for 17 percent of the company's voting stock.

Today, LUKoil's ADRs were trading at $38.32, up from $37.86 at Monday's close. The Dow Jones Newswire reports that one ADR equals four local LUKoil shares, which were at 49.60, up from $9.40 at Monday's close.

In October, the government sold a 9 percent stake to a previously-unknown Cypriot company, Reforma Investments Ltd., for over $200 million, with $240 million of additional investment required. The Russian government is scheduled on November 29th to announce the results of a cash auction of a further 1 percent of LUKoil stock.

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European Republics

Kuchma-Gore Commission Concludes Mtg.

· The Committee for Security of the KUCHMA-GORE Ukrainian-American inter-state bilateral commission ended its recent session on Monday in Lvov. The sides considered issues of ensuring regional security, military cooperation, and rendering by Washington assistance to Kiev in the defence field. The meeting was held on the territory of the Yavorovsky military test range where the "Peace Shield" multinational computer exercises had been conducted in the past few years within the framework of the NATO Partnership for Peace Program. Ukraine and the US discussed an outlook for granting a status of an international proving ground to the Yavorovsky test range for training NATO peacekeeping forces. It is expected to be effected in late November of this year. Other issues included a reform of the Ukrainian army, the problem of the adaptation of discharged servicemen, bilateral programs for the development of military education, medical cooperation and control over defence resources. The US delegation was headed by defence minister aid Frank MILLER and the Ukrainian delegation by Deputy Defense Minister, Commander of the land troops Colonel-General Pyotr SHULYAK.

EBRD Credit Terms Unacceptable

· Nikolai DUDCHENKO, president of the Ukrainian energy company Energoatom, said at a press conference today that taking into account the terms of granting credits for the completion of the building of power units at the Rovny and Khmelnitsky nuclear power plants, which are suggested by the European Bank for Reconstruction and Development (EBRD), it is too early to say whether it is worthwhile to get those credits. Gennady SAZONOV, Energoatom director in charge of projects, specified that the draft credit agreements had come from EBRD and from Euroton, a financial organization of the European Commission. The planned sum is $800 million, with $200 million being EBRD credits. According to SAZONOV, the financial terms linked with the credit for Energoatom, which are put forward by the West, provide for the increase of the collection of cash money and the growth almost by two-fold of electricity tariffs, for the purpose of covering the expenses connected with the servicing of the credit line.

Rus-Belarus To Sign Union Treaty

· Russia President Boris YELTSIN and Belarus President Alexander LUKASHENKO will sign the Union Treaty on November 26th in Moscow. Belarus presidential spokesman Mikhail MYASNIKOVICH on Monday said that prior to the signing ceremony LUKASHENKO and YELTSIN will hold a tete-a-tete meeting. The summit meeting will be followed by a session of the Supreme Council of the two countries. In a conversation on the Saturday, the leaders exchanged their impressions of the Organizations for Security and Cooperation in Europe summit. The presidents stressed that Russia and Belarus would continue to reject attempts to interfere in their internal affairs. On Monday, Prime Ministers Vladimir PUTIN and his Belarus counterpart Sergei LING met to approve the draft of the federal treaty. They also discussed the development of economic, military and technological cooperation between the two countries, and interaction in the sphere of fuel and energy complex. The session is also expected to discuss the draft budget of the Union of Russia and Belarus for the year 2000. The Union treaty will be passed for ratification to the Russian State Duma on December 3rd and the Federation Council on December 22nd.

South Caucasus & Central Asia

Georgia's Leading Trading Partner: Russia

· The Georgian State Department for Statistics said in a press release on Monday that Georgia's leading foreign trader partner over the first nine months of 1999 was Russia, representing 19.8 percent of Georgia's total turnover. Russia was followed by Turkey (13.3 percent), the United States (9.2 percent), Germany (7.8 percent), Azerbaijan (7.2 percent). Turkmenistan, Ukraine, Armenia, Italy and Britain are also among the top ten foreign trade partners of Georgia.

GUUAM Defense Ministers To Meet In Tbilisi

· A meeting of defence ministers from the group of GUUAM states (Georgia, Ukraine, Uzbekistan, Azerbaijan, Moldova) are to meet in Tbilisi in January, 2000, Lieutenant-General Johni PIRT-SKHALAJSHVILI, chief of the general staff of the Georgian Armed Forces said today. The meeting of the defence ministers will be preceded by consultations of deputy chiefs of staff of GUUAM members

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scheduled in Tbilisi for December, 1999. GUUAM is a consultative organization which incorporates Georgia, Ukraine, Uzbekistan, Azerbaijan and Moldova. The process of the establishment of this organization continued from 1998 until April, 1999 when the organization was joined by Uzbekistan. In October, 1999 Georgian President Eduard SHEVARDNADZE declared that GUUAM is not a military bloc and that this organization has no military goals and poses no threat to other states. The Georgian President pointed out that GUUAM concentrates its activities on cooperation on the field of economy, transport, electric power engineering and problems of settlement of conflicts.

Rus-Azerbaijan Sign Communications Protocol

· A protocol on the development of communications between Azerbaijan and Russia was signed in Baku on Wednesday evening. According to Azeri Communications Ministers Nadyr AKHMEDOV and his Russian counterpart Leonid REIMAN, this document envisages the extension of cooperation between the two countries in the field of radio frequencies, postal orders, and the joint use of communications satellites. They also participated together with their colleagues from the Commonwealth countries in a regular conference of the Council of Communications Ministers of the Commonwealth of Independent States, which was held in Baku.

Azeri-Armenia-Russia To Discuss NK Conflict

· The defence ministers of Azerbaijan, Armenia, and Russia will meet in Moscow on Wednesday to discuss the ceasefire in Nagorno Karabakh. Armenian Defense Minister Vagarshak ARUTYUNYAN said the meeting is to be held on the initiative of his Russian counterpart Igor SERGEYEV. The talks are expected to discuss "the issues of boosting the ceasefire regime" in the Armenian-Azeri disputed territory. On Monday, Azeri President Geidar ALIYEV said would seek peace with Armenia. He said that he will continue direct talks with Armenian President Robert KOCHARYAN as well as holding consultations on the peace process with the Minsk group of

the OSCE. ALIYEV emphasized, "Despite the losses incurred by the Azerbaijani side during the conflict, we shall stand by the position of peaceful settlement of the Karabakh problem." He also reiterated calls for a Caucasus Security Pact, which he proposed at the Istanbul summit. ALIYEV believed it was not only to the advantage of Azerbaijan, Georgia, and Armenia, but to the Caucasus as a region in general.

US Imposes Sanctions On Kazakh Companies

· US State Department spokesman James RUBIN on Monday said that the US has imposed economic sanctions on the Ural Factory Metallist, Kazakhstan, and the private Czech firm Agroplast as well as some of its executives, which were direct participants in the deal to sell MiG-21 fighter jets to North Korea. Sanctions against deal participants, which include ban on import of goods by these companies to the US and delivery of American goods to them, were imposed on November 17th. He said, "We are also looking at the possibility of imposing additional measures." RUBIN added that, "We're going to continue to review all the applicable information we have to ensure that the specific entities that were sanctioned don't get any assistance." The US decided against imposing sanctions on the Kazakh government, on the grounds that it had cooperated with the investigation into the sale and punished officials who broke the export controls. The MiG scandal broke in August, triggering criticism from the US and South Korea. The Kazakhstan National Security Committee in September had determined that North Korea paid $8 million for an unspecified number of aircraft. Local media reports the figure at round 40, or $200,000 per MiG. Approximately, $14 million in US aid to the Kazakh government was put at risk because of the scandal, but has been saved by the sanctions waiver.

The Daily Report on Russia

and the Former Soviet Republics

will not be published on November 25th-26th,

in celebration of the Thanksgiving holiday.

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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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 1999, Intercon International, USA.

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