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

Monday, February 14, 2000

Russian Federation

Politics

15 Presidential Candidates Petition CEC

· The Russian Central Election Commission has accepted petitions nominating 15 candidates for the presidential elections to be held on March 26th. Sunday, February 13th, was the registration deadline. Thirty-three applicants had initially indicated they had wanted to contest the election, but only 15 met the deadline. The candidates include suspended general prosecutor Yuri SKURATOV, Liberal Democratic Party leader Vladimir ZHIRINOVSKY, Communist Party leader Gennady ZYUGANOV, Yabloko Party leader Grigory YAVLINSKY, and Acting Russian President Vladimir PUTIN. Only two candidates so far have been registered under Russia's complex election rules: ZYUGANOV and Social Democrat Alexei PODBERYOZKIN. The acting president's file is to be examined on Tuesday and others follow this week, with checks on income, property and funding. Commission Chairman Alexander VESHNYAKOV said it is clear that some petitions will be rejected. The latest polls put PUTIN far in front, with support hovering at about 50 percent or more and ZYUGANOV trailing with around 15 percent. Long shot candidates include two regional governors communist Aman TULEYEV and reformist Konstantin TITOV, film director Stanislav GOVORUKHIN, and ex-parliamentarian Ella PANFILOVA, who says she wants to be the first woman to become involved in the presidential campaign. Last week, former Prime Minister Yevgeny PRIMAKOV withdrew from the race and Moscow Mayor Yuri LUZHKOV decided not to enter the race.

Russia To Quit Reactor Conversion Project

· The Russian government told the CLINTON administration it wants to abandon joint efforts to convert Russia's three remaining military atomic

reactors for civilian use because of delays, excess costs, and possible nuclear accidents, The Washington Post reported, citing unnamed Russian officials. Russia proposes to shut down the reactor cores entirely and provide energy for the cities in which they're located from conventional sources at a cost of $230 million. Russia hopes the US will provide funds to make this possible. The CLINTON administration, which acknowledged that Russia's timetable for joining the moratorium on producing weapons-grade plutonium has slipped until at least 2004, is skeptical of the projected cost of the proposal. The costs are significantly lower than previous estimates. Vice President Al GORE and former Russian prime minister Viktor CHERNOMYRDIN negotiated an agreement in 1997 that committed Russia to end the production of weapons-grade plutonium by the end of this year.

Economy

Ruble = 28.77/$1.00 (NY rate)

Ruble = 28.75/$1.00 (CB rate)

Ruble = 28.19/1 euro (CB rate)

Russia Reaches Agreement With London Club

· In an incredible political coup for first deputy prime minister, Finance Minister, and chief financial negotiator Mikhail KASYANOV, Russia on Friday reached an agreement with the London Club of creditors to forgive and restructure $32 billion of Soviet-era debt. The agreement ends in Russia's favor after 18

Today's News Highlights

Russia

LogoVaz Buys Mikom Smelter

Yukos To Invest in Adriatic Oil

European Republics

Rus-Belarus Merge Weapon Co

IMF Team To Arrive In Ukraine

South Caucasus & Central Asia

Georgia Passes Free Trade Act

Baku-Ceyhan Talks Open

Uzbek New Cabinet Approved

Kyrgyz Boosts Security

Politics-Economics-Business

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Monday

February 14, 2000

Intercon's Daily

months of negotiations. The creditors agreed to write-off about 36.5 percent of the $32 billion debt ($10.6 billion of the principal debt) and restructure the remained from paper issued by Vneshekonombank into 30-year eurobonds. In addition, Russia will be given a seven year grace period, during which only interest will be paid. Russia was forced to assume Soviet-era debt after the collapse of the Soviet Union in 1991. Since the Russian financial crisis in 1998, Russia has stopped servicing this debt, accumulating $2.8 billion of interest arrears. Andrew KENNINGHAM of Merrill Lynch said, "The Russians have played their cards very well and got a better deal than any other emerging market country, except for African countries...It is a big step for Russia toward restoring its credibility in the international capital markets." Acting President Vladimir PUTIN said called the agreement, "extremely positive." He added, "I consider that these are highly advantageous terms for Russia." KASYANOV hopes to use these positive terms to leverage other creditor groups including the Paris Club of sovereign creditors to forgive a similar part of the Soviet Union's $42 billion debt. Germany, Russia's biggest foreign creditor, is strongly opposed to forgiving any part of the debt. The Paris Club has postponed talks until after the early presidential elections, in which PUTIN is the front runner. Alexander SHOKHIN, chairman of the parliamentary committee on financial markets, pointed out that the debt agreement will ease pressure on the federal budget. He said, "At least for two presidential terms, Vladimir PUTIN can be relatively calm about the budget," the Financial Times reported.

Business

LogoVaz Buys Aluminum Smelter

· Russian trading company LogoVaz has bought "at least a controlling share" in the Novokuznetsk aluminum smelter, Russia's fifth largest, Vice President of the Mikom Trading Company Nikolai NIKOLAYEV said Friday. Mikom, which held 70% in the smelter before the deal, was removed from managing the smelter after the local electricity firm Kuzbasenergo started bankruptcy proceedings in January. NIKOLAYEV refused to give any details of the deal, adding that the memorandum on the deal would be signed this week. LogoVaz is linked with Russia's business tycoon and power broker Boris

BEREZOVSKY. This connection may produce positive results in the bankruptcy proceedings. Kuzbasenergo initiated the bankruptcy case against the smelter due to its 739 million ruble debt for electricity supplies in 1999. The bankruptcy proceedings was the last blow in a fight for the smelter between Mikom and Kuzbasenergo's parent company UES (Unified Electricity Systems). UES' Chief Executive Officer Anatoly CHUBAIS reportedly wanted to merge the smelter with the Sayany electricity-aluminum group, recently created by UES and Siberian Aluminum. The court froze all the accounts at the smelter, blocked its exports, and appointed an external manager. The smelter had to stop exports and the stockpile at its warehouses as at over 20,000 tons in early February. In 1999, Novokuznetsk produced 273,500 tons, up from 268,600 tons in 1998.

Yukos To Invest In Adriatic Oil Pipeline

· Russia's second-largest oil producer, Yukos Oil Company, has proposed investing $20 million to modernize the Adriatic oil pipeline in Croatia to enable it to transit crude from Siberia to the Adriatic, Russian daily Vedomosti reported. The oil company also has committed to shipping 5 million tons of oil through the 3,000-kilometer route by the end of the year. The route, which will join the Druzhba pipeline, has to secure a transit tariff of $0.64 per ton of oil transported per 100 kilometers to make the export of Russian oil feasible, the paper said. Yukos also plans to participate in a construction of a $1.7 billion oil pipeline from Russia to China.

Surgut Shareholders Approve Share Issue

· Russia's third-largest oil producer, Surgutneftegaz, announced that its shareholders voted to approve management's plan to issue 12 billion new shares. This is the initial stage of it plan to merge with the parent company. The company will increase its equity with new shares worth $3.4 billion to be swapped for the 10.5 million outstanding shares of the parent company. Surgut's board of directors will have to make the decision on the volume of the new shares issue and the swap terms with Surgutneftegaz Oil Company shares. According to a company statement, "Shareholders of Surgutneftegaz have started the program of transfer to one share with their decision. The management will start with the drafting of the detailed consolidation scheme, which will include shareholders and investors proposals."

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Surgut's plan to merge with parent holding was opposed by some minority shareholders of both companies who are concerned the plan will give management too much control and their rights could be violated.

a positive effect on the stagnant energy sector. The IMF also demanded that Ukraine force consumers to pay for electricity in full and on time. The government said domestic consumers currently owe 6 billion gryvnia ($1.1 billion) for electricity supplies. Henri GHESQUIERE, senior IMF resident representative in Kiev, said, "The team will review progress in approving the budget that should help achieve sustained economic growth and stabilize the value of the gryvnia." The IMF team will also, "seek assurance that a full examination (of Ukraine's Central Bank reserves) take place," following accusations the government misused IMF loans in 1997.

South Caucasus & Central Asia

Georgia Passes Free Trade Act With Russia

· The Georgian parliament on Friday in a vote of 150 for and nine against ratified the Agreement on Free Trade, signed by Russia and Georgia on February 3, 1994. Russian-Georgian Agreement on free trade came into force on May 1994, as according to the Vienna Convention, such agreements come into force after foreign ministries exchange coinciding notes. Georgian side sent the note on March 22, 1994, and received the note from Russian side on May 10, 1994. The agreement exempts Georgian and Russian commodities from customs dues in bilateral trade deals. The Georgian Customs Committee started to impose dues on Russian commodities several months ago under the pretext that the free trade agreement was not enacted. The Foreign Ministry insisted on the fulfillment of the free trade agreement without waiting for the ratification. Georgian Tax Minister Mikhail MACHAVARIANI said that the free trade agreement will give Georgian commodities a chance to compete in Russia.

Baku-Ceyhan Talks Open

· The final round of negotiations on the details of the main export pipeline (MEP) project from Baku to Ceyhan opened on Saturday, with industry and government representatives attending. President of Georgian International Oil Corporation (GIOC) Giorgi CHANTURIA arrived in Baku on Saturday. SOCAR president Natik ALIYEV and representatives of Azerbaijan International Operation Company will participate in the negotiations from Azerbaijan side. Foreign Ministers of Azerbaijan and Georgia Vilayat GULIYEV and Irakli MENAGARISHVILI joined the

European Republics

Rus-Belarus Merge Weapon Companies

· In an agreement signed on Friday by Russian Deputy Prime Minister Ilya KLEBANOV and Belarus Deputy Prime Minister Leonid KOZIK, Russia and Belarus plan to merge their weapons companies by setting up an industrial group. "Our military companies will work together, we will reform our armies together and produce and sell weapons together," KLEBANOV told the press. Belarus government spokesman Ivan ZNATKEVICH said 17 Russian and two Belarussian military companies, which specialize in air defense equipment, would form a group called Oboronitelnye Sistemy (Defense Systems). "Other countries of the Commonwealth of Independent States may also join this group," he said. Russian officials publicly back the merger of the two countries but take a cautious line when it comes to saying exactly what the new state will look like. Belarus President Alexander LUKASHENKO said last week that the two countries would form a joint military force of hundreds of thousands to defend their western frontier from NATO. Belarus also wants to merge the two states' air defense systems.

IMF Mission To Arrive In Ukraine

· An International Monetary Fund (IMF) monitoring mission is scheduled to arrive in Ukraine today to continue talks on releasing lending from a stalled a $2.6 billion loan approved in 1998. Desperately in need of cash to replenish dwindling reserves, Ukraine hope to meet a number of conditions set by the IMF in September. These requirements include the adoption of a realistic budget for this year. The approval of this document has been delayed by political bickering in parliament. Economy Minister Sergei TYHYPKO pointed out that, "Much will depend on how quickly the parliament resumes its work. You know how many legislative acts should be adopted to enable us to cooperate with the IMF." He said that apart from passing an austere budget for next year parliament was also expected to approve a government decision raising utility costs which would have

When you need to know it as it happens

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Intercon's Daily

negotiations today. The talks are focused on a transit accord and to agree on tariffs on the oil to be transported through a pipeline to link Azerbaijan's Caspian oilfields and Turkey's Mediterranean port of Ceyhan via Georgia. The transportation tariff deal has been stalled because Georgia is calling for a tariff of $.20 per barrel of oil going through its territory. Azerbaijan and Turkey argue that the rate is somewhat excessive, given that they plan to repay loans from foreign investors with tariff proceeds. The cost of oil transportation through the whole length of the pipeline is estimated at $2.58 a barrel, with $.90 to be paid to Georgia and Azerbaijan. Packages of agreements on the MEP must be turned in for ratification to the parliaments of Georgia, Azerbaijan and Turkey in February. Building of Baku-Tbilisi-Ceyhan pipeline is planned to start in 2001.

Uzbek Parliament Approves New Cabinet

· The Uzbek parliament on Friday approved the composition of a new cabinet. Utkir SULTANOV was confirmed as the government's prime minister. He was nominated by President Islam KARIMOV. The previous cabinet resigned following the re-election of KARIMOV earlier in the year. Uktam ISMAILOV, previously the administration head of the Syr-Darya region, has become a deputy prime minister. New justice, energy and electrification ministers as well as chairmen of the customs, taxation and geology committees have also been approved. Parliament will debate the appointment of a defense minister when it reconvenes. Under the Uzbek constitution, the President is also head of the government.

Kyrgyz Boosts Security Measures

· The Kyrgyz armed forces are ready to block any possible invasion of illegal armed gangs and are determined to crack down on terrorism. Kyrgyz National Security Council Chairman Bolot DZHANUZAKOV on Friday said that a group of some 700 illegal armed bandits are currently gathering near the Kyrgyz border with Tajikistan, posing a serious threat to Kyrgyzstan's national security and stability. Kyrgyzstan has taken a series of measures

to strengthen control over its border areas, including setting up new posts, establishing a new army group in its southern area, and increasing technological equipment. Kyrgyzstan is cooperating with members of the Commonwealth of Independent States (CIS) and other countries in the fight against terrorism. DZHANUZAKOV stressed that Kyrgyz is trying its best to prevent the recurrence of the hostage-taking incident in August last year. He warned that, "illegal armed gangs will never gain a passage corridor on the Kyrgyz territory." Last August, a large number of militants from Tajikistan crossed into the southern part of Kyrgyzstan and took several officials and Japanese mining experts hostage. They also seized several Kyrgyz villages and were believed to be attempting to infiltrate into Uzbekistan.

Halyk Saving Bank To Issue Eurobond

· Kazakhstan's Halyk national savings bank today said it planned to issue a Eurobond this spring, but will await the outcome of the Russian early presidential election before making a final decision. Halyk Chairman Karim MASIMOV said, "Now we have all the conditions in place to allow us to enter the Eurobond market in April or May this year." He said that institutional investors tended to group Russia and Kazakhstan in the same risk group, making the March 26th presidential election in Russia an important factor for the bank's planned Eurobond issue. MASIMOV declined to name the likely amount involved. The state-controlled bank had wanted to issue $100 million in Eurobonds in 1998, but canceled its plans in the wake of the Russian and Asian financial crises. Kazakhstan placed $200 million in Eurobonds in October last year before adding another $100 million to that issue. The initial five-year bond placement was at a hefty 825 basis points over US Treasuries, Reuters reported. MASIMOV said that plans to sell some of the government's 50-percent-plus-one-share stake in the bank had been put off for two years. "After consultations with the government, National Bank and the International Monetary Fund, we can say that the privatization of the bank has been delayed for two years."

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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