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

Wednesday, February 16, 2000

Vladimir LUKIN, from the Yabloko party, as deputy speakers. NEMTSOV was approved by a vote of 242 to 132 and LUKIN in a vote of 240 to 98. Last week, their candidacies didn't get enough support from deputies. Their parties, however, successfully insisted on the candidates. Many are hailing their appointments as a victory over the Communist party and a sign of new cooperation between pro-reform parties. NEMTSOV said, "The Communists have become the Duma minority, the healthy forces in the Duma have united...Centrist and center-right factions in the chamber have a chance in the near future to work constructively, without the Communists, on a range of key laws for our country¾land and tax codes, passing a responsible and honest budget." LUKIN, a former Russian ambassador to the US, said the vote, "restores some balance to the Duma." The Communists, for their part, regard LUKIN as too pro-Western and associate NEMTSOV with the hardships of economic reform.

CEC Approves Putin's Registration

· The Central Election Commission (CEC) on Tuesday unanimously voted to accept Acting President Vladimir PUTIN's application to run in the early presidential elections, bringing the total number of registered candidates to three. PUTIN, by all opinion polls, is the front runner, who has built his reputation on the military success of the operation against Chechen rebels. Reuters reported that the former spymaster said he was not complacent about victory and criticized those who said the election was a foregone con

Russian Federation

Politics

BONY Suspects Surrender And Plead Guilty

· Former Bank of New York executive Lucy EDWARDS, and her husband, Peter BERLIN of Benex International, arrived in New York on Tuesday night and were taken into custody by Federal Bureau of Investigation (FBI) officers, after agreeing to plead guilty to money laundering charges and to cooperate with authorities. They admitted to helping Russian bankers set up unlicensed operations which moved huge amounts of crime money from Russia to the US to avoid taxes. The two had previously been charged with the minor offense of operating a wire transfer service without a proper license. They were scheduled to appear in a New York court this morning. New York and FBI investigators along with detectives from Britain discovered that nearly $10 billion were funneled illegally through BERLIN's Benex accounts at the Bank of New York. The couple's accomplice Alexei VOLKOV remains at large. If convicted, EDWARDS would face a maximum of five years in prison and a $250,000 fine. BERLIN and VOLKOV face additional charges of conducting an illegal money-transferring business and engaging in an illegal banking operation, crimes carrying up to 15 years in prison and a $175,000 fine. It is believed that the couple could further implicate others in the scheme. Natasha KAGALOVSKY, EDWARD's supervisor who was fired when the case became public, has not yet been charged with any crime. The Financial Times reports that investigators are seeking to determine her complicity, if any, in the transactions.

Duma Approves Deputy Speakers

· The Russian State Duma appointed Boris NEMTSOV, a deputy for the Union of Right Forces (SPS) and a former first deputy prime minister, and

Today's News Highlights

Russia

Paris Negotiations To Be Tough

Putin Opposes UES Break-up

Toribank Declared Bankrupt

European Republics

Ukraine To Import Fuel

Estonia Signs New IMF Agmt.

South Caucasus & Central Asia

Georgia Offers Budget Variant

Uzbek-US Gold JV 1999 Output

Former Tajik Min. Assassinated

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February 16, 2000

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clusion because there was no serious competition. The CEC said 14 could run in all, after one dropped out of the running. Campaigning, formally, is only allowed from February 23rd in the print media and from March 6th in the broadcast media. On Monday, CEC chairman Alexander VESHNYAKOV said an investigation had been launched into complaints that PUTIN and Communist Party leader Gennady ZYUGANOV had broken election rules through media appearances. He blamed the media more than the candidates. PUTIN has given a television interview and answered questions on a phone-in organized by a Moscow daily. ZYUGANOV announced his political program at a news conference.

PUTIN has yet to release a political or economic platform. PUTIN said he will publish his political program based on his "own ideas" after February 25th in line with election law. He hinted that any program would start with reviving the moral fiber of the Russian people. PUTIN and First Deputy Prime Minister and Finance Minister Mikhail KASYANOV discussed plans to improve the tax system on Tuesday. Presidential spokesman Aleksei GROMOV said they particularly discussed "the elimination of contradictions" in the existing tax system "within the context of thorough preparation of the 2001 budget and improvement of the investment climate." PUTIN also congratulated KASYANOV on reaching an agreement with the London Club, "under terms acceptable to Russia."

Economy

Ruble = 28.72/$1.00 (NY rate)

Ruble = 28.77/$1.00 (CB rate)

Ruble = 28.36/1 euro (CB rate)

Russia Faces Tough Paris Negotiations

· After finally reaching a successful agreement with the London Club of Creditors, Russia will ask the creditor governments of the Paris Club to reduce its $42 billion Soviet-era debt by more than half to match the write-off deal with the London Club. Finance Minister Mikhail KASYANOV said, "Russia will be formulating its position based on the principle of equal treatment...We will be asking Paris Club to consider the possibility of giving us analogue conditions for a reorganization of the total debt." Roland NASH, director of credit analysis at Renaissance Capital in Moscow pointed out that KASYANOV is

being optimistic to think that the Paris Club will follow the London Club's lead and offer the same terms. One German government officials said, "We don't think the London Club deal should set a precedent...there was no debt forgiveness then [1998]...it was not necessary. Since then the economic situation has improved. Russia is a rich nation which should mobilize its resources." Germany's chief Russian debt negotiator Siegfried BORGGREFE, "Paris Club should not be treated worse than the private sector, but not the other way round." Russia will resume negotiations with the Paris Club after early presidential elections scheduled for the second half of this year. KASYANOV hopes an agreement will be reached by year's end. Russia has a far more difficult task with these negotiations, after Germany, the biggest creditor, said on Tuesday it will not forgive any of the debt. Peter BOONE, director of research at Moscow-based Brunswick Warburg brokerage suggests that Germany might agree to lower interest rates and extend repayment far into the future.

Russia stopped making payments on about $70 billion of its Soviet-era foreign debts two years ago, after defaulting on $40 billion of domestic debt in August 1998. Russia rescheduled its debt to the Paris Club of sovereign lenders last August, with $600 million in debt service payments due in 1999 and 2000, down from an originally envisaged $8 billion. Russia has one payment of $170 million toward that amount in December, 1999.

Business

Putin Opposes Gazprom, UES Break-Up

· Russia's Acting President Vladimir PUTIN said he opposes breaking up Russia's natural monopolies, which includes Unified Energy Systems (UES), Gazprom, crude oil pipeline system Transneft, and the Railway Ministry. Gazprom chief Rem VYAKHIREV earlier proposed splitting Gazprom, the world's largest natural gas company, by separating pipelines from production assets. The state is the largest shareholder in Gazprom, owning over 38 percent of the company, and ministers argued that VYAKHIREV could not propose such changes without discussing them with the government. PUTIN warned that changes to these vital monopolies must be taken "very cautiously." He said, "Any organization needs

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improvements and some elements of UES are probably in need of improvement. But dismemberment ¾certainly not. And that, of course, applies to Gazprom as well."

Toribank Declared Bankrupt

· A Moscow Arbitration Court has declared Toribank bankrupt and put it in receivership. The bank has debts of 2.5 billion rubles ($87 million), including 50 million rubles owed to individuals. It has 88 million rubles in required reserves. Toribank defaulted on a $46 million syndicated loan from a group of western banks, including Deutsche Bank Luxembourg and Raiffeisen Zentralbank Oesterreich.

Sibirsky Aluminium Secures $15M Loan

· Sibirsky Aluminium Group, owner of Russia's third largest aluminium plant, Sayansk, has secured a $15 million loan from a syndicate of Western banks led by Belgian KBC Bank N.V. London. Sibirsky said in a statement that the loan, granted for a period of one year, would be used "to finance primary aluminium production and shipments," but gave no more details. Interfax news agency last week reported that Sayansk produced 386,400 tons of primary aluminium in 1999.

Oshchadbank on Tuesday announced that it has selected PricewaterhouseCoopers (PwC) to audit its financial activity for 1999. PwC was the winner of a tender for the audit. Oshchadbank has promised to publish the results, but it did not disclose when the audit would be completed. Oshchadbank, successor to the Soviet savings bank, was set up in 1991. Restructuring the bank is one of the main conditions of the next $100 million installment of a World Bank financial sector adjustment loan. PricewaterhouseCoopers is also auditing the Central Bank's hard currency reserves after allegations that International Monetary Fund loans had been misused.

Estonian Unemployment Rises To 5.4 Percent

· The number of unemployed in Estonia totaled 47,100, or 5.4 percent of the work-force, in January. This is a rise from 45,000 or 5.2 percent in December, the Labor office announced today. In January 1999, the number of jobless totaled 39,000 or 4.5 percent. These statistics are based on the number of people who have registered as seeking employment with state labor exchanges.

Estonia Signs New IMF Agreement

· Estonian Central Bank Governor Vahur KRAFT on Monday said that although the bank has no intention of borrowing money from the International Monetary Fund (IMF), it signed a new standby agreement for 29.34 million Special Drawing Right (SDR) ($39.4 million) good until September 2001. The agreement also outlines Estonia's economic goals. Growth is predicted to reach four percent and the current account deficit swelling slightly to 5.5 percent of gross domestic product (GDP). In 2001, growth is predicted at five to six percent. The memorandum also set several privatization goals, foremost among them securing a timetable for selling off the state's remaining 27.28 percent stake plus a controlling "golden share" in Eesti Telekom by September 30th. It also stresses concluding the sale of state railway Eesti Raudtee by year end. KRAFT said, "I would like to stress this (document) is our own program which the government and the Central Bank will follow. It has not been written to please anyone. The aim of the agreement is not to borrow IMF funds." The new agreement will go before the IMF board on March 1st.

European Republics

Ukraine To Import Fuel From Azeri, Greece

· A Ukrainian delegation is holding talks with Azerbaijan and Greece to import oil. Ukraine plans to purchase about 400,000 tons of diesel fuel and gas from Azerbaijan. The figures on oil products from Greece has not been released. It is believed to be estimated at 50,000 tons per month. Ukraine's wholesale fuel market has witnessed a 20 percent rise in diesel prices in the past week, and importers say that the rise has been caused by the cancellation of privileges for companies with foreign participation. Earlier, Agrarian Policy Minister Ivan KIRILENKO told reporters that Ukraine had imported 70,000 tons of diesel fuel which will be sold at 1,300 to 1,350 gryvnias ($236 to $245) per ton. He said, "In line with the agreement Azerbaijan will ship 50,000 tons of diesel each month." The first shipment is due within 10 to 12 days. Ukraine's farmers will need 4.4 million tons of oil products in 2000, including 1.8 million tons in the Spring.

PwC To Audit Oshchadbank

· Ukraine's largest state bank, savings bank

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South Caucasus & Central Asia

Parliament Works On Budget Variant

· Following demands by the International Monetary Fund, the Georgian parliament is developing a budget variant to meet both the lending institution's requirements and the nation's needs. Chairman of the parliamentary financial-budgetary committee Zaza SIORIDZE announced that the Georgian budget for 2000 sets revenues at 873 million lari and expenses at 1 billion 255 million lari, leaving the deficit of the state budget at 382 million lari. On Monday, the draft state budget 2000 was turned over for discussion to the Bureau of Georgian parliament. The parliament will discuss the main financial documents of the country on February 22nd.

Clinton-Aliyev Discuss Regional Issues

· US President Bill CLINTON and Azerbaijan President Geidar ALIYEV met in the White House on Tuesday to discuss regional issues, specifically the prospect for a peaceful settlement of the Nagorno-Karabakh conflict and multiple pipelines in the Caspian region. ALIYEV has held face-to-face discussions with Armenian President Robert KOCHARYAN. The Azeri President pointed out that both sides in the conflict will have to make compromises. He said, "It is quite natural that both sides have to make compromises now that negotiations are under way in order to define all the concessions. Since the negotiations have not come to an end, I would not like to go into details about it." CLINTON and ALIYEV also talked about development of the so-called Baku-Ceyhan oil pipeline. Construction of the one million barrel per day pipeline is set to start in the third quarter of 2001, with completion planned for late 2004. Western oil companies have signed contracts worth more than $50 billion in potential investments to develop the oil production of Azerbaijan. The Azeri President briefed CLINTON on the current state of talks between Georgia, Turkey, and Azerbaijan on tariffs

Uzbek-US Gold JV 1999 Output Rises

· Uzbek-US gold joint venture Zaravshan-Newmont

produced 16.70 tons of gold in 1999, a rise from 11.72 tons in 1998. Head of the Navoi Mining and Metallurgical Plant Nikolai KUCHERSKY said the output increase was achieved by expanding mining operations and processing ore with a higher gold content, which also reduced operating costs. He said the venture's profit in 1999 reached $2 million. Last year, Navoi had delivered ore with a gold content of 1.85 to 1.90 grams per tons as compared to 1.76 grams per tons in 1998. "We shall continue to deliver ore to the venture independently of world gold prices in order to ensure that the project continues to work profitably," he said. Zaravshan-Newmont, a partnership between Navoi and Newmont Mining Corporation was set up in 1995 and is estimated to have produced a total of 50 tons of gold at its Muruntau fields in the Kyzylkum desert. KUCHERSKY said the venture had repaid almost all its debts to foreign banks and said the last $16 million would be repaid by 2001. The 15-year $225 million project was financed largely through syndicated loans from foreign banks. Navoi also has a stake in Amantaytau Goldfields, a partnership with Britain's Oxus Resources Corp. Both projects were hit by low gold prices in 1998 and early 1999, but since then prices have risen and are now at about $312 an ounce.

Former Tajik Minister Assassinated

· Former Security Minister of Tajikistan, Shamsulo JABIROV was killed today when a car bomb exploded in Dushanbe. He died of severe injuries received in an assassination blast, attempted on Dushanbe mayor Mahmadsaid UBAIDULLAYEV, at 5:29 pm local time outside the central hospital. JABIROV was a candidate to parliament on the ballot of the presidential People's Democratic Party. UBAIDULLAYEV, his driver and others were unhurt. Sources from Tajik law enforcement agencies said either a bomb exploded under the car or an anti-tank grenade was fired at it from a short distance.

The Daily Report on Russia and FSU

will not be published on Monday February 21st

in observance of Presidents' Day

Paul M. Joyal, President, Editor in Chief Clifton F. von Kann, Publisher Jennifer M. Rhodes, Principal Editor

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