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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Thursday, February 3, 2000

tanker Volgoneft-147 on the suspicion that it was smuggling Iraqi oil, a violation of the oil embargo. A US spokesman said the tanker was being inspected in international waters in the Gulf of Oman after it was boarded on Wednesday by the US Navy-led multinational interception force (MIF). The force is charged with policing Iraqi oil smuggling in Gulf waters, carried out in defiance of UN sanctions imposed after Iraq's 1990 invasion of Kuwait. Bahrain-based US Commander Jeff GRADECK, a spokesman for the multinational interception force enforcing the embargo, said the Volgoneft-147 had been tracked beginning with its departure from Iraqi waters and was believed to be carrying petroleum products of Iraqi origin. Defense Department spokesman P.J. CROWLEY said that if it is determined to be carrying Iraqi oil, the Navy will request permission from an United Arab Emirates port to bring in the shop and dispose of the contraband oil. US officials said in October that Navy ships had diverted at least five ships carrying cargo to Iraq after boarding parties had problems searching for contraband in the preceding month.

Russian Transport Minister Sergei FRANK said that the Russian tanker intercepted by the US Navy was not carrying Iraqi oil, but was carrying Iranian fuel oil instead. He added that judging by the ship's log, the tanker was involved in transporting oil products from Iran to different ports in the Emirates. Foreign Minister Igor IVANOV has issued a formal protest to the United States and United Arab Emirates about the inci

Russian Federation


Chechen War Remains Popular

· According to a poll carried out by the VTsIOM agency on January 28th to 31st, the Russian military campaign against Chechen militants remains popular with two-thirds of Russians still supporting the war. The poll showed that 67 percent of those questioned support the military offensive in Chechnya, while only 27 percent believe it is time for peace talks. The VTsIOM poll, carried out among 1,600 people across Russia, also showed that 43 percent thought Russia's forces should have stopped after seizing the less hostile parts of Chechnya in the north. In October, approximately 100,000 troops moved into Chechnya to destroy terrorist camps and criminal gangs responsible for the invasion into Daghestan and the apartment bombings, which killed 300 residents.

Central Intelligence Agency Director George TENET on Wednesday at a Senate Intelligence Committee hearing warned that Chechnya could become the training ground for terrorist gangs in the new millennium. He said, "Afghanistan was the calling card in the `70s and `80s. Chechnya will become the calling card of this millennium in terms of where do terrorists go and train and act." The types of conflicts that the Chechens and Russians are engaged in currently could, "turn into spawning grounds of the next generation of people who try their skills." "Terrorists" are likely to take this opportunity to inject themselves in the situation for religious reasons or to help the Chechens, he added. That in turn, "will create a cascading effect of people proving their mettle on a battleground that they will then come back and test against us in other places."

US Navy Detains Russian Tanker In Gulf

· On Wednesday, the US Navy seized a Russian

Today's News Highlights


Putin Appoints Securities Chair

Gazprom Not To Be Divided

European Republics

Police Surround Parliament

Estonia-US To Sign Oil Agmt.

South Caucasus & Central Asia

Rus-Azeri Interior Mins. Meet

Azerzoloto President Arrested

Uzbek Raises Oil & Gas Prices

Kazakh Aiding Chechen Rebels?




February 3, 2000

Intercon's Daily

dent. He said, "it is necessary to analyze everything carefully, who the tanker belongs to and whose oil it was carrying." "The Russian side resolutely insists the tanker be immediately released," Deputy Foreign Minister Vasily SREDIN said. A spokesman with the ship's owner Transpetro-Volga, said the vessel was transporting 4,200 tons of fuel oil from Iran to the United Arab Emirates. He said, "This was the second voyage with Iranian oil to the United Arab Emirates and there were no problems with the first one."

Putin Appoints Federal Securities Chair

· Acting President Vladimir PUTIN has appointed another native of St. Petersburg to a key government position. Igor KOSTIKOV, the deputy chairman of the St. Petersburg administration's finance ministry, will now head Russia's Federal Securities Commission, a stock market watchdog. KOSTIKOV will be responsible for trying to bring order to Russia's capital markets. PUTIN has pledged to improve the investment environment and may provided the necessary backing the commission has been lacking. The previous commissioner, Dimitry VASILIYEV, resigned in October, 1999 amid accusations that the government did not give enough priority to defending investor rights, the Financial Times reported.


Ruble = 28.64/$1.00 (NY rate)

Ruble = 28.76/$1.00 (CB rate)

Ruble = 28.48/1 euro (CB rate)

WB Expresses Concern Over Chechnya

· After visiting Moscow, World Bank President James WOLFENSOHN on Wednesday said that the international lender's concern regarding Russia's military campaign in Chechnya is growing. He said, "As an organization whose mission is to improve the quality of life of the people in our client countries, we are deeply concerned about the loss of life that is resulting from this conflict." WOLFENSOHN did not indicate that the World Bank would halt its lending to Russia because of the war. He said, "Much will now depend on actions that Russia can take in the coming months to create the basis for faster economic development and enhanced World Bank support in the context of our long-term partnership." The World Bank and Japan, which co-lends with the bank, are the only major foreign partners actively loaning to Russia, Reuters reported. "The Bank will continue to

assess the human implication of the crisis in Chechnya as well as the impact of military expenditures on overall fiscal stability and government spending for social programs and economic development," WOLFENSOHN said. Deputy Prime Minister Viktor KHRISTENKO said on Tuesday after talks with WOLFENSOHN that Moscow expected the World Bank to release $100 million in a loan aimed at coal industry reform around March and $250 million for the social sector in April. Both loans go directly to the government for use as it sees fit, so the funds could be used for foreign debt payments.


Yukos To Increase Stake In Orenburgneft

· Russia's second-largest oil producer, Yukos Oil Company, said it plans to increase its stake to 25 percent Orenburgneft, a subsidiary of state-owned Onako. Just last week, Yukos acquired a 16 percent stake in Orenburgneft, for an undisclosed price. It is increasing its stake to ensure oil supply from the producer to Yukos' refineries. The subsidiary produced 7.46 million tons of oil and 1.57 billion cubic meters of gas in 1999. Yukos Chief Executive Mikhail KHODORKOVSKY said, "We expect approval from the Anti-trust Ministry to authorize us the increase of our share...Orenburgneft supplies from 2 to 3 million tons of crude to our refineries in Samara region." Yukos does not plan to purchase more then 25 percent of the producer, which serves as a blocking stake to prevent any major decisions not acceptable by a shareholder under Russian legislation. Yukos also plans to participate in the sale of Onako, which holds 51 percent in Orenburgneft, "if it's sensible from the economic perspective," said KHODORKOVSKY. The Russian government holds 85 percent in Onako.

Gazprom Not To Be Split Before Election

· Gazprom's chief executive officer Rem VYAKHIREV denied reports that Gazprom had plans to split into separate units. However, he said that the Russian gas monopoly will get rid of some non-core assets. The Russian media had reported that the company may split into a gas production unit and a transport and service division. When asked if the company was considering splitting up he said, "It will not happen under me. We don't need to split into two companies, or three or five for that matter. But we will get rid of what we don't need." He said the company

When you need to know it as it happens




February 3, 2000

Intercon's Daily

was considering restructuring, although he would not be drawn on details. "The aim is to cut production costs." VYAKHIREV attended a ceremony marking the start of construction of a pipeline to Turkey.

Finance Minister Mikhail KASYANOV on Monday said that it was "incomprehensible" that Gazprom should consider such a step without consulting the government, since the state owns 38 percent of the company. VYAKHIREV countered that Gazprom gave its proposals to the government a year ago. Chairman of Russia's State Property Fund Igor SHUVALOV said, "restructuring Gazprom now would be inopportune and inexpedient." He added that no changes will take place before the presidential election on March 26th. "It would be wrong to take such a decision before the election...Once a new government is formed, we will see." SHUVALOV said it would be wrong to rush into dividing up Gazprom as this would hurt the rights of shareholders, especially minority shareholders. SHUVALOV also said that after the election his Fund would suggest that the government continue the privatization of three oil companies, Onako, Rosneft, and Slavneft, if a new state-owned oil holding company, Gosneft, had not been set up.

Socialist Party, led by Natalya VITRENKO, and the Peasant Party of Serhiy DOVHAN are staging a hunger strike. VITRENKO said, "We all understand that there is a siege of the Supreme Council and are aware of the danger the lawmakers are facing. But we shall not surrender."

Roman BEZSMERTNYY, President Leonid KUCHMA's representative in the parliament, pledged that no force will be used against the parliamentary leftist faction. He also noted that KUCHMA has no intention of seeking a compromise with the leftists. The newly elected speaker of the rebel parliament, Ivan PLYUSHCH, attempted to negotiate a compromise with the leftist deputies. He left empty-handed after being manhandled and insulted. The rebel parliament has announced a recess until February 8th. The Ukrainian parliament split on January 20th, when nearly 250 centrist and right-wing deputies walked out of the 450-seat assembly in protest at leftist speaker Alexander TKACHENKO's refusal to allow a vote on a motion calling for his dismissal.

Estonia-US To Sign Oil Agreement

· Estonia and the US on Friday are planning to sign a cooperation agreement aimed at exploring technically and economically feasible ways to process oil shale in the Baltic state. Solutions to the environmental impact production will also be investigated under the agreement to be signed by US Energy Secretary Bill RICHARDSON and Estonian Economy Minister Mihkel PARNOJA. The Estonian government has already held talks with Suncor, Canada's fourth largest integrated oil company, about establishing an oil shale mining operation in the country. Estonia's main oil-shale processor is state-owned Eesti Polekivi, 51 percent of which has been included in the privatization deal of two oil-shale fired power plants in the eastern town of Narva, slated to be completed with US NRG Energy Ltd. by April, 2000.

On Saturday and Sunday, RICHARDSON will visit Ukraine for talks on economic and energy issues. He will meet with President Leonid KUCHMA and other senior officials and visit the country's nuclear energy research institute in Kiev. RICHARDSON plans to meet Ukrainian US energy experts helped Ukraine prepare for the so-called millennium bug, including at the troubled Chernobyl nuclear power plant.

European Republics

Police Surround Parliament Building

· About 100 police officers surrounded the Ukrainian parliamentary building on Wednesday, where some several dozen leftist lawmakers are holding a sit-in. The deputies broadcasted their debate on Wednesday by loudspeakers to the square outside. They vowed to stay in the parliament because police might refuse to let them return. About 50 deputies tried unsuccessfully to break through the blockade to allow journalists in. The deputies apprehended two men in plainclothes who were filming the incident and identified themselves as "special service officers on duty." Ukraine's Security Service denied the two men are among its officers.

Socialist leader Alexander MOROZ and Communist leader Petro SYMONENKO accused the President and his entourage of a "coup d'etat and usurpation of state power" and the "destruction of parliamentarism." SYMONENKO called for mass civil disobedience. Deputies from the Progressive

When you need to know it as it happens




February 3, 2000

Intercon's Daily

South Caucasus & Central Asia

Azeri-Russian Interior Mins. Meet

· Azeri Interior Minister Ramil USUBOV is meeting today with his visiting Russian counterpart Vladimir RUSHAILO. Their talks will focus on regional and bilateral issues and end with the signing of an accord on border cooperation. Russia and Azerbaijan have over 200 inter-governmental and inter-ministerial accords on cooperation in the field of law and order. During the last visit by a Russian Interior Minister, Azeri President Geidar ALIYEV announced he will host a conference of Interior Ministers from the Caucasus nations to coordinate the fight against cross-border crime.

Azerzoloto President Arrested

· Azerbaijan's State Security Ministry arrested on Wednesday the head of disbanded state gold company Azerzoloto over the disclosure of confidential information on gold deposits to foreigners. According to a ministry statement, "The president of Azerzoloto, Mirgamid MAMEDOV, and the vice-president, Rovshan KYAZIMOV, have been arrested for revealing state secrets." All the relevant documents on the matter would be collected and handed to the Supreme Court in the next few days. The Security Ministry said it first became aware of a problem last June, and by September had opened an investigation into MAMEDOV and KYAZIMOV, who gave information of the location of gold deposits to two foreign firms, one European and one Asian. Last week, a presidential decree disbanded Azerzoloto, fired the directors, and transferred the company's responsibilities and functions to the committee for geology and mineral resources. The arrests will not affect Azerbaijan's exploration contract with the US firm R.V. Investment Group Services. The estimated investment in that contract is around $500 million with expected profits of around $7 billion at 1997 prices for gold. According to the committee, Azerbaijan has approximately around 1,000 tons of potential gold reserves.

Uzbek Raises Oil and Gas Prices

· Uzbekistan raised the crude oil and gasoline prices by 50 percent, effective February 1st, according to the Finance Ministry. Prices for kerosene, diesel and lubricating oils are predicted to rise soon. President Islam KARIMOV has pledged to make the sum currency convertible and end the foreign exchange black market and this measure could be his first step. The government has been advised to introduce gradual price increases prior to full convertibility to alleviate the harsh impact of the change. Analysts predict that convertibility will be accompanied by a jump in inflation and further sum weakness. The official said the hike in fuel prices was introduced to compensate for rising drilling and refining costs. He said a ton of crude sold by Uzbekneftegaz to refineries will now cost 16,000 sum, up from 10,000 sum earlier, while gasoline prices have been increased to 110 sum per liter from 75 sum. The sum's official exchange rate is 142.34 per dollar, but trades on the black market at 830.

Kazakhstan Down Plays Russian Claims

· Russian officials have accused Kazakhstan of aiding the Chechen rebels, by allowing reinforcements to pass through its territory, and that identity papers from Kazakhstan Azerbaijan have been found on militants killed in Chechnya. Russian border guards chief Konstantin TOTSKY said on Tuesday that there was evidence Chechen rebels had entered Russia via Kazakhstan and Ukraine using false documents. Spokesman for Kazakhstan's border guards Nurlan SAGIMBAYEV said there were no facts to back up the "surprising" allegations that fighters were using Kazakhstan to get to Chechnya. He added that it would be difficult to prevent such movement since, "there is no official border yet between Kazakhstan and Russia¾we have only started marking it out." Akhmed MURADOV, head of Kazakhstan's Chechen association, dismissed Russia's statement. "It is purely a provocation to say that fighters are getting to Chechnya via Kazakhstan," MURADOV said. "Whoever wanted to go to Chechnya already got there long ago."

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

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