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, April 4, 2000

sion news programs aired a graphic videotape, showing in a compromising position with women in a bathhouse. Media reports said the bathhouse was frequented by one of Russia's most notorious mafia gangs, and implied that the justice minister was linked to the mob. Some reports also suggested possible links to a banker jailed on suspicion of embezzling millions of dollars. When arrested in February, 1999, he was charged with illegally possessing weapons and ammunition, and embezzling $50,000 from a legal foundation he leads.

Economy

Russia To Extend Oil Export Restrictions

· President-elect Vladimir PUTIN signed a resolution extending restrictions on oil product exports to guarantee supply on the domestic market from April 1st to June 30th. Restrictions on exports of gas oil, benzene, toluene, jet kerosene and liquefied gases which have already been set as suggested by oil companies to the Fuel and Energy Ministry and approved by the Economic Ministry. The resolution says the measures are "to ensure guaranteed supplies of...oil products on the domestic market of the Russian Federation, ensuring normal day-to-day activities of the population and the industrial sector of the Russian Federation, and creating conditions for the energy security of the state." The permissible level of exports will be set on April 15th. Reuters reports that possible levels include: Gas oil: 30 percent of refinery production to be exported, 70 percent to be re

Russian Federation

Politics

CEC Schedules Putin's Inauguration

· Alexander VESHNYAKOV, chairman of Russia's Central Election Commission (CEC) today formally announced the date that President-elect Vladimir PUTIN will be inaugurated. The final results of the March 26th election will be published on Friday in the official press¾Rossiiskaya Gazyeta and Parlamentskaya Gazyeta, paving the way for a May 7th inauguration. PUTIN won the election with around 52 percent of the vote compared to 30 percent for his nearest opponent, Communist leader Gennady ZYUGANOV, according to official results based on 95.51 percent of the ballots.

Titov Resigns as Samara Governor

· Former presidential candidate Konstantin TITOV, governor of Russia's southern Samara region, has resigned. TITOV said he resigned because of his poor showing in the Russian presidential election last month, in which he won 1.5 percent of the vote and lost even in his own region. Samara legislators will review TITOV's resignation at a meeting later this week. Former President Boris YELTSIN appointed TITOV head of the Samara regional administration in August, 1991, and he won election as governor in December, 1996.

Former Justice Min. Released From Jail

· Former Justice Minister Valentin KOVALYOV, arrested more than a year ago on charges of embezzlement and illegal possession of weapons, was released from prison on Monday. KOVALYOV's case has not come to trial and no date for it has been set. He was released because the Prosecutor General's office has finished its investigation. KOVALYOV was ousted by then-President Boris YELTSIN in July 1997, shortly after national televi

Today's News Highlights

Russia

Aluminium Alliance Forged?

UES Discusses Reorganization

European Republics

IMF To Resume Lending Talks

Latvian Banks Requirements Met

South Caucasus & Central Asia

CanArgo Well Ceremony

Former Azeri Officials Arrested

CNPC Invests In Energy Fields

Politics-Economics-Business

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Tuesday

April 4, 2000

Intercon's Daily

tained on the domestic market. Jet kerosene: 10 percent for export, 90 percent for domestic use. Fuel oil: from southern Russian refineries, 50 percent for export, 50 percent for domestic use; northern refineries, 30 percent for export, 70 percent for domestic use. Gasoline: no restrictions. Benzene and toluene: five percent for export, 95 percent for domestic use. Limitations on liquefied gas exports were not immediately known. But a 45 percent limit was set on these gases in February and expected to remain throughout 2000. The Fuel and Energy Ministry said in February that fuel oil exports would be limited to 10 percent of refinery output in March, up from five percent in February and two percent in January. The ministry said then that March jet kerosene exports would be limited to 20 percent of output, from 15 percent in February.

Ruble = 28.78/$1.00 (NY rate)

Ruble = 28.73/$1.00 (CB rate)

Ruble = 27.76/1 euro (CB rate)

Business

Aluminum Alliance Being Forged

· Shareholders of Sibneft, Russia's sixth-largest oil producer, which recently bought stakes in Russian aluminum companies, along with Sibirsky Alyuminiyum, Russia's third-largest aluminum producer, and Alfa Group, a financial industrial group which operates Achinsky Glinozemny Kombinat, a Russian alumina supplier, are holding talks to establish an alliance that would combine almost all Russian aluminum producing assets. The Russian aluminum sector has been plagued by a bitter and violent rivalry. The aluminum rivalry was primarily concentrated between Sibneft shareholders who recently bought Russian aluminum producing assets from the partners of Trans-World Group and Oleg DERIPASKA, chief executive of Sibirsky Alyuminiyum group. Some Sibneft shareholders in March purchased a majority of Russia's aluminum producing assets. Meanwhile, Sibirsky recently took control of Ukraine's Mykolayivskiy Hlynozemniy Zavod, Europe's largest producer of alumina and the key supplier to Krasnoyarsky Alyuminievy Zavod, Russia's second-largest aluminum producer owned by Sibneft shareholders, and Bratsky Alyuminievy Zavod. Mykolayivskiy Hlynozemniy supplies about one-sixth of alumina required in Russia, which demands about 6 million tons per year and only pro

duces about 40 percent of that. The Anti-Monopoly Ministry still must review the proposed alliance. Krasnoyarsky Alyuminievy Zavod, will be managed by Sibirsky Aluminiyum representative Viktor GEINTSE, according to General Director of Krasnoyarsky Alyuminievy Alexey BARANTSEV. Kakha KIKNAVILIDZE, an analyst at Moscow-based Troika-Dialog brokerage said, "Any possible cooperation agreement will not influence Russia's export and domestic sales." Last year, Russian aluminum plants produced 3.15 million tons of metal of which more then 90 percent were exported.

UES-Kremlin Discusses Reorganization Plan

· Unified Energy Systems (UES) directors today is meeting with Finance Minister Mikhail KASYANOV on a proposal for reorganizing Russia's monopoly electric utility. The plan, developed by UES chief executive officer Anatoly CHUBAIS, would help the company attract foreign investment by leaving it in control solely of the national electricity network. Andrei ABRAMOV, an analyst at Nikoil Investment Co. pointed out, "UES is focusing on attracting investor capital and that means they are interested in good investor relations. And without restructuring, the industry is worth very little. I think they have a good chance of approval." UES may be seeking to relinquish some control over regional generators and possibly try to make them separate companies, but will acquire control over cash flows and the main assets. Last week, a meeting to consider the UES plan was postponed because of President-elect Vladimir PUTIN's visit to Chelyabinsk, in central Russia. It is unclear whether PUTIN will attend the Kremlin meeting or influence any decisions on the proposal. The final decision on UES' future depends on the government's decision and its ability to collect revenues.

Gazprom Cuts Supplies To UES

· Gazprom, Russia's natural gas monopoly, cut gas deliveries by 19.6 percent to Unified Energy Systems (UES), Russia's biggest electricity utility, in the second quarter, according to Mikhail SHOMSOV, deputy general director of Mezhregiongaz, Gazprom's domestic gas marketing subsidiary. In the first quarter, UES was supposed to pay 100 percent for gas supplies, with 50.8 percent in cash. UES paid an average of 58 percent of its gas bills, 35.5 percent share in cash. UES is the world's biggest power

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generator and produced 603.8 terawatt-hours in 1998, enough to power the London for 30 years.

AvtoVAZ To Supply Cars For Soviet Debt

· AvtoVAZ, Russia's number one car producer, will supply Hungary with 2,200 Niva cars to help cover Soviet-era debt arrears. A total of 1,130 VAZ-21214 cars have already been shipped to Hungary. Under communism, Hungary was a regular purchaser of AvtoVAZ cars. AvtoVAZ plans to produce about 680,000 cars this year and export 100,000.

PricewaterhouseCoopers is continuing to audit Central Bank activity, following accusations that the bank misused IMF loans during December, 1997. The probe now covers all operations between January 1, 1997 and September 30, 1998. Ukraine needs IMF funds and support to be able to approach the Paris Club of sovereign to restructure $500 million in debts due this year. It also has to repay about $900 million to the IMF this year. Finance Minister Igor MITYUKOV said last week the government might be forced to revise its macro-economic indicators for the year if the three-year program did not resume soon.

Latvian Banks Meet Capital Requirements

· The Latvian Central Bank on Monday said that all 23 banks registered locally meet the mandatory five million euro minimum capital requirement. The Central Bank raised the minimum requirement from the previous 3.4 million euro level on January 1st, but gave banks until April 1st to submit their annual reports. Janis PLACIS, a commercial bank supervision department official, said, "We can say that all of Latvia's banks met the minimum capital requirement as of April 1st." Trasta Bank, Baltic International Bank and Latvia Business Bank reported end-1999 capital below the mandatory level, but have since managed to breach the gap.

South Caucasus & Central Asia

Georgian Pres. Attends Well Ceremony

· Georgian President Eduard SHEVARDNADZE on Monday attended a ceremony marking the commencement of CanArgo Energy Corporation's first horizontal sidetrack in Georgia. The well, N98, located on CanArgo's Ninotsminda field began on April 1, 2000 and is expected to be completed in eight weeks. During the ceremony, President SHEVARDNADZE praised CanArgo and its Chairman and chief executive officer, David ROBSON, for their commitment to bring new technology to Georgia. CanArgo also announced today that negotiations with the state national oil company, Georgian Oil, to acquire Block XIc (the Norio block) had progressed to a Protocol of Intent. The Protocol was signed today in Georgia by ROBSON and Revaz TEVZADZE on behalf of Georgian Oil, according to a company press release. Under the Protocol of Intent, CanArgo will fund up to $700,000 of a seismic program to be carried out on the Norio block this summer. CanArgo

European Republics

Khmelnytskoblenergo Launches ADRs

· Ukraine's electricity distributing company Khmelnytskoblenergo has launched a level-one American Depository Receipt (ADR) program through the Bank of New York. A bank officials confirmed that one of Khmelnytskoblenergo's ADRs represents 40 local shares. ING Bank Ukraine acts as a local custodian for the program. Level-one ADRs are issued on existing capital to give foreign investors access to underlying shares and raise liquidity. Khmelnytskoblenergo head Alexander SHPAK said the state still controls 70 percent of company shares, but plans to sell part of it later this year. He declined to give further details. The State Property Fund, Ukraine's privatization agency, has already sold 30 percent of company shares. Their ownership is unclear. Khmelnytskoblenergo's charter capital, defined as the number of shares multiplied by the face value of one share, is 33.63 million gryvnias. Khmelnytskoblenergo is listed on the PFTS electronic share trading system.

IMF to Resume Lending Talks With Ukraine

· An International Monetary Fund (IMF) mission will resume lending talks with the Ukrainian government in Kiev on April 6th to 14th. The Fund has delayed disbursement of new tranches of its $2.6 billion credit to Ukraine, suspended last September over slow economic reforms. According to Henri GHESQUIERE, IMF representative to Ukraine, the team will review preliminary results of the Central Bank reserves audit by PricewaterhouseCoopers and analyze the pace of reforms in the energy sector, agriculture, and banking. The talks will be focused on the sale of state assets, foreign debt servicing, budget and macro-economic indicators.

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has also been granted a six-month right to negotiate exclusively for a Production Sharing Contract (PSC) for this block. The Norio block has access to existing CanArgo and Georgian Oil infrastructure, within the main Trans-Caucasus transportation corridor. The corridor is the route of the oil pipeline currently being constructed by the Azerbaijan International Oil Consortium (AIOC) to transport crude oil from the Caspian Sea to the terminal at Supsa on the Georgian Black Sea coast. ROBSON commented, "I have enjoyed an excellent business relationship in Georgia since 1992. President SHEVARDNADZE has been very supportive of our business here and I greatly appreciate the personal interest he has taken in our horizontal well in Ninotsminda."

Georgia-Greece Sign Military Accord

· Georgian deputy chief of the General Staff David NAIRASHVILI and Greek Armed Forces General Staff for the military and political department Atanasios EKONOMOU on Monday signed a program of military cooperation for 2000. The program calls for the participation of Greek officers in planned Georgian military exercises in 2000 as observers; a trip of Georgian military medics to a seminar in Athens; the training of Georgian military school cadets in Greece; and a friendly visit to Georgia by a Greek Navy ship. Georgia and Greece will also hold joint events under the Partnership for Peace program. Earlier on Monday, members of the Greek delegation held talks with the chief of the Georgian General Staff, Lieutenant-General Dzhoni PIRTSKHALAISHVILI, Deputy Defense Ministry for international affairs Grigol KATAMADZE, and the Chairman of the Parliament Defense and Security Committee, Rezo ADAMIA.

Former Azeri Officials Arrest For Fraud

· Two former chiefs of the foreign economic relations ministry, Hafiz BABAYEV and Rauf KARAYEV, who were in office in 1992 and 1993, were arrested in Baku and charged with major embezzlement of state funds and fraud in office. The same charges have been brought against Rauf ABBASOV, then chief of the ministry's quotas and licenses department. Ac

cording to an Interior Ministry's press release, the investigation qualified the three as members of a, "criminal group led by the former chairman of the parliament of Azerbaijan, Rasul GULIYEV." GULIYEV has also been charged with embezzlement and illegally moving $74 million worth of petroleum products from Azerbaijan. GULIYEV, who now lives in the US, is expatriate chairman of the radically opposition Democratic Party of Azerbaijan. The Interior Ministry and the Prosecutor-General's Office said the investigation had proved a direct part of KARAYEV and ABBASOV in stealing petroleum products whose worth is put at 30 million dollars. They have been also accused of issuing false licenses for illegal oil exports. In March, others connected to this investigation were arrested, including Tofik DADASHEV, director of the national oil pipeline directorate; Gasym ASLANOV, his deputy; Mamed VELIYEV, director of the machine-tool plant Bakinsky Rabochy; and Ulfan BAGOIROV, chief of the Azerbaijan representative office of Greece's company Motor Oil.

CNPC To Invest $120M In Oil and Gas Field

· State giant China National Petroleum Corp's (CNPC) Vice President WU Yaowen on Monday said that it plans to invest $120 million this year in its Aktobemunaigaz oil and gas field in Kazakhstan. The funds will be used to renovate the gas processing plant and drill additional wells. WU hopes that the investment will help boost output to 2.5 million tons or 50,000 barrels per day. CNPC acquired a 60 percent stake in Aktobemunaigaz, located in northwestern Kazakhstan, in 1997 as part of Sino-Kazakh deals worth $9.5 billion. This was hailed by Kazakh President Nursultan NAZARBAYEV as the "deal of the century." Output in 1999 was half of the level CNPC aimed to reach when it made the purchase, totaling only 2.3 million tons. WU noted at a briefing in Almaty that, "We were selling oil to Russia at $28 a ton while production costs were $74 a ton." CNPC has welcomed the rise in world oil prices and the Kazakh's government's decisions to grant it an export quota of 500,000 tons a year. The quota will allow it to export oil through Russian pipelines.

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

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