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

Tuesday, May 2, 2000

handling, Reuters reported. Russia scrapped discounts on goods bound to and from Latvia in 1998 in a campaign of low-level economic sanctions against the Baltic state based on a diplomatic row over its large Russian-speaking minority. Under more expensive tariffs transport of steel through Latvia was 62 percent more expensive, while transport of cast iron and metal increased by 39 percent and of oil products rose by 14 percent. Latvian railway's cargo handling fell 12.3 percent year-on-year in 1999 to 33.2 million tons of cargo due to the higher tariffs. However, first quarter cargo handling rose 23.1 percent year-on-year to 9.275 million tons. The handling of transit cargo is a key sector of Latvia's economy.

Seleznyov Calls For Moving Parliament

· Russian State Duma Speaker Gennady SELEZNYOV told the local media on Saturday that the parliament should be moved to St. Petersburg, Russia's second city, where it last sat before the Bolshevik revolution. He said the move would provide deputies with more room for offices, which is unavailable in Moscow. "The parliament at the moment is subject to considerable inconvenience. We work in ill-adapted rooms," he noted. SELEZNYOV added that Moscow Mayor Yuri LUZHKOV had only offered the government sites on the outskirts of the capital, while St. Petersburg governor Vladimir YAKOVLEV had proposed a site in central St. Petersburg, Russia's imperial capital. Other officials, including LUZHKOV and

Russian Federation

Politics

Troops Find Corpses Of Missing Policemen

· Russian federal forces discovered the corpses of nine policemen missing since their convoy was ambushed at the end of March. They are believed to have been executed by their rebel captors. Their bodies were found in two collective burial sites near the village of Dargo. Federal forces spokesman Gennady ALYOKHIN said, "We have managed to identify four of them, and they belong to the Perm unit...Preliminary examination of the bodies revealed traces of physical abuse. A few of them had multiple knife wounds and some of their body parts had been cut off." On March 29^th, the unit was attacked in a rebel-staged ambush near the village of Dzhani-Vedeno; thirty-two policemen were killed, while nine were taken prisoner. The bodies of the Perm policemen were to be transferred on Monday to Russia's southern city of Rostov-on-Don, where forensic experts would determine the time the deaths occurred. Meanwhile, Russia's police detained on Monday a Chechen field commander, Ramazan LAGOMEDOV, from the gang headed by warlord Ruslan GELAYEV. When he was detained, LAGOMEDOV was armed with a Kalashnikov submachine gun, 90 rounds of ammunition and four grenades.

Latvia-Russia Reach Railway Agreement

· The Russian Transport Ministry and Latvian state-owned railway company Latvijas Dzelscels have signed an agreement that guarantees favorable tariffs. Latvijas Dzelscels spokesman said the agreement on cooperation in cargo transportation was signed in Moscow on April 26^th and is effective beginning that date. The agreement also foresees a 15 percent discount on refrigerator car transportation with the aim of boosting this sector's cargo

Today's News Highlights

Russia

Russia Makes IMF Payment

Slavneft To Raise $40 Million

European Republics

Williams Seeks Kazakh Oil

Eesti Energia To Invest $72M

South Caucasus & Central Asia

OSCE Chief Visits Tbilisi

Smuggled Uranium Tested

Armenian President Sacks PM

Tractebel Pulls Out Of Kazakh

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May 2, 2000

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Federation Council Deputy Speaker Vladimir PLATONOV, opposed the idea. PLATONOV said that it is already hard for the executive and legislative branches to find a common language, a problem that he suggested would be exacerbated by such a move. A number of proposals have been made to move parliament to St. Petersburg, but the notion has not been seriously considered. SELEZNYOV hoped to submit it to the assembly by mid-June.

Economy

Ruble = 28.46/$1.00 (NY rate)

Ruble = 28.42/$1.00 (CB rate)

Ruble = 25.78/1 euro (CB rate)

Russia Makes IMF And Eurobond Payments

· Russia on Friday made a $60 million payment to the International Monetary Fund (IMF), a Finance Ministry spokesman said. The payment was made ahead of the May 1^st due date, since it coincided with May Day celebrations. The next payment to the Fund is due on May 7^th. Russia also paid $33.75 million in interest on its 2003 Eurobond on Friday. Russia, the Fund's largest single borrower, has already made four payments to the Fund in April totaling about $360 million. In the first three months of this year, it paid about $928 million out of $3.6 billion due to be repaid in 2000. As of January 31^st, Russia owed the IMF $14.55 billion. The government had hoped to use new IMF loans to make payments on previous credits, but the Fund has suspended the refinancing arrangement.

Business

LUKoil-Perm To Expand Oil Exploration

· LUKoil-Perm, a subsidiary of LUKoil, Russia's top oil producer, plans to expand its oil exploration activities to secure new deposits and maintain production in the Komi region. LUKoil-Perm expects to produce 2.6 million tons of oil this year. The company 37 oil fields harbor 91.3 million tons of recoverable reserves, most of which are difficult to extract. LUKoil-Perm General Director Andrei KUZYAEV said, "By 2005 it's possible that all resources of LUKoil-Perm will be under operation. We won't have long-term perspectives." LUKoil is planning an extensive $4.7 billion exploration program in the northern Komi republic and Russian

Arctic for the next 10 years. The company plans to raise its regional production by more than 650 percent and increase reserves by 30 percent by 2010.

Slavneft Unit To Raise $40M

· Slavneft-Yaroslavnefteorgsintez, the largest oil refinery of Slavneft, plans to sell new shares to raise $40 million in capital to upgrade equipment. Slavneft, an oil producer owned by the Russian and Belarus governments, seeks as much as $240 million in loan guarantees from Japan Export-Import Bank to finance refinery modernization to increase the output of light oil products. The share sale is part of $120 million Slavneft is raising to finance the project. A final decision on the securities sale terms will be made in late July or early August. Slavneft holds 50.9 percent stake in the refinery. The Russian Federal Property Fund has announced an auction for 0.73 percent of Slavneft-Yaroslavsky. The stake will be offered at a starting price of 300,000 rubles ($11,400). Yaroslavnefteorgsintez processed 2.4 million tons of crude in the first quarter, up 25.2 percent from a year ago.

Aluminum Smelter Plans For St. Petersburg

· Russia's Leningrad region is planning to build a new aluminum smelter. "Some US firms specializing in building aluminum plants have shown an interest in investing in the project," the regional administration said in a statement without naming the companies or giving other details. It said the local Leningrad nuclear power station would provide electricity for the plant. A feasibility study of the project will be prepared in June or July. Russia has 11 aluminum smelters, which produced 3.15 tons of the metal in 1999. Volkhov, the country's smallest smelter, with production of 17,000 tons in 1999, is situated in the Leningrad region. A plan to build a new smelter in the Irkutsk region in Siberia has been put on hold due to changes in the ownership of Russia's largest aluminum plant, Bratsk, which had initiated the project.

European Republics

Williams Hopes For Oil From Kazakhstan

· US energy group Williams, which holds a one-third stake in Lithuanian oil concern Mazeikiu Nafta, today said it is hopeful that Kazakhstan will supply

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the refinery with crude. Randy MAJORS, general director of Williams Lietuva said, "If Mazeikiu offers Kazakh producers competitive prices for crude oil, realistic possibilities to obtain long-term, stable supplies for the refinery and the Butinge terminal exists in the future." He added that Kazakh officials had hinted crude was available for the Lithuanian refinery. MAJORS noted, "Off-take guarantees from Mazeikiu Nafta to purchase an additional four million tons on the Atyrau-Saransk-Samara pipeline could possibly help justify construction of the expansion project." Mazeikiu Nafta still need Moscow's approval to transport Kazakh oil through Russia via Transneft's network of pipelines. Lithuanian President Valdas ADAMKUS will follow up on crude supplies during a visit to Kazakhstan in late May. Last year Mazeikiu has received over 600,000 tons of crude form Kazakhstan. Mazeikiu Nafta, which was forced into a nearly $40 million 1999 loss due to interruptions in its crude supply from Russia, has been in talks for several months over a long-term supply agreement with LUKoil and Yukos.

Eesti Energia To Invest $72 Million

· Estonian state energy firm Eesti Energia today said it was planning to invest a total 1.25 billion kroons ($72.4 million) in 2000. The company's investments in 1999 totaled 1.13 billion kroons. The two Narva power stations in the northeast of Estonia provides over 90 percent of the country's energy needs and take 85 percent of Eesti Polevkivi's (Estonian Oil Shale) total production. A 49 percent stake in the power stations is slated to be sold to US NRG Energy. Business daily Aripaev reported that the Estonian government plans to privatize Eesti Energia, the largest electricity producer in the country, through a public offering of the company's shares. Economy Minister Mihkel PARNOJA said that Eesti Energia could be privatized early next year together with its distribution networks, once the privatization of the two Narva power stations is successfully completed. The government has not yet decided exactly when or how to begin the Eesti Energia's sell-off. Eesti Energia's sales in 1999 totaled 4 billion kroons.

Ukraine To Sell LiNOS Stake

· Ukraine plans to sell a controlling stake in Lisichansk Naftaoorgsintez (LiNOS) and expects Russian and Kazakh oil producers to bid for the

nation's second largest oil refiner. The government has set a minimum asking price of 48.5 million gryvnia ($8.9 million) for a 67.41 percent stake in the refinery located in the Lugansk region. Bids are being accepted until May 19^th and preliminary results of the tender are scheduled for release a week later. Russia's LUKoil, Tyumen Oil Co., and Kazakhoil have talked with Ukraine about buying stakes in LiNOS. Volodymyr CHERDAKOV, deputy head of the tender department at Ukraine's State Property Fund is hopeful that the tender will raise a better price for this stake. LiNOS reported heavy losses since 1998 due mainly to shortages of crude oil supplies. In 1999, LiNOS losses totaled 173.5 million gryvnia on 158.7 million gryvnia in sales, compared with 182.9 million gryvnia in losses 1998 on 162.9 million gryvnia sales.

South Caucasus & Central Asia

OSCE Chief Visits Tbilisi

· Benita Maria FERRERO-WALDNER, current chief of the Organization for Security and Cooperation in Europe (OSCE) and Austrian Foreign Minister, arrived in Georgia Monday night for a three-day official visit. The OSCE chief will meet with Georgian President Eduard SHEVARDNADZE, State Minister Vazha LORDKIPANIDZE, Foreign Minister Irakly MENAGARISHVILI, Parliament Deputy Speaker Vakhtang KOLBAYA, the Ambassadors of OSCE countries and the UN Secretary-General Friends for Georgia group (which comprises the United States, Russia, Britain, France, and Germany) to discuss matters aimed at settling the Abkhaz conflict. FERRERO-WALDNER will also visit the Georgian border village of Shatili to familiarize herself with the operation of the OSCE mission, which is monitoring the Chechen sector of the Georgian-Russian border.

Smuggled Uranium Tested In Tbilisi

· Specialists of the Institute of Physics in Tbilisi have completed the laboratory expertise of the 920 grams of smuggled uranium detained in Adjaria last month. Deputy director of the Institute of Physics Zurab SARALIDZE and the head of the Atom center of the institute of physics Shukri ABRAMIDZE told Prime News Agency, such nuclear materials are not used in Georgia, so it may be presumed that it was smuggled in from outside of the country. The

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specialists believe that such uranium is used at atomic energy stations. The reports of media that the uranium could be intended for transportation to Iran are not true, SARALIDZE and ABRAMIDZE said. It is unclear how they arrived at this conclusion. However, it should be noted that Georgian scientist from this same institute are currently working in Iran.

Armenian PM And Defense Minister Fired

· Armenian President Robert KOCHARYAN today sacked Prime Minister Aram SARKISYAN and Defense Minister Vagarshak ARUTYUNIAN. The President said they were dismissed for, "the government's inability to solve a series of social and economic issues." Deputy Defense Minister Mikhail ARUTYUNYAN has been appointed acting defense minister, but KOCHARYAN did not immediately name a new prime minister. SARKISYAN just returned from a trip to Moscow, where he reached an agreement with Russian First Deputy Prime Minister Mikhail KASYANOV on increasing Russian investment in Armenia's stagnating industrial sector.

Tensions between KOCHARYAN and the government had been mounting since SARKISYAN took office in November and named a few controversial figures to Cabinet posts. SARKISYAN's predecessor and brother, Vazgen SARKISYAN, was killed when gunmen burst into Parliament on October 27^th. The gunmen took legislators hostage, claiming they were trying to save Armenia from corruption. In addition, dissatisfaction with KOCHARYAN has been growing as lawmakers had put into motion impeachment proceedings. A military prosecutor has accused the President of interfering into the prosecution of the gunmen.

COMMENT: Concern is high in the region that this may precipitate further blood shed.

Tractebel To Pull Out of Kazakhstan For $100M

· Belgian energy holding company Tractebel said on Friday it will sell all its activities in Kazakhstan to

gas transport company KazTransGas for $100 million. According to a company statement Tractebel has no longer any involvement in the electricity and heat production and distribution business in Kazakhstan, as from today." Tractebel entered Kazakhstan in 1996, acquiring APC, a power station supplying the former capital Almaty. In 1997, it also became operator of a 9,000-kilometer gas pipeline, Intergas, in which it took a 55 percent stake. The investments were plagued, however, with disputes with the Kazakh government over tariffs and in Belgium are at the center of a separate investigation into money laundering, Reuters reported.

Under the agreement, the Kazakh government waives any claims against Tractebel regarding APC and Tractebel itself would not press its own counter claims. Tractebel, a unit of French utility Suez Lyonnaise des Eaux, said all details should be finalized by June 15^th. The Itera Company is linked with efforts to replace Tractebel.

Transneft, Kazakh, Turkmen Reach Oil Agrmt

· Transneft, Russia's state-controlled oil transportation monopoly, has agreed with companies in Kazakhstan and Turkmenistan for shipping oil through the newly constructed pipeline that bypasses Chechnya. Kazakhstan companies plan to ship as much as 2 million tons (14.7 million barrels) a year. Turkmenistan companies may ship up to 1.5 million tons of oil per year. The new $140 million pipeline stretch has a capacity of 5 million tons of annual crude shipments.

Earthquake Rocks Kyrgyzstan

· An earthquake measuring 6.5 points on the open-ended Richter scale hit the Batken region in southern Kyrgyzstan early this morning. There were no reports of casualties or damage. The epicenter of the quake was an uninhabited mountain area 60 kilometers from the regional center of Batken, according to the press service of the Kyrgyz Ministry for Emergency Situations.

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

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