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

Thursday, May 4, 2000

ever, they have not been able to penetrate the southern mountains, where rebel fighters are believed to be hiding. Defense Minister Igor SERGEYEV stressed that the Kremlin has no plans to hold negotiations with Chechen President Aslan MASKHADOV. SERGEYEV's statements fly in the face of Russia's latest actions, when it worked together with Georgian border guards to escort MASKHADOV's family in safety via Georgia to Turkey. Rebel commanders Shamil BASAYEV and KHATTAB have threatened the lives of MASKHADOV's family, if he conducts negotiations with Russia. The safe transit of his family could be a pre-condition for such talks.


Ruble = 28.38/$1.00 (NY rate)

Ruble = 28.37/$1.00 (CB rate)

Ruble = 25.31/1 euro (CB rate)

Currency Reserves Reach $17 Billion

· Russian Central Bank Chairman Viktor GERASHCHENKO in Amsterdam said that Russia's currency reserves reached $17 billion. He said that reserves have increased by more than $4 billion over the past four months. The reserves were last at this level on August 7, 1998, 10 days before Russia defaulted on $40 billion of Treasury debt and gave up defending the ruble. The policy of the Central Bank after the crisis of August 17, 1998, was rather tough, and the Bank amassed funds for keeping it such, GERASH-CHENKO said.

Russian Federation


Putin Appoints New Deputy Fin. Min.

· Russian President-elect Vladimir PUTIN appointed Vladimir CHERNUKHIN, former deputy chairman of Vnesheconombank, as deputy finance minister. First Deputy Prime Minister Mikhail KASYANOV, a potential candidate for prime minister, said today PUTIN has had consultations on appointments for the new Russian government. PUTIN also appointed Vladimir MILOVIDOV, an official in the Government Information Department, as deputy chairman of the Federal Securities Commission. Kremlin documents reveal that PUTIN plans to change the presidential administration, expanding its authority in Moscow and the regions.

Russian Troops Attack Rebels

· Russian officials claims that federal troops ambushed a group of Chechen rebels outside of Grozny today, killing at least 18 militants, the Associated Press reported. The rest of the rebels retreated after the exchange of fire. The Russians opened fire with machine guns and then called in artillery strikes on a rebel unit near the town of Avtury on Wednesday. If the account is true, it could signal a change in tactics for the Russians, who have previously relied on frontal assaults preceded by heavy artillery fire and air strikes. The rebels, meanwhile, have used ambushes effectively, inflicting heavy casualties on the Russians. Russia's state-owned RTR Television said the military was now deploying small groups of special forces to patrol Chechnya and hunt down rebels. Russian Interior Minister Vladimir RUSHAILO, "We are not under any illusion that the situation in many districts is more or less stable." Federal forces claim to control about two-thirds of Chechnya since the military launched its campaign in September. How

Today's News Highlights


Russia To Make IMF Payment

AvtoVAZ To Build Cars In Kiev?

European Republics

Belarus Raises Oil Prices

Lith. Fin Min To Cut Profit Tax

South Caucasus & Central Asia

Georgia Not To Lease Bases

Supsa Fills 14th Oil Tanker

AIOC Reports Rise In Output

Efes Invest To Distribute Coke




May 4, 2000

Intercon's Daily

That policy is aimed to prevent an excessive pressure on the ruble at currency markets. "The most difficult phase of the banking crisis of 1998 has been mostly overcome," the Chairman noted. The existence of Russia's commercial banks is still in jeopardy. About 200 out of the 1,350 Russian commercial banks are likely to lose their licenses, he said. GERASHCHENKO reiterated his belief that Russia should rely less and less on international financial institutions. International Monetary Fund (IMF) representatives will come to Russia in May to discuss a program for the next 1.5 years. "They will give less money than we have to pay them, and a question arises whether we need this money."

Russia To Make IMF Payment On Friday

· A Finance Ministry spokesman said that Russia will make a scheduled payment of about $59 million to the International Monetary Fund (IMF) on Friday. "The next payment will be made on May 5th. It should have been May 7th, but that is Sunday. It will be 44.9 million Special Drawing Rights ($58.88 million)," she said. In the first four months of this year, it has paid about $1.3 billion out of $3.6 billion due to be repaid in 2000. As of January 31st, Russia owed the IMF $14.55 billion. Moscow has pledged to meet obligations on all foreign debts incurred after the collapse of the Soviet Union in 1991, which is mostly IMF loans and Eurobonds, but it is seeking to restructure more than $100 billion of Soviet-era debt. First Deputy Prime Minister Mikhail KASYANOV said on Wednesday said Russia may start negotiations on a new economic plan with the IMF and the World Bank at the beginning of June. He said the program would consist of three parts. The first part would cover an 18-month period, the second would be for between three and four years and the third for 10 years. Russia has not received any money from the Fund since a previous loan agreement was suspended last year. The IMF points out that Russia has not implemented agreed upon structural reforms, necessary for further lending.


Unexim Bondholders To Block Debt Agrmt.

· A group of bondholders of Unexim Bank, once one of Russia's biggest banks controlled by Vladimir POTANIN, is seeking to block an agreement on restructuring of the bank's debts today in London, the Financial Times reported. Bondholders com

plain that the will not receive adequate compensation for their investments. One bondholder estimates that he will only receive 15 cents for every dollar invested. This he argues is unfair since Russia's economic situation is improving and Unexim should be able to provide a higher rate of return than proposed in the restructuring plan. Bondholders have criticized Unexim for transferring business to Rosbank, a newly created bank, after the financial crisis in 1998, while leaving the original bank insolvent. Unexim is offering creditors new dollar bonds, an initial 10 percent cash payment and a potential profit from its other assets, such as a stake in oil company Sidanko. POTANIN has sought to make the restructuring transparent by hiring KPMG to conduct an audit of the firm. The Financial Times wrote that the report contains references to information, which the bank's managers refused to release to KPMG or to allow the accountants to circulate to creditors. Bondholders had already in principle approved the debt agreement in 1999.

AvtoVAZ Considers Building Cars In Ukraine

· AvtoVAZ, Russia's number car producer, is considering producing cars jointly with Ukraine's state-owned car manufacturers in Zaporizhia and Lutsk. Alexander ZIBAREV, vice- president of AvtoVAZ, said the government has backed the plan after AvtoVAZ officials met with Ukrainian Prime Minister Viktor YUSHCHENKO. The company plans to produce as many as 30,000 cars a year mainly at a plant in Zaporizhia. Korea's Daewoo Motor Co. may pull out of a joint venture with Ukraine's state-owned car producer if the government doesn't restore higher import limits on used cars.

Rusia Petroleum License In Jeopardy

· Rusia Petroleum may lose its oil exploration license in east Siberia. Irkuts region administration, which supervises the Verkhnechonskoye deposit, said Rusia Petroleum's license is in jeopardy because of slow progress in developing the project. The oil field harbors 200 million tons of crude reserves and borders the Talakanskoye oil field, operated by state-owned NNGK Sakhaneftegaz, an exploration company in the Sakha republic. Rusia said a study of the project shows the economic viability of the Verkhnechonskoye deposit in connection with the nearby Sakhaneftegaz's oil field. Surgutneftegaz agreed with Sakha authorities

When you need to know it as it happens




May 4, 2000

Intercon's Daily

in April to develop a feasibility study for the region's oil and gas exploration projects.

Ukraine-Russia Agree On Gas Debt

· Ukraine reached agreement with Gazprom, Russia's natural gas monopoly, to reschedule over three years $1.4 billion in debts that the country owes for gas supplies, the Kievskie Vedomosti reported. Yulia TIMOSHENKO, Ukraine's deputy prime minister in charge of the power industry, said "This is an agreed figure, excluding debt made by commercial suppliers and fines that the Russians insist on." Ukraine is hoping to reschedule the debt for a longer term, as long as five years, as it is "fully able to pay back the debt during this time with no stress," TIMOSHENKO added. Gazprom has said Ukraine's debt totals more than $1.9 billion, while the government has disputed the figure. Ukrainian President Leonid KUCHMA said there is no problem about bilateral relations between the two countries that, "would significantly influence our bilateral relations." KUCHMA and Russian President-elect Vladimir PUTIN discussed Ukraine's debts to Russia before attending the 55th anniversary of victory in World War II.

South Caucasus & Central Asia

Georgian Bases Not To Be Leased

· Georgian Foreign Minister Irakly MENAGARISHVILI at talks in Moscow on Wednesday stressed that the Vaziani military base will not be leased to any other country following the Russian withdrawal. MENAGARISHVILI denied that Vaziani would be turned over to Turkey or another NATO country. Intercon sources report that there is no basis for a foreign military to establish a base on Georgian soil. The Foreign Minister said some real property and infrastructure of the base will be used by the Georgian armed forces and the rest will be converted for peaceful needs. He noted that two military bases after the withdrawal of Soviet troops are currently operating for peaceful means. MENAGARISHVILI said that Georgia will consider converting the military airfield to a civilian airport. He said that foreign countries, including Russia, could participate in a bid for that project. According to the Georgian Foreign Ministry, a timetable of withdrawal of Russia's military hardware will be compiled in May, and of withdrawal of military bases from Vaziani and Gudauta by September 1st. The decision to shut down two out of four Russian military bases in Georgia was made at the summit of the Organiza

European Republics

Belarus Raises Oil Prices

· Belarus has raised retail and wholesale prices for oil products effective Wednesday. Sales of oil products for agricultural consumers have been banned at lowered prices. Now, the cost of the most popular gasoline of the AI-92 brand sold at fueling stations is 348 Belarus rubles per liter (approximately $.72). Gasoline of the AI-95 brand costs 410 Belarus rubles per liter. Prices for diesel fuel have increased to 209 rubles per liter, and AI-76 gasoline costs up to 222 rubles per liter now. According to official reports, the price hikes have been caused, "by the need to stabilize the financial position of the Balneftekhim concern which needs considerable funds to buy oil in Russia."

Lith. Finance Ministry Plans To Cut Profit Tax

· Lithuania's Finance Ministry said on Wednesday it plans to cut the corporate profit tax from 24 percent to 15 percent. However, the reduction is not expected to be effective until 2002. According to a ministry statement, "Such a rate would reduce the burden on business and encourage the attraction of new investment as it would be one of the lowest profit tax rates in the European Union." The last corporate tax reduction took place in 1999, cutting it from 29 percent to 24 percent. Plans to eliminate the tax completely were abandoned soon there after. The decision to reduce the tax further follows the trend of Lithuania's neighbors. Estonia has eliminated its 26 percent tax on reinvested profits this year, but maintains a tax on non-reinvested profits. Vytas VASILIAUSKAS, head of the finance ministry's revenues department, told Reuters, "Now we are talking about a new concept for our corporate income tax and after two weeks we will take this concept to our government." He added, "If the government approves it we will work on a new legal draft and in the middle of June we will take the law to the government. I think it will come into force only in 2002." In 1999, the profit tax brought in only 361 million litas ($90 million) in revenues, about 6 percent of the total, under the 7 percent target that had been set.

When you need to know it as it happens




May 4, 2000

Intercon's Daily

tion for Security and Cooperation in Europe (OSCE) in Istanbul last year. MENAGARISHVILI said that the talks have been held in a constructive manner. He recommends that Georgia and Russia draw up a political-military cooperation treaty. He said, "Georgia has concluded such treaties with all neighboring states¾Azerbaijan, Armenia and Turkey. There is no such treaty with Russia; I think it is time to work more actively in this direction." The Russian and Georgian sides agreed to continue the political-military cooperation talks in Tbilisi in June.

Supsa Terminal Fills 14th Oil Tanker

· The Supsa oil terminal has filled its 14th oil tanker this year, making the total number of tons transported to approximately 85,000 tons. Georgian International Oil Corporation (GIOC) told Prime News Agency that the crude is owned by BP-Amoco, Turkish Petroleum, Itochu and Delta and has been transported to Italy.

AIOC Reports Rise In Oil Output

· Azerbaijan International Operating Company (AIOC), a consortium led by BP Amoco, said oil output rose 11.7 percent in the first quarter from the same period in 1999. The group's oil production rose in the first quarter from 98,500 barrels per day last year to 110,000 barrels a day. AIOC President David WOODWARD said, "We expect to achieve maximum production from the Azeri-1 (field) in 2007." New possible crude deposits have been recently discovered offshore Russia and Kazakhstan. Oil companies and Caspian states are in talks about export routes to transport the Caspian crude to world markets. AIOC reported $23.9 million capital expenditures in the first quarter. The consortium has planned $225.3 million in investments for this year.

Kalicki Says Kazakhstan Supports MEP

· In a speech in Ashgabat, Washington Caspian Representative Jan KALICKI said that Kazakh President Nursultan NAZARBAYEV last week gave him assurances that the main export pipeline (MEP) from Baku to Ceyhan is a priority export project,

after the Caspian Pipeline Consortium (CPC). He said, "President NAZARBAYEV has made it clear that the first priority for Kazakhstan is to move ahead with the Caspian Pipeline Consortium project through Russia to the Black Sea. Priority number two is to find oil and send it to go to Baku-Ceyhan." The CPC pipeline will link Kazakhstan's huge onshore Tengiz oilfield with Russia's Black Sea oil terminal of Novorossiisk, and is expected to be completed by mid-2001. Experts in the region believe that Kazakhstan would have to commit large portions of oil to the MEP to make it economically viable. But, Kazakhstan has failed to make such a firm commitment. The US supports a policy of multiple pipeline in the Caspian region to transport oil to western markets. The CLINTON administration specifically endorses the Baku-Tbilisi-Ceyhan pipeline route because it bypasses rogue states like Iran and pipeline powerhouse Russia. Iran announced it is joining the regional pipeline race, proposing a new route running south from its western coast and across Iran to the Gulf.

Efes Invest To Distribute Coke In Tajikistan

· Efes Sinai Yatirim Holding (Efes Invest) Friday announced it had reached an agreement with The Coca-Cola Company to distribute and market Coca-Cola products in Tajikistan. The deal, as well as negotiations to transfer Coca-Cola bottling rights in Russia's Rostov region back to The Coca-Cola Company, is part of Efes Invest's plan to strengthen its Central Asian operations. "Coca-Cola products will be sent to Tajikistan from Efes Invest's bottling plants in the region," said Efes Invest. The company already operates four Coca-Cola bottling plants, serving the 35 million-strong markets of Azerbaijan, Kazakhstan, Kyrgyzstan and Turkmenistan. The Tajikistan deal will bring an additional five million consumers. "This year we expect an economic development that will increase the sales of carbonated beverages in the region [Central Asia]," Efes Invest said. It also said it would retain its stake in the Coca-Cola Rostov Bottlers, but turn over production and marketing activities.

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

available for non-profit institutions.

Daily Report on Russia is for the exclusive use of the subscriber only. Reproduction and/or distribution is not permitted without the expressed written consent of Intercon. Daily Report on Russia Ó copyright 2000, Intercon International, USA.

When you need to know it as it happens