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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Monday, June 19, 2000

Russian Federation


CIS Summit To Convene In Moscow

· Leaders of the 11 countries of the Commonwealth of Independent States (CIS) are headed for a summit in Moscow, which opens on Tuesday. The agenda has a total of 22 items concerning CIS cooperation, including the discussion and signing of the Agreement on the Free Trade-Economic Zones in the Commonwealth, the Abkhaz conflict in Georgia, and the Nagorno-Karabakh dispute in Azerbaijan. Summit participants will also discuss the Program of CIS Development till 2005 and the Program for Prevention of International Terrorism and Extremism and the Creation of the Anti-Terrorist Center of the CIS. The presidents of Russia, Georgia, Armenia and Azerbaijan [Vladimir PUTIN, Eduard SHEVARDNADZE, Robert KOCHARYAN and Geidar ALIYEV] will meet on the summit's sidelines. Georgian President Eduard SHEVARDNADZE in an interview today said he treated CIS cooperation, "with all seriousness and full responsibility." He further described the plan for setting up a CIS free economic zone as a, "step forward." He said the zone was bound to help integration of CIS states. Osmonakun IBRAIMOV, the press secretary of the Kyrgyz President Askar AKAYEV said that Bishkek attaches great importance to the summit. AKAYEV is expected to meet with PUTIN on the sidelines. IBRAIMOV added that Kyrgyzstan believes an anti-terrorist center can help special services of the Commonwealth, "wage more effectively the struggle against religious extremism, organized crime and international terrorism in all countries of the CIS." A meeting of CIS Defense Ministers started today in Moscow to discuss prospects of the military cooperation within the CIS. The previous session was held on March

16th, and was devoted to the problems of struggle against international terrorism.

Putin-Nazarbayev Call For Closer Relations

· Russian President Vladimir PUTIN is meeting today at a state residence outside Moscow with Kazakh counterpart Nursultan NAZARBAYEV. They are expected to discuss military and economic cooperation, the transport of Caspian Sea oil and general bilateral relations. Russia and Kazakhstan have disagreed over quotas for the transport of Kazakh oil through Russian territory. PUTIN has called on Russian companies to increase their presence in the Caspian region. In April 2000, Russian increased Kazakhstan's quota for oil transit to 14 million tons a year. In 2001, the Caspian pipeline will start running oil from Tenghiz deposit to Russia's Novorossiisk. The project launch will double the Kazakh oil exports. In addition, Russia and Kazakhstan's leading natural gas enterprises, Gazprom and Kaztrangaz, are planning to set up a joint enterprise to produce and trade in natural gas. The value of Kazakhstan's trade turnover in 1999 amounted to $9.28 billion, its turnover with Russia being $2.5 billion, slightly less than in 1998. The value of Russian exports to Kazakhstan reached $1.4 billion, while Kazakhstan exports to Russia goods worth $1.1 billion. Moscow has helped supply the Kazak military with weapons and advice. Sore subjects for the two nations are disagreements over military bases and ranges in the Central Asian nation, which Russia leases to

Today's News Highlights


Kasyanov On Economic Reforms

LUKoil To Issue New Shares

European Republics

Ukraine Energy Minister Resigns

Ukraine Hosts NATO Exercises

South Caucasus & Central Asia

Rus-Georgia Sign Security Agmt

Turkey Grants Kyrgyz $1B

Kazakhstan Production Grows

Turkmen To Monitor Foreigners




June 19, 2000

Intercon's Daily

test missiles and other weapons. Russia has defaulted on rent for the facility, prompting the Kazak government to impose restrictions. This also applies to the use of the Baikonur cosmodrome, Russia's main space launch center located in Kazakh territory.

The first meeting between PUTIN, then Prime Minister of Russia, and NAZARBAYEV took place in Kazakhstan's new capital Astana on September 23rd to 24th. The talks focused on collective security and the struggle against international terrorism. Special attention was also paid to economic problems relating to the tariffs and the fuel and energy complex. The two countries signed an intergovernmental agreement on trans-border cooperation between the neighboring regions of Kazakhstan and Russia between 1999 and 2007. The two independent states opened diplomatic relations on October 22, 1992 and have signed over 330 agreements and treaties in all spheres of cooperation.


Ruble = 28.26/$1.00 (NY rate)

Ruble = 28.27/$1.00 (CB rate)

Ruble = 27.13/1 euro (CB rate)

Ruble, Not To Be Weakened or Strengthened

· At a conference on Politics, Economy and Power today Central Bank Chairman Viktor GERASHCHENKO said that the Russian ruble should not be artificially weakened or strengthened. He said, "It [the ruble rate] should provide for profitability of exports. The rate should not be too high for imports, but at the same time, in our opinion, it should not be weakened artificially or made excessively strong." The Central Bank "had a possibility of still greater consolidation of the ruble's rate, but then such growth of gold and currency reserves would not have been achieved", GERASCHENKO said. He said the reserves stand at about 20 billion dollars. GERASCHENKO said the ruble's floating rate and shrinking imports had allowed the Central Bank to provide $7 billion for the government over a year and a half.

Kaysanov Calls For More Economic Reforms

· Prime Minister Mikhail KASYANOV Wednesday, while praising Russia's economic growth, said that further economic reforms are needed to con

tinue its positive trend. Addressing the fourth annual St. Petersburg Economic Forum, he said, "From May 1999 to May this year, the Russian Federation's GDP [gross domestic product] rose 7 percent and industrial output in January to May of this year rose more than 10 percent compared with the same period a year ago." Officials had earlier said that GDP rose some six to seven percent in the first quarter year-on-year, while April year-on-year industrial output was up 5.5 percent. KASYANOV called on the government to make it easier to do business in Russia to maintain Russia's growth. He said, "Now we must do everything so that economic growth is not throttled by a lack of structural reform." Economists believe that Russia's economic growth is due to high prices of energy exports and the competitive nature brought about by the devaluation of the ruble in 1998.

The acting president of the European Bank for Reconstruction and Development (EBRD) Charles FRANK said, "Economic growth will not be sustained over the long term unless the government begins now to implement a credible program of reform in energy, banking and industry." He criticized the slow pace of bank restructuring in Russia, saying that bankrupt banks were still operating and that bankers who had embezzled bank assets had not been punished. FRANK also called for Russia's gas and electricity monopolies to be restructured, with transparency and the approval of the minority shareholders. He said that Russian utility prices were unjustifiably low, leading to one of the highest ratios of electricity consumption in industry.


LUKoil To Issue New Shares

· LUKoil Holding, Russia's top oil producer, voted at its annual shareholders meeting to issue 35 million new common shares to buy Arkhangelskgeoldobycha, an Arctic exploration company, and other sales and refinery units, The Moscow Times reported. The new shares represent 4.29 percent of LUKoil's current 815.6 million shares, the paper said. LUKoil will use 18.6 million of the shares to expand its production base, while it said the remaining 16.4 million will be sold on "the open market at a maximum price in a public offering." LUKoil said it plans to produce "at least" 76 million metric tons (554.8 million barrels) of oil this

When you need to know it as it happens




June 19, 2000

Intercon's Daily

year; Brent crude has averaged $27.11 a barrel so far this year, up 50 percent from last year's average $17.97 per barrel.

nuclear power could lead to a terrible situation in which power to entire regions could be cut off this winter. Olexander GUDYMA, head of the parliamentary energy committee, pointed out, "Our coal stocks are a third of what they were last year and nuclear fuel stocks are half what they were in 1999." In addition, President Leonid KUCHMA announced earlier this month that the only working reactor at the accident-prone Chernobyl nuclear plant would shut down on December 15th. Experts estimate that Chernobyl accounts for six to eight percent of Ukraine's electricity output, which has halved since independence in 1991. It is predicted that instead of four nuclear reactors not working this winter, the financial situation might leave six nuclear without nuclear fuel this winter.

Ukraine Hosts Huge NATO Exercise

· The Cooperative Partner-2000 10-day naval exercises of NATO started in Ukraine today. Participating in the exercises will be over 40 military vessels, 30 aircrafts, and 5,500 servicemen, including 900 marines from Ukraine, Belgium, France, Germany, Greece, Italy, Holland, Spain, Turkey, Great Britain, the USA, Sweden, Bulgaria, Romania, Georgia, and Azerbaijan. Still deeply against NATO expansion, Russia decided not to join the maneuvers, even though it was invited. . Earlier this year, however, Russian President Vladimir PUTIN indicated he would like to improve Moscow's ties with NATO. Participants will take part in the action, imitating landing, rescue and peacekeeping operations. Ukrainian navy spokesman Mykola SAVCHENKO said, "The Cooperative Partner-2000 naval exercise is the largest such event since Ukraine's independence and is extremely important for mutual understanding."

South Caucasus & Central Asia

Rus-Georgia Sign First-Ever Security Agmt.

· Russian Security Council Secretary Sergei IVANOV held talks in Tbilisi on Thursday with his Georgian counterpart Nugzar SADJAYA, President Eduard SHEVARDNADZE, State Minister Gia ARSENISHVILI, and parliamentary speaker Zurab ZHVANIA. IVANOV assured ZHVANIA that Moscow respects Georgia's territorial integrity and the inviolability of its frontiers. IVANOV and SADJAYA signed the first-ever Russian-Georgian statement on se

European Republics

Lithuania Not To Cut Defense Spending

· The Lithuanian parliament, in a vote of 64 to 13, on Thursday voted not to shift funds from the defense budget to education. The bill, introduced by the non-parliamentary New Alliance (Social Liberals) and placed on the parliamentary agenda following a petition drive, sought to divert about 148 million litas ($37.5 million) in budget funds from defense to education. Opponents of the bill, including the government, linked it to anti-NATO sentiments and populism, though the New Alliance has confirmed its full commitment to NATO integration, RFE/RL Newsline reported.

Ukraine's Fuel And Energy Minister Resigns

· Ukraine's Fuel and Energy Minister Serhiy TULUB on Thursday submitted his resignation to President Leonid KUCHMA. Government spokeswoman Natalya ZARUDNA said Prime Minister, "Viktor YUSHCHENKO is ready to a to agree to TULUB's request." Under Ukrainian law, the President must approve all resignations. TULUB said that the main reason for his resignation was a disagreement with top government officials over how Ukraine could overcome its current energy crisis. "In the aggressive environment in the government surrounding me and the ministry, I cannot fulfill the duties which the President assigned to me, and so I announce my resignation." TULUB has also failed to push through his proposals to reform the industry. He claimed that the government actually wanted to handover control of the energy sector to a selected group of businessmen, while avoiding real reform.

Deputy Prime Minister in charge of energy, Juliya TYMOSHENKO said that TULUB, "has done the right thing by resigning and honestly acknowledging that he cannot complete [his] work." She told the parliament that Ukraine needs $13 billion gryvnia ($2.4 billion) this year to ensure the smooth functioning of the energy sector and survive through the coming winter. She assured lawmakers that the government will manage to collect this sum as payment for electricity. A shortage of coal, oil, and

When you need to know it as it happens




June 19, 2000

Intercon's Daily

curity issues, which listed as shared priorities the expansion of bilateral political, economic and military cooperation and pledged cooperation in the struggle against terrorism, organized crime, and arms and drugs trafficking, RFE\RL Newsline reported.

Meanwhile, Georgia and Russia will hold a second round of talks on the withdrawal of Russian troops from Gudauta and Vaziani bases on June 23rd and 24th. During earlier talks, Russia confirmed it is ready to cut its military hardware till the end of 2000 and to withdraw two its bases from Georgia till July 1, 2001, Prime News Agency reported. The two sides have disagreed on the division of property. Chairman of the Parliamentary Committee for Defense and Security Revaz ADAMIA pointed out that, according to the Vienna Convention, the immovable property of Russian military bases dislocated in Georgia is the property of Georgia.

Turkey Grants Kyrgyzstan $1B In Military Aid

· Head of Logistic Department of the Turkish General Staff Unal OZSIPAHIOGLU and Kyrgyz Deputy Defense Minister and Chief of General Staff Nuredin COMOYEV on Friday signed an agreement, whereby Turkey pledged to grant $1 billion in military aid to Kyrgyzstan. OZSIPAHIOGLU said at a press briefing that Turkey's main goal is to help Kyrgyzstan fight against terrorism and maintain security. It was reported that the Turkish Armed Forces (TSK) had become a provider of military training to many countries in the Balkans, Middle East and the Caucasus. In a major foreign policy overhaul, Turkey has recently declared that relations with European and Asian countries are one of the two top priorities of its foreign policy and Turkey is determined to act as a pivotal player in Central Asia. Earlier this month Foreign Minister Ismail CEM visited Azerbaijan, Kazakhsta, and Kyrgyzstan.

Kazakhstan Industrial Production Grows

· Kazakhstan registered a 17.1 percent increase in industrial output during the first five months of this

year, according to the State Statistical Agency. Extraction of oil rose by 16.8 percent compared with the same period in 1999, iron ore by 250 percent, and natural gas by 30 percent, and non-ferrous metals by 15.8 percent. Production in the engineering sector grew by 50 percent and in the ferrous metallurgy sector by 40 percent. For the first four months of the year, the combined national and local budgets registered a surplus of 15.7 billion tenges ($109 million), which is equal to 2.3 percent of GDP.

Turkmen Tightens Restrictions On Foreigners

· At a Cabinet meeting on Thursday. Turkmen President Saparmurat NIYAZOV demanded tighter restriction on foreigners in Turkmenistan. Citing an unnamed source Reuters reported that the President "supported the idea of creating an inter-organizational council responsible for the control and registration of foreign citizens arriving in and located in the country." The source added that the state would work with the cooperation of the National Security Committee (KNB), the Foreign Ministry, the Interior Ministry and the border service. Information on visas, arrivals and foreigners' whereabouts during their stay will be collected in a computer center controlled by the KNB. NIYAZOV said on national television that the new system was being introduced as a matter of "national security." He said, "It is not that we do not trust people, we just need law and order. There are those, for example, who live in [the capital] Ashgabat without a visa and who are buying and selling houses."

NIYAZOV also repeated earlier calls for borders to be strengthened, particularly along Turkmenistan's northern frontier with Uzbekistan. Turkmenistan has distanced itself increasingly from other former Soviet republics, introducing visas unilaterally for members of the Commonwealth of Independent States last year. Analysts believe NIYAZOV's isolationist economic and political policies result partly from a wariness of outsiders and how they view his gas-rich state of five million people.

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

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