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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, June 6, 2000

Russian Federation

Politics

Clinton Addresses The Russian State Duma

· Bill CLINTON became the first US President to address the Russian State Duma on Monday. He was welcomed into the chamber with polite applause and some heckling remarks from Liberal Democratic politician Vladimir ZHIRINOVSKY, who shouted, "Don't interfere in our home affairs! Lift sanctions from Iraq!" CLINTON praised Russia's progress towards democracy and a market economy over the past decade, stating that this was the most important transition he would witness in his lifetime. He noted that the economic reforms already implements have helped to improve the quality of Russian people's lives. CLINTON said that he backed Russia's economic reform plans. He pledged to support Russia's entry into the World Trade Organization (WTO). The US President stressed that globalization had created new opportunities for prosperity, but also new security challenges from the spread of weapons technology and new threats to the environment. He touched on the thorny issues of arms control, Chechnya and Kosovo. CLINTON supported Russia's right to protect its territorial integrity, but disagreed with the military offensive in Chechnya, pointing out that it had caused large numbers of civilian casualties, refugees and lacked a clear path toward a political solution. He defended NATO-led intervention in Kosovo, saying the peace plan in force there guarantees majority rule while protecting minority rights.

Marina MITINA, Liberal Democratic Party activist, criticized CLINTON's remarks. She said, "CLINTON is a waste of time. We don't need his lectures ¾this is our country. Why does America tell Russia what to do? Russia is a great country and we will do what is best for Russia. This Yankee should go home."

Communist party leader Gennady ZYUGANOV said, "I expected that CLINTON would give a more honest assessment of the situation in the Russian Federation. We are for dialogue and we think that it is impossible to wage wars in the modern world."

Economy

Ruble = 28.34/$1.00 (NY rate)

Ruble = 28.30/$1.00 (CB rate)

Ruble = 27.10/1 euro (CB rate)

Gokhran Not to Sell Palladium, Platinum

· Chairman of Gokhran Valery RUDAKOV on Wednesday announced that Russia will refrain from exporting platinum and palladium this year because the government doesn't need the revenue. He added, however, "If we will sell then we will sell small volumes for the needs of domestic market consumers." Russia supplies about two-thirds of the world's palladium and one-fifth of the platinum. The shipments from Russia originate from Central Bank and Gokhran stockpilies. Norilsk Nickel, the world's number two palladium producer, also sells both metals. Norilsk has said it is exporting both platinum and palladium. The Central Bank hasn't disclosed whether it's exporting. Palladium has risen 67 percent over the past 12 months, outpacing platinum, which has gained 50 percent over the same period. "We start to sell when cash is required by the government and the president or by the state budget. All the planned sells [by

Today's News Highlights

Russia

Forex, Gold, Money Supply

Putin Fails To Recruit Clinton

European Republics

Estonia's Trade Deficit Grows

Ukraine Admonishes Gas Theft

South Caucasus & Central Asia

AES Prepares Tbilgas Plan

Azeri Opens Oil And Gas Show

Kazakh To Boost Investment

Politics-Economics-Business

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Tuesday

June 6, 2000

Intercon's Daily

Gokhran] are known a year in advance following the (state) budget approval and its terms, " said RUDAKOV. He noted that Gokhran's sales do not have as much impact on the market as Norilsk and the Central Bank because they are small volumes.

Forex, Gold Reserves, Money Supply Grows

· Russian foreign currency and gold reserves totaled $19.1 billion on May 26^th, the highest since July 1998, as the Central Bank bought dollars. The reserves rose $800 million in the week to May 26^th, after climbing $600 million in the previous week. The reserves last topped $19 billion in July 1998, before Russia defaulted on $40 billion of Treasury debt and gave up defending the ruble. Russia's foreign currency and gold reserves reached a high of $19.2 billion on July 24, 1998.

The Central Bank reported that Russia's money supply expanded by 100 million rubles ($3.5 million) in the week ending May 29^th. The money supply, which includes cash currency in circulation plus required reserves, grew to 362.2 billion rubles from 362.1 billion rubles on May 22^nd.

Business

Yukos Cuts Authorized Shares

· Russia's second largest oil producer Yukos Monday said its annual meeting had approved recommended dividends and eliminated authorized shares the board could have issued. Changes to the charter at the weekend meeting limited capital to the already issued 2.24 billion ordinary shares and required a supermajority of 75 percent plus one share to approve any further share issues, according to a Yukos statement. Shareholders also approved a dividend previously recommended by the board, 1.34 rubles ($0.0473) per ordinary share on 1999 results. It had not paid dividends on the previous year. The company, for years a target of criticism by foreign investors alleging shareholders' rights violations, approved a new 15-member board of directors with outside shareholders, three current company executives and two former executives. Yukos said it planned to release consolidated US standard GAAP accounts for 1999 in July and committed to releasing quarterly audited GAAP results in 2001. It also said it would organize within a year a level one American Depositary Receipt program, which would increase liquidity by allowing

foreign trade of the share look-alikes, backed by equity on deposit at a depositary.

Russky Alyuminiyum To Take Over BrAZ

· Russky Alyuminiyum, a Russian aluminum company moving to take control of 75 percent of the nation's aluminum producing assets, is expected to take over Bratsky Alyuminievy Zavod (BrAZ), Russia's top aluminum maker, at the smelter's shareholders meeting on June 3rd. BrAZ General Director Yuri SHLYAFSHTEIN agreed to sell his 30 percent stake in the company to Russky Alyuminiyum. BrAZ plans to produce 900,000 tons of aluminum in 2000. Sibneft, the nation's sixth oil producer, in May took a majority of board seats at Krasnoyarsky Alyuminievy Zavod, increasing its control over Russia's number two aluminum producer as part of Russky Alyuminiyum.

Tuesday Tid-Bit

Putin Fails To Recruit "Saxophonist"

· In honor of US President Bill CLINTON's visit to Moscow, the Russian political satire program Kukly, or puppets, featured a special show with caricatures of CLINTON and Russian President Vladimir PUTIN. In this episode the former KGB agent, egged on by his chief of staff Alexander VOLOSHIN, is ordered to recruit the US president, codenamed the Saxophonist, during the summit. PUTIN is told that Lieutenant Maria Ivanovna LEVINSKY has already made contact and that the new agent likes cigars. PUTIN tries hypnotism. "Bill, you are now falling asleep," he says. "But first you will do as I say. Sign the Anti-Ballistic Missile treaty. Sign it. Sign it. Sign it." PUTIN falls asleep. Later PUTIN tries blackmail, but CLINTON says it won't work. "Blackmail? The American people already know all about me... Sure, I'll work for you. But what I want is money." While the story is all fun and games, the attacks against Kukly's broadcaster NTV are serious. Last month, the television station was raided by tax police, in what many viewed as PUTIN's first attempt to crack down on the free press. The US President defended free speech during an interview on talk show Ekho Moskvy radio on Sunday. CLINTON, good-naturedly, said he hoped he could get a tape of the show. "It does not bother me. I have been lampooned in America a lot. There is almost nothing anybody can say to make fun of me that has not been said already."

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	Tuesday		June 6, 2000
	Intercon's Daily
		conflicts and that bilateral cooperation in the energy sector has a bright future. NAZARBAYEV said this at a ceremony to mark the 250th birthday of the Ukrainian city of Dneprodzerzhinsk. He also expressed hopes that his country could supply enough oil to Ukraine after the completion of a pipeline linking the Caspian Sea and the Black Sea in 2001. Ukrainian President Leonid KUCHMA said he hoped Kazakhstan could participate in Ukraine's privatization of the energy sector. NAZARBAYEV studied in Dneprodzerzhinsk in 1958 and 1959. Ukraine To Sell Bigger UkrTelecom Stake · Ukraine is considering whether to increase the stake it plans to sell in UkrTelecom, the national phone company, from 25 percent to 45 percent, Biznes Ukrainian business weekly newspaper reported. Head of the State Property Fund Alexander BONDAR said the government may ask the parliament to approve selling the bigger stake after deputies vote for the current version of the law. The government, which initially planned to raise at least $548 million from selling 25 percent plus one share in the company by early next year, said it expects that the parliament will approve the law this week, after it rejected the draft in last week vote. Ukraine To Clamp Down Gas Theft · Ukrainian President Leonid KUCHMA has issued an order clamping down on the theft of Russian gas in transit to western markets across Ukraine. An estimated 1.2 billion cubic meters of Russian gas bound for Europe has been illegally siphoned off. This volume of gas is worth $50 million to $70 million in Europe. Russia's gas monopoly, Gazprom, has accused Ukraine of stealing 3 billion cubic meters of gas in 1999. Ukraine and Russia have been working to negotiate gas debts. Russia estimates that Ukraine owes it more than $2 billion, but Ukraine refutes that figure, citing a lower figure. Ukrainian Deputy Prime Minister Yuliya TYMOSHENKO has stated that Ukraine wants to negotiate measures to restructure its $1.4 billion gas debt to Russia. The President ordered Prime Minister Viktor YUSHCHENKO and the head of energy company Naftohaz to report to him by June 10 on the progress made in resolving the issue with Russia. KUCHMA said, "Unsanctioned tapping and sale of gas to consumers unable to pay...is categorically prohibited until the legal issue is resolved
	European Republics Estonia's Trade Deficit Grows In April · Estonia's trade deficit grew slightly in April, month-on-month. Analysts on Monday said they expect the widening trend to continue as the economy picks up and domestic demand revives. The statistics office said the April foreign trade deficit rose to 1.539 billion kroons ($92.2 million) from 1.475 billion kroons in March. The office added that exports fell 13 percent month-on-month in April to 3.903 billion kroons, for an annual increase of 45 percent. On a monthly basis imports fell 9 percent to 5.442 billion kroons but rose 37 percent year-on-year. "I think [a rising trade gap] will become a trend because domestic demand...has been starting to pick up and this is another sign the economy is growing," said Deutsche Morgan Grenfell analyst Chris BLEVINS. Preliminary first quarter gross domestic product (GDP) data for Estonia is due out today and analysts have forecast an annual rise of between 5 percent and 8 percent. The Estonian economy shrank 1.1 percent in 1999. The figures are set to mark a turning point for the country, away from 1999's prolonged recession brought on by the collapse of key eastern export markets after Moscow devalued the ruble in August 1998 and the Russian economic collapsed. Analysts said a rising trade gap is not worrying and April's month-on-month rise was another sign the economic rebound is in full swing. Before the Russian crisis, the European Union (EU) accounted for only about 40 percent of Estonian exports. The EU's share of total imports edged up to 64 percent in April from 63 percent in the previous month while the CIS' share of imports in April was 11 percent, down from 12 percent in March. The biggest rise in exports was in textile and products, which accounted for 12.4 percent of total exports in April, compared with 11.9 percent in March. Chemical products showed the biggest increase in imports in April, accounting for 7.1 percent of the total, versus 6.8 percent in March. Ukraine-Kazakh BoostEnergy Cooperation · Ukraine and Kazakhstan agreed Friday to further strengthen cooperation in the energy sector. Kazakh President Nursultan NAZARBAYEV said the two countries do not have any political or economic


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Politics-Economics-Business				Page

Tuesday

June 6, 2000

Intercon's Daily

with Russia." Ukraine's population of around 50 million consumes about 75 billion cubic meters (bcm) annually, making it the world's sixth largest gas consumer. In 1999, it received 55 bcm of Russian natural gas, including 31 bcm as payment for transit.

South Caucasus & Central Asia

AES To Present Tbilgas Privatization Plan

· American company AES Silk Road is ready to take over the management of the Tbilisi natural gas distribution company Tbilgas for 25 years. The company is preparing to present its final version of the Tbilgas privatization plan in the next few days. Georgia's main supplier with natural gas, Group of International Companies Itera-Holding is also participating in the Tbilgas privatization. Tbilisi's local government official Giorgi SHARADZE said Itera proposes to purchase 75 percent of Tbilgas shares for $ 18 million, the amount equal to the debt of the company. In return, Itera will insure the rehabilitation of the Tbilisi gas supply system. Tbilisi government still believes that proposals of American AES Silk Road more attractive. The only problem is that AES Silk Road has been preparing the agreement for 5 to 6 months now, SHARADZE told the Prime News Agency.

Azerbaijan Opens Oil And Gas Show

· Today, Azerbaijan opens its 7^th annual oil and gas show. Interested energy and service companies will be sizing up Azerbaijan's new found reserves and looking into how fast this Caspian state can implement its projects to export resources to western countries. James BALL, managing partner of London consultancy Gas Strategies said, "What's changed since last year is that Azerbaijan has more credibility than any other Caspian gas supplier to Turkey and in my view this is now Azerbaijan's race to lose." Turkmenistan may be pulling ahead of Azerbaijan, regarding gas sales. Turkmenistan reached a gas sales agreement with Turkey earlier this year for the delivery of 16 billion cubic meters

(bcm) of gas annually to Turkey beginning in 2002. Turkmenistan has also pledged to sell gas to Russia. BALL pointed out that, "Azerbaijan has a two-year window to prove itself, and needs to make substantial progress in the domestic commercial and political infrastructure required to put together a clear, clean defined gas package to sell to Turkey — that's the real challenge now." Azerbaijan, which has never exported gas as an independent country, needs to clarify many domestic issues including which government agency will sell the gas and what will happen to the internal market, he noted. Azeri State Oil Company (Socar) is currently working on a gas strategy, but has so far revealed no details about the plan. Julian LEE, senior Caspian analyst at London's Center for Global Energy Studies said, "There's still lots of interest in acquiring acreage in Azerbaijan, although delays to projects due to a lack of export capacity could limit that enthusiasm." In particular, a $3 billion phase one development plan for the flagship BP Amoco-led Azerbaijan International Operating Company (AIOC) is still on hold until an export solution is found.

Kazakhstan To Boost Doemstic Investment

· Kazakh Prime Minister Kasymzhomart TOKAYEV on Thursday said he hopes that domestic firms will invest $1 billion in 2000. This he sees as a goal for Kazakhstan to achieve after recovering from the economic crisis. He points out that Kazakhstan has been successful in attracting foreign investment since independence, but he believes that an equal commitment from domestic firms is necessary to fully recover. He notes that, "For 2000, about 65 contracts have been signed with domestic investors for priority sectors of the economy…They are worth almost $1billion...and will create 13,000 jobs." He said, "We should pay equal attention to foreign as well as domestic investors…If we don't do this, our economy will not develop as it should...and we shall always have a distorted economy." Kazakhstan relies on oil and metal exports for more than two-thirds of its earnings, but has been working to diversify its economy.

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

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