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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Monday, July 17, 2000

Russian Federation


Berezovsky To Quit Duma In Protest

· Russian business tycoon and State Duma deputy, Boris BEREZOVSKY, said he will give up his post in parliament because he disagrees with President Vladimir PUTIN's policies. "I do not want to take part in the dismantling of Russia and the imposition of authoritarian rule," BEREZOVSKY said. He has stated that the Federation Council is the, "only guarantee that power will not be usurped in Russia." In an interview, he accused the Kremlin of persecuting the rich and called for an amnesty. By stepping down, BEREZOVSKY would relinquish his right to immunity from prosecution. BEREZOVSKY is known to be a powerfully influential oligarch, which earned a position in the so-called "family." The "family" is a grouping of aides and businessmen close to former President Boris YELTSIN, who helped secure YELTSIN's re-election and PUTIN's election in March. He is said to have been behind many economic policies and government reshufflings. BEREZOVSKY told the Financial Times that the wealthy were being persecuted for violating a set of laws, which no one could possibly follow. He said PUTIN's government should grant a general amnesty, covering the chaotic post-communist period, for all citizens. Given the huge social disruption of the post-communist period, only those who, "have been asleep for the past 10 years'' were not at risk of going to jail, BEREZOVSKY said. PUTIN has made it clear he will distance himself from the oligarchs and enforce a "dictatorship of law." Tax police and prosecutors have pursued cases against Russia's largest oil company LUKoil, Media-Most, AvtoVAZ and Interros, which purchased a stake in metals giant Norilsk Nickel.

Military Row Calms After Talks With Putin

· A military row between chief of General Staff Anatoly KVASHNIN, who wants to integrate the missile rocket command under the conventional forces, and Defense Minister Igor SERGEYEV, who is opposed to the plan, has settled down after two closed-door meetings with President Vladimir PUTIN. The two were summoned to the Kremlin on Saturday and Sochi on Sunday, after PUTIN warned them against airing their differences in public. SERGEYEV had called the proposal "plain madness" and characterized the plan as "a psychotic attack." The Defense Minister said the Sochi talks had produced a "unified assessment" of Russia's armed forces. The two military officials further disagree on Russia's role with NATO. KVASHNIN believes that Russia can no longer keep a distance from NATO and urges Russia to form a closer relation with the alliance, the Financial Times reported. SERGEYEV, however, is strongly anti-NATO. The Russian military also opposes NATO's actions, particularly its intervention in Kosovo. PUTIN, SERGEYEV, and KVASHNIN, in addition to alleviating the dispute situation, worked on preparations for the upcoming meeting of the Security Council.

Duma To Overturn Federation Council's Veto

· The final talks of the Conciliation Commission, made up of representatives from the Russian State Duma and the Federation Council, failed to reach an agreement on Friday to make President Vladimir PUTIN's reforms less severe on regional governors. Oleg

Today's News Highlights


Seleznyov To Lead New Party

Onako Stake To Be Privatized

UES Restructuring On Hold

European Republics

Estonian Energy Sale In Doubt

IMF To Review CB Audit?

South Caucasus & Central Asia

Fund For Base Removal

Ramco To Sell Azeri Oil Stake

Kazhegeldin Released In Rome




July 17, 2000

Intercon's Daily

MOROZOV, a Duma deputy said the commission's effort to reach a compromise, "ended in complete failure." The Duma is now likely to overturn a Federation Council veto on the reform bill, which will strip the upper chamber's governors of their powers. The bill is part of an effort by Russian President Vladimir PUTIN to centralize authority and bring Russia's regional governments in line with the federal government. On June 28th, the Federation Council vetoed the bill, which had passed the Duma and called for replacing existing governors and legislators in the council with full-time senators. The Duma has already passed all three bills in the package with majorities large enough to override the veto. PUTIN said his aim was not to weaken the regions but to enhance central authority. "Nobody wants to weaken the regions politically or economically…The governors should remain a strong link in the chain, but the process of weakening the federal center must be stopped."

Seleznyov To Lead New Party: Russia

· Gennady SELEZNYOV, the speaker of Russia's State Duma and one of the most influential Communists in the country, was elected Saturday to lead a new left-center party called Russia. The new party held its founding Congress with delegates from the movement's 77 regional branches - representing 114,000 members. The Russia party aims to transform Russia the country into a post-industrial society by pursuing a pro-active course from the start. "The supporters of the left-centrist coalition assume that we should work on behalf of the country today instead of postponing the realization of our programs until we seize power," head of the coordinating council, Valentin TSOI explained.

Chief of staff Alexander VOLOSHIN has welcomed the new party, saying that this proves the Communists Party is not gaining strength. However, specialists speculate that this is a move to create a side-party to subvert and make it obedient to the Kremlin's wishes. SELEZNYOV told reporters that the Russia movement would seek partners to form a left-center coalition, but would remain on good terms with the Communists.

Communist party leader Gennady ZYUGNAOV on Thursday described the Russia movement's formation as "not expedient," the United Press Interna

tional reported. The Communists' total of 88 seats is still the highest of any party in the 450-seat Duma, but the party's grip on the house, including its ability to control the legislative agenda, has significantly diminished.


Ruble = 27.86/$1.00 (NY rate)

Ruble = 27.82/$1.00 (CB rate)

Ruble = 26. 04/1 euro (CB rate)

Strong Ruble Is Bad News?

· Presidential economic advisor Andrei ILLARIONOV has warned that a strong ruble could harm Russia's economy. He said, "The significant strengthening of the ruble rate may have, if the tendency continues, negative consequences for the macro-economic situation in Russia." He added, "In the first half of this year, the competitiveness of the national economy, taking into account the exchange rate, has dropped by 30 percent. This means that it will be harder for Russian companies to compete in markets." ILLARIONOV observed that the ruble will continue to strengthen and that the Central Bank at this time lacks the means to carry out a devaluation. "If the government and the Central Bank could have done so they would already have acted to bring down the value of the ruble," Reuters reported. The Central Bank would have to buy billions of dollars every month to achieve such a goal. "This, of course, is theoretically possible but unrealistic in practical terms," he added.

IMF-Russia Discuss Economic Situation

· An International Monetary Fund (IMF) mission is planning to finish its work in Moscow Tuesday and return to Washington Wednesday. The IMF presented the Russian Finance Ministry with a report on the main conditions of a monetary-credit program through the end of 2000 that the IMF intends to offer the Russian government. "A preliminary statement concerning Russia's economic situation is expected to be presented to the government Monday evening," according to an unnamed the source. A World Bank team will arrive in Moscow today to discuss supporting the government's economic program.

When you need to know it as it happens




July 17, 2000

Intercon's Daily


Property Fund To Sell Onako Stake

· The Russian government today announced it has decided to sell its 85-percent stake in Onako, through an investment tender in 2000. The Department for governmental information said that the Russian Federal Property Fund will be in charge of the sale.

Chubais Yields To UES Shareholders

· Head of United Energy Systems (UES) Anatoly CHUBAIS on Thursday delayed the restructuring plan of the power monopoly for several years and heeded to calls for revamping the program. Minority shareholders had complained that the original restructuring plan would have split the power company into 700 small companies, which would be to small to attract serious buyers. CHUBAIS now suggest that the power company be divided into 15 regional power-generating companies, rather than the 70 outlined in management's previous draft plan, The Wall Street Journal reported. He said no assets sales would take place until market conditions improved, UES collects 80 percent of bills in cash, and the assets are assigned a value by appraisers. This could take two to three years. CHUBAIS said, "I say openly that many of these initiatives have been made in answer to shareholder concerns.

On Friday, the Russian Audit Chamber launched an investigation into the sale of 15 percent of shares in UES owned by foreigners. These shares are believed to have been sold in violation of the law.

Sberbank To Adopt To International Standards

· Russia's largest savings bank, Sberbank, has agreed to publish its accounts according to international accounting standards, a demand sought by the International Monetary Fund (IMF). It also agreed to allow the IMF to investigate its accounts and determine whether Sberbank's aggressive lending program threatens Russian financial standing by over extending itself. A recent shareholder meeting approved measures by which foreigners could own shares in the bank. This is seen as a positive move, which will help attract foreign funds. Sberbank President Andrei KAZMIN said he hoped the bank could raise $500 million to $1 billion abroad in the next five years, in part from selling shares to for

eigners, the Financial Times reported. Russia's Central Bank currently owns 58 percent of Sberbank.

European Republics

Estonian Energy Sale Faces Opposition

· Estonia's opposition on Thursday called for a national referendum on the privatization of two power plants in which NRG Energy Inc. is poised to take a 49 percent state stake, Reuters reported. In a statement, opposition leader Edgar SAVISAAR said his Center Party opposed the deal announced last month by the government for NRG pay at least $54.5 million for the stake in the plants. In addition, NRG has pledged to invest six billion kroons ($36.4 million) over 15 years. SAVISAAR said, "...our position [before] was that the sale is not in Estonia's interests. That has not changed…Our neighbor Latvia will hold a referendum this fall to decide the question of privatizing [energy firm] Latvenergo. The Center Party agrees a referendum should also be carried out in Estonia." The Estonian government has come under strong pressure from management at state energy firm Eesti Energia and business groups to call off the NRG deal. They argue it will slow economic development and goes against European competition laws. Finance Minister Siim KALLAS has said final agreement is possible this month. The deal will also make state oil shale firm Eesti Polevkivi a 51 percent owned subsidiary of the plants.

Ukraine Asks IMF To Consider Audit Results

· Ukrainian Prime Minister Viktor YUSHCHENKO has asked the International Monetary Fund (IMF) consider the results of the second audit of the country's Central Bank reserves, while considering a resumption in lending. YUSHCHENKO said in a letter to the Fund's board that the audit found Ukraine did not mishandle the IMF loans and did not misreport size of its reserves to the IMF. YUSHCHENKO said also he hopes that the lending may be resumed within a month and a half. PricewaterhouseCoopers, the world's largest accounting firm, found during the first stage of the audit earlier this year that Ukraine exaggerated the reserves by as much as $713 million in late 1997, allowing it to obtain loans totaling about $200 million from the IMF it would not have received otherwise.

When you need to know it as it happens




July 17, 2000

Intercon's Daily

PricewaterhouseCoopers will complete the third stage of the audit by August. The new stage of the audit will cover February, 1998, through September, 1998.

A Ukrainian delegation led by First Vice-Prime Minister Yuri YEKHANUROV, including Finance Minister Igor MITYUKOV and Central Bank Chairman Volodymyr STELMAKH, will travel to Washington for a visit from July 22nd to 24th to try to persuade the IMF that it should resume crediting under the Extended Fund Facility (EFF) program, halted in September 1999. The government expects this visit to help solve a number of unsettled questions in Ukraine-IMF relations, which have been impeding Ukraine from obtaining foreign credits for almost 10 months. The Ukrainian government has worked to meet IMF demands for the resumption of the EFF program.

South Caucasus & Central Asia

British Create Special Fund For Base Removal

· At an enlarged session of the Organization for Security and Cooperation in Europe (OSCE) Council meeting, British delegates proposed creating a special fund for financing the withdrawal of Russian military bases from Georgia. Georgian first deputy foreign minister of Giorgi BURDULI, who participated in the enlarged session, said that the representatives of all the OSCE participant countries supported the given initiative of the UK delegation. According to BURDULI the finances from the OSCE fund will also be used for the social-economic rehabilitation of Georgian regions, where the bases and Russian ammunition are located, Prime News Agency reported.

Ramco To Sell Azeri Oil Field Stake

· Ramco Energy, a British oil exploration company, today announced an agreement to sell its 2.08 percent stake in a production-sharing agreement for the Azeri-Chirag-Gunashli (ACG) field to Amerada Hess Corp. for $150 million to raise

money for other projects. Chirag produces about 105,000 barrels a day, and Ramco says the ACG field could hold more than 4 billion barrels of oil. Steve REMP, Ramco's chairman and chief executive, said, "We have built up a portfolio of exciting oil and gas projects which we intend to develop and harvest...There is no shortage of opportunities." Hess and Ramco also reached an agreement that gives Amerada a three-year option to join Ramco in projects where it seeks outside participation. Ramco expects to complete the sale by the end of the year, following consents from Azerbaijan's State Oil Company (Socar) and other partners in the Azeri-Chirag-Gunashli group. These partners include BP Amoco, Unocal Corp., LUKoil, Norway's Statoil, Exxon Mobil Corp., Turkish Petroleum, Devon Energy Corp. and Japan's Itochu Corp. Shares of Ramco surged following the announcement, rising as much as 115 pence, or 33 percent, to 467.5 pence on the London stock exchange, the biggest one-day percentage gain since October 1992.

Kazhegeldin Freed, Returns To London

· The former prime minister of Kazakhstan, Akezhan KAZHEGELDIN was released from a Roman detention center on Friday, after Justice Minister Piero FASSINO ruled there were no grounds to detain him any longer. Italian authorities arrested KAZHEGELDIN on an international warrant on July 12th, after he arrived on a flight from London. They said they were studying a request to extradite him to Kazakhstan. KAZHEGELDIN is wanted in Kazakhstan on charges of tax evasion, money laundering, and international acts of terrorism as well as questions related to property ownership in Belgium and Switzerland. Kazakh authorities claim not to have been involved in KAZHEGELDIN's detention. One official said the national police had not received an official notification confirming the detention. KAZHEGELDIN and opposition parties insist that he is innocent and that the charges against him are politically motivated. He is Kazakh President NAZARBAYEV's main critic and political opponent. KAZHEGELDIN returned to London today.

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

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When you need to know it as it happens