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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Wednesday, July 19, 2000

Russian Federation


Duma Overrides Federation Council's Veto

· The Russian State Duma in a vote of 363 to 35 today decided to override the Federation Council's veto of key legislation aimed at reduce the power of regional governors in the upper house. The two houses of parliament had been in a deadlock over President Vladimir PUTIN's government reform plan, which provides for the removal of governors and regional leaders in the Federation council and the stripping of immunity from prosecution. The reform package also includes a bill, whereby PUTIN would be granted the power to disband the upper house. Federation Council member as head of the Chuvashia region Nikolai FYODOROV warned that the Duma vote could cause unrest. He said, "All these bills do is to weaken the upper chamber as a chamber representing the regions. A strong regional power seems unacceptable to the Kremlin bureaucrats." The Federation Council must still consider the amended bill denying governors the right to sit in the chamber. The Duma in a vote of 308 to 88 with five abstentions approved a compromising amendment, which allows elected regional leaders to be replaced by appointed legislators in the Federation Council. The main change to the bill is the stretching of the current Federation Council members' terms from February 1, 2001 to December 31, 2001. To soften the blow to regional leaders, PUTIN has expressed interest in forming a presidential advisory council comprised of governors. FYODOROV protested that plan Wednesday, saying it would be unfair to the smaller regions.

The Duma was due later in the day to consider tax legislation vital to next year's budget, which would introduce reforms to reduce tax burdens, improve the investment climate and encourage more effi

cient collection. The Russian State Duma is expected to give quick approval, but the measures could meet opposition in the upper chamber from governors who stand to lose tax revenue.

Berezovsky Steps Down From Duma

· Upon his resignation as deputy to the Russian State Duma, business tycoon Boris BEREZOVSKY said, "The actions of this government are absolutely dangerous to society. It does not take society into account. It thinks it knows better than society what that society needs. Either Russia becomes a normal country and business will receive support from the state, or Russia will stop being a normal country and go through another round of hell." Duma members voted by 346 votes to five to approve BEREZOVSKY's resignation — the first time in post-Soviet Russia that a member of parliament has quit in protest. BEREZOVSKY said, "It is vital today to create a constructive opposition to the authorities. Thousands of people already understand that the actions of the authorities are dangerous for our society, brazen and dangerous. We must try to stop them, hold them in check." BEREZOVSKY pledged to organize an opposition group against President Vladimir PUTIN. BEREZOVSKY has accused PUTIN of trying to turn Russia into a Latin American-style regime.

Customs Officers Seize Radioactive Container

· Russian customs officers in St. Petersburg seized a container emitting heavy radioactivity that was bound for Kazakhstan,

Today's News Highlights


London Club Debt Rescheduled

Unexim Bank Faces Legal Case

Yukos Reports 1999 Profits

European Republics

Estonian Privatization Sales

Shell To Use Ukrainian Pipes?

South Caucasus & Central Asia

Zhvania Speaks In Washington

Ferror-Walden Meets Aliyev

Turkey Turns Over Boat To Azeri




July 19, 2000

Intercon's Daily

the Associated Press reported Tuesday. The container, which shipping documents said contained stainless steel waste, was emitting radiation seven times more intense than acceptable levels. The actual contents of the container weren't immediately known. The shipment originated in the Netherlands, according to the regional customs department. Since the collapse of the Soviet Union, concerns have been high regarding the smuggling of nuclear materials out of the country. Many nuclear facilities are unguarded or poorly monitored. Last week, Kazakh authorities reported they had foiled a smugglers' plan to transport four kilograms of uranium-containing metal rods to Afghanistan.


Ruble = 27.81/$1.00 (NY rate)

Ruble = 27.70/$1.00 (CB rate)

Ruble = 25.59/1 euro (CB rate)

Russia Gives London Club With Debt Offering

· Russian Prime Ministers Mikhail KASYANOV announced that the government is presenting London Club creditors of $32 billion in defaulted Russian debt a formal offer for exchanging Soviet-era debt for $21.2 billion of new dollar-denominated bonds. The offer includes swapping old debt for $18.4 billion Eurobond due in 2030 and a $2.8 billion Eurobond due in 2010. Creditors have until August 11th to respond to the offer, with the exchange expected to close on August 25th. The exchange of the debt, held by Russian state debt agent Vneshekonombank, will be one of the fastest-ever sovereign restructurings, Reuters reported. The agreement, brokered by KASYANOV then the finance minister, was reached in February. According to the restructuring plan, one third of the debt was written off. KASYANOV said, "The Russian government thanks creditors for their understanding and expresses certainty that the restructuring of the debt to the London Club will enable formation of a realistic payment schedule for foreign debt and over the short-term, renew the faith of investors." Russia is still negotiating the rescheduling of the $42 billion owed to the Paris Club of creditors. A two-year reprieve on repaying $8.1 billion to the Paris Club expires in December.

Unexim Bank Face Legal Battle

· Unexim Bank, which reached an agreement in

June with creditors to restructure $2 billion in debt, could face a court battle disputing the settlement, the Vedomosti reported. A Russian company Iridium SB has appealed the court decision of July 3rd that stopped Unexim's bankruptcy, and a judge will now decide whether to accept the appeal and set up a hearing. The company is basing its appeal on Unexim's unredeemed $50,000 promissory note. Unexim creditors last month approved a debt restructuring agreement giving them a 10 percent cash payment, new dollar bonds and potential profit from other assets in exchange for their claims.


Amnesty For State Asset Sales?

· The Wall Street Journal Europe has quoted Dmitri KOZAK, deputy chief of staff for Russian President Vladimir PUTIN as stating that Russia should offer amnesty for illegal acts committed during the sale of state assets after the end of the Soviet regime. A major review of privatization sales, "could plunge the country into chaos," KOZAK said. He added, "It is now entirely possible and necessary to adopt an amnesty for legal violations during privatization." AvtoVAZ executives last week were charged with tax evasion as Russia's top car producer joined a list of companies targeted in a government fight to limit the influence of powerful tycoons and enforce the rule of law. The Interros Group has been ordered to pay $140 million to stop an investigation into the privatization sale of Norilsk Nickel.

Yukos Reports $1.15 Billion Profit For 1999

· Yukos Oil Company, Russia's second-biggest oil producer, announced it earned a profit of $1.15 billion last year, after a $640 million loss in 1998. The figures are in line with internationally accepted accounting principles. Earlier, it reported a profit of 6.2 billion rubles ($222.5 million), compared with a loss of 2.3 billion rubles in 1998. Yukos cited higher world oil prices and cost-cutting measures as reasons for the rise in profits. Higher earnings also were due to the fact that Yukos incorporated the earnings of Eastern Oil Company in its balance sheet in the middle of 1999. Dmitry AVDEYEV, an analyst at United Financial Group said, "The company demonstrated satisfactory financial results, despite investors' fears over the lack of transparency, and possible unjustified increases of produc

When you need to know it as it happens




July 19, 2000

Intercon's Daily

tion costs." Yukos plans to offer as much as a 5 percent stake in American depositary receipts before June next year as a first step to increase the company's free float over five years to 25 percent of shares from less than 10 percent now. Yukos plans to produce as much as 50 million tons of crude this year, up 12.4 percent from 44.5 million tons produced in 1999. The company produced 19.6 million tons of oil over the first five months of 2000 or 8 percent up from last year.

Co. and Ukraine's biggest state-owned AvtoZAZ carmaker, said earlier this month it's only built a sixth of 33,500 cars initially planned for this year, as it can't compete with the used-car market.

New NaftoGaz Ukrainy Appointed

· Ukrainian President Leonid KUCHMA appointed Vadim KOPYLOV to the post of the first deputy prime minister for the power industry and fuel and the head of Ukraine's national gas and oil company, NaftoGaz Ukrainy. Prior to his appointment, KOPYLOV served as deputy head of the State Tax Administration. In the past, he also worked as a first deputy minister for the coal industry. Ukraine said last month it agreed with international lenders, including the International Monetary Fund and the European Bank for Reconstruction and Development, on some key reforms needed for making the power industry profitable and attracting more loans from abroad.

Shell Considers Ukrainian Pipes For Project

· Royal Dutch Shell is considering pipes from Khartsyzskyi Trubnyi Zavod, Ukraine's largest pipemaker, to build a gas pipeline between Turkmenistan and Turkey. "The plant has the capacity to produce (enough of) these pipes, the question is about timing," said Igor NAHORNYI, head of the plant's marketing department. Russia's Cheliabinskyi Trubnyi Zavod, however, may compete with the Ukrainian plant for the order. The Royal Dutch Shell Group, General Electric Co. and Bechtel Group Inc. said earlier this year they lowered the estimated costs of the pipeline to $2.2 billion from $2.7 billion to make it easier to raise the construction money.

South Caucasus & Central Asia

Georgia Accepts Democratic Responsibilities

· Speaker of the Georgian Parliament Zurab ZHVANIA today addressed the Carnegie Endowment in Washington, stating that Georgia is recognizing the responsibilities, which come with a maturing democratic state. He said, "we are a much more mature and stable country, with functioning institutions, a reformed, judicial system, free media and a market-based economy that firmly places us among the democratic community of nations…In this regard, we acknowledge and accept our

European Republics

Estonians Seek To Block Sales To Foreigners

· Two big Estonian privatization sales, the railway Eesti Raudtee and the power plant operating company Narva Elektrijaamad, are giving successful Estonians a chance to break into the bidding. Foreign investors have bought up most of Estonia's state-owned companies. The Wall Street Journal Europe reports that Estonia is a model for swift, complete privatization in a region where the shift to free enterprise remains very much a work in progress. Aadu LUUKAS chairman of oil-transit company Pakterminal, says, "We don't have anything against foreign investment. [But] Estonian businessmen have been increasingly able to invest in the economy. And why invest outside Estonia when there is a long-term investment in Estonia?" LUUKAS is also president of the Estonian Business Association. He is one of the members of the local consortium expected to bid for the railway, and he has also signed an open letter calling on the government to renegotiate the power-plant privatization. More than two dozens of Estonia's most important business people have united to block the government's plans to sell the railway to foreigners, although they say their bid will include an undisclosed foreign minority partner.

Ukraine Laws On Used Car Imports Debated

· The Ukrainian parliament approved in the first reading a law restricting used car imports, Ukrainian business weekly magazine Biznes reported. The law would boost excise taxes and customs fees. If approved in the final vote, it would make importing used cars unprofitable. The parliament is expected to have the final reading of the law during the next session beginning in September. AvtoZAZ-Daewoo, a joint venture between Daewoo Motor

When you need to know it as it happens




July 19, 2000

Intercon's Daily

responsibilities¾responsibilities which include the challenge of responding to the concerns and needs of our citizens, our neighbors, and the international community." He pointed out that while Georgia has passed 700 pieces of legislation and a new framework for economic and civic development, he voiced concern that "our new laws remain frozen on paper." ZHVANIA said that corruption and irregularities in the rule of law are rooted in, "so-called untouchable public figures and that which lies more deeply rooted within our institutions." The Chairman noted that the parliament is taking steps to root out institutional corruption by "strengthening the oversight, monitoring, and concrete audit functions of individual parliamentary committees to regulate the expenditures of our ministries." He claimed that this measure will have powerful affect on the institution and individuals. It should be noted that on July 11th Georgian President Eduard SHEVARDNADZE signed a decree establishing an independent anti-corruption commission, to develop a national Anti-Corruption program with recommendations to be submitted by September 20th. ZHVANIA concluded by saying that Georgia has, "already taken the first critical steps¾recognizing our responsibilities and acknowledging the importance and difficulties associated with building a stable and transparent state."

Four Energy Officials Resign; Investigation

· The Georgian first deputy fuel and energy minister handed in his resignation along with three other high-ranking officials in the Georgian energy industry, Prime News Agency reported. First deputy fuel and energy minister Malkhaz KIPSHIDZE, general director of Sakenergo-2000 Zurab MENABDE, one of the directors of the Energy Wholesale Market Temur KIPIANI, and the accountant of the Wholesale market Vladimir PAPIASHVILI signed resignation statements. Their resignations were allegedly caused by recent statements of Chamber of Control chairman Sulkhan MOLASHVILI, who demanded a trial of certain high-ranking officials in the energy field in Georgia. Georgia's Prosecutor General

Jamlet BABILASHVILI has launched an investigation into violations in the energy sector.

Aliyev Calls For OSCE To Be More Active

· On Tuesday, Azeri President Geidar ALIYEV met with Organization for Security and Cooperation in Europe (OSCE) chair and Austrian Foreign Minister Benita FERRERO-WALDNER in Baku. The OSCE has expressed hope that Azerbaijan and Armenia will compromise and find a peaceful settlement of the Nagorno-Karabakh conflict. FERRERO-WALDNER earlier held discussions with Armenian President Robert KOCHARYAN and opened an new office of the OSCE in Yerevan. The OSCE is interested in assisting legislative, human rights and constitutional reforms in Armenia. The new office will facilitate this and work further the Nagorno-Karabakh settlement. ALIYEV told FERRERO-WALDNER, "I think that the OSCE ought to activate its work and be more responsive. At the same time I will continue my meetings with Armenian President Robert KOCHARYAN." The two leaders are expected to hold talks in September in Ukraine and again in New York in 2001. Azeri Foreign Minister Vilayat GULIYEV said FERRERO-WALDNER had made no new proposals to settle the conflict. He said, "The OSCE has brought no new proposals, although there are some elements that need to be carefully looked at." Both sides have ruled out a territorial swap. FERRERO-WALDNER welcomed the hand over of six Azeri prisoners of war on Tuesday, Reuters reported.

Turkey To Grant Azerbaijan A Naval Craft

· The Turkish Navy will grant a TCG AB 34-type fighter boat to the Azerbaijan Naval Forces in line with a military cooperation pact between the two countries. A ceremony on Monday marked the delivery at Emircakabey Quay of Izmir, southwest Turkey. The ship set sail for Azerbaijan with 28 Azeri naval personnel and two Turkish advisors on board. Turkey has attached great importance to the development of political, economic and military relations with Azerbaijan.

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

Nika Japaridze, Summer Intern

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