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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

Friday, July 21, 2000

Russian Federation

Politics

NTV Searched; Oligarch To Change Images?

· Russian Tax Police on Thursday requested financial documents from yet another Media Most's subsidiary. The Tax Police visited the offices of NTV Plus, the satellite television service, even though the company had been checked by tax authorities a month earlier. Media-Most's spokesman said the company was surprised by the request, as it had offered those same financial documents for scrutiny during the previous search, Kommersant Daily reported. Media-Most comprises more than 20 companies, including NTV, the biggest nationwide TV channel that has been most critical of Kremlin policies. Its chairman Vladimir GUSINSKY has been charged with embezzlement of state money. On Thursday, the Russian Prosecutor's office took an inventory of GUSINSKY's assets, leading many to predict the assets will be seized. GUSINSKY denies any wrongdoing. This is the latest in the Kremlin's campaign to crackdown on Russia's so-called oligarchs

Meanwhile, Interros Holding's president Vladimir POTANIN is proposing that the oligarchs should change their public image. He said, "We should say to people: `You think we were bad, but we want to be normal and socially acceptable.' Let us promise we will all pay our personal taxes and let us also show how much money we spend on sponsoring culture." POTANIN admitted that the oligarchs have too much political influence and that the government was correct in taking measures to regain control. He plans to suggest in a meeting with PUTIN and fellow businessmen that they reflect their western counterparts, who assist in developing joint projects between business and society. POTANIN said, "We can't change our image by

employing a public relations agency [as some oligarchs have suggested], we must show real deeds to prove our good intentions," the Financial Times reported.

Russian Military Helicopter Crashes, Killin 19

· A Russian Mi-8 military helicopter crashed, shortly after take off, near at the Levashovo military base outside St. Petersburg, killing 16 paratroopers and three crewmembers. The helicopter's mission was to conduct regular parachuting exercises. A soldier, who witnessed the crash, told NTV Television that the chopper had spun in the air before falling to the ground on fire. It was not immediately known if there was an explosion as the cause of the crash is unknown. A special Air Force commission has flown to the crash site for the investigation. The helicopter is not believed to have been overloaded. Some of those killed in today's crash were members of a team training for joint maneuvers with Canada. In March, a Russian-made Yak-40 airplane en route to Kiev crashed at Moscow's Sheremetyevo-1 Airport immediately after takeoff, killing all nine people on board.

Economy

Group Of Seven Against Rescheduling

Russian Debt

· The Group of Seven (G-7) industrialized nations meeting in Okinawa are expected to opposed Russian calls for forgiving half of its $42 billion Soviet-era debt owed to the

Today's News Highlights

Russia

Norilsk To Cut Nickel Exports

Telia To Open Internet Company

European Republics

Rus-Ukraine To Hold Gas Talks

IFC May Open Ukrainian Office

Latvia's Trade Deficit

South Caucasus & Central Asia

Shevardnadze Visits London

Armenia Frees Three Azeri POW

Tajik President To Visit Japan

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Friday

July 21, 2000

Intercon's Daily

Paris Club of creditors. It is believed that Russia's growing economy, boosted by high oil and metals prices, shows that Russia is in a position to re-pay its debts. The G-7 nations are likely to urge the Paris Club to negotiate a rescheduling based on the portion of debt due in January. The industrialize nations will also push Russia to implement a reform program in line with International Monetary Fund recommendations. British Prime Minister Tony BLAIR noted, "It is fair to say the Russian economy is now growing again and I think the most important thing will be to discuss with him [PUTIN] the economic reform program in Russia, how it is going and how we can help them," the Financial Times reported. Germany, one of the largest creditors, opposes forgiveness for the Soviet-era debt. German Chancellor Gerhard SCHROEDER said, "Russia is not a third-world country, but a world power…[debt forgiveness is not] what Russia needs." Russian President Vladimir PUTIN believes that debt relief is key to sustaining economic growth. Prime Minister Mikhail KASYANOV on Thursday said, "Russia cannot spend 30 to 40 percent of its budget on foreign debt payments." He also added, "There are no clear grounds for saying that we shall not cope without a write-off of the Soviet debt. When we speak about relief on the Soviet part of the debt burden, we are saying that the burden is slowing down our development. If Russia can pay, this does not mean that it should pay." KASYANOV, in the Financial Times on Thursday, urged the Paris Club to agree to a debt deal similar to the one Russia signed with the London Club in December. The London Club offered a 36.5 percent reduction of the $32 billion Soviet-era debt and rescheduled the rest over 30 years.

Meanwhile, several US Senators in a letter to President Bill CLINTON stated that they, "strongly oppose any further debt rescheduling, reduction or relief for the government of Russia absent significant changes in Russian spending priorities." Senate Leader Trent LOTT (Rep-MS), Foreign Relations Committee Chairman Senator Jesse HELMS (Rep-NC), and Senator John WARNER (Rep-VA), who serves as chairman of the Armed Services Committee, signed the letter. On Wednesday, the House of Representatives voted 275-146 in favor of a bill to try to prevent the US from rescheduling unless Russia shuts down an intelligence listening

post in Cuba. KASYANOV said, "It makes no sense to tie these two things - the station in Cuba and the debts…Our station in Cuba has been in place for many years, and it is no secret to the United States."

Ruble = 27.66/$1.00 (NY rate)

Ruble = 27.63/$1.00 (CB rate)

Ruble = 25.91/1 euro (CB rate)

Oct Nov Dec Jan Feb Mar Apr May Jun Jul

Russian Economic Indicators

· Russian foreign currency and gold reserves rose $500 million to $22.3 billion in the week ending July 14^th, according to the Central Bank. The reserves are at the highest level since 1997. Reserves rose $800 million to $21.8 billion in the week ending July 7^th. Russia's money supply expanded by 10.6 billion rubles ($385 million) in the week ending July 17^th. Russia's money supply expanded by 12.2 billion rubles ($438 million) in the week ending July 10^th, the Central Bank said. The Russian ruble is at the highest level since January 6^th.

Meanwhile, Vneshekonombank (VEB), the Russian government foreign debt agent, today transferred $129.88 million in interest on the 2005 Eurobond and $190.65 million on the 2018 bond. VEB said in a statement the funds had been transferred to Citibank.

Duma Allows Regions To Issue Eurobonds

· The Russian State Duma on Wednesday passed in a third and final reading a bill allowing regions which already have Eurobonds to issue more. This

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	Friday		July 21, 2000
	Intercon's Daily
	is the first time since the 1998 economic crisis that legislators have opened up the prospect of new regional Eurobonds. The bill was passed by a vote of 280-25 with one abstention. Under the bill, the regions would be able to borrow abroad if new borrowing in a single year was not more than the total outstanding debt. Only three Russian regions have issued Eurobonds — the City of Moscow, St. Petersburg and Nizhny Novgorod. Business Norilsk To Cut Nickel Exports, Boost Cooper · Norilsk Nickel, the world's biggest producer of the metal, said it will cut nickel exports in the second half of this year. This will allow Russia to export more copper and sell more nickel on the domestic market for a contract to mint Indian rupees. Russia contracted to mint Indian rupees for the first time last year, and Norilsk delivered 3,700 tons of nickel and copper for the coins in 1999. Over the first six months of this year, the company shipped a total of 4,200 tons of the metals to make the coins. Some analysts, however, speculate that the rumor is simply a campaign to push nickel prices higher, the Financial Times reported. In 1999, Norilsk produced about 220,000 tons of nickel and exported almost nine-tenths of this amount as the metal's price doubled on growing demand. Vnesheconombank To Grant ORT New Loan · Russian state-owned bank Vnesheconombank plans to extend the maturity of a $100 million loan to ORT Television, partly owned by tycoon Boris BEREZOVSKY, and lend the station more money. The bank's President Andrei KOSTIN said the bank will decide in a month on a new $85 million loan; the $100 million loan which was due in January also will probably be extended until the end of this year. A 13 percent stake in the television station was provided as collateral for the first loan. BEREZOVSKY, who resigned from his deputy post in the Russian State Duma this week, said he plans to merge his media companies, including a stake in ORT, TV-6 Television, Kommersant Daily, Noviye Izvestiya, Nezavisimaya Gazeta, Nashe Radio, Ogonyok. Alrosa Reviews Contract With De Beers · Alrosa, which produces about one-fourth of the world's rough diamonds, said it might end a 40-year	trading relationship with De Beers Consolidated Mines because it wants better terms, The Wall Street Journal Europe reported. Alrosa is seeking better terms of payments and possibly equity in De Beers's Diamond Trading Co., and warned it may compete with De Beers by creating a new cartel with diamond producers to control prices and output. Alrosa had been selling its diamonds to De Beers 10 percent cheaper than the market price. Alrosa sells around 60 percent of its diamonds to De Beers for a minimum of $550 million, the Financial Times reported. Russian diamonds make up about 25 percent of all De Beers' sales. Alrosa's decision to review its contract with De Beers followed an announcement that De Beers will no longer buy all excess diamonds on the world market and instead spends more on advertising. Alrosa is seeking alternatives on how to sell more of its gems independently. Alrosa President Vyacheslav SHTYROV said in a statement, "Today, like never before, we have to look for the most constructive ways of further coexistence in the world diamond community." He has outlined four scenarios for a new relationship. Shares in De Beers, the world's largest diamond firm, fell sharply on Thursday. UES To Build Power Line To Japan · Unified Energy Systems (UES), Russia's monopoly power company, intends to build electric power lines to Japan in a project estimated to cost $9.6 billion. Under the project 25.5 billion kilowatt hours of electricity will be supplied to Japan annually until 2012; one quarter of that amount will be supplied to Hokkaido, an island of Japan north of Honshu, and the remainder to the Tokyo grid. Anatoly CHUBAIS, chief executive officer of UES, said he needs to persuade the Russian government to approve a reorganization plan for the operator of the world's biggest electricity grid. Telia To Open Internet Company · Telia, a Swedish telecommunications company, plans to start up an Internet company in St. Petersburg. Telia will hold 65 percent of the company, to be called Telix. Telix plans to introduce such services as cable TV and electronic commerce. Telia purchased a 29.5 percent stake in the Luxembourg-based First National Holding in February, which in turn owns a 49.2 percent stake in


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		Friday Intercon's Daily July 21, 2000

	TelekomInvest, St. Petersburg's leading telecommunications holding company. Russian Aluminum Output Rises · Russia's Siberian-Urals Aluminium Company (SUAL) produced 174,152 tons of the metal in January to June, up 3.4 percent from 168,480 tons in the first half of 1999. SUAL, a merger of the Irkutsk and Urals aluminium plants, produced 297,338 tons of alumina in the first half, up from 283,428 tons in the first half of last year, and 22,410 tons of silicon, up from 17,295 tons in January to June 1999. SUAL's full-year aluminum production target is 343,500 tons, compared with 342,000 tons last year. The company plans to raise alumina output to 578,000 tons from 572,500 tons last year. Russia's Bogoslovsky Aluminium smelter raised production of the metal by 7.1 percent in the first half of this year, to 82,586 tons from 77,108 tons in the first half of 1999. Production of alumina, including hydrate, rose to 509,436 tons from 476,532 tons in the first six months of last year.		Ukraine to find the money, and there is no possibility to take there something, as they have given all they could." He stressed that he sees no possibility to ensure the safety of natural gas transit via Ukraine. Gazprom will consider at least two routes in addition to the Ukrainian one. IFC To Open Ukrainian Bank · The International Finance Corporation (IFC), the World Bank's private lending arm, is considering a plan to open a bank in Ukraine. Its main purpose would be to lend to small and mid-sized Ukrainian businesses and act as an agricultural leasing company in Ukraine. The IFC plans to concentrate on agriculture, finance and telecommunications in Ukraine. Peter WOICKE, IFC executive vice president, met with Ukrainian Prime Minister Viktor YUSHCHENKO earlier this month in Kiev. WOICKE urged the country to agree with the International Monetary Fund on new loans. During his visit in Kiev, he also met Ukrainian President Leonid KUCHMA and Central Bank chairman Volodymyr STELMAKH. Latvia's Trade Deficit Widens · Latvia's Central Statistical Bureau has released a report showing that the nation's trade deficit widened at a faster pace in May than April, as imports grew faster than exports. The trade deficit totaled 72.4 million lats ($120.38 million) in May, compared with 60.4 million lats in the previous month. For the first five months of the year, the country's deficit totaled 273.9 million lats, compared with 233.6 million lats in the same period last year. In 1999, the May trade deficit totaled 48.8 million lats. The country exported 95.6 million lats in goods during May, up 2 million lats from a month ago, while it imported 168 million lats in goods, up 14 million lats. For the year to date, 463.7 million lats in goods have been exported, while 737.6 million lats in goods have been imported. The country's biggest export market in the January-May period was the Great Britain, while the main source of imports was Germany, with 18.1 percent and 15.8 percent of the total respectively. Wood and wooden articles led exports, while machinery and equipment led imports.
	European Republics Ukraine-Russia To Hold Further Gas Talks · Russian Deputy Prime Minister Viktor KHRISTENKO and Rem VYAKHIREV, chief executive of Gazprom, Russia's natural gas monopoly, are expected to hold further gas talks in Kiev next week. Ukraine's owes Russia $1.4 billion in gas debt. A special commission, to begin meeting July 27^th in Kiev, is supposed to agree on how Ukraine will pay for future gas supplies and to suggest how to ban Ukrainian companies from stealing Russian gas from pipelines carrying gas via Ukraine to Europe. Ukrainian Prime Minister Viktor YUSHCHENKO and Russian Prime Minister Mikhail KASYANOV failed to reach agreement on the debt payments and the future gas supplies to Ukraine during talks in Moscow earlier this week. Meanwhile, Gazprom plans to consider building alternative pipelines for natural gas bypassing Ukraine. According to VYAKHIREV, Ukraine fails to repay its debts in full and make current payments for Russian gas supplies, as "it is unreal for


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July 21, 2000

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South Caucasus & Central Asia

Georgian President Visits London

· Georgian President Eduard SHEVARD-NADZE and British Prime Minister Tony BLAIR held talks in London on Wednesday to discuss bilateral relations, stabilization in Abkhazia, and the economic development in Georgia. SHEVARDNADZE thanked BLAIR for Britain's support of democratic developments Georgia and its efforts to negotiate a settlement of the Abkhazian conflict, as a member of the European Union. On Chechnya, the Georgian President said his country will do its best to prevent penetration of Chechen rebels through its border with Russia. SHEVARDNADZE said Georgian border guards were fully blocking such penetration at the moment. BLAIR supported the idea of developing a Stability Pact for the Caucasus, stressing the geo-political importance of the region.

SHEVARDNADZE and a delegation of businessmen, which included president of Georgian International Gas Corporation Alexey GOTSIRIDZE, met with BP-Amoco executives on Tuesday to discuss the realization of the Baku-Tbilisi-Ceyhan gas pipeline project. The Georgian part of the given project is estimated to be $500 million. Building of the gas-pipe is planned to start this year and complete by the end of 2002. According to Alexey GOTSIRIDZE, the issue of the Trans-Caspian gas-pipe, aimed for transportation of natural gas from Turkmenistan to Turkey, was also discussed at the negotiations of Georgian delegation in BP-Amoco, Prime News Agency reported. Queen Elizabeth II received the Georgian President, during his visit.

Georgian Transport ,Communication Revenues

· Georgian revenues to the state budget from the transport and communication spheres totaled 82.6 million lari, during the first six months of this year. This exceeds the 1999 figure by 35.5 million lari. Prime News Agency reported that the of the total figure from the Georgia Transport and Communications Ministry, 58.7 million lari was received

from the transport sphere and 23.9 million lari from the communication sector.

Armenia Hands Over More Azeri Prisoners

· Today, Armenia handed over three Azeri prisoners from the war from the disputed region of Nagorno-Karabakh, according to Azerbaijan's National Security Ministry. The three men, who were captured at different times, were taken for health checks and questioning in Baku before they are to be reunited with their families. The Azerbaijan office of the International Committee of the Red Cross, which mediated the release, said Armenia is holding another two Azeri citizens, Reuters reported. Meanwhile, Armenia says Azerbaijan holds two of its citizens, but Baku says it has freed all prisoners. War broke out between the two states in 1988, when both were under Soviet rule. The war killed 35,000, before a cease-fire was reached in 1994. Talks between the two countries aimed at resolving the conflict have made slow progress, despite a number of one-on-one meetings between Armenian President Robert KOCHARYAN and Azeri President Geidar ALIYEV.

Rakhmonov To Visit Japan

· Tajik President Emomali RAKHMONOV plans to visit Japan to discuss expanding economic ties. The Tajik President pointed out that as a member of the Group of Seven Japan can become Tajikistan's, "reliable trade and economic partner because there are many unused reserves in bilateral relations." RAKHMONOV stressed the need to create a solid legal foundation to start active cooperation. The president said Tajikistan is ready to hold a Tajik-Japanese summit to sign a package of necessary documents. He expressed the hope that by using its influence Japan will join efforts to mobilize international donor funding for post- crisis rehabilitation. Muneo SUZUKI, a former state secretary for foreign affairs, and a Japanese government delegation met with RAKHMONOV on Thursday. SUZUKI attended a memorial service for a Japanese UN peacekeeper killed in Tajikistan in 1998.

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