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

Monday, July 24, 2000

PUTIN impressed his fellow members by briefing them on his recent trip to North Korea, the first-ever of a Russian or Soviet leader. PUTIN is keen to use Moscow's links with Pyongyang to play the role of honest broker between the impoverished, totalitarian state and the outside world. US President Bill CLINTON said PUTIN convinced him to look into an offer from North Korea to scrap its ballistic missile program in exchange for help in exploring space. Although in the past PUTIN had expressed the desire to disband the Group of Seven (G-7), he invited the G-8 to meet in Moscow in 2003. Germany has also called for the disbanding of the G-7.

Rus-US Committed To Arms Control

· US President Bill CLINTON and Russian President Vladimir PUTIN held talks on Friday on the sidelines of the Group of Seven industrialized nation's summit in Okinawa. According to a joint statement, "The United States and Russia are prepared to renew and expand cooperation in the field of theatre missile development and to consider the possibility of involving other states." PUTIN expressed his concerns the US development of a national missile defense system would instigate a new arms race. Russia further believes that the defense system would violate the 1972 Anti-Missile Missile (ABM) treaty. The US claims that the missile shield would protect the nation against rogue states like North Korea and Iraq. PUTIN arrived at the summit, after meeting with North Korean leader Kim JONG-IL, and will meet with Iraqi Deputy Prime

Russian Federation

Politics

Russian-Chechen Forces Clash

· Russia's military reported clashes with Chechen rebels today and said it had bombed the hills in the south of the breakaway region. Russian forces had gunned down 42 rebels in a forest near the eastern village of Dzhalka, but the report could not be confirmed. About 78 rebels have been wounded in the past three days. In Chechnya's Shali region, four pro-Russian policemen were killed when their truck hit a landmine. Russian attack jets had flown eight bombing sorties over the hills overnight, and fighter helicopter had flown about 20 missions. Nearly 10 months after Russia sent its troops into Chechnya in pursuit of separatist rebels, it has failed to pacify the rebel region. Since March, Russian forces have occupied nearly all Chechen territory. Nonetheless, rebels have continued to launch deadly ambushes and raids on Russian positions. All of the main rebel leaders remain at large. Russia says about 2,500 of its soldiers have died in the fighting.

Putin: A Success At G-8 Summit

· Returning from several bilateral meetings on the sidelines of the Group of Seven industrialized nations plus Russia (G-8) summit in Okinawa, Russian President Vladimir PUTIN called the trip a success. He said, "Without doubt, the results will contribute to increasing the role and place of Russia in international affairs." Chancellor Gerhard SCHROEDER said PUTIN's, "confident but not exaggerated performance" had helped bring about Russia's full integration with the rich countries' club. "That is for me the most prominent result of this summit," he said. A spokesman for British Prime Minister Tony BLAIR said, "People do see that he's made a strong and favorable impression."

Today's News Highlights

Russia

Germany-Rus To Sign Debt Deal

Gazprom,LUKoil, Yukos JV

European Republics

Ford To Sell Belarus Stake

Estonian Bourse Closes Up

South Caucasus & Central Asia

Northrop Gruman Equips Georgia

US-Armenian Defense Co-op.?

Kazakh Uranium Assessed

OKIOC Release Initial Results

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Monday

July 24, 2000

Intercon's Daily

Minister Tareq AZIZ this week in Moscow. CLINTON and PUTIN also reiterated their pledge to uphold the treaty on non-proliferation of nuclear weapons and to ensure the early entry into force of the Comprehensive Nuclear Test Ban treaty. PUTIN also requested a briefing on the Middle East Peace talks, which are on-going at Camp David in Maryland.

Economy

Ruble = 27.64/$1.00 (NY rate)

Ruble = 27.63/$1.00 (CB rate)

Ruble = 25.76/1 euro (CB rate)

Germany-Russian To Sign Debt Agreement

· Germany and Russia are preparing for negotiations on Wednesday, which will conclude in the signing of a bilateral agreement restructuring Russia's debt to Germany. Russia's Trade and Economy Minister German GREF and Deputy Finance Minister Sergei IGNATYEV will attend a signing ceremony along with Germany's Caio KOCH-WESER, state secretary in the Finance Ministry, Axel GERLACH, state secretary in the Economics Ministry and Klaus MANGOLD, head of the Eastern Europe committee of the German business lobby. German Chancellor Gerhard SCHROEDER and Russian President Vladimir PUTIN discussed the debt issue in bilateral talks during the Group of Eight summit in Okinawa. Government sources predict that Russia's debt would be restructured to the tune of around eight billion marks ($3.82 billion). Moscow owes Germany around half of its $43 billion in sovereign debt inherited from the former Soviet Union. SCHROEDER's foreign policy adviser Michael STEINER stressed that the agreement would be a restructuring, not and outright debt forgiveness. Germany does not want outright debt forgiveness for Russia, as it believes Russia's economy is strong enough to bear its national debt burden, Reuters reported.

Business

Oligarchs To Meet With Putin On Friday

· Russia's top business leaders plan to meet with President Vladimir PUTIN on Friday in an attempt to ease the latest campaign against them. Russian State Duma deputy Boris NEMTSOV, leader of the liberal Union of Right Forces party, was able last week to persuade the President to meet with the

business leaders. He will present a three-point proposal. The first point calls for a moratorium on investigations questioning the legitimacy of privatization sales from the 1990s. The second point is a pledge by businessmen to obey the laws and pay taxes. In turn, by the third point, the Kremlin would work to rid itself of corruption, "starting with the prosecutors' office," the Financial Times reported. Oligarchs would also pledge not to use the government or bribe state officials. NEMTSOV said, "The business and power should not attack or blackmail each other, they should be partners working towards economic recovery of Russia." An estimated 20 businessmen are expected to attend the meeting. However, it is clear that Media Most Chairman Vladimir GUSINSKY and LogoVAZ and former deputy Boris BEREZOVSKY will not be present. PUTIN has followed through on a pledge to challenge the influence of Russia's so-called oligarchs, wealthy businessmen who accumulated vast holdings in media, oil, metals and other industries since the fall of communism and built ties to the government. Media Most's NTV Television, Gazprom, AvtoVAZ, Norilsk Nickel, Interros Holding, and LUKoil have been the targets of recent investigations by Tax Police and Prosecutor agents.

Gazprom-LUKoil-Yukos To Form JV

· Gazprom, the world's largest gas company, LUKoil Holding, Russia's biggest producer, and Yukos Oil Co., its second-biggest, are joining forces to create a company to explore and drill in the northern Caspian Sea Region. The Russian Ministry of Natural Resources has estimated total potential oil reserves of 600 million tons offshore in the part of the Caspian region that lies within Russia. The charter documents for the new company will be signed Tuesday at LUKoil headquarters in Moscow. Stephen DASHEVSKY, an analyst at Aton brokerage said, "There are huge reserves in the Caspian which need a lot a money to explore and extract…Together there is no doubt these leading companies can succeed." As a result of high world oil prices, Russian companies have funds to spend on further development. Russian President Vladimir PUTIN is pushing for domestic companies to explore the region and build pipelines that will carry oil and gas across Russian territory. Some of the world's largest oil companies are competing for the Caspian's oil reserves.

When you need to know it as it happens

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July 24, 2000

Intercon's Daily

South Caucasus & Central Asia

Northrop Grumman Gets Georgian Certificate

· Northrop Grumman Corporation has received a Certificate of Final Acceptance from Sakaeronavigatsia, the air traffic control (ATC) organization for Georgia's new countrywide ATC system. The Georgia system includes the new Northrop Grumman solid-state ASR-12 airport surveillance radar co-mounted with a mono-pulse secondary surveillance radar (MSSR) located at the Tbilisi Airport and a stand-alone MSSR located in Senaki. The Georgia Air Traffic Control Center at Tbilisi is equipped with the Northrop Grumman AMS 2000 airspace management system, ATC displays and communications equipment. This turnkey project also includes emergency power equipment, spare parts, operator and maintenance training and documentation. According to a company press release, the US Export-Import Bank provided the funding for the program. "This successful modernization of Georgia's air traffic management infrastructure has become the model for future modernization efforts throughout the world," said Don WILHELM, Northrop Grumman's vice president-Airspace Management Systems. "Georgia will now realize the benefits of accelerated economic development that directly result from enhanced aviation safety and capacity." The new ASR-12 radar improves on the highly successful ASR-9 by adding enhancements in moving target detection performance and solid-state reliability, with significantly reduced life cycle costs. The AMS controller displays and automation system are based on an open architecture that supports future growth and upgrades including CNS/ATM operations.

Menagarishvili To Visit Turkey

· Georgian Foreign Minister Irakly MENAGARISHVILI is scheduled to leave for Turkey today for a working visit at the invitation of his Turkish counterpart Ismail CEM. The two Ministers are to meet in Trabzon on July 25^th to discuss Georgian-Turkish cooperation, regional problems, matters aimed at strengthening peace and stability in the Caucasus, cooperation within the framework of the Black Sea Economic Cooperation Organization, the Euro-Asia Transportation Corridor, the construction of a railway which will link Kars (Turkey) with Georgia. MENAGARISHVILI and CEM will also discuss the

European Republics

Ford To Sell Belarus Car Plant Stake

· Ford Motor Co. will sell its 51 percent stake in its Belarus joint venture to J & W Sanderson, Ltd. a privately held UK plastic injection-molding manufacturer. The sale prices is undisclosed. Two months ago, Ford stopped assembling Escort cars and Transit minivans at the plant near Minsk because of low demand. The company will continue to market Ford cars in Russia and the former Soviet republics that make up the Commonwealth of Independent states (CIS), hoping renewed economic growth in the past year in Russia will help strengthen regional demand. "Ford remains firmly committed to the CIS and expects to improve its sales as the economic situation improves in the region," said Oksana KHARTONUK, press relations manager for Ford in Russia and Belarus. Daewoo Motor Co. said earlier this month that its car making joint venture with AvtoZAZ, the state-owned Ukrainian carmaker, has only built a sixth of the cars it's planned for this year because Ukrainians are buying cheaper used cars. The Ford plant made 440 vehicles last year, less than a 10th of capacity. Its decision to pull out of making cars in Ukraine is part of a wider strategy to cut expenses and jobs in Europe as a whole.

Estonia's Bourse Closes Higher

· Estonia's Tallinn bourse closed up Friday and dealers said the outlook remains slow and stable with the market hopeful for long-term gains. The TALSE index rose 0.27 percent — for a weekly rise of 1.05 percent — to 139.44 points on low turnover of 6.8 million kroons, Reuters reported. "Next week should continue in the same vein as this week. Prices may rise a little bit but nothing spectacular should happen," said Hansapank dealer Romet TEPPER. "Local investors are quite confident that by the end of the year prices will be much higher on the main list and Norma and Hansapank are attractive," he added. Investors are watching for the release of second quarter results from Hansapank on Wednesday. Numbers from Norma and Optiva — effectively a dead stock ahead of a small shareholder buyout by Sampo Finance — may also come next week. In trade Hansapank fell 0.40 percent to 123.25 kroons, Eesti Telekom rose 0.89 percent to 113 kroons and EVP privatization vouchers gained 2.06 percent.

When you need to know it as it happens

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July 24, 2000

Intercon's Daily

transportation of energy to the western market and well as measures to avoid double taxation.

US-Armenia To Discuss Defense Technology

· Armenian Defense Minister Sergei SARKISYAN arrived in Washington on Sunday. He is holding talks today with US Secretary of Defense William COHEN in the Pentagon to discuss prospects for defense and military technology contacts between Armenia and the US. At the close of their meeting, the sides are to conclude an intergovernmental agreement on cooperation in ensuring non-proliferation of weapons of mass destruction. The Armenian Defense Minister will also to meet with US Secretary of State Madeleine ALBRIGHT, and other high officials of the Department of State to discuss matters aimed at settling the Armenia-Azerbaijan conflict over Nagorno-Karabakh and at developing regional cooperation.

Kazakhstan Uranium Project

· The joint venture between Cameco Corporation (60 percent) and National Atomic Company KazAtomProm (40 percent) called Inkai has signed a resource use agreement with the Kazakh government. Inkai today announced it will assess the reserve and resource potential of its uranium deposit. The joint venture has already received a license in 1999 for uranium exportation and mining. According to a company press release, Inkai will be able to proceed with its plans to assess the grade, physical characteristics and quantity of a portion of the deposit by constructing a $2 million (US) test mine at the Inkai site in Kazakhstan. The test mine will also provide technical, economic and environmental information necessary for the preparation of a comprehensive feasibility study. KazAtomProm considers the Inkai deposit to be a large and significant uranium property ideally suited to the ISL extraction technology. Cameco owns and operates two ISL mining operations in the United States. KazAtomProm controls and operates three ISL mines in Kazakhstan.

OKIOC Announced Initial Kashagan Results

· The Exxon Mobil Corp.-led group of nine oil companies, the Offshore Kazakhstan International Operating Company (OKIOC), announced today that it has made its first oil discovery on the offshore Kazakhstan shelf. The Kashagan East discovery well in the Caspian Sea showed it could yield 600 cubic meters of oil per day and 200,000 cubic meters of natural gas per day. Analysts at Wood Mackenzie, a Deutsche Bank-owned oil consultancy in Edinburgh predicted that the figures could indicate a "slightly greater" find than [Chevron's] Tengiz. OKIOC has hoped its Kashagan field would be much bigger than Tengiz, which contains as much as 9 billion barrels of oil in reserves. "We have drilled just one well in a big structure," said OKIOC spokesman Matthew BATESON. He added, "We have another well planned under the exploration program and then plan to move to an appraisal program." Keith DALLARD, general manager of OKIOC, said that, "appraisal drilling will further support initial results." The group will drill a second test well at Kashagan West in October. The full appraisal phase could last until late 2002.

Ever since Kazakhstan announced that the Kashagan find could reach up to 50 billion barrels of oil and gas, competition for its transportation became intense. The US wants Kazakhstan to pledge OKIOC oil to the planned oil pipeline from Baku in Azerbaijan to Turkey's oil outlet of Ceyhan. Washington supports the Baku-Ceyhan route because it would reduce the influence of Russia and Iran over the strategic basin. Tehran has made an aggressive play for OKIOC oil to run south via Iran, while Moscow is likely to try to secure any flow of offshore production across its territory. Exxon Mobil, Royal Dutch/Shell Group, BG Group, Total Fina Elf SA and Eni SpA's Agip unit each have a 14.29 percent stake in OKIOC. BP Amoco owns a further 9.5 percent, Statoil of Norway owns 4.8 percent, while INPEX of Japan and Phillips Petroleum Co. each own 7.14 percent.

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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