DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

INTERCON INTERNATIONAL USA, INC., 725 15th STREET, N.W., SUITE 903,

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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Thursday, August 10, 2000

Russian Federation

Politics

Berezovsky Forms Opposition Movement

· Former Russian State Duma deputy and business tycoon Boris BEREZOVSKY on Wednesday announced a plan to create an opposition movement to combat President Vladimir PUTIN's rising authoritarian control. BEREZOVSKY banned together with a group of popular actors, film and theater directors, and public figures of contrasting political stripes signed an appeal to the nation. It said Russia, "faces a new choice - whether to live in an authoritarian or a truly democratic state." According to the statement, "The choice will very soon have a cardinal influence on the lives of everyone, regardless of political convictions, financial situation, social status, age or ethnic background." Those signing the appeal included Alexander YAKOVLEV, the architect of Mikhail GORBACHEV's policy of perestroika, hard-line filmmaker Stanislav GOVORUKHIN, and actors Oleg MENSHIKOV and Sergei BODROV, Jr. BEREZOVSKY believes that the Kremlin no longer has any organized political opposition, since the Communist Party is no longer a major force and reforming parties have backed PUTIN on several key votes. BEREZOVSKY resigned from his seat in the Duma in protest of PUTIN's actions to centralize power and crackdown on big business. The once Kremlin insider believes that PUTIN has not abolished democratic freedoms in Russia, but has created a legal and political foundation for autocratic rule. "It's not effectively an authoritarian regime yet, but formally it's already authoritarian," BEREZOVSKY said.

BEREZOVSKY has withdrawn his offer to sell to the state his 49 percent stake in Russia's leading television network, ORT, saying he wanted to pre

vent a concentration of media in the government's hands. The sale of the ORT stake may only go ahead, if the government fails in its plan to take over another independent television network, NTV, BEREZOVSKY said. He also predicted that the bombings, similar to the explosion on Tuesday under Pushkin Square, and other terrorist acts will continue in Russia because of Russian President Vladimir PUTIN's stance on Chechnya. He said, "This [bombing] will happen again more than once, if the policy of `smashing the bandits in their lairs' continues." He stated that reaching agreements with the rebels is the only way to end the conflict. BEREZOVSKY has in the past been instrumental in negotiating with Chechen leaders and warlords for the release of hostages. As an official in the advisory Security Council under former president Boris YELTSIN, BEREZOVSKY often traveled to the North Caucasus after the 1994-96 Chechen war.

CIA Reports On Russian Assistance To Iran

· The US Central Intelligence Agency (CIA) has released a new report stating that Russian companies and state-run institutions in 1999 continued to supply ballistic missile technology to Iran. The semi-annual report, mandated by Congress, examined attempts by Iran, Iraq, North Korea, Libya, Syria, Russia, China, India, and Pakistan to obtain or sell sensitive technologies that the US and its western allies have pledged to control. According to the report, "Despite some examples of restraint, Russian businesses continue to be major suppliers of

Today's News Highlights

Russia

New Evidence In Generals' Case

Tractebel To Build Gas Terminal

Three Join To BidOn Onaco

European Republics

Rus-Ukraine Gas Talks Resume

Lith. Trade Deficit For June

South Caucasus & Central Asia

Baltzerovitch To Adivse On Econ

Ramco Test Results In Sept.

Iran-Armenian Gas Pipeline

Politics-Economics-Business

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Thursday

August 10, 2000

Intercon's Daily

weapons of mass destruction equipment, materials and technology to Iran." It adds, "Tehran is attempting to develop an indigenous capability to produce various types of weapons—nuclear, chemical, and biological—and their delivery systems." The CIA predicts that the technological assistance will help Iran accelerate development of a ballistic missile. The report confirms that Iran is still attempting to develop long-range ballistic missiles capable of reaching Europe and the US. That threat from Iran and other nations is one of the factors cited by those who want the US to push ahead with an antimissile system that can defend the US from a limited ballistic missile attack. The report noted, "Iran already is producing Scud short-range ballistic missiles (SRBMs) and has built and publicly displayed prototypes for the Shahab-3 medium-range ballistic missile (MRBM), which had its initial flight test in July 1998." This report comes as a blow to Lockheed Martin, which had been seeking to expand a quota imposed on the company and Russian commercial rocket launches. The quota of 20 Proton launches through 2000 was imposed several years ago as financial leverage on the Russian government to force a crackdown on the transfer of missile and chemical weapons technology to Iran.

Defense Embezzlement Probe New Evidence

· The Russian Military Prosecutor's office on Tuesday announced that its investigation against four generals from the Defense Ministry's financial department for embezzlement of $450 million has uncovered new evidence. The Russian media is reporting that the probe discovered that the Defense Ministry wired the money to a British-based company called United Energy International Ltd. in 1995 and 1996. The British company is a co-founder of Ukraine's energy monopoly, and the money was to pay for supplies of unspecified military and technical equipment from Ukraine. It is unknown whether the equipment was ever delivered. Russian military prosecutor spokesman Sergei USHAKOV would not confirm reports the funds were transferred to United Energy, saying that it was unclear where they were sent. "It could have been a commercial deal, or it could have been a criminal deal," USHAKOV said. He added that the money could have been embezzled after it left the Defense Ministry, which may have acted in good

faith, Reuters reported. The Moscow Times reported that the Defense Ministry's 2000 budget is $5 billion¾compared with about $268 billion in the US. The $450 million supposedly embezzled represents roughly one-tenth of the ministry's 2000 budget. The suspects include the head of the ministry's finance department Colonel General Georgy OLEINIK, the department's chief accountant Major General Yevgeny DATSKO, and two other high-ranking finance officials, Major General Anatoly VOROBYOV and Major General Leonid GERASIMENKO. OLEINIK joined the finance department in 1996, making it unclear what role he could have played in the alleged fraud scheme, according to The Moscow Times.

Economy

Ruble = 27.7/$1.00 (NY rate)

Ruble = 27.69/$1.00 (CB rate)

Ruble = 25.16/1 euro (CB rate)

Russia To Make IMF Payment Friday

· Russia's Finance Ministry paid 44,928,125 Special Drawing Rights (SDRs) on August 8^th to the International Monetary Fund (IMF). The Finance Ministry spokeswoman added that on Friday it will pay 89,856,250 SDRs to the IMF. This will be the last payment made this month. On August 1, Russia made a combined payment in US dollars and euros worth total 44.9 million SDRs to the Fund. Russia paid about $240 million to the IMF in July and about $1.82 billion in the first half of this year out of $3.6 billion due to be repaid in 2000. As of the end of April, Russia owed the IMF $13.29 billion. The government has pledged to meet obligations on all foreign debts incurred after the collapse of the Soviet Union in 1991, which is mostly IMF loan and Eurobonds. Reuters reports that Russia is still seeking to restructure more than $100 billion of Soviet-era debt.

Business

Gazprom-Shell To Form Joint Venture

· Russia's gas monopoly Gazprom and the Royal Dutch/Shell Group are near an agreement to form a joint venture to develop the Zapolyarniye field in western Siberia. The companies plan to extract 750 million metric tons of oil and gas, or about 115 million barrels, from the field. Gazprom, the world's

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biggest producer of natural gas, wants to more than triple its oil production to 30 million metric tons a year by 2015 from 9 million last year. Royal Dutch/Shell, the world's second-biggest publicly traded oil company behind Exxon Mobil Corp., formed a strategic alliance with Gazprom in 1997.

Tractebel To Build Gas Terminal

· Tractebel, Belgium's largest utility, will participate in the construction of a $50 million liquefied petroleum gas-loading terminal in Russia's northwestern Leningrad region, Bloomberg News reported. Tractebel, a unit of France's Suez Lyonnaise des Eaux, the world's largest water company by number of clients, will develop the project's feasibility study and secure the financing for the construction. The study will be completed within the next four months. The terminal will load 1 million tons of liquefied gas per year into tankers, which will be able to transport 80,000 cubic meters of gas. Russia produces about 5 million tons of LPG, of which about 1.5 million tons are exported.

Three Firms Jointly Bid For Onaco Stake

· Russia's second largest oil producer Yukos, the sixth largest Sibneft, and pipeline builder Stroitransgas announced today they will jointly bid for an 85 percent stake of Onaco. Onaco is one of the last oil firms in state hands and its privatization has sparked interest from a number of major firms, including Russia's largest oil producer, LUKoil and Tyumen Oil Company. Kazakhstan oil producer Aktobemunaigaz, which is 60 percent owned by China National Petroleum Co., is also expected to bid for the property, Fleming UCB brokerage said. Onaco produced around eight million tons (around 160,000 barrels per day) of crude last year. According to a joint statement, "The joint efforts will allow the three companies to use the assets in the most efficient way…The three companies will jointly organize financing for the bid and will be represented in the tender by the Profit House investment company." A Sibneft spokesman told Reuters that the companies did not wish to comment on their plans for Onaco until after the tender. Russia's Federal Property Fund is accepting bids until September 14^th at a starting price of $425.25 million. The results of the tender are expected to be announced on September 19^th. This sale will serve as a test to Vladimir PUTIN's government, which has promised

fair privatizations, ending crony capitalism rampant during former president Boris YELTSIN's terms. LUKoil had preliminarily announced its intention to participate in the tender, but a spokesman declined to comment on Tuesday. It is possible that LUKoil may have to withdrawal from bidding due to police charges filed in July against LUKoil's management for tax evasion. LUKoil Vice President Leonid FEDUN believes that his competitors drummed up the charges in order to eliminate it from the bidding.

European Republics

Russia-Ukraine To Resume Gas Talks

· Ukraine and Russia will resume gas talks in Moscow on August 14^th, over Ukraine's $1.4 billion in debt for Russian gas supplies. Teymur BAGIROV, adviser to Ukraine's Prime Minister Viktor YUSHCHENKO, said Ukrainian and Russian prime ministers have agreed on the next round of talks during their conversation over the phone Tuesday night. Vadim KOPYLOV, head of the country's national oil and gas company NaftaGas Ukrainy, and Alexander CHALYI, first deputy foreign affairs minister, may join the Ukrainian delegation. Ukraine said earlier this month it may pay back a part of its gas debt with 80 winged rockets, seven Tu-95MC bombers and three Tu-160 military planes designed for carrying rockets. Last year, Ukraine delivered 11 strategic bombers to Russia worth $285 million as part of the debt payment.

US Ambassador to Ukraine Steven PIFER on Monday warned that the US will stop financing the dismantling of Ukraine's nuclear arsenal, if Kiev transfers more strategic bombers to Russia. "We will not pay Ukraine for cutting up the bombers, if it does not destroy them," Interfax quoted PIFER. He added that Washington would prefer the planes to be dismantled because they, "were made with the sole goal—to carry nuclear arms directed at the United States," RFE\RL Newsline reported.

Lithuania's June Trade Deficit Narrows

· Lithuania's trade deficit narrowed in June from May, as exports grew faster than imports, the Statistics Department reported. The trade deficit totaled 592.2 million litas ($148.05 million) in June, compared with 696.9 million litas in the previous

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month. For the first six months of the year, the country's deficit totaled 2.95 billion litas, compared with 3.51 billion litas in the same period in 1999. The country exported 1.3 billion litas in goods during June, up 14.8 percent from a month ago, while it imported 1.89 billion litas in goods, up 3.4 percent. For the year so far, 7.34 billion litas in goods have been exported, while 10.29 billion litas in goods have been imported. The biggest export market in the first six months was Latvia, while the main source of imports was Russia, with 16.5 percent and 26.9 percent of the total respectively. Mineral products led both exports and imports, with 20.9 percent and 24 percent of the total respectively, Bloomberg News reported.

South Caucasus & Central Asia

Former Polish PM To Advise President

· Former Polish prime minister Leshek BALTZEROVITCH has been selected to serve as an economic adviser to Georgian President Eduard SHEVARDNADZE. He arrived in Tbilisi on Tuesday and was received by Chairman of the Georgian Parliament Zurab ZHVANIA. BALTZEROVITCH will advise the Caucasus nation on economic proposals and reforms, particularly in the tax system. Reforms were successfully realized in Poland, it will be the same in Georgia, BALTZEROVITCH said, Prime News Agency reported.

Ramco Test Results For Azeri Well

· British oil exploration company, Ramco Energy, predicts that it will release test results from a "sidetracking" at the Muradkhanli field in Azerbaijan in September. This is later than expected as the company slowed the pace of drilling work. Ramco expects to begin production tests on the Muradkhanli well, after drilling is completed. Ramco spokeswoman Lisa NEWMAN explains, "Because we wanted to exercise caution with the sidetracking, we decided to move forward a little slower than we anticipated, " and should be able to report, "some sort of initial test results in September." Ramco has

a 50 percent stake in Muradkhanli, which could have more than 5 billion barrels of oil. In July, Ramco said the well has potential to replace current output from another asset, Azeri-Chirag-Gunashli, in which the company sold its equity to raise cash for other projects. Shares of Ramco, which is focused on Eastern Europe and the Caspian, were unchanged on the London Stock Exchange at 460 pence, valuing the company at 119.6 million pounds ($179.4 million). The stock has risen 38 percent this year and posted a 35 percent advance on July 17^th, when Ramco announced the sale of its 2.08 percent interest in the Azeri-Chirag-Gunashli field for $150 million to Amerada Hess Corp., Bloomberg News reported.

Iran-Armenian Gas Pipeline

· An Iranian delegation is meeting with representatives from the Armenian Finance and Economics Ministry to discuss the building of a gas pipeline from Iran to Armenia, with the option to expand it into Europe. A spokeswoman for the Armenian government Hasmik DAVTYAN said, "We are hoping a project will be ready soon, probably this year, and then a tender will be announced to attract foreign companies, including Russian ones." She added that although the project so far only provides for gas deliveries to Armenia, Iran is also interested in transporting its fuel to Europe. DAVTYAN said Iran and Armenia are stepping up relations by forming joint projects in various energy facilities. These include gas, electricity, and oil projects, but gas cooperation is the key aspect.

In addition, Iran has expressed an interest in building highways in western direction via Armenia and Georgia and via Azerbaijan and Georgia. According to Georgian Foreign Minister Irakly MENAGARISHVILI, who recently visited Tehran, Iran intends to participate in the project of creating network of modernized highways in the South Caucasus region, for developing its foreign trade operations.

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

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