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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

Thursday, August 17, 2000

Russian Federation

Politics

Britain-Norway Send Help To Rescue Mission

· Russia, in desperation after more than five failed attempts, accepted Britain and Norway's offer to assist in rescue efforts to save 118 sailors trapped in a submarine in the Barents Sea. A 27-member British team along with Britain's LR5 rescue submersible and a remote-operated underwater reconnaissance vehicle, called Scorpio, were flown to Trondheim Norway. The equipment was transferred to the Normand Pioneer that has set sail towards the accident site. It is not expected to reach the submarine until late Friday. In addition, three Royal Air Force Hercules Aircraft arrived in Norway carrying decompression chambers and medical supplies. The LR5, according to the Financial Times, has never been deployed in a crisis, but has been used in exercises. The head of the British operation said the LR5 submarine differed from the Russian escape vessels because it could operate independently of its control ship and can navigate with accuracy within inches. The Norwegians have provided converters to help the British sub connect to the Kursk's hatch. The Norwegian diving ship, the DSV Seaway Eagle, left its work in offshore oil fields in the North Sea on Wednesday to travel some 800 miles north to the downed Russian sub. President Vladimir PUTIN, who is on holiday in the Black Sea resort of Sochi, described the situation as, "difficult, and I would say, critical." "Everything that can possibly be done is being done for the rescue of the crew and the submarine," he added.

Russia's Deputy Prime Minister Ilya KLEBANOV on Wednesday confirmed that the crewmembers of the Kursk submarine have stopped sending Morse code signals. He said, "There is no sign of life, but it is not necessary to conclude something terrible

from this." One US intelligence officer told Reuters, "We've seen no evidence of, or heard no evidence of survivors on the submarine. We don't know whether anyone survived the initial incident or not, but we see no evidence that would tell us anyone did." The situation is "close to catastrophic," Prime Minister Mikhail KASYANOV said. Dmitry MINAKOV, spokesman for the navy said, "It's never too late to save people. We still have hope." The Russian Navy has given different estimates on the amount of oxygen available on the sub. It initially said supplies will run out Friday, but later said there may be enough oxygen to last until August 25^th, Russian media and CNN reported. Strong underwater currents have hampered attempts to lower rescue capsules. New film footages shows a powerful explosion tore apart the two of the sub's nine front compartments, including an area where torpedoes are located and the superstructure, where navigation equipment is located. Russian Defense Minister Igor SERGEYEV said there's now "irrefutable evidence" that the sub's accident occurred because of a collision, the state-owned Itar-Tass news agency reported. US intelligence, however, believes the submarine went down because of an explosion on board and not because of a collision. A US vessel monitored two explosions, just before the submarine sank. Russian officers are working on theories that a torpedo exploded in its launch tube, setting off a series of explosions. The Kursk can carry up to 28 torpedoes and anti-submarine missiles, each with warheads weighing

Today's News Highlights

Russia

Duma Election In Chechnya

Bomb Explodes At Sibneft

UES-Railways Dispute

European Republics

Bomb Explodes In Riga Mall

Estonia's Budget Increases

South Caucasus & Central Asia

Itera Works On Stock Agmt

Ramco To Drill In Kakheti

Kyrgyz Clash With Rebels

Politics-Economics-Business

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Thursday

August 17, 2000

Intercon's Daily

up to 1,000 pounds. An explosion involving even a few torpedoes would have caused catastrophic damage, officers said.

Chechen Elections To Be Held Amid Conflict

· Russian authorities are tightening security ahead of a Sunday election to fill the rebel region's vacant seat in the Russian State Duma. The Kremlin views the imposed election as a symbol that the region has returned to the motherland. Rebels are preparing to launch attacks against troops and officials to disrupt the vote. Early voting has already started in some areas, including among Russian troops. Sunday's election will be the second time Moscow has run an election in the breakaway province since troops drove its separatist leaders into the mountain. Reuters reports that ballots were cast in the region during the presidential election in March. One election official said, "People here are so sick and tired of it [fighting and devastation] all that they will come out and vote. People are ready to vote for any hint of stability." She said that thousands of refugees still living in nearby regions would also be allowed to take part in the election. Most candidates for the parliament seat are pro-Russian officials, some already based in Moscow. An additional 20 crack police troops had been dispatched especially to guard the local election headquarters inside heavily fortified Gudermes. A police patrol car exploded today in Grozny, killing two civilians inside. The car had been filled with explosives. Four Russian police officers were wounded in an attack Wednesday evening. Several senior pro-Moscow Chechen officials have been killed over the last several weeks in different parts of Chechnya. On Wednesday, a candidate's home was fired on by a gang of rebels. The home of Ibragim HUSEINOV, who is also mayor of the town of Meskety in eastern Chechnya, was also attacked. A remote-controlled mine also hit the home of the mayor of Alleroi.

Economy

Ruble = 27.75/$1.00 (NY rate)

Ruble = 27.76/$1.00 (CB rate)

Ruble = 25.43/1 euro (CB rate)

Palladium Prices Falls On Russian Sales

· Palladium prices continued to decline, on news that Russia will make small quantities available for immediate sale on the spot market. Russia sup

plies two-thirds of the world's metal, used also in mobile phones and other electronics as well as in dentistry and jewelry. Russia resumed supplying palladium earlier this month after a month-long halt that drove prices to a record. The Russian government export agency Almazyuvelirexport has, "sold small and sporadic lots through different channels almost as though they were testing routes to find the optimal path providing the largest sales volumes for the smallest negative impact on prices," said Ross NORMAN, analyst for TheBullionDesk.com. Palladium for immediate delivery fell as much as $20, or 2.6 percent, to $750 an ounce in London. The price has fallen $108, or 11.5 percent, over the past two weeks on signs of resumed deliveries. On August 7^th, palladium fell 7.2 percent in one day. Palladium prices have risen more than 120 percent in the past 12 months.

Business

Bomb Explodes Outside Of Sibneft

· A small homemade bomb exploded early this morning outside the Moscow headquarters of the influential Russian oil company Sibneft, the sixth-largest oil producer owned by Roman ABROAMOVICH. The Sibneft offices are located across the Moscow River from the Kremlin. No casualties were reported. The bomb was estimated to contain 200 grams of explosives. A Sibneft spokesman said there had been a similar small explosion at the offices a few weeks ago. Police are investigating these incidents. They claim that the bomber didn't want to damage the oil company's headquarters, but just wanted to scare personnel. Today's explosion comes after a bomb ripped through an underpass on Pushkin Square in Moscow on August 8^th, killing 12 people and injuring nearly 100. Sibneft was investigated by Federal Tax Police last week in a string of inspections at major oil and gas companies. That raid followed a July spat with the Finance Ministry in which government officials charged Sibneft with paying suspiciously low taxes. Sibneft has joined with two other companies to bid on an 85 percent stake in Onaco, Russia's 11th-biggest oil company.

UES_Railways Dispute Unresolved

• Unified Energy Systems, the operator of Russia's electricity grid, said it failed to resolve a dispute with the state-owned railways over how much it owes in

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	Thursday		August 17, 2000
	Intercon's Daily
	unpaid electricity bills. UES said the ministry that operates Russia's 87,000-kilometer rail system owes $126.4 million in unpaid bills. The debt rose 2.7 billion rubles this year despite the fact that the railways raised the level of cash they collect to 95 percent, indicating they could repay their debts for electricity. UES is seeking to recover some of the 32 billion rubles it is owed by state-funded organizations. The International Monetary Fund asked Russia to force UES to collect all of its payments in cash instead of in goods and services. The Russian government said this month it plans to a break up the railways monopoly by spinning off unprofitable units. The plan involves separating transportation and construction units from its service subsidiaries, such as schools and hospitals. Russia also plans to break up UES which is majority owned by the state to create a free market for electricity.	tors at its Zaporizhska Power Plant after repairs, because it lacked fuel, according to Yuri NEDASHKIVSKYI, head of NAEK Energoatom, an umbrella company for nuclear plants. Ukraine needs about 210 million gryvnia (about $38.6 million) to buy the fuel for the two reactors. Ukraine, which buys nuclear fuel for its power plants from Russia only, said it paid Russia $80.8 million so far this year, or 37.7 percent of the cost of the overall nuclear fuel supplies it needs to secure this year. Ukraine's nuclear power plants produce about 48 percent of the domestically made electricity. Estonia's Money Supply Rises · Estonia's money supply grew 3.8 percent in July from June, after banks increased lending activities, and 28.2 percent from July 1999, the Bank of Estonia reported. The money supply, a measure of the total amount of money in the economy, grew by 1.36 billion kroons ($78.84 million) to 37.39 billion kroons at the end of July from 36.04 billion kroons the previous month. Total lending by commercial banks to companies and individuals rose 2.6 percent to 30.39 billion kroons in July, the same increase as a month earlier. Bank time and savings deposits in the domestic currency fell 1.5 percent in July from the previous month to 6.44 billion kroons. Foreign currency deposits, both individual and corporate, rose 11.1 percent to 10.51 billion kroons. Estonian Draft Budget Increases · The Estonian government on Wednesday said it was increasing the size of the 2001 draft budget by 574 million kroons ($33.4 million) to 29.5 billion kroons, even though the draft remains balanced. A statement from the government's press office said the change follows a revision of the economic outlook and changes to income tax laws. It added the budget priorities set at a Cabinet meeting include boosting the Education Ministry's budget to raise teachers' salaries and to increase the amount of funds available to the Social Ministry. By law, Estonia's budget must be passed as balanced. South Caucasus & Central Asia Itera Works On Stock Purchase Agreement · International power corporation Itera representatives were invited by the capital city council to arrive in Tbilisi to start working on the TbilGas
	European Republics Two Bombs Explode In Riga Shopping Mall · Late this evening in a Riga shopping mall, two bombs exploded, injuring at least 19 people. The Chief of Riga's criminal police, Valdis PUMPERS, was among those injured, but police said they did not believe he was the target of the attack. No threats were reported before the explosions, and police do not have a motive for the bombings. Kuchma Appoints Tulub To Security Council · Ukrainian President Leonid KUCHMA appointed Sergei TULUB, who resigned as power and fuel minister in June, to the post of deputy head of the National Security and Defense Council. TULUB resigned from his previous post over a dispute on how to reform the nation's energy industry, saying he disagreed on the reform plan with other members of Prime Minister Viktor YUSHCHENKO's Cabinet. TULUB took the post of the power and fuel minister in December when the Cabinet was formed by YUSHCHENKO, the former Central Bank chairman. Before that, TULUB was the coal industry minister in the Cabinet since mid-1998, Bloomberg News reported. YUSHCHENKO said earlier this week he expects further changes in his Cabinet and has already submitted the plan for the presidential approval. Ukraine Lacks Fuel For Reactors · Ukraine postponed restarting two nuclear reac


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Thursday

August 17, 2000

Intercon's Daily

controlling package stock purchase agreement by the end of August, deputy head of Itera's Georgian branch David ELIASHVILI told Prime News Agency. According to him, this exact negotiations will determine the sums offered by Itera, including the issues of upcoming rehabilitation of the gas networks. For right now Georgia owes Itera, the exclusive gas importer for the country about $75 million.

Ramco To Begin Drilling In Kakheti

· Scottish company Ramco Energy will start drilling its first oil-well in Kakheti, about 70 km East from Tbilisi, GeoOil company president Revaz TEVZADZE told Prime News Agency. Company representatives say that they already have results of geological, seismic, gravity surveys and data seem to give hope and assurance. TEVZADZE abstained from making any kind of prognosis on the future oil output of the wells. "The first drilling on the 2 thousand meters will show the amounts," he mentioned. According to TEVZADZE, during the first stage at least three wells will be drilled. In the 1960s and 1970s this region had been drilled, but no modern technology was used at that time and the wells did not have quality seismic surveys.

Kyrgyz Clash With Rebels Along Border

· The Kyrgyz Defense Ministry said that its forces clashed with Islamic rebels on the border between Kyrgyzstan and Tajikistan. New losses in this latest battle raised the Kyrgyz casualties to 24. The border fighting in Kyrgyzstan flared up further on Wednesday when 40 rebels crossed into the country from camps on the Tajik side, Reuters reported. Kyrgyz President Askar AKAYEV said on Wednesday that around 800 well-armed rebels were operating from the Tajik border region.

The State Department said the security situation in the south Kyrgyzstan remained "fluid and potentially dangerous," after attacks from Islamic rebels. The rebels are believed to belong to the Tajik-based Islamic Movement of Uzbekistan. It opposes Uzbek President Islam KARIMOV, who has clamped down

on what he sees as a threat to his country's security from Islamic extremism, Reuters reported. The Uzbek Army continues to battle against terrorists. Antiaircraft and mortar fire as well as air strikes are being delivered at possible rebel hideouts. A source at the Uzbek Armed Forces General Staff said on Wednesday that the remaining terrorists were being driven out of their shelters in the mountain caves. From intercepted radio messages troops have learned that the rebels are running short of food and medical equipment for the wounded. The Uzbek Army casualties include 12 officers and a sergeant, while the terrorists have lost 50 fighters.

Kazakhstan's GDP Rising

· Kazakhstan's Economics Ministry expects gross domestic product (GDP) to grow 7.8 percent this year, up from 1.7 percent in 1999, according to Economics Minister Zhaksybek KULEKEYEV. GDP grew 10.5 percent in the first half of the year, compared with a drop of 3.3 percent in the same period in 1999. Kazakhstan's State Statistics Agency has forecast GDP growth of 5 percent this year. KULEKEYEV also forecast 2000 inflation at 10 percent, down from 16.8 percent in 1999, and compared with this year's budget projection of 9 percent. However, he said the positive trends in the economy might not be sustainable as much depended on external factors, particularly the demand for Kazakh oil exports. Kazakh President Nursultan NAZARBAYEV said, "The state of the economy is the best it has been in recent years." NAZARBAYEV said the key oil and gas sector should be a priority, along with efforts to replace imported goods with domestic products, including in the food and machine-building sectors.

The Daily Report on Russia and the FSU

will not be published

from August 21^st to August 25^th

for Intercon's summer break.

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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