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

Tuesday, August 29, 2000

Russian Federation

Politics

Ostankino Tower To Be Dismantled

· Firefighters have recovered a third body from the smoldering Ostankino Tower today. The fire broke out on Sunday. Due to lack of equipment and the failure of automatic fire extinguishers to fight the strong blaze, it took nearly 25 hours to get the fire under control. Rescuers lacked equipment and training on how to deal with emergency situations of this nature. In addition, establishing which agency was responsible for fire and security installation and inspection at the tower has proven difficult. The Financial Times reported that the State Construction Committee, the Moscow authorities, their contractor Mosproekt 1, the Moscow Architecture Committee, and the Central Scientific-Research Institute for Established and Experimental Projects all referred calls to each other or elsewhere.

The fire engulfed all the pre-stressed concrete sections of the tower above the 225-foot level and much of the 410-foot metal antenna at the top. Gosstroi Chairman Anvar SHAMUZAFAROV said the tower will have to be dismantled. Gosstroi, which is the state company overseeing all state construction, formed one of the commissions studying the condition of the tower, RFE\RL Newsline reported. Government officials said it would cost hundreds of millions of dollars to repair it. The Ostankino Tower and the Kursk had been viewed by many Russians as triumphant symbols of progressive development. The tower fire in tandem with the Kursk accident, now are haunting reminders that of the state's deterioration over the last decade. Eduard SAGALAYEV, president of the National Association of Television and Radio Broadcasters said, "The Ostankino Tower was under funded from the budget. It didn't get enough for

repair and maintenance," the Financial Times reported. The same can be said about the Russian Navy.

Moscow residents remain without television service today. Alternatives for transmitting radio and television broadcasts signals are being discussed. Media Minister Mikhail LESIN pledged that all broadcasts to Moscow would resume by week's end. The only source of television news is Media Most's TNT channel, which is relaying NTV news. The tower also served as strategic artery for communications operated by armed forces and security agencies. Chechen fighters claimed responsibility on their website. It is reported that rebels paid an Ostankino employee $25,000 to start the fire. The website also claimed responsibility for destroying the Russian nuclear submarine Kursk in the Arctic Barents Sea.

Sonar May Provide Clues To Kursk Accident

· Russian President Vladimir PUTIN thanked Norway for its help after the sinking of the nuclear submarine Kursk on August 12^th, which killed all 118 crewmembers. Norway's Prime Minister Jens STOLTENBERG said that Russia and Norway will take on new co-operation efforts regarding nuclear safety and preparedness, adding that the sinking of the Kursk was a tragedy that may bring the two nations closer together. A Norwegian seismic institute reported recording two explosions and Norwegian officials have said the data matched theories of a blast aboard the nuclear-powered vessel, perhaps

Today's News Highlights

Russia

Chechen Election Results

Oil-Gas Restrictions Reimposed

UES Reorganization Delayed

European Republics

Est. Econ. Min. Survives Vote

Lith. To Sell Power Utility

South Caucasus & Central Asia

Baku-Batumi Pipeline

Chevron Buys Kazakh Stake

Statoil On High Oil Prices

Politics-Economics-Business

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August 29, 2000

Intercon's Daily

in a torpedo that may have triggered another, bigger explosion. The New York Times reported that the USS Memphis, one of two US nuclear submarines monitoring Russian naval exercises in the Barents Sea, also recorded sounds from its sonar equipment supporting theories that one of its torpedoes misfired. US Naval experts believe a rocket-propelled torpedo being loaded or launched during the exercise misfired, causing its engine or its fuel to explode. Sonar tapes and other recordings captured sounds of two explosions. After two minutes and 15 seconds, a powerful explosion of the torpedo's warhead tore a gaping hole in the submarine's bow, killing most if not all of the crew instantly, the paper said. The vessel continued to monitor messages between other ships in the area following the blast. The sonar tapes are being analyzed at the National Maritime Intelligence Center near Washington. AUS senior officer notes that the submarine was close enough not only to monitor the explosion with its sonar equipment, but also to feel the underwater concussion caused by the second, larger blast. The evidence of a misfired torpedo runs counter to the Russian's leading theory that the Kursk collided with a foreign vessel or a World War II mine. Russian officials said external damage on the Kursk's hull could only have been caused by its scraping another object. The US denies that either of its submarines in the area were involved in any type of collision. The latest news is that Russia hopes to recover the sailors' bodies at a cost of $5 billion to $7 billion in September.

Chechen Election Results

· Chechen elections officials said on August 21^st, that more than 50 percent of the 495,000 registered voters participated in the previous day's ballot for a candidate for the Russian State Duma, Itar-Tass reported. Chechen President Aslan Maskhadov told AFP on Sunday that less than 5 percent of registered voters had participated in the poll. "It is impossible to organize democratic elections on territory occupied by enemy troops," he said. According to the Chechen Election Commission, Aslanbek Aslakhanov gained 27.5 percent of the vote and beat his closest rival, Adam Deniev, by 5 percent. Aslakhanov intends to use the Duma tribunal to speed up regulation of the Chechen conflict by political methods, Moskovsky Komsomolets reported August 23^rd. At the begin

ning of the decade Aslakhanov considered himself a democrat and an advocate of the market economy. He has a degree in law, holds the rank of major general of police, and has a Red Star order for participation in releasing hostages seized by terrorists. He was Boris Yeltsin's envoy during his election campaign in 1991, and later he was chairman of the Supreme Council Committee on Fighting Crime, disbanded in 1993. At that time Aslakhanov asserted that he would curb the criminal forces of the CIS that had allegedly united and were dividing spheres of influence. Aslakhanov opposed Djokhar DudaYev and protested against the dismissal of Yegor Gaidar's government.

As expected, violence broke out prior to the election. Chechen spokesman Movladi Udugov claimed that Chechen fighters had launched a total of 47 attacks on polling stations and other Russian posts. On August 18^th, election candidate Isa Ibragimov escaped uninjured when a bomb exploded outside his home in Gudermes. Anti-federal terrorists hit security forces in Grozny with a car bomb that injured four police officers and killed two civilians and then followed with attacks that killed eight more servicemen — bringing the week's toll to 30 dead and 84 wounded servicemen and two dead civilians, The Moscow Times reported.

Economy

Ruble = 27.74/$1.00 (NY rate)

Ruble = 27.75/$1.00 (CB rate)

Ruble = 24.79/1 euro (CB rate)

Restrictions On Oil-Gas Re-Imposed

· Russia has re-imposed restrictions on fuel oil and gas oil exports for September and October, according to the government press office. In a statement on Monday, the official government said that the energy and trade ministries will set volumes of supplies which producing companies will have to deliver to domestic consumers. Once the domestic supplies are fulfilled, the Energy Ministry will issue licenses allowing exports. The government abolished oil export quotas starting in July and switched to a system of regulating supply by market methods, through higher export tariffs. The government press office did not say how much fuel the

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companies would be able to export in September and October.

Business

UES Reorganization Plans Delayed

· Russia's Unified Energy Systems' (UES) board won't discuss the national power monopoly's reorganization plan at a meeting this week. UES, which operates the world's largest power grid, has been preparing draft proposals for its reorganization, which involves separating the transmission, distribution and generation of electricity by creating separate companies. The state, which owns a 52 percent stake in UES, hasn't approved the draft plan, which some minority shareholders have disputed. UES said last week it planned to ask its board to approve the next steps under the reorganization plan in a meeting on August 30^th. "No issues relating to the restructuring of the power grid or approval of relevant concepts will be considered on Wednesday," said Ivan LAZARKO, UES board member and chairman of Russia's National Association of Securities Market Participants.

percent of its two electricity generating plants and the electricity distribution and supply business. Separate tenders will be held for each of the four businesses. Prospective investors must submit information required to qualify by September 21^st. Lithuania is currently laying the groundwork to split the 86.2 percent state-owned vertically integrated power company into separate generation, transmission and distribution companies and intends to retain full control of the transmission lines. The government and the shareholders of the company still need to approve the company's re-organization plan. No precise timetable for the completion of privatization of Lithuanian Energy has been set.

South Caucasus & Central Asia

Georgia To Receive US Vessel, Aid

· Georgia's National Border Guard Department will receive a lifesaver vessel from USA in September. The vessel presentation will take place in the framework of the Border and Justice Defense Program, Prime News Agency reported. In the framework of the same program the border guard department received two helicopters MI-8 on Saturday. The US has allocated $23 million, which has been used to buy 3 vessels, generators, navigational equipment and communication systems. This year American aid will increase to $ 25 million.

Baku-Batumi Pipeline Rehabilitation

· Georgian International Oil Corporation (GIOC) president George CHANTURIA on Saturday estimated that it will take $12 million to $15 million to clean and rehabilitate the old Baku-Batumi pipeline within one year. According to him, the full rehabilitation of the route will need $60 million to $70 million. Earlier, this pipeline was meant to be used for Caspian oil transit through Supsa, but instead new pipeline was built. In case using the rehabilitated pipeline, annual passing ability of the Supsa terminal will increase from 5 to 10 million tons. It is also possible, that the rehabilitated pipeline will be used for transit of Kazakhstan oil, Prime News Agency reported.

Akayev To Seek Re-Election

· Kyrgyz President Askar AKAYEV on Monday announced he would seek another term in office in October 29^th presidential poll. Several groups have

European Republics

Econ. Min. Survives Confidence Vote

· Estonian Economy Minister Mihkel PARNOJA narrowly survived a confidence vote on Monday called by the opposition over his handling of the privatization of two power plants that supply most of the country's electricity. Voting mostly along party lines, 50 members of Estonia's 101-seat parliament backed PARNOJA, while 47 were against, Reuters reported. Estonian state power utility Eesti Energia signed an agreement last Friday to sell a 49 percent stake in the two major power plants to US NRG Energy Inc. A recent poll showed that as two-thirds of Estonians opposed the deal. Estonian President Lennart MERI and business groups also opposed it, saying it would hurt the economy and consumers by restricting competition.

Lithuania To Sell Power Utility

· As of today, Lithuania is accepting letters of interest to participate in a tender for two electricity generating plants and power distribution networks from the state-run utility Lithuanian Energy. The government will put on the market at least 51

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collected 50,000 signatures in support of AKAYEV needed to register him. AKAYEV's entry brings the total number of candidates to 16. AKAYEV has been President since Kyrgyz gained independence in 1991. His democratic image was tarnished by a February parliamentary election, in which his leading rivals were either banned or failed surprisingly to win seats. His main opponent, Felix KULOV, was jailed in March on what the opposition says were trumped-up charges. He was later released. KULOV is also a presidential candidate. Nonetheless, AKAYEV is liked to be re-elected with a comfortable majority.

Kazakh Sells Stake To Chevron

· Kazakhstan has sold a 5 percent state-owned stake in Tengizchevroil to US Chevron today, ending months of confusion. The sale for $660 million raises Chevron's ownership in Kazakhstan's largest oil producer to 50 percent. The price includes $210 million as an advance against future production. Chevron will be required to pay a further $20 million for the development of Astana, Kazakhstan's new capital. The deal was signed by Kazakh Deputy Prime Minister Danial AKHMETOV, Energy Minister Vladimir SHKOLNIK, and Nick ZANA, managing director for Eurasia of Chevron Overseas. The two sides had said in May that they had reached an agreement for the sale, but it later fell through because of wrangling over taxes and debts. Tengizchevroil, which produces around 250,000 barrels per day, unites Chevron, Kazakhstan (now 20 percent), ExxonMobil (25 percent) and LUKArco, a joint venture between Russian LUKoil and Arco, a company now controlled by BP Amoco (5 percent).

US Richardson Visits Kazakhstan

· US Energy Secretary Bill RICHARDSON arrived in Kazakhstan for meetings with President Nursultan NAZARBAYEV, Energy Minister Vladimir SHKOLNIK, and other top government officials. He aims to promote energy cooperation and nuclear nonproliferation activities. He is also expected to

sign science and technology renewal agreements. The US expressed concern over its low reserves of heating oil and by the generally low level of oil stocks on world markets. RICHARDSON called on Organization of the Petroleum Exporting Countries (OPEC) to increase oil production and bring down soaring prices. He said, "Producers and consumers both need stable oil prices, and $32 per barrel is too high a price…As President CLINTON has said, the ideal price is $20 to $25 per barrel." OPEC President and Venezuelan Oil Minister Ali RODRIGUEZ said in Mexico City on Monday that he thought there was adequate crude supply and high prices were caused by refining bottlenecks and speculation, Reuters reported. Kazakhstan is not a member of OPEC. From Kazakhstan, RICHARDSON will fly to Russia on August 30^th. There he will visit former nuclear weapons facilities and travel to Sakhalin Island in Russia's Far East to tour oil facilities.

Statoil On High Oil Prices

· Statoil CEO Olav Fjell commented on high oil prices, which have recently reached a new 10-year high of over $30, a barrel. "The high oil prices just create a little more financial freedom," but they are not sustainable. Statoil's "exploration and production (E&P) investment will not be up this year. And we think that we are at the level now that may be sustainable for the future." Statoil's E&P spending in 1999, came to 21.2 billion crowns ($2.38 billion) with 6.4 billion crowns of international spending. Fjell stressed his call for a partial privatization of Statoil. "We have made a point of this: one, the strengthening of Statoil from the state's direct financial interest (SDFI), and then the privatization, that's our preferred sequence." The proposal to give Statoil part of the SDFI's oil and gas assets ahead of a sell-off was agreed by the ruling Labor Party. However, following objections from local leaders, the government has postponed a final decision on the sell-off of roughly one-third of Statoil until November.

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