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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Wednesday, August 30, 2000

Russia To Withdraw From Visa-Free Agrmt.

· Russia has decided to withdraw from the 1992 Bishkek agreement on visa-free travel of citizens in the territory of the Commonwealth of Independent States (CIS). Russian Foreign Minister Igor Ivanov said in a statement issued by the Foreign Ministry that Russia is not going to place artificial barriers and shut itself off from its partners in the Commonwealth, Itar-Tass reported. IVANOV said Russia valued the 1992 agreement, but could no longer abide by it. "In recent times Russia, like other countries, has more and more faced a serious threat from international terrorism, organized crime, drug business and other dangerous challenges," he said. "Moreover, illegal migration to Russia, also from Commonwealth member-countries, assumes large proportions scale. Russia's national security interests are actually affected," IVANOV added. He also noted that Russia's relations with Ukraine, Turkmenistan, and Azerbaijan as regards visas are already regulated on a bilateral basis which "larger meets the tasks of flexible response to challenges of the times and suits versatile interests of member-countries of the CIS." Russia has been holding talks with Georgia on implementing a new visa regime.

Under the Bishkek agreement, a participating country that decides to withdraw from the agreement notifies Belarus, the depositary of the agreement, 90 days in advance, Ivanov said. "We proceed from the view that this timeframe will be enough to hold

Russian Federation


Russia To Retrieve Kursk Sailors' Bodies

· Russia plans to retrieve the bodies of the 118 sailors aboard the sunken Kursk in an operation to begin in September. Numerous Russian attempts to rescue the crew failed. On August 20th, Norwegian divers called to the scene opened an escape hatch, found it flooded, and announced that all sailors were dead. Deputy Prime Minister Ilya KLEBANOV also said the lifting of the wreck of the submarine would begin in around one year and cost $100 million. Officials have also considered cutting the submarine into segments or raising it with pontoons, but that could set off any weapons still on the submarine or damage its two nuclear reactors. A Norwegian team of experts from Stolt Offshore will meet in St. Petersburg on Thursday to discuss how the operation can be carried out. Another option to recover the bodies being considered it to drill six 5-foot holes in the Kursk's reinforced titanium hull to gain access to areas believed to be holding the bodies. If this approach is approved, action would begin in late September. Just removing the bodies would cost $5-7 million. PUTIN is under strong public pressure to recover the bodies, despite lack of funding.

The commission investigating the disaster played down claims by the US that the Kursk sank due to a misfired torpedo. US sonar records are being analyzed in outside of Washington. KLEBANOV rejected claims that the Kursk was testing a new type of torpedo that used a liquid fuel system that some officers considered unstable. Russian officials maintain that the Kursk collided with a large object such as a foreign submarine, or with a World War II mine.

Today's News Highlights


Fitch Upgrades Int'l Bonds

Duma To Review 2001 Budget

Rumicon Offices Raided

European Republics

Ukraine-CSFB Fuel Loan

Ukraine Opens AvtoZAZ Bidding

South Caucasus & Central Asia

Armenian House Bombing

Gazprom-Turkmen Gas Talks

Kazakh-US On Reactor




August 30, 2000

Intercon's Daily

talks with other parties to the Bishkek agreement and to arrive at mutually-acceptable decisions," he added.


Ruble = 27.74/$1.00 (NY rate)

Ruble = 27.77/$1.00 (CB rate)

Ruble = 24.79/1 euro (CB rate)

Fitch Upgrades Int'l Bond Rating

· Credit rating agency Fitch on Tuesday has raised Russia's international bond rating from B- to B. The agency said it took this action following the successful completion of the $32 billion debt restructuring. Old Soviet debts to London Club creditors were exchanged for $21 billion in new Russian Federation International Bonds. These bonds were separately rated as B. The Financial Times reports that since the 1998 financial crisis, Russia has honored $16 billion of international bonds issued in 1996-1998, while defaulting on inherited Soviet-era debts. Economic reforms and high commodity prices were also taken into account in the rate change.

Meanwhile Moody's Investors Service Tuesday said it will review a possible upgrade of foreign currency deposit ratings assigned to Vneshtorgbank and Gazprombank. Both banks headquartered in Moscow, Russia, reported, respectively, total IAS assets of $2.82 billion (consolidated) and $1.94 billion (unconsolidated) at December 31, 1999.

Duma To Consider 2001 Draft Budget

· The Russian State Duma will review the 2001 budget draft on September 22nd, with the aim to approve it in four readings by November 20th. Budget committee head Alexander ZHUKOV today said he believed the government would be ready to compromise. He said, "The debate will be difficult as it always is with budgets. There will be a lot of discussion. But I think the budget will be passed by the New Year with certain compromises from the government." ZHUKOV said, "I think the budget will be passed in first reading (at first try), but some changes are likely to be introduced." After approval by the Duma the draft would have to be passed by the Federation Council before being signed into law by President Vladimir PUTIN. The government's draft budget envisages spending and revenues of

1.19 billion rubles ¾$40 billion at a projected average ruble rate of 30 per dollar for the year. Gross domestic product is expected to grow four percent, after an expected 5.5 percent rise in 2000 and inflation to slow to 12 percent from 18 percent in 2000.


Swiss Invade Runicom's Offices

· Swiss police on August 23rd raided Sibneft's Swiss affiliate Runicom's headquarters in connection with a probe that a $4.8 billion International Monetary Fund (IMF) loan installment was illegally disbursed in July 1998. This latest raid follows similar actions taken at two Swiss banks in Ticino. Sibneft, controlled by the seldom seen Russian tycoon Roman ABRAMOVICH, said no IMF money passed through Runicom accounts. The Wall Street Journal Europe quoted Runicom president Eugene SHVIDLER stating, "This is completely crazy since Runicom ceased trading operations in 1997 and had only one account in Switzerland in 1998 with total transactions for the whole year of around $1.2 million." The raid followed the surprise resignation of Russia's prosecutor general investigator Nikolai VOLKOV, who earlier recommended opening a formal inquiry into the misuse of IMF funds. On August 11th, Geneva magistrate Laurent KASPER-ANSERMET and nine police officers raided Runicom's office in Montreux and seized related documents. In 1999, PricewaterhouseCoopers conducted an audit and found no evidence that the 1998 IMF loan installments had been misused. Runicom has also been the center of legal action brought by the European Bank for Reconstruction and Development (EBRD) for the recovery of a $58 million loan. Russian courts have rejected EBRD's claims that it is owed monies.

European Republics

Ukraine-CSFB Negotiates Fuel Loan

· The Ukrainian Finance Ministry is negotiating with Credit Suisse First Boston for a loan of between $300 million to $350 million, according to Yulia TIMOSHENKO, Deputy Prime Minister for the fuel and power industries. The government needs the loan to buy more gas for power-generating plants before winter. By year's end, Ukraine plans to

When you need to know it as it happens




August 30, 2000

Intercon's Daily

purchase 7.5 billion cubic meters of gas from international gas trading company Itera, which extracts and sells gas in Russia, TIMOSHENKO said. The country will pay $45 per 1,000 cubic meters and plans to sign the contract very soon, the Deputy Prime Minister added. The government reported a 440 million gryvnia ($80 million) budget deficit as of Monday and said it was covering the deficit with revenue from selling state assets and domestic bonds.

Ukraine Opens Bidding For AvtoZAZ

· Ukraine opened a bidding for a 31.6 percent stake in AvtoZAZ to a foreign auto producer for at least 29.8 million gryvnia ($5.5 million) to boost sales and output at the country's biggest carmaker. The Ukrainian State Property Fund said it will bar investment funds or other non-auto-related investors from participating in the tender scheduled to take place on October 23rd. The winner will have to meet sales growth targets and improve domestic service centers. "We want to sell a stake to a strategic investor that would have at least five years of car-building experience," said Nina BURLIUK, a State Property Fund spokeswoman. The sale comes as Ford Motor Co. is considering whether to assume the 50 percent stake that Daewoo Motor Co. owns in a two-year- old unprofitable joint venture with AvtoZAZ, now that Daewoo is in talks to be sold to the US automaker. "Ford may consider the purchase, but the timing of the tender is not convenient for them," because of the ongoing talks with Daewoo, said Valentin SOVETOV, an analyst at Alfa Capital brokerage in Kiev. The state will keep 51 percent plus one share of AvtoZAZ until 2004, and may then sell it, BURLIUK said. The government earlier sold about 18.5 percent of the company, mainly to AvtoZAZ's management and employees, she said.

Estonia's Laar Committed To Reducing Taxes

· Estonian Prime Minister Mart LAAR said on Tuesday his three-party ruling coalition was committed to reducing the tax burden in its 2001 budget. "I do not believe that the governing coalition will step back on that issue. We will lower taxes and we will do it definitely," LAAR said. Reuters reports that LAAR's government set the 2001 state budget at 28.685 billion kroon ($1.6 billion) in August and parliament is to debate it in September, when

demands for increased social spending are widely expected. However, LAAR said the deputies must also seek to balance new spending with revenues to keep the budget in balance, as is required by law. "Parliament certainly has opportunities to look for additional sums to add to revenues," LAAR said. "I can't deny that the government did not use some of the opportunities available, for example concerning the profit of the (central) Bank of Estonia." According to the finance ministry, the government's draft would reduce the overall tax burden by 0.7 percentage points in 2001. Under its budget, the overall tax burden would be about 34.9 percent next year, versus 35.6 percent. The 1999 tax burden was 35.8 percent. The main reductions in the 2001 budget came in tax breaks for families after their third child and a rise in the minimum taxable income.

South Caucasus & Central Asia

Georgia Negotiates With Gazprom-Itera

· Issues of Georgia co-operation with Gazprom and International Energy Corporation Itera will be discussed by Georgian Energy and Fuel Minister David MIRTSKHULAVA and Georgian International Gas Corporation president Alex GOTSIRIDZE starting today and ending September 2nd in Moscow. GOTSIRIDZE plans to continue negotiations with the Gazprom officials on founding Gruzgosgazprom for rehabilitation of the existing networks of gas delivery into parts of Georgia and third world countries, he said in an interview with Prime News Agency. According to him, during the negotiations with Itera he will discuss the issues of gas delivery to Georgian users and gas transit issue into Armenia. GOTSIRIDZE declined from giving the exact details before finishing the negotiations.

Armenia's Prosecutor's Home Bombed

· The home of Armenia's military prosecutor Gagik DZHANGIRYAN was bombed early this morning. No one was injured, when the bomb ripped through the basement and caused minor damage. DZHANGIRYAN's home is located close to the Armenian parliament building. He leads the investigation of the parliament massacre in October, 1999, which killed Prime Minister Vazgen SARKISYAN, parliament speaker Karen DEMIRCHYAN and six others. Nine people were wounded. The gunmen said the parliament attack

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August 30, 2000

Intercon's Daily

was aimed at ending corruption in the country. DZHANGIRYAN's office has finished the investigation into the attack and handed the case over to court. The trial is expected to start next month. Earlier this month, a previously unknown group calling itself "Avengers of October 27" spread leaflets in Yerevan, threatening to exact revenge on DZHANGIRYAN for what it described as a botched investigation. Several prominent suspects who were arrested during the investigation have been released and four have been cleared of all charges.

Kazakhstan Celebrates Anniversary

· Kazakhstan is celebrating today the fifth anniversary of its Constitution. The country has had five constitutions approved in 1926, 1937, 1978, 1993, and 1995. The first three ones were in fact mirror images of the USSR main law. After the break-up of the Soviet Union in 1990, the republic approved the Declaration on Sovereignty in October 1990 and the Law on State Independence in December 1991. Kazakhstan needed legal foundation for further reforms. Kazakhstan's first Constitution approved in January, 1993, laid the basis for the actual Constitution of 1995.

Gazprom-Turkmen Negotiate Gas Terms

· The head of Russia's gas monopoly Gazprom, Rem Vyakhirev, will visit the Turkmen capital, Ashgabat, to discuss terms for additional 8 billion cubic meters of gas for Russia, an energy ministry official said on Tuesday. Gazprom has already agreed to buy 20 billion cubic meters of Turkmen gas at $36 per 1,000 cubic meters this year. The supplies are handled by Itera Holding, a Moscow-based trading company, Vedomosti reported. In May, Gazprom agreed in principle to increase annual imports of Turkmenistan gas by 10 billion cubic meters each year to as much as 60 billion cubic meters of gas per year. The company plans to ship 30 billion cubic meters of gas next year, rising to 40 billion cubic meters in 2002, the paper said. Gazprom needs to agree on price with Turkmenistan, which asks $42 to $45 per thousand cubic meters, while

Russia is offering $32. The government of Turkmenistan plans to stand firm on its proposed sale price for natural gas to Russia, a government official told Reuters.

Kazakh-US On Decommissioning Reactor

· In 1999, US Secretary of Energy Bill RICHARDSON and Kazakh Energy, Industry, & Trade Minister Vladimir SHKOLNIK signed an agreement for US support in the decommissioning of BN-350 reactor. According to the agreement, the US will support efforts to plan for the safe shutdown of the reactor and to decontaminate, drain, and deactivate the reactor's sodium coolant. Today, RICHARDSON said, "Together with Kazakhstan we have now finished 85 percent of the job, safely packaging nearly 2,800 fuel assemblies, to help reduce the vulnerability of high-quality plutonium in the western region of the country. He added, "Had this unneeded reactor fuel not been secured it could have posed a serious risk to US and global security," Capitol NewsWire reported.

RICHARSON today concluded a two-day visit, during which he held meetings with Kazakh President NAZARBAYEV, Prime Minister TOKAYEV, and Foreign Minister IDRISOV. RICHARDSON noted, "The United States is committed to the economic development and stability of Central Asia. Kazakhstan has the opportunity to develop its resources to ensure prosperity and security for its people." Kazakhstan has affirmed its support for a Washington-backed oil pipeline between Azerbaijan and Turkey. RICHARDSON said, "In addition to possible other oil from Kazakhstan, we hope strongly that Kazakhstan's partners and operator will secure capacity in this pipeline for Kazakhstan's early oil." Some doubt that the Baku-Ceyhan pipeline will be economically viable. Skeptics question whether some countries in the region have enough oil to make the project profitable. The fate of the pipeline could depend on oil commitments from Kazakhstan and the size of oil reserves found in Kashagan, Agence France Presse reported.

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

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