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

Friday, September 1, 2000

diplomats were ordered out on Thursday. Moscow quickly rejected the charges and expelled two Estonian envoys in a tit-for-tat move. Estonia's Ambassador to Russia, Tiit MATSULEVITS, told the local newspaper, "The Estonian-Russian relationship has never been as good in the past 500 years…These things tend to happen between states." Another paper, Paevaleht, noted that Estonian Defense police typically keep an eye on Russian embassy officials. "The are often behaving on the limit but obviously now the behavior of those two diplomats became too bold."

Russian Troops Bomb And Detain Chechens

· Defense Minister Igor SERGEYEV announced today that Russian troops had detained about 100 rebels and killed 35 in air and artillery bombardments in the region. He added that a large arsenal of weapons and ammunition were seized. SERGEYEV said the military was concentrating on urban operations to seize rebels. Russian jets and helicopters flew more than 30 sorties over Chechnya on Thursday, attacking suspected rebel positions with bombs and rockets. Soldiers have sealed off the southwestern town of Urus-Martan for most of the week, and they fanned out Thursday in Bachi-Yurt, 12 miles southeast of the capital Grozny, and Chernorechye, on Grozny's outskirts. Helicopters also bombed the road leading from Shali, southeast of Grozny, to nearby Makhkety on Thursday. Soldiers manning a checkpoint outside Makhkety said that rebels had shelled a Rus

Russian Federation

Politics

Putin To Sign State Council Decree

· On the rebound from two tragic accidents, the sinking of the Kursk and the fire at Ostankino Tower, Russian President Vladimir PUTIN moved to consolidate the Kremlin's power over regional officials. He said that regional officials would be included in the State Council, which would act solely in an advisory role. A decree establishing the State Council is to be signed by PUTIN today. The council would meet every three months and be chaired by the President. In a meeting with regional leaders in Volzhsky Utyos, PUTIN stressed that he intends to bring regional laws in line with the federal constitution. Referring to the contradictions now between the two laws, he said, "Most people don't have any idea of what state they are living in…This is a time bomb that must be defused and destroyed." PUTIN added, "In the statutes of the regions and the constitutions of the autonomous republics you can find whatever you want...from nails to diamonds, but no mention of the fact that they are subjects of the Russian Federation." He noted that up to a fifth of local laws contradict federal law. Regions have been reluctant to share revenues with Moscow, and some suppress political opposition and independent news media.

Russian Diplomats Spied On Estonian Defense

· Estonia's Postimees reported that the two Russian diplomats expelled from Estonia had been spying on Estonia's defense forces and border guards. It said, "They were definitely exceeding the limits of diplomacy…It is true that the responsibility of diplomats is to gather information, but they can't go too far into hidden details and ask questions from informed people who have relevant information. That turns diplomacy into espionage." The two

Today's News Highlights

Russia

Slavneft-Iraq Sign Oil Agreement

Bolshoi Director Sacked

European Republics

Observer Mission To Belarus

Coca Cola Buys Lith. Factory

South Caucasus & Central Asia

Georgian-Turkmen Relations

ExxonMobil To Drill in Turkmen

OKIOC Completes Test Well

Kazakh Increases Army Budget

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Friday

September 1, 2000

Intercon's Daily

sian helicopter earlier in the day. Four Russian soldiers were injured Wednesday, one of them critically, when their armored vehicle ran over a mine in Grozny, officials said. In the past 24 hours, four explosive devices were disarmed in Grozny, and three more along roads in the region.

Economy

Ruble = 27.76/$1.00 (NY rate)

Ruble = 27.76/$1.00 (CB rate)

Ruble = 24.98/1 euro (CB rate)

Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug

Russian Economic Indicators

· Russian foreign currency and gold reserves rose $700 million to $24.1 billion in the week ending August 25^th, after declining the previous two weeks. The Central Bank said this is the highest level since 1997, when they peaked at $24.5 billion. The money supply, which includes cash currency in circulation plus required reserves, fell by 4.3 billion rubles ($155 million) in the week ending August 28^th. The money supply shrunk to 430.8 billion rubles from 435.1 billion rubles the week before.

Business

Slavneft-Iraq Sign Oil Deal

· Russian-Belarusian oil company, Slavneft, has signed in Baghdad an agreement with Iraq to develop a billion-barrel oil field. The contract will take full effect only if the sanctions that the UN imposed

against Iraq after its 1990 invasion of Kuwait are lifted. Officials from Slavneft and Iraq also discussed work under the UN oil-for-food program, which allows Iraq limited oil exports to buy food, medicine, and other necessities. Slavneft's main goal is to study the oil field and get a jump on other companies, if sanctions are lifted, a company official said. Slavneft will observe all UN resolutions in the meantime. He said the Iraqi side had asked to keep the name of the oil field secret, the Associated Press reported. Reuters reports that the most probable oil field is the Suba-Luhais, which is now pumping about 25,000 barrels per day (bpd). Full development of Suba-Luhais could cost some $300 million and yield output of about 100,000 barrels per day (bpd) after three years. Russia has advocated lifting UN sanctions, in part so Iraq can begin paying back a Soviet-era, multibillion-dollar debt. Russian oil companies are also jockeying for potentially lucrative contracts to sell oil-drilling equipment.

Bolshoi Director Removed From Renovation

· President Vladimir PUTIN has stepped up measures to protect Russia's national treasures, specifically the Bolshoi Theater. On Tuesday, he removed Bolshoi artistic director Vladimir VASILYEV from leading the renovation of the Bolshoi and put Cultural Minister Mikhail SHVYDKOI in charge. VASILYEV's deputy, Vladimir KOKONIN, was also sacked. SHVYDKOI said, "Renovation is an exacting matter, the artistic leader is not up to it… In crisis conditions - as the renovation of the Bolshoi structure can be considered - a businesslike manager should belong to the theater's leadership." The famed opera and ballet theater, which was founded in 1776, has been rocked by financial woes and personnel disputes. PUTIN pledged state funds to complete building work. SHVYDKOI defended the funds and said, "The Culture Ministry will be responsible for construction funds...[but] how can I be responsible for financial flows which are not under my control?" VASILIYEV raised hundreds of millions of dollars for costly building projects, including a modern second stage just off the theater's west flank, but work stalled when money ran out. The Culture Minister is also proposing Anatoly IKSANOV as the Bolshoi's new general and artistic director. Despite the Culture Ministry's proposed good efforts, many still doubt the government's true intentions. "It is all terribly suspicious. I wouldn't like to

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think that one day soon the Culture Ministry will decide what is performed at the theater or who among the Bolshoi's artists can travel abroad," said a ballet dancer, who declined to be named.

Poland-Slovakia Pipeline Considered

· Russia's gas monopoly Gazprom, France's Gaz de France, Germany's Wintershall and Ruhrgas and Italy's ENI are forming a consortium to consider building a pipeline through Poland and Slovakia; this would bypass Ukraine which has admitted siphoning off gas supplies. Russia says Ukraine owes it around $2 billion in gas debts, while Ukraine claims the figure is closer to $1.4 billion. According to a government source, "Gazprom has said for a long time that it is necessary to diversify gas export routes in order to increase export volumes…The creation of such a consortium shows that Gazprom's partners understand that building new transportation capacities is one of the elements of a secure gas supply to Western Europe." The estimated capacity of the pipeline, which is expected to cost $1 billion, is 25 billion to 30 billion cubic meters a year. Prime Minister Mikhail KASYANOV said discussion on an alternative natural gas pipeline route was, "part of many options for resolving the whole situation of Russia's gas exports."

and vesting parliament with more functions needed to be addressed by authorities. Hans-Georg WIECK, head of the OSCE Belarus mission said, "This is neither a victory for the government, nor for the opposition." One diplomat said the mission, "will be a small group of technical experts who will look at some of the practicalities but will not observe election day itself." Opposition groups in Belarus have described the election as a political farce and pledged to boycott the polls in protest.

Coca Cola Buys Lithuanian Factory Stake

· Coca Cola Co.'s Lithuanian subsidiary said it bought the government's remaining 22.96 percent stake in the local factory that makes its soft drinks, turning it into a wholly owned subsidiary, Bloomberg News reported. Saulius GALADAUSKAS, spokesman for Coca-Cola Bottlers Lietuva, Coca Cola's local distribution subsidiary said, "We will pay 3.5 million litas ($875,000) for the stake immediately after the purchase agreement is signed." The government, which has said Coca-Cola's investment is very important, will exempt the soft-drink maker from import tax on sugar for three years, under an agreement to be signed next week, said Gediminas MISKINIS, an Economic Ministry official. Coca-Cola wants to increase investment in Lithuania, in which it has invested about 120 million litas, and strengthen its presence in Latvia and Estonia, GALADAUSKAS said. The soft-drink maker bought a 77.04 percent stake in the Alytus bottling plant in 1994, setting up Coca-Cola Bottlers Lietuva at the same time.

South Caucasus & Central Asia

Georgia Aims To Boost Turkmen Relations

· Georgian State Minister George ARSENISHVILI and Finance Minister Zurab NOGAIDELI aim to improve bilateral relations with Turkmenistan during a visit to Ashkhabat today. Georgia-Turkmenistan economic co-operation issues will be discussed curing high-level meetings. NOGAIDELI believes that negotiations should not stop only on Georgian debt to Turkmenistan. Trans-Caspian gas pipeline perspective issues, Georgian production strengthening problems on the middle Asia market are also very important issues, the Finance Ministry told Prime News Agency. According to the Georgian delegation, Georgia pays its main debt percents on

European Republics

Belarus Allows Foreign Observers To Election

· Belarus Foreign Minister Ural LATYPOV on Thursday said that the decision to allow foreign observers to parliamentary elections on October 15^th was "the victory of goodwill, a compromise decision which provides a possibility for the recognition of the future election." Representatives of PACE, the Organization for Security and Cooperation in Europe (OSCE) Parliamentary Assembly, the Euro parliament and the CIS Inter-parliamentary Assembly agreed in Vienna on Wednesday that a technical mission would be sent to Belarus by the Bureau for human rights in cooperation with the OSCE group of observers. It was stressed that the, "representatives of the Parliamentary troika should also act as international observers to a degree which will allow them to give an objective assessment of the election process." Western human rights bodies stress that other conditions including access of the opposition to state-controlled media

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time and fines according to the sanctions.

Meanwhile, Turkmen President Saparamurat NIYAZOV has named Orazmurad BEGMYRADOV as a new deputy premier to head key finance areas, including the Finance and Economy Ministry, the state tax service and customs. BEGMYRADOV previously headed the tax inspectorate now called the state tax service. He has held senior posts in the banking sector.

ExxonMobil To Explore Turkmen Oil-Gas

· US ExxonMobil has started a seismic survey of oil and gas deposits on the Cheleken peninsula in western Turkmenistan, Reuters reported August 31^st. The Cheleken peninsula is located in the area where 80 percent of Turkmenistan's oil is produced. The country produced 140,000 barrels per day of crude last year. Turkmen state company Turkmenneft and Britain's Lasmo will partner ExxonMobil in the project. An Energy Ministry spokesman said, "Even though production of oil from Cheleken started more than 100 years ago under Sweden's Nobel brothers, modern exploration methods will allow us the possibility of discovering significant reserves."

OKIOC Completes First Caspian Test Well

· The international consortium exploring for oil at Kashagan field in the Caspian Sea offshore Kazakhstan has completed drilling its first test well, Reuters reported August 28^th. Offshore Kazakhstan International Operating Company (OKIOC) has not released the results yet. There has been speculation, encouraged by senior Kazakh government ministers, that the field could contain up to 50 billion barrels of crude, making it one of the largest in the world. But OKIOC has consistently sought to play down such speculation, saying it was too soon to talk about possible reserves after just one test well had been drilled on such a large structure. According to Reuters, the preparation for drilling the second test well in West Kashagan, some 40 km from the first site, will start in September.

Kazakhstan Increases Military Spending

· Kazakh President Nursultan NAZARBAYEV today announced that the nation will double military spending next year, as fears increase that violence and instability in the south will continue. Addressing the parliament, he said, "The sharp deterioration of the situation on the southern borders of the Commonwealth of Independent States and the dramatic events of this August in Kyrgyzstan and Uzbekistan are a precursor of serious times ahead for Central Asia as a whole." Rebels thought to belong to the Islamic Movement of Uzbekistan, opposed to the secular rule of President Islam KARIMOV, last month repeatedly swept into Uzbekistan and neighboring Kyrgyzstan, from where they can easily enter Kazakh territory. Dozens of rebels and Uzbek and Kyrgyz troops have died in almost daily battles in the remote mountainous region. The rebels are though to be operating from of hideouts in Tajikistan. NAZARBAYEV said, "It is imperative to see a link between the events in Afghanistan and the situation unfolding in our region. We believe this problem has already gone beyond the borders of the Central Asian region and has no easy solution." Starting in 2001, military spending will total 1 percent of the gross domestic product (GDP). This year the military budget only accounted for 0.5 percent of GDP. Reuters reports that the government has already started dividing the country into military regions and was creating a southern military district with new, mobile troops to deal with the type of conflict seen this summer and last. Kazakhstan last year drew up a national security strategy to 2005, which identified international terrorism and extremism as the greatest threats facing the country.

The Daily Report on Russia

and the Former Soviet Republics

will not be published on September 4th

in observance of Labor Day.

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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