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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

Monday, September 11, 2000

tion from Lieutenant Commander Shigehiro Hagisaki, a Japanese naval officer working as a researcher in the National Institute for Defense Studies. Last Friday, the police arrested Hagisaki on suspicion of violating the Self-Defense Forces (SDF) Law, which prohibits SDF members from divulging classified security information. According to Japanese media reports, police suspect Bogatenkov attempted to gain information about the activities of the US naval units stationed in Japan.

When asked if Bogatenkov had contact with Hagisaki and whether he gave him money in exchange for the information, Sergei Yasenev, first secretary at the Russian Embassy, said Bogatenkov "did not violate any globally acknowledged standard or principle." Yasenev explained that Bogatenkov had left Japan only because he has completed his assignment as military attaché. He had been in Japan for about three years. According to Kyodo News Service, Russia said the incident is "groundless" and the allegation is an attempt to prevent Japan and Russia from building a partnership at a time when bilateral relations have been proceeding in a favorable direction. Russia's Deputy Foreign Minister Alexander Losyukov said it is unclear if Russia would respond by expelling a Japanese diplomat, adding that the Russian government would act "very carefully¾consider all the circumstances and adopt a balanced decision, taking into account the

Russian Federation

Politics

Secret Nuclear Plant Accidentally Shut Down

· Several of Russia's nuclear power plants were shut down over the weekend due to an accidental power cut, including reactors at Russia's top secret Mayak nuclear fuel reprocessing plant, Itar-Tass news agency reported. A commission of the Russian State Inspection Department is investigating the reason behind the failure. Differing opinions cite wither power surges or a short circuit on high voltage wires. Reuters adds that no harmful materials were released. Head of the plant Vitaly SADOVNIKOV said only "near-military discipline" and vigilance had prevented serious trouble. "A collapse in the system of electric power took place on Saturday. The plant was without power for 45 minutes," he added. One of the reactors that had been shut down was restored today. No further details were immediately available. The Mayak plant is in a closed town near Chelyabinsk in the Urals Mountains. It serves as a key storage site for weapons grade plutonium. The shutdown at the Beloyarskaya plant followed a sharp change in the electric current frequency in the energy system, according to the Emergencies Ministry. Resumption of the Beloyarskaya's No. 3 reactor must have the commission's authorization. The power failure demonstrates Russia's struggle with its crumbling infrastructure.

Russian Military Attaché Leaves Japan

· Captain Viktor Bogatenkov, a Russian military attaché who has diplomatic immunity, left Japan for Russia on Saturday after rejecting a police request that he cooperate in investigation into the espionage case. Bogatenkov is a member of the Russian intelligence organization GRU. He is suspected of obtaining classified security informa

Today's News Highlights

Russia

Russia To Lower Import Duties

Dorenko's Show Canceled

European Republics

ZALK For Sale In November

Naftogaz Ukrainy Gets Audited

South Caucasus & Central Asia

Frontera Strikes Oil In Georgia

Romania To Join GUUAM?

USACC 4th Conference Opens

Kyrgyz CB Defends Som

Politics-Economics-Business

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Monday

September 11, 2000

Intercon's Daily

context of Russian-Japanese relations, among other things."

Rus-Japan To Conduct Joint Rescue Drill

· The Japanese Maritime Self-Defense Force (MSDF) will conduct a joint search-and-rescue drill with the Russian Navy in mid-September in the Pacific Ocean off Russia's Kamchatka Peninsula, MSDF officials announced on August 29^th. It will be the third Japan-Russia joint navy exercise since 1998, and the first time that MSDF warships have entered the Russian Pacific Ocean Fleet's submarine base at Petropavlovsk-Kamchatskiy. MSDF Chief of Staff Admiral Kosei FUJITA said, "I don't think vessels of any country's navy have ever entered the base. It reflects the heightened trust between the Russian Navy and the MSDF." Since 1996, the MSDF and the Russian Navy have been promoting exchanges aimed at building trust, such as by having their ships visit each other's bases. The joint drill, scheduled for September 11^th, will involve a combined 850 personnel from both forces, two escort ships of the MSDF and a Russian missile destroyer, the officials said. In the operation, the MSDF and Russian Navy officers will cooperate with each other to conduct a mock search and rescue of a wrecked civilian merchant vessel.

Economy

Ruble = 27.88/$1.00 (NY rate)

Ruble = 27.86/$1.00 (CB rate)

Ruble = 23.91/1 euro (CB rate)

Russia To Lower Import Duties

· Economics Minister German GREF said that Russia will lower import duties by 10 percent on average from 2001 and simplify tariffs as it tries to join the World Trade Organization (WTO) and fight corruption. From 2001, Russia will have a four-tier tariff system, with a 5 percent tariff for commodity imports, 10 percent for semi-finished goods, 15 percent for agricultural goods and 20 percent for consumer goods, according to GREF. Russia may charge an extra 10 percent duty on cigarette and sugar imports, while some goods, such as insulin, won't be taxed. The proposal to cut tariffs probably will meet opposition in the Russian State Duma, as it would hurt domestic producers who have expanded market share after the ruble's 1998 devalu

ation made imports more expensive. Tea and tobacco producers, who benefit from a wide difference between duties on raw materials and finished goods, have already started to lobby legislators. Lowering tariffs is one of the conditions Russia must meet to enter the WTO. Russia's existing system of numerous tariff rates has contributed to tax evasion and encouraged corruption, officials said.

Business

Dorenko's Show Canceled From ORT

· ORT Television's controversial political commentary show with Sergei DORENKO was canceled on Saturday. This is the latest outcome of a continuing battle between tycoon Boris BEREZOVSKY, who controls 49 percent of ORT's shares, and the Kremlin, which owns the rest. In recent weeks, BEREZOVSKY has complained that the Kremlin has been pressuring him to surrender his holdings, with threats of reprisals. On Thursday, he announced he would transfer control over the shares to 14 people, mainly journalists including DORENKO, in what he said was an attempt to keep the shares out of government hands, the Associated Press reported. ORT general director Konstantin ERNST explained in a statement, "In the increasingly complex situation, I made the request to anchor Sergei DORENKO to refrain from commentary in today's edition of his program on the theme of the conflict between the state and private shareholders...Sergei Leonidovich did not agree with me." DORENKO believes that the decision to remove his program came "exclusively" from [Russian President] Vladimir PUTIN. It appears that BEREZOVSKY has lost the insider influence in the Kremlin that he cultivated under former President Boris YELTSIN, as he has become increasingly critical of PUTIN.

Meanwhile, rival channel NTV offered to air excerpts of DORENKO's program, but in the end rescinded the offer. However, it did broadcast portions of an interview DORENKO gave to Ekho Moskvy, NTV's sister radio station. In the interview, DORENKO said he thought his reporting on last month's Kursk submarine disaster, in which 118 men died, personally angered PUTIN. "I went to [the Kursk's base] Vidyayevo and did my reporting, not hiding my interviews with the widows and those

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	Monday		September 11, 2000
	Intercon's Daily
	who served alongside the victims. [PUTIN] came back from America and gave his answer," DORENKO said. BEREZOVSKY added, "The decision to remove [television presenter Sergei DORENKO] shows clearly that a concerted campaign targeting the freedom of the press has been launched by the government."	Svetlana KURMASH, chief economist at NaftoGaz's investments department. Arthur Andersen is most likely to begin the second audit in early October. South Caucasus & Central Asia Frontera Eastern Georgia Strikes Oil · A US-Georgian joint venture, Frontera Eastern Georgia, has discovered substantial amounts of high quality oil and natural gas at a field in eastern Georgia. The company's general director Zaza MAMULAISHVILI told Reuters, "Test drilling at the Taribani oil field in eastern Georgia has finally confirmed the existence of big oil reserves here." He did not specify the field's possible reserves. Frontera Eastern Georgia was set up as a joint venture between Georgian state company Saknavtobi and US Frontera Resources Company in 1997. Frontera Eastern Georgia, which has a license for 25 years, plans to attract finance from the European Bank for Reconstruction and Development (EBRD) and to drill 60 oil wells in eastern Georgia in 2000-2007. MAMULAISHVILI said the company also planned to build a new pipeline from the Taribani oil field and to repair some old pipelines in Georgia. The company has invested $30 million in its business in Georgia. Romania States Interest In GUUAM · Romanian President Emil CONSTANTINESCU informed Georgian President Eduard SHEVARD-NADZE on Saturday that Romania is ready to send a written appeal to GUUAM for membership. GUUAM unites Georgia, Ukraine, Uzbekistan, Azerbaijan and Moldova. Georgian Foreign Minister Irakli MENAGARISHVILI describes as "absolutely natural" the interest of Romania to the GUUAM. MENAGARISHVILI said in an exclusive interview with Prime News Agency that Romania actively participates in the TRACECA project, so the GUUAM leaders positively reacted to the decision of official Bucharest. Chairman of the parliamentary committee for economic policy Vano MERABISHVILI believes that the decision of Romania to join the GUUAM organization will positively affect the organization from the economic point of view, noting the nation's serious potential. According to Ukrainian President Leonid KUCHMA, the next GUUAM summit will take place in Ukraine. Georgia has repeatedly stressed that GUUAM is not a private club¾the organization is ready to actively cooperate with all those who agree to its principles.
	European Republics Ukraine To Tender ZALK In November · Ukraine will sell 68.01 percent in the country's only aluminum smelter Zaporizhsky Alyumimiyevy Kombinat (ZALK) at an open tender in November, the State Property Fund announced on Wednesday. The starting price of the stake is set at 166.961 million gryvnias ($31 million), the Fund said in a statement published in the official gazette Vidomosti Pryvatyzatsyi. Bids will be accepted until November 20^th. Mykhailo CHECHETOV, deputy head of the State Property Fund said the winner of the tender would also have to repay a loan worth about $80 million contracted by the company in recent years under government guarantees. "This will ease the burden on the state budget," CHECHETOV said. He said many investors had already displayed interest in the plant. Raiffeisen Investment Ukraine is acting as a financial adviser for the sale. ZALK's charter capital, defined as the number of shares multiplied by the face value of one share, is 155.682 million gryvnias. The smelter, which employs 7,000 employees, increased its output of primary aluminum and aluminum alloys to 112,400 tons in 1999 from 106,700 tons in 1998. Arthur Anderson Audits NaftoGaz Ukrainy · Arthur Andersen, the world's fifth-largest accounting firm, completed its first of three audits of NaftoGaz Ukrainy, Ukraine's national oil and gas company, as the government prepares to sell a stake to private investors. The audit was conducted at the request of the International Monetary Fund (IMF), which wanted to make sure the NaftoGaz's financial operations were open enough to scrutiny. "We hope to issue and sell internationally some securities in the future. So this is why we are really interested in continuing the international audit. This way we should be able to attract more investments," said NaftoGaz spokesman Artur HUBAR. The first audit covered last year, while two more audits will be conducted for 2000 and 2001, said


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September 11, 2000

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USACC Host Fourth Annual Conference

· The US Azerbaijan Chamber of Commerce (USACC) has organized its fourth annual conference in Washington, DC, focusing on the Great Silk Road and Azerbaijan's role in the Gateway to Europe. Azerbaijan President Geidar ALIYEV gave the keynote address. He noted Azerbaijan's successful independence and strong sovereignty, which has allowed Azerbaijan to effectively work with the international oil industry. The President stressed that Azerbaijan is the only former Soviet Republic deprived of direct US assistance because of Section 907. ALIYEV called for the repeal of Section 907. Azerbaijan Foreign Minister Vilayat GULIYEV and Azerbaijan Ambassador to the US Hafiz PASHAYEV reiterated ALIYEV's call for the repeal. Special advisor to the Secretary of State on the Newly Independent States Stephen SESTANOVICH pointed out that there are three paths which can advance the US-Azerbaijan relationship. He said that the US should support Azerbaijan's integration into international organizations, including NATO's PFP, the Council of Europe, and the Organization for Security and Cooperation in Europe (OSCE), as well as assist in non-proliferation and terrorism issues. Second, Azerbaijan needs to expand its regional cooperation, in terms of oil and gas pipelines, energy matters, and further technical business opportunities. Third, SESTANOVICH said the US should assist in the development of new democratic and free market institutions. SESTANOVICH specially noted last week's successful registration of all Azerbaijan opposition political parties as well as the redrafting of the election laws with OSCE assistance. USACC is celebrating its fifth anniversary.

US-Kazakhstan Sign Uranium Pact

· The US and Kazakhstan reached a 10-year agreement worth $200 million for Kazakhstan to supply uranium to US fuel plants. The contracts were signed last Friday during a visit to the US by a delegation headed by Kazakh President Nursultan NAZARBAYEV, said Mukhtar DZHAKISHEV, presi

dent of Kazatomprom. Kazakhstan agreed to deliver uranium, as well as beryllium alloys, to US nuclear power stations, said DZHAKISHEV. Beryllium alloys are used as moderators and reflectors in nuclear reactors.

Turkmenistan Joins ADB

· The Asian Development Bank (ADB) said on Thursday it would send a mission soon to Turkmenistan, since it became the 59th member of the bank on August 31^st. The ADB said the mission would decide how the bank could best help reform the economy and provide basic social services. Turkmenistan has rich reserves of natural gas, the fourth largest globally, and substantial oil resources. It is also the world's 10th largest cotton producer, the ADB said. State-owned enterprises comprise 90 percent of the economy. While the nation is undergoing a transition from a command economy to a market economy, it is seeing a decline in income accompanied by deteriorating social indicators, the ADB said.

Kyrgyz CB Defends Som

· The Kyrgyz Central Bank was forced to intervene on Friday pouring $4 million into the domestic currency market. The Kyrgyz som has stabilized since this action. The stabilization followed an announcement on Thursday by the National [Central] Bank that urgent measures would be taken to prop up the currency. The Finance Ministry also promised stringent "financial and fiscal discipline." "The National Bank gave the commercial banks a positive signal that it was prepared to defend the som and this helped calm the negative expectations of the banks and the population," said Alexander Yugai, a dealer at Kurulush Bank. The currency which was trading at 48.0 to the dollar at the end of August fell to 51 per dollar at the beginning of last week because of the rush to buy dollars. The depreciation is attributed to the rise in fuel prices, a hike in wages and pensions, the payment of salary arrears to workers and also a costly military operation against Islamic rebels in the south of the tiny country.

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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