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

Wednesday, September 13, 2000

Russian Federation

Politics

Utility Cuts Power To Strategic Rocket Base

· Ivenergo, a local branch of Unified Energy Systems (UES), cut power on Tuesday to the Strategic Rocket Forces military base due to back payments of about 15 million rubles ($540,000). The Strategic Rocket Forces controls Russia's land-based arsenal of nuclear weapons. Russian troops seized the switching station and turn the lights back on. Later, the two sides reached an agreement. Vladimir KAZBAYEV, the main engineer, said, "We cut them off yesterday but almost immediately reconnected them. Last night, we came to an agreement and they promised to pay up." A spokesman for the Strategic Rocket Forces, Vyacheslav DAVIDENKO, said the power cut had not affected the military capability of the base, only the homes of personnel and the staff headquarters. Russian power companies frequently resort to power cuts in order to persuade cash-strapped customers to pay up. Deputy Prime Minister Ilya KLEBANOV said the incident was intolerable and that the Finance Ministry had already paid the Defense Ministry sufficient funds to cover its electricity bills. Prime Minister Mikhail KASYANOV said that the base was on the list of top priority energy consumers not to be disconnected no matter how high their debt to the supplier. "Even if they were cut off...because they had run up a debt, it is still inadmissible." Dmitry KORSHUNOV, the power company's spokesman in Moscow said the utility would continue pushing all customers, including the military, to pay. "We will act in a very tough manner. If we don't collect debts, we will have no money to buy fuel during the winter." Over the weekend, a failure in Russia's electricity grid forced the nation to shut down several nuclear reactors,

including those at the huge, secret Mayak reprocessing plant, in the remote Ural Mountains.

Putin Signs Information Security Document

· Russian President Vladimir PUTIN Saturday signed a doctrine on national information security, outlining areas in which publishing information could affect Russia's national interests. The doctrine, published today, clearly explains the notion of information security, determines its objectives and names four main elements of Russia's national interests in the sphere of information. It states that the domestic and international public should be ensured reliable information about Russian state policy and the official stand on socially significant events. The document also calls for the protection of information against unauthorized access and the security of information and telecommunications systems in Russia. The domestic coverage of the Chechen war and the August 12^th Kursk accident has been challenged by PUTIN. RTR said the document identified "dissemination of disinformation" about Russia's policies and state institutions as one of the main threats to the country's security. A Security Council official said the doctrine was intended to establish the status of both Russian and foreign news organizations operating in the country, but changes would probably be required to the country's law on mass media, adopted in the early 1990s. Changes to the Russian media law come on the heels of controversy over media ownership and freedom of speech. Anatoly

Today's News Highlights

Russia

WB Approves $2M Loan

Gazprom-Vietnam Partnership

European Republics

Belarus To Unify Ruble

Ukraine Fails To Sell T-Bills

Ukraine Hopes For EBRD Loan

South Caucasus & Central Asia

Tevzadze Meets With Troshev

Sergeyev To Visit Armenia

Socar-Moncrief Sign Agmt.

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Intercon's Daily

STRELTSOV, a council official and one of the authors of the four-part document, said, "I do not think it is brilliant when freedom of speech is limited by the fact that some influential figures have the right to speak and others only have the right to listen." Kommersant Daily negatively reported on the document, saying that it is so broad that anyone can find whatever one wants in it. Unfortunately, under PUTIN, the Kremlin's instinct appears destined to restrict media freedom and return to the old era of state news, rather than developing an open society.

Kasyanov Denies Resignation Rumors

· Russian Prime Minister Mikhail KASYANOV Tuesday denied rumors of his imminent resignation. He said that these rumors are groundless and paid for by companies. He said, "Those who actually paid for this have already been identified. There are certain corporations which pay for such publications. Certain media are degenerating in this genre today [and represent] a black sort of PR. There are no grounds for such reports." Intercon sources report that Communist Party leader Gennady ZYUGANOV is close to arriving at an accommodation with PUTIN, if the "reform team" of young leaders such as KASYANOV can be replaced. Local media had speculated that Sergei IVANOV, secretary of PUTIN's advisory Security Council might be appointed prime minister after KASYANOV's removal. IVANOV shares with PUTIN a background in the intelligence services and hails from St. Petersburg. KASYANOV is a liberal economist and former foreign debt negotiator. Analysts note that KASYANOV's political standing has been strengthened by Russia's strong economic recovery. The government, benefiting from high world market prices for its key energy and commodity exports, has managed to keep down inflation despite increasing the money supply sharply. Central Bank gold and foreign exchange reserves are also healthy, the ruble is stable and the economy is on track for its first balanced budget in years in 2001.

Economy

Ruble = 27.83/$1.00 (NY rate)

Ruble = 27.81/$1.00 (CB rate)

Ruble = 24.03/1 euro (CB rate)

WB Approves $200 Million Loan

· The World Bank announced today it has approved $200 million in financial guarantees to help the Russian coal and forest industries improve their performance and protect investors. The guarantees, meant to protect private investors from political risks, including such government action as the withdrawal of licenses or discriminatory tax policies, would help the sectors to attract capital, according to a Bank statement. The facility will involve issuing special non-commercial risk guarantee contracts against a list of government interference risks for up to $10 million per transaction. Of the total $200 million in guarantees, $50 million would be earmarked exclusively for forestry transactions, while another $50 million would support coal transactions. The remaining $100 million would be used depending on market demand. This is the second World Bank guarantee operation for Russia. In 1997, the World Bank approved a $100 million guarantee for the Sea Launch venture, a project involving launches of commercial satellites from a converted oilrig. The Sea Launch guarantee is currently operational and to date no claims had been filed, the Bank said.

Business

Commerzbank-Tyumen Sign Loan Agreement

· Commerzbank and Russia's Tyumen Oil Company signed an agreement for a 10-year, $292 million loan secured by the US Export-Import Bank. In a press release Friday, Tyumen Oil said the agreement marks the first part of a loan package it claims is the largest ever the Export-Import Bank has guaranteed for a Russian company. Commerzbank, which issued the loan through its New York branch, will provide another $42 million in unsecured loans, Dow Jones Newswire reported. Tyumen Oil will use the loans to pay Halliburton Co. for a three-year project intended to stem the production decline at Tyumen's Samotlor oil field and maintain output of 320,000 barrels of oil a day. The Import-Export Bank also guaranteed $217 million in loans to be finalized with an as yet unspecified bank by the end of October. Those funds will be used to upgrade Tyumen's Ryazan refinery, southeast of Moscow, with help from Lummus Global. Tyumen said it expects to get another $70 million in financing for the Ryazan project from unsecured sources.

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Tyumen, which has 7.4 billion barrels of proven crude oil reserves and produces 500,000 barrels a day, belongs to Alpha Group of Russia run by Mikhail FRIEDMAN, and Access/Renova, of the US and Russia.

Gazprom To Develop Vietnam Deposit

· Gazprom, Russia's natural gas monopoly, signed a contract on Monday to develop a deposit offshore Vietnam in cooperation with Vietnam's state-owned Petrovietnam and Russia's government-owned Zarubezhneft. The partners will explore deposit No. 112 in the Bakbo Gulf in the north of Vietnam with estimated reserves of 1 trillion cubic meters of gas. Exploration will start next year and will last for about two years. Gazprom and the Russian government last year started talking with Vietnamese authorities about the project. Russian Prime Minister Mikhail KASYANOV said the contract was the most important agreement signed between the two countries.

Kubilius' fiscally conservative government likely to be swept from power by center-left or left wing forces. A coalition led by the former communist Democratic Labor Party topped the most recent poll, followed by the center-left New Union, Reuters reported. Analysts have said fiscal discipline was key to Lithuania's creditworthiness and the markets were likely to remain cautious until they see the new government's stance.

Belarus To Unify Ruble Rates

· The Belarus Central Bank announced today that starting Thursday it will unify its different Belarus ruble rates. The Central Bank said the ruble rate, "will be formed on the basis of real demand and supply. There will be no preliminary selection of orders or any other restrictions on access to the trading session." The Belarus ruble was officially fixed at 1,010 rubles per dollar today, down from 1,000 rubles per dollar on Tuesday, Reuters reported. The market rate offered by commercial banks and other private companies floats at around 1,020 rubles per dollar. Belarus and Russia, under a union treaty signed last year, agreed to have a single currency by 2005. Belarus lags behind Russia in reforms and phasing out the multiple exchange rate system might help the eventual currency merger. The introduction of a unified exchange rate in Belarus is also one of the key conditions set by the International Monetary Fund for resuming financial support to Belarus. The Central Bank also announced today it is lowering the refinancing rate from 90 percent to 85 percent on Thursday due to slower inflation in August.

Ukraine Fails To Sell T-Bills

· The Ukrainian Finance Ministry failed to sell three-month and six-month OVDP discount Treasury bills for the third week in a row. The Central Bank explained that this was due to an absence of bids. Dealers said commercial banks were discouraged from Treasury bill purchases by fears of a devaluation of the gryvnia currency in autumn. The Central Bank, however, said it is ready to support the currency. The gryvnia started sliding in September abruptly ending three months of relative stability. Autumn is seen as a traditionally unstable time for the fragile currency as fuel imports rise considerably ahead of the winter season. The Finance Ministry last sold bills on August 22^nd, when three-

European Republics

IMF Predicts Economic Growth In Lithuania

· The International Monetary Fund (IMF) said today Lithuania's 2000 economic growth should exceed earlier expectations, but not as much as the government had hoped. IMF resident representative Mark Horton told a news conference that the Fund expected Lithuania's economy to grow 2.3 percent in 2000 and 3.4 percent in 2001. The 2000 forecast is an increase from the Fund's previous 2.1 percent, but below the government's 3.1 percent projection. Horton also said the government's tight fiscal stance and export-led recovery had positively affected the country's current account deficit. "We see the country's current account [deficit] at 7.4 percent [of GDP] in 2000 and 6.8 percent in 2001," Horton said. According to Reuters, the slowing current account gap allowed the IMF to loosen previously agreed targets with the government for the 2000 fiscal deficit by 0.5 percentage points to 3.3 percent of GDP. Early this year the government entered a 15-month deal with the IMF, agreeing to a strict deficit target to lend stability to domestic financial markets.

Lithuania is heading into an October 8^th general election with polls showing Prime Minister Andrius

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month bills yielded 22 percent and six-month bills averaged 23.48 percent.

Ukraine Hopes For $100M EBRD Energy Loan

· Ukraine hopes to get a $100 million loan from the European Bank for Reconstruction and Development (EBRD) to buy fuel and replace capacities to be lost in the Chernobyl plant closure. Deputy Prime Minister Yuliya TYMOSHENKO told Reuters, "Currently technical work on the loan is being carried out and everything will be signed by mid-November." The loan will be used to buy fuel ahead of winter season for thermal power stations to compensate for a six percent loss in national generating capacity due to the planned Chernobyl closure on December 15^th, TYMOSHENKO said. A spokesman at the EBRD resident office has previously said the board will discuss the issue in October. Ukraine does not have sufficient energy resources to meet its full demand. Even during the summer, many regions across the country of 50 million were regularly plunged into darkness in the evening. The government is also negotiating a $300 million loan from investment bank Credit Suisse First Boston. Part of that loan will be used to buy Russian natural gas.

South Caucasus & Central Asia

Troshev Meets Tevzadze in Tbilisi

· Commander of Russia's North Caucasus military district Gennady Troshev met Georgian Defense Minister David Tevzadze today in Tbilisi to discuss bilateral military cooperation, the Defense Ministry press center told Itar-Tass. The officials discussed, in particular, interaction between the ministry and the Russian troops group in the South Caucasus, withdrawal of extra Russian arms from Georgia under the Treaty on Conventional Armed Forces in Europe, and the situation on the Chechnya-Georgia border, the press center said. The meeting lasted for four hours. No more details were made available. According to competent military sources, Troshev is planning to visit

Batumi, capital of Georgia's Adjarian autonomous region, where a Russian military base is stationed, and then Sukhumi, capital of the self-proclaimed Abkhazian republic, where the Russian peacekeepers staff is located. TROSHEV will also check combat training of Russian units stationed in the republic and, "see how they are faring and what they need," he said. The visit will last till September 15^th, Itar-Tass reported.

Sergeyev To Visit Armenia

· Russian Defense Minister Marshal Igor SERGEYEV will visit Armenia in to strengthen bilateral military cooperation. The sides will also have a joint tactical drill, commander of the North Caucasian military district Gennady TROSHEV said on Tuesday. "We are not going to threaten anyone, yet we will not allow to attack either Armenia or Russia. We must be prepared all the time. Otherwise we relax and they will take us with bare hands. That is inadmissible." The Russian troops and the Armenian armed forces are protecting both countries under an interstate treaty. TROSHEV had two days of negotiations in Armenia to discuss the interaction and joint drills. He said he was satisfied with the visit and results of the inspection of Russian troops.

Socar-Moncrief Sign Development Agmt.

· Azerbaijan State Oil Company Socar and the American Moncrief Oil International signed an agreement on the joint development of the Kalameddin-Mishovdag oil field. President of Azerbaijan Geidar ALIYEV attended the signing ceremony, which took place in the US Congress building. Last week, he attended the UN Millennium Summit in New York and then addressed a conference sponsored by the US-Azerbaijan Chamber of Commerce. The Kalameddin-Mishovdag oil field development project located in the Shirvan steppe 120 kilometers from Baku provides for $178 million in investments during the first three years. The oil stock in the field is estimated at between 20 million and 30 million tons. Turkish Petoil will take part in the development along with Socar and Moncrief Oil International.

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

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