DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

INTERCON INTERNATIONAL USA, INC., 725 15th STREET, N.W., SUITE 903,

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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Thursday, September 14, 2000

Russian Federation

Politics

US FBI Director Visits Moscow

· Director of the US Federal Bureau of Investigation (FBI) Louis FREEH arrived in Moscow today for a two-day visit. The Russian Interior Ministry reported that the FBI chief will meet with Russian Interior Minister Vladimir RUSHAILO, Head of the Russian Federal Security Service (FSB) Nikolai PATRUSHEV, Minister of Justice Yuri CHAIKA, Russian Prosecutor General Vladimir USTINOV, and Ambassador of the USA to Russia James COLLINS. FREEH plans to discuss with the Russian officials the problem of invigorating interaction in the field of struggle against international terrorism and organized crime. FREEH said, "This bilateral law enforcement relationship is one of the most important for the United States and of course for Russia." He added that FBI agents and Russian Interior Ministry officers were training together and tipping each other off. The FBI director will leave Moscow for St. Petersburg on September 15^th. Later in the day, he will take a flight to Tallinn. FREEH is also expected to visit Lithuania.

Russia Signs War Crimes Court Treaty

· Russia signed the treaty creating International Criminal Court, the world's first permanent war crimes court, which would have jurisdiction over genocide, war crimes, and crimes against humanity, the Associated Press reported. The signing ceremony by Foreign Minister Igor Ivanov launched an international campaign to get countries to ratify the treaty. So far, 19 countries have ratified it. With Russia's signature, 112 countries have signed it. At least 60 countries' ratification is required before the treaty can enter into force. The US and China are the only permanent Security Council members that haven't endorsed it. The US was one of seven

countries voting "no," when 120 countries meeting in Rome in June, 1998, approved the tribunal. According to the Associated Press, American officials felt the treaty yielded too much prosecutorial power to the new court, leaving US troops and citizens vulnerable to politically motivated prosecutions. In subsequent negotiations, Washington has tried to negotiate an exemption for Americans to the treaty. But William Pace, head of the Coalition for International Criminal Court, an umbrella of grass-roots groups lobbying governments to create the tribunal, said, "We cannot accept reopening the treaty or exceptions for any one country."

Renyi Accused Of Gaining From Rus. Scandal

· The Bank of New York's chairman Thomas RENYI was accused in a shareholder lawsuit of personally profiting from complex Russian schemes that moved money to offshore accounts, The Wall Street Journal reported. This is the first time RENYI was tied to the international money laundering scandal. The suit claims the Bank of New York ignored signs that Russian clients had been infiltrated by organized crime. The newspaper quoted a Bank of New York statement saying, the shareholder suit and the amendment were "baseless" and that the bank would "vigorously defend itself." The shareholder suit was filed last year in a US District Court in New York, following disclosures that one of the bank's executives Lucy EDWARDS and her husband Peter BERLIN were involved in a money laundering scheme. In February, they admitted to set

Today's News Highlights

Russia

Deputies For More Spending

BP Expanding Exploration

European Republics

FSU Rankings In CPI

Ukraine Prevents Assassination

South Caucasus & Central Asia

Shengelia Arrested In Zugdidi

Zhvania Mis-quoted By AP

IMF Approves $12M For Kyrgyz

Uzbek Increase Gas To Ukraine

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ting up an illegal wire-transfer operation to launder billions of dollars through three New York-based accounts at the bank. From 1995 until last year, about $7 billion was transferred through the accounts from Russia. FBI senior chief of organized crime Thomas FUENTES noted that organized crime's involvement in the financial and securities markets," has become significant." He said that organized crime groups from Eastern Europe and Russia are trying to raise money on major stock markets, The Washington Post reported. Mr. FUENTES will be speaking at the Organized Conference on Transnational Crime on September 20^th and 21^st at the Ronald Reagan International Trade Center on this and other subjects. For more information contact Jane's Defense Group at erika.davies@janes.com or 703-683-3700.

Meanwhile, Deutsche Bank has expressed an interest in taking away accounts of Russian businesses from the Bank of New York, which has dominated the Russian scene since the mid-1990s. Deutsche said it will be able to raise Russian companies' profile to help them get access to new capital abroad by issuing their shares as American depositary receipts in the US, or as Global depositary receipts that are traded worldwide, Bloomberg News reported. Deutsche Bank's vice president for corporate trust and agency services Bozena TRYDOS said, "We are very optimistic about growth opportunities in Russia. Deutsche Bank is very committed to developing partnerships in Russia, with Russian companies."

Economy

Ruble = 27.83/$1.00 (NY rate)

Ruble = 27.76/$1.00 (CB rate)

Ruble = 24.01/1 euro (CB rate)

Deputies Demand Increase In Spending

· Russian State Duma deputies have called for an increase in spending for the 2001 budget. It appears that Russian President Vladimir PUTIN is taking these demands into consideration, despite rejections from Prime Minister Mikhail KASYANOV. Fatherland-OVR has said it will not vote in favor of the 2001 budget, unless military spending was raised from 2.7 percent to 3 percent or more of gross domestic product, the Financial Times reported. Lawmakers have criticized the budget as overly

cautious. They say the government should raise its estimates for industrial growth, inflation and oil prices. That would increase revenue projections and permit more spending. Alexander ZHUKOV, the head of the Duma's budget committee predicted spending could be increased by $8.3 billion to $10 billion. Speaker of the Duma Gennady SELEZNYOV said PUTIN suggested changes could be made before the budget is debated October 6^th by lawmakers. "The President said he had ordered the government to meet with [Duma] factions and committees to explain the budget concept without brushing away their proposals." KASYANOV has ruled out changes to the budget, calling it realistic in its current balanced budget format. Revenues and spending are both set at about $39 billion. Russian media speculates that the budget battle could signal a real riff between PUTIN and KASYANOV, which could lead to the Prime Minister's removal. KASYANOV on Tuesday denied that he might resign or be sacked, saying negative media reports about him had been planted by companies unhappy with some of his policies, the Associated Press reported.

Business

BP Amoco Expanding Exploration

· BP Amoco said it will expand exploration in the Russian Far East by acquiring stakes in fields with enough oil and natural gas to supply Russia for five years. The company is seeking to buy a stake from Russian producer Rosneft in the $12 billion Sakhalin-1 project and said it may invest in Sakhalin-2, led by Royal Dutch/Shell Group, Bloomberg News reported earlier this month. Sakhalin-1 fields hold an estimated 341.1 million of oil and 425 billion cubic meters of gas and Sakhalin-2 fields have an estimated 140 million tons of crude and 408 billion cubic meters of gas. BP Amoco also hopes to accelerate exploration of its Sakhalin-5 project and return to Sakhalin-4 after Atlantic Richfield Co. left the field. BP Amoco officials said the company will commit tens of billions of dollars to the projects, with the aim of meeting growing demand in nearby Asian markets. "We are interested in all opportunities in the offshore sector in both exploration and development" on Sakhalin island, said Barry COHN, BP Amoco's Sakhalin project manager. BP Amoco hopes that Russia will offer the Sakhalin-5 explora

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tion licenses through a competition early next year and that the company can start exploration by mid-2002. The area holds an estimated 154 million tons of oil and 450 billion cubic meters of gas. BP Amoco holds a 49 percent stake in the project with the rest equally shared by state-owned Rosneft and its subsidiary Sakhalinmorneftegaz.

August. DERKACH explained that this information was shared with Russia, that the security agency took protective measures, and detained and expelled four suspects from Chechnya and the Middle East countries. Chief spokesman for the Russian Federal Bodyguard Service, Sergei DEVYATOV, said his agents worked with its Ukrainian counterparts to thwart the threat. PUTIN attended only the first day of meetings at the summit and left Ukraine late on the evening of August 18^th, saying he had to be at home to deal with the Kursk nuclear submarine disaster. Apart from PUTIN, the presidents of Armenia, Azerbaijan, Belarus, Georgia, Moldova, Kazakhstan, Tajikistan and Ukraine also participated in the summit.

South Caucasus & Central Asia

Georgia Arrests Anti-Government Rebel

· Georgian Interior Minister Kakha TARGAMADZE confirmed Wednesday that Dato SHENGELIA, the commander of the anti-government Georgian Forest Brothers operating in Abkhazia, had been captured by police on Tuesday. He was arrested during a special operation in Zugdidi, the town that is the headquarters for the Forest Brothers. A large quantity of arms were found and confiscated during the special action. A stolen car was also found there, TARGAMADZE said. SHENGELIA has been charged with misconduct, and other aspects of his unlawful activities are still being investigated. At a Tuesday session of the Georgian parliament, deputy Tengiz DZGUSHIA accused SHENGELIA of racketeering and abductions. SHENGELIA has been spearheading an economic warfare campaign through his smuggling operations. On September 12^th, SHENGELIA issued an ultimatum to the director of the Zugdidi market to lift the imposed ban on the sale of smuggled food, RFE\RL Newsline reported. In June, DZGUSHIA accused the Forest Brothers of smuggling across the internal border between Abkhazia and the rest of Georgia. After that, his family received several threats. On Monday, the grandfather of DZGUSHIA's wife was kidnapped from his home in southern Abkhazia. SHENGELIA has attempted to mask his criminal activities with the cloak of Georgian national patriotism for the forcible reintegration of Abkhazia. However, what he is most known for is operating a

European Republics

Corruption Perception Index Rankings

· According to an anti-graft group Transparency International's annual Corruption Perceptions Index (CPI) published in Berlin on Wednesday the former Soviet Republics of Eastern Europe are leading the way to a less corrupt society. The CPI is based on a three-year rolling average of surveys of business people, risk analysts and the public, with a maximum possible score of 10 (highly clean) and a minimum of zero (highly corrupt). Estonia was ranked 27 (with a score of 5.7); Belarus and Lithuania ranked 43 (4.1); Latvia was ranked at 57 (3.4); Kazakhstan ranked at 65 (3.0); Armenia ranked at 76 (2.5); Uzbekistan ranked 79 (2.4); Russia ranked at 82 (2.1); and Azerbaijan and Ukraine ranked at 87 (1.5).

Ukraine To Pay Eurobond Coupon On Time

· The Ukrainian Finance Ministry said that it plans to pay $60 million in interest on 2007 Eurobonds on time. The statement came after some commercial banks said the ministry had failed to redeem domestic treasury bills worth 68.15 million gryvnias ($12.53 million) due September 13^th. "We are not delaying anything on Eurobonds. Today, on the 14^th, the payment will be made," Timur KHROMAYEV, head of the ministry's commercial borrowings department, told Reuters. "The money should be in accounts of our creditors on the 15^th and it will be there."

Ukraine Stops Assassination Attempt

· On Tuesday, the chief of Ukraine's Security Service Leonid DERKACH revealed that target of an assassination attempt, which was prevented by its agents, was Russian President Vladimir PUTIN. He said that foreign secret services - but not those of any of the former Soviet republics - had informed Ukraine about a plan to assassinate PUTIN during the informal summit of nine leaders in Yalta in

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criminal enterprise, which featured kidnapping, bank robbery, and smuggling.

Translation Twists Zhvania's Comments

· Georgian Chairman of the parliament Zurab ZHVANIA's opening speech to the falls session of parliament was misquoted by the Associated Press (AP). The article said that, "deputies should draft a law that would restrict the activities of what he termed `totalitarian sects,' while strengthening the Georgian Orthodox Church, which he [ZHVANIA] said, `is facing difficult competitive conditions,'" according to the AP. It adds that ZHVANIA suggested that "a major agreement between the government and the Georgian Orthodox Church," be signed. It appears that the translation contained in the AP story, which was re-quoted by RFE\RL Newsline, is at odds with the translation of the speech Intercon has obtained.

Those relevant sections are contained here: "….no forceful conflicts can be justified when dealing with religious minorities. We must be very careful in determining which religious groups could threaten the fragile unity and integrity of Georgian citizens…people should have a free choice in their religious beliefs…we must undertake actions to enhance the competitiveness of Georgian Orthodox Church. We must share the experiences of the European states and act toward working out a Georgian model of relationship between the State and the Church. In this regard, the German example of a Concordat could very much be worth of our attention…separation of the Church and the State, which shall guarantee a total freedom to the religious beliefs is an essential part of our political agenda."

Armenia To Shut Down Its Nuclear Power Plant?

· Armenian parliament speaker Armen KHACHATRYAN said on Wednesday he opposed closing down the Armenian nuclear power plant until alternative energy sources are discovered. The plant produces some 40 percent of electric

energy generated in the country, KHACHATRYAN said. The Armenian people remember the plant's mothballing as a period of darkness and regress, KHACHATRYAN stressed. This move caused serious damage to the economy and environment, massive forest fellings and decrease in the water level in mountainous Lake Sevan, he claimed. "We cannot stop the Armenian nuclear power plant until appropriate alternative variants of energy resources are found," KHACHATRYAN emphasized. The European Union insists on closing down the plant by 2003.

IMF Approves $12 Million To Kyrgyz

· The International Monetary Fund (IMF) on Wednesday approved a $12 million payment from its loan to the former Soviet republic of Kyrgyzstan, and urged the government to push on with much-needed structural reform. "The authorities are to be praised for the improved stance of monetary policy, the lower inflation and the relative stability of the exchange rate," Deputy Managing Director Eduardo ANINAT said in a statement. "There are concerns, however, about the financial position of the government...There are serious concerns about worsening debt indicators and the very difficult debt outlook over the medium term," Reuters reported.

Uzbek To Increase Gas Supplies To Ukraine

· Uzbek Prime Minister Utkir SULTANOV said Uzbekistan may increase natural gas supplies to Ukraine, which is falling short of fuel reserves before the winter. SULTANOV, whose country has supplies little gas to Ukraine in the last two years, met Ukrainian Prime Minister Viktor YUSHCHENKO in Tashkent on September 12^th. The two countries are also considering setting up jewelry joint ventures in Ukraine for refining gold extracted in Uzbekistan. Ukraine also wants to secure more supplies of cotton from Uzbekistan and wants to pay for the deliveries with metallurgy goods. Ukraine's government said earlier this week it secured only 10 percent of gas reserves that the country needs for the winter and about 60 percent of fuel oil reserves.

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

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