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 15, 2000

Russian Federation


Rus-Iraq To Resume Commercial Flights

· Pavel PIRYATKU, regional director of the Russian official airline Aeroflot, during a visit to Iraq, unveiled a new plan, whereby Russia and Iraq will resume commercial flights. He said, "The decision was taken by President Vladimir PUTIN last month in Moscow after a meeting with Iraqi Deputy Prime Minister Tariq AZIZ." The two sides are still in discussion. Pavel PRYADKO, an Aeroflot regional director, said that flights could resume as early as next month, while another Aeroflot representative said no specific time for the resumption of flights has been set. It was unclear whether Russia or Iraq had sought UN permission to resume the flights. The US, Britain and the UN Sanctions Committee maintain that civil flights to and from Iraq constitute an economic resource. They say that makes such flights a breach of the sanctions in place since the Iraqi invasion of Kuwait in August, 1990. Russia and France, Iraq's strongest allies on the UN Security Council, say the council never adopted a specific text banning all flights to and from Iraq. France and Russia have been pushing for the lifting of all sanctions. In a letter to UN Secretary-General Kofi ANAN, Russian Foreign Minister Igor IVANOV said that the government was coming under increasing pressure from the, "federal assembly, many social and political interests, and businesses and industrial circles…in favor of mitigating the limitations imposed on Russia by the sanctions in the field of its commercial and economic relations with Iraq."

India-Iran-Russia Transport Corridor Agrmt.

· Russia, Iran and India signed an agreement September 12th, for the creation of an international North-South transport corridor. The document was signed at the framework of the 2nd International

Eurasian Conference on transport held in St. Petersburg. Commenting on the outcome of the conference, Russian Vice-Premier Mikhail Kasyanov said, "Now, India, Iran, and Iraq can transport goods on route three times shorter than across the Suez Canal." He considers this agreement, "a very important event for Russia". According to Kasyanov, in compliance with the agreement the governments, which signed it will contribute to the, "simplified regime of passing means of transport in this direction, and each of the sides will make investments for the establishment of the appropriate infrastructure of the corridor and investments, both private and possibly state ones."

At a meeting with journalists Kasyanov did not rule out that, "Oman will accede to this agreement in the near future." "Kazakhstan also shows interest in this agreement and it is possible that this state will also become a party to the agreement," he added. Railroad Minister Nikolai Aksyonenko praised capacities of the North-South transport corridor, and pointed out there is a plan to restore a railroad linkage between North and South Koreas. That route could have an access to Europe via the Trans-Siberian railroad. A feasibility study is being made for the project to build a tunnel between the continent and the Sakhalin Island, Itar-Tass reported. The route will have a passage to the Hokkaido Island. A possibility of building a small route along the eastern coast of the Caspian Sea is being discussed with Turkmen President Saparmurat

Today's News Highlights


LUKoil Profits Rise To $1.31B

Phone Frequencies Returned

European Republics

Lith. Cuts Reserve Rate

Ukraine Predicts Investment

Kuchma Escapes Impeachment

South Caucasus & Central Asia

Karimov To Visit Turkmen

Turkmen Economic Statistics

US Adds To List Of Terrorists




September 15, 2000

Intercon's Daily

Niyazov, Aksyonenko said. Kasyanov also underlined the importance of the West-East corridor for Russia. "Active use of both corridors by Russia will signify that Russia is not a terminal point in both directions, but has a huge potential for transit being located at the crossroads of transport routes."


Ruble = 27.78/$1.00 (NY rate)

Ruble = 27.73/$1.00 (CB rate)

Ruble = 23.95/1 euro (CB rate)

OctNov DecJan Feb Mar Apr May Jun Jul Aug

Gas, Diesel Export Duties Rise

· The Russian government raised gasoline and diesel export duties for the second time in six months to boost domestic supplies. Effective today, the government raised the gasoline export tax 25 percent from 20 euros to 25 euros ($21.72) per ton (7,330 barrels) and the diesel export tax 67 percent from 15 euros to 25 euros per ton. Russia hopes higher export duties will ensure there's enough fuel in the domestic market for farmers, the army, and utilities. The government uses both export restrictions and duties to prompt oil producers to deliver products to the nation's customers. Bloomberg News noted that Russian oil companies, since the beginning of this month, are restricted to exporting only 25 percent of domestically produced diesel produced through November 1st. They are also allowed to export only 10 percent of

fuel oil production through March 31, 2001. The government will review the restrictions monthly. The government on August 2nd raised the crude oil export tax 35 percent from 20 euros to 27 euros per ton and the export duty for fuel oil was raised 67 percent from 12 euros to 20 euros per ton.


Bidding For Onaco Closes

· Russia's State Property Ministry closed its bidding on Thursday for a stake in oil producer Onaco. This is the first privatization sale of a state asset under President Vladimir PUTIN. The 85 percent stake in Onaco, which produced 159,700 barrels a day of crude in 1999, will be sold at a starting price of $425.3 million. The winner will be announced September 19th. Bidders include a joint bid from oil companies Yukos Oil Company and Sibneft with pipeline builder Stroitrangaz, LUKoil Holding, Tyumen Oil Company and Sibir Energy, a UK-based oil exploration company. PUTIN pledged to break with the previous government's practices of selling state assets at low prices to powerful business groups in exchange for financial and political support. He said he wants to enforce equal rules for all market participants and ensure laws are followed. The government could raise as much as $600 million in the sale.

Rosbank To Take Over Unexim

· Rosbank, a Russian bank founded by tycoon Vladimir POTANIN, will take over another of his banks, Unexim Bank, and guarantee the restructuring of $2.2 billion of Unexim debt following a shareholder vote. Shareholders of both Unexim and Rosbank approved the takeover, which has been planned for more than a year. The plan must still be registered with the Central Bank. Unexim, once Russia's fourth biggest bank, became insolvent after the August, 1998 financial crisis. Under the restructure terms, which includes Russia's first voluntary restructuring of a non-government Eurobond, creditors will get an up front cash payment of $105 million and a $130 million 12-year Eurobond, issued by Rosbank. The remaining debt payments will be made with expected revenue from a special purpose vehicle¾a trust to be set up to manage Unexim's assets. The trust would issue about $1.15 billion in "link notes," Reuters reported. POTANIN's Interros Holding Co. also controls

When you need to know it as it happens




September 15, 2000

Intercon's Daily

Norilsk Nickel, the world's top palladium producer, and owns a 44 percent stake in Sidanco, which is 10 percent owned by BP Amoco.

LUKoil Profits Rise To $1.31 Billion

· LUKoil's first half profits rose three-fold from 11.99 billion rubles in the first six months of 1999 to 36.50 billion ruble or ($1.31 billion). LUKoil's sales rose from 61.12 billion rubles in 1999 to 166.12 billion rubles, the Financial Times reported. These figures correspond with Russian accounting standards, not international accounting standards and do not take into account inflation, which was 19.4 percent in the first five months. The company increased crude production by 2.4 percent to 38.5 million tons (282.2 million barrels) in the first half of this year from the same period last year. Russian-based refineries' processed crude rose 20 percent to 11.4 million tons in the first half of 2000 from the same period in 1999. LUKoil exported 14.45 million tons of crude oil or 3 percent more than in 1999. Oil products exports rose 54 percent to 3.13 million tons. According to a company statement, "Trends on domestic and international oil markets and macro-economic situation in the country in 2000 remain extremely favorable for the company and help revenues from main activities rise significantly." LUKoil plans to invest $10 billion through 2010 to tap new oil fields in the Timan-Pechora region in the Russian far north to offset declining production in older fields in western Siberia. It's also developing projects outside of Russia, which account for 5 percent of total reserves, excluding the West Qurna-2 deposit in Iraq.

Russia Returns Frequency Licenses

· Russia's Telecommunications Ministry has returned licenses to operate a series of telephone frequencies to Mobile Telesystems (MTS) and Vimpelcom, the nation's two biggest mobile-phone companies, after withdrawing their rights to the frequencies two days earlier. When the ministry revoked the licenses, Vimpelcom fell 16 percent and MTS 4.1 percent. Analysts saw the withdrawal of licenses as another symbol of Russia's uncertain property rights and unclear telecommunications regulatory system. Frequencies for MTS and Vimpelcom were issued in May for a period of one year. Telecommunications Ministry press office said that Leonid REIMAN will have to review the

decision to suspend the seizure of frequencies. Russian media reports earlier said the frequencies would have been given to Sonic Duo, a venture between state-controlled Svyazinvest and Sonera, Finland's largest phone company. Sonic Duo is due next year to start a third mobile phone network in Moscow, where the number of mobile phone subscribers is expected to more double this year. Ari KREL, an analyst at United Financial Group in Moscow said, "The Ministry of Communications ought to respect the rights of these companies to operate with a degree of regulatory certainty. People are on edge about asset stripping in this country ¾if the Ministry hadn't suspended this frequency transfer, they would have sent a very negative signal to the market."

European Republics

Lithuanians Central Bank Cuts Reserve Rate

· Lithuania's Central Bank today lowered its obligatory reserve requirement for commercial banks from 10 percent to 8 percent, effective October 13th. According to a Central Bank statement, "Large obligatory reserves adversely affect the competitiveness of banks operating in Lithuania. The next reduction of the obligatory reserves rate is planned in 2001." The Central Bank also lowered its prudential requirement by two percent points to eight percent. The decision is effective starting October 13th. Changing the reserve requirement is expected to add some 170 million litas ($42.5 million) to the banking sector, free up additional credit funds, and reduce lending rates. Analysts have said easing the rate would be a boon for commercial bank profits by freeing funds that currently draw no interest while being held in the reserves, Reuters reported. "It's the right time to cut the obligatory reserve... The recovering economy will help to absorb an increase of funds in the banking system," the Central Bank said in a statement.

Ukraine Predicts Foreign Investment Of $1B

· The Ukrainian government hopes foreign direct investment in the country will grow to around $1 billion next year from $700 million expected this year, Economy Minister Vasyl ROHOVY said on Wednesday. "We expect growth in foreign direct investment due to privatization and free economic

When you need to know it as it happens




September 15, 2000

Intercon's Daily

zones," ROHOVY said. He also said foreign investment might grow further, if parliament approved a land code which would allow it to sell land or use it as collateral. Foreign direct investment in the Ukraine was $420.1 million in the first six months of the year, a 58.6 percent rise on the same period last year, according to State Statistics Committee data. Foreign direct investment since independence in 1991 totaled $3.596 billion as of July 1, 2000, the committee said.

Investors are wary of putting money into the Ukraine, scared away by unclear and unstable legislation, red tape, and widespread corruption.

Kuchma Saved From Impeachment

· The Ukrainian parliament rejected an effort by several deputies, headed by Grigory OMELJCHENKO and Anatoly YERMAK, to open discussion on establishing a resolution to launch impeachment procedures against President Leonid KUCHMA. Parliamentary Speaker Ivan PLYUSHCH said there was "no reason" to begin impeachment proceedings against KUCHMA.

The opposition has accused KUCHMA of illegally opening foreign currency accounts abroad, accepting bribes for appointing former Prime Minister Pavlo LAZARENKO to various government posts, and helping him launder money stolen from the state. LAZARENKO is currently seeking political asylum in the US and is accused of funneling $114 million he "corruptly and fraudulently received into bank and brokerage accounts in the United States," according to the US Attorney's Office.

Approval of at least 226 lawmakers, or a simple majority, was needed to include the impeachment draft in the 450-seat parliament's agenda. Under article 11 of the Ukrainian Constitution, parliament is required to set up an investigating commission, followed by a parliamentary inquiry into the activities of the president. The findings must be given to the Supreme Court, which makes a final decision.

South Caucasus & Central Asia

Karimov To Visit Turkmenistan

· Uzbek President Islam KARIMOV will visit Turkmenistan on September 21st to 22nd. KARIMOV and Turkmen leader Saparmurat NIYAZOV reached the agreement on Wednesday. The presidents also discussed the bilateral and regional cooperation, the Turkmen news service reports. KARIMOV will have several rounds of summit negotiations in Turkmenistan to discuss partnership. New priorities of the mutually beneficial and equal partnership will be outlined in intergovernmental and interdepartmental accords. The main document to be signed is an agreement on delimitation and demarcation of the Turkmen-Uzbek border.

Turkmen Economic Statistics

· Turkmenistan posted a trade surplus of $297 million from January to July, 2000, compared with a surplus of $79.6 million in the same period in 1999, the State Statistics Agency said. Exports rose from $744 million in 1999 to $1.3 billion, while imports also increased from $665 million in 1999 to $1.03 billion. Turkmenistan's industrial output rose 18.0 percent in January to August, 2000, from the year-earlier period and was valued at 9.6 trillion manat ($1.85 billion), according to the Central Bank.

Uzbek Islamic Group Added To Terrorist List

· The New York Times reported today that the US Administration added the Islamic Movement of Uzbekistan to its list of foreign terrorist organizations, saying the group has ties to the Saudi financier Osama BEN LADEN. The addition of the Islamic Movement to the list of 28 foreign groups, Washington accuses of sponsoring terrorism, means US citizens and residents are legally barred from contributing money or `material support' to the group. It also means that Islamic Movement members can be denied visas to, or deported from, the US, and it enables the Treasury Department to seize assets held by the group of its members in American banks and financial institutions.

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

available for non-profit institutions.

Daily Report on Russia is for the exclusive use of the subscriber only. Reproduction and/or distribution is not permitted without the expressed written consent of Intercon. Daily Report on Russia Ó copyright 2000, Intercon International, USA.

When you need to know it as it happens