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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Monday, September 18, 2000

Russian Federation


Sobinbank A Main Player In BONY Scandal

· The Wall Street Journal reported that US prosecutors have determined that Moscow's Sobinbank was at the center of the Bank of New York money laundering scheme, in which $7 billion was transferred out of Russia from 1995 to 1999. Unsealed court documents portray the accounts of Sobinbank and one other related Russian bank as being in the, "center of this illegal operation." The documents allege Sobinbank's account was a significant factor in the flow of funds from Russia to three Bank of New York accounts maintained by Peter BERLIN, who along with his wife, former Bank of New York official Lucy EDWARDS, have pleaded guilty in federal court to conspiracy to launder money. Sobinbank had denied that any of its US accounts had been seized or even that it had an account at the Bank of New York. But the civil court filings say federal authorities last fall seized $15.3 million that Sobinbank held in a "correspondent account" at Bank of New York, which allowed the Russian bank to transfer dollars around the world. According to a government filing, "Most of the billions of dollars in funds transferred to the Benex and Becs accounts came from" the Sobinbank account and one at a related Russian bank. In addition, the government is also investigating a false letter written by Sobinbank's CEO claiming Sinex Bank had a correspondent account with Sobinbank through which flowed millions of dollars a day. Sinex Bank is registered on Nauru, a Pacific island known for lax banking regulation. It also served as a shell companies used to shuffle money out of Russia.

Swiss Investigators Hand Over Aeroflot Files

· Swiss investigators in Moscow handed over to Russian prosecutors on Saturday several boxes of

files on criminal cases involving some of Russia's high-profile figures. One Russian prosecution official said the new files complement data brought back earlier from Berne by special prosecutor Nikolai VOLKOV, which focused on the Aeroflot investigation. Business tycoon Boris BEREZOVSKY is accused of skimming off of up to $600 million from Russian state airline Aeroflot through two Lausanne-based companies, Forus Services and Andava. BEREZOVSKY claims that the case is politically motivated. He and the two Swiss companies have denied any wrongdoing. It is unclear at this time whether the new files contain any information on the case that alleges Kremlin officials took bribes from Mabetex in return for lucrative contracts to refurbish Russian public buildings. Russia's chief prosecutor Vladimir USTINOV held talks with his Swiss counterpart Valentin ROSCHACHER and pledged cooperation and assistance.


Moscow City To Pay All Debts In 2001

· Moscow deputy mayor Valery SHANTSEV said last week that the City of Moscow will pay all debts falling due in 2001 despite the tight budget drafted for the next year. "So far, Moscow has been fulfilling all its obligations, and the draft 2001 budget foresees meeting obligations to foreign and domestic creditors in full," SHANTSEV told an investment conference. He said the next year budget was very tight, but realistic. It foresees spending 15 percent of 207

Today's News Highlights


LUKoil Did Not Bid On Onaco

Rostelecom Stock Falls

European Republics

Lith. GDP Prediction Rises

Estonia Raises GDP Forecast

South Caucasus & Central Asia

UNESCO Official Leaves Georgia

Aliyev In Cleveland For Check-up

Turkmenbashi Modernization

PSG Closes Offices In Turkmen




September 18, 2000

Intercon's Daily

billion rubles (about $7 billion at a projected 30 rubles per dollar average annual rate) of targeted revenues for foreign debt repayment. Moscow City repaid a $500 million Eurobond in May, although the city had bought out most of the paper from the market ahead of maturity. SHANTSEV said the city government might continue the practice. The city is to repay about $420 million in Eurobonds in 2001, and plans to issue $295 million of two-year Eurobonds by late September to refinance a Credit Suisse First Boston credit, Reuters reported.

Ruble = 27.73/$1.00 (NY rate)

Ruble = 27.76/$1.00 (CB rate)

Ruble = 23.70/1 euro (CB rate)

Copper, Aluminum Scrap Tariff Rises

· Russia's Prime Minister Mikhail KASYANOV has signed a resolution raising the export tariff on scrap copper and aluminum from 30 percent to 50 percent of their customs value. The lowest tariff rate for scrap copper would be raised from 330 euros to 420 euros per ton, and for scrap aluminum from 150 euros to 380 euros. The resolution will become effective one month after its official publication in the government gazette, Rossiiskaya Gazeta. The government commission for protective measures in foreign trade decided to raise the tariffs at its August 16th meeting, and Deputy Prime Minister Viktor KHRISTENKO said then he expected the new rates to become effective no later than October 1st.

In July, the State Duma passed in a first reading a bill banning non-ferrous metals scrap exports until January 2005 to put an end to large-scale theft of equipment containing these metals. Earlier this month President Vladimir PUTIN sent a letter to the Duma asking it to stop further debate on the bill. The Duma has yet to give an official reply to the request.


LUKoil Fails To Bid On Onaco Stake

· LUKoil Holding, Russia's top oil producer, was not among the oil companies which bid for an 85 percent stake in Onaco, as was earlier predicted. It is believed that Yukos Oil Company and Sibneft, Russia's second and sixth oil producers, and Stroitrangaz, Russia's major pipeline construction company, placed a bid. Tyumen Oil Company

(TNK), Russia's fifth largest oil producer, submitted two bids, via a subsidiary, TNK-Invest, and a "friendly company" YevroTEK. Sibir Energy, a UK-based oil exploration company, also bid on the Onaco stake. Many expect the Sibneft alliance to have the upper hand in the bidding. Sibneft is controlled by the politically powerful oligarch Roman ABRAMOVICH, while Yukos, its bidding partner, already owns a 25 percent plus one share blocking stake in Orenburgneft, Onaco's main production unit, Dow Jones News reported. The government set the starting price for the Onaco stake at $425.3 million, with the winner to be announced Tuesday. Onaco produced 159,700 barrels per day of crude in 1999.

Gazprom Offers To Buy Gusinsky's Media Most

· In July, Alfred KOKH of gas monopoly Gazprom signed an agreement with Vladimir GUSINSKY to buy Media Most's assets for $300 million and assume it debts. The Financial Times reports that Gazprom is seeking an international investment bank and foreign buyers for the Media Most entity. An unidentified person close to the transaction said, "Our idea, which is supported by [Rem] VYAKHIREV [Gazprom's chief executive] and other shareholders is that we would take this business and with the help of powerful financial consultants sell it on to an international investor." The proposed acquisition of the financially troubled Media Most group is stalled over arguments about which assets will be included. Russian media have speculated President Vladimir PUTIN is pressuring Media Most to sell to Gazprom, whose biggest shareholder is the state, a larger stake in the business. This would be in lieu of unpaid debt, after the government agreed to drop an embezzlement case against GUSINSKY, Media Most's chairman. Gazprom already owns 16 percent of Media Most.

Rostelecom Stock Falls

· Rostelecom fell as much as 9.1 percent, or 16.5 cents, $1.66, the lowest since December 20th. Russia's long distance phone company fell due to concerns that plans to reorganize its owner, Svyazinvest, may widen the company's losses by letting competitors capture some of Rostelecom's business. Last month, the company said first-half profit fell 29 percent from the same period last year.

When you need to know it as it happens




September 18, 2000

Intercon's Daily

European Republics

Lith. Econ. Min. Predicts Higher GDP

· Lithuania's Economy Ministry on Friday raised its 2000 gross domestic product (GDP) forecast from the 1.3 to 2.0 percent projection it predicted in April to 2.1 percent. The Ministry also said it expected Lithuania's economy to strengthen into 2001 with growth of 3.5 percent. Consumer prices were expected to rise by an average of 0.9 percent this year, down from April's 1.0 percent forecast, and by 1.3 percent in 2001. Annual inflation in December was projected to be 1.5 percent, down from April's forecast of 1.6 percent. December, 1999 year-on-year inflation was 0.3 percent. Lithuania's economy fell into recession in 1999, contracting 4.1 percent year-on-year. The downturn was triggered by the Russian financial crisis in August, 1998. Lithuania's economy rebounded 4.1 percent in the first quarter of 2000, but that pace is seen slowing and the statistics department expects to see only a 0.2 percent rise in the second quarter when data is released on September 30th. International Monetary Fund (IMF) forecasts released earlier predicted Lithuania's GDP would rise 2.3 percent in 2000, followed by 3.4 percent growth in 2001. The Economy Ministry's figures will be used to draw up the draft 2001 budget and make any adjustments necessary to the 2000 budget.

Estonia Raise GDP Growth Forecast

· Estonia's Finance Ministry on Thursday raised its economic growth forecast for the country for 2000 from an April prediction of 4.1 percent to 6 percent. However, it also said it did not expect any extra revenues to come into government coffers this year due to the better than expected growth. Ministry adviser Marge LAAST told Reuters that projected inflation for this year had been lowered from the 4.5 percent seen in April to 3.9 percent. The inflation forecast for next year is unchanged at 4.1 percent. "The new prognoses are based on the [gross domestic product ¾GDP] results of the first and second quarters that were high, 5.2 percent [annual growth] in the first quarter and over seven percent in the second quarter." Estonia's GDP for 2001 is now seen at 5.5 percent, versus April's 5.1 percent forecast. The Russian financial crisis in 1998 caused Estonia's GDP to shrink 1.1 percent year-on-year.

Ukraine's GDP Rises Over First Eight Months

· The Ukrainian State Statistics Committee on Thursday announced that during the first eight months of this year real gross domestic product (GDP) increased by 5.3 percent over the same period of 1999. The agency said that a positive tendency of output growth was observed in all the leading sectors. In particular, the industry output grew 12 percent over the year-earlier level. In addition, agriculture output was up 0.2 percent, the first growth since the beginning of the year. The Economic Ministry predicted that the pace of GDP growth will decrease in the last months of this year and will make 2.8 percent in 2000 as a whole. In 1999, Ukraine's GDP was 0.4 percent. The government expects a 4 percent GDP growth in 2001.

South Caucasus & Central Asia

UNESCO Official Completes Tour Of Georgia

· UNESCO Director-General Koichiro MATSUURA on Sunday ended his three-day visit to Georgia. The director-general during his visit met Georgian President Eduard SHEVARDNADZE, Catholocos-Patriarch of All Georgia Ilya II, parliament speaker Zurab ZHVANIA, and Foreign Minister Irakly MENAGARISHVILI. He also participated in the opening ceremony of The Fund for the Development and Popularization of Georgian Culture in Tbilisi, created with assistance from the UN Development Program. He also praised actions by the Georgian leadership on preserving cultural monuments in the country. In recognition of its services, UNESCO issued a decision to hold a summit of Caucasian leaders in Tbilisi late in 2001-early in 2002 to discuss cooperation in culture, science and education. MENGARISHVILI noted that the cooperation between Georgia and UNESCO is "exemplary." He added that UNESCO put three unique cultural monuments of Georgia on the list of world cultural values. MATSUURA will now head to Kiev.

Rumors Of Aliyev's Death Denied

· Rumors surfaced today that Azerbaijan's President Geidar ALIYEV had past away at the US Cleveland Clinic over the weekend. First Secretary Tahir TAGHIZADEH said, "The President is undergoing a routine medical check-up at the Cleveland clinic. He is scheduled to leave the United States very soon. We are not talking about anything major.

When you need to know it as it happens




September 18, 2000

Intercon's Daily

He has had a bypass and it's a regular, routine check-up." ALIYEV's son Ilgam said, "I categorically deny the rumors that the President of Azerbaijan is seriously ill. He simply has a cold. I personally spoke with my father by telephone today. He [the President] plans to return to Baku in a couple of days." ALIYEV had a heart bypass in April, 1999. In February, he had another check-up at the clinic and an eye operation to remove a cataract. ALIYEV's health is of concern to major foreign oil companies because he was instrumental in signing deals worth some $50 billion in potential investment to develop Azerbaijan's oil and gas reserves in the Caspian Sea. ALIYEV has been in the US since attending the UN Millennium Summit, earlier this month.

Energy Co. Support Kazakh Gov't Efforts

· Top foreign energy companies are supporting the Kazakh government's efforts to root out illegal exports of Kazakh crude to offshore zones, Reuters reported. It was in response to reports that the government was investigating commodity producers accused of transfer pricing¾underpaying taxes by exporting at below market prices to affiliated entities in offshore zones. The Kazakhstan Petroleum Association, which includes 34 companies such as BG and ExxonMobil, said that member companies backed Kazakh law. "If you mean by transfer pricing, the selling of crude below market price for Kazakh crude, then that is illegal and something no responsible company would do," said Association President Charles Summers of Kerr McGee Corp's Oryx Energy. "The government is concerned and what we suggest is that they continue their efforts to enforce the rules and regulations of Kazakhstan." According to official data, offshore tax havens took 63 percent of crude oil exports, though Summers suggested that the information could be based on registration documents of the companies instead of actual export destinations. "Some of those places such as Virgin islands or Jersey are where the actual companies are registered so the documents showing customs transfers may just be picking up the registration of

where these companies are," he said. The executives said their companies remained committed to Kazakhstan, whose Caspian shelf could contain some of the world's largest offshore reserves. "Kazakhstan is becoming a more attractive investment target for the oil and gas industry," said James Taylor, president of ExxonMobil in Kazakhstan.

Turkmenbashi Continues Modernization

· Turkmenistan continues the modernize of its largest oil refinery in Turkmenbashi, as the Irish company Emerol is close to completing of the reconstruction of the BT-1 vacuum unit. The company expects the work to be completed by the end of fall. The new vacuum unit will reduce atmospheric hazardous discharges and prevent pollution of water drains with hydrocarbon products. The modernization also includes an upgrade in the quality of the raw material used to produce high-octane petrol, diesel fuel, coke and bitumen. Emerol has invested $2.6 million in the Turkmenbashi refinery's upgrade.

PSG Closes Offices In Ashgabat

· PSG consortium, which comprises General Electric Capital Services and Bechtel Enterprises announced today that it will close its offices in October in Ashgabat because of the uncertain future of the Trans Caspian pipeline project to ship Turkmen gas to Turkey. PSG said it was handing over the lead on the $2 billion project to partner Royal-Dutch Shell. A project official, Stephen TOMMCZAK, told Reuters, "We have agreed that Shell will take on the leadership of the consortium and the project will be managed in Turkmenistan through Shell's offices in Ashgabat." He said the PSG office closure did not signify exit from the project. Turkmenistan has a deal to sell huge volumes of gas to Turkey starting 2002 but the trans-Caspian project ran into trouble last year when gas was found off the Azeri coast, prompting Baku to demand a share in the pipeline capacity. PSG presented project proposals to Turkmen President NIYAZOV, but has yet to get a response.

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

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When you need to know it as it happens