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

Tuesday, September 19, 2000

Russian Federation

Politics

Kasyanov Promotes Economy To British

· Russian Prime Minister Mikhail KASYANOV arrived in Britain on Monday for a two-day business oriented visit. He hopes use Russia's economic recovery and promising outlook to persuade British businessmen to invest in Russia, during an address at the Confederation of British Industry. He brought a list of 30 investment projects to propose to British investors. Britain is Russia's fifth-largest commercial partner. Bilateral trade totaled $1.2 billion in the first quarter of 2000. It is the third-largest in terms of foreign investment at $3.63 billion. KASYANOV will provide statistics on the economy such as its 5 percent growth; a trade surplus of $50 billion; a budget surplus of 2.5 percent of gross domestic product; and a lower inflation rate of 20 percent. The British will question him on Russian economic reforms, corporate governance, bankruptcy legislation, transparency in commercial law, and intellectual property rights. KASYANOV on Monday evening met with British Prime Minister Tony BLAIR and will meet with Chancellor Gordon BROWN today, as well as the director of the European Bank for Reconstruction and Development (EBRD). The EBRD is reviewing Russia's economic situation to determine whether to provided loans of $250 million to Gazprom and $150 million to LUKoil. KASYANOV will meet with Foreign Secretary Robin COOK and Trade and Industry Secretary Stephen BYERS on Wednesday before heading home.

Britain has expressed an interest in setting up a high-level working relationship, similar to the commission set up between US Vice President Al GORE and former prime minister Viktor CHERNOMYRDIN. KASYANOV suggested that

economic development and trade minister German GREF, "would be a very good person to do this."

Rus-Japan Military Exchange Postponed

· Japan has decided to postpone a previously planned exchange of military delegations set for later this month. The Russia's Foreign Ministry expressed "regret and surprise" over the Japanese decision. The postponement comes after the arrest of a Japanese senior naval officer on suspicion that he had given secrets to Russia. Alexander LOSYUKOV, deputy head of the Foreign Ministry noted the spy scandal had erupted immediately after a trip to Tokyo earlier this month by Russian President Vladimir PUTIN. He said it risked harming a steady thaw in once-frosty bilateral ties. The ministry could not confirm whether a visit by Russian Defense Minister Igor SERGEYEV to Japan set for November would go ahead on schedule.

Russia Opens Oil Terminal In Finland

· Peterburgsky Neftyanoi Terminal, a Russia oil terminal operator based in St. Petersburg, opened a $45 million terminal on the Gulf of Finland to handle 5 million tons of oil products a year. Nearly 80 percent of oil products handled at the port come from Surgutneftegaz, Russia's third oil producer, which owns the Kirishinefteorgsintez oil refinery located outside of St. Petersburg. Competition to transport cargo, especially oil and oil products, is increasing in the Baltic region. Russia plans to build several more ports to circumvent Lithuania, Latvia,

Today's News Highlights

Russia

Economic Outlook For Russia

Gazprom-Media Most Agrmt.

European Republics

Ukraine To Sell Alumina Stake

Russia Threatens Ukrainian Pipe

South Caucasus & Central Asia

Shevardnadze On Military Coop.

Anadarko On Seismic Research

Musavat Barred From Elections

Kulov Refuses To Take Exam

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Tuesday

September 19, 2000

Intercon's Daily

and Estonia. "Shipping oil products through our port will make transport cheaper by $2 to $3 per ton than shipping such products through the ports of the Baltic States," said Alexander DYUKOV, chairman of the company's board of directors. The Russian government wants to support construction of new domestic ports, claiming the country loses up to $2 billion a year in lost shipping duties to the Baltic states. The terminal operator plans to invest as much as $150 million more in the port in the next three years to triple capacity to 15 million tons of oil products a year. Sberbank of Russia has already given the company a credit of $20 million for expansion, Bloomberg News reported.

Economy

Ruble = 27.73/$1.00 (NY rate)

Ruble = 27.80/$1.00 (CB rate)

Ruble = 23.76/1 euro (CB rate)

IMF World Economic Outlook For Russia

· The International Monetary Fund (IMF) World Economic Outlook report released today predicted that Russia's economy will grow at a rate of 7 percent in 2000, but will slow to 4 percent in 2001. In 1999, Russia's economy grew by 3.2 percent. "The Russian economy is continuing its rapid recovery from the financial crisis of 1998," the IMF said. It noted that Russia must implement structural reform for the long term. These reforms include economic reforms, bankruptcy laws, curbing barter trade and cracking down on arrears. "Longer-term economic prospects continue to depend on accelerating the slow pace of structural reform," the IMF said. The reported noted, "Investment and non-oil exports began to strengthen in 1999, followed more recently by increased consumption and imports. Rising real wages, reductions in arrears and lessening use of barter all point to continued improvements in activity." The IMF stressed the need to have a balanced budget, because pressure will be placed on future budgets due to reform-related expenditures. Russia is the IMF's largest single borrower.

Despite Russia's positive economic growth, it is still dependent on the IMF for loans. First Deputy Finance Minister Alexei ULYUKAYEV on Thursday said, "An agreement with the IMF is important for us not so much in the light of getting their financing in

the next year... but because a valid agreement with the Fund is a condition for restructuring Paris Club debt." The IMF put on hold a $4.5 billion loan program to Russia last year, saying the government had failed to implement structural reforms.

Business

Media Most Agreement Investigation Begins

· In an interview with Ekho Moskvy, Media Most owner Vladimir GUSINSKY stressed that he was forced to sign an agreement for the sale of Media Most to gas monopoly Gazprom because he was threatened. Gazprom chief executive officer Rem VYAKHIREV has stepped up public pressure against GUSINSKY by accusing him of breaking the terms of the agreement and is threatening "serious measures," if he does not respect it. GUSINSKY's lawyers have stated that the agreement is not valid and has not legal basis because it was signed under duress. Russia's chief prosecutor's office announced it has launched a probe into Media Most's alleged breach of contract with Gazprom. Gazprom, which requested the investigation, also accuses Media Most managers of transferring assets offshore. Former Soviet leader Mikhail GORBACHEV, who now heads a group set up by the company to monitor media freedoms in Russia said, "What is at stake here is not only the fate of NTV and of Media Most, but also the threat to freedom of speech in Russia."

The battle between Gazprom and Media Most parallels a personal one between Alfred KOKH, managing director of Gazprom and GUSINSKY. In 1997, KOKH as privatization minister was sacked after a corruption scandal erupted following the auction of Svyazinvest, a telecommunications company. GUSINSKY, who failed to win the tender, spearheaded a campaign calling the auction controversial. KOKH struggled to stay out of jail for two years and later moved into his current position with Gazprom. He has positioned himself to manage Gazprom's substantial holdings in Media Most.

Tuesday Tid-Bit

Presidential Motorcade In Traffic Accident

· A car in President Vladimir PUTIN's motorcade on September 11^th collided with another car and overturned, bruising several bodyguards. The

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President's own car was not involved in the accident, which happened on Kutuzovsky Boulevard near the Triumphal Arch, a well-known landmark commemorating Russia's 1812 victory over Napoleon BONAPARTE. The motorcade was heading away from the Kremlin towards one of the President's out-of-town residences late in the evening. NTV Television showed footage from the accident scene. The reporter noted that the driver of the Lada, who was unhurt, would have "a lot of explaining" to do to the Federal Security Service (FSB). There was no immediate comment from the Kremlin press service.

factories to work at a quarter of their capacity. Russia's deputy minister for economic development and trade Maksim MEDVEDKOV explains, "We don't want to drive Ukraine out of the market, we simply want a level playing field for Ukrainian and Russian producers," the Financial Times reported. Ukraine accounts for 70 percent of all pipe imports to Russia. The duties would also threaten the business of Viktor PINCHUK, who controls most of Ukraine's pipe industry and is the son-in-law of Ukraine's President Leonid KUCHMA. PINCHUK notes that the growth in Russian oil production has increased the demand in Russia for pipes. He claims that the anti-dumping investigation, which began for economic reasons, will be used politically. Ukrainian Economic Ministry official Vladmir STETSENKO said, "I don't rule out that the [Russian pipe industry] has the full support of the Kremlin¾they know perfectly well that this investigation is groundless." The Russian duties threat comes amid a dispute over Ukraine's gas debt to Russia, which estimates that Kiev owes it $2.4 billion for gas imports.

South Caucasus & Central Asia

Shevardnadze On Military Cooperation

· During his national radio address on Monday, Georgian President Eduard SHEVARDNADZE declared, "The United States is providing great assistance to Georgia in the protection of its state border and in its military personnel training. Without such assistance it would be impossible to carry out military reform in Georgia." He pointed out that, "a plan for military reform is being drawn up in Georgia. A conference of the leaders of the Ministry of Defense and military specialists will be convened in Tbilisi in the nearest future to consider the plan." SHEVARDNADZE also noted that he wants to see Georgia, "cooperating with Russia in the military field the same mutually beneficial way it is with the USA." The Georgian President said, "there are many untapped reserves" in the field of military cooperation between Georgia and Russia. SHEVARDNADZE assessed last week's visit by the Commander of the North Caucasus military district, Gennady TROSHEV, to Georgia as "useful and constructive." He renewed an invitation to Russian Defense Minister Igor SERGEYEV to visit Georgia.

European Republics

Ukraine To Sell Alumina Stake

· Ukrainian State Property Fund head Oleksandr BONDAR said the government will sell its last 25 percent of Europe's largest alumina producer, Mykolayivskiy Hlynozemniy Zavod, by the end of 2000. The Fund will offer investors two 10 percent stakes and one five percent stake in the plant located in the south of the country. BONDAR said that splitting the stake into three investment offers was the only way to attract portfolio investors. Interested parties already include Pechiney, the world's fourth-largest aluminum producer, the European Bank for Reconstruction and Development (EBRD) and Ukrainskiy Aliuminiy, a partner of Russia's Sibirsky Alyuminiyum and the buyer of the 30 percent stake in the alumina maker, which the government sold earlier this year. The International Monetary Fund (IMF) has urged Ukraine to step up its privatization program in order to qualify for more loans. The government has already sold 75 percent in the plant, which was built 20 years ago. Mykolayivsky alumina plant plans to raise its output to 1.1 million tons this year from 992,000 tons in 1999.

Russia Threatens Duties On Ukrainian Pipe

· Russia has threatened to impose duties on imports of Ukrainian steel pipe, after an anti-dumping investigation has been launched. Russia claims that Ukrainian producers are undercutting local producers. Sergei SHEIN, deputy head of the Russian association of pipe producers, which initiated the investigation, denied their motives are political, saying that the Ukrainian imports force the Russian

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Tuesday

September 19, 2000

Intercon's Daily

Foreign Companies To Develop Georgian Oil

· US oil company Anadarko will start seismic research of the Adjarian sea shelf on October 5^th, president of Saknavtobi (Georgian Oil) Revaz Tevzadze told Prime News Agency. According to him, "the research will probably last till the end of October and after that the issues of investment amounts paid by Anadarko and beginning of technical and geological research may be discussed." Earlier, Anadarko claimed readiness for investing $1 billion. Tevzadze does not exclude, "for the investment amount to be even greater, since, according to new data, resources of Georgian sea shelf may be not 200 million tons of oil, as it was known before, but from 400 to 500 million tons."

In the meantime, President of Texas-based Frontera Steve Nikandros plans to visit Tbilisi to determine the dates for drilling the next bore-hole in Eastern Georgia. According to Tevzadze, Frontera earlier planned to extract 230 million barrels of oil at Taribana layer over the next 25 years. Before 2007, Frontera intends to drill 60 bore-holes, 40 in 2007 to 2015 and 25 by 2025. The volume of oil extraction at Tratibana field will go up to 40,000 barrels of oil daily.

Tevzadze also said Saknavtobi and German GWDF International plan to sign next week an agreement for cooperation in the exploitation of Georgian oil fields. "Germany side will make final propositions by the end of this week." Tevzadze stressed that a signing ceremony for the agreement will be, "attended by Georgian President Eduard Shevardnadze." The agreement concerns exploitation of Chaladini, Supsa, and Shromisaubani oil fields in Western Georgia.

Musavat Barred From Azeri Elections

· Azerbaijan's Election officials on Monday barred Musavat, the largest opposition party, from participating in the November parliamentary elections, stating that some of its signatures were falsified. Vidadi MAKHMUDOV, a member of the Central

Election Commission, said the commission found that the Musavat Party had presented 56,000 signatures, more than the 50,000 required to get on the ballot -but that about 7,000 were ruled to have been forgeries. About two-thirds of the members of the commission are members of the New Azerbaijan Party, which supports President Geidar ALIYEV. On Friday, the commission barred the Communists from the vote for what the commission said was supplying incorrect or incomplete information about their candidates, the Associated Press reported. Several political parties have demanded that the government liberalize election laws.

Kulov Refuses To Take Language Exam

· Felix KULOV, Kyrgyz's leading opposition figure, refused to take the Kyrgyz language exam required for becoming a presidential candidate. KULOV speaks fluent Kyrgyz, but refused to take the test, stating that it is unfair because it violated the rights of non-Kyrgyz speakers. KULOV said, "Such an examination only serves to divide the people of Kyrgyzstan. As a politician I have no right to betray non-Kyrgyz people or those who do not speak the Kyrgyz language." He said the examination had excluded several capable politicians from the presidential race, including people who could have won a large number of votes. KULOV said he had submitted to the election commission all the documents necessary for contesting the election, including 125,000 signatures from supporters. His refusal to take the test could jeopardize his chances of running against President Askar AKAYEV, who appears increasingly determined to hang on to power.

In February, KULOV lost run for a seat in parliament. He was later arrested, which sparked massive protests in Bishkek and criticism from the West. After being released, KULOV said the charges were politically motivated. He remains under investigation for alleged crimes committed during his tenure as National Security Minister in the mid-1990s, Reuters reported.

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

Oleg D. Kalugin, Content Advisor Jennifer M. Rhodes, Principal Editor

Tatyana Kortova, Contributing Editor

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