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

Monday, September 25, 2000


Russian Federation

Politics

Patriarch Aleksi Morally Compromised

· The Russian Orthodox Church and its Patriarch Aleksi II are again denying that Aleksi II served as a KGB agent and was decorated with honors. However, Soviet-era documents in Tallinn, Estonia obtained by the Keston Institute prove that the Estonian KGB recruited the Patriarch on February 28, 1958, when he was already serving as the Patriarch of Estonia. Soviet KGB documents in Estonia detail the activities of Patriarch Aleksi, who was code-named "Agent Drozdov" (the thrush), in actions against orthodox clergy and believers. It adds, "During secret rendezvous he was punctilious, energetic and convivial. He is well oriented in theoretical questions of theology and the international situation. He has a willing attitude to the fulfillment of our tasks and has already provided materials deserving attention which are forming the basis for documentation of the criminal activity of a member of the leadership of the Johvi Orthodox church." In February, 1988, "An order of the USSR KGB chairman was prepared to award Agent Drozdov the Certificate of Honor." Although he is referred to only as "Drozdov" the documents make it clear that they refer to the then Father Aleksi RIDIGER. This is because the documents provide information on the agent's career progression and his date of birth.

In 1991, Ogonyok Magazine published some correspondence relating the Patriarch's assistance to the KGB. Intercon sources report that in 1991, former People's Deputy of the USSR and retired General Oleg KALUGIN was invited to the Patriarch's residence. The Patriarch urged KALUGIN not to confirm or reveal his activities with the KGB. KALUGIN said he would not hold back the information, but would not be the first to disclose it.

Once the information was first published, KALUGIN acknowledged that Aleksi II had been a known agent. It should also be noted that in Vasili MITROKHIN's book "The Sword And The Shield" there is entire chapter on the Russian Orthodox Church, citing the Patriarch's activities. Several allegations have been brought against Aleksi II, but the Church has consistently denied them. The Irish Times reports that the most recent denial was made on Wednesday by a church spokesman, Father Vsevolod CHAPLIN, who said, "There are no data indicating that Patriarch Aleksi II was an associate of the special services, and no classified documents bear his signature." However, what makes this issue relevant has been the Patriarch's behavior and that of the Church, which continues to make this a relevant question. The Irish Times points out that, "Patriarch Aleksi has been a strong supporter of President PUTIN, himself a former KGB agent, and has issued public statements defending Mr. PUTIN's conduct of the war in Chechnya and his stance on the sinking of the nuclear submarine Kursk. He has consistently opposed all proposed visits to Russia by Pope John Paul II." Other special privileges awarded to the church appear in this context as a reward for not only previous service, but also continued loyalty to the temporal powers that be. "Under his patriarchate the Church has received special privileges, including the right to import alcohol and tobacco at reduced rates of duty for sale in the Russian Federation." The London Times reported

Today's News Highlights

Russia

Russian CB Reserves

Norilsk Aims For Transparency

European Republics

Ukraine Hopeful For IMF Loans

South Caucasus & Central Asia

Robertson To Visit Tbilisi

Rus-Armenia Sign Agreements

Giffen Accused Of Bribery

Hurricane Invests In Kazakhstan

Politics-Economics-Business

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September 25, 2000

Intercon's Daily

that the Russian Orthodox Church has evaded taxes on its international trade of oil, diamonds, cigarettes, and alcohol. COMMENT: One of the most troubling legacies of the Soviet period remains the compromising nature of citizens who became KGB informants and agents. Some continue to deny their involvement and remain in significant positions. This has an enormous moral cost for contemporary Russia. The strategy, which involved compromising all independent centers of power outside the communist apparatus, effectively prevented the development of an independent civil society. As one analyzes the Patriarch's behavior today and observes his uncritical support to former Russian President Boris YELTSIN and now PUTIN as well as the brutal Chechen war, the true cost to Russia is difficult to calculate. However, the costs associated with the Russian Orthodox Church's alcohol and cigarette sales are not.

Economy

Ruble = 27.79/$1.00 (NY rate)

Ruble = 27.86/$1.00 (CB rate)

Ruble = 24.35/1 euro (CB rate)

Russian CB Reserves

· The Central Bank said Russia's money supply grew 5.3 billion rubles ($190.7 million) in the week ending September 18th. The money supply, which includes cash currency in circulation plus required reserves, totaled 441.2 billion rubles on September 18th. Money supply grew 8.3 billion rubles in the week ending September 11th to 435.9 billion rubles. Russian foreign currency and gold reserves rose $200 million to $24.4 billion in the week ending September 15th. The Central Bank pointed out this was the second week of growth. Russia's gold and hard currency reserves are expected to grow by $2 to $3 billion by the year's end, according to Central Bank Chairman Viktor GERASCHENKO. He predicted that the average exchange rate of the ruble against the dollar would not be expected to exceed 30, inflation would remain within a range of 12 percent to 14 percent, while money supply would go up by around 23 percent. He also said that the discount rate would be lowered from its 28 percent. A resolution to lower the rate will be adopted at the next meeting of the Central Bank board. He said, "The rate will be cut a bit. Its level until the end of the

year will depend on developments with inflation in the country." Economic growth in the second half of 2000 will be slightly lower than in the first six months of the year at 7.3 percent, according to Deputy Prime Minister and Finance Minister Alexei KUDRIN. GERASHCHENKO added that gross domestic product (GDP) in 2001 would reach 3.5 percent to 5.0 percent against a 4.0 percent government forecast, and the monetary base would increase by about 23 percent.

Business

Norilsk Aims For Transparency

· Norilsk Nickel, under the control of Vladimir POTANIN's Interros Group, has released to the public a plan to restructure its management and consolidate its subsidiaries. Norilsk Nickel plans to purchase British-based Norimet, which is its sales and marketing agent for nickel, copper, and cobalt. The deal involves the purchase a 38 percent state in Norisk Mining, a subsidiary of Norilsk Nickel. Norilsk Mining will take over Norilsk Nickel with shareholders swapping their shares for those of Norilsk Mining, the Financial Times reported. Norilsk officials stated that the restructuring is aimed at simplifying corporate structure and increase transparency and management efficiency. It will also have tax advantages and reduce "political risk." Norilsk Nickel, during the summer, was a target of President Vladimir PUTIN's campaign to crack down on the power and influence of the oligarchs. The government, at that time, launched an investigation into Norilsk's privatization. Norilsk Nickel reported net profits, according to international accounting standards, for 1999 at $531 million, a rise from 1998 figures at $283 million.

Norilsk To Get Multi-year Platinum License

· Norilsk Nickel, which produces 20 percent of the world's platinum, expects to receive from the Russian government a multiyear export license for the metal starting in 2001. Alexander KHLOPONIN, Norilsk Nickel's general director explained, "We have continuing talks with the government and we hope to secure the long term platinum export quota from next year." Norilsk last year secured a 10-year export quota for palladium, for which it is the world's largest producer. Palladium and platinum exports from Russia have been delayed in recent years, as precious metals exporters experienced difficulties

When you need to know it as it happens

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renewing their annual export licenses. The Russian Central Bank and Gokhran, the state precious metals and gems reserve, also export platinum group metals, which are used for electronics, jewelry, and catalytic converters used to reduce car exhaust pollution.

tions between Georgia and NATO are developing in the framework of the NATO program Partnership for Peace, and these relations are yet closed to the political dialogue and exchange of the experience, President mentioned. Shevardnadze also stressed Georgian relations with NATO in the science sphere. According to him, the Alliance is interested in many research projects not only in defense or military industry. The Associated Press quoted Shevardnadze as saying that Georgia could join NATO by 2005. Meanwhile, NATO officials stated that Georgia's joining the Alliance would be a long, drawn-out process. ROBERTSON will also meet with the head of the parliament Zurab ZHVANIA, State Minister George ARSENISHVILI, Foreign Minister Irakli MENAGARISHVILI, Defense Minister David TEVZADZE and will participate in the conference Caucasus Today: Regional Cooperation and Perspectives of Partnership with NATO.

Armenia-Russia Sign Strategic Agreements

· Armenian President Robert KOCHARYAN arrived in Moscow Sunday for high-level talks with President Vladimir PUTIN, Russian Prime Minister Mikhail KASYANOV, the chairmen of both chambers of Russian parliament, Yegor STROYEV and Gennady SELEZNYOV, Russian Security Council Secretary Sergei IVANOV, Foreign Minister Igor IVANOV, and Atomic Energy Minister Yevgeny ADAMOV. PUTIN and KOCHARYAN are expected to sign a joint declaration on strategic interaction between Armenia and Russia directed towards the 21st century. The two presidents are also expected to sign a series of bilateral agreements, including on a visa-free travel of citizens, on tourism, public health, culture and information.

KOCHARYAN and KASYANOV's talks today centered on the problem of debts and promising projects of bilateral cooperation. The Russian Cabinet has raised the question on paying the debt by Armenia to Russia for earlier credits. It totaled $113 million, as of July 1, 2000. During the meeting, the sides discussed also implementation of the most promising economic projects, including supplies of Russian gas to Armenia and possibilities of building a gas pipeline across the republic to deliver Russian gas to Iran. Russian and Armenian trade has dropped by 20 percent over the first five months of 2000 against the same period in 1999. Both sides sup

European Republics

Ukraine Remains Hopeful For IMF Loans

· Ukraine remains hopeful that the International Monetary Fund (IMF) will grant the former Soviet state new loans. An IMF mission, concluding its visit on Friday, gave no indication of when loans will be approved. The mission headed by Julian BERENGAUT reviewed the nation's economic reforms, focused on the draft budget for next year, the privatization program, and problems in the banking system. BERENGAUT reiterated his position that the fund was not ready to resume lending to Ukraine under a $2.6 billion loan program, which was frozen a year ago. He declined to speculate whether loans would be received before year's end. Ukrainian officials had hoped for some $900 million from the IMF this year. BERENGAUT said that the team was pleased with the balanced 2001 draft budget, but he was worried about Ukraine's privatization revenues targets for next year. "We are worried that it is an unrealistic projection." He said without privatization revenues, the IMF calculated that the budget would show a shortfall equivalent to close to five percent of gross domestic product. The government plans to sell national telecommunications monopoly Ukrtelekom and energy companies next year to help meet targets. Prime Minister Viktor YUSHCHENKO plans to meet IMF head Hoerst KOEHLER this weekend during the IMF and World Bank annual meeting in Prague, Reuters reported.

South Caucasus & Central Asia

NATO Secretary General Visits Georgia

· Georgian President Eduard Shevardnadze welcomes today NATO Secretary General George Robertson in his two-day official visit to Georgia, Prime News Agency reported. In his traditional radio interview, Shevardnadze said Georgia is and will be cooperating with all international organizations including NATO, and these relations are not controversial to the interests of the country. Rela

When you need to know it as it happens

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ported boosting trade turnover. Foreign ministers of the two countries Igor IVANOV and Vargan OSKANYAN signed, in the presence of KASYANOV and KOCHARYAN, inter-government agreements on cooperation in the sphere of information, mutual visa-free travels by citizens and on the status of Russian mass media correspondents in Armenia and Armenian mass media correspondents in Russia. In addition, Russian Nuclear Energy Minister Yevgeny ADAMOV and Armenian Energy Minister Karen GALUSTYAN signed an inter-government agreement on the peaceful use of nuclear energy.

Giffen Accused Of Bribing Foreign Officials

· The Washington Post today reported that it has obtained documents from the Justice Department investigation of US businessman JAMES GIFFEN, that accuse him of violating the Foreign Corrupt Practices Act, which prohibits the bribery of foreign officials. The documents claim that GIFFEN orchestrated the transfer of bribes totaling $30 million from oil companies to Kazakh leaders through an intricate network of shell companies registered in the British Virgin Islands and through Liechtenstein-based foundations between May, 1997, and September, 1998. The newspaper said GIFFEN offered Akezhan KAZHEGELDIN, a former Kazakh prime minister who was under investigation for disappearing oil payments, a deal last August, urging him to end his outspoken opposition to Kazakh President Nursultan NAZARBAYEV and put a lid on the corruption allegations in exchange for protection from prosecution and a high-ranking job. It later reports that there was a single payment of $6 million to an account benefiting the family of KAZHEGELDIN in August, 1997. Giffen has provided a wide variety of services for NAZARBAYEV, which include arranging presidential trips to the US, sealing multi-billion dollar oil deals, and becoming an intermediary for US companies seeking to do business with the Kazakh government. In an interview earlier this month, Kazakh Foreign Minister Erlan IDRISSOV told The Washington Post that GIFFEN retained the "full confidence" of the Kazakh

government and "Everything was done in an absolutely transparent, lawful and acceptable manner."

GIFFEN's law firm, Akin, Gump, Strauss, Hauer & Feld, dismissed allegations against him as having no substance and said GIFFEN had operated under the direction of the Kazakh government. No charges have been filed against GIFFEN. A Swiss investigation is also underway. Last month Swiss and US authorities blocked Kazakhstan's access to bank accounts holding about $100 million suspected of being used by Western oil companies to bribe Kazakh officials. Oil companies including BP Amoco, ExxonMobil Corp. and Phillips Petroleum have provided documents to the Justice Department concerning suspicious transactions. Spokesmen for all three oil firms insist the companies acted under the instructions of the Kazakh government. Even if prosecutors prove that oil money ended up in shell company accounts, there's no proof that company officials knew the money was going anywhere but an official Kazakh government account, The Washington Post reported.

Hurricane To Invest In Kazakhstan

· Canada's Hurricane Hydrocarbons, which has invested $190 million in oil projects in Kazakhstan since 1996, plans to invest more in the coming years. Hurricane produces oil at the Kumkol Munai field in southern Kazakhstan. Bernard ISAUTIER, Hurricane's board chairman said, "In all Hurricane has invested $190 million which includes the purchase price of the field. We are ahead of plans because the stipulated investment amount was $90 million." Hurricane plans to produce 3.3 million tons of crude this year in Kazakhstan, through its subsidiary Hurricane Kumkol. "We are already close to peak capacity but we have plans to tap new fields. We have identified projects which would require about $250 million in investments," ISAUTIER said after meeting with Prime Minister Kasymzhomart TOKAYEV. These projects could include the development of the Kyzylkia, Aryskul, and Maibulak oil deposits.


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

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

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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.

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