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 26, 2000

Russian Federation

Politics

Rus-Germany Focus On Reforms

· Russian President Vladimir PUTIN met Monday with German Chancellor Gerhard SCHROEDER to discuss international, regional, and bilateral issues. Talks focused also on economic issues, but also fuel prices, the 1972 Anti-Ballistic Missile treaty, the Yugoslav election, and the Russian media row. Prior to his departure for Russia, SCHROEDER told the Welt am Sonntag newspaper, "I'm going there because I want to make clear in the present situation that Russia can rely on the Germany's support for the reform process." He said it would take time to overcome Russian suspicions of cooperating closely with the European Union and NATO, pointing out that US President Bill CLINTON has encouraged Germany to, "play a special role in the direction of stabilizing the reform process in Russia." PUTIN and SCHROEDER pledged to cultivate closer ties between their nations, including an expanding economic relationship. The Germany side called for permitting Hermes credit guarantee agency to work in Russia and the improvement of economic conditions, which would boost Russia's credit rating. Germany has been Russia's top Western trading partner and its leading creditor in recent years, supporting market reforms with $67 billion in loans, grants, and credit guarantees. Russia has pushed for writing off some of the Soviet-era debt, but Germany has balked at the idea.

Referring to the ongoing dispute between Gazprom and Media Most, SCHROEDER pointed out, "We agreed that freedom of the press is one of the bases of democracy. We also agreed that it's necessary to pay off debts." PUTIN proposed creating, "an annual Russian-German forum'' to include scientists and cultural figures." SCHROEDER and PUTIN

have built a warm relationship; in fact the two families will celebrate the Russian Christmas together in Moscow.

Russian Economic Meetings With IMF/WB

· After holding a meeting with International Monetary Fund (IMF) Managing Director Horst KOEHLER on the sidelines of the IMF and World Bank annual meeting in Prague, Russian Finance Minister Alexei KUDRIN is confident that Russia and the IMF will sign an economic agreement before the end of the year. He said that an IMF mission will travel to Moscow in November. The IMF values the work of President Vladimir PUTIN and the government of Prime Minister Mikhail KASYANOV in carrying out economic reforms, KUDRIN said. KOEHLER on Saturday expressed satisfaction with the stable balance of payment in Russia. He also noted that the balance of payments would depend on IMF credits both this year and next year. Bloomberg News reports that Russia has said it doesn't need new loans from the IMF this year, as tax collection soars to record levels, helped by high world oil prices and reviving industrial output. Nonetheless, Russia is seeking an agreement with the IMF to serve as a stamp of approval for other creditor nations, which Russia needs to negotiate debt rescheduling for billions of dollars of Soviet-era debt.

In addition, Russia hopes to receive approximately $800 million from the World Bank in 2001. "This is a realistic figure and today it was approved," KUDRIN said af

Today's News Highlights

Russia

More Oil Export Quotas Granted

Putin To Stay Out of Media Row

European Republics

Estonia-IMF Relations Change?

Nuclear Reactors Shut Down

South Caucasus & Central Asia

Aliyev's Death Exaggerated

Poti Not To Be Privatized

Dragon To Drill In Turkmenistan

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ter a meeting with World Bank President James WOLFENSOHN. The $800 million doesn't include loans carried over from this year.

Economy

Ruble = 27.09/$1.00 (NY rate)

Ruble = 27.84/$1.00 (CB rate)

Ruble = 24.52/1 euro (CB rate)

Russia Grants More Oil Export Quotas

· The Russian government plans to grant extra oil export quotas in the fourth-quarter to allow oil producers to sell more oil, while world prices are high and use the cash for domestic investment projects, Vedomosti reported. The government will grant the quotas on the condition that money received goes to fund investments, such as on pipeline equipment or social programs. The companies will also be allowed to export 11 million tons of the 57 million tons of oil, which the government will order for local refineries to boost supplies and keep domestic gasoline prices lower, the paper said. Russia's refineries are only able to process about 46 million tons of crude a quarter. Russian oil companies export about 33 percent of the 300 million tons a year they produce. The Energy Ministry regularly allocates small export quotas at the beginning of each quarter, then offers producers extra quotas in return for commitments to spend revenue on domestic investment.

However, Deputy Prime Minister Alexei KUDRIN on Monday said in Prague that Russia cannot increase oil output enough to strongly influence world markets in the next month or two. On Saturday, KUDRIN, who is attending the World Bank/International Monetary Fund meeting, said that Russia is willing to help an international bid to calm oil markets. The government forecast at the end of August that Russia's oil and gas condensate output this year would be 315 million tons, up from 305 last year, and be 312-315 million tons next year.

Business

Putin To Stay Out Of Media Most Row

· Russian President Vladimir Putin said he won't intervene in the conflict between Gazprom and Media Most. In a meeting at the Kremlin with Mikhail Gorbachev, the Soviet Union's last president who is

also chairman of the Public Council of NTV, Russia's largest privately owned television station, PUTIN said, "I consider it wrong to interfere in a conflict between two commercial entities." He said that it is up to the courts to settle the disagreement. "Issues in dispute can only be resolved through the legal process." The President also admonished Press Minister Mikhail LESIN for his participation in approving a shares-for-freedom document forced upon Media Most Chairman Vladimir GUSINSKY, while he was in jail, by Gazprom-Media chief Alfred KOKH. PUTIN called LESIN's behavior "improper." Prime Minister Mikhail KASYANOV also scolded LESIN on Saturday, saying he had erred in signing the document. GORBACHEV accused LESIN of acting like "racketeer" and said he should resign.

Media Most believes that the state is using Gazprom, which is 38 percent owned by the state, to call in debts owed to it by the media company. Free press advocates feel that the financial pressure and the arrest of GUSINSKY in July for embezzlement has been an attempt by the Kremlin to muzzle Media Most's outlets. On Monday, court bailiffs went to the headquarters of several Media Most news organizations, including its flagship NTV Television, to give notice of a freeze on the group's stock. Authorities were acting on an order issued last week by a Moscow Court.

European Republics

Estonia To Change Relationship With IMF?

· Estonia's Finance Ministry said that due to its successful economy, it is prepared to change its relationship with international lender, the International Monetary Fund (IMF). It said that the current standby agreement with the Fund could be its last. According to a ministry statement, "Estonia has for years not used the credit opportunities offered by the memorandum...and [its] economic development has been successful enough that it is possible the memorandum can be replaced with other types of instruments." The announcement follows a meeting on Saturday between Estonian Finance Minister Siim KALLAS, Central Bank Governor Vahur KRAFT, and the IMF's European 2nd department head John ODLING-SMEE, Reuters reported. Estonia in February secured a new standby agreement with the IMF that opened up 29.34 million

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Special Drawing Rights (SDR) ($22.6 million), although it said at the time it had no intention of borrowing from the fund.

Two Nuclear Reactors Shut Down In Ukraine

· The State Nuclear Agency Energoatom on Monday said two reactors at Ukraine's Rivne nuclear power plant were shut down after minor malfunctions, but no radiation leaks were reported. Reactor No. 1 was halted Saturday because of a malfunction in its control system, while reactor No. 3 was shut down Sunday after high temperatures were measured in a generator, Energoatom said. No radiation leaks were reported and repair work was expected to continue until Thursday. Nine out of 14 nuclear reactors at Ukraine's five atomic power plants are currently working, while the rest are undergoing repairs. Breakdowns occur frequently.

South Caucasus & Central Asia

NEWSFLASH

Rumors Of Aliyev's Death Greatly Exaggerated

· Rumors of Azerbaijan's President Geidar ALIYEV's death appear greatly exaggerated. Following the UN Millennium Summit in New York and a visit to Washington DC, ALIYEV checked into the Cleveland Clinic for a regular check-up. He has been there for two weeks. The Azeri Embassy has denied the President's death. Today, Embassy press secretary Elin SULEYMANOV said that the President has been diagnosed with the flu. Several foreign officials have been in touch with ALIYEV through telephone calls, including Georgian President Eduard SHEVARDNADZE, Russian President Vladimir PUTIN and Security Council Secretary Sergei IVANOV. SHEVARDNADZE said that President ALIYEV "feels satisfactory" and even, "sends his warmest regards to the people of Georgia." ALIYEV told SHEVARDNADZE that he will return to Baku on September 28^th.

Port Of Poti Not To Be Privatized

· Georgian President Eduard SHEVARDNADZE announced on Monday that the seaport of Poti will remain a state property. Several of its docks, however, will be rented out long-term after tenders are held. The President said that restructuring the largest seaport of Georgia will insure growth of volume

of different cargoes handled by the Poti seaport. Prime News Agency reported that the strategy of restructuring and modernization of the Poti seaport, worked out by the experts of TACIS program and the USAID along with Georgian specialists, was discussed at last week's government's session. SHEVARDNADZE pointed out that the development of Poti at a rapid rate will promote economic stabilization throughout the country.

In addition, cargo traffic through the port will increase due to the planned "Caucasus" ferry route for goods from Krasnodar via Poti to Armenia. The decision on this route was made during Armenian President Robert KOCHARYAN's visit to Moscow. The cargo turnover of the new ferry route will be 2 million tons per year.

EU Helps Guard Georgia-Chechnya Border

· According to Reuters, the European Union last week sent one million euros ($850,300) worth of military equipment and aviation fuel to Georgia, to guard its borders against guerilla attacks from Chechnya. The equipment was sent in response to a request from Georgian President Eduard Shevardnadze, and would help three border posts guard against the threats, particularly against an Organization for Security and Cooperation in Europe (OSCE) observer force working in the area. In May, fearing a spillover of the war in Chechnya into Georgia, the OSCE increased to 24 the size of the unarmed team, which observes the roughly 100-km long mountain frontier.

Armenian Parliamentary Speaker Resigns

· Armen KHACHATRYAN, Speaker of the Armenian Parliament and second in command after the President, announced his resignation today due to the changing balance of forces in the chamber. He said, "A new configuration of forces is forming in parliament. Different factions are cooperating to build a new political situation, which I cannot claim to represent. In order to preserve a normal atmosphere in parliament, a new speaker will have to be elected." His resignation comes, while President Robert KOCHARYAN is on an official trip to Moscow. This timing, which has taken many by surprise, has raised concern among the parliament ranks. Communist deputy Khoren SARKISYAN said, "This is an attempt to stage a coup d'etat," adding

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that certain forcers are, "bringing pressure to bear," on the parliament speaker. Representatives of the People's Party of Armenia also believe that the speaker's resignation should not be considered because the Party Council had not discussed it yet. RFE\RL Newsline reported that KHACHATRYAN's resignation follows a campaign to impeach him over his extensive and expensive foreign travel. KHACHATRYAN became speaker last November after his predecessor, Armenia's Soviet-era leader Karen DEMIRCHYAN, and several other top officials including Prime Minister Vazgen SARKSYAN, were shot dead in parliament.

Dragon To Drill In Turkmenistan

· Dubai-based Dragon Oil said it may sell part of its oil fields near Turkmenistan to reduce its risks and raise money for further development, Bloomberg News reported Monday. Dragon will soon begin new drilling at the Cheleken oil fields, where it currently produces 7,500 barrels a day from the worn out Soviet wells. It aims to quadruple its output in three years and ten-fold it by the end of 2008, Ian Baron, the company's chief executive, stated. According to him, once oil production starts from the new wells, Dragon will sell a stake in the fields, but keep at least half to remain an operator. High oil prices prompted the company to speed up exploration and development in Turkmenistan, where poor infrastructure and shortage of routes to international markets make the project break-even only at about $20 a barrel. Since much of the project's cost is fixed, increasing output will likely bring the break-even level down to as low as about $5 a barrel in three years, Baron said. Once it drills the new wells Dragon may attract companies already active in the Caspian such as Exxon Mobil, Royal Dutch/Shell and BP Amoco.

In the meantime, to take oil from the land-locked Caspian region, Dragon swaps it with Iranian companies, bringing its low-sulfur crude by tanker to the port of Neka on Iran's Caspian shore. In return,

Dragon gets an equivalent value of Iranian oil, which it takes on at an Iranian port in the Persian Gulf. With shipping costs and swap fees totaling $4 a barrel, the Iranian route remains the most attractive for the company, Baron said. "I'm quite happy to send crude through Iran. Our oil is good for Iranians, and they have refining capacity of 800,000 barrels [a day]. There are pipelines being discussed and built, but I don't think they'll extend to Turkmenistan until production levels are much higher." Commenting on the Baku-Ceyhan pipeline BARON said, "We only look at economics…If the pipeline is there and the price is attractive, we may look at this option as well."

Uzbek-Turkmen Sign Border Treaty

· Uzbekistan President Islam KARIMOV and Turkmenistan President Saparmurat NIYAZOV on Thursday signed a border treaty defining the 1,856-kilometer borderline between the states. The treaty said the countries have no territorial claims to each other, NIYAZOV said. "From now and forever...it will be the border of peace and accord between our countries and our peoples," he added. KARIMOV expressed the hope that all other countries in the region would define borders between them "in a similar atmosphere of mutual understanding and respect to each other's interests."

Kyrgyz-Uzbek To Sign Military Coop. Agmt

· Kyrgyzstan and Uzbekistan are expected to sign an agreement on military and military-technical cooperation, during the two-day visit of Uzbek President Islam KARIMOV to Bishkek, which begins today. The two presidents will hold one-to-one talks to be followed by expanded-format talks between the two delegations on questions relating to a wide spectrum of bilateral relations, regional security in Central Asia and the latest developments in neighboring Afghanistan. KARIMOV and Kyrgyz President Askar AKAYEV will sign a joint statement on the results of their meetings.

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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