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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

Thursday, September 28, 2000

Russian Federation

Politics

New State Council Gains Support

· St. Petersburg Governor Vladimir YAKOVLEV expressed his support for the new State Council, a consultative body of regional governors to be chaired by President Vladimir PUTIN. Political analysts however fear that this new body could threaten the democratic role of the Federal Council, the upper chamber of parliament. The parliament has approved bill introduced by PUTIN to curb the powers of Russia's 89 regional governors and starting in 2002 the Kremlin has the power to dismiss governors for acts it deems as illegal. YAKOVLEV said, "Our conversations with Mr. PUTIN have confirmed that in order for the State Council to be legitimate, we have to change the Constitution. A number of the functions of the Federation Council may be transferred to it." Rights could include the power to review laws, including the federal budget; the approval of senior state officials such as the general prosecutor and high court judges; and the resolution of conflicts between Russia's different regions, the Financial Times reported.

Kremlin Envoys To Monitor Elections

· In a bid to show his power in the region, Russian President Vladimir PUTIN today ordered his Kremlin envoys to the newly defined seven regional administrative zones to closely monitor upcoming elections and ensure that the regions obey federal law. Earlier this year, PUTIN grouped Russia's 89 regions into seven administrative zones, appointing an envoy to each of them. The envoys have been ordered to maintain a distance from all candidates in gubernatorial elections in 34 provinces this autumn. "No one should be allowed to count on his relations with the President, his administration, or envoys. We haven't had and can't have special

relations with anyone," PUTIN said. He claims that stronger federal control is needed to fix the ailing economy and prevent Russia from breaking up. The President has also ordered his envoys to focus on bringing local legislation in line with federal laws.

Economy

Russia Fills Contract With Japan

· Russia's exporting agency for metals Almazjuvelirexport (Almaz) has filled a contract order with Japan of palladium. An official at a Japanese Trade House said, "We have confirmed that the metal shipped by Russia arrived at the Tokyo international airport this morning. We expect Russia to comply with the terms of the contract until December. But after the contract expires, supply will likely be disrupted again next year." Just last month, Russia's sole platinum group metal (PGM) export agent Almaz signed palladium supply contracts for this year with its Japanese customers, with monthly shipment set for September to December. Since 1997, Almaz has repeatedly delayed renewing annual PGM supply contracts with Japanese companies due to bureaucratic problems in issuing export quotas and licenses. Due to Russian delays, palladium prices surged from $120 an ounce at the beginning of 1997 to all-time high of $855 on London fixing basis on August 2^nd. Japan's Trading House has been forced to diversify its suppliers. The official pointed out to Reuters, "We don't care much about whether Russia will renew a sup

Today's News Highlights

Russia

Unemployment Figures Fall

Transneft Reports Rise In Profits

Yukos Invests In Siberian Oil

European Republics

Ukraine To Hold Gas Talks

Lith. Prepares For Elections

South Caucasus & Central Asia

NATO Partnership Successful

Kyrgyz-Uzbek Military Treaty

TUrkmen GDP At 14 Precent

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Thursday

September 28, 2000

Intercon's Daily

ply contract next year. After the four consecutive years of supply disruption, we have become less dependent on Almaz."

Russian To Make IMF Payment

· Russia is scheduled to make two regular payments of a total of 64.4 million of Special Drawing Rights (SDRs) ($83.7 million) to the International Monetary Fund (IMF) on Friday, according to the Finance Ministry. "There were two payments today — 44,928,125 SDRs and 19,468,867 SDRs. It's the last payment in September," a ministry spokesman said. Russia has already repaid about $120 million to the IMF in September. Russia, the IMF biggest single borrower, owed $12.66 billion to the Fund as of July, 2000. It has paid about $3.08 billion to the Fund so far this year out of a total $3.6 billion due in 2000.

Ruble = 27.81/$1.00 (NY rate)

Ruble = 27.74/$1.00 (CB rate)

Ruble = 24.50/1 euro (CB rate)

Unemployment Falls For August

· The State Statistics Committee reported on Monday that Russia's unemployment slipped to 7.13 million, or 9.8 percent of the workforce in August, compared with 7.20 million in July. In August, 1999, there were 8.7 million unemployed. The number of officially registered unemployed workers did not change from July to August at 990,000. That figure totaled 1.42 million in August, 1999.

Business

Transneft Profits Rise To $109.6 Million

· Transneft, Russia's state-controlled oil pipeline monopoly, said its first-half net profit rose to 3.2 billion rubles ($109.6 million). The company's first-half operating profit rose to 7.3 billion rubles. All the results are consolidated and reported according to international accounting standards. The company did not provide comparative data from the first half of 1999. Transneft reported net profit of 3.3 billion rubles for the whole of last year, on operating profit of 7.2 billion rubles. The Russian government agreed to raise by 25.2 percent transport fees charged by Transneft for exporting oil, starting August 10^th, to raise money for construction projects.

Varyoganneftegaz Gets New Manager

· Varyoganneftegaz, a bankrupt former unit of Sidanco, will be run by a new external manager not affiliated with either Sidanco or a rival for control of the subsidiary. The Khanty-Mansiisk regional court appointed Anton LYCHAGIN to manage the company as a part of the subsidiary's bankruptcy. Varyoganneftegaz produces about 2.5 million tons (18.3 million barrels) of oil a year and holds 314 million tons of crude reserves. Sidanco, Russian oil producer 10 percent owned by BP Amoco, holds a 74.2 percent stake in Varyoganneftegaz, while its rival for control of the producer, Moscow-based consultancy Alliance Group, holds about 70 percent of the subsidiary's debts to creditors via various affiliated companies.

Yukos To Invest In Siberian Oil Fields

· Russia's second-largest oil producer, Yukos Oil Company, has purchased a 19.9 stake, for an undisclosed price, in the East Siberian Oil and Gas Co. and plans to increase oil production for a planned $1.7 billion pipeline to China. East Siberian Oil and Gas Co. holds a license to a field with an estimated 200 million tons (1.5 billion barrels) of oil. Yukos President Mikhail KHODORKOVSKY said that the purchase gives Yukos access to, "60 million tons of proven reserves, but we need to increase exploration operations" to discover more oil at the deposit. Bloomberg News reported that China's crude imports will almost double to 60 million tons this year from 37 million tons last year, and are forecast to grow to 100 million tons by 2010. Yukos plans to ship crude produced by East Siberian at the Yurubcheno-Takhomskaya deposit to China through a new pipeline to be constructed by 2005. Yukos expects to cooperate with Slavneft, a producer owned by the Russian and Belarus governments, in developing the deposit. The company needs to invest as much as $1 billion to develop the Yurubcheno-Takhomskaya deposit and build a 600-kilometer pipeline to link the field to the national oil pipeline network. Yukos is developing the pipeline to China in cooperation with China National Petroleum Corp. The initial crude delivery volume is estimated at 20 million tons of oil a year, but could increase to 30 million tons a year starting in 2009. Yukos and its Chinese partner are considering two routes for the oil pipeline, one of which would cross Mongolia, while the other would bypass it. The

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	Thursday		September 28, 2000
	Intercon's Daily
	Chinese government backs the second option, though Yukos said it could cost an extra $200 million. Yukos plans to supply as much as 1 million tons of oil by rail to China this year. In addition, Yukos and Hungary's MOL group plan to invest $250 million in 2001-2019 in the development of an oilfield in Siberia. Yukos is seeking to sign a production sharing agreement (PSA) for the Zapadno-Malobalyk oil field. Yukos and MOL's subsidiary, MOL CIS Ltd, signed an agreement to develop jointly Zapadno-Malobalyk field in Western Siberia with an estimated reserves of 24 million tons (around 175 million barrels) of crude oil in November 1999. Production from Zapadno-Malobalyk started in 1999 and Yukos expects to extract 250,000 tons of crude from the field before the end of this year. The joint venture expects to reach peak output volumes of 1.8-2.4 million tons by 2003. Reuters reports that these funds will be spent on drilling and purchases of equipment.	more. Ukraine failed to agree on sufficient gas supplies because of debts for earlier deliveries. Ukraine owes Russia $1.4 billion for gas it has already used. The major part of the debt came from siphoning Russian gas from pipelines through Ukraine to the rest of Europe. Turkmenistan stopped gas supplies to Ukraine in May, 1999, after the country paid for only 10 percent of supplies made in the first four months of 1999. It then accumulated $280 million in unpaid bills. Lithuanian Leftist-Centrist Parties In The Lead · Lithuania's left-wing and center-left parties are in the lead over the ruling rightist party, just 10 days ahead of general elections. A poll published in Veidas today showed the coalition of former President and one-time communist-era leader Algirdas BRAZAUSKAS with 18.5 percent of the vote. New Union, the center-left party of former top prosecutor Arturas PAULAUSKAS followed with 17.7 percent. Current Prime Minister Andrius KUBILIUS' conservative Homeland Union trailed in fifth place with just 6.6 percent, maintaining expectations the party would be swept out of power. The center-right Liberal Union of former Prime Minister Rolandas PAKSAS was third with 13.5 percent and the Center Union was fourth at 9.8 percent. Pollsters surveyed 500 people living in large towns, finding 23.3 percent saying they were undecided. The poll also ranked the popularity of the party leaders, giving Liberal PAKSAS the lead with 20.9 percent, closely followed by PAULAUSKAS with 19.2 percent, and Social Democrat Vytenis ANDRIUKAITIS trailing in third with 13.5 percent, Reuters reported. South Caucasus & Central Asia NATOs Robertson Hails Partnership Success · NATO Secretary General Right Honorable Lord George ROBERTSON, in a speech at a conference "Caucasus Today: Perspectives of Regional Cooperation and Partnership with NATO," hailed the successes of partnerships with NATO to achieve regional stability and mentioned the important role of GUUAM (Georgia, Ukraine, Uzbekistan, Azerbaijan, and Moldova). He said, "Georgia's success in building for the future is a key test for broader European security," adding, "…our security is inseparably linked with that of other countries. We believe that security is only possible, if, within

	European Republics Ukraine To Hold Turkmen, Russian Gas Talks · Ukrainian President Leonid KUCHMA plans to meet with Turkmen President Saparmurat NIYAZOV and Russian President Vladimir PUTIN to negotiate natural gas supplies to his country, which is falling short of fuel reserves before the winter. KUCHMA's press secretary and deputy head of his administration Alexander MARTYNENKO said, "Preparing for the winter is a subject of permanent concern by the President. Undoubtedly, the issue of fuel supplies is very important for Ukraine." Ukraine, which depends on Russia for 78 percent of its overall gas needs, is falling short of coal and fuel oil reserves, which may force the government to use more gas for generating electricity. KUCHMA has criticized Ukraine's Cabinet for competing with Russians for purchases of gas from Turkmenistan. Ukrainians agreed in July to pay $42 per 1,000 cubic meters of gas at the border between Turkmenistan and Uzbekistan, compared with $36 earlier offered by Russians. Ukraine has yet to agree on the price and size of gas deliveries from Russia during the fourth quarter of this year and 2001. The government introduced a state of emergency in the power industry earlier this month and said it needed to get more payments for electricity bills in order to buy

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September28, 2000

Intercon's Daily

Europe and its surrounding area, there is stability and a commitment to solve problems together. In short: the more secure our neighbors are, the more secure we are."

He noted that since the end of the East-West confrontation, NATO has changed and adapted its focus to include Euro-Atlantic security, cooperation with non-member countries and other institutions. He said that, "the benefits of what NATO does extend throughout the Euro-Atlantic area, including the Caucasus." The NATO Partnership for Peace (PfP) program, of which Georgia is a member, involves the cooperation of its 19 members and 26 partners from a wide range of security traditions. According to ROBERTSON, the program, "provides the most intensive program of military-to-military co-operation ever conceived." He pointed out that, "Georgia joined PfP in 1994 and since then has become one of its most active members. Our common activities focus on Civil Emergency Planning, civil-military relations, Defense Policy and Strategy, and defense reform. And there is potential for an even more fruitful partnership."

ROBERTSON also recognized for the first time the importance of GUUAM. He said, "the OSCE [Organization for Security and Cooperation in Europe] and the United Nations play a vital role, as does the GUUAM. Through PfP and EAPC [Euro-Atlantic Partnership Council], NATO stands ready to support these efforts. The Alliance firmly believes that this region deserves peace and stability¾and the economic investment and prosperity that go with it." The Secretary General pointed out that the partnership between NATO and Georgia has been beneficial for both entities. He said, "The relationship of the Republic of Georgia with NATO is dynamic, evolving¾and rewarding, for both NATO and Georgia." ROBERTSON concluded, "We have a unique chance to turn Europe into a region of co-operation and stability, in which every country has its say, and none considers itself threatened. NATO is deter

mined to work with Georgia, and all the countries of the region, to make this ambitious goal a reality."

Kyrgyz-Uzbekistan Sign Military Treaty

· The leaders of Kyrgyzstan and Uzbekistan signed the treaty on military and military-technological cooperation during an official visit to Kyrgyzstan of Uzbek President Islam Karimov. Kyrgyz President Askar Akayev stressed that the treaty "is most important for the security of the entire Central Asian region." He noted that so far his country had such a treaty only with Russia. Now, he believes, Kyrgyzstan and Uzbekistan will be able to get down to "the job of ensuring their security, inviolability of their borders, territorial integrity of the two republics, and promotion of regional stability." According to Itar-Tass, the document does not rule out joint operations against bandit gangs and stipulates broad exchanges of information and intelligence data. In addition to this treaty, the sides have also signed a joint statement and agreements on cooperation between their customs services and legal experts, as well as a consular convention.

Turkmen GDP Predicted To Reach 14 Percent

· Turkmenistan's Central Bank chairman Seidbai KANDYMOV today predicted that the nation's gross domestic product (GDP) would grow by 14 percent this year, after a 16 percent rise in 1999. In a written statement to the annual International Monetary Fund (IMF) and World Bank meeting in Prague he stated, "These positive results were obtained despite significant negative circumstances such as...non-payments by major debtor countries." An official of the Turkmen state statistics agency pointed out that the GDP picked up in 1999 due to the resumption of gas supplies to Ukraine. This year the country reached an agreement with Russia to sell 30 billion cubic meters of natural gas. The official said the growth could also be attributed to the rise of processing industries, especially of cotton. He said the private sector accounted for around 30 percent of GDP.

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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