DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

INTERCON INTERNATIONAL USA, INC., 725 15th STREET, N.W., SUITE 903,

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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Tuesday, September 5, 2000

the only one that reaches the whole country. The government controls 51 percent and it is believed the BEREZOVSKY controls the rest. An unidentified senior presidential aide told Interfax that BEREZOVSKY recently offered his stake to the state because of debts. BEREZOVSKY in the past has discussed selling his shares to the stake, but this time said the Kremlin had threatened to use force. BEREZOVSKY said, in an open letter to Russian's President Vladimir PUTIN, "A senior official of your administration last week put an ultimatum to me: Surrender my share in ORT to the government within two weeks or follow GUSINSKY - apparently to the Butyrskaya Prison." "If I accept this ultimatum, that will mean an end of television information in Russia. It will be replaced by television propaganda controlled by your advisers," he said in the letter. BEREZOVSKY said the Kremlin was trying to seize his shares because of the television's critical coverage of the Kursk accident. On August 22^nd, PUTIN lashed out against media oligarchs. He said, "They want to influence the mass audience in order to show the military and political leadership that we need them [the media], that we are on their hook and must fear and obey them and let them further rob the country, the army and the navy." BEREZOVSKY said he will resist presidential pressure and instead transfer the 49 percent stake he controls in trust to a committee of journalists and "other representatives of the creative intelligentsia."

Russia Conducts 3 Nuclear Tests

· The Russia

Russian Federation

Politics

Bomb Kills Two In Ryazan Marketplace

· Two people were killed and five injured in a morning explosion Monday at a marketplace in Ryazan, a city 175 kilometers southeast of Moscow. Police and emergency officials sealed off the scene of the explosion. Authorities are investigating two possible causes ¾a terrorist act or the explosion of a refrigeration unit, the Itar-Tass news agency reported. Russian Interior Minister Vladimir RUSHAILO said he believed that local conflict, rather than terrorism, was behind the blast, as a brawl broke out in the same marketplace on Sunday between Jews and Afghan war veterans. He added that, "[This incident] has no connection with terrorism, in the way we understand the term." ORT said the explosion was the equivalent of 300 grams of TNT. The bomb was in a plastic bag placed on the corrugated metal roof of the meat stall, witnesses said. Five people were detained the same day on suspicion of involvement in the blast. The explosions Monday came as residents of the southern city of Buinaksk mourned on the one-year anniversary of an apartment bombing that killed 64 people, the Associated Press reported. The latest blast had raised fears that it could be a repeat of bomb attacks on buildings in Russian towns last year, which killed about 300 people. These explosions were blamed on Chechen rebels. The rebels denied planting the devices.

Tycoon Claims Kremlin Aims To Restrict Press

· Russian business tycoon Boris BEREZOVSKY has accused the government of forcing him to surrendering his holding in ORT or Channel One network, threatening him with reprisals similar to those issued against Vladimir GUSINSKY earlier this summer. ORT is Russia's largest network and

Today's News Highlights

Russia

Russia Courts Japanese Invest.

Putin Against Scrap Export Ban

BP To Control Chernogorneft

European Republics

RUs-Ukraine Discuss Gas Debt

Estonia's Budget Surplus

South Caucasus & Central Asia

Shevardnadze To Attend UN

Bikers Carry Caspian Oil

Moncrief Oil To Sign PSA

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September 5, 2000

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Atomic Energy Ministry said it conducted three underground subcritical nuclear tests from August 28^th to September 3^rd on Novaya Zemlya island in northern Russia. A ministry spokesman said the tests did not violate the Comprehensive Test Ban Treaty (CTBT) on nuclear weapons, which Russia ratified in May. The spokesman said the tests were conducted to confirm the credibility and safety of Russia's nuclear weapons and that radiation levels around the test site remained normal. The tests followed similar ones conducted by the US in Nevada in August. The series of US and Russian tests are likely to be condemned by the international community and antinuclear organizations. Observers said Russia wants to reconfirm itself as a nuclear power prior to a US-Russia summit meeting to be held on the sidelines of the three-day UN Millennium Summit beginning Wednesday in New York. Subcritical tests are not banned under the CTBT. The CTBT has yet to come into force as not all 44 declared and potential nuclear powers have ratified it. China and the US are among the countries yet to ratify it, while India, Pakistan, and North Korea have yet to sign it.

Economy

Ruble = 27.75/$1.00 (NY rate)

Ruble = 27.85/$1.00 (CB rate)

Ruble = 24.79/1 euro (CB rate)

Russia Aims To Increase Japanese Investment

· During his trip to Japan this weekend, Russian President Vladimir PUTIN worked on attracting Japanese investment to Russia. He urged Japanese business leaders to invest more in Russia, citing Russia's natural resources and growing economy, while pledging to reform domestic hurdles. He said, "Russia holds many business opportunities…If Japan misses out on this, it would be a great pity." Japanese investors are wary of Russia due to rampant corruption, a shaky legal framework and contradictory tax rules. Russian-Japanese trade is $5 billion per year. This is tiny compared with Sino-Japanese trade per year set at $60 billion. Japan is only the 13^th largest foreign direct investor in Russia. Further economic cooperation is likely to focus on energy issues. PUTIN added, "Russia's economy is improving, and this trend is becoming clearer…We have agreed in the Russian government to create an environment in which investment

can take place. On Japan's side, we hope people will stop viewing us according to stereotypes." PUTIN and Japanese Prime Minister Yoshiro MORI unsuccessfully discussed the territorial row that is blocking a two-way peace treaty formally ending World War II hostilities. But the two leaders on Monday also devoted a whole session to economic issues and signed a parcel of documents pledging closer economic cooperation in a variety of areas.

Japan and Russia on Friday signed an agreement to reschedule Russian repayments for last year and this year on Soviet-era debt. According to a Japan's Ministry of Foreign Affairs statement, the debts include 6.345 billion yen, $397.54 million, and 970,000 Deutsche marks of loans.

Putin Against Scrap Metal Export Ban

· Russian President Vladimir PUTIN on Friday asked the Russian State Duma to stop debate on a bill, which would ban non-ferrous metals scrap exports. In July, the Duma passed in its first reading a bill banning non-ferrous metals scrap exports until January 1, 2005, aiming to put an end to large-scale theft of electricity lines and other pieces of equipment exported and sold abroad as scrap. The Kremlin quoted PUTIN saying, "All crimes related with sales of non-ferrous metals scrap are committed during its collection, procurement and circulation on the domestic market. It is therefore necessary to elaborate measures aimed at preventing crimes at these stages." The Duma will review draft law regulating domestic trade and recycling of ferrous and non-ferrous metals on September 22^nd. Russia plans to increase export duties on non-ferrous scrap metal by 20 percent to 50 percent as of October 1^st. The duties are capped at 420 euro ($376.9) per ton for copper, and 380 euro per ton for aluminum. Russian telephone and power distribution companies every year suffer multimillion ruble losses as thieves risk their lives to steal copper and aluminum cables they then sell as scrap metal. To become a law, a bill has to be passed by the Duma in three readings, then endorsed by the Federation Council, the upper chamber, and then be signed by the President.

Business

BP To Gain Control Of Chernogorneft

· BP Amoco plans to regain control of Sidanco's

When you need to know it as it happens

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September 5, 2000

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biggest oil-production subsidiary, Chernogorneft. Shareholders have approved the plan. BP Amoco lost control of Chernogorneft when Sidanco was forced into bankruptcy by a creditor, allowing another Tyumen Oil Co. to buy its assets last year for $176 million. BP Amoco spokesman Howard CHASE said, "As a shareholder we are satisfied with this important step towards completion of an agreement between Sidanco and Tyumen Oil shareholders. "BP Amoco led a long fight last year as Sidanco tried to stop Tyumen from picking off its assets for cheap prices at a series of bankruptcy auctions. BP Amoco said its total direct commitment to Russia to date exceeds $1 billion, which includes stakes in Sidanco and the Kovykta gas field in the eastern Siberia, and a network of gas stations in Moscow. It also may include a stake in an offshore oil development project in the Russian Far East. The company also secured a 6.9 percent stake in LUKoil Holding, Russia's top oil producer, when it bought Atlantic Richfield Co. BP Amoco also secured a 46 percent stake in LUKArco BV, Arco's and LUKoil's joint venture, which holds a 12.5 percent stake in the Caspian Pipeline Consortium that is building a pipeline to carry oil from Kazakhstan to a Russian port near Novorossiisk on the Black Sea, Bloomberg News reported.

brought no results. The item on the agenda was the payment by Ukraine of its debt for Russian gas deliveries, which amounts to $1.5 billion.

Rus-Ukraine Venture To Operate Pipelines?

· The Ukrainian government may let its gas transportation network be run by a Ukrainian-Russian joint venture, which would pay the government $1.8 billion for a 25-year lease, according to Stephan HAVRYSH, the Ukrainian parliament's deputy speaker. Ukraine's gas transportation network can ship as much as 150 billion cubic meters of gas to Western and Eastern Europe a year. Ukrainian Prime Minister Viktor YUSHCHENKO and Russian Prime Minister Mikhail KASYANOV are expected to meet next week for gas talks, Kievskie Vedomosti Ukrainian daily newspaper reported, citing Russia's Energy Ministry. Ukraine owes Russia $1.5 billion for earlier gas supplies and may agree to allow Russia to operate the pipelines, making it harder for Ukrainians to illegally siphon Russian gas.

Estonia's Budget Surplus: 295.8M Kroons

· Estonia's consolidated general budget surplus grew by 222 million kroons ($12.76 million) in July from June, the Finance Ministry reported. The budget surplus at the end of July totaled 295.8 million kroons, compared with a surplus of 73.8 million kroons at the end of June. Revenue in July totaled 2.87 billion kroons, while spending was 2.57 billion kroons. Over the first seven months of this year, the budget deficit totaled 398.8 million kroons, or 0.49 percent of the anticipated gross domestic product (GDP) this year. Revenue for the first seven months totaled 17.2 billion kroons, while spending was 17.6 billion kroons. The 2000 budget deficit is expected at 1.1 percent of GDP, or below 1 billion kroons.

South Caucasus & Central Asia

Shevardnadze Attends UN Millennium Summit

· Georgian President Eduard SHEVARDNADZE arrived in New York on Monday to participate in the UN General Assembly session also known as the Millennium Summit. SHEVARDNADZE will make a speech on the plenary session of the General Assembly.

He also plans to have series of meetings. In particular he will meet the leaders of the GUUAM countries and participate in a round table under the aegis of

European Republics

Rus-Ukraine Discuss Gas Debts

· Intergovernmental consultants from Ukrainian and Russian experts in Moscow are discussing possible ways of the payment of Ukrainian gas debts to Russia and working out new schemes of payment transactions. Natalia ZARUDNAYA, press secretary of the Ukrainian Prime Minister, noted that the Ukrainian delegation is led by Vadim KOPYLOV, First Deputy Minister of Fuel and Energy. The Ukrainian delegation prepared to present new proposals, which take into consideration the interests of both countries and may serve as a key to the establishment of new relations in the sphere of Russian gas deliveries to Ukraine and gas transit to European countries. After the Ukrainian delegation returns to Kiev, the coordinated proposals will be examined by Ukrainian Prime Minister Viktor YUSHCHENKO. Previous talks with the Russian experts, held in Kiev late in July and early in August,

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UNESCO Dialogue of the Civilization and a mini-summit on the Great Silk Road. During his visit to the US, SHEVARDNADZE will also meet US Secretary of State Madeleine ALBRIGHT, representatives of the Republican party, former US Secretary of State Henry KISSINGER, special adviser to the US president on the Caspian energy resources John WOLFE, famous financier and scientist George SOROS, Ireland's Prime Minister, Presidents of Turkey and Iran. On September 8^th, the Georgian President will return to Georgia.

Bikers Carry Oil On Baku-Ceyhan Route

· Motorcycles roared into the Turkish port of Ceyhan on September 3rd, carrying a symbolic barrel of oil to muster financial support for a pipeline from the Caspian Sea to the West, bypassing Russia and Iran. The bikers rode for 10 days to carry the 150 liter (40 gallons) barrel in a sidecar some 1,350-km (838 miles) along the pipeline's proposed route from Baku to Ceyhan via Tbilisi. Lawmakers in Azerbaijan, Georgia and Turkey ¾ the three countries where the pipeline would be built ¾ all ratified agreements for the project this summer. "That the motorcyclists needed no protection is the clearest proof that this is the most secure route to transport oil," Turkey's State Minister Mehmet Kececiler said. "Turkey's stability can provide the leadership for an east-west transport corridor," said Gokhan Yardim, head of Turkey's state-owned pipeline concern Botas. Baku-Ceyhan "will meet the world's increasing energy demands by transporting oil safely economically and geographically," he added.

The US supports the pipeline through NATO ally Turkey. Investors have so far treated the Baku-Ceyhan scheme warily, suspicious that Azerbaijan's oil reserves are not large enough to justify the $2.7 billion cost of a pipeline which backers say would carry up to 50 million tons a year (one million bpd). "The logic of that line has always been political, not economic," one energy analyst told Reuters. One reason for the lack of enthusiasm is that oil compa

nies are more interested in a route towards Asian markets ¾ such as a pipeline through Iran ¾ rather than to the well-supplied Mediterranean. Botas estimates Turkey would make an average $100 million annually in transit fees from Baku-Ceyhan. "If only we were celebrating the flow of oil from the pipeline today," Kececiler said wistfully at the ceremony.

Moncrief Oil To Sign PSA

· US Moncrief Oil International Inc. said it will sign an agreement to develop two oil fields in Azerbaijan with the state-owned SOCAR and Turkey's Pet Oil next week, during a US visit by Azeri President Geidar Aliyev. The three companies will sign a production sharing agreement, which grants tax breaks to the companies, to cover the Mishovdag and Kelametdin oil fields, said Valeh Aleskerov, a director at SOCAR. AzPetoil, a joint venture between SOCAR and Pet Oil, extracted 562,000 barrels of oil from the Mishovdag and Kelametdin fields in the first eight months of the year. SOCAR extracted about 18.5 million tons (116 million barrels) of oil from them since it began developing the two fields in the 1960s. The European Bank of Reconstruction and Development (EBRD) said August 22^nd it will lend as much as $50 million to finance the development project, consisting of a $40 million loan and equity investment of $10 million. The project will be run through two special companies, Karasu Development Co. and Kura Valley Holdings, both majority owned by Moncrief.

"This is the first conversion of a joint venture into a production sharing agreement in Azerbaijan and the transaction will help increase competition in the oil sector in the country," said Peter Reiniger, a regional business director at the EBRD. The project will be Moncrief's second in Azerbaijan, after it signed a production sharing agreement in April 1999 with SOCAR covering a project to explore and develop the onshore field at Padar-Harami, which has estimated reserves of 1 billion barrels.

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