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, October 17, 2000

Russian Federation

Politics

Dear Al: Don't Tell Congress

· The Washington Times has obtained two letters stamped secret, connected to the Al GORE-Viktor CHERNOMYRDIN secret pact (aide memoire), under which the US agreed not to seek penalties against Russia for their arms deals to Iran until December 31, 1999. After that deadline, Russia was required to halt all arms sales to Iran. The pact appears to violate a 1992 Iran-Iraq Non-proliferation Act, which requires the imposition of sanctions for "destabilizing" arms sales to either country. A 1996 amendment to the 1962 Foreign Assistance Act also requires sanctions on nations that provide lethal military assistance to a nation designated as a state sponsor of terrorism. Iran is on the State Department's terrorism sponsor list. The first letter from CHERNOMYRDIN said, "Dear Al…The information that we are passing on to you is not to be conveyed to third parties, including the US Congress…Open information concerning our cooperation with Iran is obviously a different matter, and we do no[t] object to the constructive use of such information. I am counting on your understanding." An analysis accompanying this letter, said that Russian assistance, "if not terminated, can only lead to Iran's acquisition of a nuclear weapons capability…Such a development would be destabilizing not only for the already volatile Middle East, but would pose a threat to Russian and Western security interest." The second letter from US Secretary of State Madeleine ALBRIGHT to Russian Foreign Minister Igor IVANOV indicates that Russia has violated its end of the agreement. She writes, "Dear Igor…Russia's unilateral decision to continue delivering arms to Iran beyond the December 31^st deadline will unnecessarily compli

cate our relationship…I urge that Russia refrain from any further deliveries of those arms covered by the aide memoire; provide specific information on what has been delivered, what remains to be shipped and anticipated timing; and refrain from concluding any additional arms contracts with Iran." ALBRIGHT added, "…without the aide memoire, Russia's conventional arms sales to Iran would have been subject to sanctions based on various provisions of our laws." On Sunday, National Security Adviser Samuel BERGER said that US sanctions did not apply to Russia. A senior Congressional aide responded incredulously pointing out, "All this nuclear cooperation is sanctionable."

Judges Vote To Eject Pashin

· Judges of the Moscow City Court, in a nine to four vote last week, decided to fire judicial reformer Sergei PASHIN, The Washington Post reported. They said that PASHIN was fired for conduct unbecoming to a judge. PASHIN said he would fight the decision, which represents the second attempt to remove him. The Russian Supreme Court reinstated him. The recent vote against PASHIN could be linked to his review, as a legal adviser, of the case Dmitri NEVEROVSKY, a young man who instituted his constitutional right to seek an alternative service to the Army rather than serve in Chechnya. NEVEROVSKY was convicted of draft dodging and jailed. PASHIN criticized the courts, saying that the conviction of NEVEROVSKY was, "illegal, underground, and bound to be an

Today's News Highlights

Russia

Kasyanov Seeks Paris Deal

Lennon Street In Chelyabinsk

European Republics

Rus-Ukraine Hold Gas Talks

Ukraine Backs Iran-Europe Line

South Caucasus & Central Asia

7th Georgian Fugitives Seized

Georgia Seeks Soviet Assets

Turkmen To Sue Over Drilling

Turkey-Uzbek Build Relations

Politics-Economics-Business

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Tuesday

October 17, 2000

Intercon's Daily

nulled. He added that the young man was imprisoned, "for an action containing no criminal offense." PASHIN also ruffled a few judiciary feathers by appearing on television show "Court Is In Session," which features real trials and verdicts. Judges have since been warned not to appear on the show. PASHIN said he appeared on the show to help popularize the idea of jury trials. He was the first to engineer jury trials in Russia. He has been a constant crusader for a state based on the rule of law, which is increasingly under siege since Vladimir PUTIN became President.

Economy

Ruble = 27.86/$1.00 (NY rate)

Ruble = 27.84/$1.00 (CB rate)

Ruble = 23.65/1 euro (CB rate)

Kasyanov Seeks Restructuring Paris Deal

· Russian Prime Minister Mikhail KASYANOV is seeking a deal with the Paris Club of creditors to reschedule $3 billion out of next year's foreign debt bill. The Soviet-era debt Russia owes to the Paris Club totals $42 billion. The Russian government has made no provision for paying the $3 billion in the 2001 budget currently going through parliament, but some economists say the sum could be paid easily if world energy market prices stay at recent high levels, Reuters reported. KASYANOV, a former debt negotiator, in an interview with Nezavisimaya Gazeta said he was somewhat apprehensive about resolving the debt issue because creditors traditionally took into consideration a country's balance of payments situation. "I know that the standard approach, often preached by international financial organizations, will give us a negative result," he said, adding that Russia's balance of payments situation was very strong. Russia's trade surplus this year, boosted by strong energy and commodities prices, could total as much as $50 billion. KASYANOV made no mention of writing off any of the debt, a previously stated government desire opposed by some creditors, notably by Germany, which holds most Russian debt. The government will need International Monetary Fund (IMF) approval of its economic program in order to secure a Paris Club deal. The IMF mission is expected to visit Russia beginning November 7^th.

Business

Sberbank Increases Loan To Tyumen

· Sberbank, Russia's state-controlled savings bank, will increase its loan to Tyumen Oil Company from $300 million to $500 million. Tyumen in March agreed to borrow as much as $300 million from the bank, taking an initial $78 million four-year loan to pay for developing its Koshilskoye oil field in Khanti-Mansiysk, Siberia, Bloomberg News reported. Sberbank, which held about 84 percent of Russian deposits in early 1999, said its loan portfolio more than doubled last year, as the economy expanded at the fastest pace since the collapse of communism. Chase Manhattan Bank leads a group of investment banks arranging a loan for Tyumen under a $500 million loan guarantee the US Export-Import Bank approved in April. Tyumen will use loans under the guarantee to increase output at its oil fields and improve efficiency at refineries.

Tyumen-Sidanco Miss Exchange Deadline

· A deadline to resolve difference concerning an exchange of assets between Tyumen Oil Company (TNK) and Sidanco expired on October 15^th. On Monday, TNK accused Interros, Sidanco's largest shareholder of trying to block a deal, whereby TNK, according to the agreement reached in December, 1999, would get a 25 percent of newly issued shares in Sidanco after handing back Chernogorneft, Sidanco's former subsidiary. Chernogorneft was a subsidiary of Sidanco until TNK acquired it in a bankruptcy auction in 1999. TNK is now seeking 25 percent of existing shares, arguing that new share issues could lose value if its legality is challenged. Interros insists that TNK is delaying the deal by breaking the original agreement, the Financial Times reported. Sidanco shareholders will meet today and Interros is expected to urge them to take action against TNK. This disagreement is a symptom of Russia's lack of a proper legal system, which would protect the interest of minority shareholders.

Tuesday Tid-Bit

Lennon Street In Chelyabinsk: A Misspelling?

· In most Russian cities, there is at least one street named after Vladimir LENIN. However, in Chelyabinsk, deputies have approved a vote to name a street after former Beatle John LENNON.

When you need to know it as it happens

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Valery YARUSHIN, a one-time Soviet rock star and lifelong Beatles fan, told Reuters, that deputies voted overwhelmingly to back his proposal to name a street after LENNON. He initially proposed renaming the city's central Soviet Street after LENNON, who was killed by a fan 20 years ago. The city has not decided whether to rename an existing street or name a new one. The Beatles were hugely popular in Russia during Soviet times.

PUTIN and KUCHMA also discussed restricting Ukrainian pipe imports to Russia to protect domestic steel and pipes-producers from low prices. Russia may approve a 40 percent import duty on pipes. Ukraine accounts for 70 percent of Russia's pipe imports. They also talked about the issue of shipping gas from Turkmenistan across Russia to Ukraine. Earlier this month, Ukraine signed a deal with Turkmenistan for the purchase of $1.39 billion worth of gas in a bid to diversify its energy sources.

Ukraine Supports Iran-Europe Gas Route

· Ukraine believes it is possible to build a gas pipeline with the route Iran-Armenia-Georgia-Crimea-Europe. Ukraine is ready to import up to 10 billion cubic meters of natural gas from Iran, via Armenia. The Georgia-Crimea portion may be later used for linking with the system of main gas-pipes to Europe. Building of the Iran-Armenia gas-pipe is planned to start in 2001. Construction works are to continue for 9 months to 10 months, Prime News Agency reported.

South Caucasus & Central Asia

Georgia Arrests The 7^th Convict

· Local law enforcement officers have detained another fugitive from the Republic Prison Hospital outbreak on October 1^st, making the total number of those captured seven. Avtandil DANELIA was seized in the Ambrolauri region's forests. Head of Racha-Lechkhumi regional police department Tamaz BICHASHVILI said the search for three runaways is still underway in Ambrolauri region.

Georgia To Reclaim Soviet Assets?

· Georgia's President Eduard SHEVARDNADZE Monday, in his national radio address, said his country was entitled to a share in the property of the defunct Soviet Union. After the Soviet Union collapsed in 1991, Russia assumed the foreign debts of most other former Soviet republics, including Georgia, in exchange for their shares of Soviet assets, such as gold reserves, diamonds and property abroad. But Georgia says its parliament never ratified the deal, the Associated Press reported. SHEVARDNADZE said Georgia wanted its property and other assets back, which he estimated at 1.6 percent of the total Soviet figure. Georgia's assets are estimated to be worth $2.5

European Republics

Ukraine-Russia Hold Gas Talks In Sochi

· Ukraine's President Leonid KUCHMA and Russian President Vladimir PUTIN met in Sochi to discuss restructuring Ukraine's $1.5 billion debt for gas supplied from Russia. Russia is considering a proposal raised by Ukraine, whereby Russia would take part in state asset sales of Ukraine's gas pipelines to help Ukraine pay some of its gas debts. The government plans to keep a 51 percent holding in the pipelines. Experts have estimated that the value of KUCHMA's proposal could not cover Ukraine's debts to Russia. Ukrainian gas pipelines need between $500 million and $1 billion of investment to rebuild them. Such substantial sums, close to the cost of new pipelines, reduce the attractiveness of the Ukrainian gas distribution network.

KUCHMA also asked PUTIN for Russian participation in upgrading Ukraine's gas pipelines to increase capacity by 30 percent. The upgrades would help avoid the need for a pipeline to bypass Ukraine, running from Russia through Belarus, Poland and Slovakia, for increased gas shipments to Western Europe, Bloomberg News reported. Ukraine consumes up to 75 billion cubic meters (bcm) of natural gas a year, with more than 80 percent of its fuel needs being covered by Russia. Ukraine annually transports about 120 bcm of Russian gas to Europe and gets about 32 bcm as payment for the transportation. The pipelines are estimated to cost over $20 billion. Gazprom accuses Ukraine of stealing Russian gas and re-exporting it to Romania. To cut its dependence on Ukraine, Gazprom has been using a pipeline across Belarus to ship 15 bcm of gas a year. KUCHMA said the talks were, "very constructive, very frank, and passed in a very informal regime."

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billion to $3 billion. In exchange, Georgia would take its share of Soviet era debt. The entire debt is estimated at about $103 billion. Georgia, however, is likely not be able to pay the $25 million, part of a total $180 million in debt, that it owes Moscow this year. SHEVARDNADZE's statement could add further strain to Georgia's relations with Russia. Head of the parliament's Internal Affairs Committee Nino BURJNADZE believes it is possible to negotiate this issue with Russia during the upcoming meeting with Russia's Deputy Prime Minister Ilya KLEBANOV. She added that Georgia could call on the Paris and London clubs to assist in getting Russia to agree to conditions in the negotiations, Prime News Agency reported.

Turkmen Threatens To Sue Over Drilling

· Turkmenistan has threatened it will turn to international courts to protest oil drilling projects by Azerbaijan in the disputed offshore Caspian fields, primarily the Khazar and Osman fields (or called Azeri and Chirag by Azerbaijan) located between the two nations. Turkmenistan and Azerbaijan have been disputing the ownership of these fields since the Soviet Union collapsed. Turkmen presidential envoy on Caspian issues Boris SHIKHMURADOV said, "Azerbaijan is ignoring Turkmen efforts to resolve the issue of the disputed fields." Turkmenistan insists that Khazar belongs to it and claims partial ownership of Osman. Azerbaijan International Operating Company, an international consortium that includes Azerbaijan's National Oil Company, BP Amoco of Britain, Exxon-Mobil of the United States and LUKoil of Russia, has been exploiting the field since 1994. Foreign Ministry had already sent letters to all the members of the consortium, warning them of the lawsuit.

Turkmen Industrial Output, GDP Figures

· Turkmenistan's industrial output rose 21 percent in the first nine months over the same year-ago period, state statistics agency Turkmenstatprognoz announced today. It did not provide a comparative

figure for last year. The agency added that Turkmenistan's gross domestic product (GDP) rose 17 percent in January to September over the same year-ago period and totaled 17 trillion manta.

Turkey-Uzbek Strengthen Relations

· Uzbek President Islam KARIMOV and visiting Turkish President Ahmed Necdet SEZER on Monday signed a joint statement on cooperation in fighting terrorism, drug trafficking, and organized crime. SEZER said that terrorism was posing threats to the security of both countries, and Turkey was willing to further cooperate with Uzbekistan in fighting against terrorism and organized crime. KARIMOV said their views were almost identical in terms of strengthening cooperation in security areas. In addition to providing political support to fight terrorism and extremism, Turkey would also provide Uzbekistan with military technical assistance.

During SEZER's visit, the military departments of the two countries signed an agreement on defense cooperation. KARIMOV said, "It is encouraging that Turkey has decided to provide the necessary constructive assistance to Uzbekistan in the military and military-technical fields." Turkey and Uzbekistan have signed about 70 intergovernmental and interdepartmental agreements since they established diplomatic relations in 1992.

The trade volume between the two countries was $220 million in 1999. There are nearly 400 Turkish companies investing in Uzbekistan. With US backing, Turkey is also competing with Russia to host strategic oil and gas pipeline routes that would link Central Asia to Western markets. SEZER will also visit Turkmenistan, Kyrgyzstan, and Kazakhstan, during his Central Asian tour. The Turkish President hopes his visits will strengthen Turkey's relations with CIS Turkic-speaking republics in the political, economic, cultural spheres, and in the field of security will foster regional peace and stability.

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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