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

Wednesday, October 18, 2000

wide range of the Russian-Iranian relations, regional cooperation and interaction on the world arena. Talks focused on strengthening the two nations' economic partnership. According to the press secretary, there were some difficulties to be resolved in what concerned construction of the nuclear power plant in Bushehr. IVANOV expressed hope that bilateral relations would continue with, "peaceful nuclear cooperation" under the supervision of the International Atomic Energy Agency. The sides also touched upon the launch of a licensed production of passenger plane Tupolev 334-100 in Iran. Military cooperation was not touched on during the meeting, although both nations expressed their concern over the situation in Afghanistan. IVANOV delivered a message from Russian President Vladimir PUTIN to Iranian President Mohammad KHATAMI, which included an invitation to visit Russia. IVANOV also stressed that Russia is not influenced in its relations with Iran by any third party. ROWHANI emphasized that Iranian-Russian ties are not aimed against any other country.

Trial Of US Spy Delayed

· The Trial of US businessman Edmond POPE, who has been detained in Lefortovo Prison in Moscow since April on charges of spying, was delayed today. Moscow Court judges said the trial was delayed following complaints that Pope had insufficient time to study the charges. POPE's lawyer Pavel ASTAKHOV explained, "In three hours, we are supposed to do a condensed

Russian Federation

Politics

Albright Confirms Law Breaking Pact

· US Secretary Madeleine ALBRIGHT in a letter to Russian Foreign Minister Igor IVANOV, obtained by The Washington Times, confirms that Russia had violated the secret pact reached between US Vice President Al GORE and former Russian prime minister Viktor CHERNOMYRDIN and that GORE promised the US would not seek penalties under non-proliferation laws. She writes, "Dear Igor…Russia's unilateral decision to continue delivering arms to Iran beyond the December 31^st deadline will unnecessarily complicate 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." John CZWARTACKI, a spokesman for Senator Trent LOTT (Rep.-MS) said, "This is very disturbing. It appears that this administration by the admission in Madeleine ALBRIGHT's letter, allowed the Russians to evade US sanctions." Marc THIESSEN, a spokesman for Senator Jesse HELMS (Rep.-NC) said, "The letter is a clear admission by ALBRIGHT that GORE promised not to implement sanctions required by US law¾a charge that has been vigorously denied by the vice president's office." He added, "ALBRIGHT's letter to IVANOV shows that to be a lie."

Rus-Iran Security Chiefs Discuss Cooperation

· Secretary of the Russian Security Council Sergei IVANOV met his Iranian counterpart Hassan ROUKHANI on Tuesday in Tehran to discuss a

Today's News Highlights

Russia

Rus sia's Industrial Output, CPI

Berezovsky Questioned

European Republics

Rus-US On Belarus Election

Estonian CB To Alter Reserves

South Caucasus & Central Asia

ICF Begins Visit To Georgia

Azeri Signs Pipe Sponsor Agmt.

US House To Vote On Genocide

Turkey-Turkmen Discuss Gas

Politics-Economics-Business

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October 18, 2000

Intercon's Daily

course in turning businessman Edmond POPE into a lawyer who can deal with Russia's criminal code. This is a bad joke." He added that POPE had been given two hours in prison to examine the 26-page document, in Russian and English, without a translator. The US former intelligence officer turned businessman is accused of buying plans for a high-speed torpedo. POPE could face 20 years in prison if convicted. The trial, originally scheduled to start today, is expected to last several weeks. The court has rejected medical treatment for POPE's rare bone cancer. US Under Secretary of State Thomas PICKERING, in Moscow for talks with officials, said his main concern was to secure Pope's release to safeguard his health.

Economy

Ruble = 27.8/$1.00 (NY rate)

Ruble = 27.91/$1.00 (CB rate)

Ruble = 23.78/1 euro (CB rate)

Russian Industrial Output, CPI

· The Russian State Statistics Committee reported that industrial production grew at a slower annual pace in September than in the previous month. Output rose 7.2 percent in September, compared with the same month a year earlier, after annual growth of 10.2 percent in August, 8.5 percent in July, and 9.8 in June. In the third quarter, production grew 8.6 percent year-on- year, compared to 8.5 percent in the second quarter year-on-year. Industrial output grew 9.7 percent in the first nine months of 2000, compared with the same period in 1999, Bloomberg News reported. Russian economic growth has accelerated this year, with gross domestic product expanding by 7.5 percent in the first half, driven by high prices for oil and the ruble's 75 percent fall from August, 1998 to the end of last year, which boosted revenue for domestic producers by driving up the price of imported goods. Prime Minister Mikhail KASYANOV today said that Russia's consumer price inflation is likely to be about 19 percent in 2000, after 36.5 percent in 1999. The government previously forecast inflation at between 18 percent and 20 percent for the whole of 2000. KASYANOV said, "This is not bad data since gross domestic product and industrial growth is quicker than forecast."

Business

Berezovsky Says Probe is "pure politics"

· Returning to Moscow for questioning in the Aeroflot case as a witness not a suspect, Russian tycoon Boris BEREZOVSKY said that the allegations of embezzlement, "is pure politics, pure blackmail...and I won't give in to blackmail." The case accuses BEREZOVSKY of skimming off up to $600 million from Aeroflot via the Lausanne-based firms Forus Services and Andava. Investigators claimed that BEREZOVSKY, who was believed to have a stake in the airline, set up two Swiss firms, Andava and Forus Service, to hide $400 million of Aeroflot's hard currency earnings outside Russia. BEREZOVSKY and the companies deny any wrongdoing. Alexander FILIN, the federal investigator who replaced Nikolai VOLKOV, questioned BEREZOVSKY. This case, which was originally filed in late 1998 when Yevgeny PRIMAKOV, BEREZOVSKY's enemy, was prime minister, has continued in part because of documents provided by Swiss authorities, who are investigating a parallel case, and because BEREZOVSKY has fallen out of favor with the Kremlin. In July, BEREZOVSKY resigned from the Russian State Duma, stating he was protesting at what he called "brazen and dangerous" actions by PUTIN's administration, which he saw as a drift towards authoritarian rule.

On Monday, BEREZOVSKY announced that he has established a trust to take control of his stake in Russia's largest television network ORT. He said he was handing over the shares to keep the government from taking them. BEREZOVSKY added that he handed his share over because the Kremlin was trying to pressure him into surrendering his holdings. He expressed hope that the group would counterbalance the government's influence over ORT's political line. The government owns 51 percent of ORT and BEREZOVSKY controls the rest.

European Republics

Russia Praises, US Rejects Belarus Election

· Following Belarus' Sunday parliamentary election, Russian President Vladimir PUTIN congratulated President Alexander LUKASHENKO on conducting a democratic election. The Russian Foreign Ministry said in a statement the election was

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conducted "calmly and in organized fashion." The US, however said that it would not recognize the election, citing government pressure on the media and harassment of opposition candidates by the government. The State Department said that "under current circumstances, it was practically impossible to hold free and fair elections in Belarus." It added, "In violation of Belarus law, ballot boxes were taken door to door and citizens `encouraged' to vote. That the regime was forced to take such extreme measures is evidence that the opposition boycott of elections was effective." The Organization for Security and Cooperation in Europe (OSCE), European Union, and the Council of Europe said the poll did not meet international standards. According to a joint statement, "The minimum requirements were not met for the holding of free, fair, equal, accountable and open elections." The election committee has reported that turnout totaled 60.6 percent of the electorate making the poll valid, despite the fact that 14 districts fell short of the 50 percent required. The US also said that it will continue to recognize the, "democratically elected 13^th Supreme Soviet, led by Chairman Semyon SHARETSKY, as the legitimate parliament of Belarus." The Belarus opposition had urged people to boycott the election and also asked international observers to stay away to avoid giving legitimacy to the elections. The Belarus Justice Ministry responded by threatening prison terms of up to two years for anyone urging a boycott of the elections. Several opposition members calling for the boycott were subsequently detained in the capital Minsk.

Estonian CB To Change Reserve Rules

· The Estonian Central Bank on Monday said starting July 1, 2001, banks will be able to finance 50 percent of their reserve requirement with high quality, highly liquid debt instruments. Currently banks must meet the reserve requirement, 13 percent of their deposit base, with deposits to the Central Bank and some cash, Reuters reported. A further move to allow banks to use the same debt instruments to meet up to 25 percent of their reserve requirements from January 1^st has been proposed by a working group, but still needs approval by Bank officials. A move to reduce the size of the Central Bank's executive management board of President Vahur KRAFT, his vice-presidents and department heads from eight to five is also due to be discussed by the Bank's council, spokeswoman Kaja KELL said.

South Caucasus & Central Asia

Georgia-ICF Review Economic Reforms

· Georgian President Eduard SHEVARDNADZE, State Minister George ARSENISHVILI, and adviser on the issues of economic reform Temur BASILIA met with the International Currency Fund mission on Tuesday. During the ten days the ICF mission, the European department second south section under David OWEN will be assessing the process of the Georgian budget 2000 income and economic program of the government for 2001-2003. Parallel to the David OWEN group the experts from the technical aid mission arrived in Tbilisi. They will be working on bolstering the Georgian banking system and reforming of the customs service.

Azeri Signs Agrmt. With Pipeline Sponsors

· The government of Azerbaijan, State Company of Azerbaijan Republic (Socar), BP, Statoil, Unocal, TPAO, Itochu, Ramco, and Delta on Tuesday signed an agreement on start of realization of the Baku-Tbilisi-Ceyhan Main Export Pipeline (MEP) building project in Baku. The project partners also signed an agreement on the creation of a group of sponsors. The project sponsors will sign coinciding agreements with Georgia today and Turkey on Thursday. The $2.4 billion pipeline is scheduled to be completed and transporting 17 million tons of crude oil by 2004, although the sources of finance for its construction have not yet been identified. The companies will begin financing the study, which will be completed in eight months and will cost an estimated $25 million. Socar President Natik ALIYEV said the signing, "is a major step which practically means realizing the project." David WOODWORTH, the head of BP Amoco office in Azerbaijan said, "Within the first phase of financing the study the question of whether the MEP project is viable will be solved. But we all believe that Baku-Ceyhan pipeline will be commercially viable and competitive," Reuters reported. On completion of the first stage, other investors may join the sponsor group, acquiring part of Socar's stake, and initial volumes of oil to be carried by the new pipeline will be quantified. A detailed project for the whole pipeline will follow at the next stage, which will take about 12 months and cost a further $100-$120 million. Construction of the pipeline will occur only when companies determine how much investment will be required and who will finance the project.

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October 18, 2000

Intercon's Daily

It is unclear how the recent developments in Yugoslavia will factor into the alternative thinking of expanding the capacity through Georgia. Romania is seeking to revive plans for a short Caspian oil pipeline between its Black Sea Port of Constanta to a Yugoslav refineries in Pancevo and Novi Sad, ending at the Adriatic port of Omisalj, in Croatia. The Romanians are holding a two-day energy conference in Brussels beginning October 26^th to discuss issues related with the project, which plans to use the existing network in Romania, Yugoslavia and Croatia. A Romanian official involved in the project Dan CAPATANIA estimated that he project would cost $200 million because it is already in existence. This is appears to be a cheaper alternative to the Baku-Ceyhan pipeline.

US To Vote On Genocide Issue

· The US House of Representatives today has again postponed the scheduled vote on a resolution acknowledging that Armenians were the victims of a genocide by the Ottoman Empire 85 years ago. Ankara denies this genocide and counters that thousands died on both sides in partisan fighting as the Ottoman Empire collapsed. It has urged the full House to reject the measure. Turkey has threatened to scrap an estimated $15 billion of energy and defense deals with US companies and to deny the US military planes access to the Incerlik Turkish Airbase, used to enforce the no-fly zone over northern Iraq. Ankara has also developed an economic blockade against Armenia as an alternative. These actions, however, would only hurt Turkey, which relies on US investment in its energy sector and is depending on a $4.5 billion deal for attack helicopters with Bell-Textron. Turkish Justice Minister Hikmet Sami TURK stressed, "labeling all past human sufferings as genocide, when, in fact, they are not constitutes a new form of racism against a whole nation." This could negatively affect Turkish relations with the US and do little or nothing to improve relations with Armenia.

Even, Azerbaijan has warned the US that its recog

nition of Armenian genocide could jeopardize its role in resolving regional problems, particularly the Nagorno-Karabakh dispute. Azeri Foreign Minister Vilayat GULIYEV said, "We do not support any sort of discussion like this in Congress. The United States is co-chairman of the Minsk OSCE group and has taken on the commitment of objectively and fairly resolving the Nagorno-Karabakh problem. If the United States supports Armenia on this historical issue it will have a specific influence on resolving it." He added, "In Turkey, new generations have appeared who do not identify with the Ottoman Turks. There are also new generations in Armenia. Armenia's future prosperity is linked with how it establishes relations with Azerbaijan and Turkey."

Turkey-Turkmen Discuss Gas Deal

· Turkish President Ahmet Necdet SEZER arrived in Turkmenistan as part of his Central Asian tour to promote a gas pipeline to ship Turkmen energy across the Caspian to Turkey. The Turkish Embassy explained that, "Two rounds of meetings are planned with the Turkmen President. They will discuss the implementation of the project to transport Turkmen gas to Turkey across the Caspian via Azerbaijan and Georgia." Today SEZER and Turkmen President Saparmurat NIYAZOV discussed energy sales and cultural cooperation between the two countries. Turkmenistan has a deal to sell Turkey 16 billion cubic meters of natural gas annually starting from 2002, but the $2.0 billion trans-Caspian link suffered a setback after gas was discovered off the Azeri Caspian coast. Both Presidents will sign the gas agreement in April, 2001. NIYAZOV has since signed agreements to sell large amounts of gas every year to Russia and Ukraine, further dimming the chances of the trans-Caspian project. The US sees the project as being a key to diversifying export routes in Central Asia and the Caucasus. Turkey is Turkmenistan's second foreign trade partner, judging by the results for the past nine months. There are 448 Turkish companies registered there, participating in 107 projects, the total cost of which is $1.4 billion.

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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