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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Thursday, October 19, 2000

ties should be national defense related to the operation in Chechnya and monies to replace loans not received from the West. It has not yet decide how much of the revenues to spend on these areas.

Gantamirov Appointed Grozny Mayor

· Russia has appointed Bislan GANTAMIROV to be renamed Mayor of Grozny, after he declared a truce with Chechnya's chief administrator Akhmad KADYROV. GANTAMIROV was first appointed mayor of Grozny after Russian troops seized the city during the 1994 to 1996 Chechen War. He was convicted of stealing millions of dollars intended to rebuild the city. But when Russian troops returned to Chechnya again a year ago, Moscow pardoned GANTAMIROV and released him from prison to head a pro-Russian militia. Russia named GANTAMIROV as KADYROV's deputy in the spring, calling them a "dream team." But the two quarreled and their militia nearly clashed in July when GANTAMIROV's forces from Urus-Martan swept through KADYROV's Gudermes stronghold searching for "bandits."

Chechen rebels kept up their attacks Wednesday. Two Russian servicemen were killed and six wounded in Grozny, while two more died in an attack on a convoy. A fifth soldier died when a land mine in the capital blasted through an armored personnel carrier. Four others were wounded. Two more soldiers were injured when their armored vehicle hit a mine in the Vedeno region.

Russian Federation


Russia For Arms Cuts; Raises Defense Budget

· Russia repeated its proposal for deep cuts of nuclear warheads to 1,500 each and rejected US plans for a missile defense system, during the recent round of arms control talks in Moscow lead by US Undersecretary of State John HOLUM and Russia's Deputy Foreign Minister Gregory MAMEDOV. However, Russia warned that such a marked reduction would depend on the US not breaking the 1972 Anti-Ballistic Missile treaty. The START III Treaty originally envisaged both sides reducing arsenals to about 2,000-2,500 warheads. Washington has proposed amending that ABM treaty to permit a limited national missile defense. Russia is strongly opposed to the US missile defense plans, warning it could spark a new arms race. US President Bill CLINTON has decided to leave the decision to build such a US system to his successor. MAMEDOV and HOLUM had discussed options for a so-called theater defense, placing anti-missile systems near the country from where the attack was feared rather than one large shield over the US. The START II treaty, concluded in January 1993, calls for cuts in warheads to 3,000-3,500 on each side; it has yet to take effect, the Associated Press reported.

Meanwhile, Russia's government plans to raise armed forces spending in 2001 by six percent more than its original plans of 206 billion rubles ($7.4 billion). Finance Minister Alexander KUDRIN said there would be an additional 12.5 billion rubles for the defense budget and increase spending for education by 3 billion rubles and for science by 1.5 billion rubles. He added that 260 billion rubles in additional revenues were excepted from the 2000 budget. The Cabinet decided that spending priori

Today's News Highlights


Russia To Chair BSEC Meeting

Gazprom-Media Most Agrmt.

Gazprom Plans Pipeline Route

European Republics

Ukrainian Pipemakers To Suffer

South Caucasus & Central Asia

Georgia Signs MEP Study Agmt

Rus-Georgia Military Talks

Ramco Reports Poor Oil Results




October 19, 2000

Intercon's Daily


Russia To Chair BSEC

· The leadership of the Black Sea Economic Cooperation (BSEC) organization will be handed over to Russia on Friday, during a meeting in Bucharest, for a period of six months. Foreign Minister Igor IVANOV will represent Russia. Alexander YAKOVENKO, spokesman for the Russian Foreign Ministry, said, "Russia regards this representative regional economic organization as an important component part of political and economic processes taking place in the border area between Europe and Asia. The development of economic cooperation in the region, and a comprehensive development of trade, including investment cooperation, are the main spheres of BSEC work." He added that, "The BSEC member countries are both producers and consumers of energy resources. Their transportation routes are located there. The skilful organization of effective cooperation in that sphere will be advantageous for all the member countries." The Organization of the Black Sea Economic Cooperation incorporates Russia, Azerbaijan, Albania, Armenia, Bulgaria, Greece, Georgia, Moldova, Romania, Turkey and Ukraine. In addition, Poland, Egypt, Israel, Slovakia, Tunisia and Austria hold the observer's status. While in Bucharest, IVANOV will meet with Romanian President Emil CONSTANTINESCU and his Romanian counterpart Petre ROMAN.

Ruble = 27.87/$1.00 (NY rate)

Ruble = 27.91/$1.00 (CB rate)

Ruble = 23.43/1 euro (CB rate)


Gazprom-Media Most Reach Agmt.

· Russia's gas monopoly Gazprom has asked a Moscow arbitration court to postpone until November 8th hearings on the company's lawsuit against Media Most to recover $248.5 million in debts. The was due to an agreement reached between Gazprom and Media Most. Details of the agreement wouldn't be made public until it is signed. The Financial Times, however, reported that the agreement has allowed Vladimir GUSINSKY, who controls Media Most, to maintain a stake and to prevent the Russian government from indirectly obtaining a majority holding. Yevgeny KISELYOV, general director of NTV Television said, "I am especially

pleased there is a general understanding the result of which is that the independence of the mass media, including NTV, will be protected. I have said that we are ready to give up the controlling stake of NTV as long as no other shareholder owns a controlling stake." A vaguely worded statement also hinted that Media Most is in talks with an international investor. "Media Most welcomes the attraction of well-known international investors in the number of new shareholders of its companies. Media Most is satisfied with the achievement of an agreement in principle with Gazprom Media on concluding a peaceful agreement for regulating the present debts."Gazprom, in which the government is the largest single shareholder with a 38 percent stake, has sought to take control of Media Most in exchange for the unpaid debts and has accused the company of shifting assets offshore. Media Most has said the suit was aimed at stifling its criticism of the President Vladimir PUTIN's military offensive in Chechnya.

Gazprom Proposes New Bypassing Pipeline

· Russia's gas monopoly Gazprom on Wednesday signed agreements with French Gaz de France, Italy's SNAM a unit of ENI, and Germany's Wintershall and Rurhgas to conduct a feasibility study for a $1 billion to $2 billion pipeline connecting link the Yamal-Europe pipeline, which carries Siberian natural gas, to Slovakia, where it would connect with a skein of lines going to Germany, Italy and France, The Wall Street Journal reported. The group will study both the technical and financial aspects of the pipeline project. Gazprom chief executive Rem VYAKHIREV said, "Our French, German and Italian colleagues and ourselves have signed an agreement which will permit an increase in gas supplies to the European Union." The 600-kilometer Ukraine bypass pipeline could become operational in two years, with a capacity of some 60 billion cubic meters a year. Gazprom is aiming to diversify its export routes. The pipeline would be Gazprom's third supply route to Europe. The company currently supplies 26 percent of Europe's natural gas needs. Most of the Gazprom's gas reaches Europe through pipelines, which transit Ukraine. Ukraine's strategic position as a transit state has given it some leverage in dealing with its neighbor. Gazprom has repeatedly complained that Ukraine siphons off some of the supplies for its own

When you need to know it as it happens




October 19, 2000

Intercon's Daily

use even when it is unable to pay for it. Russian President Vladimir PUTIN and Ukrainian President Leonid KUCHMA this week tried to cool tensions between the two sides by agreeing to a new payment and supply schedule for gas. Russia also agreed to allow 35 billion cubic meters of Turkmen gas to be transported through its territory to Ukraine until the end of 2001. However, gas experts said the bypass pipeline study was more an attempt by Russia to intimidate Ukraine into behaving itself by not stealing gas and paying its debts, rather than any grand plan to bring more Siberian gas to European markets. Stephen O'SULLIVAN, head of United Financial Group, said, "Gazprom has lost patience with Ukraine."

Slovakia has expressed support for the pipeline, but Poland has opposed it, claiming it would hurt the interests of neighboring Ukraine. Poland has made support of Ukraine's independence a central foreign policy goal. Polish officials feel slighted that the European companies did not consult them more closely about the route, which as proposed crosses through several national parks and bypasses leading consumers of gas in its southern industrial belt. Poland's Deputy Prime Minister and Economics Minister, who learned of the proposed pipeline through a media leak, said, "We would prefer that our country, which is after all associated with the EU [European Union], be treated in a partnerly way." Gaz de France President and CEO Pierre GADONNEIX told reporters, "It is obvious that all countries which receive gas from Russia will be partners with Gazprom...the countries which are crossed by the pipeline should also be partners." When asked if Poland had given permission for the pipeline to cross its territory, GADONNEIX said, "It's an issue between Gazprom and Poland." Poland's Foreign Ministry official responsible for relations with Eastern neighbors, Marek ZIOLKOWSKI, called the route, "absolutely unacceptable in its current form," the Financial Times reported. Poland hopes to meet with all the parties involved to discuss the situation. "We do want to be a transit country, taking advantage of our geographical location, but no new gas transit can be carried out through our territory without our consent…We want to take an active part in talks concerning all gas transportation projects," Polish government spokesman Krzysztof LUFT told Reuters.

European Republics

Russian Duties Punish Ukrainian Pipemakers

· Ukraine's pipeline industry, which sells 70 percent to 80 percent of its output to Russia, fears that it may collapse if Russia imposes import duties. A Russian commission responsible for protection measures in foreign trade may consider imposing the duties on pipe imports at its meeting today. Fakty i Komentariyi reported that, "If the Russian market is closed, it's possible to sell an insignificant amount of the product in Ukraine, to Uzbekistan, Kazakhstan, Turkmenistan," and to outside of the former Soviet Union. Ukraine's industrial production declined 0.5 percent in September from August and was up 8.2 percent from September last year. The government raised its industrial output forecast to annual 6.5 percent this year from about 5 percent growth initially expected in 2000.

South Caucasus & Central Asia

Georgia Sign MEP Study Agreement

· Georgian international oil corporation (GIOC) president Gia CHANTURIA on behalf of the Georgian leadership, representatives of the Azerbaijan State Oil Company (Socar), and the consortium of investment companies, including British Petroleum (Great Britain), Statoil (Norway), Ramco (Great Britain), Unocal (US), Itochu (Japan), Turkish Petroleum (Turkey) and Delta (Saudi Arabia), signed the agreement to finance a study for the building of the Baku-Tbilisi-Ceyhan Main Export Pipeline (MEP) on Wednesday. The package of agreement on building and exploitation of Baku-Tbilisi-Ceyhan MEP, ratified by Georgian parliament on May 31st came into force with the signing of the above mentioned document. President of Georgia Eduard SHEVARDNADZE attended the signing ceremony. The President will thank Azeri President Geidar ALIYEV for the "unique role plaid" in allowing Georgia to become a transit country for the transportation of Caspian oil. Azerbaijan has already signed the agreements. Azerbaijan estimates the cost of the study to be $120 million. Three agreements are expected to be signed in Ankara today: an agreement with the Botas company on design and technical work as well as construction of a pipeline across Turkey, an agreement on financial guarantees of the Turkish government and an agreement with a country possessing the transit territory.

When you need to know it as it happens




October 19, 2000

Intercon's Daily

Construction for the oil pipeline is scheduled for the end of 2001, with operation to begin in 2004. The length of the future oil pipeline, with a capacity of 50 million tons annually, will be 1,730 kilometers. The pipeline has been advocated by the US, which prefers it to alternate routes through Iran or Russia. It has encouraged Kazakhstan to commit to transporting 25 million tons of Kazakh oil through the pipeline every year. The government of President Nursultan NAZARBAYEV has been noncommittal.

Rus_Georgia Discuss Soviet Property

· The fourth round of Georgian-Russian talks on military issues, particularly the withdrawal of Russian bases from Georgian territory, opened today in Tbilisi. Talks will focus on the phased reduction of Russian troops and weaponry from Vaziani and Gudauta. Foreign Minister Irakli MENAGARISHVILI will represent Georgia, while Russian Deputy Prime Minister Ilya KLEBYANOV will act as chief negotiator on the Russian part. KLEBYANOV said the withdrawal of the Russian military equipment "surpluses" from Georgia was on schedule and, "there are no problems or friction between the two states over the issue." From August to October 2000, a total of 210 pieces of military equipment and weaponry were withdrawn from Russian military base in Georgian Vaziani, while 29 pieces were moved to Russia from a base in Batumi. From October 20th to November 13th, 76 armored vehicles will leave Akhalkalaki base in Southern Georgia for Gyumri, a Russian military base in Armenia. KLEBYANOV added that the Georgian side understands the need to transform Gudauta, located in the zone if the Georgian-Abkhazian conflict, into a rehabilitation-training center for peacekeeping forces. Head of the Georgian Parliamentary Committee for Security and Defense Georgy BARAMIDZE said that Georgia has categorically denied this proposal, Prime News Agency reported. The final decision on the base will be made at the December round of military negotiations. Meanwhile, Georgia confirmed it is seeking to reclaim its share of Soviet property, which was either seized or removed by Russian

forces after the collapse of the Soviet Union. Chairman of the parliamentary financial-budgetary committee Roman GOTSIRIDZE told the parliament on Wednesday that the Georgia's share just in the Soviet property abroad makes up $1.6 billion, with its full share totaling up to $5 billion. Upon arrival to Vaziani airbase, KLEBYANOV said that Georgia had not well considered all the consequences of demanding their share in the former USSR property. He joked, "If Georgia wishes to return to the USSR, we are more than willing to take it back."

Ramco Release Azeri Oil Results

· Ramco Energy, a British oil exploration company, completed drilling work at one of its best prospects and has decided to suspend work at the Muradkhanli field, while it evaluates "disappointing" initial tests on the main reservoir. Testing in the Muradkhanli field, which was predicted to hold as much as 5 billion barrels of oil, had been delayed by technical problems. The well is the first onshore Azerbaijan under a production sharing agreement, which also includes Jafarli and Zardab fields in the contract area. Ramco said it will evaluate options to improve productivity and to test other prospective areas higher in the well. This work will begin soon, the company said today. Ramco spokesman Lisa NEWMAN said, "We're going to start the technical studies almost immediately. It will be at least a month before we come back in any detail." Ramco demobilized its rig and other service companies in order to minimize costs during this review.

Ramco owns 50 percent of the prospect, which is one of the first onshore fields to be drilled in Azerbaijan, with state-owned Socar owns the remaining half. Ramco in July agreed to sell its 2.08 percent interest in another Azeri field, Azeri-Chirag-Gunashli, for $150 million. The field represents about half of Ramco's output, though Muradkhanli has the potential to replace production from the sold assets, Ramco's finance director Steven Ross BERTRAM said. Ramco began drilling the well at Muradkhanli in January.

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

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When you need to know it as it happens