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

Tuesday, October 24, 2000

Russian Federation

Politics

Rus-Turkey Seek To Rebuild Relations

· Russian Prime Minister Mikhail KASYANOV met with Turkish Prime Minister Bulent ECEVIT in Ankara stressing that the two nations are, "not rivals, but partners." Turkey has long accused Russia of supporting Kurdish rebels fighting for autonomy here, while Moscow has voiced suspicion that Ankara backs Chechen rebels battling Russian forces in the Caucasus region. Both nations are vying for influence in Central Asia, an area that both regard as their natural sphere of influence, the Associated Press reported. KASYANOV pledged to increase military and security cooperation with NATO member Turkey. Turkey plans to spend some $150 billion on weapons during the next 25 years and Russia is seeking to win lucrative contracts. He said, "We think that Russian weapons technologies have a good chance to increase their presence in Turkey." Ankara froze weapons deals with Russia after Moscow briefly granted Kurdish rebel leader Abdullah OCALAN refuge two years ago. ECEVIT said, "We want cooperation instead of competition with Russia." The Russian Prime Minister also discussed electricity exports with Turkish Energy Minister CUMHUR ERSUMER today. Last year Turkey was short of 2.4 billion kilowatt/hours of electricity and its electricity shortage is rising. Russia plans to study the possibility of electricity exports to Turkey via Georgia. This could include the participation of Russian technologies in the construction of power stations in Turkey, and other promising projects. The negotiations also addressed electricity supplies to Turkey from Armenia, he said, adding that Yerevan was interested in that project. Russia also offers to Turkey direct supply of electricity over the Black Sea bed by a cable line. It can be stretched over the Black Sea bed parallel

to the Blue River gas pipeline that is under construction. Today, KASYANOV is attending a groundbreaking ceremony for the Blue Stream pipeline, which could bring Russia $40 million a year. He said, "We shall set about the laying of the gas trunkline on the Black Sea bed¾the most difficult phase of the realization of the project¾soon." Current Turkish gas consumption of 14.5 billion cubic meters a year will rise to 53 billion by 2010, of which Russia will supply 30 billion. Russia plans to pump up to 16 billion cubic meters of Russian gas a year by 2001 through the planned pipeline. Trade between Turkey and Russia rose some 70 percent to $2 billion in the first half of 2000 compared to the same period last year. KASYANOV noted that there is big potential for the building of relations between the two countries. Prior to his meeting, the Russian Prime Minister noted, "Turkey is our close neighbor. We are brought together by years-long trade and economic contacts."

Economy

Central Bank Role To Be Reduced?

· Russian deputy prime minister and Finance Minister Alexei KUDRIN dismissed rumors that the Central Bank would become subordinate to the Russian government. However, he noted that a new body on banking supervision is under consideration. The Central Bank has been criticized for its failure to act decisively against financial institutions prior to the August, 1998 financial crisis. It

Today's News Highlights

Russia

Money Laundering Guidelines

Taftneft To Pay Surgutneftegaz

European Republics

Paksas Nominated As Lit. PM

Golden To Invest In Ukraine

South Caucasus & Central Asia

Rebels Return To Ingushetia

Kazakh To Join MEP?

Armenia To Receive Rus. Arms

IFC Provides Tajik Loan

Politics-Economics-Business

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Tuesday

October 24, 2000

Intercon's Daily

had been slow to withdraw operating licenses from insolvent institutions. The Parliament is considering a draft law which would by 2005 remove the Central Bank's control over two commercial banks it owns: Sberbank and Veneshtorgbank. KUDRIN said the banks could be under the control of the state or there might be a partial privatization, the Financial Times reported.

Ruble = 27.93/$1.00 (NY rate)

Ruble = 27.89/$1.00 (CB rate)

Ruble = 23.35/1 euro (CB rate)

Banks Approve Money Laundering Guidelines

· Twelve of the world's largest banks agreed on global anti-money laundering guidelines to head off criticism of their involvement in high profile money laundering cases, the Financial Times reported. The guidelines will be released sometime next week. The guidelines are designed to ensure a "global standard of due diligence," for banks dealing with rich individuals. It is estimated that the money laundering industry smuggles $590 billion per year. The current guidelines have been proven ineffective. UBS, Credit Suisse Group, Deutsche Bank, Societe Generale of France, ABN Amro of the Netherlands, and Banco Santander Central Hispano of Spain, and Citigroup Inc. are among the banks that agreed on the guidelines.

Business

GAZ Reschedules Its Tax Debt To Budget

· Gorkovsky Avtomobilny Zavod (GAZ) said the Russian government agreed to reschedule 934 million rubles ($33.4 million) in tax arrears owed by the car producer over a 10-year period, Vedomosti reported. The company, which has been trying since February to reschedule its tax debt payments, gained other concessions, including minimal quarterly payments in an initial period. If GAZ fails to make its payments under the rescheduling it would lose the right to reschedule and could face bankruptcy. The company's total debt rose 81 percent to 10.6 billion rubles in the first nine months of the year, Vedomosti reported. Based in Nizhny Novgorod on the Volga River, GAZ increased output by 0.26 percent in the first nine months of the year, compared with the year-earlier period, with a rise in minibuses and trucks making up for weak

demand for Volga sedans. It produced 180,599 vehicles in January to September, from 180,125 in the same period in 1999.

Court Rules In Favor Of Surgutneftegaz

· A Moscow Court has rules that state-controlled Transneft must pay Surgutneftegaz, Russia's third oil producer, 200 million rubles ($7.2 million) for taking 63 metric tons of oil, which went missing during transportation by Transneft. Other Russian oil companies may follow suit. Transneft must keep a certain amount of oil in its pipelines, some of which is lost in transit, losses for which oil companies aren't compensated. The government sets a standard rate of leakage, and if Transneft reports it lost less than this standard while transporting a company's oil, it must return the difference to the company. The Russian government agreed to raise transport fees charged by Transneft for exporting oil by 22.2 percent beginning November 1^st to fund investment in construction projects.

Norilsk Sale Not Reversible

· Russian deputy prosecutor general Yuri BIRYUKOV on Friday told the Russian State Duma that his office jointly with the Federal Commission for the Securities Markets is investigating the legality of the controversial privatization of Norilsk Nickel. He stated that the sale cannot be reversed. "This deal cannot be overturned, as after the sale various share issues took place and shares ended up in the hands of honest buyers." His statement referred to Tyumen Oil Company and a number of other firms. In July, the Prosecutor General's office said Vladimir POTANIN, the head of Interros banking and industrial group, should pay $140 million, which it said was underpaid when Norilsk was privatized. But POTANIN, in an open letter published by Russian media, demanded an investigation of the case in strict accordance with the country's civil law. The row pushed Norilsk's share price down, as some investors considered that it heralded the start of a purge against Russia's top businessmen, Reuters reported. BIRYUKOV told the Duma that the Prosecutor General's office had started 11 criminal investigations into shares-for-loans deals and recommended another 11 be launched.

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Tuesday

October 24, 2000

Intercon's Daily

European Republics

Paksas Nominated As Lithuanian PM

· Lithuanian President Valdas ADAMKUS officially nominated Vilnius Mayor Rolandas PAKSAS to the post of Prime Minister. Today, he is expected to submit his candidacy to parliament. PAKSAS held the post of five months in 1999, but stepped down in protest at a highly controversial oil sector privatization deal. PAKSAS' Liberal Union placed second in an October 8^th general election, gaining 34 of parliament's 141 seats, and formed a minority coalition with new Parliament Speaker Arturas PAULAUSKAS' New Union, which was third with 29 seats. PAULAUSKAS said on Monday that his center-left New Union party agreed to give PAKSAS' laissez faire Liberal Union seven seats in the 14-member cabinet. The New Union will have six. Parliament must vote on the president's candidate within seven days after the head of state submits his nominee.

PAKSAS has said that he is against a devaluation of the litas currency in order to boost exports. "The only thing that I cannot say is that it (export stimulation) could be a litas devaluation or scrapping the currency board, a thing that some business groups would like to hear," PAKSAS told parliament. He added that he would keep to the strict fiscal discipline of outgoing Prime Minister Andrius KUBILIUS. PAKSAS said, "I would like to stick to a rather tight fiscal policy notion with the budget deficit (in 2001) remaining at some 1.5 percent to 1.7 percent (of GDP) as is seen in agreements with the IMF." PAKSAS will continue plans to further Lithuania's bids to join the European Union and NATO.

Golden Telecom To Invest In Ukraine

· Golden Telecom, the Ukrainian unit of Russian Golden Telecom Inc, plans to invest up to $21 million in its mobile, data, voice, and Internet business in Ukraine in 2001, Reuters reported. Golden Telecom started working in Kiev in 1996 and was the country's first GSM-1800 operator. It later developed voice and data services, to date investing some $60 million in Ukraine. Jeff Howley, chief operating officer, said doing business in the ex-Soviet state is an uphill battle, but Golden Telecom GSM now has 35,000 clients and expects to add another 25,000 by the end of 2001. "Our strategy is

not really to cover the entire territory of Ukraine because we do not feel that is something that will provide us with big returns," he said. According to HOWLEY, Golden Telecom was targeting cities with a population of one million or more. Golden plans to aggressively develop its Internet business nationwide, following in the footsteps of its major shareholder, Golden Telecom Inc in Russia. "The Internet side is a big piece of our strategy," HOWLEY said. The Internet is just taking off in Ukraine. According to the State Telecommunications Committee, the number of Internet users in Ukraine will be around 320,000 by the end of this year compared to 190,000 at the end of 1999.

South Caucasus & Central Asia

Chechen Rebels Return To Ingushetia

· Several Chechen rebels, who crossed into Georgia on Friday, refused to surrender to Georgian authorities, following negotiations in the Assk Valley. Georgia did not give into rebel demands that they be given safe passage to Turkey or Azerbaijan. According to head of the Parliamentary Committee for Defense and Security Giorgi BARAMIDZE, Georgian Armed Forces were prepared to force the rebels back across the border without using arms. This was not necessary because the rebels left on their own accord. Head of the State Border Department Lieutenant-General Valery CHKHEIDZE said that Georgian authorities have notified Russian border guards that the rebels have returned to Ingushetia. Interior minister Kakha TARGAMADZE said that no charges will be brought against those 60 to 70 rebels who surrendered to Georgian authorities on Monday, Prime News Agency reported. Georgia is covering all the medical expenses of those rebels, approximately 20 to 25, who are being treated in Tbilisi for pneumonia and the affects of going nine days without food. None of the rebels were suffering from gunshot wounds.

Russia has issued an official plea to gain information on the identities of the gunmen, who are believed to be linked to Ruslan GELAEV. GELAEV was branded a traitor by warlords Shamil BASAYEV and KHATTAB after a group of militants led by him was defeated in the Chechen settlement of Komsomoljskoye. GELAEV is believed to have fled his hideout in Ingushetia, Itar-Tass reported. Krem

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Tuesday

October 24, 2000

Intercon's Daily

lin spokesman Sergei YASTRZHEMBSKY said that Russia will seek the extradition of rebels accused of conducting terrorist attacks. He noted that Russia had turned over suspects to Georgia, who were accused of participating in the assassination attacks on Georgian President Eduard SHEVARDNADZE. Georgia, however is still waiting the extradition of former head of Security Igor GIORGADZE, who is accused of masterminding the assassination attempt on SHEVARDNADZE in 1995. GIORGADZE is wanted by Interpol. The leader of Georgian United Communist party Panteleimon GIORGADZE, Igor's father, who is in Moscow for meetings with Russian leftists said that he has been in contact with his son and said that Igor, "will definitely return to Georgia," Prime News Agency reported. Meanwhile, Jemal GAMAKHARIA of the XXI Century faction told the parliament that former deputy Boris KAKUBAVA, wanted by Interpol for planning a coup against SHEVARDNADZE last May and treason is in Belgrade.

Kazakhstan To Join MEP?

· President of the State Oil Company of Azerbaijan (Socar) Natik ALIYEV expressed confidence that Kazakhstan will join in the realization of the Baku-Tbilisi-Ceyhan Main Export Pipeline (MEP) project. He denied the reports that the efficient operation of Baku-Tbilisi-Ceyhan pipeline will not be possible without the transportation of Kazakhstan oil by it. Turkish President Akhmed Nedzet SEZER said he was satisfied that Astana will support the MEP project. According to the Kazakhstan President Nursultan NAZARBAYEV, talking on the concrete terms of his country joining the project may be possible only after a detailed study of the offers of International consortium and defining the usefulness of the route of oil transportation on the World market is presented. ALIYEV also noted that of the $2.4 billion projected cost of the pipeline, $1 billion has been allocated for the portions of Azerbaijan and Georgia. He said that approximately $600 million are meant for the building of the 480-kilometer portion in Azerbaijan and $400 million for the 225-

kilometer portion in Georgia. The other $1.4 billion are planned to be used for the main pipeline Turkey portion.

Armenia To Receive Russian Arms

· On Friday, Armenia celebrated the transfer of weaponry from Russian military bases in Georgia to Russian bases in Armenia. Armenian Defense Minister Serzh SARKISYAN told Itar-Tass the hardware redeployment would not be in violation of the Conventional Forces in Europe (CFE) treaty. Russia has its Gyumri military base in Armenia in conformity with an inter-state agreement. Seventy-six armored vehicles are withdrawing from the base in Alkhalkalaki, South Georgia, to Armenia. The transfer will be completed by November 13^th. Russian Vice-Prime Minister Ilya KLEBANOV on Wednesday said that the withdrawal of excessive Russian armaments from Georgia under the agreement reached in Istanbul in 1999 goes according to plan. "The withdrawal of Russian military bases will also go according to the schedule", he added. Since August, Russia has pulled out 210 pieces of military hardware and weaponry from the military base in Vaziani and 20 pieces of military hardware and weaponry from the military base in Batumi. Russia must complete a full withdraw from these two bases by July, 2001.

IFC Provides Tajikistan Loan

· The International Finance Corporation (IFC), which is affiliated to the World Bank Group, has signed with the Tajik government a credit agreement for $400,000 that is to be invested in the shares of the Tomu Marble Factory, IFC Director Peter WOICKE. The director was in Dushanbe for a brief working meeting with Tajik President Emomali RAKHMONOV. WOICKE said that, in his opinion, "Tajikistan has achieved much during the past three years in the effort to guarantee political and economic stability in the country." The International Financial Corporation has so far approved the financing of four projects in Tajikistan, totaling $16.8 million.

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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