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

Monday, October 30, 2000

a political solution, with respect for the sovereignty and territorial integrity of the Russian Federation," the declaration said. The statement also condemned "terrorism in all its forms." Nearly 250 intellectuals, politicians, and actors from various countries published a petition on Saturday condemning PUTIN and the "dirty, cruel" war in Chechnya. They called on people to demonstrate tonight in central Paris, Reuters reported.

Unity's Pledge To Fight Corruption

· At its second congress, Russia's Unity party pledged to purge itself from all those who try to use the party's high political standing for personal benefit. Unity leader Sergei SHOIGU was quoted by Reuters as saying, "Some of our pseudo-adepts behave like prostituting fellow travelers¾and go with whoever pays." Hastily put together to contest the 1999 parliamentary election, Unity steamrolled into the Russian State Duma with support from Vladimir PUTIN whose own popularity was rocketing due to his tough stance on rebellious Chechnya. The party, with increasing popularity, has been loyal to Putin and helped him push through the Duma all necessary legislation, gaining his unreserved support in return. Boris Gryzlov, Unity's parliament chief, said the party had to get rid of newcomers who risked compromising its privileged position by pursuing their own interests. "[Some have come] to achieve their own mercenary goals or aim at destroying our party and that is why some cleansing has to be done," he said.

Russian Federation

Politics

EU-Russia Focus On Energy, Security

· Russian President Vladimir PUTIN, French President Jacques CHIRAC in his role as head of the rotating European Union (EU) presidency, European Commission President Romano PRODI, EU foreign policy chief Javier SOLANA, and other EU officials are meeting in Paris for the biannual EU-Russia Summit, which opened today. The summit will focus on Europe's emerging security and defense policy, Europe's interest in Russian energy resources, the expansion of NATO and the EU. Europe is increasingly interested in securing sources of natural gas and oil beyond the Organization of Petroleum Exporting Countries (OPEC) and is looking to Russia as a potential partner. It has received intense pressure as soaring oil prices have spurred on weeks of protests in some European nations. PRODI is expected to spell out his proposal for a sharp increase in EU energy imports from Russia over the next 20 years. Russia, which wants foreign investment to develop its energy infrastructure, has been courting Europe. Deputy Premier Viktor KHRISTENKO said that Russia hopes the summit will lead to concrete deals on future pipelines and other energy projects. PUTIN said Russia welcomed the expansion of the European Union, but opposes NATO growth in Eastern Europe as long as the Western military alliance doesn't want Russia as a member. "The idea of a greater Europe seems quite attractive to me, a Europe in which there should be no hegemonism of any kind," PUTIN said.

PUTIN and EU leaders today signed a declaration on the need for a political solution to the conflict in the rebel Chechnya region. "Concerning Chechnya, we agreed on the necessity and urgency of seeking

Today's News Highlights

Russia

GDP Growth Predicted At 6%

US E-Im Bank GrantsTNK Loan

European Republics

Lith. Keeps Tight Fiscal Policy

Ukraine Accepts Power Bids

South Caucasus & Central Asia

IMF On Georgian Loan

AIOC To Invest $629M

Akayev Easily Wins Re-Election

Tajikistan's New Currency

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Economy

Ruble = 27.89/$1.00 (NY rate)

Ruble = 27.83/$1.00 (CB rate)

Ruble = 23.53/1 euro (CB rate)

GDP Growth For 2000 To Top Six Percent

· Russia's economic growth in 2000 will amount to more than six percent, and October consumer price inflation will be less than two percent, Russian news agencies quoted Prime Minister Mikhail KASYANOV as saying today. Speaking to a meeting of his deputies, KASYANOV said a slowdown in the rate of growth of gross domestic product (GDP) in recent months had stabilized. Trade and Economy Minister German GREF last week said the Russian economy would expand seven percent in 2000 after a 3.2 percent GDP rise last year, Reuters reported. Agencies also quoted KASYANOV as saying that consumer price inflation would not be higher than the forecast 20 percent for 2000, after a 36.5 percent rise in 1999. The State Statistics Committee last week forecast October inflation at 1.6 percent to 1.9 percent versus 1.3 percent in September.

Business

US Ex-Im Signs TNK Loan Guarantee

· The US Export-Import Bank on Friday signed a $198 million loan guarantee agreement with Russia's Tyumen Oil Company (TNK) to finance improvements of a Tyumen refinery in the central Russian city of Ryazan. The loan, with an option to increase the amount to $235 million, could be supplemented by an additional $70 million provided by TNK. The financing is part of the largest loan guarantees ever given by the Export-Import Bank to a Russian (or previously Soviet) company. TNK President Simon KUKES said at the signing ceremony in Ryazan, "This event will hopefully be the catalyst for a serious [foreign] investment in Russia." US Ambassador James COLLINS said that the loan guarantee could encourage other US businesses to invest in the Ryazan region.

ABB Lummus Global, based in Bloomfield, New Jersey, and part of Switzerland's ABB Ltd. will undertake the modernization of Ryazan, which is the most ambitious refinery upgrade in Russia to

date. KUKES pointed out that after the modernization is complete in 2002, "Ryazan will be the most advanced refinery in Russia." The refinery will operate with modern air pollution control equipment and continue to produce unleaded gasoline and low-sulfur diesel fuel. In addition, the refinery will, for the first time, produce oxygenated gasoline using its own equipment. Stephen SOLOMON, President and CEO, ABB Lummus Global said, "We are pleased to play a role in bringing environmentally friendly fuels through state-of-the-art refining technology to the former Soviet Union." The project will enable the refinery to meet European specifications for fuels through at least 2005.

Chase-JP Morgan To Merger In Russia

· Chase Manhattan Corp. and JP Morgan & Co. plan to merge their Russian operations by the start of 2001, Vedomosti reported. Chase's Russian unit is among the top 30 banks in Russia and has a well-developed brokerage operation, while JP Morgan has been involved in investment banking. Chase agreed in September to buy rival JP Morgan, uniting two of the oldest US banks. Chase and JP Morgan have struggled to add securities underwriting and merger advice to compete with rivals Goldman Sachs Group Inc. and Morgan Stanley Dean Witter & Co.

Uralelectromed To Raise Copper Output

· Russia's second largest copper producer, Uralelectromed, plans to produce 320,000 tons of copper this year, 20,000 above its nameplate capacity. Uralelectromed, based in Verkhnyaya Pyshma, had said earlier this year it planned to produce around 300,000 tons of copper, up from 271,000 tons in 1999. "Andrei KOZITSIN said at a meeting with employees that this year we would override our design capacity and produce around 320,000 tons of copper," Elvira SAFINA, Uralelectromed's spokeswoman told Reuters. "Uralelectromed has accumulated large stocks of blister copper and copper scrap, which will allow the increase in [refined copper] output," she added. But she declined to say what technical resources would be used to reach the new volume. SAFINA said in the first nine months of this year Uralelectromed increased its refined copper output by 14.3 percent from the same period last year, when it produced 185,765 tons of the metal.

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European Republics

Lithuania Sets NATO-EU Membership Goals

· Lithuanian parliament on Thursday passed a resolution which said that the main foreign policy goals were to get an invitation to join NATO in 2002 and join the European Union (EU) in 2004. Former parliamentary speaker and Conservative Party leader Vitautas LANDSBERGIS proposed the resolution to the newly elected parliament. The resolution also said, "Lithuania will develop good relations with all neighboring countries."

Lith. To Maintain Tight Fiscal Policies

· The International Monetary Fund (IMF) urged Lithuania to maintain tight fiscal policies and continue structural reforms. "I congratulate you on your current successful efforts in reducing the budget deficit, developing structural reforms, restoring the trust of international financial institutions and stabilizing the securities market which allowed a return to capital markets and to borrow again on favorable terms," IMF head Hoerst KOEHLER said in a statement. "But at the same I want to stress that to secure those hard-fought achievements, it is necessary to continue this financial policy," he added. Lithuania entered a precautionary, 15-month, $80 million standby arrangement with IMF to shore up the country's financial stability after the economy shrank 4.1 percent last year due to the effects of the 1998 Russian financial crisis. According to the deal Lithuania took an obligation to trim its fiscal deficit to 3.3 percent of gross domestic product in 2000, after it swelled to over 8.0 percent last year, raising fears that the current litas exchange rate would not be sustainable. The fiscally conservative government of outgoing Prime Minister Andrius KUBILIUS introduced an austerity package that reined in the deficit but hit a recession-weary country hard, and his party lost the October 8^th elections. He has been replaced by Liberal Rolandas PAKSAS who said on Tuesday that he aimed to keep fiscal policy tight.

Ukraine Offers Three Power Distributor Stakes

· Ukraine is offering controlling stakes in the first three of six power distributing companies it is selling, which includes the regional power distributors of Kiev, Rivne and Zhutomyr. The government set a minimum price for 75.56 percent of Zhytomyroblenergo at 95.2 million gryvnia ($17.5

million), while the minimum price for a 75 percent plus one share stake in Kievoblenergo is at 174 million gryvnia. The government wants at least 100.6 million gryvnia for a 75 percent plus one share stake in Rivneoblenergo. Ukraine has started to ask for bids on these three power distributors, which should be submitted by December 1^st. The tenders will take place on February 22^nd. Earlier this week, Ukraine said it expects that Electricite de France, Europe's largest electricity producer, US AES Silk Road Corp., and Union Electrica Fenosa, Spain's third-largest power company, will bid for some of controlling stakes in the six power distributors.

South Caucasus & Central Asia

IMF To Decide On Georgian Loan

· Georgian President Eduard SHEVARDNADZE in his radio address today said that the International Monetary Fund (IMF) mission, which worked in Georgia from October 17^th through October 27^th, is preparing to take a decision on allocating a $150 million credit to Georgia for the next two-three years. According to him, during the last visit of the mission the preliminary agreement has been made on the main parameters of the economic policy of Georgia during 2001 to 2003, Prime News Agency reported.

AIOC To Invest $629M In Offshore Exploration

· Azerbaijan International Operating Co. (AIOC), an international consortium led by BP Amoco, said that it plans to invest as much as $629 million in the Azeri-Chirag-Guneshli offshore exploration project at the Caspian Sea next year, up from an expected investment of $249 million this year. The company is proceeding with the project development and plans to raise its production to 130,000 barrels a day by the end of 2001 from the average output of 100,000 barrels a day this year. AIOC President David WOODWARD said with, "the application of extended drilling technology the project will increase Chirag (field) recoverable reserves by 330 million barrels," Bloomberg News reported. It is estimated that the three Azeri, Chirag, and Guneshli oil fields hold together about 4.5 billion barrels of reserves. The AIOC produced 11.35 million tons (83.2 million barrels) of oil since November 1997, which were shipped through a pipeline to the Georgian port of Supsa. After 2004, the group plans to increase

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output to 350,000 barrels a day by 2007 and to 800,000 barrels in 2010, WOODWARD said. In mid-October, AIOC and the Azeri government agreed to spend $25 million on an eight-month basic engineering study of a pipeline that would cost at least $2.4 billion and carry Caspian Sea crude through Turkey to world markets. The group plans to invest another $120 million on a more detailed, yearlong examination.

Akayev Easily Wins Re-election

· Kyrgyz President Askar AKAYEV was re-elected during an election on Sunday. The Central Electoral Commission announced preliminary statistics showing that AKAYEV won 74.34 percent of the vote, however polling violations were cited. About 700 ballots marked for AKAYEV were found in a ballot box before polls opened Sunday in the capital Bishkek. Nearly 99.28 percent of ballots have been counted. AKAYEV has failed to fulfill previous election pledges of improving the economy and raising the level of democracy. He counters, "The criticism I take most painfully is that we haven't managed to save people from poverty, to secure a certainty in tomorrow. We are still transforming." But critics say AKAYEV's family and cronies have taken over key industries and media outlets, pressuring business rivals and independent journalists, while enriching themselves.

AKAYEV's main challenger, Felik KULOV, was barred from standing after failing to sit a controversial language exam. Twelve other candidates were barred from the race for failing the rigorous language test or for registration technicalities. The President is increasingly stifling dissent and is seen as having become more corrupt as his nine years in power continued, the Associated Press reported. Future foreign aid to Kyrgyzstan may depend on how fair the international community views Sunday's election. Election observers said parliamentary elections this April were far from fair. The Organization for Security and Cooperation in Europe (OSCE) called the registration process discriminatory.

AKAYEV faced five challengers: Tursunbek AKUNOV, Omurbek TEKEBAYEV, Almazbek ATAMBAYEV, Tursunbai BAKIR-UULU, and Melis ESHIMKANOV. Deputy parliament speaker TEKEBAYEV, an ally of KULOV, garnered 13.88 percent of the vote, coming in a distant second and industrialist ATAMBAYEV was third with 6.04 percent. TEKEBAYEV's supporters cried fraud, and today they tried to block highways in four places in the southern Jalal-Abad region in protest. A statement from the OSCE monitoring mission is expected to outline its findings later this week.

Tajikistan Announces New Somoni Currency

· On Thursday, Tajik President Emomali RAKHMONOV announced the introduction of a new Tajik currency, named the somoni after a medieval Tajik ruling dynasty, which will be pegged to the dollar. One somoni will be valued at 1,000 Tajik rubles, the currency which has been in circulation since 1995. The announcement triggered panic buying, rising prices, and a steep fall in the value of the ruble. The Tajik ruble fell in value from 2,050 rubles to the dollar to 3,000 rubles. Tajik rubles will remain in circulation until April 1, 2001. Until that time Tajikistan's 6.4 million people will be allowed to freely exchange the old currency for somoni.

The International Monetary Fund (IMF) welcomed Tajikistan's new currency, saying it should enhance confidence in the economy and contribute to growth, stability and poverty reduction. IMF Deputy Managing Director Eduardo ANINAT said, "Against the background of stabilization and continuing reform, I expect the currency reform to be successful and wish to congratulate the President of the Republic of Tajikistan on this new achievement." He added, "It is of the utmost importance that the population have confidence in the new currency and that people understand that there are no confiscatory elements in the process of converting the old currency and the new one."

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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