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

Wednesday, October 4, 2000

Russian Federation

Politics

Rus-India Renew Strategic Relations

· Russian President Vladimir PUTIN and Indian Prime Minister Atal Behari VAJPAYEE signed a cooperation agreement in economics, military, and technology, outlining their new strategic relationship and completing the initiative originally proposed by former prime minister Yevgeny PRIMAKOV. The two countries reached an agreement to jointly fight international terrorism, defense issues, and nuclear energy. "These negotiations have confirmed the coincidence of long-term national and geopolitical interests of Russia and India," PUTIN said. Other signed agreements ranged from diamond trade to cooperation between Central Banks to scientific and technical cooperation.

Both nations agreed to hold annual summit-level meetings and cooperate more closely at the UN on key global and regional issues. Prior to his visit, Russian President PUTIN stressed the importance of developing relations with China and India. "It is impossible to establish a new architecture of international relations as a whole without the participation of Russia, China and India," he said. PUTIN added, "Russia, China and India have common interests in Asia, which we want to promote together. I see nothing special or dangerous in it." VAJPAYEE stressed that India was not forming an old-style strategic alliance with Moscow. Russia and India agreed to work together on Afghanistan, which they see as an incubator for Islamic forces. During VAJPAYEE's last visit to the US, Washington and New Delhi also agreed to collaborate on Afghanistan. India is interested in persuading Russia to help it convince the UN to expand the membership of the Security Council. Bharat KARNAD of

New Delhi's Center of Research explained, "India needs Russia to destroy P5 [the five permanent members of the UN Security Council] solidarity and the bait is the nuclear plants." The two sides signed Memoranda of Understanding (MOU) for cooperation in the peaceful uses of nuclear energy. India has plans for six to eight more plants to help meet its growing electricity demand.

State-run Gas Authority of India Ltd (GAIL) and Gazprom are expected to sign a pact, which would cover exploration and production and the design, construction, operation and maintenance of gas pipelines. The two companies will also cooperate in operating underground gas storage and liquid hydrocarbons, coal-bed methane and processing of natural gas. The two nations have already signed a protocol to establish the Inter-Governmental Commission on Defense and Technical Cooperation and a number of defense agreements to purchase aircraft carrier Admiral Groshkov, T-90 tanks and licensed production in India of SU-30 MKI jets.

Russian Troops Kill Chechen Rebel Leader

· Russian troops killed Isa MUNAYEV, who had been the rebel military commandant of Grozny, on Thursday when a group of rebels was trying to blow up a Russian military truck. MUNAYEV was among the rebels who have kept Russian forces in Grozny and other nominally Russian-controlled areas on the defensive with ambushes, car bombs and mine explosions. Such attacks have increased in re

Today's News Highlights

Russia

Kasyanov Meets On 2001Budget

News Corp. To Buy Media Most?

UES Buys LUKoil TV Station

European Republics

EBRD To Help Ukraine's Trade

Ukraine-Turkmen Gas Supplies

South Caucasus & Central Asia

Georgia Lari ToRemain Stable

Saakashvili For Justice Minister

Kazakh Oil Contracts Signed

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cent months as federal forces have concentrated their air and artillery attacks on the mountainous south.

Two Russian Federal Security Service (FSB) officers were killed and another badly wounded in a rebel ambush near the village of Urdyukhoi Monday. The wounded officer has been hospitalized and is in grave condition. The Shatoi district prosecutor's office is investigating the incident. On Sunday, two FSB officers were killed and two others injured when their vehicle came under rebel fire in the south Chechen district of Argun. Rebels also engaged Russian troops patrolling the border with Georgia in a 30-minute firefight, but no Russian casualties were reported. Russian airplanes and helicopters pounded the border regions of Itum-Kale, near Georgia, and Nozhai-Yurt, near the Russian republic of Daghestan, over the past 24 hours. They also bombed the Argun and Vedeno gorges, the main channels for rebel transports of men and supplies, and the forests of the Shali and Kurchaloi regions in southern Chechnya, the Associated Press reported.

Economy

Ruble = 27.80/$1.00 (NY rate)

Ruble = 27.84/$1.00 (CB rate)

Ruble = 24.31/1 euro (CB rate)

Budget Committee Backs 2001 Draft

· The Russian State Duma's Budget Committee has voted, 24 to 14, to support the 2001 budget of Russian Prime Minister Mikhail KASYANOV's government, despite his inability to convince all faction leaders to approve the budget in a vote this Friday. The government has drafted a balanced, $40 billion budget, which targets four percent growth in gross domestic product and 12 percent inflation. On Tuesday, KASYANOV met with faction leaders to further explain the budget. Gennady RAIKOV, leader of the pro-government People's Deputy group, said after the meeting, "I personally think the 2001 budget will be passed on Friday." The Unity Party, with 83 votes, has pledged its support for the bill. Duma deputies have threatened to vote down the budget, unless it provides for more generous spending. Communist Party chief Gennady ZYUGANOV said the budget, "conserves the old ills of our country and won't do anything for the people or the Russian economy." Earlier, ZYUGANOV called for the bud

get to reflect the real situation in Russia. Liberal economists, who rarely agree with the Communist leader, also urged the government to hike targeted 2001 spending and demanded greater control over fulfillment. The Communists, with 87 of 450 Duma seats, say more should be spent on the military, agriculture, health and welfare. Agrarians, with 42 votes, want the government to raise spending on agriculture to 26 billion rubles ($867 million at the projected average exchange rate of 30 rubles per dollar) from the planned 15 billion rubles. Boris NEMTSOV, one of Russia's leading liberals in the Union of Right Wing Forces (SPS), also called for changes. "We need a social budget, to increase spending on education, teachers' pay and computers for schools," Reuters reported. The government needs to secure 226 votes for the first of four readings to be passed.

Nuclear Production Rises In 2000

· Russia's nuclear power plants generated 9 percent more electricity in the first nine months of the year than in the same period of 1999. The state nuclear company, Rosenergoatom, pointed out on Monday that there had been fewer breakdowns Officials controlling the 22 reactors reported 53 so-called "incidents," or minor breakdowns and malfunctions, so far this year without any radiation leaks. In 1999, over the same period there were 63 similar incidents. Environmental groups have expressed concern about Russia's nuclear power program, saying the country doesn't have enough money to properly maintain its plants or dispose of nuclear waste, the Associated Press reported. Russia has nine nuclear power plants, with seven reactors currently undergoing repairs, as well as dozens of research reactors. Construction work on three more plants has been delayed because of a lack of funds.

Platinum-Palladium Supplies To Swiss

· Russia, the world's biggest source of palladium and the second-biggest supplier of platinum, slashed shipments of both metals in August after boosting them in the previous month. Russia delivered 2.49 metric tons of platinum (79,700 troy ounces) to Switzerland in August, down from 8.74 tons in July, the peak month for exports this year, the Swiss Customs Office said. Palladium shipments fell to 3.46 tons from 5.91 tons in July. Palladium fell as much as $2, or 0.3 percent, to

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$713 an ounce in London. Platinum, which reached a 12-year high of $616 an ounce last month, fell as much as $2, or 0.4 percent, to $574 an ounce, Bloomberg News reported. Russia ships its platinum and palladium exports to Europe via Swiss banks, which then make it available for trading and industrial customers. Swiss customs statistics are the best month-to-month indicator of Russian shipments of the metals to Europe. Palladium reached its record high of $858 an ounce in August. It has fallen to within a range between $700 and $770 an ounce for more than six weeks.

Business

News Corp. May Buy Media Most Stakes

· Unnamed sources in Gazprom has told Kommersant Daily that Rupert MURDOCH's News Corp. may purchase Russia's independent media group, Media Most. Gazprom said that after it wins a Moscow Court case set for next Monday, to enforce its takeover of Media Most under a settlement deal, it will sell the company to News Corp. Gazprom Chief Executive Officer Rem VYAKHIREV said, "If they won't pay the money, we will receive shares of Media Most and will sell them to whoever pays the most." Gazprom, 38.3 percent state-owned, denied Media Most's claims it is acting to tame a media holding the government dislikes for its criticism of President Vladimir PUTIN, the newspaper reported. Margaret FEARN, a spokeswoman at Rupert MURDOCH's Australian newspaper publishing company News Ltd. in Sydney, said she could make no comment on the article.

UES Buys TV Channel From LUKoil

· Russia's power monopoly Unified Energy Systems (UES) has purchased a stake in Ren TV, a regional network, from LUKoil Holding, Russia's top oil producer. UES bought a controlling stake, equal to 70 percent of shares, in the network at an estimated value of up to $30 million. UES hopes to improve Ren TV's image in the regions. Ren TV reaches 70 million viewers in Moscow, St. Petersburg, Nizhny Novgorod, Samara, Yekaterinburg, Kazan and elsewhere, with a market share of about 3.7 percent, according to Gallup Media. Analysts said the channel will require substantial investment. Many analyst interpret the purchase as a move by UES' Anatoly CHUBAIS to extend his influence. The ownership of Russia's media outlets

is in flux, the Financial Times reports, citing the Kremlin's attempt to re-establish control over ORT and reduce the shares that Boris BEREZOVSKY holds; Government ownership of RTR network; and the struggle for control of Vladimir GUSINSKY's Media Most. UES tried to play down the significance of its purchase. It pointed out that the transaction was carried through a subsidiary company, financed by a loan in conjunction with other investors, and was purely a business deal. UES, which controls 73 regional power companies, plans a reorganization of the company that involves breaking up its monopoly by separating its generating companies from its distribution network and selling the generators. The government hasn't approved the proposed reorganization plan, which minority shareholders have criticized for lack of detail on proposed asset sales and the creation of a free market for electricity.

Bykov Questioned In Murder Probe

· Former chairman of Russia's second largest aluminum smelter Krasnoyarsk Anatoly BYKOV was detained for questioning today in connection with a murder investigation. He was freed from prison in August pending trial on other charges, including money laundering and complicity in murder. A Federal Security Service (FSB) spokeswoman said that BYKOV will be questioned about the murder of businessman Pavel STRUGANOV, who was shot dead in Moscow in September. Police have already conducted a search of BYKOV's home in Krasnoyarsk. Reuters reports that BYKOV's lawyer, Robert DUBINNIKOV, denied the businessman had any involvement in STRUGANOV's murder and described his detention as a "provocation." He has said he is innocent of crimes, and that the charges against him are political. BYKOV has been an important figure in politics and business in Siberia. He was a key opponent of Krasnoyarsk's Governor Alexander LEBED, who is a former general and presidential candidate.

Court Freezes Russian-GM JV Accounts

· On Friday, a regional Court in Rostov froze $360,000 in a bank account of YelAZ-General Motors (EGM), a US-Russian car-making joint venture. EGM has appealed to the Supreme Court against the ruling, which came at the end of a two-year long legal battle between the carmaker and a customer. Kommersant Daily reported that the court had ruled

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the cars assembled at the plant did not have proper local certification. EGM was set up by General Motors (GM), YelAZ and the government of the Republic of Tatarstan in Central Russia in 1996. The case against the joint venture was initiated by Rostislav RYCHANOV of Rostov in 1998, when he sued for compensation over a problem with a Chevrolet Blazer, assembled by EGM. The plant, located in the town of Yelabuga in Tatarstan, where GM's Opel Vectra are assembled, was continuing production, despite the freezing of the bank accounts. The plant stopped assembling Chevrolet Blazers last year but began assembling Opel Vectras in July 1999. It assembled 98 Vectras in 1999 and 152 cars in January-July this year, Reuters reported.

cubic meters of Turkmen gas at $40 per 1,000 cubic meters. In May 1999 Turkmenistan stopped supplying gas to Ukraine after it paid for only 10 percent of supplies received in the first four months of that year, accumulating $280 million worth of unpaid bills. KUCHMA and Turkmenistan President Saparmurat NIYAZOV are also expected to sign an agreement on economic cooperation for the period from 2001 to 2009.

South Caucasus & Central Asia

Georgian Lari To Remain Stable

· Georgia's chief dealer and deputy hard currency department head at the Central Bank Soso PKHAKADZE said that the lari currency will remain stable until the end of the year and will fluctuate in the 1.96 lari to 1.99 lari per dollar range. He said, "The lari will be stable until the end of the year. There is no question of any sharp fall of the lari." PKHAKADZE linked the stability to the improved balance of payments following better financial situation in Georgia's main trade partners, which allowed the Caucasian state to export more, Reuters reported. He said the Central Bank had been moderately successful in buying hard currency on the open market without destabilizing the lari, which was effectively devalued in 1998. He said the central bank had bought about $50 million on the Tbilisi Interbank Currency Exchange (TICEX) this year, about 30 percent of its hard currency reserves, after $14 million last year and $10 million in 1998. Economic experts believe that the stability of the lari is dependent on whether the government can increase revenue collection. The International Monetary Fund (IMF) has criticized Georgia for falling below targeted collection figures. It wants the government to improve tax collection and fight corruption before offering more money in the forms of loans.

Saakashvili Nominated As Justice Minister

· Georgian President Eduard SHEVARDNADZE has nominated Citizens' Union Party leader Misha SAAKASHVILI to replace Georgian Justice Minister Johnny KHETSURIANI, who resigned on Tuesday. KHETSURIANI was forced to resign following the jailbreak of 12 prisoners. The Justice Ministry is responsible for the nation's penitentiaries. The President has purposed SAAKHVISHILI's candi

European Republics

EBRD Considers Helping Ukraine's Trade

· The European Bank for Reconstruction and Development (EBRD) is considering a project to support Ukrainian commercial banks' import-export transactions, Ukraina Moloda reported. EBRD officials met with Ukrainian banking representatives this week. The EBRD may give some domestic banks guarantees for financing export-import contracts as part of the project. The government wants to boost exports more to achieve sustained economic growth. It also wants to develop the domestic consumer market and will continue to pay back its debts in social payments and wages. Ukraine's economy is expected to grow about 3.5 percent this year from 1999. In 2001, the government forecasts that the economy will grow 4 percent.

Ukraine To Sign Turkmen Gas Agreement

· Ukrainian President Leonid KUCHMA is scheduled to arrive in Ashkhabad, Turkmenistan to push forward a deal on gas supplies to his country. The chief executives of the state petroleum concern Turkmenneftegas and the national oil and gas monopoly Neftegaz of Ukraine are expected to sign two deals on oil and gas sales. Under the first stage, Turkmenistan will supply to Ukraine five billion cubic meters of natural gas for $38 per 1,000 cubic meters up to the end of this year. The deal for next year provides for the sale of 20 billion

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dacy to the parliament. This is a provocative political move on SHEVARDNADZE's part and one which is politically risky for SHEVARDNADZE and SAAKASHVILI. It is well known that SAAKASHVILI has been highly critical of Interior Minister Kaha TAGAMADZE. Only last week, RFE\RL Newsline reported that SAAKASHVILI accused TAGAMADZE of organizing clandestine surveillance of deputies from the Citizens' Union parliamentary faction. Recently, the Citizens' Union Party had successfully amended legislation to reduce the fees for mandatory inspection of all vehicles in Georgia. This had been vigorously opposed by TAGAMADZE and the Interior Ministry. TAGAMADZE, SAAKASHVILI, and Chairman of the parliament Zurab ZHVANIA have been identified as potential presidential candidates after SHEVARDNADZE ends his last term. TAGAMADZE has had the confidence of President SHEVARDNADZE, especially since his Interior Ministry penetrated a plot to over throw the SHEVARDNADZE government leading to the May, 1999 arrests of a dozen suspects. There are also serious allegations of corruption against the Interior Ministry, particularly for smuggling. This will all no doubt lead to a struggle within the Georgian government for the future of the Citizens' Union Party. If SAAKASHVILI accepts the nomination, he will have to step down as Citizens' Union Party leader. Intercon sources report that Chairman for the Parliamentary Committee for Security and Defense Revaz ADAMIA will take over SAAKASHVILI's position as Party leader of the Citizens' Union parliamentary faction.

Major Kazakh Oil Contracts Signed

· A group led by the BG Group and Eni signed agreements worth $1.06 billion to drill for, process, and transport oil and gas in northern Kazakhstan's Karachaganak field. A $900 million three-year service contract to build an oil and gas processing unit and a pipeline linking Karachaganak with the Tengiz field is expected to be signed Thursday with CCC Saipem, a venture between Consolidated Contractors Co., and Saipem, Europe's biggest oil services

company and a unit of Eni. The 630-kilometer pipeline will ship 12 million tons of oil a year and will join the Caspian Pipeline Consortium pipeline, which will start shipping oil from Tengiz to a Black Sea port by mid-2001.

In addition, a second $160 million three-year contract was signed with Saipem and Parker Drilling Co., a US oil and natural-gas drilling contractor, to conduct drilling operations. The partners will employ six new rigs and work at the existing wells. John MORROW, general director for Karachaganak Petroleum Operating said, "This is the main construction contract for the Karachaganak project. The Karachaganak project is the largest current investment in Kazakhstan." The Karachaganak Petroleum project, which holds 2.3 billion barrels of oil reserves, is 32.5 percent owned by BG Group, Britain's sole natural gas distributor, and 32.5 percent by Eni, Italy's largest oil and natural gas company, and its subsidiary Agip Ltd. Other partners include Texaco (20 percent) and LUKoil Holding (15 percent). Zhakyp MARABAYEV, vice president of state-owned Kazakhoil said, "The project implementation will allow us to stop using Russian processing units in [the cities] of Orenburg and Salavat." Kazakhstan's oil production will increase 10 percent to 33.5 million tons (670,000 barrels) a day this year, up from 30 million tons produced in 1999. The nation's producers expect output to rise to 80 million tons of crude a year after 2010. The Karachaganak Petroleum project will produce 4 million tons of oil and 4.5 billion cubic meters of gas this year. About $1.1 billion has been invested in the Karachaganak Petroleum project so far, with about $2.5 billion in investments planned for the next three years. Kazakhoil has estimated that it needs $67 billion of investment through 2020.

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