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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Thursday, October 5, 2000

Russian Federation


US Committee Calls For Cutting Russian Aid

· The US House International Relations Committee on Tuesday voted unanimously to call on President Bill CLINTON to cut all financial aid to Moscow and work to block Russia's entry to the World Trade Organization unless it releases an American Edmond POPE, who is being held in Moscow's Lefortovo prison on espionage charges. The measure will be brought before the full House as early as next week. POPE, a former US Navy intelligence officer-turned-businessman, was arrested on April 5th for allegedly trying to obtain underwater missile technology from a Russian scientist. He has been held for violating Article 276 of the Russian Criminal Code, which pertains to espionage. The Federal Security Service (FSB) claims that a search of POPE's office uncovered diagrams and plans for Russia's latest submarine missiles and taped conversations with Defense officials. The FSB believes that POPE had illegally purchased plans for a high-speed torpedo. Also arrested in April was an unnamed Russian accomplice identified as a "defense project specialist." When arrested the Russian was carrying nearly $30,000. Experts suspect that this Russian was used to set up POPE and then released. It is unknown whether he is still in jail. POPE could face up to 20 years in prison if convicted. Russian authorities have denied POPE, who is suffering from a rare form of bone cancer, adequate medical treatment. The US has repeatedly called for POPE's release saying there is no evidence that he broke any Russian laws. Representative Sam GEJDENSON (CT-Dem.) said, "This case seems more like the old Russia than any new Russia that we had hoped for," Reuters reported. The House resolution, sponsored by Representative John PETERSON (PA-Rep.), also calls on

CLINTON not to reschedule millions of dollars in Soviet-era debt owed by Russia to the US, unless POPE is released.

Based on the continued detention of POPE, the US State Department Wednesday warned US businessmen that they could face risks if they enter into agreements with Russia's military-industrial complex. "In Russia certain activities which would be normal business activities in the United States and other countries are still either illegal...or are considered suspect…Americans should be particularly aware of potential risks involved in any commercial activity with the Russian industrial-military complex, including research institutes, design bureaus and production facilities…Any misunderstanding or dispute in such transactions can attract the involvement of the security services and lead to investigation or prosecution for espionage," the department said. State Department spokesman Philip REEKER said, "The arrest of an American citizen involved in legitimate commerce and held for an extended period under unacceptable circumstances raises questions about the risks to Americans seeking to engage in any commercial activity with Russia's military-industrial enterprises and our ability to protect their welfare." The warning is included in a consular information sheet on Russia. In a separate statement, the State Department said the Pope case raised questions about the risks to Americans engaged in such business dealings and about the ability of the US to protect

Today's News Highlights


Russia Increases Oil Duties

Russia-India Sign Weapons Deal

European Republics

Lith. Budget Gap For September

Estonia Predicts GDP Growth

South Caucasus & Central Asia

Anadarco Starts Seismic Study

Azeri Signs Natuaral Gas Deal

Kazakhoil To Bid On Kherson




October 5, 2000

Intercon's Daily

their welfare in detention. "Americans are well-advised to take this information into account before planning business-related travel to Russia."

Bomb Explodes Near Baltic Fleet HQ

· A bomb exploded outside and apartment building, just yards away from Russia's Baltic Fleet headquarters in Kaliningrad, on Wednesday. The explosion shattered windows on the first and second floor and tore a four-foot-wide crater in the ground, but no injuries were reported. According to Russian Emergency Situations Ministry spokesman Viktor BELTSOV, the blast occurred about 3:30 a.m. local time. Police refused to speculate on a possible motive.


Ruble = 27.81/$1.00 (NY rate)

Ruble = 27.78/$1.00 (CB rate)

Ruble = 24.27/1 euro (CB rate)

Russia Increase Oil Export Duties

· Effective October 30th, the Russian government has increased it oil exports duties from the 27 euros to 34 euros per ton of crude oil. Russian Prime Minister Mikhail KASYANOV signed a resolution on this issue on Saturday September 30th. The increase applies to exports duties charged for exports of high octane and low-octane gasoline, which go up from 25 euros to 32 euros per ton. The same exports duty will be charged for exports of a ton diesel fuel. Fuel oil tariffs will increase from 20 euros to 27 euros. Exports of diesel are restricted for September and October and fuel oil from September to April 2001. The changed rate will apply to exports outside the Customs Union (Russia, Belarus, Kazakhstan, Kyrgyzstan, and Tajikistan).

The Energy Ministry said that producers would be able to export five percent of their fuel oil from 10 percent of production in September and 26 percent of gasoil or diesel from 25 percent in September. The ministry spokesman Yuri NOGOTKOV said, "This is a seasonal restriction. We need to supply diesel to farmers for the harvest and to the northern (Arctic) regions for winter, and we need to ensure utilities have enough fuel oil for the winter." The authorities impose export duties and quotas from August to March each year to ensure fuel deliveries to domestic customers. These measures last year

didn't stop exporters shipping products abroad, as world oil prices — which now are at 10-year highs — rose above $24 a barrel in September, 1999. Official notification of these quotas has not been published.


Stake-Assets Swap In Jeopardy

· Creditors of Russia's Unexim Bank approved an additional share issue at Sidanco Oil Co., which the Russian oil company needs to regain control of a key oil-producing unit. A total of 95 percent of creditors backed the move, which will dilute Unexim's 38 percent stake in Sidanco to 27 percent, Bloomberg News reported. Unexim, which collapsed in 1998, lent money to units of Interros Holding Co., Unexim Bank's owner. The loans were backed by shares in Sidanco, of which Interros owns 44 percent. Sidanco is issuing new shares as part of an agreement with Tyumen Oil Co., Russia's fifth-biggest producer. Tyumen will get 25 percent of Sidanco in exchange for the assets of its former subsidiary Chernogorneft, which Tyumen acquired at auction after both Chernogorneft and Sidanco entered bankruptcy. Unexim's creditors, including the European Bank for Reconstruction and Development (EBRD), and Merrill Lynch & Co., are owed $2.2 billion.

Tyumen is stalling the return of Chernogorneft to Sidanco, due to a dispute over shares. Sidanco board Chairman Dmitry USHAKOV said an Alfa Bank advisor explained that Tyumen didn't want to swap Chernogorneft for new shares issued by Sidanco, but instead wants to receive existing shares worth 25 percent of Sidanco. Tyumen objects to the share issue as Sidanco shareholders could challenge the additional share issue after Tyumen hands over the Chernogorneft assets, leaving Tyumen with nothing, Vedomosti reported. "Under current conditions, dropping the share issue may effectively lead to suspension of the deal," USHAKOV said. However, he is still hopeful, as the parties have agreed to meet on October 15th. A source at Sidanco said that if a deal was not reached at that meeting, the company would seek to put international pressure on Tyumen.

Rus-India Sign $3 Billion Weaponry Deal

· India has signed four key defense agreements

When you need to know it as it happens




October 5, 2000

Intercon's Daily

with Russia that will involve the purchase of weapons worth $3 billion including tanks and technology for fighter aircraft. Under the agreement, India will manufacture under license 150 Su-30 MKI long-range fighter-bombers, buy and produce 310 T-90 military tanks, lease four Tu-22 backfire bombers, and take over the Russian 30,000-ton aircraft carrier Admiral Gorshkov. The price that India will pay for the carrier hasn't been decided yet. Other agreements, signed by Indian Defense Minister George FERNANDES and Russian Deputy Prime Minister Ilya KLEBANOV, call for the establishment of an intergovernmental commission on military and technical cooperation. The commission would ensure that Indo-Russian defense ties are not restricted to purchases, widening the scope for the possibility of Moscow investing in Indian defense industries and in joint marketing. Russia and India also agreed to develop peaceful uses of nuclear energy. The agreements were reached during Russian President Vladimir PUTIN's first official visit to India.

cit was 630.4 million litas ($157.6 million) at the end of September, a 18.46 million litas rise over the month. State budget revenues were 4.209 billion litas in the first nine months, 280.57 million litas less than planned for the period, with expenditures at 4.839 billion litas, ministry spokeswoman Rima KAZILIUNIENE said. Lithuania's 2000 state budget plans revenues of 6.05 billion litas and expenditures of 6.85 billion litas for a deficit of 800 million litas or 1.8 percent of gross domestic product (GDP). In September, the budget revenues came to 452.84 million litas, some 66.7 million litas less than planned for the period after a 24 million litas surplus in August as expenditure last month was 471.3 million litas, KAZILIUNIENE said. The state budget does not include municipal and extra-budgetary funds and net lending which are included in the consolidated budget, according to which the overall fiscal balance, targeted at 3.3 percent of GDP this year, is calculated.

Latvian Cabinet Predicts Fiscal Deficit

· Latvia is drafting budget amendments that would raise the 2000 fiscal deficit to 2.7 percent of gross domestic product (GDP). The government had originally pledged to limit this year's deficit to two percent of GDP, but later said it would not be able to keep the promise. It then announced two possible variants for budget amendments¾one that would raise the deficit to 2.4 percent of GDP and another that would put the gap at 2.7 percent. Finance Minister Gundars BERZINS said, "We have opted for the second variant and the deficit should be around 2.7 percent of GDP." The government plans to make its final decision on the changes to the budget next Tuesday before passing them onto parliament. "We would need to have the amendments approved [by parliament] as soon as possible, hopefully at the beginning of November as the original plan was," BERZINS said. At 2.7 percent of GDP, the fiscal deficit would be 107.5 million lats ($174.5 million). The original plan of two percent of GDP would have put it at 80.5 million lats.

Estonia CB Predicts 5.5 Percent GDP Growth

· The Estonian Central Bank on Wednesday said the nation's gross domestic product (GDP) could grow by 5.5 percent or more in 2000, versus a June forecast for four percent to 5.5 percent growth. In a monetary policy overview the Central Bank said,

European Republics

Belarus Passes 2001 Budget In First Reading

· The Belarus parliament on Tuesday overwhelmingly approved a 2001 draft budget in the first out of two required readings. The draft foresees a 1.5 percent deficit, after 1.7 percent deficit targeted for 2000. Prime Minister Vladimir YERMOSHIN said after the vote, "Next year we shall focus on social problems. We are living at a time when we have to boost spending on current issues and cut on long-term [investment]." Belarus President Alexander LUKASHENKO has already given his preliminary approval to the draft. The draft document predicts that the gross domestic product will grow three to four percent, compared with the four percent forecast for 2000. Annual inflation is targeted at 162 percent to 173 percent in 2001, against the 280 percent planned for this year. Budget revenues are set at 5,694.4 billion Belarus rubles ($5.49 million), spending at 5,942.2 billion rubles, and the deficit at 247.8 billion rubles, Reuters reported. The government plans to cover budget deficit by borrowing on the domestic market. The parliament plans to hold the second reading on October 12th, in order to pass it before October 15th parliamentary election.

Lithuanian Budget Gap For September

· Lithuania's Finance Ministry announced on Monday that preliminary state budget financial defi

When you need to know it as it happens




October 5, 2000

Intercon's Daily

"Chances are good the optimistic scenario of 5.5 percent (economic) growth or more can be met." The bank added an average four percent rise in the country's consumer price index this year was possible, in line with June's forecast. Central Bank spokeswoman Kaja KELL told Reuters the Bank was also expecting a current account of "between minus six and minus seven percent of GDP, but closer to minus six percent." The improved economic outlook follows Estonia's successful rebound from recession last year in the wake of autumn 1998's Russian financial crisis that closed eastern markets to Estonian exports and contributed to a 1.1 percent fall in the Baltic state's GDP. The lingering effects of the downturn have sent Estonia's 2000 state budget — passed as balanced as it must be by law ¾into a de facto deficit that the government has said will be kept below 1.3 percent of GDP. It is the second consecutive year Estonia has run a state budget deficit. Last week the Central Bank called on the government to secure surpluses in 2001 and 2002 to compensate.

South Caucasus & Central Asia

Anadarco Starts Seismic Study

· American company Anadarco will start seismic reconnaissance works at the Adjarian sea shelf in October, according to president of Saknavtobi (Georgian Oil) Revaz TEVZADZE. Anadarco Oil Company has earlier announced readiness to invest $ 1 billion in the project. The agreement with Anadarco is for 25 years and the company plans to drill 25 bore-holes at the territory of 8 900 square meters, Prime News Agency reported.

Azeri Signs Natural Gas Contracts

· Azeri State Oil Company (Socar) has signed contracts to import 4.3 billion cubic meters of natural gas between October, 2000 and the end of 2001, according to Socar's president Natik ALIYEV. He said an alliance of Itera, closely linked to Russian gas giant Gazprom, and Germany's Debis Company will supply 2.644 billion cubic meters (bcm) of

natural gas and another Russian firm, Transneft will supply another 1.644 bcm. The supply volumes could be increased. "The more gas we get, the more efficient will be the transfer of our utilities to gas from fuel oil," ALIYEV said. Azerbaijan restricted electric energy consumption in the first quarter of 2000 for lack of sufficient volumes of fuel oil, pumping all oil produced by Socar, around 24,000 tons per day, to local refineries to produce fuel oil. Socar has started sending all its oil to refineries from July of this year in order to accumulate fuel oil for this winter and stopped its exports through the Russian Black Sea port of Novorossiisk. ALIYEV said that gas imports would permit freeing some crude oil for export through Novorossiisk, but did not give possible volumes.

Kazakhoil To Bid On Ukraine Refinery

· Kazakhstan's state oil firm Kazakhoil plans to take part in a tender for the sale of a controlling stake in Ukraine's main Kherson Oil Refinery, according to company head Nurlan BALGIMBAYEV. He added at a press conference in Almaty, "This is a huge market. God willing we shall win this tender and...conquer the Ukrainian market." Kazakhoil has managed a 50 percent-plus-one stake in the Kherson Refinery for the past year and is one of its main supply sources. Ukraine plans to privatize the refinery, with a capacity of 140,000 barrels per day, this year. BALGIMBAYEV said Kazakhoil was shipping up to 100,000 tons of oil a month to Kherson at a price of $130-$140 per ton. In comparison it receives $73 per ton for crude supplied to its subsidiary Atyrau plant in Kazakhstan. Reuters reports that Kazakhoil will produce 5.6 million tons (around 110,000 barrels per day) of crude this year. The company, formed in 1997, represents the state in Kazakh oil companies, including its 20 percent stake in the giant Tengizchevroil producer.

The Daily Report on Russia and the Former Soviet Republics

will not be published on Monday October 9th

in observance of Columbus Day

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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When you need to know it as it happens