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

Friday, October 6, 2000

Russian Federation

Politics

Poll On Putin's Presidency

· A poll conducted last week by the Public Opinion Foundation, in 29 of Russia's 89 regions, found that 49 percent of Russians believe President Vladimir PUTIN is doing a satisfactory job, while 30 percent rate his performance as good, and 3 percent rate

Russia Backs Kostunica

· Russia dropped its support for Slobodan Milosevic today and joined the West in backing Vojislav Kostunica as Yugoslavia's new president. According to the Russian news agencies, Foreign Minister Igor Ivanov, in Belgrade to mediate in the standoff, congratulated Kostunica. "I passed on a message from President [Vladimir] Putin and congratulated Kostunica on winning the presidential election," Interfax news agency quoted him as saying. Russia was the last major European nation to withhold support for Kostunica. "The fact that the Russians have [recognized Kostunica as winner], shows that the Russians have recognized the democratic election," US Secretary of State Madeleine Albright told CNN. "It's very, very important news," she stated. Washington has been urging Russia to persuade Milosevic to step down. Russia's position had previously been that only the Yugoslav courts could decide who won the election.

Support for Milosevic and hostility toward the West, however, has not dried up in the Duma, particularly among Communists and nationalists. The Duma refused to send greetings to Kostunica. Gennady Seleznyov, the lower house Communist speaker, lashed out at Kostunica, accusing him of organizing a coup, Reuters reported.

him as excellent. It also showed that 48 percent of the population thinks the government should actively push economic reforms, compared with 28 percent who think it shouldn't. When asked whether they approved or disapproved of the results of Russia's reforms, 17 percent of those polled said they approved, while 49 percent disapproved. Another 17 percent said they neither approved nor disapproved of Russia's reforms and 17 percent said it was hard to say. However, when asked if government reforms will change the living standards, 27 percent said it would improve living standards, 25 percent said it wouldn't change, 27 percent said living standards will decline, while 21 percent said it was hard to say.

Economy

Kudrin Announces A Budget Surplus

· Russian Deputy Prime Minister and Finance Minister Alexei KUDRIN said that the nation posted a budget surplus of 5.7 billion rubles ($205 million) in September, while the surplus for the first nine months amounted to 105.8 billion rubles. Quoting preliminary figures, he told the Russian State Duma that in September the State Customs Committee had collected 31.1 billion rubles and the Property Ministry 900 million rubles. He also told a news conference that the Tax Ministry had collected 48 billion rubles in September, down from 52.6 billion rubles in August. KUDRIN has called for half of any excess revenues in 2001 to be used to repay Russia's

Today's News Highlights

Russia

Vneshtorgbank Buys Most Bank

AvtoVAZ To Meet 2000 Target

European Republics

Prior To Lithuanian Vote

Ukraine To Sell Alumina Plant

South Caucasus & Central Asia

Supsa Port Fills 30^th Tanker

Kazakh $1.4B Oil And Gas Deal

Customs Union Meets In Astana

Politics-Economics-Business

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Friday

October 6, 2000

Intercon's Daily

debts. He also pointed out that the remainder of excess revenues generated this year could be used to supplement the budget of the military and increase spending on agriculture. Duma deputies have called on the government to increase spending in the 2001 draft budget.

Ruble = 27.85/$1.00 (NY rate)

Ruble = 27.94/$1.00 (CB rate)

Ruble = 24.32/1 euro (CB rate)

Oct Nov DecJan Feb Mar Apr Jun Jul Aug SepOct

Business

Vneshtorgbank Buys Most Bank

· Vneshtorgbank, Russia's state foreign trade bank, signed an agreement with the shareholders of Most Bank to purchase the bank for about $200,000. Most, founded by Russian media tycoon Vladimir GUSINSKY, has 20 branches in Moscow and 10 regional units as well as one of Russia's most developed systems for transferring payments. Most Bank's obligations total $650 million to $700 million and its liquid assets are about $100 million. Vneshtorgbank, owned by the Central Bank, plans to start debt rescheduling talks with creditors next week. Most Bank was set up by GUSINSKY's Media Most holding in the early 1990s. Media Most last week denied allegations its executives committed fraud and said a criminal investigation opened into the company by prosecutors is an attempt by politicians to put Russia's biggest private media group under government control, Bloomberg News reported.

AvtoVAZ To Meet 2000 Export Target

· Russia's biggest car maker AvtoVAZ said it was confident it would meet its 2000 export target of

98,500 vehicles as it had fulfilled its nine-month export plan. AvtoVAZ, which produces about 700,000 vehicles a year, exported 68,000 cars in the first nine months of 2000. "We have every reason to believe that in the remaining three months we will meet the planned target, set by the board of directors, to export 98,500 automobiles," said senior sales manager Vladimir KUCHAI in an AvtoVAZ statement. AvtoVAZ expects to sign a joint venture agreement this year with General Motors (GM) to build GM's Opel Astra and a new version of AvtoVAZ's Niva off-road vehicle.

Norilsk To Produce Auto Catalysts

· Norilsk Nickel, the world's top palladium producer, plans to start making palladium-based pollution-control devices for cars next year, Vedomosti reported, citing Chief Executive Alexander KHLOPONIN. Norilsk has exported almost all its palladium output as raw metal. Norilsk production is estimated at just under one-third of the world's palladium supply, which last year totaled 8.06 million ounces, according to Johnson Matthey Plc. KHLOPONIN didn't specify the amount of palladium Norilsk plans to use for its own production of the car parts. The company doesn't disclose its production or export volumes. Last month, Norilsk announced a restructuring through a share swap with its main subsidiary, Norilskay Gornaya Kompaniya, which will dilute minority shareholders by as much as 11.5 percent. Russia's Federal Securities Commission announced after the market close on Tuesday that it had launched an inquiry into, "possible infringement of shareholders' rights... in the restructuring of Norilsk Nickel." On Wednesday, shares in Norilsk Nickel fell over six percent, over fears that the probe could harm rather than protect shareholder interests. Apart from streamlining the company's structure, the reorganization aims to reduce a threat of nationalization of Norilsk, KHLOPONIN. Many Russian politicians have called for the reversal of the Norilsk sale to Interros Group in 1997, which they claim was illegal.

European Republics

Prior To Lithuanian Vote: The Undecided Leads

· Approximately 2.6 million eligible voters will head to the polls on Sunday to elect a new parliament. The 141-seat unicameral house is currently domi

When you need to know it as it happens

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nated by the Homeland Union of Speaker Vytautas LANDSBERGIS and Prime Minister Andrius KUBILIUS with 50 seats. Other represented parties include Center Union (17 seats), Democratic Labor Party (13 seats), Christian Democratic Party (10 seats), and Social Democratic Party (6 seats). According to a recent poll, conducted by the Baltijos Tyrimai agency between September 21^st to 27^th and published in Lietuvos Zinios, 23.0 percent of those questioned were undecided, had no opinion, or would not vote. More than 17.4 percent of those surveyed support the Social Democratic coalition of former President Algirdas BRAZAUSKAS. The former Communist boss and President from 1993 to 1997, is seeking a political comeback in Sunday's general election. He declined to run in the last presidential election, saying his communist past was damaging the country's image as it seeks to join NATO and the European Union. BRAZAUSKAS is not running for parliament himself but has said he would take the post of prime minister and form a government of technocrats, Reuters reported. The center-left New Union of former top prosecutor Arturas PAULAUSKAS received support from 16.0 percent of those surveyed. The lead in the pre-election period has been traded between Social Democrats and the New Union. Liberal Union saw the biggest rise in popularity of 4.9 percentage points from a previous poll, with 12.4 percent. The Center Union earned 8.0 percent of support in the poll. Finally, the ruling Homeland Union party was supported by only 4.8 percent. This puts the ruling party below the five percent threshold needed to win any of the 70 seats allocated under a proportional system. Coalitions need seven percent to participate in the proportional allocation. The remaining 71 seats are decided in races between individual candidates.

Ukraine To Sell Alumina Plant

· Ukraine will sell a 10 percent stake in the country's only alumina producer, Mykolayivsky Hlynozemny Zavod, at the Ukrainian Stock Exchange on November 14^th, the State Property Fund announced Wednesday. The Fund, which has already sold 75 percent of the plant, will sell the remaining 25 percent in two 10 percent and one 5 percent stake. It has already said it will sell a 5 percent stake in Mykolayivsky on the Kiev International Stock Exchange on October 26^th. Alexander

BONDAR, head of the State Property Fund, said this would help to attract more portfolio investors to the sale. A Ukrainian firm linked to Russia's Sibirsky Aluminium purchased 30 percent of the plant, located in southern Ukraine, for $101 million in March. Sibirsky Aluminium had said it already owned 36 percent of the alumina plant.

South Caucasus & Central Asia

Supsa Port Fills 30^th Tanker In 2000

· Over 83,000 tons of Caspian Crude oil has exported from the Georgian port of Supsa, as of the filling of the port's 30^th tanker this year. Georgian International Oil Corporation noted that the crude belongs to BP Amoco, Turkish Petroleum, and Delta. The crude is to be exported to Italy. Supsa terminal was opened in April 1999, with a total of 62 tankers loaded since then.

Kazakh $1.4B Oil And Gas Deal

· Karachaganak Petroleum Operating (KPO), an international consortium developing the Karachaganak gas and condensate field in western Kazakhstan, today signed two deals valued at $1.4 billion with a group of US, Italian, and Greek companies, Reuters reported. The first $900 million deal was signed with CCC Saipem for the construction of a 635 km [395 mile] oil pipeline to Atyrau on the Caspian, a liquids processing facility and a gas plant with the capability of reinjecting 6.5 billion cubic meters of gas per year. CCC Saipem includes Greek-based Consolidated Contractor Company and Italian ENI's subsidiary Saipem. The second deal was signed between KPO and a US-Italian group, consisting of Parker Drilling and Saipem. The group will provide drilling equipment and services. "This contract envisions the drilling of new wells, the repair of old wells and other infrastructure services," Nurlan Balgimbayev, the head of state oil firm Kazakhoil, stated. KPO general director John Morrow said the deals would allow the consortium to boost condensate production at the huge field to over nine million tons a year. Current production is about four million tons a year.

Both contracts are for a three-year period. The 395-mile pipeline will hook up the field with an export link being built by the Caspian Pipeline Consortium. The 2000-km CPC pipeline, scheduled for comple

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tion in mid-2001, will ship Kazakh hydrocarbons to Russia's Novorossiisk port. Karachaganak's estimated gross reserves are 2.4 billion barrels of condensate and 16 trillion cubic feet of gas. Since the project started, a total of $1.1 billion has been invested. The field is being developed by BG, Agip, Texaco, and LUKoil.

US Pressures Kazakhstan On Oil Commitment

· The US is calling on Kazakhstan to commit itself to exporting oil through a planned multi-billion Baku-Ceyhan pipeline. John Wolf, US special ambassador to the Caspian, was quoted by the Financial Times as saying, "The market isn't going to come to Kazakhstan on export routes, at least not the market that offers the best and most efficient way to export oil. I think it is time for Kazakhstan to demonstrate in a clear and unequivocal way its commitment to work with the governments and companies on the west side of the Caspian." According to Wolf, further delays in decision-making create the risk that Kazakhstan will lose the opportunity to influence the amount of volumes it could ship, the management of the pipeline and the tariff it could charge. The US has promoted an East-West transport corridor as the best alternative to shipping through Iran and Russia. However, the Kazakh officials do not seem to be in a hurry to take a decision. The Central Asian nation has been put in a more favorable position due to the discovery of a potentially large amount of oil in its offshore oil field, Kashagan. The Financial Times pointed out that some US officials privately admit that Kazakhstan's reserves could help convince investors that the Baku-Tbilisi-Ceyhan pipeline is commercially viable.

Customs Union Meets In Astana

· The Council of heads of government of the Customs Union, which includes Belarus, Kazakhstan, Kyrgyzstan, Russia and Tajikistan, opened a meeting in Astana today. The main subject to be discussed by the Council's prime ministers is the reorganization of the Customs Union into a new

economic entity, which will possibly be named the Eurasian Economic Association. The Council will finalize the founding documents which are likely to be signed by the prime ministers in Astana on October 10^th. The leaders will also discuss integration processes within the Customs Union, come to an agreement over the customs procedure issue, and exchange views about the socio-economic situation in the Customs "five" countries. Russian Prime Minister Mikhail KASYANOV will hold talks with Kazakh Prime Minister Kasymzhomart TOKAYEV on the sidelines of the meeting.

Uzbek Dismisses Defense Minister

· Uzbekistan's President Islam KARIMOV last week dismissed Defense Minister Yuri AGZAMOV and appointed his deputy as his replacement by decree. No explanation was given for Yuri AGZAMOV's dismissal, except that he was moved, "in connection with his transfer to another position." This is the standard language used when officials are sacked in former Soviet states. Uzbekistan, along with its Central Asian neighbor Kyrgyzstan, has suffered a series of incursions by suspected Islamic rebels crossing over the mountains from Tajikistan this summer, killing dozens of troops. Uzbekistan has accused Tajikistan of harboring the rebels, who oppose KARIMOV's rule. Tajikistan denies the accusations. The new Defense Minister, Major-General Kadyr GULOMOV, becomes Uzbekistan's third defense chief since 1997. GULOMOV was an academician of the National Academy of Sciences and the leader of the Physics Institute of the National Academy of Sciences. He served as the president of the Military Sciences College since a year ago. Secretary of Security Service Mirakbar RAHMONKULOV said that President KARIMOV also appointed Tulkun KASYMOV, the deputy defense minister, as the chief of the joint command of armed forces.

The Daily Report on Russia and FSU

will not be published on Monday October 9^th

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

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