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, November 10, 2000

could parry which perceived security threats. It should be noted that the cuts will allow Russia to spend more on each soldier, as budgetary funding will remain the same. Living conditions, salary, and benefits for soldiers have been described as abominable. Russia can no longer afford for example to buy new weapons, train recruits or fuel planes so pilots can maintain their skills. Former head of the Security Council and a member of parliament Andrei KOKOSHIN has said the Russian State Duma will demand between 3 billion to 7 billion rubles ($108 million to $251 million) a year for the social adaptation of the redundant military.

Meanwhile, IVANOV said he wanted the reforms to apply to himself and asked PUTIN to remove his rank of Lieutenant-General in the SVR foreign intelligence service. PUTIN agreed to the move, which IVANOV said was to make his Security Council job easier. IVANOV noted that, "A mobile, well-equipped military organization is an insurance against any threat to the country." Defense experts said it mattered little whether IVANOV was a general or ex-general, and the move could be linked to future personnel changes, including a possible civilian Defense Minister, Reuters reported. IVANOV said no changes to military leadership were discussed at Thursday's Security Council session. In an interview with Komsomolskaya Pravda, IVANOV was asked about rumors that he could be the next prime minister or head of the Kremlin administration, he responded, "I take it in my stride. My job is to work, and

Russian Federation

Politics

Putin To Fingerprint Security Officials

· Russian President Vladimir PUTIN has signed a law requiring the fingerprinting of employees of executive agencies, the police, the Interior Ministry, the Federal Security Service (FSB), the Federal Agency for Governmental Communications and Information, and foreign intelligence and custom services Itar-Tass reported. Fingerprinting will also be required of draftees, bailiffs, fire and rescue services, and those who claim to be refugees.

Security Council Plans Serious Military Cuts

· At a meeting on Thursday in the Kremlin, the Russian Security Council resolved a debate over needed military reform. Russian President Vladimir PUTIN said Russia must enact sweeping reforms of the military, rather than just firing a few top officials. He added that the military should match the state's needs and its resources. "To maintain such a cumbersome and at times ineffective military organization is extravagant and in all sense wrong. In our situation it is simply not permissible…The future of the country's armed forces and military institutions depends on this, as does Russia's very security." Russia will cut its armed forces by 600,000 over the next five years. The cuts include 365,000 people from the 1.2 million employed by the Defense Ministry, 130,000 civilian personnel, and 105,000 military personnel from armed organizations that do not come under the direct control of the Defense Ministry, such as interior troops, border guards, and railway troops, the Financial Times reported. One of Security Council Secretary Sergei IVANOV's deputies, Vladimir POTAPOV, said the cuts were not necessarily proportional to the size of each service, but were based on a detailed analysis of which agencies

Today's News Highlights

Russia

Local Chechen Official Killed

Rus Forex-Gold Reserves

GM To Stop Producing Opel?

LUKoil To Get EBRD Loan?

European Republics

EU Enlargement Slows Pace

South Caucasus & Central Asia

UNOMIG On Abkhaz Exercises

Armenian-WB Project Begins

Baku-Ceyhan Pipeline Proceeds

Politics-Economics-Business

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Friday

November 10, 2000

Intercon's Daily

to work where I have been put." The Security Council has become increasingly influential and even regarded by some as a shadow Cabinet. IVANOV denied this, noting several ministers and the prime minister were members of the Council.

Local Chechen Official Killed

· Another local government official has been shot and killed in Chechnya, despite claims by a Russian Interior Ministry official that protection of local officials would be intensified. Yusa TSUYEV, the head of the Alkhan-Kala district administration in Achkhoi-Martan region, was shot dead by an unidentified gunman in his office on Thursday, RFE\RL Newsline reported. The same gunman also seriously wounded two Chechen women. This latest attack followed a failed attempt to assassinate Gudermes Mayor Malika GEZIMIYEVA. A Russian military spokesman said that further terrorist attacks are anticipated in Grozny, Argun, and Gudermes.

Economy

Ruble = 27.72/$1.00 (NY rate)

Ruble = 27.82/$1.00 (CB rate)

Ruble = 24.06/1 euro (CB rate)

DecJan Feb MarAprMay Jun Jul Aug Sep Oct Nov

Russian Foreign Exchange, Gold Reserves

· Russia's Central Bank gold reserves rose by $57 million to $3.590 billion as of November 1^st, from a revised $3.533 billion on October 1^st. Last month, the Bank said the October figure was $3.523 billion.

The Central Bank officially values its gold reserves at $300 per troy ounce. Its total gold and foreign exchange reserves had increased to $25.880 billion by November 3^rd from a revised $25.007 billion on October 1^st. In October the Bank held $24.997 billion. The Central Bank's reserves include gold, foreign currency and Special Drawing Rights, an international reserve asset that is essentially a currency of the International Monetary Fund (IMF).

Kudrin To Meet SBS-Agro Foreign Creditors

· Russian Deputy Prime Minister Alexei KUDRIN will meet foreign creditors of Russia's SBS-Agro Bank to discuss the government's offer to pay them 2 percent of their original claims, Vedomosti reported. The meeting with KUDRIN, board chairman of Russia's Agency for Bank Restructuring, comes a week before creditors are scheduled to meet and set up a six-member committee to represent foreign investors. Russia also held a meeting with SBS-Agro foreign creditors in London earlier this month. The government said in July it decided to force SBS-Agro into bankruptcy, two years after the country's former top private bank ran into trouble, offering to repay 1 percent on most of the $3 billion creditors said it owed them. SBS-Agro stopped honoring its debts, including a $250 million Eurobond, in 1998 after Russia defaulted on Treasury debt and let the ruble devalue.

FSU Oil Output Expected To Exceed OPEC

· The International Energy Agency (IEA) today announced the oil export by non-OPEC (the Organization of the Petroleum Exporting Countries) is expected to grow by 770,000 barrels per day (bpd) to 46.65 million bpd next year. Leading the increase will be Russia and Kazakhstan. "Strong growth is expected from old fields in Russia, driven by robust upstream capital investment, while in Kazakhstan, production from the Tengiz field will grow," the IEA said in its monthly report. The former Soviet Union alone is expected to add an additional 290,000 bpd in 2001. Mexican oil is expected to increase by 210,000 bpd due to the offshore Cantarell complex. Canadian production will rise by 130,000 bpd with new offshore Terra Nova field. Africa, excluding OPEC member Nigeria, could add around 60,000 bpd next year. In Asia, including Australia, the IEA forecast output declines while it kept non-OPEC Middle Eastern supply flat.

When you need to know it as it happens

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November 10, 2000

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Business

Embraer-TsAGI Sign Cooperation Agmt.

· Brazilian aircraft manufacturer Embraer and Russian TsAGI (Tsentralny Aerogidro-dynamichesky Institute - Central Aerohydrodynamic Institute) on Wednesday signed a cooperation agreement. Embraer's Industrial Vice-President Satoshi YOKOTA, said "This agreement covers the entire scope of all the work we intend to perform alongside TsAGI to fully utilize their enormous technologic capabilities." Embraer has been making use of that institute's facilities since last June, employing TsAGI's wind tunnel to fine-tune the company's jetliner family. Furthermore, the Brazilian aircraft manufacturer has also made extensive use of that research center's computer-based aerodynamic and aero-elastic laboratories. TsAGI's Director Vladimir DMITRIEV said, "Embraer and the TsAGI have opened a new page in the history of the aerospace industry. This agreement will strengthen the ties between Brazilians and Russians, thus helping in the development of aeronautics as a whole." Airbus, Boeing, Dassault, Lockheed Martin, BAe and DASA are some of the many companies that have standing cooperation agreements with the TsAGI. The Institute possesses more than 60 subsonic, transonic and supersonic wind tunnels, aside slightly more than 200 laboratories that execute a wide array of research and test activities.

GM To End Production Of Russian Cars

· AvtoVAZ, Russia's top carmaker, said its foreign partner General Motors Corp. (GM) may call off plans to produce Opel Astra cars in Russia. AvtoVAZ President Alexei NIKOLAEV said GM is unsure about setting up planned production of Opel Astras at Tolyatti, in central Russia, although GM is still interested in a joint project to produce a new version of the Niva, a Russian off-road vehicle. The Niva project would take about $230 million of investment, AvtoVAZ said. GM said in March it expected to decide this year whether to go ahead with the planned $500 million venture to make Opels in Russia and cooperate on a new version of the Niva. The two companies have been talking since 1997 about proposals to use AvtoVAZ's factory to make as many as 90,000 Nivas a year and some models from GM's Adam Opel unit.

LUKoil Could Receive EBRD Loan

· Russia's top oil producer LUKoil Holding may receive a $150 million loan from the European Bank for Reconstruction and Development (EBRD) before June 2001, when it plans to publish its financial results according to international accounting standards, the Moscow Times said. The company said it will delay the publication of its international standard balance-sheet until the middle of next year. The move may delay the EBRD loan. The Bank intends to pressure companies in Russia to publish better financial statements, reveal more about their operations and ownership, and do more to protect minority shareholders' rights. The Bank said that LUKoil may still qualify for the loan despite the delay, however, the Moscow Times reported, citing an EBRD official who asked not to be identified. The EBRD has been considering a $250 million loan to Gazprom to repair its pipelines.

European Republics

EU Enlargement Slows Pace

· The European Commission set the end of 2002 as the deadline for wrapping up membership talks with the front-runner applicants, Bloomberg News reported. The first accessions of new countries, however, will be probably pushed back to 2005. The European Commission's annual report on the countries negotiating membership was issued on Wednesday. According to the report, the first group of candidates including Estonia has made good progress. The second wave, which includes Latvia and Lithuania, has also won a stamp of approval. Estonia is among the countries that, "either meet or are close to meeting, the bloc's economic criteria for membership". While macroeconomic conditions have remained sound in most countries, "particular attention needs to be paid to the relative large current account deficits in Estonia, Latvia, Lithuania, and Poland." According to the report, the corruption, fraud, and economic crime remained widespread among most associate members. They also faced a tough task overhauling their dilapidated administrative structures after decades of communist rule. The document made clear that membership would only be granted to countries, which meet all required criteria.

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South Caucasus & Central Asia

UNOMIG Condemns Abkhaz Military Exercises

· Pakistani General Anis BAJAWA, chief military observer of the UN Mission in Georgia (UNOMIG), has condemned Abkhazian authorities for a military exercise in the country's "limited armaments zone," political adviser to UNOMIG Veselin KOSTOV said today. He said the maneuvers broke agreements made in Moscow in 1994 banning Abkhazia and neighboring Georgia from holding military exercises in the area close to the border between Georgia and its breakaway province. He said "the UN mission urged the Abkhazian side to stop the military exercise," in the northern part of the Gali district and the southern part of the Ochamchir district. The mission maintains contacts with both Georgian and Abkhazian officials for the purpose of, "preventing the escalation of the situation in the conflict zone." KOSTOV also protested at restrictions placed on the movement of mission members because of the exercise. He said this was a violation of their status, Itar-Tass reported. Abkhazian authorities banned helicopter flights by mission members in the zone.

Meanwhile, Georgia's parliamentary deputy Givi LOMINADZE has demanded an explanation from the Georgian Foreign Ministry in connection with the official visit of Armenian delegation to Sukhumi, Abkhazia. An official Armenian delegation visited Sukhumi and held negotiations with the leadership of the unrecognized republic of Abkhazia few days ago, Prime News Agency reported. According to him, Georgian Foreign Ministry is obliged to provide parliament with coinciding information.

Armenia-WB Launch Infrastructure Project

· The World Bank and the Armenian government on Tuesday launched a program that will provide a total of $29 million for some 450 small infrastructure projects nationwide over the next five years, RFE/

RL Newsline reported. A similar five-year program started in 1995 funded 240 projects to provide educational facilities, quality drinking water, irrigation systems, and highway repairs.

Baku-Ceyhan Pipeline To Proceed

· The Baku-Ceyhan oil pipeline project will go ahead even if some countries in the region refuse to use it, special advisor to the US President John WOLF said at the first international conference Management to Caspian Oil, which opened in Baku Thursday. Washington has been heavily campaigning for the construction of the pipeline that will bypass Russia and Iran. Some oil companies, however, balk at the cost of the project¾up to $3 billion¾and say it would be cheaper to use the existing routes. This view is totally supported by Russia because two existing pipelines run from the Caspian sea to the Russian port of Novorossiisk. Kazakhstan, which is estimated to have the largest in the region oil deposits, has been indecisive on whether it will commit to the use of the Baku-Ceyhan pipeline. WOLF stated that despite the opposition, the $100 million engineering study will begin next year. According to him, the Baku-Ceyhan pipeline will reduce the dependence of Central Asia and the Caucasus on Russian export routes and cut down the volume of oil being transported through the overcrowded Bosporus Strait.

WOLF also welcomed the participation of Russia's top oil company LUKoil in the project and noted that the US, "generally backs Russia's participation in the Caspian energy projects." Commenting on the legal status of the Caspian sea, WOLF expressed his support to the Russian President's special envoy and deputy foreign minister Viktor KALYUZHNY. KALYUZHNY believes that only littoral states should participate in the decision making. "The United States may participate in this process only at the level of experts," WOLF said, "but the decision on how to divide the Caspian sea must be made by the five countries located on the shores of that sea."

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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