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

Tuesday, November 14, 2000

Russian Federation

Politics

Gazprom Executive Murdered

· Deputy head of Gazprom in charge of the company's security Vitaly FILIPPOV was shot dead on Monday in Moscow. He was hit four times, twice in the chest and twice in the stomach in an apartment stairwell. FILIPPOV later died in the hospital. The officer said FILIPPOV was a deputy general director of Yamburggazdobycha, one of the main production subsidiaries of Gazprom. A Moscow police officer said there were no official theories about a motive for the murder. Due to FILIPPOV's high profile position, however, it is believed his murder is linked to his business activities. A spokesman for Gazprom said the company was looking into details of the incident, but declined further comment.

Russia To Cut Nuclear Power Production

· Leningrad Atomic Power Station, a regional nuclear power station, is cutting power output by 30 percent to protest non-payment of electricity bills by Unified Energy Systems (UES), the national power grid, reported the St. Petersburg Times. The nuclear power station, located about 200 kilometers southwest of St. Petersburg and known by its Russian acronym LAES, has four RMBK-1000, Chernobyl type reactors. LAES said it is owed about 2 billion rubles ($72 million) by UES. Russia's state-run Rosenergoatom, which operates the country's nuclear plants, said there is no danger from the power decrease, and that power may be cut at its eight other nuclear power plants if UES does not pay its bills. Russia's biggest utilities and power generators are cracking down on nonpaying customers, including households and distributors, as the industry struggles with billions of rubles in unpaid bills.

Russia To Sell Oil Export Quotas For 2001

· The Russian government may start selling oil export quotas in the first quarter of 2001, starting with quotas covering 25 percent of total export volumes Kommersant Daily reported, citing Deputy Prime Minister Viktor KHRISTENKO. The quotas offered may increase to 50 percent of total export volumes in the second quarter and to 100 percent in the third quarter next year. The quotas would be sold at auctions, though the final details have yet to be developed by a government commission. Russian companies are allowed to export about 35 percent of total crude output of about 305 million tons a year (6.1 million barrels a day). In addition, the Energy Ministry has been providing extra export allocations to producers who increase output, and to companies that help finance federal programs deemed of high social importance. The government last week established a commission to supervise distribution among the nation's producers of export volumes and space in the country's pipelines, operated by state-owned Transneft. The commission, chaired by KHRISTENKO, took over the Energy Ministry's responsibilities.

Economy

EBRD On Russian Reforms

· The European Bank for Reconstruction and Development (EBRD) today said Russia should swiftly implement structural reforms to sustain economic recovery after 1998, when it devalued and

Today's News Highlights

Russia

Gazprom-Media Most Deal Ends

Rus CEC On Bush-Gore Election

European Republics

EBRD On East. European Econ.

Minsk March Stopped By Police

South Caucasus & Central Asia

Shevardnadze on CIS, Russia

Wolf Supports MEP Pipeline

Turkmen To Sue Over Debts

Kazakh Privatizations In 2001

Politics-Economics-Business

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Tuesday

November 14, 2000

Intercon's Daily

defaulted on its debt. Russia's economic progress remains vulnerable to external changes unless reforms are fully implemented, Reuters reported, citing the EBRD's annual report. "Early steps to prove the government's reform commitment are urgent to shore up confidence and build support for a broad-based improvement in the investment climate before the beneficial impact of high commodity prices and the ruble devaluation wears out," the EBRD said. The Russian economy, largely dependent on exports of oil, gas and other raw materials, has been boosted by high energy prices and the positive effects of the post-crisis devaluation of the national currency, which made local firms competitive. The EBRD forecast Russia's gross domestic product would grow 6.5 percent in 2000, after 3.2 percent in 1999. Consumer price inflation could fall from 36.8 percent in 1999 to 19.7 percent. The EBRD expects net foreign direct investment in the Russian economy to rise from $746 million last year to $2 billion this year. The current account surplus was targeted at $36.10 billion in 2000, after $24.73 billion in 1999, while the trade surplus was expected to rise to $46.0 billion from $35.3 billion. The EBRD recommends that the government should stop relying on profits from energy exports and start improving its foreign trade system, lifting export restrictions and letting more imports in through allowing the ruble to appreciate.

Ruble = 27.77/$1.00 (NY rate)

Ruble = 27.73/$1.00 (CB rate)

Ruble = 23.78/1 euro (CB rate)

Business

Gazprom-Media Most Deal Falls Apart

· Today, Alfred KOKH, director of Gazprom-Media, withdrew his signature from the agreement inked on Saturday, which would have ended debt disputes between Gazprom and Russia's only independent media company Media Most. Under the agreement, Gazprom would have acquired a blocking stake of 25 percent plus one share in all the businesses which comprise Media Most and a 16 percent stake in the NTV Television channel in compensation for the $211 million loan and the $37.5 million of interest payments owed by Media Most, the Financial Times reported. In addition, Media Most would hand over 19 percent of NTV

and 25 percent in some of its other businesses to Gazprom as collateral against Credit Suisse First Boston's second loan of $262 million due in 2001. Gazprom would have been required to sell the 19 percent stake in NTV to a foreign shareholder. Media Most insisted the deal had provisions to protect editorial and personnel policy. A Moscow court was scheduled Tuesday to endorse the agreement, but instead judges gave the companies until December 20^th to strike another deal. Media Most claims KOKH withdrew from the deal under pressure from Kremlin-friendly prosecutors, which he denied. Anatoly BLINOV, representing Gazprom-Media, said the deal was legally flawed and not enforceable. Media Most spokesman Vasili BORISOV said the company wants to continue out-of-court talks. Meanwhile, Prosecutors issued an arrest warrant on embezzlement charges for Vladimir GUSINSKY, head of Media Most group, after he failed to appear for questioning.

Tuesday Tid-Bit

Russian CEC Chief On Bush-Gore Election

· Head of Russia's the Central Election Commission Alexander VESHNYAKOV said he has some advice for the US on how to struggle through the confusion over the 2000 presidential election. He said, "Americans should not put on airs. They have things to learn from Russia, on ways to prepare and conduct a really free and democratic election." He said some US election procedures could be useful for Russia, but did not specify what he had in mind. The US presidential election on Tuesday November 7^th remains too close to call. Republican George W. BUSH and Democrat Al GORE are still locked in a ferocious battle for the state of Florida's 25 electoral votes needed to win the election. VESHNYAKOV himself has had on many occasions to fight off accusations of electoral impropriety. "The most typical mistakes and violations we have in Russia are also present in the United States. We just write and talk about them more than they do," he said.

European Republics

EBRD On Eastern European Economies

· According to the European Bank for Reconstruction and Development's (EBRD) annual tran

When you need to know it as it happens

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sition report, Hungary, Poland, the Czech Republic, Estonia, and Slovenia could conclude talks on European Union (EU) membership by the end of 2002. The economic growth in Eastern Europe and the Baltic States is expected to be the highest since the fall of the Berlin Wall. Russia the largest economy in the region will grow more strongly, at 6.5 percent, than Poland, the second largest economy, which will grow 5.0 percent, according to EBRD forecasts. Economic recovery in the Commonwealth of Independent States is being driven by a recovery in industrial production as a result of currency devaluations as well as by oil price rises in countries like Russia and Kazakhstan.

EBRD's Chief Economist Willem BUITER, however, pointed out that the economies across Eastern Europe and the former Soviet Union could slow in coming years because of falling educational standards and varied skill levels. "There's a lot of catching up to do in terms of training for a modern, market-oriented economy." Less bureaucracy, greater assistance to distressed businesses and stronger support for individuals who lose their jobs could ease the transition period. Of the 26 member-countries, 22 achieved made progress in their level of transition to the free market, two showed no change and Uzbekistan and Turkmenistan backtracked on reform, Reuters reported. "Countries that have achieved the greatest progress in reform over the past year include the Former Yugoslav Republic of (FYR) Macedonia, Georgia and Tajikistan as they continue to make progress on long-delayed reforms, particularly in the areas of price and trade liberalization, small-scale privatization and competition policy," the EBRD said. Bulgaria showed the largest improvement in 2000 along with FYR Macedonia and Georgia, while Lithuania, Latvia, Romania and the Slovak Republic also made good progress. Reform leaders are holding accession talks with the EU.

BUITER said that further EU enlargement to include central Europe and the Baltic states should not result in creating a barrier for countries such as Russia, Ukraine, and Belarus. He said, "It is very important that following accession we do not have a Brussels lace curtain descending instead of an iron curtain…It is vitally important that a regional dimension not be forgotten."

Belarus Police Stop Minsk Demonstration

· Belarus police stopped a demonstration march in Minsk on Sunday and detained several dozen young pro-democracy demonstrators. Hundreds of chanting protesters, many with their faces hidden behind bandanas, marched through Minsk's main thoroughfare, but started to disperse when elite police units blocked their way into the central Independence Square. A Reuters reporter said police hunted down protesters in side streets and yards, forcing dozens into police vans. The protesters did not resist arrest. Organizers of the unsanctioned march said a similar demonstration took place in the Western town of Grodno, where police also detained several dozen protesters. The Belarus opposition accuses President Alexander LUKASHENKO of preventing democratic freedoms and pushing too hard towards union with giant neighbor Russia. LUKASHENKO enjoys a strong popular support and dismisses the opposition pressure. An opposition boycott of parliamentary polls held last month met limited success outside Belarus' cities.

South Caucasus & Central Asia

Russia Submits Extradition List

· Russia has submitted to Georgia a list of 67 people wanted by Interpol on charges of terrorism and guerrilla activity, Georgian Foreign Ministry official Avtandil NAPETVARIDZE said on Friday. The list includes Chechen rebel leader Aslan MASKHADOV, warlords Ruslan GELAYEV, Shamil BASAYEV, and KHATTAB. Russia, "expressed hope that in case those persons show up in the territory of Georgia, the country's authorities will take measures to detain the wanted and hand them over to representatives of corresponding agencies of the Russian Federation," the envoy stressed.

President Shevardnadze On CIS And Russia

· Georgian President Eduard SHEVARDNADZE today criticized Russia's leading position within the Commonwealth of Independent States (CIS) and its policies with Georgia. The Georgian President said, "The CIS will develop only if it is an important factor of sovereignty of member states, independence and territorial unity…not the amorphous entity it is now." Georgia has pointed out that Russia has failed to respect its sovereignty on numerous

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occasions, specifically during Russia's military offensive in Chechnya. He defended Georgia's pro-Western policies, warning that, "Georgia has a right to choose for partnership those states that respect its sovereignty and unity in deeds, not words." The President has often stated that Georgia intends to apply for NATO membership in 2005. SHEVARDNADZE slammed Moscow's recent unilateral decision to pull out of the visa-free travel agreement between the CIS states, and warned that this might have negative repercussions for those Russians still living in Georgia.

Wolf Expresses Support For Pipeline

· Georgian President Eduard Shevardnadze met US Presidential Advisor on Caspian energy development John WOLF on Friday. On behalf of the US government, WOLF expressed the US firm support for the Baku-Ceyhan oil pipeline. According to him, US President Bill Clinton believes that the project is crucial for the region's political and economic development. Itar-Tass quoted Wolf as saying that the contracts signed in Tbilisi, Baku, and Istanbul two weeks ago have laid down a solid foundation for the work to start. A meeting with project investors will be held early in December. Meanwhile, Wolf has urged Turkey, Azerbaijan, and Georgia to step up talks on operational issues. WOLF also introduced the new US Presidential Adviser on Caspian energy Elizabeth Jones to President Shevardnadze.

Turkmen To Sue Kazakhs, Azeris Over Debts

· Turkmenistan Monday threatened to sue two Kazakhstan and Azerbaijan in an international court, if gas debts amounting to $116.7 million were not repaid immediately. A Turkmen government official said the debts owed by Kazakhstan and Azerbaijan dated back to 1993 to 1994 and were for energy supplied during this period. "Turkmenistan will take concrete measures towards its debtors, maybe even turn to international courts or sell the debts to a third party," the official told Reuters. He said the government had consulted international advisers

before making the decision. Turkmenistan says Azerbaijan's debts amounted to $58.9 million, while Kazakhstan owed $57.8 million. The official said that Ashgabat's suggestions on restructuring the debt using Kazakh grain had met with no response. He said Turkmenistan is seeking to collect its debts, as the nation needs the revenue to repay its own foreign obligations. Turkmenistan says it is owed over $1 billion by other former Soviet states for gas supplied in the early 1990s. Its biggest debtor is Ukraine. The country has been unable to capitalize on its gas wealth as it lacks pipeline outlets to the outside world and is forced to sell to ex-Soviet states which are usually tardy with payment.

Kazakhstan Oil, Metal Privatizations In 2001

· Kazakh Finance Minister Mazhit YESENBAYEV said on November 8^th that the nation hopes to complete the privatization of several giant oil and metals producers in 2001. The sales have been delayed by over two years after the government first said it would sell its stakes in the firms to portfolio investors to kick-start the stock market. The shares will be sold to strategic investors in a decision which many economists say could allow some powerful industrialists to increase their stakes in the firms. The companies whose shares are to be sold include oil company Aktyubemunaigaz, the Ust-Kamenogorsk Titanium Works, Alyuminy Kazakhstan, Kazchrome, Kazzinc, and the Sokolov-Sarbai iron combine. YESENBAYEV said all electricity distribution companies would be privatized next year as well as a number of smaller enterprises. "In total, privatization proceeds have been put at 38 billion tenge ($268 million) in the 2001 budget. This is a more realistic figure than this year." The government had expected to receive 59 billion tenge from privatization this year, but was forced to cut the figure to 37 billion tenge. The country has attracted over $10 billion in investments since 1993, but most of the money has gone to the raw materials sector, leaving other areas of the economy starved of funds.

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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