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, November 15, 2000

attending the Asia-Pacific Economic Cooperation (APEC) forum, said that Russia's economy will grow by at least seven percent this year, in line with government forecasts. In a speech to business leaders, PUTIN said, "In Russia...by the end of the year [2000] we will have a minimum seven percent GDP [gross domestic product] growth." Manufacturing output would grow by between 10 and 15 percent in 2000, PUTIN said. Russia's GDP grew 3.2 percent last year and expanded by 6.5 in the first 10 months of this year. Moscow had forecast growth of seven percent in 2000. Industrial production rose 9.5 percent year-on-year in the first 10 months of this year.

Russia's Stance For Faster WTO Entry

· Russian President Vladimir Putin pledged to cut customs duties next year to speed up Russia's entry to the World Trade Organization (WTO), Bloomberg News reported today. "We're going to harmonize our customs tariffs and reduce them significantly," Putin said on the sidelines of a summit of Asia Pacific Economic Cooperation (APEC) leaders in Brunei. "At the next WTO session we would like to see our basic relationship with the WTO changed," he added. Economy and Trade Minister German Gref was quoted by Reuters as saying that Russia first wanted to enter the WTO and then think about talks on liberalization. "If the talks happen before [WTO entry] then the whole process [of entry] will take longer," Gref said. "We are not interested in having the maximum speeding up of lib

Russian Federation

Politics

Grozny Operation Captures Seven Rebels

· Russian special police killed three rebels and captured another seven in a special operation Tuesday in the Grozny. Russian presidential aide on Chechnya Sergei YASTRZHEMBSKY noted that Russian troops started an operation Sunday to catch a rebel group that had consolidated its position in several apartments of a multi-storied building on Pervomayskaya Ulitsa (the May 1^st Street) in the city. Getting caught in a trap, the rebels refused to surrender and opened fire at the federal troops. "A fight began, in which three rebels were killed and seven captured. Unfortunately, the special police also suffered losses. One serviceman was seriously wounded and later died. Then, as a result of interference by Mayor of Grozny Bislan GANTAMIROV, who came to the scene of the clash, the seven captured rebels were taken away in an unknown direction," YASTRZHEMBSKY described. Chechen rebels claims that 10 Russian troops were killed in the clash. Immediately afterward, an interdepartmental committee headed by General TRETYAKOV was set up to inquire what happened Sunday. Two criminal cases have been opened and the committee is identifying the missing seven people he said, adding that representatives of the Chechen republic are also taking part in the investigation. Last weekend, Russia launched a new wave of special operations to eliminate scattered rebel groups and rebel heads in Chechnya, vowing to complete the anti-terrorist campaign in the breakaway republic by spring 2001.

Economy

Putin Boasts Russian Growth To APEC

· Russian President Vladimir PUTIN, in Brunei

Today's News Highlights

Russia

Berezovsky Resists Summons

Shell Pulls Out Of Project

Volkhov To Build New Smelter

European Republics

Belarus To Build Pipeline

Mazeikiu-LUKoil Crude Talks

South Caucasus & Central Asia

Radioactive Canister In Tbilisi

CanArgo's New Stake In GOAR

Opposition Boycotts Parliament

Politics-Economics-Business

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Wednesday

November 15, 2000

Intercon's Daily

eralization," he added.

Russia applied to join the WTO in 1993, but the application was stalled due to the country's economic collapse and the slow pace of market reforms. Earlier this month, Russia said it set a provisional target date of 2002 for membership. According to GREF, Russia needs to be in the WTO as it would benefit from easier access to other markets, although, he said, some Russian sectors including agriculture still need protection.

Ruble = 27.70/$1.00 (NY rate)

Ruble = 27.75/$1.00 (CB rate)

Ruble = 23.84/1 euro (CB rate)

Business

Berezovsky Not To Return For Questioning

· Russian media tycoon Boris BEREZOVSKY has become the second businessman in two weeks, who has refused to return to Russia for questioning in connection with alleged profit-skimming from Aeroflot Airlines. BEREZOVSKY said he fears political pressure from President Vladimir PUTIN. According to a statement BERZOVSKY said, "I took a difficult decision ¾not to return for questioning in Russia. I decided to take this step in connection with the constantly increasing pressure on me by power and personally President PUTIN. In essence I am being forced to choose ¾become a political prisoner or a political emigrant." He was expected to testify today at the prosecutor general's office. BEREZOVSKY, who has said he helped pay for PUTIN's election, has been targeted since the president took office in May. He resigned from a seat in the Russian State Duma due to his differences with PUTIN's policies and plans for the nation. The media tycoon also has criticized PUTIN's military offensive in Chechnya and effort's to strengthen the federal government. BEREZOVSKY owns Kommersant Daily and recently transferred his minority stake in state-controlled ORT Television to a group of cultural and business figures. He added, "The so-called Aeroflot case was concocted by [former Prime Minister Yevgeny] PRIMAKOV and has now been resurrected by PUTIN, who is unhappy with my opposition to his policies. The President is trying to impose his control over the main mass media, with the goal of setting up a regime of personal power." BEREZOVSKY said on Tuesday

his earlier support for PUTIN had been "a mistake." "He has turned the country over to secret services and bureaucrats who strangle the freedom and initiative needed to raise Russia…We'll leave the question of morals to the consciences of the president and his circle ¾God is their judge."

On Russian NTV program Hero of the Day, BEREZOVSKY said that PUTIN is reversing democratic changes in Russia. BEREZOVSKY said he took PUTIN's statement, regarding a club held over the heads of the nation's businessmen, seriously. He also cited some anti-Semitic remarks, specifically in the Kursk region, as a reason why his return to Russia is not safe at this time. BEREZOVSKY further added that PUTIN may be swept from power by events in Russia, perhaps even before 2004.

Media Most's chairman Vladimir GUSINSKY, who is "in Europe," has also refuse to show up for questioning in Moscow relating to a difference fraud case. An arrest warrant was issued for Vladimir GUSINSKY after he failed to turn up on Monday.

Shell Pulls Out Of Oil And Gas Project

· A Moscow Royal Dutch/Shell spokesman announced that the company has pulled out of a project to explore the Vankorskoye oil and gas field in southern Siberian Krasnoyarsk region after finding it too expensive. Vankorskoye's reserves are estimated at 125 million tons of crude oil and 600 billion tons of natural gas. The license to explore it is held by the firm Yeniseyneft. "We had an option to buy 44 percent of a stake of one of Yeniseyneft's shareholders, Anglo-Siberian Oil Company. But we decided to drop it…The company decided to concentrate on other projects in Russia¾Sakhalin, Salym and Zapolyarnoye." Shell is the main shareholder in the Sakhalin 2 offshore oil project in Russia's Far East. Its joint venture won the license to develop the Upper Salym oilfields in Western Siberia. It has also signed an agreement on joint development of the huge Arctic Zapolyarnoye gas field with the gas giant Gazprom. Shell has invested around $29 million in Vankorskoye, the spokesman said.

Volkhov Aluminum To Build New Smelter

· Russia's smallest aluminum smelter, Volkhov Aluminium, plans to sharply increase capacity by building a 150,000-200,000 ton smelter in the next

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two years. Volkhov is in talks with Vysokoskorostnye Magistrali (VSM, or High Speed Railways) about building on the territory of a VSM subsidiary, Transmash plant, situated in the Leningrad Region in northwestern Russia. That means VSM would be one of the founders of the new smelter, which would cost $400 million and reach full production in phases, Volkhov's Viktor POPOV told Reuters. He said the construction of the new smelter on Transmash land made economic sense because it was close to Pikalevsky Alumina, which already supplies Volkhov with alumina. Volkhov is expected to merge soon with Volgograd Aluminium and some small local producers of alumina. POPOV said Volkhov plans to produce at full nameplate capacity of 22,000 tons in 2000, compared with 17,007 in 1999.

this meeting]. We are now working out the details of the contract so it will benefit both sides." He declined to say when a final agreement between the two firms might be reached. Crude supplies are key for Mazeikiu which was forced into several costly shutdowns last year due to interruptions of Russian crude supplies. Reliable crude supplies are also essential to securing international financing for the company's reconstruction, estimated at some $400 million.

South Caucasus & Central Asia

Radioactive Canister Dumped In Tbilisi

· A container of radioactive iridium-92 was found in a dump in Tbilisi, emitting radiation exceeding safety levels. Head of the Georgian ecology ministry's radiation safety committee Zurab KEREKHELDIZE said, "Anyone who spent 10 hours near this object would have received a fatal dose of radiation." The canister, which contains a serial number indicating the factory where it was made, was discovered following a tip from an anonymous caller. Tbilisi police suspect the caller dumped the material after trying to sell it. The material was taken to Tbilisi University's nuclear physics department for deactivation and research. Bloomberg News reported that the Center for Nonproliferation Studies in Monterey, California, highlighted the fears in a report to the US Congress in 1994. In testimony to a Congressional committee director of the center William POTTER said, "All of the post-Soviet states with nuclear assets suffer from major deficiencies in national safeguards. Particularly worrisome are suspect security and accounting procedures at nuclear fuel storage facilities...research reactors and critical assemblies."

Meanwhile, Mtskheta regional police are investigating the disappearance of two computers with confidential information from the Institute of Radiology and Interventional Therapy. Prime News Agency reported that in the next few days it will be clear if the criminals wanted the secret information or they just were interested in computers for their material value. The computers were taken from the second floor of the three-story building of the Institute. The Institute director believes that the stolen information on radiation and ecological issues could costs no less than $120,000. Computers were given to the

European Republics

Belarus To Build Pipeline To Poland

· Belarus plans to build a 70-kilometer pipeline to Poland in 2001, at a cost of $70 million. This will raise Belarus' capacity to transport Russian gas to Europe, according to Pyotr PETUKH, general director of Beltransgaz. Gazprom, the world's biggest natural gas producer, last month signed an agreement with Gaz de France, Germany's Ruhrgas, and units of Eni of Italy and BASF to build a pipeline to increase gas supplies to Europe. The agreement calls for building a 600-kilometer pipeline to Germany from Belarus, through Poland, and Slovakia, at a cost analysts estimate at $1 billion. The pipeline would transport as much as 60 billion cubic meters of gas a year. Belarus charges Gazprom $17.50 per 1,000 cubic meters transported 1,000 kilometers. The payments are made in Russian gas supplies and currently account for 13 percent of all gas delivered to Belarus, which will increase to 15 percent, or $80 million, in 2005.

Mazeikiu To Meet LUKoil For Crude Talks

· Lithuanian oil concern Mazeikiu Nafta and Russian major oil producer LUKoil will meet later this week to continue crude supply talks, Reuters reported Monday. Mazeikiu, one-third owned by US Williams International, is looking to secure at least six million tons crude supplies from LUKoil. Ivanas Paleicikas, the local LUKoil representative said, "I don't think final agreements will be signed [during

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Institute by the International Agency on Nuclear Energy.

CanArgo Holds Controlling Stake In GAOR

· CanArgo Energy Corporation announced on Sunday that it acquired an additional 38.1 percent interest in the Georgian American Oil Refinery (GAOR). This brings CanArgo's total interest in GAOR to 51 percent. Under the transaction negotiated with the existing shareholders of the refinery, CanArgo acquired this interest for $1.67 million. CanArgo's total investment in GAOR of approximately $2.67 million will be recovered preferentially from the after-tax cash flow of the refinery. The consideration of $1.67 million is payable by the issuance of 1,543,025 common shares of CanArgo at a deemed price of $1.08 per share. GAOR owns and operates the only refinery in Georgia using Western technology. Situated in proximity to CanArgo's producing Ninotsminda field and the capital city of Tbilisi, the refinery is well positioned to supply a diversified product stream to a growing national and regional market. CanArgo initially acquired a 12.9 percent interest in GAOR in 1998 by financing a doubling of capacity to 4,000 barrels per day. According to a press release, CanArgo intends to build on this expansion through the installation of a reformer to broaden the refinery's product stream to include high-octane gasoline. The addition of the reformer, based on current gasoline and oil prices, has the potential to improve GAOR's operating cash flow to approximately $4.5 million annually. Dr. David ROBSON, chief executive officer, commented, "Acquiring a controlling interest in GAOR has been one of our key objectives to strengthen our downstream operations and strategic position in the Georgian energy market. Coupled with our interest in a premier chain of retail gasoline stations, I am confident the improved margins on our products will translate into bottom line results."

IFC To Advise Georgian Privatization

· The World Bank's International Finance Corporation (IFC) will advise Georgia on privatizing its

power plants and electricity distribution network. Georgia, battling a crippling energy crisis, plans in December to announce international tenders to dispose of five medium-size hydroelectric stations, with overall output of 150 megawatts in the west of the country, and eight regional distribution networks. Deputy State Property Minister Merab GABUNIA told Reuters the IFC would work in Georgia within the general assistance framework of the World Bank. "Nowadays the ministry is engaged in the process of enlarging small networks to make them more attractive for potential investors."

Opposition Parties To Boycott Parliament

· On Tuesday, Azerbaijan's opposition parties said they would boycott the newly elected parliament, due to claims by international monitors that the election was marred. International monitors from the Council of Europe, the Organization for Security and Cooperation in Europe (OSCE), and other groups said the election was marred by fraud, including ballot stuffing, manipulated turnout figures and pre-marked ballots. Observers also said turnout was much lower than the 67 percent figure given by officials. Siyavush NOVRUZOV, deputy executive director of New Azerbaijan (Yeni), said the ruling party was unconcerned. "I don't think their actions affect the new parliament's activity," he told Reuters, adding that the opposition would not have the 42 seats needed to block a quorum in the 125-seat chamber. The ruling party won more than half of the 100-seats from single-seat constituencies and nearly 25 seats distributed by proportional representation. Their representation gives them control of parliament and allows it to name a speaker, the constitutional successor to the ailing President. Popular Front leader Ali KERIMOV pointed out that. "Six opposition parties worked out a common decision on activity in the new parliament and refusing their seats in the assembly." He said he would join other major opposition parties planning rallies on November 18^th to demand a new vote. KERIMOV's support is important, since his was one of the only opposition parties to win seats in the election.

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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