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

Thursday, November 16, 2000

pistol…The fact that Tamara ROKHLIN's fingerprints were found on the pistol do not prove that she fired it. It could have been done by a person wearing gloves." Furthermore, in September, 1997, ROKHLIN revealed to Ria Novosti new agency journalists that then President Boris YELTSIN had given instructions to Yevgeny SAVOSTYANOV, who is in charge of power structures in the President's office, to work out a plan to discredit him. ROKHLIN added that this plan does not exclude the, "physical elimination of the general or disabling him as much as possible." ROKHLIN had become a deputy in the Russian State Duma and served as chairman of the parliament's Defense Committee. He later quit the parliamentary faction Our Home is Russia in protest at YELTSIN's planned military reforms.

Russian BONY Laundering Estimated At $500M

· Swiss authorities now say Russian businessman Peter BERLIN transferred $500 million to Swiss banks from Bank of New York (BONY) accounts to avoid taxes and launder money, The New York Times reported. The sum is well above the $16.8 million frozen last year in Swiss banks. BERLIN and his wife Lucy EDWARDS, a former vice president at the BONY, pleaded guilty in February in a NY Federal District Court to charges of conspiracy to launder money. The $500 million was from BONY accounts held by Becs, Benex International, and Lowland. All were opened by BERLIN, according to Swiss investigating magistrate Laurent

Russian Federation

Politics

Wife Found Guilty In Rokhlin Murder

· Tamara ROKHLIN, the wife of retired General Lev ROKHLIN who led the Russian assault on Grozny in 1995, was found guilty of his murder and today was sentenced to eight years in prison. Police had said after the murder more than two years ago that Tamara confessed to the shooting of her husband in his country home with his own pistol. Her fingerprints were reportedly found on the weapon. Days after the murder, ROKHLIN's relatives said that Tamara had called them stressing that she was under pressure to take responsibility for the crime.

Opposition politicians had been quick to allege a political plot behind the murder, before the police said Tamara ROKHLIN had confessed. The Federal Security Service (FSB) said at the time it had no reason to suspect any political motive. Other evidence, however, points to the fact that foul play could have been at hand. Several days after the General's murder, three dead bodies, burnt and with wounds to their heads, were found in the woods behind ROKHLIN's home. At that time, senior aide to the prosecutor general Alexander ZVYAGINTSEV said, "There are no grounds whatsoever to link one crime with the other." Investigators initially assumed that the bodies could have been hired to kill ROKHLIN, but determined that the bodies had died two weeks before the murder and later extended the timeframe to a month. Deputy head of the executive committee of the Movement in Support of the Army of which ROKHLIN was the head, Alexander MOROZOV doubted that Tamara killed her husband. He said it is, "improbable that the bodies could have lied for a month practically in the settlement without being found. " He also pointed out, "Tamara Pavlovna never possessed that

Today's News Highlights

Russia

S&P Corporate Study

UES Shareholders On Dilution

LUKoil-Getty Deal In Jeopardy

European Republics

IMF Delays Loan To Ukraine

Rus-Belarus Single Currency

South Caucasus & Central Asia

Georgian Electricity Protest

Russian Pull Out Of Akhalkalaki

OKIC To Elect Lead Operator

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November 16, 2000

Intercon's Daily

KASPER-ANSERMET. Much of the money is thought to have come from Russian trading companies trying to avoid duties and wealthy Russians hoping to avoid taxes. A small portion of the money may have been involved in criminal activity, the newspaper said, citing US prosecutors.

Economy

S&P Corporate Governance Study

· Standard & Poor's (S&P) rating agency has tested a new global corporate governance rating system using five Russian companies in a pilot project. Each company was given a Corporate Governance Score between 1 and 10, with 10 being a perfect score. S&P Marketing and Businesses Development Director Julia KOCHETYGOVA said companies operating in Russia's murky regulatory environment faced a bitter choice between high aspirations and economic realities, such as aggressive tax authorities. S&P found each of companies it had reviewed had failed to disclose financial information. She pointed out that revealing their financial statements could risk a visit from the Tax Police. S&P Moscow office director Cynthia STONE said poor corporate governance was holding back foreign investment in Russia, which amounted to only $5 billion last year. The agency reviewed oil major Sibneft, cellular operator Vimpelcom, subject to US Securities and Exchange Commission disclosure requirements, state-owned long-distance monopoly Rostelekom, and two small private businesses. S&P did not disclose the scores even to the pilot participants, issuing only prototype reports. S&P recommended that Rostelekom should provide more information on prices, interconnection charges, and the trading activities between its subsidiaries. The S&P report on Vimplecom raised concerns over statutes preventing the dismissal of Dmitri ZIMIN, chairman, founder, and leading shareholder. It also suggested that the company publish a succession plan for him and his executives. S&P criticized Sibneft for failing to fully disclose its shareholder structure. It did praise Sibneft's level of financial information and procedures to protect minority shareholders, the Financial Times reported.

Ruble = 27.77/$1.00 (NY rate)

Ruble = 27.81/$1.00 (CB rate)

Ruble = 23.77/1 euro (CB rate)

Business

UES Shareholders Again Question Dilution

· Unified Energy Systems (UES) faces more battles with shareholders in a board meeting today. Directors will be addressed with concerns over plans to create Mid-Volga Inter-regional Management Company, an intermediary between the holding company and UES' local electricity operators. They believe this would reduce transparency and dilute the board's control over assets. UES has been confronted with this type of claim earlier this year, when shareholders protested against plans to divide UES assets into smaller regional companies to be sold off to outside investors. Representing minority shareholders Boris FYODOROV said, "I am very angry. It is very, very obvious that his is another attempt to create a structure that could milk the company," the Financial Times reported. Investor analyst Bill BROWDER of Hermitage Capital Management said, "It looks like [chief executive Anatoly] CHUBAIS is trying to pass his restructuring plan by stealth through the creation of management companies that are outside the reach of shareholders." Another issue is the creation of a separate company called Energostroisnabcomplekt, which would be responsible for purchases for the corporate headquarters.

In addition, UES plans to buy a new building in Moscow for about $35 million, Vedomosti reported. The planned purchase of a 75 percent share of the 23-story business center in southwest Moscow will also be discussed at the company's board meeting today. UES would also assume the business center's debts, which total as much as 25 percent of the price. UES declined to name the seller and said the purchase would save it money it spends on rent, after its headquarters was damaged by fire in 1998.

LUKoil-Getty Deal In Jeopardy

· The Russia's top oil company LUKoil wants to conclude its deal with Getty to purchase it 1,300 Northeastern retail stations for about $71 million, which was reached on November 2^nd. President of the LUKoil USA Company Vadim GLUZMAN on Wednesday confirmed that Getty is negotiating with another potential buyer, United Refining Company. He noted that the new company has not made an official bidding. "In actual fact, the matter

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in question is "a letter of intent" to purchase Getty." The LUKoil offer to purchase Getty, set at $5 per ordinary sale, is open till December 8^th. He explained that, "Any company can offer its own bidding by this date, while the Getty board of directors is duty-bound to examine it, since Getty is a public joint stock company. Therefore, United Refining Company is to make an official bidding by December 8^th." United Refining Company, on November 6^th, offered to buy Getty for $5.75 a share. Getty has agreed to pay LUKoil $3 million and as much as $2 million more in expenses if it backs out of the merger.

from January 1, 2005. The second agreement will introduce a new single currency starting from January 1, 2008. The documents provide for establishment of a single emission center in Moscow starting from 2005. "Introduction of a single currency demands implementation of a series of conditions also written into the agreements¾the main principles of monetary-financial, structural and tax policy," said Russian Deputy Prime Minister Viktor Khristenko. To stabilize Belarus currency as the two countries move closer to an economic union, Russia will extend a $30 million credit to Belarus. According to Russian Prime Minister Mikhail Kasyanov, the $30 million loan, part of a $100 million credit, would be disbursed in December and would also be aimed at stabilizing Belarus' balance of payments. The two ex-Soviet neighbors plan to form a united state, which will include setting up a unified currency, harmonizing laws, customs, tax, defense and border policies.

South Caucasus & Central Asia

Georgians Protest Electricity Blackouts

· On Wednesday, several thousand residents of the Vake district of Tbilisi blocked Chavchavadze Avenue, a main city thoroughfare, to protest frequent electricity blackouts and the planned reduction of electricity supplies to their homes for only six hours a day. Protesters also blocked streets in the town of Rustavi, 30 miles to the east. Georgian authorities said earlier this month they would cut the electricity due to lack of funds for repairs and fuel for electricity stations. The protest lasted five hours. Georgian President Eduard SHEVARDNADZE said that, "the situation will be better in both the capital and the provinces," after 10 days. Although protestors had demanded no less than 20 hours per day, he promised to increase supplies to 13 to 15 hours a day. Prime News Agency reported that SHEVARDNADZE intends to personally control the electricity supplies for Tbilisi. The President blamed the shortfall on corruption within the energy sector and the government's inefficiency. Frequent blackouts have caused some to call for Georgia to connect its lines with Russia's electricity grid, a move that would signify dependence on Russia. Comment: With the prediction of a harsh winter on the way, it appears likely that subversive forces operating in Georgia will use frequent electricity

European Republics

IMF Delays Resumption Of Loan To Ukraine

· The International Monetary Fund (IMF) mission in Ukraine will not recommend resuming a $2.6 billion loan to the Fund's board until the Ukrainian government proposes a realistic budget for 2001 with a deficit not greater then 3 percent of GDP, Reuters reported. Mission chief Julian BERENGAUT said, "There are prior measures that Ukraine would have to carry out, and the key here is a budget with a reasonable level of privatization receipts." The IMF froze lending last year due to slow economic reforms and a scandal over misreporting to the Fund in 1997-1998. Yuri Yekhanurov, Ukraine's first deputy prime minister, stated that the loan amount is not as important as the IMF approval which would demonstrate Ukraine's creditworthiness. Renewed lending would enable cash-strapped Ukraine to ask the Paris Club to restructure $500 million debts. It has also taken on a new urgency after European Commission President Romano Prodi said last week that international donors wanted to see IMF loans before they themselves shelled out for the decommissioning of Chernobyl nuclear reactor. Ukraine said it will shut down the last functioning reactor on December 15^th, but has repeatedly made clear it cannot afford to do so without Western funds.

Russia¾Belarus Towards Single Currency

· The prime ministers of Russia and Belarus were expected to sign two agreements on establishment of a single currency on Tuesday, Itar-Tass reported. The first document will establish the Russian ruble as the union's single currency starting

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shortages as an issue to disparage the SHEVARDNADZE government and the Citizens' Union Party. Parliamentary deputy Jumber PATIASHVILI predicted that the energy crisis could lead to social unrest. According to him, the population expresses protest against corruption, annual under-fulfillment of the state budget, debts for salaries and pensions. "Government and the governing party are responsible for all that," he said. This could be a sign of increasing pressure on the government and lead to attempts to remove it from power.

Russian Withdrawal From Akhalkalaki

· Russia has completed the transfer of its armored vehicles from Georgian Akhalkalaki to Armenian Gyumri military base on Monday. The transfer was conducted under the Treaty on Conventional Forces in Europe and in compliance with the Russian-Georgian accords reached in Istanbul in November, 1999. According to Itar-Tass, the transfer began on October 20^th and proceeded in several stages. It reported that 76 vehicles were transferred to Armenia joining 102^nd Russian military base. As Armenian Defense Minister Serzh Sarkisyan stated, the decision to reinforce the Russian military base in Armenia with armored vehicles withdrawn from Georgia was adopted by the leadership of the Russian armed forces. Russia and Armenia say that they develop their military cooperation under the Commonwealth of Independent State's Collective Security Treaty and it is not directed against third parties.

OKIOC Meets To Elect Operator Lead

· The Offshore Kazakhstan International Operating Co. (OKIOC), which unites Exxon Mobil Corp., Royal Dutch/Shell Group, and others, will nominate a leader for their exploration in the Caspian Sea by January. OKIOC shareholders met Wednesday to review the bids for the position at their monthly meeting. An OKIOC spokesman Aina ZUBAIR said "no final decision is expected." OKIOC, which may develop the largest oil deposit found in decades,

also includes BP Amoco, BG Group, Total Fina Elf, Statoil, Eni, INPEX of Japan and Phillips Petroleum Co. All except INPEX and Phillips bid for the role. The operator will have a greater degree of control over the project's management, however, major decisions will be made by the group's operating committee, said ZUBAIR. The group began drilling the second well in the West Kashagan field offshore Kazakhstan in early October. OKIOC has already reached a depth of 2,358 meters, or more then 50 percent of the planned well. Drilling will be finished in the spring and the well tests in summer. The first well at East Kashagan in June estimated the field's total oil reserves anywhere from 9 billion to 50 billion barrels, Bloomberg News reported. OKIOC has yet to provide data on sulfur contents, the determining factor in the quality of the oil at the deposit. In September, OKIOC said Kashagan oil is lower quality than previously expected. OKIOC plans to announce soon its operating budget for next year, which will exceed this year's $160 million as exploration accelerates, said ZUBAIR.

Nazarbayev Makes British Visit

· Kazakhstan's President Nursultan NAZARBAYEV arrived in Britain for a three-day official visit on Wednesday. He will meet Queen Elizabeth and is expected to hold talks with Prime Minister Tony BLAIR, Foreign Secretary Robin COOK, and Defense Secretary Geoffrey HOON. He will also meet several British firms investing in Kazakhstan, including BP Amoco, BG, BAE System, and Royal Dutch/Shell. Britain is Kazakhstan's biggest trading partner in the European Union, with most investment going to the energy sector. NAZARBAYEV will meet with British businessmen and inform them about the investment policy of Kazakhstan. The Kazakh Embassy said in a statement it expects agreements on defense cooperation, defense exports, and setting up a Kazakh-British university, located in Kazakhstan, to be signed during NAZARBAYEV's visit. On November 17^th, NAZARBAYEV will stop over in Russia on the way back from London.

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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