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 2, 2000


harassed by the FSB in revenge for such allegations. The Foreign Office and the Russian embassy in London all declined to comment.

UN First Committee Passes ABM Resolution

· The UN First Committee on Disarmament and International Security Wednesday, in a vote of 78 in favor to 3 against and 65 abstentions, adopted a resolution, proposed by Belarus, China, Russia and Kyrgyzstan, to strengthen the Treaty on the Limitation of Anti-Ballistic Missile Systems (ABM Treaty). The resolution calls for united efforts to preserve its integrity and validity so that it remains a cornerstone in maintaining global strategic stability and world peace and in promoting further strategic nuclear arms reductions. It urges the parties of the treaty to limit the deployment of anti-ballistic systems and refrain from the deployment of anti-ballistic systems for the defense of the territory of their country and not to provide a base for such a defense, and not to transfer to other states or deploy outside their national territory anti-ballistic missile systems or their components limited by the treaty. The US has been pressuring Russia to amend the ABM to take into account the need for a limited defense system. The UN welcomed a move by the US to postpone the decision on deploying a national missile defense system at this time. Russian Deputy Foreign Minister Sergei ORDZHONIKIDZE noted that most countries believe that strategic stability and nuclear disarmament should not be decided on by Russia and the US exclusively.

Russian Federation

Politics

Former FSB Agent Seeks Asylum

· Alexander LITVINENKO, a former Federal Security Service (FSB) domestic intelligence agent, his wife and daughter today arrived in London, seeking political asylum. He stressed that he fears for his life and has, "appealed to the (Russian) prosecutors' office several times to ask them to defend me and my family. But there has been no reaction." LITVINENKO fled from Russia with information on the FSB's activities during two controversial events. His lawyer said, "He fears for his life, in part because he knows a lot, including about the apartment explosions in Moscow last year." The cause of the apartment bombings in Moscow, which killed nearly 200 civilians and has been used as a pretext to the military campaign in Chechnya, remains suspicious. The Kremlin has blamed the bombing on Chechen rebels, despite the fact that no evidence of Chechen involvement has ever emerged. The Guardian published reports that claim that the FSB itself planted the bombs. Several eyewitnesses claim that FSB officials were involved in planting explosives in an apartment building in Ryazan, a week after the second apartment bombing in Moscow. Residents, "believed that the chief of the Federal Security Service was lying when he announced, two days later, that the whole thing was a training exercise. They believe he was heading off an investigation and providing cover for whoever was being the attempt to kill them all," The Baltimore Sun reported in January. LITVINENKO had previously made allegations, denied by the FSB, that the Russian security services had planned to assassinate prominent businessman Boris BEREZOVSKY. Four other FSB officers, who appeared on a television program wearing ski masks supported his statement. LITVINENKO has been

Today's News Highlights

Russia

Business Tycoons Summoned

Tatneft Reschedules $354M Debt

European Republics

Lazarenko Money Returned

Turkmen Resumes Gas Supplies

South Caucasus & Central Asia

Georgian Infighting Escalates

33rd Oil Tanker Filled At Supsa

Cato Institute On Baku-Ceyhan

Uzbek Orders Hyundai Trucks

Politics-Economics-Business

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Thursday

November 2, 2000

Intercon's Daily

He added, "Reduction of nuclear arsenals and measures for strengthening the strategic stability result, after all, in scaling up security of the entire international community…In a situation where preparations for deployment for the National Missile Defense System continue in the United States [Russia] does not consider it possible to give up efforts to protect the ABM Treaty.

Economy

MinFin Deadline Set For November 30th

· The Russian government on Wednesday set November 30th as the deadline for the exchange of the third installment of MinFin bonds. Russia failed to pay off the bonds when they were due to mature in May 1999, due to the financial crisis in 1998. The offer to exchange the bonds for new paper has been open for months. Under the restructuring, the Finance Ministry offered OFZ ruble-denominated bonds and new dollar-denominated MinFin bonds in exchange for old paper. International rating agency Standard & Poor's has said it may hike Russia's foreign currency issuer rating, currently at Selective Default, after the MinFin swap is finished.

Ruble = 27.86/$1.00 (NY rate)

Ruble = 27.86/$1.00 (CB rate)

Ruble 23.98/1 euro (CB rate)

Business

Gusinsky, Berezovsky Summoned To Moscow

· Russia's general prosecutor has launched a second round of attacks against the nation's oligarchs, by summoning Media Most Chairman Vladimir GUSINSKY and Boris BEREZOVSKY to appear in Moscow on November 13th. He threatened to imprison them and issue international arrest warrants if they failed to show for questioning. GUSINSKY has ignored two previous summons. Both men, who are outside of Russia, have long been entangled in investigations and have critically spoken out against the authoritarian style of Vladimir PUTIN's government and his policies regarding the military offensive in Chechnya. Deputy Prosecutor General Vasily KOLMOGOROV said GUSINSKY is wanted for "deceit and abuse of trust: and embezzlement in securing more than $300 million in loans from Gazprom for a web of insolvent companies. A case earlier brought against BEREZOVSKY for allegedly embezzling millions from state airline

Aeroflot to two companies in Switzerland has been dropped. However, the prosecutor's office stated that it has new proof to charge BEREZOVSKY with large-scale theft, the Financial Times reported.

It should be noted that late in October in an interview with a French newspaper, PUTIN in his threatening style warned, "The state has a cudgel in its hands that you used to hit just once, but on the head. We haven't used this cudgel yet. We've just brandished it, which is enough to keep someone's attention. …[But] the day we get really angry, we won't hesitate to use it." He said that unnamed business magnets were trying to use the media to blackmail the state. In Le Figaro, PUTIN pledged to, "…destroy all tools of blackmail that might be used against the state." Perhaps this is PUTIN's first attempt to wield this cudgel.

Tatneft Reschedules $354M Debt

· Tatneft on Tuesday signed a deal with a group of nine western banks for the restructuring of $354 million in debt over two years. Under the terms, Tatneft will make monthly payments of $15.5 million to $22 million, depending on the price of oil. The interest rate has been set at Libor plus 3.95 percent, plus commissions, and interest of no more than 0.25 percent on the monthly payments of $22 million. This dents represents 40 percent of Tatneft's $838 million of obligations. Tatneft has already paid a $13.5 million coupon on its 2002 eurobonds, ahead of the 15-day grace period. This restructuring, according to Tatneft General Director Shafagat TAKHAUTDINOV, will allow Tatneft to make further payments on $300 million of eurobonds. The deal covers loans from Societe Generale, West Merchant Bank, Dresdner Bank, Credit Suisse First Boston, Chase Manhattan, BHF, Berliner Bank, Credit Agricole Suez, and Russian Zenit. The restructuring frees up an estimated $200 million a month to be spent on increasing production, expanding retail sales, and keeping up with competitors Surgutneftegaz and Tyumen Oil Company. Tatneft began debt-rescheduling talks with its creditors, following the Russian financial crisis in 1998. Tatneft expects 2000 revenue to exceed 80 billion rubles, for a pretax profit of 30 billion rubles. Tatneft, which exports about 530,000 tons of oil a month, plans to produce 23.2 million tons (464,000 barrels a day) of crude oil in 2000, and increase that by 3.9 percent in 2001 to 24.1 million tons.

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Thursday

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European Republics

Swiss Return Lazarenko's Stolen Funds

· The Swiss Justice Ministry has retuned to Ukraine $6.6 million from Swiss bank accounts held by former Ukrainian Prime Minister Pavlo LAZARENKO, who has been convicted of money laundering in a Swiss court. He was tried in absentia while in jail in San Francisco, where he faces charges of laundering $114 million allegedly stolen while in prime minister. Ukraine's General Prosecutor Mykhailo POTEBENKO confirmed in a letter to Swiss Justice Minister Ruth METZLER that the funds had been returned and thanked Switzerland for doing a "highly professional job." LAZARENKO, who was prime minister of Ukraine from June 1996 to June 1997, was arrested in December 1998 as he entered Switzerland on a Panamanian passport. He was released on bail after a Geneva judge indicted him on money-laundering charges. LAZARENKO was later detained in the US in February, 1999, for visa irregularities. At the same time he was stripped of his parliamentary immunity. Ukraine charged him with misappropriating state property after probing his vast business empire.

Turkmen Resumes Gas Supplies To Ukraine

· The Turkmen Oil and Gas Ministry on Wednesday said that it had resumed natural gas supplies to Ukraine after getting a $16 million payment up front under an agreement struck last month. Turkmenistan turned off the gas to Ukraine in May, 1999, because of unpaid bills. The two countries agreed October 4th that supplies would resume and that Turkmenistan would supply 5 billion cubic meters of gas this year at $38 per 1,000 cubic meters. Next year, supplies are to increase to 30 billion cubic meters at $40 per 1,000 cubic meters. The deal, signed between Turkmen President Saparmurat NIYAZOV and Ukrainian President Leonid KUCHMA, requires Ukraine to make weekly advance payments of $7 million in cash and $9 million in goods to ensure payments are made regularly. Ukraine is one of the world's biggest natural gas consumers. It is dependent on Russia for supplies, but continues to seek alternatives and lower gas prices.

South Caucasus & Central Asia

Interior Min.-CUG Bickering Escalates

· Bickering between Georgia's Interior Minister

Kakha TARGAMADZE and the leading parliamentary party Citizens Union of Georgia (CUG) has escalated to level of President Eduard SHEVARDNADZE. TARGAMADZE has claimed that the ruling party has unleashed a war against the leading officials in the Interior Ministry. Secretary General of CUG Edward SURMANIDZE has demanded that TARGAMADZE cite names and produce evidence to back up his claims. Head of the CUG Revaz ADAMIA has said that the problem should be seriously discussed. It is interesting to note that since making this comment, ADAMIA's children have been stopped several times by police searching for drugs. ADAMIA said that police often allow itself arbitrariness which does not promote order and stability in the country. The Interior Minister has also stated that he has "information" against several leaders of the CUG, which if made public would force them to leave the country. Tax and Revenues Minister and former secretary general of CUG Michael MACHAVARIANI pointed out that if the Interior Ministry has "information against him and does not publicize it, then he violates the law, Prime News Agency reported. Chairman of the parliament and CUG member Zurab ZHVANIA has called TARGAMADZE's statements "blackmail." He expressed surprise at TARGAMADZE's statement that stability in Georgia was purely TARGAMADZE's achievement. ZHVANIA said the, "Opposition does not doubt that the situation in the country was stabilized by President SHEVARDNADZE who even had to put his life at risk." He admitted that it was a mistake to ignore TARGAMADZE's claims that the Interior Ministry "was receiving information from the parliament." Head of the parliamentary committee on Human Rights Elena TEVDORADZE said that TARGAMADZE's attack on the CUG and specifically against ZHVANIA, was due to the fact that TARGAMADZE wants to win the next presidential election in 2005. This is disturbing considering that TARGAMADZE claims that parliamentary deputies are not election through the vote but, "appointed through his office." SHEVARDNADZE has called on both sides to behave. "Talks about the conflict between the Interior Ministry and the ruling party must be stopped and the subject must be dismissed."

33rd Tanker Filled At Supsa In 2000

· The 33rd tanker this year has been filled with

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Caspian crude oil at Supsa oil terminal. Georgian International Oil Corporation told Prime News Agency that 138,600,000 tons of oil owned by State Oil Company of Azerbaijan (Socar) has been transported to Italy. Supsa terminal has handled 65 tankers since it was opened last April.

Tax Revenues Ministry To Be Computerized

· Georgian Tax and Revenue Minister Mikhail MACHAVARIANI on Wednesday announced that Georgia's tax system will being to be computerized by year's end. This will include tax structures in Tbilisi, Mtskheta, and Rustavi connected by a computer network. According to him, the system computerization is necessary for the reforms in the tax department. For this aim a fiber-optics cable will be put through east and west Georgia. In addition, a monitoring bureau will be created in the Tax and Revenue Ministry The bureau will be controlling the accounts of humanitarian aid investments and products. MACHAVARIANI pointed out that the accounting of the humanitarian aid cargoes is a problem, which will be solved by the monitoring bureau.

Support For Baku-Ceyhan Misguided?

· According to a new study released on Tuesday by the Cato Institute, Washington's lobbying for the Baku-Ceyhan oil pipeline is dragging the US into a political conflict and economic sinkhole. In "The Great Game, Round 2: Washington's Misguided Support for the Baku-Ceyhan Oil Pipeline," Cato research fellow Stanley Kober explains how US President Bill Clinton's support for this pipeline route is causing huge tensions with Russia and Iran. Clinton administration argues that the pipeline will promote economic and political stability in Central Asia and benefit Turkey, a strategic NATO ally. But "US-Russian tensions, which are already disturbingly high, are being exacerbated by the pipeline issue, because Moscow suspects that Washington is trying to establish a US sphere of influence on Russia's southern flank," Kober writes. According to him, Russians are suspicious that the Chechen insurgency has been inspired by

foreign interests seeking to make the existing pipeline through Chechnya and Russia appear unreliable. The US pipeline preferences may make Russia nervous, but it also isolates Iran at a time when that country is breaking down the wall of mistrust between itself and the US, KOBER believes. "The rewards of an improved relationship, putting to rest two decades of hostility, are too great to jeopardize for a pipeline route that is difficult to justify commercially." Moreover, "the pipeline, far from promoting US interests in the region, undermines them," the Cato researcher concludes.

US presidential advisor for Caspian Energy Resources John WOLF, however, describes a more positive future for the pipeline project. He said the Baku-Ceyhan project, "is taking a major step forward," following the signing of three key agreements between Azerbaijan, Georgia, Turkey and the petroleum companies involved. An engineering study will follow on the 1,730-kilometer pipeline, estimated to cost between $2.4 billion to $2.7 billion. The other key project is the Trans-Caspian Gas Pipeline, which would carry Turkmenistan and Azeri gas to Turkey. Wolf believes that Caspian energy policy will unlikely change after November 7th US presidential elections. "This is a bi-partisan policy," he was quoted by Dow Jones Newsline. "Governor BUSH didn't say he'll alter it. He's for the independence, growth, prosperity and maturing performance of the countries in the [Caspian] region."

Uzbek Orders Hyundai Garbage Trucks

· Hyundai Motor Co., South Korea's largest automaker, said it won a $10 million order for garbage trucks from the Uzbek government. The 140 sanitation vehicles will be sold to the Tashkent municipal authorities, and paid for by loans from the International Bank for Restructuring and Development (IBRD). Hyundai said, "The shipment paves the way for a move into the central Asian country…We are also considering their interest to buy the next generation of buses for the [Tashkent] city."


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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