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 21, 2000

Russian Federation

Politics

Rus-Britain On Defense and Security

· Talks between Russian President Vladimir PUTIN and British Prime Minister Tony BLAIR focused on defense and security policy issues. PUTIN said that BLAIR persuaded him that a common European defense policy did not threaten Russia. He said that Moscow will not try to block its development. On Monday, European Union (EU) defense ministers pledged troops, ships and planes to a rapid reaction force as a first step in building the EU's military power. BLAIR also expressed concern about the media over-blowing the purpose of such a rapid reaction force. He said the force would get involved only in peace keeping and humanitarian missions, which would enhance the stability on the continent and beyond. Both Britain and Germany stressed that the force was no substitute for NATO. Russia has been consistently critical of NATO proposals to expand eastwards to take in more Soviet-bloc states.

Russia is also opposed to US plans for a National Missile Defense system to protect against attacks from nuclear rogue nations. BLAIR pointed out that he understood Russian concerns and that he hopes to act as an intermediary between Russia and the next US president. Prior to his arrival in Moscow, BLAIR said, "Our desire is to make sure we get a dialogue between the US and Russia." He added, "Whereas we have been understanding the American desire to take action to defend itself against rogue nuclear states, we want to make sure that takes place within the context of the negotiated treaties," the Financial Times reported. Today, PUTIN said Russia is firmly against changing the 1972 Anti-Ballistic Missile Treaty, which bans missile defense shields, but it is prepared to discuss it.

Prosecutor Removed From Pope Trial

· Deputy Prosecutor General Vasily KOLMOGOROV has announced that State Prosecutor Oleg PLOTNIKOV has been replaced by Yuri VOLGIN in the espionage trial against US retired Navy intelligence officer Edmond POPE. Russian media is reporting that PLOTNIKOV was ill and may need emergency treatment for high blood pressure. POPE's lawyers demanded PLOTNIKOV be replaced because his son, Yuri PLOTNIKOV, works for the Federal Security Service (FSB) team that investigated POPE. POPE's main lawyer, Pavel ASTAKHOV, said Oleg PLOTNIKOV should have refused to handle the case in line with Russian law on prosecutions. The trial of POPE has been on-again-off-again due to the health of POPE, who is suffering from a rare form of bone cancer, the main witness, who has suffered a heart attack and retracted his earlier testimony, and now the prosecutor, who is suffering from stress and high blood pressure. US President Bill CLINTON and several congressmen have called on Russian President Vladimir PUTIN to end the trial and release POPE.

Nuclear Materials Secured In Siberia

· The US Department of Energy said Friday that 10 metric tons of weapons-usable nuclear materials, enough to make 500 nuclear bombs, is now secured at a central storage facility in Siberia, as part of a joint US-Russian program to prevent theft by terrorists. US Energy Secretary Bill RICHARDSON

Today's News Highlights

Russia

IMF Mission Leaves Moscow

UES Reorganization Discussion

LUKoil Development In Barents

European Republics

Belarus Economic Statistics

Estonian Bids For Rail Received

South Caucasus & Central Asia

Adamia's Office Bugged

BP To Pay For Caspian Study

Putin-Nazarbayev Meet

Politics-Economics-Business

Page

Tuesday

November 21, 2000

Intercon's Daily

said, "Today's announcement shows the continuing commitment of the US and Russia to reduce the risk that terrorists or countries of proliferation concern might acquire nuclear materials for use in a weapon." The materials were moved from three separate storage locations to the central site at the Novosibirsk Chemical Concentrates Plant in Siberia. That site contains comprehensive nuclear material and accounting systems. The systems were put in place as part of the US-Russian Material Protection, Control and Accounting (MPC&A) program, an effort designed by the two nations to protect hundreds of metric tons of plutonium and highly enriched uranium against theft, Reuters reported. MPC&A was launched in 1993 in partnership with Russia and the New Independent States to correct deficiencies in systems to secure nuclear materials. The Energy Department said security upgrades were underway for 750 metric tons of the estimated 960 metric tons of nuclear materials requiring security. The main point of the program, according to the agency, is to install modern physical security and material accounting systems; reduce risks by consolidating materials into fewer buildings; and converting highly enriched uranium into forms not usable in nuclear weapons.

Economy

Ruble = 27.83/$1.00 (NY rate)

Ruble = 27.83/$1.00 (CB rate)

Ruble = 23.62/1 euro (CB rate)

IMF Leaves Moscow, No Agreement Reached

· The International Monetary Fund (IMF) mission left Moscow today, after two weeks of talks and with no agreement reached, Reuters reported. Despite its concerns about accelerating inflation and unfinished industry reforms, the IMF left open the possibility of an agreement at a future round of talks, which could be held as early as in mid-December. "Progress was made in a number of areas and outstanding issues were clarified for further consideration," the IMF said in a statement. "Work will now continue on both sides in the weeks ahead in preparation for the next round of discussions when this work is sufficiently advanced." A deal with the Fund is needed to restructure about $42 billion in debt to the Paris Club. Without IMF approval for economic plans, the government cannot start talks with the Paris Club on payments falling due from

next year. Payments for the second half of 1999 and 2000 have been restructured, but the government has not made provisions for $3 billion due next year.

Business

UES Reorganization To Be Discussed

· Russian Prime Minister Mikhail KASYANOV will chair a Cabinet meeting today to discuss the proposed reorganization of Unified Energy Systems (UES), the monopoly power company. UES Chairman Anatoly CHUBAIS will attend the meeting to discuss a draft proposal for the break-up of the energy monopoly. Economic Trade and Development Minister German GREF and representatives of the Fuel Ministry will also be among the participants. Analysts predict that no decision will be made at the Cabinet meeting. "Most likely, the cabinet will schedule the discussion for December 14^th," said Alexander BRANIS, director at Prosperity Capital Management. The company, which accounts for about half of all transactions on the Russian Trading System every day, is about 32 percent owned by foreign shareholders. With 41 billion shares outstanding, UES' performance often is viewed as bellwether for investor sentiment about Russia. CHUBAIS' initial proposal raised concern among investors earlier this year because of worries he would sell assets at below market value to investors not interested in improving the companies. Separately, the government will discuss an overhaul of the energy industry over the next 20 years during a meeting Thursday. UES has proposed a reorganization that would separate the power grid from generating units. Earlier, government officials said they expected the plan would be ready by the end of the year.

LUKoil Begins Development In Barents Sea

· The LUKoil oil company started commercial development of an oil deposit in the Timano-Pechora oil and gas province on the shelf zone in the eastern Barents Sea. The firm uses the ice-breaking tanker Volgograd of the Murmansk shipping line. The tanker has already brought 15,000 tons of Arctic oil from the new deposit to Western Europe. The export of crude in wintertime confirmed forecasts by specialists that oil production and shipping can be conducted there all year round, the line's center for sea operations reported. Arctic oilmen will receive, over the next few days, 5,000 tons of equipment to

When you need to know it as it happens

Politics-Economics-Business

Page

Tuesday

November 21, 2000

Intercon's Daily

expand the Varandei sea terminal in the area of the deposit. Builders work on the construction of new pipelines, tanks for oil storage and other facilities for production, even during the polar night.

used to pay wage and pension arrears. Earlier this year, the President signed a decree ordering the creation of special units to fight tax evasion and money laundering. Tax Police Head Viktor ZHVALYUK said implementing the decrees was complicated due to the lack of relevant laws. ZHVALYUK said the government had submitted a draft law aimed at introducing criminal prosecution for money laundering to parliament earlier this month and urged deputies to pass the bill quickly.

Estonian Rail Sale Receives Bids

· Estonian privatization agency said Monday all three second round bidders for 66 percent of state rail firm Eesti Raudtee had submitted offers in the third and final round. An agency spokeswoman told Reuters international consortium Baltic Rail Service, local consortium RER, and RailEstonia, an arm of RailAmerica had all met Monday's deadline for getting their final bids in. The privatization agency said last week its council will decide on which is the best single bid on the table no earlier than December 13^th.

South Caucasus & Central Asia

CUG Chairman Adamia's Office Bugged

· Expert security advisors performed a sweep of the office of the chairman of parliamentary faction Citizens' Union of Georgia (CUG) Revaz ADAMIA on Monday and detected a "bug." The listening device was found in the air conditioning system and appears not to be a professional device. Head of Georgian parliament staff Khatuna GOGORISHVILI told journalists, the "bug" has been passed to the Special Service of State Security. The type and characteristics of the interception "bug" will be determined in the next two-three days, as an investigation has already be launched. ADAMIA did not say whether the "bug" was connected to statements by the Interior Minister Kakha TARGAMADZE that he was monitoring the parliamentary deputies. Infighting between the CUG and the Interior Ministry has been ongoing for over a month. Head of the parliamentary committee on Human Rights Elena TEVDORADZE said that TARGAMADZE's attack on the CUG and specifically against Chairman of the parliament Zurab ZHVANIA, was due to the fact that TARGAMADZE wants to win the next presidential election in 2005.

European Republics

Belarus Economic Statistics

· Belarus' industrial output rose by 12.5 percent in October compared to the same month a year ago, the Statistics Ministry said Monday. It said industrial output rose by 8.6 percent in the first 10 months of the year compared to the same period in 1999. Belarus' gross domestic product (GDP) rose by 5.3 percent in the first 10 months of the year compared to the same period a year ago. The government expects GDP to grow by up to five percent in 2000 after a three percent rise in the previous year.

Ukraine-Belarus Sign Defense Cooperation

· The Ukrainian Defense Minister Alexander KUZMUK and visiting Belarus counterpart Alexander CHUMAKOV signed a plan of cooperation for 2001 in Kiev on Monday. An agreement to this effect was reached in Dushanbe in October, the Defense Ministry's press service told Itar-Tass. Commenting on the plan, KUZMUK said that its implementation aims at, "improving military hardware of Ukraine and Belarus, mutual training of soldiers and officers, modernizing military equipments of both states, exchanging weapons and joint disposal of engineer mines, ammunition and certain equipment." KUZMUK said that Ukrainian and Belarus air defense brigades plan to cooperate.

Kuchma Calls For Crackdown On Corruption

· Ukraine's President Leonid KUCHMA has ordered the government to crack down on corruption and reduce budget spending on government officials. Under the decree, the government is to work out measures aimed at simplifying licensing procedures for private businesses and boost cooperation between different government bodies in fighting corruption, Reuters reported. Foreign investors have frequently cited widespread corruption and vague legislation as the main reason preventing serious investment in Ukraine. KUCHMA's decree also foresees lower budget spending on cars, mobile telephones, office equipment, and foreign business trips for government officials. Money saved will be

When you need to know it as it happens

Politics-Economics-Business

Page

Tuesday

November 21, 2000

Intercon's Daily

Another Former Sakenergo Director Arrested

· Georgian State Security officers Monday arrested the former general director of Sakenergo (Georgian Energy Generation) Giorgi BADURASHVILI. The former director is accused of abuse of office and stealing state property. According to investigation materials, BADURASHVILI has caused the loss of over 492,000 lari to the state through his illegal operations. Former deputy general director Giorgi MAKASHVILI was detained on November 9^th for stealing state property. On November 5^th, former director Emzar CHACHKHIANI was arrested for embezzling 7.75 million lari ($3.9 million). Georgia Today reported that, "CHACHKHIANI was involved in financial abuses, in which he drew up questionable contracts with energy suppliers delivering to Georgia, at a price far higher than the market value. The parties then split the difference." Rooting out corruption in the energy sector is a significant step for Georgia and its Citizens' Union Party, which has committed itself to fully implementing the anti-corruption program.

BP To Pay $126M For Caspian Study

· BP Amoco and seven other oil companies will pay $126 million for engineering studies during the next 19 months, improving the prospects for a pipeline that would carry oil from the Caspian Sea to Western ports, The New York Times reported. Officials and industry representatives at an oil and natural gas conference in Istanbul this week appeared confident the $2.4 billion pipeline will be built, bypassing Russia and Iran, the paper said. Chief US negotiator John S. WOLF said the region's governments have demonstrated they can work together and circumstances persuaded at least eight companies that the project may make financial sense. WOLF cautioned against assuming the pipeline was a certainty, questioning its engineering requirements and commercial viability, the paper reported. It's uncertain whether companies drilling in Kazakhstan would ship oil through the line or send it through Russia, WOLF said.

Kocharyan Begins Visit To Greece

· Armenian President Robert KOCHARYAN today began a state visit to Greece, marking a new phase in the development of Armenian-Greek cooperation. KOCHARYAN is scheduled to meet with Greece's President Constantinos STEPHAN-OPOULOS, Prime Minister Constantinos SIMITIS and the minister of foreign affairs. Mayor of Yerevan Albert BAZEYAN is due to sign with the Mayor of Athens a protocol of friendship and cooperation between the capitals of the two countries. KOCHARYAN will meet members of the Armenian community in Greece which numbers some ten thousand people and visit Thessaloniki where an agreement on cooperation with the Armenian city of Gyumri, former Leninakan, will be signed. The Armenian press secretary stressed in particular the importance of cooperation of Armenia, Greece and Iran with their trilateral contacts in the sphere of industry, technologies, science, trade, transport and telecommunications.

Nazarbayev Meets Putin For Talks

· Kazakh President Nursultan Nazarbayev and Russian President Vladimir Putin met in Moscow on Saturday for the talks focused on regional security, customs cooperation, and economic integration. According to Reuters, Nazarbayev and Putin agreed to bolster the Commonwealth of Independent States (CIS), which groups 12 former soviet republics. CIS leaders regularly pledge to enhance the role of the organization which has had limited success in implementing hundreds of decisions approved since its inception in 1991, after the collapse of the Soviet Union. Nazarbayev noted that he and Putin also considered military and technical cooperation and measures to create a CIS anti-terrorist center.

The Daily Report on Russia and the FSU

will not be published

on November 23^rd and 24^th

in observance of the Thanksgiving Holiday.

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

available for non-profit institutions.

Daily Report on Russia is for the exclusive use of the subscriber only. Reproduction and/or distribution is not permitted without the expressed written consent of Intercon. Daily Report on Russia Ó copyright 2000, Intercon International, USA.

When you need to know it as it happens

Politics-Economics-Business

Page