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 22, 2000

ever, made it clear to Reuters that the State Council's views would be politely listened to, but ignored if they clash with the blueprint for the decade adopted by the government of Prime Minister Mikhail KASYANOV. The State Council is also expected to debate over Russia's new national Anthem.

Anti-Semitic Attacker Arrested

· Russian police arrested Vasily OLEINIKOV, an aide to newly elected Kursk Governor Alexander MIKHAILOV, for allegedly beating Sergei MAKSACHEV, a former deputy governor in Kursk, in an apparent anti-Semitic attack. President Vladimir PUTIN has ordered federal law enforces to investigate the beating, which has raised concern about anti-Semitism among Russian officials. MAKSACHEV said that the beating occurred following a meeting at the governor's residence and was escorted into a room where OLEINIKOV and two other men beat him, while shouting anti-Semitic slurs. "This OLEINIKOV said, `You Jews! I didn't get to finish you off when [Alexander RUTSKOI] was the boss, but now you'll get it!'" RUTSKOI, who was removed from the Kursk election ballot the day before the vote, told NTV the attackers had demanded MAKSACHYOV give incriminating information about his former boss, calling him "the main Jew-Freemason." Last week, MIKHAILOV came under criticism for saying in an interview that he had defeated not only former Governor Alexander RUTSKOI, but also the Russian Jewish Congress, pointing out that RUTSKOI's mother was Jew

Russian Federation

Politics

State Council Holds Opening Session

· Diminished of any real power, regional leaders attended the opening session of the State Council in the Kremlin's Alexandrovsky Hall. Russian President Vladimir PUTIN created the State Council on September 1^st as a consolation position, after their eviction from the Federation Council. Since taking office, PUTIN has pushed through a policy to strengthen Russia's vertical power between the center and the rest of the country. He split Russia into seven administrative districts and appointed a special presidential envoy, usually coming from the security service or armed forces, who is directly accountable to the Kremlin and not the local government. He announced plans to replace regional leaders in the Federation Council with less influential figures, and sought powers to sack regional chiefs who violate federal laws. Critics say the State Council, which will meet quarterly, is a powerless body with no administration, no permanent home and no clear-cut role.

The President addressed the Council, stressing his policy of strong central control. He said, "The State Council can set the direction of the country, but it must not replace parliament or the government. The most important part of our joint work is reinforcing the chain of command. That means control from the federal center and effective feedback. I believe the State Council could be an excellent instrument in such a relationship. It is important for us not just to work out solutions together, but to implement them together." The State Council's 89 members, plus the president, were to discuss a 10-year economic development plan for Russia overseen by Viktor ISHAYEV, head of the far eastern Khabarovsk region. PUTIN's administration, how

Today's News Highlights

Russia

NTV's Itogi Anchor Summoned

Russia To Improve Tax System

Sibneft-Sibir Form Joint Venture

European Republics

Rus-Ukraine Discuss Gas Debts

South Caucasus & Central Asia

Georgians Protest Blackouts

Supsa Fills 34th Tanker

Itera Boost Armenian Supplies

Kazakh To Sell State Shares

Politics-Economics-Business

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Wednesday

November 22, 2000

Intercon's Daily

ish. MIKHAILOV later issued an apology for the remarks but RUTSKOI has said he will never forgive the beating of MAKSACHYOV. MIKHAILOV denied any knowledge of the beating.

Economy

Ruble = 27.82/$1.00 (NY rate)

Ruble = 27.91/$1.00 (CB rate)

Ruble = 23.52/1 euro (CB rate)

Kasyanov Reports On Economy

· Russian Prime Minister Mikhail KASYANOV at a State Council meeting today reported on the state of Russia's economy and the need to improve investment. He said the volume of investment is growing at the rate of 17 percent a year, mostly through internal reserves of enterprises. KASYANOV said there is a need to draw private investment within the country and to attract foreign investment. The Prime Minister expressed the hope that private Russian banks in the years ahead will regain the lost positions in crediting the real sector of Russia's economy. He said the consolidation of state banks is a natural process and, in a degree, an enforced measures for the transition period. KASYANOV believes that in the years ahead, "private banks will gradually restore their prestige and the banking system will be rid of ineffective structures."

The Prime Minister gave a favorable picture of the Russian stock market to the fourth all-Russian conference of professional players on the Russian securities market on Tuesday. He said, "There are objective economic pre-requisites for the beginning of growth on the stock market, such as industrial growth, an increase in gold- and hard currency reserves, a stable trade surplus and increasing profitability of companies." He noted the necessity to improve the transparency of market participants' work. The prime minister wished success to the participants, adding that, "the government counts on their support in setting up a system of honest business in Russia…The fourth all-Russia conference of professional stock market participants in St. Petersburg will become an important stage in the development of Russia's securities market."

Business

Alfa Group Explores Oil on Sakhalin Island

· Alfa Group, one of Russia's biggest financial and industrial holdings, plans to explore for oil on Sakhalin Island, in the Far East, and in the sea nearby, Vedomosti reported. Alfa Eco, a Moscow-based oil trader owned by the holding company, this year took over Petrosakh, an exploration company that plans to produce about 200,000 tons (4,000 barrels a day) of oil this year and 250,000 tons next year. Petrosakh, originally owned by Saudi Arabia's Nimir Petroleum, supplies 25 percent of the gasoline and diesel and 100 percent of the fuel oil consumed in the Sakhalin region. Alfa Eco plans to start drilling an exploration well at the deposits by year's end. It plans to raise production to as much as 2.5 million tons a year, the paper said. The company said earlier it plans to bid for exploration rights at Sakhalin-6, in competition with BP Amoco, the world's third largest publicly traded oil producer, and Rosneft, Russia's state-owned company. Alfa Group owns about 50 percent of Tyumen Oil Co., Russia's fifth-largest oil producer.

Transneft Calls For An Increase In Fees

· Transneft, Russia's state-controlled oil pipeline monopoly, has asked the government to raise by 50 percent tariffs on domestic oil transportation starting January 1^st, Vedomosti reported. The Federal Energy Commission has until December 15^th to decide on the request in time to introduce the new tariff by January 1^st. Russian law requires a two-week warning before introducing price changes for goods regulated by the Commission. Any new tariffs probably will match the target annual inflation rate of 12 percent set by the 2001 draft budget, the paper said. The Russian government recently agreed to raise by 22.2 percent fees Transneft charges for transporting oil exports beginning November 1^st to finance construction projects. The export tariff has been raised about 85 percent this year, the Federal Energy Commission said.

European Republics

Ukraine 2001 GDP Forecast Raised

· Ukraine has revised its forecast for 2001 gross domestic product (GDP) to 196 billion gryvnias

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($31.61 billion) from 185 billion planned initially, Finance Minister Igor Mityukov said Tuesday. He said the government expected GDP to grow by four percent in 2001. It had originally planned GDP to grow by 1.5 percent in 2000, but then updated its growth forecast to 3.5 percent. The State Statistics Committee has said GDP grew by 5.1 percent in the first ten months of the year compared to the same period a year ago and totaled 137.4 billion gryvnias. Mityukov also stated that the government will repay its debt on OVDP discount treasury bills to the central bank on time and in full this year and in 2001. "The payments we must make to the central bank by the end of the year will certainly be made," he said. "And we will definitely plan payments worth at least 1.5 billion gryvnias ($338 million) to the central bank next year." NOTE: *The government calculated the 2001 state budget with the gryvnia exchange rate of 6.2 to the dollar.

Estonia's Industrial Sales Rise

· Estonia's State Statistical Office reported that October industrial sales grew more slowly for a second month on an annual basis, as declines in sales of energy and mining products offset surging manufacturing sales. Industrial sales in October rose 8.3 percent compared with the same month last year, after they rose at an annual rate of 8.5 percent in September. October sales rose 3.2 percent compared with September this year. They rose 1.2 percent in September from August. Energy sales in October fell 4.7 percent compared with October, 1999, while rising 25.7 percent from September, the Statistical Office reported. Mining companies sold 12.2 percent less than in October, 1999, though they sold 22.5 percent more than in September this year. Manufacturing sales rose 12.8 percent on an annual basis and 0.6 percent from September. Industrial sales over the first 10 months of the year rose 11.4 percent from the same period in 1999. Estonia's food sector, particularly hard hit by last year's prolonged recession brought on by lost eastern markets in the wake of Russia's autumn 1998 financial collapse, saw a 7.6 percent annual rise in sales. Analysts say that is further evidence of Estonia's economic turnaround this year which has brought with it a 7.4 percent annual rise in second quarter gross domestic product, according to preliminary figures. Monthly industrial sales in October declined most sharply in

the field of other transport-related goods, down 29.3 percent, followed by production of medicine, optical and other precision instruments, down 23.4 percent.

South Caucasus & Central Asia

Georgian-Russian Base Talks Delayed?

· The fifth round of the Rus-Georgian negotiations on the four Russian military bases on Georgian territory may be postponed till December 21^st to 23^rd, Russian Deputy Prime Minister Ilya KLEBANOV said after negotiations with Georgian Foreign Minister Irakly MENAGARISHVILI on Tuesday. He said Russia had proposed to delay the talks from December 11^th to 12^th to December 21^st to 23^rd, because the Tbilisi sitting of the bilateral intergovernmental commission for trade and economic cooperation was scheduled for the same time. The agenda of the talks' fifth round was discussed on Tuesday, KLEBANOV said. They are expected to coordinate the time for withdrawal of the Russian bases and "other Russian objects on territory of Georgia." The time for pullout of the Russian bases in Akhalkalaki and Batumi may be set at the talks. Russia has pledged to withdraw the Gudauta and Vaziani bases by July, 2001.

WB Grants Education Loan

· The World Bank will allocate a $60 million credit for the reformation of Georgia's education system. Negotiations between Georgian government and the World Bank on the allocation of the credit will start in December, head of the World Bank mission in Georgia Yael DUTILLEL said on Friday. According to her, the project is to be realized in three stages. Each of the stages will take four years, she stressed. Realization of the project is scheduled to start in June, 2001.

CPC Pipeline Completed

· Chevron Corp.-led Caspian Pipeline Consortium (CPC) said it completed building a 1,580-kilometer pipeline from Kazakhstan's Tengiz oilfield via Russia to the Black Sea port of Novorossiisk, the first of a series of oil links to boost exports from the Caspian region. Tengiz holds about 9 billion barrels of recoverable reserves. CPC will start shipping 28 million tons of oil a year (560,000 barrels a day), 85 percent of Kazakhstan's ex

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November 22, 2000

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pected production this year. "When the project is completed, the pipeline will carry 67 million tons of oil a year," CPC said. This "will encourage the development of both Kazakh oil fields and Russian deposits." Construction has been ongoing for exactly one year. General Director Viktor FEDOTOV said, "Construction is still underway at the marine terminal, the Kazakhstan facilities, pump stations and the SCADA/Telecoms system. But the first tanker is almost visible on the horizon." Profits from the pipeline are expected to contribute around $23 billion to the Russian federal and local budgets, and around $8.2 billion to Kazakhstan. The project's partners have invested about 80 percent of the $2.5 billion they said would be needed to get the pipeline built and working. BP Amoco and some of its partners exploring for oil in Azerbaijan last month agreed to back a $126 million study of a pipeline that would cost at least $2.4 billion and carry Caspian Sea crude from Baku through Tbilisi and Turkey to world markets, bypassing Russia and Iran. Russia also is building new pipelines and upgrading its existing network to improve its ability to ship Caspian crude to world markets. Along with Kazakhstan and Oman, Russia is working to build a $360 million oil terminal at Novorossiisk.

Turkmenistan Economic Growth

· Turkmen President Saparmurat NIYAZOV said the gross domestic product (GDP) growth in Turkmenistan reached 17 percent in January to October 2000. The government discussed the structure of the national budget for 2001 on the basis of economic indices of this year. This year's goods turnover has amounted to $3.07 billion with a favorable balance of $405 million, NIYAZOV said. This compares to a deficit of $24.0 million in the same period in 1999. He noted that the national economy had a large development potential. It is planned to adopt the national budget for 2001 at the next parliament session. Turkmenistan's industrial output rose 23.0 percent in January to October, 2000, over the same year-ago period and was valued at

12.7 trillion manat, State Statistics agency Turkmenstatprognoz said last week. It did not provide a comparative figure for 1999.

American Int'l Petroleum Explores Begesh Well

· American International Petroleum Corporation Monday announced its wholly-owned subsidiary, American International Petroleum Kazakhstan, has begun re-entry, testing, and work over operations on the Begesh #1 oil well, located in Kazakhstan. Re-entry of the Begesh #1 well is to test previously untested Jurassic zones. According to a company press release, the test program is designed to establish that the Jurassic formations in the 12,000 acre Begesh structure are able to produce oil in commercial quantity. Success of Begesh #1 will support further delineation of the Jurassic formations on the structure, and possibly on the adjoining 10,000 acre Orlean structure, and the ultimate commercial development of both structures. Company Chairman and acting CEO Dr. George FARIS said, "Testing Begesh #1 marks important progress of the Company's strategy to maximize the potential of our License 953. The Company continues to have discussions with potential industry partners regarding joint venturing the License's development should results of Begesh #1 support commercial development." American International Petroleum Kazakhstan owns two licenses in Kazakhstan: Production License 1551, the Shagyryl-Shomyshty gas field and exploration License 953, a 4.7 million acre exploration block, in which the Company has a 70 percent working interest. The Shagyryl-Shomyshty gas field, with a 100 percent interest, has technically proved reserves of 604 billion cubic feet of gas.

The Daily Report on Russia and the Former Soviet Republics

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

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