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

Wednesday, November 29, 2000

available military technology. Prosecutors have even accused POPE of continuing to spy while on trial. "[The prosecution said] Edmond POPE happened to be so treacherous that he managed to carry out his spying while being held prisoner and being tried, managing to take advantage of his detention," POPE's lawyer Pavel ASTAKHOV said. He has already tried to remove the first prosecutor and the judge. POPE's case looked hopeful, when the key witness Anatoly BABKIN withdrew his original testimony, stating that it had been made under the pressure of the Federal Security Service (FSB). His retraction, however, was not accepted by the court.

OSCE Fails To Agree On A Final Declaration

· The two-day summit of the foreign ministers from the 55-nation Organization for Security and Cooperation in Europe (OSCE) failed to produce a final declaration on resolving the Chechnya conflict or Russia's withdrawal from Moldova and Georgia because of Russia's objections. Foreign Minister Benita FERRERO-WALDNER, who chairs the OSCE, issued a "chairperson's statement," summarizing views expressed at the meeting. The statement called for the immediate return of the OSCE mission to Chechnya with the full support from the Russian federal and local, including military, authorities, as well as the provision of humanitarian aid to the civilian population in Chechnya. She added, "A prompt and independent investigation and prosecution of all alleged atrocities against civilians and other violations of human rights and

Russian Federation

Politics

Putin Creates Chechen Cabinet Post

· In an attempt to end the costly war and refugee crisis in Chechnya, Russian President Vladimir Putin on Tuesday created a new Cabinet post and named former construction official Vladimir YELAGIN a minister tasked with overseeing "socio-economic development" in Chechnya. According to Reuters, the move came a week after Putin criticized slow progress in the breakaway province at an annual meeting of generals, "Long months are passing, the people are suffering and the anti-terrorist operation needs to be completed." Kremlin Chechnya spokesman Sergei Yastrzhembsky has made it clear that Moscow was unsatisfied with its appointee to the region Akhmad Kadyrov. "In recent months social-economic questions in Chechnya have either gone unresolved altogether, or were resolved inefficiently," Yastrzhembsky said. "One would like to express hope and certainty that Yelagin, known as an experienced manager and administrator, can achieve more effective coordination among federal executive organs on questions of cooperation with Kadyrov's administration," he added. Russia has lost over 2,600 federal troops since the operation against militants in Chechnya began in August, 1999.

Prosecutors Seeks 20-Year Sentence For Pope

· After a month of the closed-door hearings, the trial against US businessman Edmond POPE, accused of spying, appears to be nearing an end. Russia's prosecutor has called on the judge to find POPE guilty sentence him to 20 years in prison and fine him more than $250 million for "damage to Russia." Russia believes that POPE bought secret documents relating to Shkval torpedoes, while defenders point out that POPE was researching openly

Today's News Highlights

Russia

Oil Export Duties To Increase?

BP To Sever Sidanko Link

GAZ Appoints General Director

European Republics

Lith. Downgrades 2001 Forecast

Lith. To Abolish Cap.Gains Tax

South Caucasus & Central Asia

Rus-Georgian Visa Regime

ADB-EBRDInvest In Uzbekistan

Kazakh OPEC Observer Status

Politics-Economics-Business

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November 29, 2000

Intercon's Daily

breaches of international humanitarian law was required." Russia refused to accept a specific deadline for the return of the European organization's observation mission to Chechnya. Russian Deputy Foreign Minister Yevgeny GUSAROV disputed the "chairperson's statement." "The Russian Federation in no way considers itself bound by any conclusions and recommendations contained in the summary statement," he said, stressing that some member states paid too much attention to the humanitarian and human rights. US Ambassador David JOHNSON said he was disappointed that the conference had not produced a more comprehensive document, but made clear Washington did not see this as a major setback. "We would have preferred a fuller document that was focused on those commitments [made in Istanbul]," he told Reuters. "But the commitments stand." Western diplomats, speaking on condition of anonymity, blamed the Russians for scuttling the declarations for troops withdrawals in Moldova and Georgia. They said Russia's hard-line apparently reflected Moscow's interest in limiting the role of international organizations in conflicts in the traditional Russian sphere of influence. Russian Foreign Minister Igor IVANOV had given assurances that Moscow would honor agreements reached at Istanbul on troop withdrawals from former Soviet republics.

Russia further prevented an agreement outlawing the use of child soldiers in wars. FERRERO-WALDNER said, "I also fail to understand, I must say, why the Russian Federation resisted agreement on a widely accepted document that would commit OSCE states to protect children in armed conflict."

Economy

Ruble = 27.86/$1.00 (NY rate)

Ruble = 27.90/$1.00 (CB rate)

Ruble = 23.96/1 euro (CB rate)

Russia To Increase Oil Export Duties?

· The Russian government is considering proposals to raise the maximum tax rate on crude oil exports under a range of duties linked to prices for Urals blend crude by as much as two-thirds next year, Vedomosti said. The commission on exports and imports received separate proposals from the economy, finance and energy ministries on changes

to export taxes. The plans all suggest duties should be imposed once the price for Urals blend delivered to northwest Europe rises above $12.50 a barrel. Duties would then range from as low as 2 euros ($1.72) per ton to as high as 79 euros per ton, with the maximum rate levied if oil is priced at more than $32.50 per barrel. The government also is considering proposals to auction oil export quotas starting next year, to replace the energy ministry's practice of allocating export schedules to allow Russian companies to export about 33 percent of output. Since March, Russia has levied 2 euros a ton when Urals blend averages $12.50 to $14.99 per barrel, gradually increasing to a maximum of 48 euros a ton if the price exceeds $32.50 per barrel.

Business

BP To Sever Sidanko Link?

· BP Amoco is considering a plan to sever its links with Sidanko, as part of a shift in the company's strategy to welcome a new BP era in Russia. The British oil giant wants a new focus on two strategic areas; the Sakhalin Basin, a massive offshore southeast Siberia field, and a giant gas-for-China project slated for 2007 to 2010. BP bought 10 percent of the privatized oil holding group three years ago. Within a year the investment had fallen into severe legal problems and lost its value as the 1998 financial crisis hit. Some subsidiaries were declared bankrupt, and creditors took valuable assets in exchange for debts. Arguments and court battles continue between Sidanko shareholders and Russia's Tyumen Oil over the assets of one subsidiary, Chernogorneft. Financially, the investment is insignificant for BP, which makes enough profit in a week to cancel out the remaining $200 million investment. But Chief Executive John BROWNE remembers going to UK Prime Minister Tony BLAIR's 10 Downing Street residence in November, 1997, to sign the ill-fated deal with Russia's Uneximbank. He is determined to see a tidy end in sight before committing to the new strategic push, Reuters reported.

Aluminum Executive Appointed GAZ Director

· Gorkovsky Avtomobilny Zavod (GAZ), Russia's second carmaker has appointed Sibirsky Alyuminiy Vice President Viktor BELYAEV as general director and first vice president, reflecting the aluminum producer's increased ownership. BELYAEV previ

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ously worked as first deputy general director of Kamaz, Russia's biggest truck maker. The board also set January 20^th for an extraordinary shareholders' meeting. GAZ shares fell as much as 20 percent to $32 as Sibirsky Alyuminiy began pressing for a bigger role in the carmaker at a board meeting today. Since August, the aluminum producer has increased its stake in GAZ to 25 percent plus one share. Sibirsky, which is merging with other companies to take control of most of Russia's aluminum assets, said it's trying to diversify into the automobile business.

in the year. Sales of mining and quarrying fell 5.6 percent from September and rose 21.1 percent from October 1999. Sales of electricity, gas and water supply rose 4.3 percent in the month, but fell 28.2 percent in the year. In the January-October period, industrial sales rose 0.8 percent from the same period of 1999.

Lith. To Scrap Capital Gains Tax

· The Lithuanian government today approved draft law that would scrap the 15 percent capital gains tax introduced two years ago. The draft was then submitted to parliament. Finance Minister Jonas LIONGINAS told Reuters, "We hope this will add luster to the local emerging capital market and will attract more resident investors [to the Vilnius bourse]." The capital gains tax came into effect in the beginning of 1999 and drew criticism from politicians and local market investors who said the tax was driving away local investors due to the complicated and time consuming tax administration. Abolishing the tax is one of several new tax-slashing measures pledged by the government of Prime Minister Rolandas PAKSAS that came to power in an October general election. Under a government plan, if parliament approves, the bill should come into effect January 1, 2001. Local capital markets that have been stagnant since the recession due to Russia's 1998 financial crisis.

South Caucasus & Central Asia

Visa Regime To Prevent Rebel Penetration?

· Details of the new visa regime between Russia and Georgia have begun to emerge. Individuals wishing to travel between the two states will have to obtain an international passport, a formal invitation from the host or another legal entity, and a special visa issued only at the Russian consulate. Travelers will further be instructed to cross the border only at specific checkpoints. Kremlin spokesman Sergei YASTRZHEMBSKY said that the decision to impose a visa control regime on border between Russia and Georgia is due to the threat of militants penetrating into Russia. "We decided to introduce visa control with an entire range of circumstances in mind, but mainly because of a very strange position taken by the Georgian leadership with respect to the Chechen separatists and terrorists," YASTRZHEMBSKY said. Oleg CHERNOV, Deputy

European Republics

Lithuania Downgrades 2001 Forecasts

· Lithuania's Economy Ministry on Monday lowered the country's gross domestic product (GDP) growth forecast for 2001 to 3.2 percent from its previous estimate of 3.5 percent. The Ministry said in a statement it left the GDP growth forecast for this year unchanged at 2.1 percent. The Economy Ministry forecast is used by the country's Finance Ministry when shaping the 2001 draft budget, which is expected to be with fiscal deficit of 1.4 percent of GDP, according to the agreement with the International Monetary Fund (IMF). Lithuania's government is expected to approve the 2001 draft budget in its meeting on Wednesday and to pass it to parliament by December 5^th. Last week, parliament recommended the government to revise 2001 GDP growth forecast to 3.2 percent. At current prices the country's GDP next year is expected to be 44.135 billion litas ($11.03 billion) versus 47.4 billion litas planned in September. In 2000, GDP at current prices is expected to be 44.53 billion litas.

Meanwhile, Lithuania's industrial sales fell 12.7 percent in October from September, led by manufacturing of office machinery and computers, and was 4 percent lower from the same month last year. A month ago, industrial sales rose 4.5 percent from the previous month and 6.5 percent from a year earlier. Sales of office machinery and computers fell the most, decreasing 48.9 percent in the month and 35.9 percent in the year, the Statistics Department reported. Sales of refined petroleum products fell 48 percent from September and 17.7 percent from October 1999. Sales in the manufacturing industry fell 14.8 percent in the month and 0.2

When you need to know it as it happens

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Intercon's Daily

Secretary of Security Council of the Russian Federation said Russia had to issue the visa regime because of Georgia's uncooperativeness in shielding the windows through which Chechen rebels enter the country. This has caused a "hysterical noise" in Tbilisi, he noted. "Russia has repeatedly drawn the attention of the Georgian leadership to a range of problems, in particular to the unrestrained activity of the so-called representation of the Chechen republic, i.e. of the emissaries of [Chechen President Aslan] MASKHADOV, in Tbilisi…We have the concrete addresses of the representation, a list of its staff, an entire range of separatist organizations is operating in Georgian territory, the Caucasian house for one," YASTRZHEMBSKY said. He added that exceptions will be made until March 1, 2001, for "the Russian servicemen and their families who are currently residing in Georgian territory after entering Georgia before the visa control rules took effect." Exceptions will also be made for the Georgian citizens who entered Russia before December 5^th. Russia reserves the right to introduce a preferable procedure for crossing the border for Georgian citizens at its Abkhazia and South Ossetia stretches. Prime News Agency reported that Russian border guards claim it would, "be easier to join Abkhazia with Russia," than to control the Abkhazian portion of Russian-Georgian state border. Vremya Novostey also reported that border guards pointed out that Sukhumi, "has been asking Russia to join the Federation for long time." Comment: If it would be easier for Abkhazia to join Russia than to control the borders, one can only wonder how visas will help restrain rebels from crossing the border in the mountains where no border checkpoints exists. Clearly the visa regime is not aimed at preventing rebel access to Russia, but rather it appears to be more of a punishment for Georgia's neutral stance in the Russian-Chechen conflict and its pro-Western orientation, which includes the removal of Russian military bases.

ADB-EBRD To Invest In Uzbektelekom

· The Asian Development Bank (ADB) and the

European Bank for Reconstruction and Development (EBRD) will invest $100 million in a loans-for-equity deal that will help privatize Uzbekistan's telecommunications monopoly, Uzbektelekom. Uzbekistan's Post and Telecommunications Agency head Abdulla ARIPOV said a memorandum of understanding had been signed with the two organizations, providing for each to receive a share packet in return for the loans. The money will go towards modernizing the company, a 51 percent stake in which is due to be sold to a foreign strategic investor by April, 2001. Up to 70 percent of the company will ultimately be privatized. ARIPOV said, "Part of the money is for the state budget while the rest will go towards modernizing Uzbektelekom. The EBRD's involvement will boost investors' confidence in Uzbektelekom." Under the deal, the EBRD and ADB are to receive shares in return for two $50 million loans, but ARIPOV said the size of the share packets would be clear only after the cost of the 51 percent stake is determined by Uzbektelekom's financial advisor. The government on Tuesday appointed Germany's Commerzbank as the financial adviser for the sale.

Kazakhstan Requests OPEC Observer Status

· Kazakhstan has asked the Organization of Petroleum Exporting Countries (OPEC) oil cartel for observer status, OPEC President Ali RODRIGUEZ said on Monday. If its application is approved, the Central Asian republic will join Russia, Oman, Mexico and Angola as observers in the cartel that controls about two-thirds of world exports. "Kazakhstan is increasing its production in the Caspian Sea and asked for observer status in the organization. I think there will be some new members of the organization and that will strengthen it," RODRIGUEZ said. Kazakhstan pumped 92,129 tons per day (about 600,000 barrels per day) of crude oil in October, up almost 20 percent from October 1999. RODRIGUEZ declined to name the prospective candidates to the 11-member cartel. The next OPEC meeting will be held on January 17^th.

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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