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

Friday, November 3, 2000

Russian Federation

Politics

Russia-China Boost Economic Cooperation

· Russian Prime Minister Mikhail KASYANOV and Chinese counterpart Premier ZHU Rongji signed a number of deals in Beijing to boost economic cooperation. This morning KASYANOV met with Chinese President JIANG Zemin. ZHU noted, "Following the visit by President [Vladimir] PUTIN in July our ties have entered a new level and presently I believe Sino-Russian relations are enjoying their best period ever." One agreement signed today for a feasibility study, paves the way for the gas pipeline from Siberia to China and South Korea. The pipeline would supply China with about 20 billion cubic meters of gas per year over 30 years and transport 10 billion cubic meters of gas via China to South Korea, possibly across North Korean territory. KASYANOV and ZHU also signed a trade agreement for the next five years aimed at increasing annual bilateral trade from a paltry $5 billion. Taiwan nuclear power plant in the eastern province of Jiangsu and the provision of Russian loans for the project, to be completed in 2004. China and Russia signed pacts on forestry, taxation, land and mineral exploitation standardization.

KASYANOV was expected to discuss possible arms sales, including Russian SU-30 jet fighters and Beriev A-50 early warning aircraft. Russia is lobbying for a billion dollar deal to provide China with up to five A-50s, the Russian equivalent of the US AWACS, after Washington blocked Israel from selling an airborne radar system to Beijing, defense analysts and diplomats said. However, there has been no mention as to whether Russia and China reached an agreement in the sphere of military arms sales.

Economy

Gov't Raises Fuel Export Duties

· The Russian government raised crude, fuel oil and diesel export duties beginning today to boost budget revenue and increase supplies on the domestic market to keep local prices down. The government increased the duty on crude oil 26 percent to 34 euros ($29.69) per ton from 27 euros per ton for November and December. The fuel oil duty was raised 35 percent to 27 euros a ton from 20 euros and the diesel export duty was lifted 28 percent to 32 euros per ton from 25 euros, without a specific time limit, Bloomberg News reported. "This is the government's measure to force the companies to share their hyper-profits when world oil prices rose," said Valery NESTEROV, an analyst at Chase brokerage. Authorities have more than doubled crude export duties since the beginning of the year, when the crude export duty was 15 euros per ton, allowing the Russian government to collect an extra $1 billion, according to Chase.

The Russian government extended to November 30^th limits on fuel oil exports, preventing companies from shipping abroad more than 5 percent of domestic output. Energy Minister Alexander GAVRIN told the parliament last week, "If we did not have export restrictions there would be no gasoline at the filling stations. Market mechanisms do not prevent fuel exports from Russia, and restrictions are more flexible compared with export duties, which require,"

Today's News Highlights

Russia

Gold Production Rises

LUKoil Buyss Getty For $71M

State Cos. To Manage Airports?

European Republics

Lith. Passes Budget Amendment

Zherdytsky's Immunity Lifted

South Caucasus & Central Asia

Soros For Anti-Corruption Reform

Azeri Parliamentary Election

Kazakh Alumina Output Rises

Politics-Economics-Business

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Friday

November 3, 2000

Intercon's Daily

more time to be introduced under the Russian legislation. The International Monetary Fund (IMF) has criticized the export restrictions on oil and oil products, as have Russia's main oil companies.

Gold Production Rises

· Russia's Finance Ministry said that the nation will produce 15 percent more gold this year than it did in 1999. This is because producers and banks invest more in mining projects. Russia, the world's seventh-largest gold producer, is expected to mine 145 tons of gold in 2000, up from 125.9 tons in 1999, said Deputy Minister of Finance Valery RUDAKOV at a precious metals conference in Moscow. In 1998, Russian miners produced 114 tons of the metal. Russia had been earlier expected to produce 140 tons of gold this year, according to various estimates. RUDAKOV said, "Russian banks started to finance the gold mining industry, which will finally consolidate…There is no dearth of loans in the gold market now." Russian companies mined 100 tons of gold in the first nine months of this year, with a 22 percent increase over the 82 tons of output in the same period last year, Bloomberg News reported. This year's output will be the highest since 1994, when it produced 147 tons. Russia mined 132 tons in 1995, 124 tons in 1996, and 105 tons in 1997. By the end of the year, the nation's miners will have produce 1,182.9 tons of gold since 1992, according to Troika-Dialog brokerage. Gokhran, Russia's state precious metals and gems reserve, will acquire more than 30 tons of gold from producers this year.

Ruble = 27.84/$1.00 (CB rate)

Ruble = 24.03/1 euro (CB rate)

Business

LUKoil To Acquire Getty For $71 Million

· Russia's biggest oil producer, LUKoil Holding, on Thursday agreed to buy Getty Petroleum Marketing Inc. for about $71 million in cash. This will increase LUKoil's access to the US retail market through Getty's 1,300 gas stations in 13 states on the east coast. The purchase almost doubles the number of filling stations LUKoil runs worldwide, mostly in a chain it's developed across the former Soviet Union and Eastern Europe. It has said it plans to add another 500 stations in Eastern Europe, where it already is a major competitor in the growing retail business, Bloomberg News reported.

LUKoil will pay $5 a share for Getty's common stock; this is a 45 percent premium over Thursday's closing price. Getty also markets heating oil in New York's Hudson Valley. LUKoil also plans to supply Russian crude to the US and may consider buying a US refinery. The acquisition is the first of a publicly held US company by a Russian corporation. LUKoil spokesman Dmitry DOLGOV, "First we'll change the name to LUKoil-Getty or Getty-LUKoil until the public gets used to it." Chief Executive Vagit ALEKPEROV said pointed out, "The problem of LUKoil is, we have the largest volume of oil reserves and we produce a lot of crude but we only have the capacity to refine 35 percent of our crude. Of course, we are interested in selling more refined products." The company also is limited by Russian anti-monopoly laws on acquiring more oil wells in Russia, he added. Moscow-based LUKoil's American depositary receipts, each representing four common shares, fell 1 to $52.75 today. Getty shares rose 19 cents to $3.44. Getty Petroleum Marketing was spun off in 1996 from Getty Petroleum Corp., a remnant of the Getty Oil Co. empire of billionaire J. Paul GETTY.

Achinsk Alumina Plans To Raise Output

· Russia's Achinsk Alumina plant plans to produce 936,000 tons of alumina in 2001, exceeding its current nameplate capacity of 900,000 tons. The increase in the output of the intermediate product for making aluminum metal will be achieved through converting facilities originally designed for the production of cement clinker, according to a company statement. Achinsk, part of Russia's largest aluminum group, Russky Alyuminy, plans to produce one million tons of alumina in 2002. Additional alumina will be consumed by the country's second largest smelter, Krasnoyarsk, which is reconstructing its high purity aluminum facility to increase output of metal by 20,700 tons by 2002. Krasnoyarsk, also part of Russky Alyuminy, produced 836,500 tons of aluminum in 1999. Around two tons of alumina are required to produce one ton of aluminum.

State Co. To Manage Moscow Airports?

· Russia's State Aviation Service proposed creating a state company to manage three of Moscow's main airports, which handle more than 50 percent of the country's air traffic, Kommersant reported. The state company would own all the airport space

When you need to know it as it happens

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and equipment at the Sheremetyevo, Vnukovo, and Domodedovo Airports, and rent them to the companies running the airports. Later, the government and the airports would set up Moskovskie Aeroporti, in which the government would have a 10 percent stake and the three airports would have 30 percent each, the newspaper reported. The government has yet to approve the plan. Aeroflot, Russia's national airline, has proposed building a new Moscow air terminal to replace the Sheremetyevo-II international terminal and improve the quality of its service. The existing terminal, where long lines are normal at check-ins and customs, doesn't meet passengers' needs and ruins Aeroflot's image.

Ukraine Lifts Zherdytsky's Immunity

· Ukraine's parliament, in a vote of 268 to three, agreed to lift the parliamentary immunity of Viktor ZHERDYTSKY, former head of Gradobank, at the request of the prosecutor general's office. This will allow charges to be brought against the deputy in connection with his responsibility to pay compensation to Nazi victims. ZHERDYTSKY was detained on the orders of German prosecutors in Hanover on October 11^th on embezzlement charges. At the time of the arrest, he was attempting to withdraw $50,000 from an account at a Hanover bank. He has denied any wrongdoing. Prosecutor-General Mykhailo POTEBENKO told the parliament, "An investigation has proved that in 1995 ZHERDYTSKY embezzled four million marks [nearly $3.4 million]." He gave no indication whether the money was part of funds earmarked for former slave laborers. German prosecutors intend to put ZHERDYTSKY on trial in their own country.

ZHERDYTSKY became the fourth Ukrainian deputy to have his immunity lifted by the legislature in the past five years. Last year, deputies allowed criminal proceedings to be brought against former Prime Minister Pavlo LAZARENKO. Authorities in Switzerland said on Thursday they had returned to Kiev millions of dollars they confiscated from LAZARENKO after a Swiss court convicted him of money laundering. Ukraine has asked the United States to extradite LAZARENKO. The former prime minister is in jail in San Francisco where he faces charges of laundering $114 million allegedly stolen while in office.

South Caucasus & Central Asia

Soros For Georgian Anti-Corruption Reform

· The world famous businessman and philanthropist George Soros, with a group of experts from the World Bank, arrived in Tbilisi November 2^nd, Prime News Agency reported. SOROS, World Bank experts, and the representatives of donor-countries are scheduled to participate today in a conference on anti-corruption reforms in Georgia. According to the news agency, SOROS is to meet President Eduard SHEVARDNADZE, Parliament Chairman Zurab ZHVANIA, and Justice Minister Mikhail SAAKASHVILI.

European Republics

Latvian Approves Budgetary Amendments

· The Latvian parliament approved amendments to the 2000 budget on Thursday. The amendments will increase the fiscal deficit to about 3.2 percent of gross domestic product (GDP), beyond the government's earlier pledges. The government initially pledged to limit this year's budget deficit to two percent of GDP, but later said it would be higher because of increased spending on social services, education and agriculture. It then presented amendments that would take it to 3.1 percent, saying it would hold the line there, Reuters reported. However, changes approved by the deputies on Thursday added spending proposals taking it up to about 3.2 percent of GDP. An accurate deficit figure is expected to be available next week, after final totals from spending proposals are calculated.

Finance Minister Gundars BERZINS said the amendments were, "a reasonable compromise" given the circumstances and said he would make efforts to cut the final figure by the end of the year. However, he also noted that the deficit would be higher according to calculations by the International Monetary Fund (IMF), with which Latvia has a precautionary agreement that paved the way for a three-year, $120 million program of structural adjustment loans. BERZINS said Latvia will request the IMF and World Bank to conduct an audit of the country's financial system including the budget and banking sector in the first quarter of 2001 to find areas of potential savings to cut the budget gap next year.

When you need to know it as it happens

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Meanwhile, the special anti-corruption committee, established in July by President SHEVARDNADZE, has introduced a draft of the main directions of the anti-corruption program in Georgia. According to Vladimir CHANTURIA, head of the committee and Chairman of the Supreme Court, the new document will require amendments to the criminal code authorizing confiscation of illegally obtained property. Homeowners will be obliged to declare their income by December 1^st. If the declared income accounts for less than the house actual value, explanations will be required. Traffic police will not be allowed to stop the drivers unless they violate the traffic regulations or suspected of committing a crime. The draft represents the intermediate stage for the National Anti-Corruption program.

Azeri Parliamentary Elections

· The Azeri electorate will head to the poll on Sunday to vote in the second parliament since the nation declared its independence. One hundred of 125 seats in the assembly will be contested on a first-past-the-post system. The remaining seats will be awarded by proportional representation on nationwide party lists. Twelve political parties and one political alliance are contesting the seats in parliament, but it has been known from the outset that only five parties have real chances of winning seats in the country's supreme legislative body: the ruling New Azerbaijan Party (Yeni), National Independence, Popular Front, Musavat, and Democratic party. Opposition parties complain that dozens of their candidates have been excluded from the race by district election officials. Many opposition parties were initially excluded, but later permitted to stand after criticism from the West. The reformist wing of the opposition Popular Front, part of the party which ruled Azerbaijan for a year early after independence in 1991, stands to win at least half a dozen seats. The newer National Independence Party, led by the charismatic Etibar MAMEDOV, second to ALIYEV in a 1998 presidential election, could do almost as well. The ruling New Azerbaijan Party say they expect to win the three-

quarters majority needed to make Preisdent ALIYEV's son, Ilkam, speaker of the parliament. As speaker, Ilkam would succeed the 77-year-old President for an interim period, if he fell ill or resigned. President ALIYEV has said he intends to seek a final five-year term in 2003, but there has been intense speculation about his health, especially since a heart bypass operation last year. Should Ilkam follow him into office, he would be the first leader in the former Soviet Union to succeed his father. Ilkam, in various pre-election speeches has said, "Azerbaijan will become one of the richest countries not only of the region but of the world as a whole." According to him, the sales of oil alone will bring to the country's coffers up to one billion dollars a year. President ALIYEV urged voters to support, "the stability and independence of Azerbaijan, economic development and prosperity." Opposition parties say oil money has been squandered, living conditions remain poor, corruption is rife, and democratic rights are poorly protected. The opposition accuses ALIYEV of compromising too much in negotiations with Armenia over the Nagorno-Karabakh region. ALIYEV responded by saying time was needed to find a peaceful solution. The election will be scrutinized in the West for signs of an improvement in Azerbaijan's record on democracy. Nearly 300 international observers from 25 countries will monitor the elections, including the Organization for Security and Cooperation in Europe (OSCE) and the Council of Europe.

Kazakh Alumina Output On The Rise

· Kazakhstan's sole alumina producer, Alyuminiy Kazakhstan, plans to raise output to 1.2 million tons this year from 1.152 million in 1999, general director Almaz IBRAGIMOV said today. He told Reuters the company plans to raise output to 1.5 million tons by 2005, after a $60 million modernization program. In the first nine months of this year, IBRAGIMOV said, Alyuminiy Kazakhstan produced 898,670 tons of alumina, up from 857,000 in the same period in 1999. Alyuminiy Kazakhstan is controlled by Kazakhstan's Evraziiskiy Bank.

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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