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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Friday, December 1, 2000

Russian Federation


Russian Troops Destroy Grozny Market

· Kremlin spokesman on Chechnya Sergei YASTRZHEMBSKY admitted last weekend that Russian troops sacked the Grozny's central market place. He claimed that rebels used the market for hit-and-run attacks. The spokesman said that 18 Russian soldiers had been killed or kidnapped in November. The market, which employs thousands of Chechens, is the mains source of food and supplies in the Chechen capital. Ahmed ABUBAKAROV described the scene to The Independent's reporter. He said, "I was near the central market in Grozny when they destroyed it. First I saw men in civilian clothes seal it off and let nobody in or out. Then they brought in 90 armored cars and trucks and smashed all the market stalls and took the goods people were selling." Another market place worker said soldiers ordered traders to put their stocks of food and supplies in the market storerooms. He said, "Soldiers rushed in side and pilfered the shelves sausages, butter and cheese." Soldiers took off their uniforms to put on stolen clothes. Pavel FELGENHAUER, a military analyst in Moscow, says, "The critical change over the last year is the growing hatred of ordinary Chechens towards the Russian troops. You can be robbed, raped or shot at anytime," even if you are loyal to Russia. He fears Russian behavior may provoke a general uprising. FELGENHAUER pointed out that Russian forces battling rebels are ill equipped with ammunition and arms from depleting Soviet stocks. He said, with a shortage of heavy artillery shells and new rotor blades, Russian helicopters are only kept flying by taking spare parts from others.

Duma Passes Immunity To Ex-Presidents

· In the first of three readings on Wednesday, the

Russian State Duma approve in a vote of 282 to 130 a new bill to grant former presidents immunity from prosecution for criminal actions during their tenure. The bill, proposed by the government, parallels the main provisions of a decree signed shortly after the resignation of Boris YELTSIN by his successor Vladimir PUTIN. The move led many to speculate that Yeltsin's motivation for stepping down six months before the end of his term was fear of investigations into his corruption-tinged administration. Deputies have challenged the decree's legal foundation and submitted to Russia's Constitutional Court for a ruling. Along with stating that a former president is immune from prosecution for actions during his term, the bill also says the former president's offices cannot be searched and his documents cannot be perused. Centrists made their support conditional on stipulation in subsequent drafts of which family members were to be covered. Prosecutors investigating alleged Kremlin corruption have said there was evidence that YELTSIN and his daughters received kickbacks from a Swiss construction company.

Communists, the Duma's largest group, opposed the move. Communist legislator and chief of the Duma's committee for state legal affairs Anatoly LUKYANOV said the measure violates the Russian Constitution that says that all citizens are equal before the law. "The president thus receives in advance a dispensation for everything he will do when he is running the country. More to the point, he acquires the

Today's News Highlights


Rus Stock Market Plunges

Rus Aims For WTO Agreement

Yukos To Buy Rosneft Unit?

European Republics

Russky Aluminum Pulls Bid

Rus-Belarus Currency Accord

South Caucasus & Central Asia

Rus-Georgian Visa Regime

CPC Approves Pipeline Budget

Turkmen Projects' Foreign Funds




December 1, 2000

Intercon's Daily

right to commit any crime during his term. No reasonable politician would try to get immunity guarantees if he doesn't intend to break the law." Alexander KOTENKOV, PUTIN's representative in the Duma, told deputies that immunity from prosecution applied only to the president's actions in carrying out his duties. He also said a list would be drafted of family members due to receive benefits. Former presidents will be entitled to a monthly pension, medical care, transport, bodyguards and a dacha, or country house.


Ruble = 27.08/$1.00 (NY rate)

Ruble = 27.88/$1.00 (CB rate)

Ruble = 24.30/1 euro (CB rate)

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Russian Stock Market Plunges 10 Percent

· The Russian stock market took a 10 percent dive Thursday in late panic selling on unsettled news from Wall Street and reports of severe financial turmoil in neighboring Turkey. Turkey has close trade ties with Russia and is a leading emerging market. Moscow's benchmark RTS index dropped 10.9 percent to close at 143.42 points in heavy selling, with traders reporting panic selling across the board, United Press International reported. Analysts believe the market overreacted to news of a possible devaluation of the Turkish currency, noting that economic fundamentals in Russia are good. An expected drop in share prices in the Far East

today in reaction to the Dow's latest fall could have a ripple effect, dragging Russian stocks much lower as a bearish mood grips the market. Trading houses were united in saying that Russia is not on the verge of a repeat of the 1998 financial meltdown, as high oil prices have added fuel for the national economy to produce levels of growth unseen in a decade.

Gov't Approves Corporate Governance Code

· The Russian government approved the main principles of a draft law to regulate publicly traded companies and punish them if they fail to respect the rights of minority investors, Kommersant Daily reported. Russia's Federal Securities Commission (FSC), proposed the new code, which would impose penalties such as excluding companies from leading securities exchanges and levying large fines if they breach corporate governance regulations. Managers who breach its rules could be banned from holding key posts at publicly traded companies. FSC Chairman Igor KOSTIKOV, who presented the code at the government meeting, said the code will concentrate on improving rules on shareholder meetings and the appointment of company boards to give investors greater say in how companies are run. The final draft legislation will be presented to the government in March.

Russia Aims To Reach WTO Agreement

· Maxim MEDVEDKOV, Vice Minister of Economic Development and Trade, said that Russia is aiming to reach a basic agreement for membership in the World Trade Organization (WTO) by next summer. He said that Russia is already in talks with 40 countries, noting that negotiations with the US, Japan, the European Union (EU), and Canada are key. He said, "We hope we can reach a basic agreement in as many areas as possible by next summer. It could be possible to join it [the WTO] in early 2002 if we follow procedures, but it's difficult now to forecast when." MEDVEDKOV pointed to three reasons for Russia to aim for WTO membership. "First of all, the WTO now cannot be ignored as an international organization that sets trade rules. Secondly, Russia is now working on drafting economic laws and we want to take this opportunity to meet the WTO standards…The third reason is that a new round of trade talks [under the WTO] will benefit Russia greatly, so we want to take part in the

When you need to know it as it happens




December 1, 2000

Intercon's Daily

negotiations by all means." He said Moscow is now reforming its legal system to meet WTO standards.


Yukos To Buy Rosneft Retail Unit?

· Yukos Oil Co. may take over a unit of Rosneft, which runs a retail network for the state oil company in the south of the country, Vedomosti reported. Stavropolnefteprodukt, in which Rosneft holds an 8.5 percent stake, sells about 240,000 tons a year of fuel through 180 retail outlets. Its staff holds 80 percent of the company. Yukos acquired 20 percent of the retailer from company management and plans to further increase its share. Yukos plans to double its sales volume via Stavropolnefteprodukt to 500,000 tons a year. Earlier this year, Yukos said it plans to invest $370 million in modernization and acquisition of new filling stations by 2005. The company plans to increase its retail network to 1,597 stations over the next five years from the 1,278 it now owns.

Lenenergo Proposes Reorganization

· Lenenergo, St. Petersburg's monopoly power utility, will separate heat and electricity production in a reorganization plan, Vedomosti said. The plan to split electricity and heat producing units also will involve splitting their costs, while Lenenergo's transmission business also will be separated. The proposal will be reviewed at the company's board meeting December 21st, according to Andrei LIKHACHEV, Lenenergo's general director. The company is 51.23 percent owned by Unified Energy Systems (UES), which earlier this year proposed a reorganization plan to split generating companies from the transmission grid and sell the generators to create a national electricity market. Some UES minority shareholders have criticized the plan, saying it may reduce the value of their holdings. Lenenergo, which provides 55 percent of the city's heat and 100 percent of its power, this month raised electricity rates to businesses by 36 percent and to households by 31 percent. The price rises, which led to protests, will allow the utility to break even this year, Bloomberg News reported.

Chevron To Double Lubricant Sales In 2001

· Chevron Corp. plans to double sales of lubricants in Russia as it expands in Central and Eastern Europe, where many of the area's economies are

growing at the fastest pace since the collapse of the Soviet Union. The company plans to sell as much as 4 million liters of lubricants across Russia next year, a rise from 2 million liters sold this year through a venture it set up in 1999. The company expects sales to double to as much as $6 million next year. Tony ROCHE, sales manager of Chevron Eastern Hemisphere Global Lubricants said, "We will be aggressively marketing in Russia. We are at an early stage of selling in Russia." Chevron wants Russian operations to account for 15 percent of its sales in the former Soviet Union and Eastern Europe. It is buying Texaco Inc., which in January started running with Tyumen Oil Co. an equally held joint venture that markets Texaco automobile lubricants produced at an oil refinery owned by Russia's fifth-biggest oil company.

Chevron and LUKoil signed an agreement to start talks on a joint venture to produce lubricant additives in Russia. Chevron Oronite Co., the US company's lubricant producing subsidiary, and the Russian company plan to produce components for lubricants at Volgograd Refinery, LUKoil's second-largest processing subsidiary. The venture also will market additives produced by Chevron Oronite across the country. Chevron Overseas Petroleum Inc.'s president Peter ROBERTSON said, "We view this as another way Chevron is bringing value-added, world-class technology and employment opportunities to Russia and other Commonwealth of Independent States [CIS] countries." The company wants Russian operations to account for 15 percent of sales in the former Soviet Union and Eastern Europe. LUKoil supplies about 40 percent of lubricants consumed on the Russian market.

European Republics

Russky Alyuminy Pulls Its Bid For Smelter

· Russia's largest aluminum group, Russky Alyuminy, has withdrawn its bid for a 68 percent stake in Ukraine's Zaporizhya smelter and decided to build its own in the country, its first deputy CEO said on Wednesday. Alexander BULYGIN, Russky's first deputy CEO, told a news conference that the debts of the plant were more than originally announced. "After we had obtained additional information [from Ukraine's authorities] we decided to

When you need to know it as it happens



Friday Intercon's Daily December 1, 2000

revise our original plans and to officially announce that we waive the bid," he said. BULYGIN said Russky intended to build another aluminum smelter in the Kharkov region in eastern Ukraine by 2002. "Its design capacity will be 100,000 or 150,000 tons per year, depending on the results of a feasibility study we are now preparing," he said. He expects that Zaporizhya will be sold to one of two remaining bidders, a group of Ukrainian companies and Russian carmaker AvtoVAZ, because both had strategic interests in the plant.

Putin Takes New Tack In Rus-Belarus Union

· Meeting on the sidelines of the Commonwealth of Independent States (CIS) summit, Russian President Vladimir PUTIN and Belarus President Alexander LUKASHENKO discussed the merger of their two nations. The Presidents signed the latest accord for both nations to use the Russian ruble by 2005 and a joint currency by 2008. Russia will lend Belarus $161 million for the transition to a single currency. Another $100 million would be disbursed to support Belarus' balance of payments. The first $30 million of the $100 million loan will be provided this month, with the balance to be transferred next year.

Warming relations were jarred by PUTIN's comments that, "The creation of a union state demands the voluntary renunciation of a certain amount of sovereignty, so we first need to think 100 or 1,000 times and only then act." At the opening a session of the Supreme State Council of the Rus-Belarus Union, PUTIN said unification is a, "subtle process. Any issue in this sphere cannot be passed except as with public consent. One should not delay things, but nor should one make hasty decisions." These remarks break with the policy of PUTIN's predecessor, who encouraged LUKASHENKO to pursue the union. Russian officials have been wary of Belarus' soaring inflation, unreformed Soviet-style economy, and deep poverty, as well as LUKASHENKO's reputation among Western states as a hardliner.

South Caucasus & Central Asia

Putin-Shevardnadze Discuss Visa Regime

· Russian President Vladimir PUTIN and Georgian President Eduard SHEVARDNADZE met in

the Belarus capital, Minsk, on Thursday to discuss bilateral relations, including economic trade, financial issues, energy agreements, and visa regulations to become effective on December 5th. SHEVARDNADZE said, "We agreed in principle to remove all discriminatory measures, if such have been introduced." He added, "This introduction of visas is temporary and will not affect Russian-Georgian relations. The visa regime will create inconveniences for some people, including Russian servicemen or Georgian citizens residing in Russia." The Georgian President, however, did not specify a time frame for the lifting of the visa regime. Following Irakli MENAGARISHVILI's visit to Moscow, Russia outlined conditions by which it would waive the visa requirement. These included cooperation in the trade, accession to the Eurasian Economic Community, "consideration" of Russia's interests in the export of Caspian oil and gas, leniency on the closure of Russia's military bases in Georgia, and a neutral position to the Chechen conflict. MENAGARISHVILI told deputies that while Tbilisi is interested in a "constructive dialogue" with Russia, it will never agree to such demands. The demands prompted some deputies in Georgia's parliament to call for Georgia to withdraw from the Commonwealth of Independent States (CIS). Further, a state chancellery staff member told Rezonansi that PUTIN offered to drop the visa requirement, if Georgia agrees to join the Rus-Belarus Union. Earlier suggestions that Georgia join the union were proposed by Georgian coup plotters arrested in May, 1999.

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 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. Moscow has accused Georgia of allowing Chechen fighters to establish bases in the Pankisi Gorge




December 1, 2000

Intercon's Daily

region and the unimpeded transit of rebels and supplies across its borders. Another effect of an imposed visa regime is the bureaucracy and red-tape, which goes along with the issuing of visas. This includes the requirement of Georgians to present to the Russian consulate an official letter of invitation along with the visa application for touring, business, or working. YASTRZHEMBSKY pointed out that Georgians working in Russia remit to their families in Georgia a total of $1.5 billion annually, according to the Caucasus Report. A Georgian emigration officials disputed the figure and fixed it at a lower estimate of $600 million to $700 million. That figure is equal to twice Georgia's annual budget. The loss of these funds transferred from Russia and unemployment if these working Georgians returned home without work, could aggravate social unrest.

Russian Prime Minister Mikhail KASYANOV noted an earlier agreement on visa-free trips was signed by the five countries of the Eurasian Economic Community. Georgia and Russia first signed a friendship, neighborhood, and cooperation agreement in 1994. Only the Georgian parliament ratified the agreement. The foreign ministries will work towards a new treaty in few months.

CPC Approves 2001 Pipeline Budget

· Chevron Corp.-led Caspian Pipeline Consortium (CPC) said its shareholders approved a $650 million budget for next year to complete construction of a pipeline to start shipping oil from Kazakhstan to the Black Sea in June, 2001. The project's total cost is estimated at $2.5 billion. Approximately $2 billion has already been invested. Chevron in cooperation with 10 other companies and three governments, completed construction of the 1,580-kilometer link to the Black Sea port of Novorossiisk from Kazakhstan's Tengiz oil field on November 22nd. The new pipeline will transport 28 million tons of oil a year, 85 percent of Kazakhstan's expected production this year. The consortium received its license to operate and maintain pipelines in Russia

from the authorities on November 21st. The consortium still must complete a loading terminal on the Black Sea coast that will be constructed by Bouygues, the world's second-largest construction company. Some final tuning of the transport system is required before the pipeline will be filled with crude starting in January. CPC's shareholders approved the nomination of Sergei GNATCHENKO, President of LUKArco Services to the post of general director of the consortium, replacing former General Director Viktor FEDOTOV as a part of the group's management rotation procedure.

Capital, Companies Building Turkmen Projects

· Turkmenistan is working on 159 separate projects involving participation by foreign companies worth a total of $4 billion, according to the Economics and Finance Ministry. Some 70 percent of the projects in Turkmenistan are in the energy, textiles, and food sectors. Turkmenistan has some of the largest gas reserves in the world and is a major cotton producer. The biggest single projects are the reconstruction of the oil refinery at the Caspian Sea port of Turkmenbashi and construction of several roads. The biggest creditors are Germany, Japan, the US, Iran, and Britain. Many of the construction contracts have gone to Turkish firms, which have won orders worth around $984 million. Turkish firms are active in many sectors, especially construction and retail, throughout the region. Over 50 percent of the contracts are being paid for by foreign credits, with exports of raw materials covering 30 percent of costs and hard currency payments covering the rest, Reuters reported. A source at state road agency Turkmenavtoyellari also said on Tuesday that Japan's Itochu Corporation planned to make available a five-year credit worth 1.1 billion yen for road building technology. Turkmenistan is also looking to buy technology and equipment for a planned 10-year, $6.0 billion project to create an artificial lake in the Karakum desert. Austria's IP Consult has already delivered earth-moving equipment worth $9 million.

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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