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

Monday, December 11, 2000

Putin Pledges To Pardon Pope

· Russian President Vladimir PUTIN has pledged to pardon US businessman Edmond POPE, who was convicted spying on Wednesday. He was sentenced to 20 years in prison. The President said he will take into account Russian-US relations and the recommendation of the Pardon Commission for a pardon on humanitarian grounds. Russian law, however, forbids the President from granting a pardon until the court's verdict becomes effective; this is a period of seven days. A decision will be made after December 14^th. US President Bill CLINTON and PUTIN spoke on the telephone on Saturday. CLINTON stressed that the US had made "no deal" with Russia to secure POPE's release. He said the move would be a "great relief to all Americans." POPE, who suffers from a rare form of bone cancer, sent a letter to PUTIN asking the President to let him return home. POPE was accused of trying to buy secret information on a high-speed, anti-submarine torpedo. Sergei IVANOV, secretary of PUTIN's influential Security Council, said POPE was likely to be home by Christmas.

Economy

WB Could Loan Russia As Much As $800 Million

· World Bank President James WOLFENSOHN said that Russia could receive as much as $800 million in structural adjustment loans in the next period. Russia's 2001 draft budget, which has passed three of four required parliamentary readings, envisages

Russian Federation

Politics

Chechen Blast Kills 22

· A car bomb, which exploded in the southeastern Chechen district of Urus-Martan, killed at least 22 people and injured 52. Deputy head of the Urus-Martan region, Lecha MAMATSUYEV said he was convinced that, "the attack targeted the peaceful population." Ramzan VAKHIDOV, head of the local administration, told Interfax that about half of the victims were children. Doctors struggled Sunday to treat the injured, facing severe shortages of blood and anesthetics.

Saturday's blast followed an explosion, which killed three people on Friday at a market in Pyatigorsk, in a nearby Russian province. Later on Friday, gunmen burst into a hospital in a Chechen town and killed two nurses and two Russian soldiers. Alkhan-Yurt residents held a rally Sunday after the funerals, demanding that Russian officials cleanse the military and police forces in Chechnya of "bandits"' who stage such attacks. At least four suspects have been detained - one of whom was carrying the identity card of a Chechen police officer, the first deputy chief of the Russian army's general staff said. "This fact proves the rebels are trying to place their people in the Chechen law enforcement agencies,'' Colonel General Valery MANILOV said Sunday. Chechen rebels stage daily hit-and-run attacks and bombings of Russian checkpoints and Chechen civilian administrative buildings, but casualties are usually small and usually target Russian troops or pro-Moscow Chechen officials. The chief Russian military commandant in Chechnya, Lieutenant General Ivan BABICHEV, promised the protesting villagers that a police station would be established in Alkhan-Yurt.

Today's News Highlights

Russia

Gazprom-Itera Link Questioned

European Republics

Estonian Unemployment Figures

Lithuania To Join WTO In 2001

Ukraine To Issue Eurobonds

South Caucasus & Central Asia

Two UN Observers Kidnapped

Russia Withdraws From Gudauta

Mediators Appeal For NK Peace

Rus-Kyrgyz Uranium Deal

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Monday

December 11, 2000

Intercon's Daily

up to $800 million of structural adjustment loans (SAL) from the World Bank. WOLFENSOHN met with Russian President Vladimir PUTIN a few weeks ago to discuss the assistance. "Unless something has happened in the last few days, and I don't think it has, we were just in the normal stage of negotiations with the government," WOLFENSOHN said. He stressed the World Bank was not attaching its own unique set of conditions to the loans, but was instead relying on Moscow's own economic plans as outlined by PUTIN. "They were conditions which the president himself had outlined as part of his program, relating to governance, relating to various reforms that he himself announced that after he was president he wanted to bring in." The Russian economy has been boosted in recent months by high international energy and commodity prices and positive effects of the ruble devaluation after the 1998 crisis. But a World Bank official recently urged the government to increase taxation of oil companies and continue broad tax reforms to strengthen the fiscal system.

Ruble = 27.96/$1.00 (NY rate)

Ruble = 27.97/$1.00 (CB rate)

Ruble = 24.55/1 euro (CB rate)

Business

Gazprom-Itera Relationship Questioned

· A list of questions drafted by Boris FEDOROV, former finance minister who Gazprom's represents minority shareholders, and sent to Gazprom's chairman Rem VYAKHIREV concerning Gazprom's relationship with Itera has been left largely unanswered. The primary concern raised is an explanation for why Gazprom is transferring its reserves to Itera, while its own production of gas is falling. Gazprom failed to provide sufficient information about its relationship with Itera at a board of directors' meeting over the weekend. Shareholders have expressed concern over the lack of transparency, the company's disappointing performance, Itera's use and access to Gazprom pipelines, and the sale of Gazprom gas licenses to Itera. The relationship with Itera, "is a political question. It complicates attracting foreign investment and talking to international financial organizations," FEDOROV said. He added that Gazprom has guaranteed $472.5 million of Itera's loans, enabling Itera to invest in gas production. Gazprom has ceded to Itera some of its

markets in the former Soviet Union, such as Ukraine and Moldova. Itera, which used to have no gas reserves at all, now owns stakes in gas fields holding 1.9 trillion cubic meters of gas, mainly bought at undisclosed prices. At the board meeting, Gazprom sought to impose a secrecy clause, which would prevent FEDOROV, or any other board member, from disclosing information about the directors' meetings. FEDOROV said, "No other Russian company is so concerned about preserving secrecy as Gazprom," the Financial Times reported. Stephen O'SULLIVAN, head of research at United Financial Group, said, "This proposal is absurd. The obligation of a board members is to shareholders not to other board members."

Meanwhile, the board instructed Gazprom's management to force Itera to pay off its debts to the firm in the first quarter of 2001. The Itera debts total 14 billion rubles ($500 million). Gazprom also said accumulated debts for gas hampered the its own payments to state coffers. Gazprom said its tax arrears are now 37.3 billion rubles. Itera is a mid-sized producer of gas but delivers 60 billion cubic meters of gas per year to Russia and neighboring states. The company buys gas from the energy-rich Siberian region of Yamal-Nenets, which takes the gas back as tax payments. Ownership of Itera, a privately owned company, remains secret. Both Gazprom and Itera have repeatedly denied charges by Russian media of cross-ownership by senior managers of both companies. Itera spokesman Nikolai SEMENENKO said, "All our projects with Gazprom are of a purely commercial nature and benefit both sides. Everything we do is legal." Itera President Igor MAKAROV has said his company doesn't receive any special treatment from Gazprom, paying at least five times more than Gazprom does to transport gas in Russia. He also said Gazprom has no stake in his company.

European Republics

Latvian November Unemployment Figures

· Latvia's November unemployment rate stood at 7.8 percent of the workforce, unchanged from October, the Labor Board announced today. There were 92,876 jobless in Latvia in November. The unemployment rate in November 1999, reached 9.1 percent or 109,391 jobless.

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Estonian Unemployment Rises

· Estonia's unemployment rate rose from 5.5 percent in October to 5.8 percent in November, with the number of jobless rising from 47,600 to 50,300, the Labor Board said today. The rate of unemployment in November, 1999 reached 5.3 percent or 45,500 jobless.

Lithuania To Join WTO In 2001

· The World Trade Organization (WTO) Friday approved Lithuania's accession agreement, making it the fifth former Soviet republic to join the global trade organization. Lithuania is on schedule to joint the WTO in early 2001 or thirty days after its parliament approved the accord. European Union Trade Commissioner Pascal LAMY said, "Accession to the WTO marks an important step in the process of Lithuania's integration into the global economy. Moreover, with Lithuania's accession, all three Baltic states will now be members of the WTO." To get into the WTO, Lithuania agreed to eliminate export subsidies upon accession and to comply with international trade agreements, including copyrights and patent protection. It undertook to start negotiations on signing up to the WTO agreement covering the allocation of government contracts within three months of its accession, the EU said. Latvia, Estonia, the Kyrgyz Republic, and Georgia are already members of the Geneva-based trade body. There are about 30 countries seeking to join the WTO, including China, Russia, Ukraine, Armenia, and Moldova.

Ukraine To Issue 60 Million Euro Eurobonds

· Ukraine's Finance Ministry on Friday said it will issue an additional installment worth 60 million euros on its sovereign Eurobond due 2007. "[The aim] is to complete Ukraine's commercial debt restructuring," according to a ministry statement. The new tranche is to be issued before March 15, 2001. Ukraine swapped $2.37 billion in short-term commercial debts for two new seven-year eurobonds in April ¾ a 1.13 billion euro Eurobond paying a 10 percent quarterly coupon and a $1.13 billion bond with an 11 percent quarterly coupon, Reuters reported. The Finance Ministry originally said 99 percent of holders of Ukraine's old debt had agreed to the swap. Ukraine's swap deal was unusually complex as it involved paper of different maturities and subject to varying legal documenta

tion. Interfax-Ukraine news agency quoted a government source as saying some investors who had initially declined to take up the swap of short-term debts into longer-term papers had now agreed to reschedule the debts. The current swap covers bonds denominated in German marks and issued by Chase Manhattan Bank in 1998, which are due in 2001, and Finance Ministry foreign obligations under loans for the agriculture sector as well as other paper.

South Caucasus & Central Asia

Two UN Military Observers Kidnapped

· Two members of a UN observer mission were kidnapped Sunday in the breakaway of Abkhazia province. The men, identified as one Polish and one Greek, were on a routine patrol of the Kodori Gorge when they lost contact with the mission office. It appears that the group had been traveling in a jeep as part of a convoy with another UN vehicle when they were accosted near a dilapidated bridge by a group of armed men. The other vehicle escaped. The site of the abduction was approximately 600 meters from an Abkhaz observation post. Kidnappers have not issued a ransom demand or made contact with authorities. A special presidential envoy has been sent to the region to coordinate the search for the men and their kidnappers. President Eduard SHEVARDNADZE ordered the authorities to take the necessary measures to find and free the two UN military observer officers. SHEVARDNADZE assured the UN and the governments of the countries whose citizens are in hostage in the ravine that Georgia is taking all the measures to free them as soon as possible. Georgian, Abkhazian security forces and Russian peacekeepers in the region were involved in a search operation. This is the latest in a series of attacks against UN missions. Four members of the UN Abkhazia mission were seized in the Kodori Gorge in June. The captives were released several days later, and officials said no ransom was paid. Seven UN workers were seized in October 1999 in the same area and released unharmed after two days. The kidnappers were never identified or punished.

Russia Withdraws Arms From Gudauta

· Approximately 33 armored personnel carriers and 11 artillery pieces were withdrawn by Russia

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from the Gudauta military base in Georgia, according to Intercon sources. A team of experts from the US Agency of Arms Control monitored the withdrawal. According to the Russian Defense Ministry, the withdrawn arms and technology will be transported to Russia. As it was agreed with Georgian side, the military technology will not be handed over to Abkhazians, the Russian Defense Ministry stressed. The agreement for the withdrawal from Vaziani and Gudauta was reached during the Organization of the Security and Cooperation in Europe (OSCE) Summit in November, 1999.

Azeri Rally Demands Parliament Dissolution

· Six leading opposition parties of Azerbaijan organized a protest rally in downtown Baku on Saturday, demanding dissolution of the country's new parliament. The rally involved up to 1,000 supporters of the opposition, who claimed that new parliament was illegitimate and results of the November 5^th elections had been falsified. Most electors said no to the ruling parties at the November 5^th polls, and "the people's political will must be done," Isa GAMBAR, leader of the Musavat party, told the rally. The opposition should stay out of parliament and demand new elections, he said. Up to 200 policemen maintained public order at the rally. No incidents were registered at the site. The right-wing opposition, that gained 12 out of 124 seats in the legislature at the latest elections, has boycotted parliament sessions so far.

Mediators Appeal For Peace In NK Dispute

· A group of mediators, America's Carey CAVANAUGH, France's Jean-Jacques GAILLARDE, and Russia's Nikolai GRIBKOV, traveled Sunday to the border between Azerbaijan and Armenia to meet with military officials of both nations and seek a peaceful settlement of the Nagorno-Karabakh dispute. Despite a 1994 truce, talks on a final settlement have stalled and sporadic clashes still occur on the border. On Sunday, the mediators traveled to the Nakhichevan autonomous region, which is part of Azerbaijan but is surrounded by

Armenian territory. They are expected to meet with Azeri President Geidar ALIYEV today and later with Armenian President Robert KOCHARYAN. The mediators were in Turkey last week, where they received a promise from Foreign Minister Ismail CEM that Turkey would lift its trade embargo on Armenia if the Nagorno-Karabakh dispute is worked out, the Turkish Foreign Ministry said Sunday. Turkey and Azerbaijan share close ethnic and cultural bonds, while Turkey and Armenia are longtime foes. Turkey has several times said that the lifting of the embargo was depended on the solution of the territorial conflict. The lifting of the embargo would mark a major improvement in Turkish-Armenian relations.

Russia-Kyrgyz Uranium Production Deal

· Russia and Kyrgyzstan signed an agreement Sunday on production, scientific and technical cooperation of industrial enterprises in turning out uranium products, non-ferrous and precious metals, as well as other strategic materials. According to Itar-Tass, Russia's Atomic Energy Minister Yevgeny Adamov headed a government delegation from Moscow that arrived in Bishkek to attend the ceremony of reelected Kyrgyz President Askar Akayev's inauguration and sign the agreement on uranium production with Kyrgyz Defense Ministry. Adamov's spokesman Andrei Edemsky pointed that the agreement focused on broadening the existing ties between uranium-producing enterprises in Russia and Kyrgyzstan, as well as on regulating the trade and defining a more acceptable taxation policy in the related area.

The Russian delegation also attended an inauguration ceremony of Akayev who took office for the third consecutive time since the collapse of the Soviet Union. Adamov handed Akayev a personal message from Russian President Vladimir Putin, who congratulated his Kyrgyz counterpart on winning. On October 29^th, Akayev was reelected in a landslide collecting the overwhelming majority of votes with a 77 percent turnout.

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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