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, December 13, 2000

Russian Federation

Politics

Gusinsky To Fight Extradition

· Lawyers for media mogul Vladimir GUSINSKY, who was arrested on early Tuesday morning in Spain, said that he will challenge extradition proceedings. Spanish police, in accordance with multilateral extradition agreements, detained GUSINSKY in Sotogrande, Spain, acting on an international arrest warrant issued by Russian prosecutors. GUSINSKY failed to appear for questioning on November 13^th in Moscow on charges of embezzlement. The extradition case will be heard by Baltasar GARZON, the judge who ordered the 1999 arrest of former Chilean dictator Augusto PINOCHET in London in an attempt to put him on trial in Madrid, the Financial Times reported. The court has 40 days to examine Russia's request for his extradition and approve or reject it, although the Spanish government has final say in the matter. Russian prosecutors accuse GUSINSKY of misrepresenting assets in Media Most when he accepted loans of more than $300 million guaranteed by Russia's natural gas monopoly Gazprom. They say GUSINSKY's companies were legally bankrupt at the time. Media Most spokesman Dmitry OSTALSKY said, "I really hope that the Spanish judicial system will...understand that it is an absolutely political prosecution and will not extradite Mr. GUSINSKY and will not become an instrument of political pressure against a person." Legal sources said that GUSINSKY had been arrested on the same "trumped-up and political charges" that led to his brief imprisonment in June. That case was dismissed for lack of evidence. While in prison, GUSINSKY was forced to turn over control of Media Most, including the independent television station NTV, to Gazprom. GUSINSKY later rescinded the shares for freedom deal. He then left the country for

the British colony of Gibraltar, where he has retained residency since 1995. Britain and Russia are not bound by multilateral extradition agreements. Interpol has asked Moscow to confirm that the request was not based on political reasons. "Interpol must remain ever vigilant of its obligation not to permit its resources and global network to be used for purposes whose underlying motivation is political, religious or racial," said Ronald NOBLE, secretary general of Interpol.

Canadian Diplomat Found Dead In Moscow

· Canadian diplomat Marc BASTIEN was found dead in his Moscow apartment, the Canadian Embassy said. The cause of death is not yet known. BASTIEN's body was found by a cleaning lady, according to Moscow police. He probably died Tuesday morning. Russian President Vladimir PUTIN begins a three-day visit to Canada starting December 17^th. PUTIN's state visit to Ottawa will mark his third meeting with Prime Minister Jean CHRETIEN. PUTIN will be arriving from his first visit to Cuba.

Putin To Renew Ties With Cuba

· Russian President Vladimir PUTIN will arrive in Cuba today, primarily for rest and relaxation at the Varadero beach resort. He will be the first Russian president to visit since the collapse of the Soviet Union. Trade and ways to revive a decades-old relationship that thrived during the Cold War era, however, are expected to top the agenda on PUTIN's trip. "I

Today's News Highlights

Russia

US To Revive Derivatives Market

Tyumen Discovers New Oil

European Republics

More To Gongadze Murder

EBRD Loans For Highways

South Caucasus & Central Asia

US Patrol Vessel Handover

Chevron Export Figures

Baku-Tbilisi Cable System

US-Armenian Military Coop.

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December 13, 2000

Intercon's Daily

will say against that Cuba is our tradition partner in the world and, in the first instance, in Latin America." PUTIN said Moscow is not pushing ideological ties with Cuba, and instead wants practical deals that will benefit Russian business. He added that he felt cooling since the collapse of the Soviet Union had been a mistake and not well handled. " Russia is right to be paying more and more attention now to the Latin American aspects of its foreign policy. Cuba's role has been great and extremely important for us because it always had an independent position…favoring the development of democratic principles in international relations," the Financial Times quoted PUTIN as saying. It also points out that PUTIN has been actively re-establishing ties with so-called pariah states such as North Korea, Libya, Iran, and Iraq. He criticized continued US sanctions launched in 1960 against the Communist regime of Fidel CASTRO, calling them "groundless." From Cuba, PUTIN will skip over the US headed for a visit to Canada.

Economy

Ruble = 27.90/$1.00 (NY rate)

Ruble = 27.97/$1.00 (CB rate)

Ruble = 24.51/1 euro (CB rate)

US To Rebuild Futures-Derivatives Trading

· In an agreement signed later on Monday in Washington, the US Commodity Futures Trading Commission pledged to help Russia rebuild its currency futures market, which collapsed in 1998. The US will assist Russia in designing better futures contracts, writing new legislation, and spotting signs of fraudulent manipulation of the market. The signing comes just two weeks after the Moscow market reopened, on a much smaller scale than before the collapse. The market, which had $1 billion in open positions before Russia defaulted on its debt in August 1998, now has $2 million in total value, said Alexander ZAKHAROV, the director of Moscow Interbank Currency Exchange, the market regulator. He noted, "in the past the Russian government saw this market as the same as gambling," but the government of Vladimir PUTIN, "sees it as a legitimate way to hedge." The government hopes that the market will grow to $200 million or more during the next year, thereby attracting foreign banks and investors back into Russia. In addition to the currency hedge market, the Russian govern

ment is also looking at setting up commodity derivatives for the country's largest products, oil, gas, sugar, grain and other commodities. Setting up those derivatives markets could take two to five years, ZAKHAROV acknowledged.

Business

Tyumen Discovers New Oil

· Tyumen Oil announced Tuesday that it had discovered an oil deposit in the Samotlor oil field in Western Siberia. The field is likely to produce oil more cost-effectively and efficiently than nearby deposits. The current average flow rate from an initial well drilled in the deposit in Samotlor's Apt-Alb Senomar area is 62 barrels per day. According to geologists, the new deposit could hold reserves of more than 365 million barrels of oil. Samotlor currently produces more than 300,000 barrels of oil daily. This is the sixth discovery by Tyumen Oil since it began operations in the Samotlor field, one of the world's largest oil fields, in 1997, according to a company press release. The latest discovery, made on November 22^nd, came on the 30^th anniversary of exploration and drilling in the oil field. Tyumen Oil President and CEO Simon KUKES said, "Not only are the newly discovered reserves very substantial, but they are more cost effective and easier to extract because of their height within the geologic seam and the well developed infrastructure in the area. This deposit had been overlooked during previous exploration in the 1970s and 1980s." The discovery will be followed by geologic and engineering studies to appraise the field further and better assess its potential reserves. Next year, Tyumen Oil plans more exploratory drilling in the area. Tyumen Oil recently received a $292 million loan guarantee for work at Samotlor from the US Export-Import Bank. The loan will be provided by the New York branch of Commerzbank for Halliburton Co. to undertake a three-year project to rehabilitate the Samotlor field.

Two Charged In Aeroflot Case

· Russian prosecutors on Thursday arrested Nikolai GLUSHKOV, a former executive of Aeroflot, Russia's state-controlled airline, and Alexander KRASNENKER, a former Aeroflot vice president, on fraud charges. GLUSHKOV is being held at Moscow's Lefortovo prison, while KRASNENKER has been allowed to go free during the investigation.

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The two are among Aeroflot executives accused of hiding foreign currency proceeds from the company through Andava, a Swiss-registered company that handled the airline's foreign currency earnings and Forus Services. Nikolai VOLKOV, a Russian special prosecutor taken off the case earlier this year on a legal technicality, said in July that it had been established that $585 million of Aeroflot funds had gone through Andava and $350 million through Forus. Prosecutors have summoned Russian tycoon Boris BEREZOVSKY for questioning over the Aeroflot probe. Claiming the case is part of attempts to stifle his criticism of the federal government, BEREZOVSKY did not return to Russia for questioning. He denies any wrongdoing. "The methods of influence used against me are becoming increasingly authoritarian. This is clearly a KGB method…to resort to blackmail through those who are close to you...the authorities have gone beyond all bounds."

and his aides also discussed a lawsuit and other means to silence GONGADZE, the officer said. He described how he bugged KUCHMA, using a digital recorder hidden under the sofa in the President's office. "I gave an oath of allegiance to Ukraine, to the people of Ukraine," he said on the videotape. "I did not swear allegiance to KUCHMA to perform his criminal orders," he added. KUCHMA's office has denied all the allegations. Earlier in December, the President made an unscheduled television address in which he suggested that unspecified forces were trying to destabilize the country and bring about "early elections and a new wave of chaos".

Ukraine's November Industrial Output Falls

· Ukraine's State Statistics Committee reported the nation's industrial production fell 5.2 percent in November from October and was up 17.2 percent from November last year. In the first 11 months, industrial production rose 12.5 percent from the same period a year ago, according to the committee. Almost all of Ukraine's basic industries reported a decline in the output in November from October, the committee said. The food-processing industry reported the biggest decline in November from October, as production fell 23.5 percent, the construction materials-making industry reported a 9.5 percent decline and output in the chemical and petrochemical industry fell 3.9 percent, Bloomberg News reported. Three industries reported an increase in output last month from the previous month. Output in the power industry rose the most in November, increasing 13.5 percent, output in the textile industry increased by 10.3 percent, while the machine-building and metal-processing industries reported 0.4 percent increases, the committee said. Earlier this year, the government raised its industrial output forecast to annual 6.5 percent this year from between 4.5 percent to 5 percent initially expected in 2000. Industrial production increased 4.3 percent in 1999 from 1998.

EBRD Aid To Upgrade Ukraine's Highways

· The European Bank for Reconstruction and Development (EBRD) said it will lend Ukraine 75 million euros ($85.2 million) to upgrade a key highway to neighboring Poland, Slovakia, and Hungary and help boost trade. EBRD's business group director Johan BASTIN said, "This project will strengthen the vital link between Ukraine and its

European Republics

Top Officials Accused Of Murdering Journalist

· The disappearance of editor George Gongadze grew into a political scandal on Tuesday when opposition politicians accused Ukraine's President Leonid KUCHMA of discussing the ways to silence Gongadze, Associated Press reported. Alexander MOROZ, leader of the opposition Socialist Party, claimed that KUCHMA, his chief of staff Volodymyr Lytvyn, and Interior Minister Yuri Kravchenko may have been involved in the disappearance of GONGADZE, who was the founder and editor of a website devoted to publishing material on corruption in Ukraine's government. On November 28^th, MOROZ, who lost to KUCHMA in last year's presidential race, made public an audio recording in which a man sounding like KUCHMA angrily discusses GONGADZE, but it is unclear whether he is urging any actions or simply venting anger. The prosecutors said they were unable to authenticate the recording. A tape was handed out to MOROZ by the former presidential bodyguard Mykola MELNICHENKO. MELNICHENKO, who is now hiding abroad, made his allegations in a videotape which was filmed by lawmakers investigating the case and shown in parliament on Tuesday. According to MELNICHENKO, KUCHMA gave orders to stifle critical media and political foes. The President

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trade partners." The total cost of the project, which is also for reorganizing financing of Ukraine's road-building industry and improving its management, was estimated at about 115 million euros. The loan, which will be guaranteed by the Ukrainian government and released to state-run road management company Ukravtodor, is a "huge boost to the Ukrainian transport sector"' as it "will enable Ukraine to expand trade not only with its closest western neighbors, but with the European Union (EU) as well," BASTIN said in the statement. The EBRD loan is the first involvement of an international financial institution in Ukraine's road-building industry, Bloomberg News reported.

South Caucasus & Central Asia

US Transfers Patrol Vessel To Georgia

· US Ambassador to Georgia Kenneth YALOWITZ, chief of the Georgian national border Valeri CHKHEIDZE, and Poti city mayor Akaki DARJANIA attended a ceremony in Poti on Tuesday, marking the transfer of a US patrol vessel to the Georgian coastguards. The 32-meter vessel, named Dadiani, requires a crew of two officers and 10 sailors. The main goal of the vessel is to find contraband, observe the safety of ports, oil terminals, and fulfillment of the lifesaving operations. The vessel was being used by the shore guard of the USA, written down in July this year, and renewed in South Carolina. Patrol vessel with the Georgian crew arrived in Poti from the Turkish port Izmir.

Meanwhile, head of Planning and Policy department of the European Chief of the US Armed Forces Charles SIMPSON and deputy head of Georgian Armed Forces General Staff Giorgi GIORGOBIANI signed Tuesday a program for cooperation during 2001. The Georgian Defense Ministry said the program calls for holding joint exercises, seminars, training, and conferences. SIMPSON, paying two-day visit to Tbilisi, is to meet with Georgian Defense Minister David TEVZADZE, chairman of the Parliamentary Committee for De

fense and Security Giorgi BARAMIDZE, and others.

Chevron Oil Export Figures

· Deputy head of movement of Georgian Railway Anzor BABUNASHVILI told the Prime News Agency that 201 thousand tons of oil, extracted by Chevron at Tengiz deposit in Kazakhstan, have been transported in November. According to him, "during 11 months of 2000 Georgian railway has transported over 3.3 million tons of Chevron oil."

Baku-Tbilisi Cable System

· Operations for laying the Azerbaijan sector of the fiber-optic cable system Trans-Asia-Europe are being completed, adviser to Azerbaijan the Minister of Communication Aflatun MAMEDOV said. Prime News Agency reported, the adviser stressed that the length of the Baku-Tbilisi portion of the cable is 589 kilometers. Presentation of the system will be held before the end of this year, MAMEDOV said.

US-Armenia To Sign Military Cooperation

· A US military delegation led by Major-General Charles SIMPSON, who heads the department of planning and command policy of the US Armed Forces in Europe, arrived in Yerevan for talks with the Chief of the General Staff and First Deputy Defense Minister of Armenia, Lieutenant-General Mikhail ARUTYUNYAN. The Pentagon official will sign with the leadership of the Armenian Defense Ministry a military cooperation program. According to Lieutenant-Colonel Eric VON TERSCH, the military attaché at the US Embassy in Armenia, the document provides for exchanges of visits by the military, a study of US experience in the sphere of civilian control over the armed forces, and the training of Armenian officers in the Marshall Center in Germany. The Americans will help Armenians train specialists for acting in conditions of natural calamities and disasters. SIMPSON will lay a wreath at the memorial to the victims of the 1915 genocide of the Armenians. It should be noted that the US House of Representatives dropped from its agenda a resolution formally recognizing this genocide.

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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