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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Monday, December 18, 2000

US-Russia Sign Missile Agreement

· US Secretary of State Madeleine ALBRIGHT and Russian Foreign Minister Igor IVANOV signed an agreement Saturday aimed at strengthening cooperation on preventing accidental missile launches on both sides. The new agreement comes is an update to an initial early warning system set up last year by US President Bill CLINTON and Russian President Vladimir PUTIN to prevent accidental launches. Cooperation on preventing accidental missile launches began after a near-launch of a nuclear counterstrike in 1995, when Russia mistook a harmless weather rocket fired from Norway for a NATO missile. It should be noted that Moscow, acting on the recommendation of IVANOV, has prevented the opening of a NATO information center to be located in the heart of the city. One official said, "It was hard for Foreign Minister IVANOV to agree to raise the NATO flag in Moscow on the dame day that NATO was issuing a communique that was critical of Russia over Chechnya," RFE\RL Newsline reported. ALBRIGHT and IVANOV discussed a number of issues including Russia's unilateral withdraw from a 1995 agreement on new weapons sales to Iran. ALBRIGHT also noted disagreements in Russia's military offensive in Chechnya and its relations with Georgia.

Meanwhile, Russia will equip a third regiment of its strategic missile forces with the new Topol-M intercontinental ballistic missile before the end of the year, the strategic forces commander said Friday. The single-

Russian Federation


Chechen Rebels Attack City Hall

· Chechen rebels attacked the mayor's officer in the City Hall in Grozny on Sunday. Rebels, taking up positions to storm the city hall, were discovered by Grozny Mayor Bislan GANTAMIROV's guards. Which led to a 30 to 40 minute shoot-out, leaving four dead and several bystanders wounded. GANTAMIROV said four of the wounded guards were his relatives. He explained that the rebels and guards exchanged fire, which ended when Russian troops arrived from their nearby base. Russian troops closed-off all traffic to and from the bomb-shattered city, and 10 people were detained on suspicion of involvement in the attack. It is reported to be one of the most daring of several recent attacks by rebel Chechens on pro-Moscow Chechen officials. GANTAMIROV lashed out at Russian authorities for failing to provide enough manpower to make the city safe. He said, "The [rebel] fighters feel themselves free. They are swarming all over the city. In Grozny, there are a few thousand soldiers. It seems that on the surface there are even more rebel fighters."

Kremlin spokesman on Chechnya, Sergei YASTRZHEMBSKY, expressed disappointment Sunday in the Moscow-backed Chechen administration. He said, "Alas, they do not have the influence hoped for by the federal authorities. The problem is that there is not a single man among the leaders of Chechen society who can say he enjoys support of an absolute or even relative majority in the Chechen republic."' Meanwhile, unidentified arsonists burned down Grozny's main civil registry archives Sunday, Itar-Tass said. The building held birth, death, marriage and other registry documents since 1944 for the Chechen capital.

Today's News Highlights


Putin Not To Reshuffle Cabinet

WTO Resumes Russian Talks

UES Breakup Prelim Approval

European Republics

Ukraine's Budget Surplus

South Caucasus & Central Asia

Georgia-BP On MEP

Georgia To Persuade Kazakh

Azeri Looks To Iran For Gas

Uzbek Passes Terrorism Law




December 18, 2000

Intercon's Daily

warhead missiles will be deployed on December 25th to 26th, General Vladimir YAKOVLEV said. The government says the recently developed Topol-M will form the backbone of its nuclear forces for years to come. The small, rugged missile can be fired from a mobile launcher, which means they would be hard to detect and therefore more likely to survive a first strike in a nuclear confrontation. Russia already has 20 Topol-M missiles in service, 10 per regiment, deployed late in 1998 and 1999, the Associate Press reported.

Putin Denies Plans To Reshuffle Cabinet

· Russian President Vladimir PUTIN, during his visit to Cuba, again denied rumors of an eminent reshuffling of the Cabinet. On Friday, he said, "The government has achieved concrete positive results. It would be unfair to destabilize the government and shake it up." Russian media have been reporting for weeks that PUTIN was displeased with his Cabinet members, particularly Prime Minister Mikhail KASYANOV, and would soon sack them. The media speculated that KASYANOV had excessively close ties with the circle of PUTIN's predecessor, Boris YELTSIN, and that the new president wanted to replace him with his own man. On Friday, PUTIN criticized KASYANOV's Cabinet for acting too hastily on a controversial plan to restructure Russia's monopolist energy company. He praised it, though, for quickly pushing next year's budget plan through the parliament.


Ruble = 27.95/$1.00 (NY rate)

Ruble = 27.98/$1.00 (CB rate)

Ruble = 25.07/1 euro (CB rate)

WTO Resumes Talks Russia's Application

· The World Trade Organization (WTO) resumes talks today on Russia's application to join the global trade body. Russia has set 2002 as a target date for membership. Russian President Vladimir PUTIN has made WTO entry a priority for his administration. Last month, he announced plans to slash the number of customs duties from seven to four, with the maximum reduced from 30 percent to 20 percent in January. The Financial Times reports that this would bring down the average rate from 13 percent to 11 percent, still above the WTO objective of less than 10 percent. Russia approved a plan in

September to reduce import tariffs an average 10 percent on everything from furniture to cars to fight corruption and tax evasion and help sustain record economic growth. The plan, which takes effect at the start of 2001, excludes sugar and tobacco. The highest import duties will be levied on consumer goods, chemicals and equipment, and antidumping measures and special duties also will be levied on imports to protect domestic producers. PUTIN said customs duties on technological equipment will be cut to 5 percent.

Russia's application to join the Geneva-based trade body, originally made in 1993 when the organization was known as GATT, was stalled by the country's economic collapse and sluggish market reforms. Analysts say the timing of Russia's entry will depend on its willingness to open its agriculture sector and other markets to foreign competition. Russia's chief WTO negotiator Maxim MEDVEDKOV noted that access to the agriculture sector will probably be the last issue resolved in WTO talks. The country is negotiating with 40 WTO nations on reducing import tariffs and dismantling barriers to trade in services. MEDVEDKOV pointed out that legislation is being considered by parliament covering customs valuations, anti-dumping, import licensing, and judicial review. Other areas needing serious attention prior to WTO entry are the insurance, banking, and intellectual property sectors. Software piracy and violations of trademarks are widespread. In March, Russia will host a conference on its WTO applications. Officials and those attending hope that Russia will have demonstrated significant steps toward meeting WTO requirements.

Russian To Raise Export Duties

· Russian Deputy Prime Minister Viktor KHRISTENKO believes that the nation is likely to levy higher duties on oil and oil products exports starting January 15th. The government decided last week to increase export duties on crude oil to 48 euros ($42) per ton from 34 euros per ton, while raising duties on gasoline and diesel fuel to 39 euros per ton from 32 euros per ton, and duties on fuel oil to 31 euros per ton from 27 euros per ton, the Interfax reported. The ruling is expected today, coming into effect a month later, KHRISTENKO said. The government has been raising oil export duties to match the increase in world oil prices this

When you need to know it as it happens




December 18, 2000

Intercon's Daily

year, as Russia moves to reap the benefit of record oil prices. Oil, the country's biggest export earner, rose as much as 38 percent this year to a 10-year record of $34.59 a barrel in October.


UES Breakup Plan Preliminary Approved

· The Russian government gave preliminary approval to the breakup of Unified Energy Systems (UES), paving the way for sales of dozens of power generators, Bloomberg News reported Friday. The Russian government, owner of 53 percent of UES, approved the basic principles of management's reorganization plan. The key aim of the restructuring is to spin off power generating assets from the distribution arm to create competition although the state will retain control of the grid. According to CEO Anatoly Chubais, UES which controls the world's largest power grid and has more than 70 regional companies, can raise billions of dollars needed to upgrade old plants only if it reorganizes, sells generators and persuades the government to accelerate an increase in regulated tariffs. UES shares have fallen around 60 percent to $0.0755 since the plan was announced in spring.

In the next few weeks, Russian President Vladimir PUTIN must decide the future of UES, the Financial Times reported. If he backs his advisors' far-reaching proposals for creating fair regulatory conditions in the electricity industry, he will send a powerful signal to foreign investors to take another look at Russia. Without such assurance, they will put their money elsewhere and UES will continue to rot, the paper says. Bloomberg News quoted PUTIN as saying that he feels positive about the government's preliminary endorsement of a plan to break up the monopoly. RFE/RL Newsline reported, the plan's final approval has been put off until February, 2001.

deficit of 1.53 billion gryvnias, or 1.3 percent of GDP. The ministry said the state coffers had received a total of 31.36 billion gryvnias in January to November, or 92.4 percent of the sum targeted for the whole of this year. Earlier this month the parliament approved a tight and balanced 2001 budget, with revenues and expenditures both set at 33.95 billion gryvnias. The government expects this year to become the first since independence in 1991 when the state budget revenue targets are implemented in full.

South Caucasus & Central Asia

Georgia-BP Discuss MEP Plan

· On Friday, Georgian President Eduard SHEVARDNADZE met with British Petroleum (BP) vice president Riff DIGGINS, and Georgian International Oil Corporation president Gia CHANTURIA to discuss the realization of the Baku-Tbilisi-Ceyhan Main Export Pipeline (MEP). The President expressed environmental protection issues and attracting local population to the building. He stressed that Georgian companies and its scientific potential of the country must also be actively used during the building project. DIGGINS also presented SHEVARDNADZE with a map of the pipeline project. CHANTURIA told Prime News Agency that the 380-kilometer Georgian portion of the Baku-Tbilisi-Ceyhan Main Export Pipeline (MEP) will cost $650 million to build. According to him, the building will start in 2002 and finish in 2004. Georgia's "corridor of interest" is a 10km-wide route from Rustavi city to Valey village at the border with Turkey. DIGGINS said that all the issues connected to the choosing of the `corridor of interests' have already been discussed with the members of Georgian National Security Council and Georgian parliament.

BP has appointed Andrew BEINS as its permanent representative to Georgia for the coordination of MEP and the gas transit from Shakh Deniz springs. His office will open in January. CHANTURIA said that the opening of the BP Tbilisi office is, "very important" for realizing the listed projects. Furthermore, he pointed out that US president-elect George W. BUSH would continue to support the Baku-Tbilisi-Ceyhan pipeline. He said measures will become, "more persistent and more aggressive in a positive way."

European Republics

Ukraine's Budget Achieves Slight Surplus

· Ukraine's state budget had a surplus of 892 million gryvnias ($164 million), or 0.6 percent of gross domestic product (GDP) in the period of January to November of this year, the Finance Ministry said according to preliminary data. It said in the first 11 months of last year Ukraine had a budget

When you need to know it as it happens




December 18, 2000

Intercon's Daily

Georgia Works To Persuade Kazakhstan

· Georgian International Oil Corporation president Gia CHANTURIA and strategic advisor to Georgian President Eduard SHEVARDNADZE for international oil and gas Edward CHOW on Saturday began a one week visit to Kazakhstan to hold negotiations with President Kazakhstan Nursultan NAZARBAYEV, heads of government and Kazakh oil companies. CHANTURIA said that the possible transformation of the Baku-Tbilisi-Ceyhan route into the Aktau-Baku-Tbilisi-Ceyhan project is to be discussed. He believes that earlier negotiations, between the special Adviser to the US president and secretary of state for Caspian energy resources Elizabeth JONES and NAZARBAYEV, have confirmed Kazakhstan's readiness to transport part of its oil by Baku-Tbilisi-Ceyhan route. The US sees Kazakhstan as a strategic partner in opening a new oil transportation route under the Aktau-Baku-Ceyhan project. JONES said she hoped Kazakhstan would make up its mind about joining the project by the start of the next year, when estimates of Caspian oil-field reserves will be verified and a new US administration comes into power.

Azeri-Irani Gas Deals In The Future?

· President of Azerbaijan's State Oil Company (Socar) Ilham ALIYEV said on Saturday that his country will negotiate with Iran for procurement of natural gas in the near future, the Azeri private IAS TV Network reported. An energy analyst told IAS that the reason for adopting this policy is Russia's inability to fulfill its commitments based on the contracts it has signed with Azerbaijan. According to Socar's ALIYEV, the Iranian National Oil Company seems to be a more reliable partner than the Russians and therefore they gain a higher priority. He added, "what led to the incredibility of Russian oil partners is the Russian state foundations' activities that has brought to a total halt of the Russian natural gas flow to Azerbaijan at the beginning of the cold season. The Baku government cannot sacrifice the national economic projects for the sake of the other nations' interests and particularly always in favor of

one certain country." One Azeri oil industry official said, "Buying natural gas from Iran will enable all our heating power plants to provide energy at full capacity and to severe our country's traditional dependence on Russian gas." Azerbaijan imports 4 to 5 billion cubic meters of natural gas annually.

Uzbek Parliament Passes Terrorism Law

· The Uzbek Parliament Friday adopted the draft law "on the fight against terrorism." The law bans "terrorism" propaganda, terrorist groups and organizations in Uzbekistan, and provides legal justification for killing "terrorists" in the country without warning. Uzbek President Islam KARIMOV said that terrorist acts were increasing. "If I were to be asked, I would say and propose that the UN and various international organizations, say Interpol, and other organizations fighting against crime should unite," he said. He added that, "If we do not properly comprehend the notion, the idea of a terrorist, if we do not use correct terms in the law on terrorism, if we do not give it a political coloring, then that will be a big mistake." KARIMOV is convinced that terrorism does not exist in one single state, but is an international problem. He mentioned London, Paris, and "other places, where leaders supply these terrorist groups with everything and give them money for buying arms." Bomb attacks organized and carried by the Islamic Movement of Uzbekistan (IMU) in Tashkent in February, 1999, killed 16 and wounded more than 100 people. The IMU also organized armed incursions into the Surkhandarya and Tashkent regions of Uzbekistan this summer. The movement seeks the overthrow the KARIMOV administration and calls for replacing it with an Islamic state. The US government placed the IMU on its list of international terrorists in September.

The Daily Report on Russia and the FSU

will not be published

from December 25th to January 1st

for Intercon's Winter Break

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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When you need to know it as it happens