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, December 22, 2000

Russian Federation

Politics

Putin Considers Government Changes

· Russian President Vladimir PUTIN is considering changes to the government early next year to give ministers more responsibilities and create a team to push ahead with his economic and state reforms. Prime Minister Mikhail KASYANOV said he had discussed with PUTIN changes to improve the implementation of the reform program. He said, "We are living with a system inherited from past years. The development of the economy needs improvement of this sphere as well." He added that, "The reform program, which includes plans to breakup Russia's country's natural gas, power and railways monopolies, has lagged behind schedule as government departments did a poor job of drafting laws and policy documents." KASYANOV criticized the quality of the draft laws. Alexei ZABOTKINE, an analyst at United Financial Group brokerage said, "The dedication to the economic program was stated, but in order to implement in reasonable time, it is necessary for the government to be active."

Berezovsky To Promote Rule Of Law

· Russian business tycoon Boris BEREZOVSKY has announced he will create a $25 million foundation to nurture democratic freedoms and the rule of law in Russia. The International Foundation for Civil Liberties will support public education campaigns and fund the creation of a Russian version of the American Civil Liberties Union, BEREZOVSKY said. He explained, "It's an institute to help people understand the problems of democracy, what it means, and how to help Russia become a real liberal democratic country." The Foundation will spend $25 million over five years, including $3 million to

support a museum and community center in Moscow honoring the late Russian dissident Andrei SAKHAROV. BEREZOVSKY supported the election of Russian President Vladimir PUTIN, then grew critical as PUTIN cracked down on leading businessmen who garnered wealth and power by buying state enterprises following the 1991 collapse of the Soviet Union. He withdrew from his post in the Russian State Duma due to his opinion that PUTIN was leading the country in the wrong direction and his differences with the military campaign in Chechnya. Meanwhile, BEREZOVSKY said he will remain in his self-imposed exile rather than return to Russia to face questions from prosecutors investigating alleged embezzlement of foreign currency earnings at the state-controlled airline Aeroflot. He describes the probe as part of PUTIN's efforts to stifle his criticism of the federal government.

NATO To Reopen Moscow Office

· NATO plans to reopen its information office in Russia, which it closed following the 1999 NATO bombing of Yugoslavia. The office is expected to open again sometime in 2001. Ministry spokesman Vladimir ASHUROV did not give an exact date, but he said only technical issues such as finding office space remains to be resolved. Russia severed ties with NATO as a result of the bombing campaign aimed at unseating then-Yugoslav leader Slobodan MILOSEVIC and forcing him to withdraw troops

Today's News Highlights

Russia

Russian Economic Indicators

LUKoil Opposes Belarus Interest

European Republics

IMF Renews Loan Program

Estonia Passes 2001 Budget

South Caucasus & Central Asia

Georgia:Tension Rises

Chechelashvili OnBSEC

Huricane To Invest $143 Million

Kazakh Continues Reshuffling

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from the province of Kosovo. Ties were resumed earlier this year. At a meeting of the NATO-Russia Permanent Joint Council in Brussels last week, ministers "underlined the important role the NATO information office will play in improving public understanding" of the relations between the alliance and Russia, according to a statement. Russian Foreign Minister Igor IVANOV earlier opposed the idea of NATO representation in Moscow. 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.

Economy

Ruble = 27.98/$1.00 (NY rate)

Ruble = 28.01/$1.00 (CB rate)

Ruble = 25.89/1 euro (CB rate)

DecJanFebMarAprMayJunJulAugSepOctNovDec

Russian Economic Indicators

· The Russian State Statistics Committee said on Thursday that Russian consumer price inflation will be between 20.0 and 20.2 percent for the whole of 2000 if current price trends continue, compared to 36.5 percent in 1999. The Committee also said in a statement, that December inflation would be between 1.5 and 1.7 percent if current price trends continue, compared to a 1.5 percent price rise in November. Prices have risen 0.9 percent since the beginning of December. Russian foreign currency

and gold reserves fell from a record high, snapping 14 weeks of rises. The reserves fell $200 million to $27.4 billion in the week to December 15^th, after increasing $100 million to $27.6 billion in the week to December 8^th, the Central Bank said. Russia's money supply grew to 474.7 billion rubles ($17 billion) in the nine days to December 13^th. The money supply, which includes cash currency in circulation plus required reserves, grew by 19.5 billion rubles in the nine days to December 13^th.

Russia's Tax Ministry will meet a December revenue collection target of 70 billion rubles ($2.5 billion), though it has so far collected less than half of the planned figure, Tax Minister Gennady BUKAYEV said on Thursday. "So far, we have collected 30 billion rubles, but Gazprom has only started to pay, and most value added tax payments arrive after December 20^th," BUKAYEV told a news conference. VAT payments amount to about 40 percent of all taxes. BUKAYEV said the ministry collected 58.3 billion rubles in taxes in November. The Finance Ministry said earlier in December that tax revenues, including payments to special extra budgetary funds, were 67.6 billion rubles last month. Russian Prime Minister Mikhail KASYANOV said on Thursday the country's trade surplus would rise to $60 billion in 2000, with exports reaching $102 billion and imports $42 billion. In 1999, Russia's trade surplus was $36.2 billion, with exports $75.8 billion against imports of $39.6 billion. KASYANOV said gross domestic product (GDP) would rise seven percent in year-on-year terms in 2000, while industrial output would increase by 9.5 percent. "The year 2000 was a special year. Political stability has created conditions for the economy to move forward. My evaluation of the economic development is positive," KASYANOV said. He said in the first 11 months of 2000 the budget surplus was more than three percent of GDP, and the primary surplus, calculated before debt payments, was five percent.

Business

Krasnoyarsk Aluminum Raises Output

· Russia's second largest aluminum smelter, Krasnoyarsk, said it had produced 773,684 tons of primary aluminum in the first 11 months of 2000, up 4,508 tons from the same period last year. "Of the 773,684 tons of primary aluminum produced, 88

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percent was high grade material compared with 83.3 percent in the first eleven months of 1999," Russky Alyuminy, the company which controls Krasnoyarsk, said in a statement. Krasnoyarsk produced 870,700 tons of aluminum in all of 1999.

LUKoil Opposes Belarus Exploration In Russia

· LUKoil Holding said it opposes attempts by Belarus' state-run oil company, to explore for oil in the Russian Arctic. LUKoil has ambitious plans to expand its production in the region, Vremya Novostei reported. Belneftekhim and Nenets Oil Co., a small Russian exploration unit operating formed the Nenets- Belarus Oil Co. to explore a field in the region over the next five year. The new venture blames LUKoil for delays in securing a license for the project from Russia's Natural Resources Ministry. LUKoil, facing declining production at its older fields in western Siberia, has said it aims to invest $10 billion over the next decade to tap new oil fields in the Timan-Pechora region in the far north of Russia. Nenets Oil has a 10 percent stake in the Kharyaga project led by Total Fina Elf, the world's fourth-biggest publicly traded oil company, in the Timan-Pechora province. LUKoil has said it plans to secure a 20 percent share in the venture.

Kyshtym To Increase Copper Foil Output

· Russia's Kyshtym Electrolytic Copper Plant aims to produce the same amount of refined copper next year as in 2000 but will increase copper foil output. Deputy Technical Director Vladimir KARNAUKHOV today said the company would produce 76,200 tons of refined copper and copper foil in 2000 after 64,000 tons in 1999. "We are calculating plans for 2001 now. But it is clear that if volumes of raw material supplies are preserved, we shall work at 2000 levels for all main kinds of produce in 2001. We shall only increase foil output." Kyshtym is currently modernizing its foil production lines. The modernization, scheduled for completion by next April, will help Kyshtym triple foil production to 3,600 tons annually. Kyshtym produced 70,116 tons of refined copper and foil in the first 11 months of this year, 23 percent up from the same period last year.

European Republics

IMF Renews Extends Loan Program For Ukraine

· The International Monetary Fund's (IMF) board

of directors on Tuesday decided to resume credits to Ukraine under the Extended Fund Facility Program, which was suspended in September, 1999. Ukraine is to receive a installment of $245 million before the end of the year. Ukrainian Premier Viktor YUSHCHENKO said Ukraine will be receiving $70 million every month in 2001. These funds will be replenishing the foreign currency reserves of the Central Bank and will not be used for consumption or some or other social or economic aims. The total sum of the program is $2.6 billion. Ukraine had already received credits of $965 million before the program was suspended. The Prime Minister further pointed out that the IMF decision is a signal to other international lending organizations that Ukraine's economy is developing, "under clear principles and procedures." Managing Director Stanley FISCHER said that Ukraine should be "commended" for the improvements in the implementation of their economic policy and progress on their agenda of reform. "Economic performance in 2000 has been encouraging as real GDP growth is expected to be positive (5 percent) for the first time since independence, and there has been a significant turnaround in Ukraine's external position," FISCHER said. He added that the Fund would welcome Ukraine's progress on structural reforms, including a privatization law encouraging transparent procedures and more payments discipline in the energy sector.

Latvian Finance Min. Predicts Budget Gap

· Latvian Finance Minister Gundars BERZINS said on Wednesday that the 2000 state budget gap will be below three percent of gross domestic product (GDP). This confirms earlier government statements made after parliament last month approved an amended 2000 budget that raised the deficit to 3.2 percent of GDP. BERZINS said the 11-month state budget deficit came to 2.1 percent of GDP. The government had originally pledged to cut the deficit to two percent of GDP, but missed this target due to increased social spending.

Lithuania Passes 2001 Budget

· The Lithuanian parliament on Tuesday, in a narrow vote of 70 to 58 with nine abstentions and four absent deputies, approved the country's 2001 state budget with a financial deficit of 906 million litas ($226.5 million). State budget revenues, ex

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cluding municipal budgets, are planned at 6.428 billion litas and expenditures at 7.334 billion litas leaving a shortfall of 906 million litas, up from 2000's planned gap of 800 million litas. Finance ministry officials said the state budget gap embraced over 200 million litas of principal debt repayments ¾an item outside the 2000 budget. According to International Monetary Fund (IMF) rules, this will not widen the overall fiscal deficit. Prime Minister Rolandas PAKSAS said, "The budget is the government's working plan for one year and I am satisfied that it was supported from the outset." The 2001 budget is based on realistic forecasts that Lithuania's gross domestic product (GDP) will grow by 3.2 percent in 2001. The IMF has predicted Lithuania's 2001 GDP to grow to 3.4 percent. Lithuania has agreed with the IMF that the general government fiscal deficit, which includes all extra-budgetary funds and net lending, will be trimmed to 1.4 percent of GDP in 2001 from 3.3 percent this year.

Estonia Approves Balanced Budget

· The Estonian parliament on Wednesday, in a vote of 54 to 38 with all others in the 101-seat house absent or abstaining, passed the country's 2001 state budget with its revenues and expenditures balanced at 29.786 billion kroons ($1.72 billion). The budget by law must be passed as balanced. Before the vote Finance Minister Siim KALLAS urged deputies to put the extra effort in to ensure the 2001 budget was passed this year. The budget is based on ministry forecasts for economic growth of 5.5 percent and inflation of 4.1 percent next year. Analysts say those projections are reasonable and make the 2001 budget stronger than its two predecessors that ran into deficit. Under Estonia's plan to meet requirements for NATO membership, Estonia is aiming for a two percent of gross domestic product by 2002.

South Caucasus & Central Asia

Georgia: Tensions Rising

· Tensions within Georgian society are rising as Georgian officials face pressure from outside the country and within. Georgia has been squeeze by its northern neighbor into accepting a strict visa regime. Prior to this, Russia cut off energy supplies to Georgia as part of a psychological cam

paign to pressure Georgia to accept Russian bases in Georgia. Along with the unilateral introduction of the visa regime and the calls for a joint military operation in Pankisi, the internal pressures on Georgia's political establishment are clearly evident. The shutdown of energy supplies sparked protests in the streets for several days. On Wednesday in an interview with Prime News Agency, Jaba IOSELIANI the leader of opposition Mkhedrioni party, stated that the events going on in Georgia is noting but a hidden uprising of the population against the governmental authorities. He said that the present situation in Georgia reminds him of events in 1991 and 1992. He said the situation now is so strained that even a minor provocation from the authorities is enough to cause people who are suffering the most to fight against the government, sparking another civil war. He said that responsibility for the poor standards of living of Georgians lays with the Citizens' Union Party. IOSELIANI believes that the ruling party is the grouping of demagogues and careerists. His dubious connection with forces seeking to destabilize the country raise his comments to a more serious level.

In addition to these inside and outside forces, internal fighting within the parliament and Cabinet, has raise the heat a notch. Georgian presidential advisor Temur MIRIANASHVILI has announced to the media that he possesses evidence that Justice Minister Mikhail SAAKHASHVILI is involved in corrupt acts, repeating a similar charge made by the Interior Minister Kakha TARGAMADZE. He said he will publicize the documents if necessary. Intercon sources report that MIRIANASHVILI has been fired from his advisory position due to his attacks on SAAKHASHVILI. The opposition between SAAKHASHVILI and MIRIANASHVILI started on Wednesday during a government session to discuss the forestry industry in Georgia. Georgian President Eduard SHEVARDNADZE demanded that MIRIANASHVILI leave the session hall to prevent a further confrontation. The President has accused the press of writing groundless criticisms of his ministers and government policies. However, he stressed that any reports that he is taking measures to restrict the freedom of the press are false. He said, "any liberty must be within the framework of law and Constitutions," and that

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the rights and the duties of the press must be clearly defined. SHEVARDNADZE did not exclude that the bill about press in Georgia may give the journalists even greater liberties, than they have at present. He has ordered SAAKASHVILI to accelerate his work in drafting the bill. The Republican Party of Georgia has said that the actions of the President against the press are worrisome. A statement from party chairman David BERDZENISHVILI notes, "This is not the first case when authorities…try to put the responsibility for own incompetence and weakness on the others…Eduard SHEVARDNADZE became one of the main obstacles on way of development of country. Georgia sinks in the lake of administrative-bureaucratic arbitrariness and corruption more and more."

Rus-Georgia Discuss The Fate Of Bases

· Georgia and Russia are holding bilateral negotiations on military issues. Russian Deputy Defense Minister Alexander KOSOVAN said that Russia will insist on keeping its military bases in Batumi and Akhalkalaki for at least 15 years. Russia said it will strictly stick to its position because it will take that long to prepare the necessary infrastructure for the military's withdrawal. KOSOVAN said that Russia will not agree to the Georgian suggestion to keep the bases in Batumi and Akhalkalaki for 2 to 3 years. Georgian Deputy Defense Minister Gela BEZHUASHVILI said Georgia will demand the execution by Russia of the conditions of agreements achieved at November, 1999 Istanbul Summit of the OSCE. Deputy Prime Minister Ilya KLEBANOV has stressed that the withdrawal process must be civilized and should not cause tension neither in Russia, nor in Georgia. The final decision on the bases could be made at a January Moscow meeting with Georgian Foreign Minister Irakli MENAGARISHVILI. KLEBANOV reiterated Russia's commitment to close down the Russian military bases in Vaziani and in Gudauta before July 1, 2001. Intercon sources report that today an agreement was reached for Russia to turn over the Vaziani Airbase to Georgia by February, 2001. In turn, Georgia will provide free landing rights to Russia over the next two to three years, while the other Russian bases are closing down. As of February 15^th, all Russian equipment from Vaziani will be transfer to Georgia.

As of today, eight military equipment pieces have been transferred.

Meanwhile, Georgian experts have detected a dangerous radiation level at one of the military establishments handed by Russia over to Georgia few days ago. Head of engineering department of Georgian Defense Ministry Jano GAGOSHIDZE told Prime News Agency, specialists have started liquidation of the radioactive sources.

Chechelashvili On BSEC Development

· The Black Sea Economic Cooperation (BSEC) Secretary General Valeri CHECHELASHVILI spoke at the Center for Strategic International Studies in Washington DC on Wednesday. He explained the progress of BSEC, its formation and its goals for the future. BSCE, which comprises Albania, Armenia, Azerbaijan, Bulgaria, Georgia, Greece, Moldova, Romania, Russia, Turkey, and Ukraine, was established June 25, 1992, with the signing of the Istanbul Summit Declaration and adoption of the Bosphorus Statement. The signing of the Yalta statement by the heads of state or government on June 5, 1998 marked the official inauguration of BSEC. The Cooperation's last summit was overshadowed by the Organization for Security and Cooperation in Europe (OSCE) in November, 1999 summit held in Istanbul. Nonetheless, the summit was important because it was the first time that the member presidents recognized BSEC as confidence building organization for security in the region.

BSEC aims to support security, stability and prosperity in the region. The organization has four relating bodies: the Black Sea Trade and Development Bank located in Greece, the Parliament Association, the Business Council, and the International Black Seas Studies Institute. BSEC is focusing on elaborating the regional agreement by establishing multilateral organizations. It is working on policies for fishing and living resources and a memorandum of understanding on road construction. BSEC also hopes to further implementation of regional projects. Other projects could include standard customs procedures and the integration of electrical power grids, linking Russia, Georgia, and Turkey and later Ukraine and Azerbaijan. CHECHELASHVILI explained that it

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wants to "identify bottlenecks" and establish new mechanisms to work out difficulties in a mutual beneficial nature. BSEC wants to establish seed funding for financial resources to elaborate studies on common projects, appoint national coordinators in member countries, and enlarge the organization. BSEC is reviewing applications from four very diverse nations: Macedonia, Yugoslavia, Uzbekistan, and Iran. Bsec itself comprises countries from different backgrounds: small and large, World Trade Organization (WTO) members and non-WTO, and market economies and transition economies. Russia holds the current 6 month-term chairmanship of BSEC, which is transferred throughout the members in an alphabetical order.

Armenia-Azerbaijan Defense Mins. Meet

· Armenian Defense Minister Serzh SARKISYAN and his Azeri counterpart Safar ABIYEV met on the border on December 15^th to agree on additional measures for the prevention of incidents during the Nagorno-Karabakh cease-fire period. The sides "have certain losses," SARKISYAN told Itar-Tass. The two ministers agreed on direct contact in case of dangerous situations in the Armenian-Azerbaijani conflict zone, SARKISYAN said. They also reached an agreement on the exchange of Prisoners of War (POWs) within two or three days of their captivity without setting any preliminary conditions. The Azeri Defense Minister said that they did not have any Armenian POWs. The ministers agreed to strengthen the cease-fire regime, the Azeri Defense Ministry's press service reported. The meeting was held on initiative of the Organization for Security and Cooperation in Europe (OSCE) Minsk Group for Nagorno-Karabakh.

Hurricane Pledges To Invest $143 Million

· Canada's Hurricane plans to invest $143 million into developing three new oilfields in Kazakhstan, company officials said late on Thursday. Hurricane is currently operating the Kumkol Munai field in southern Kazakhstan and also owns 88 percent of the Chimkent oil refinery. "An investment plan of

$143 million has been approved. This will enable us to start operating (the fields) over the next two calendar years," Hurricane's Exploration and Licensing Manager Dulat AZHGALIYEV announced. The money is earmarked for the Kyzylkiya, Aryskum and Maibulak oilfields. AZHGALIYEV said the new fields would help the company boost output in 2001 to 2.8 million tons (56,000 barrels per day) up from 2.5 million tons this year. Hurricane, which is 33 percent held by Kazakhstan's Kazkommertz, also owns the Druzhba rail freight border terminal through which most of Sino-Kazakh trade passes.

Kazakh Cabinet Reshuffle Continues

· Kazakhstan's President Nursultan NAZARBAYEV continued a cabinet reshuffle on Wednesday, naming a new Deputy Prime Minister in charge of finance and a new Interior Minister. Uraz DZHANDOSOV, head of the state electricity monopoly KEGOC, replaced Yerzhan UTEMBAYEV as Deputy Prime Minister overseeing finance. DZHANDOSOV, a liberal economist, has previously held the jobs of Central Bank Chief First Deputy Prime Minister. UTEMBAYEV has been named deputy head of the presidential administration. Bulat ISKAKOV, the head of the presidential guard, was appointed Interior Minister. His predecessor Kairbek SULEIMENOV will stay on as his deputy. Energy Minister Vladimir SHKOLNIK also assumed the duties of First Deputy Prime Minister. On Thursday, NAZARBAYEV appointed Deputy Prime Minister Daniyal AKHMETOV to the post of first deputy prime minister. The position had fallen vacant after the resignation of Alexander PAVLOV last month. Economics Minister Zhaksybek KULEKEYEV was reappointed to his post, but will now have the responsibility of trade. The Education and Environment Ministry posts are still vacant.

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