DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

INTERCON INTERNATIONAL USA, INC., 725 15th STREET, N.W., SUITE 903,

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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Monday, December 4, 2000

Russian Federation

Politics

Incumbents On Top After Regional Elections

· Regional elections this weekend in dispersed areas in Russia saw incumbents and other senior officials winning. Eleven regions from Ryazan and Ivanovo near Moscow to distant Pacific Kamchatka staged gubernatorial elections, but only three contests could declare winners with the necessary 50 percent majority; the rest going through to a run-off. The elections are taking place in a changed atmosphere for regional politics, after President Vladimir PUTIN's overhaul of state structures strengthening central authority. Governorships are less of a coveted positions, following legislation pushed through parliament denied them the right to sit in the Federation Council. They are also subject to dismissal if deemed to have violated federal law. The Kremlin was accused of trying to influence regional elections in October when a newspaper produced a document it said showed PUTIN wanted unfriendly governors out of the way. Further suspicions were raised when former Vice-President Alexander RUTSKOI was prevented from running for re-election in southern Kursk region on a legal technicality. Three governors chose not to run again, including controversial Communist head of southern Krasnodar region, Nikolai KONDRATENKO. He cited poor health but newspapers said he wanted a seat in the revamped upper house. His designated successor, a Communist member of the State Duma Alexander TKACHYOV, scored an easy victory, capturing nearly 82 percent of the vote. Also declared the winner in southern Astrakhan was the sitting governor Anatoly GUZHVIN. In Perm, however, the Mayor Yuri TRUTNEV cleared 50 percent to defeat the region's governor Gennady IGUMNOV. The governor had initially stood aside and named TRUTNEV his successor, but later changed his

mind. Reuters reported that the election in Mari-EL region is neck-and-neck as incumbent Vyacheslav KISLITSYN and challenger Leonid MARKELOV head for a second round. In Stavropol, a run-off will be scheduled between the communist-backed governor and the former head of the region's local council. In Kamchatka, a Pacific peninsula, the first deputy governor held a slender lead over a communist challenger. In Ivanovo, east of Moscow, the local communist leader fell just short of victory, while in Ryazan, further South, the sitting communist governor takes on a prominent builder in the run-off.

Duma Passes Regional Leaders Third Term

· The Russian State Duma on Wednesday approved President Vladimir PUTIN's bill allowing some governors of Russian regions to run for a third term and offering compensation. The existing law limits them to two terms. The debate generated some drama as the measure initially failed to receive the required number of votes ¾the first time the Duma would have opposed a measure backed by PUTIN. It cleared the number on the third attempt after complaints about irregularities in the Duma's electronic voting system. Under reforms rammed through parliament, once-powerful governors have been denied the right to sit in the upper house and are subject to removal if deemed to have violated federal law.

St. Petersburg Official Injured In Car Blast

· A St. Petersburg city official was seriously injured today when an explosive at

Today's News Highlights

Russia

Russian Economic Statistics

Gusinsky On Int'l Wanted List

Norilsk Share Trading Threatened

European Republics

WB Mission Arrives In Ukraine

Rus-Ukrainian Gas Deal

South Caucasus & Central Asia

Georgia Negotiates Energy

IRI Azeri Resident Dir. Killed

CIS Top Producers

Politics-Economics-Business

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Monday

December 4, 2000

Intercon's Daily

tached to his car went off, police said. Sergei ALYOSHIN, a district deputy head in the northern port city, was driving away from his home when the blast occurred, said Igor UDIMOV, spokesman for the St. Petersburg office of the Interior Ministry. ALYOSHIN's daughter was also in the car but sustained only minor injuries. UDIMOV did not say what motives were being considered, and investigators had not determined what kind of explosive was used.

Economy

Ruble = 27.89/$1.00 (NY rate)

Ruble = 27.93/$1.00 (CB rate)

Ruble = 24.83/1 euro (CB rate)

Russian Economic Statistics

· Russian foreign currency and gold reserves rose to a record for a twelfth week, after the biggest weekly increase since August as exporters repatriated foreign currency earnings, selling to the Central Bank for rubles. The reserves rose $600 million to $27.1 billion in the week to November 24^th, after increasing $500 million in the previous week to $26.5 billion, the Central Bank said. Russia's money supply shrank to 457.1 billion rubles ($16.5 billion) in the week ending November 27^th. The money supply grew to 458.8 billion rubles ($16.5 billion) in the week ending November 20^th, expanding for the third week in a row, the Central Bank said. The money supply, which includes cash currency in circulation plus required reserves, expanded by 1.5 billion rubles in the week to November 20^th.

Duma Passes 2001 Budget In Third Reading

· In a vote of 275 to 101 with five abstentions and after 11 hours of debate, the Russian State Duma passed the 2001 budget proposal in its third reading. The Duma considered more than 5,000 proposed amendments. This is the first balanced budget since the 1991 Soviet collapse. The budget will be heard for its fourth and final reading on December 14^th. The government won the Duma's approval on the second reading by agreeing to redistribute spending to boost allocations for the military, education and science. The Communist Party voted against the budget on Friday, but failed to prevent the draft from garnering the required minimum of 226 votes. Some analysts warn the budget relies too heavily on the assumptions of

continued high oil prices and that Russia would be able to renegotiate payments on $48 billion in Soviet-era debt to nations known collectively as the Paris Club, the Associated Press reported. Negotiations collapsed this month with the International Monetary Fund (IMF) on arranging a line of credit that the Kremlin could draw on if oil prices fall. Finance Minister Alexei KUDRIN said, "The budget will not collapse without IMF loans. We will be able to settle the matter with additional revenues." Duma budget committee chairman Alexander ZHUKOV said last month that unanticipated extra revenues could be as much as $5 billion.

Business

Gusinsky Placed On International Wanted List

· Russia's chief prosecutor's office announced today that authorities have issued an international arrest warrant for Media Most chairman Vladimir GUSINSKY. GUSINSKY, who is charged with fraud, remains abroad and failed to return to Russia for questioning last month. A national arrest warrant had already been issued. The charges against GUSINSKY, who was jailed for three days earlier this year, have sparked fears of a crackdown on a free press in Russia. Media Most's flagship, NTV Television, has frequently been critical of Kremlin policy and its military offensive in Chechnya. GUSINSKY is charged with irregularities in buying a video company and illegally transferring assets abroad in a bid to reduce his media empire's vast debts. Gazprom last month signed an agreement with Media Most to swap equity in NTV and other subsidiaries to settle more than $500 million the group owed the state-run gas company. The media company says Russian President Vladimir PUTIN's administration is using the Prosecutor General and Gazprom as it tries to stop non- state media from criticizing the government.

High Speed "Red Arrow" Makes First Trip

· Railway Ministry on Sunday started a new, 200 kilometer-per-hour train connection between Moscow and St. Petersburg that will take four hours, half the current journey time, Kommersant Daily reported. The modernized ER-200 train made the first journey Sunday from St. Petersburg. Regular services will start today. The train will depart Moscow at 7:25 a.m. and 7 p.m. every Monday, Tuesday, Wednesday and Saturday, and leave from St.

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Petersburg at 6:55 a.m. and 7 p.m. every Monday, Tuesday, Thursday, Friday and Saturday. Fares will be 273.60 rubles ($9.80) for adults and 144.30 rubles for children. The journey will take 4 hours, 20 minutes in winter and 3 hours, 45 minutes in summer. The Railways run more than a dozen Moscow-St. Petersburg routes, most of them overnight trains, taking as average of eight hours and with fares ranging from 170 rubles to 350 rubles.

Norilsk Investigation Threatens Shares

·The Federal Securities Commission (FSC) has threatened to suspend trading in Norilsk Nickel's shares, unless the company provides all documents requested in a criminal investigation by Federal Tax Police. Norilsk Nickel is accused of tax evasion through one of its subsidiaries. The FSC in November started a probe into Norilsk's plan to reorganize by transferring assets to a subsidiary. Norilsk announced in September a plan to swap its shares for the shares of Norilskaya Gornaya Kompaniya, its major mining subsidiary in the Arctic, to ease its tax burden. Norilsk earlier was investigated by Moscow prosecutors over possible fraud in 1997 when the company was sold.

commitments to Ukraine.

Russian-Ukrainian Gas Deal

· Russian Prime Minister Mikhail KASYANOV and Ukrainian Prime Ministers Viktor YUSHCHENKO have finalized a memorandum on Ukraine's gas debt to Russia and their continued relationship through 2001, on the sidelines of the Commonwealth of Independent States (CIS) summit in Minsk. A memorandum is due to be signed on December 15^th. Ukrainian Fuel and Energy Minister Sergei YERMILOV said on Friday that the memorandum did not cite specific figures, except concerning gas deliveries. Russia has undertaken to export to Ukraine 30 billion cubic meters (bcm) of gas in payment for the transit of Russian gas exports to Western Europe through Ukrainian territory. On top of that amount and the transport of 30 bcm from Turkmenistan through Russian pipelines, KUCHMA said Russia would provide an "insurance fund" of another five bcm. Under the agreement, Russia will grant Ukraine a low-interest, 10-year deferment on its gas debt and an eight to 10-year break on payments for half of future gas supplies on condition it pays for the rest in cash and stops siphoning off Russian gas.

Ukrainian President Leonid KUCHMA said Russia agreed to reschedule $700 million in debts. YUSHCHENKO said on Saturday the total figure was higher. "All debts as of May 1 [2000] are to be restructured ¾that's $1.360 billion plus another two sums which experts are working on right now," he said. The actual level of Ukraine's gas debts is also a matter of some debate. Both countries agreed them to be $1.4 billion in February, but they have since been estimated at closer to $2 billion to $3 billion. Russian President Vladimir PUTIN hailed the agreement as putting an end to accusations that, "Ukraine steals our gas like a thief in the night."

South Caucasus & Central Asia

Georgian Mins. To Negotiate Energy Supplies

· Georgian State Minister George ARSENISHVILI and Fuel and Energy minister David MIRTSKHULAVA are scheduled to hold negotiations in Russia with United Energy Systems of Russia (UES) and gas monopoly Gazprom to stabilize energy supplies to Georgia. On Friday, the

European Republics

WB Mission Arrives In Ukraine

· A World Bank mission is scheduled to arrive in Kiev today for talks which are expected to center on fresh funds for the country under a new three-year loan program. The mission, headed by Luca BARBONE, the World Bank's head for Ukraine and Belarus, will stay in Ukraine until December 14^th. "The mission will continue its work on preparing a program for a system loan...which is expected to consist of three separate tranches of $250 million each," a World Bank statement said. BARBONE plans to meet Ukrainian President Leonid KUCHMA, Prime Minister Viktor YUSHCHENKO, and other government officials. The mission will visit Lviv and Ivano-Frankivsk in western Ukraine and Donetsk in eastern Ukraine to discuss regional development. World Bank officials have previously said the Bank might lend from $456 million to $1.8 billion to Ukraine under the new program aimed at helping the government implement institutional reforms and improve the management system. The World Bank, one of Ukraine's major creditors, has already disbursed about $1.9 billion of its total $2.6 billion

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Monday

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Intercon's Daily

energy systems linking Russia and Georgia no longer functioned. This situation left 1.2 million Tbilisi residents in the dark without heat for several hours. Electricity supplies were renewed and the power line Kavkasioni of Georgia is getting 100 mega-watt electricity. The supply of natural gas from Russia to the two power blocks of AES-Mtkvari was also stopped on Friday. Supplies resumed on Monday. MIRTSKHULAVA is meeting today with the first vice president of Itera Valery OTCHERTSOV.

Irregular energy supplies to Tbilisi has occurred for the last eight years. Frequent cuts in power last moth prompted thousands to protest in the downtown streets. MIRTSKHULAVA said Georgia had worked out agreements last month with UES and Russia's Gazprom on settling debts. Intercon sources report that UES' Anatoly CHUBAIS is very anxious to establish penetration into the Turkish energy market. One of the reason for the intense pressure on Georgia is UES' attempt to obtain concessions from Georgia on their behalf for entry into the Turkish energy market. MIRTSKHULAVA said it remained unclear what prompted the cutoff, suggesting it could have been linked to the overall debt dispute or to payment problems between local energy suppliers and Russian customs officials. Others, however, speculate at the question the timing of the cut-off, just as Georgia and Russia are holding tense negotiations over a new requirement that Georgians obtain visas to visit Russia. Russia's Foreign Ministry on Saturday issued a strong protest about a rally in front of the Russian Embassy in Georgia slamming the visa regime, which is to take effect Tuesday, the Associated Press reported. Moscow says the visa regime will help prevent the flow of rebel fighters and weapons from Georgia into Chechnya. The visa regime will make life harder and more expensive for the numerous Georgians who either reside or travel to Russia for business or to visit family. Russia President Vladimir PUTIN said the requirement would be temporary, suggesting it could end when the Chechnya War is over. In

reality, this means that the temporary regime could continue indefinitely with no solution to the Chechen War in sight.

IRI Azerbaijan Resident Director Murdered

· John ALVIS, resident director of the International Republican Institute (IRI) in Azerbaijan, was found dead in his apartment in the capital Baku Thursday. Police have opened a murder investigations, which appears to stem from a robbery. ALVIS' body was found stabbed to death, according to a police official. Investigators speculate that he knew his killer, as a surveillance tape shows him opening his door. The US Embassy has asked had asked Azeri authorities investigate the case urgently in Azerbaijan and Georgia, where he also worked. IRI President Lorne CRANER confirmed the death of his colleague, saying ALVIS was, "a smart, passionate exponent of democracy who was respected by all sides in the two countries in which he worked." IRI conducts programs in over 30 countries considered emerging democracies. The Baku office is advising the Azeri government and opposition parties on democratic principles.

Russian Ranks Fourth In CIS Top Producers

·The top three Commonwealth of Independent States (CIS) with high industrial production growth over the first nine months are Kazakhstan (15.4 percent), in Ukraine (11.6 percent), and in Tajikistan (10.1 percent). Russia ranked fourth with production at 9.7 percent. The growth rates of the remaining CIS states except for Turkmenistan are: 8.1 percent), Georgia (7.2 percent), Kyrgyzstan (6.7 percent), Uzbekistan (6.4 percent), Azerbaijan (5.8 percent), Armenia (3.9 percent) and Moldova (2 percent). The information about growth domestic product (GDP) in January-September 2000 was given by eight countries of the CIS. Tajikistan ranked first with a 10.8 percent growth of GDP. It was followed by Azerbaijan (9.9 percent), Kyrgyzstan (5.7 percent), Ukraine and Belarus (5 percent), Uzbekistan (4.2 percent), Armenia (2.9 percent) and a drop in Georgian GDP (0.4 percent).

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

Daily Report on Russia is published Monday-Friday (excluding holidays), by Intercon International, USA. Subscription price for Washington, D.C. Metro area: $950.00 per year. A discount is

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