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 6, 2000

The case has been a thorn in the side of US-Russian relations. John PETERSON, a Republican Congressman from POPE's home state of Pennsylvania, said the case would have a long-term impact on bilateral relations. The House of Representatives has passed a resolution calling on Russia to release POPE and asked CLINTON to consider cutting aid to Russia if it did not. It is expected that State Department officials, acting on behalf of US President Bill CLINTON, will push for a deal, whereby POPE will be released on humanitarian grounds. POPE's health is in a fragile state, as he suffers from a rare bone cancer and has not been granted medical treatment or examination by an English-speaking doctor. Russian doctors had judged him fit to be tried. Comment: This case is a further indication that US-Russia relations are in for an even more difficult period. The case is also an indication that President Vladimir PUTIN is not in full control. It appears that the narrow cult of security interests transcend important Russian national interests in their relations with the next US administration. Thinking in the Kremlin and Russia's National Security Council appears to see omnidirectional threats to its security, which appears to have contributed to this spy mania in the POPE sentencing. Unfortunately, this case may lead to a tit-for-tat response, which can only further complicate Russia's already strained relationship with the West over Chechnya and other internal Russian attempts to muzzle the free press.

Russian Federation

Politics

Pope Found Guilty, Sentenced To 20 Years

· A Russian court today found former US Naval intelligence officer turned businessman Edmond POPE guilty of espionage and sentenced him to 20 years in prison. The sentence also called for the confiscation of money allegedly seized when POPE was allegedly obtaining information from his Russian source. He has seven days to appeal against the sentence. POPE, who was arrested in April and held in Lefortovo Prison, has denied charges that he tried to acquire secret information about a high-speed Russian torpedo. This information is no longer a state secret because its technology is already openly available. POPE's lawyer Pavel ASTAKHOV said POPE's closing statement included a denial he had received any secrets. He said he still did not know what he was accused of and that the prosecution's case was built on "conjecture and wrong conclusions." POPE's lawyers and family accused the court of bias in favor of the prosecutor and the Federal Security Service (FSB), which initiated the case.

ASTAKHOV said POPE had started collecting information in Russia in 1996, in a more open time, and that the atmosphere had since changed sharply, primarily since Vladimir PUTIN, a former director of the FSB, was appointed Prime Minister and then elected President. "The doors that had been opened to the closed enterprises, the closed scientific institutes and the educational establishments all of a sudden slammed shut, like a mouse trap, and he was caught in that mouse trap, still unable to understand what he is accused of and feeling certain that all the materials are not secret," ASTAKHOV said.

Today's News Highlights

Russia

Vneshtorgbank Signs ExIm Deal

Sibenft To Gain Onaco Stake

AvtoVAZ Take Over?

European Republics

IMF Leaves Belarus No Agrmts.

Chigir To Run For Belarus Pres.

Estonia's Slow Economic Growth

South Caucasus & Central Asia

CanArgo Discovers New Oil Zone

Socar On Baku-Ceyhan Pipeline

Politics-Economics-Business

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Wednesday

December 6, 2000

Intercon's Daily

US Seeks To Prevent New Arms Sales To Iran

· A US delegation is scheduled to arrive in Moscow today to try to keep in place a freeze on Russian sales of tanks and weapons to Iran. The State Department said no new deals between the two countries had emerged in the three days since Russia abandoned a promise not to sell the weapons to Iran. Russia took the pledge in 1995 between US Vice President Al GORE and then prime minister Viktor CHERNOMYRDIN. State Department spokesman Richard BOUCHER on Monday said, "We've been very successful in the past on constraining arm sales to Iran that otherwise would have undermined regional stability, and we're going to continue our dialogue with Russia on those critical issues." The delegation will be headed by John BARKER, deputy assistant secretary in the Bureau of Nonproliferation Affairs. The decision to send a delegation to Moscow was reached during talks in Vienna last week between Secretary of State Madeleine ALBRIGHT and Russian Foreign Minister Igor IVANOV. "They clearly remain committed to constraining arms sales that pose a threat to regional stability and to the national security interests of the United States, our friends, our allies in the region. And we hope the Russians would share those concerns and share this approach...in the future," BOUCHER said.

Economy

Ruble = 27.95/$1.00 (NY rate)

Ruble = 27.93/$1.00 (CB rate)

Ruble = 24.69/1 euro (CB rate)

Vneshtorgbank Signs Deal With US Ex-Im Bank

· Russia's Vneshtorgbank (VEB) and US Export-Import Bank Monday signed a partnership agreement that calls for VEB participation in all of the US institution's projects in Russia. They said cooperation would include providing short- and medium-term insurance to exporters, as well deals on the delivery of US goods and machinery to the Russian market. VEB president Yuri PONOMARYOV said, "What is unique about this agreement is that we do not require guarantees from the Russian government." VEB is owned by the Russian Central Bank. James HARMON, president of Export-Import Bank, said the agreement could cover goods such as equipment for oil production and telecommunications. Under the deal,

the US bank will provide loans, with a term of up to five years and a maximum limit of $10 million, to finance US exports to Russia. The money will be provided directly to VEB or to importers under the Russian bank's guarantee. VEB will also advise Export-Import Bank on Russian clients. Export-Import Bank is an independent federal government institution that provides loans, loan guarantees and insurance to US companies exporting to emerging markets. The bank has invested $2.5 billion in Russia of its total investment portfolio of $60 billion.

Business

Sibneft To Gain Stakes In Onaco

· Sibneft, Russia's sixth oil producer, agreed to boost its minority stake in Onaco, a smaller oil company that is 85 percent owned by Tyumen Oil Co. the nation's fifth-largest oil producer. Sibneft, which owns 1 percent of Onaco, would take about 30 percent. It already holds a 40 percent stake in its main producing subsidiary, Orenburgneft. Tyumen, which bought Onaco for $1.1 billion in September, will hold the rest after it is consolidated. Sibneft First Vice President Alexander KORSIK explained, "We agreed with Tyumen that Onaco will be managed jointly by the shareholders and will operate in the interests of shareholders." Sibneft and Tyumen have been in talks over the management of Orenburgneft and Onaco since September. Sibneft secured three seats on Onaco's board at the company shareholders meeting on November 17^th. Tyumen has five board representatives with the last seat occupied by the governor of the Orenburg region, where Onaco operates. Tyumen is currently evaluating the assets of Onaco, which produced 3.7 million tons of oil in the first half of 2000.

AvtoVAZ To Be Taken Over By AVVA?

· The Moscow Times reported that Russia's top carmaker AvtoVAZ may be taken over by a company founded by tycoon Boris BEREZOVSKY and Alexander VOLOSHIN, President Vladimir PUTIN's chief of staff, called the All-Russia Automobile Alliance (AVVA). On Friday, AVVA changed itself from an investment fund to a holding company. AVVA holds a third of AvtoVAZ according to Renaissance Capital brokerage. BEREZOVSKY and VOLOSHIN founded AVVA in 1993 to raise funds for AvtoVAZ, selling $50 million of shares to help build a "people's car." The car was never built and

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December 6, 2000

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most shareholders didn't get promised returns. Vladimir KADANNIKOV, the carmaker's chief executive, said AVVA plays no role in his company's finances. The newspaper also noted that AVVA's largest shareholder is AvtoVAZ. The Russian carmaker is planning a reorganization to break up the company into a holding structure with separate units.

the Supreme Court overturned a sentence against him for alleged abuse of power when he was premier. He told Reuters, "You may congratulate me ¾I am a free man now, enjoy all civil rights, including the right to register as a presidential candidate, which I will do in 2001." LUKASHENKO has said he would run for re-election next year. CHIGIR, although respected for his views and experience in government, is expected to pose little threat. Earlier this year CHIGIR, who spent seven months in prison last year, was sentenced to three years' jail with a two-year probation period for alleged abuse of power. He never recognized the sentence, saying it was politically motivated. A court official told Reuters CHIGIR had not received final acquittal yet. In October, CHIGIR ran for a parliamentary seat but quit the fight after a first round, accusing the authorities of fraud. Belarus' small but vocal opposition, which enjoys Western support, is yet to name a single candidate for president.

WB Mission To Meet Yushchenko

· A World Bank mission visiting Ukraine is expected to meet Prime Minister Viktor YUSHCHENKO on December 14^th for talks on the Bank's lending to Ukraine for the period of 2001 to 2003. In September, the Bank approved a plan allowing it to release about $1.8 billion in loans to Ukraine during 2001 to 2003, if the country successfully implements reforms agreed to with the bank, Kievskie Vedomosti Ukrainian daily reported. The World Bank, which normally does not lend to the country if it has no active lending program with the International Monetary Fund (IMF), resumed lending to Ukraine in October. Meanwhile, the IMF is expected to decide on December 19^th whether to resume lending to Ukraine.

Earlier this week, the World Bank team led by Luca BARBONE, the World Bank's director for Ukraine and Belarus, met Ukrainian First Deputy Prime Minister Yuri YEKHANUROV. The Minister said that Ukraine's gross domestic product (GDP) will grow five percent in 2000 compared to a 0.4 percent fall in the previous year, making 2000 the first year of economic growth since independence. The government had initially planned GDP to grow by 3.5 percent this year. "We expect GDP growth at around five percent over the entire year," YEKHANUROV

European Republics

IMF Leaves Belarus Without Agreements

· The International Monetary Fund (IMF) mission to Belarus ended its visit on Tuesday without signing any agreements or committing to any new lending. The Fund halted a lending program to Belarus in 1996. The IMF had said a memorandum laying out economic targets and monitoring might be signed during the two-week trip, which would form the groundwork for loan negotiations early next year. Belarus scrapped multiple exchange rates this year and pledged tighter credit and monetary policies but much of the economy remains rigidly controlled by the state. IMF Belarus and Lithuania representative Mark HORTON said, "We expect to see a greater political will for a change in economic policy. We'd like to see some positive signals in the coming month." The head of the presidential administration, Mikhail MYASNIKOVICH, said at the beginning of the mission's visit that he was confident of success, and billed the trip as a simple case of the IMF seeking to reassure itself. The Fund has encouraged authorities to take steps to liberalize the economy, which includes freeing prices and stopping soft credits to banks and companies. The 2001 budget predicts a deficit of 1.5 percent of gross domestic product (GDP) compared to a 1.7 percent of GDP deficit this year. But the IMF also called on Belarus to make its budgets more transparent and said it did not understand how President Alexander LUKASHENKO intended to double average wages to $100 by September, 2001, in time for a planned presidential election.

Chigir Pledges To Run For Belarus President

· Former Belarus prime minister Mikhail CHIGIR, now active in opposition, said on Tuesday he would challenge President Alexander LUKASHENKO in an election next year. CHIGIR made the pledge to campaign in the presidential election after he said

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Politics-Economics-Business

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December 6, 2000

Intercon's Daily

said at an investment conference in Kiev. The State Statistics Committee previously said GDP rose 5.1 percent in the first 10 months of the year compared to a 1.2 percent fall in the same period of 1999, Reuters reported.

Estonia's Economy Grows At A Slower Pace

· Estonia's Statistical Office said that Estonia's economy grew at a slower pace in the third quarter than in the second quarter. Estonia's gross domestic product grew by 6.9 percent in the third quarter from a year earlier, after a 7.4 percent increase in the second quarter. "The small slowdown of economic growth was not surprising as the central bank expected an even bigger slowdown. The things pointing to it were the earlier announced slowdown of the growth of manufacturing output and the decrease of transit sector beginning from the autumn," the Bank of Estonia said in a statement. "The growth number gives reason to expect an increase in investment growth although even in the third quarter the investments apparently did not reach the 1998 levels. Internal demand was still fuelled by private consumption, indicated by retail sales growth numbers," it added. It remains to be seen if current growth levels can be sustained amid smaller investments or whether this would start slowing the economic expansion.

South Caucasus & Central Asia

CanArgo Discovers New Oil Zone

· CanArgo Energy Corporation Tuesday announced the discovery of a new oil zone in the Ninotsminda area of Georgia. Well N97 tested an interval of Sarmatian sandstones from 1,900 - 1,923 meters could produce at an initial rate 515 barrels of oil per day. In addition to the oil production, the well flowed considerable amounts of gas, the volumes of which will be measured during the next testing phase, and which will be co-mingled with existing gas production for sale to AES. This is the first oil test of the Sarmatian in the Ninotsminda

area, and has proved a new reservoir above the currently productive Middle Eocene zone. CanArgo believes that based on the results, some of these wells have potential for production. Murray CHANCELLOR, Chief Operating Officer commented in a company press release, "Clearly we are delighted to announce the discovery of a potentially significant new oil reserve in the Ninotsminda area. Production from this Sarmatian sand will commence immediately, adding to existing production. We are now planning an appraisal program to confirm the extent of these added reserves. Together with the imminent test of the Upper Eocene, and the on-going program of drilling to the Cretaceous, we are excited about the long term prospects for development in the Ninotsminda area." CanArgo also outlined plans for exploration, appraisal and development activity for the next 12 months. The Ninotsminda area Cretaceous exploration program, partly funded by AES, is continuing. Site preparation for the second Cretaceous well, M11, located in the Manavi prospect, has commenced, and it is expected that this well will be spudded in early April, 2001. CanArgo Energy Corporation is an independent oil and gas exploration and production company operating in Eastern Europe. CanArgo's principal oil and gas operations are located in Georgia.

Socar on Baku-Ceyhan Pipeline Progress

· State Oil Company of Azerbaijan Republic (Socar) believes that the work on Baku-Tbilisi-Ceyhan Main Export Pipeline (MEP) building project is going according to the plan, according to Socar vice president Ilham ALIYEV. He pointed out that the group of sponsors has started working on the other important documents for the realization of the project realization. ALIYEV mentioned that Socar may leave 30 percent of the financing of its 50 percent share in the sponsoring group on Baku-Tbilisi-Ceyhan MEP project. He explained this with the fact that Azerbaijan does not have the finances with the amount of $1.2 billion and so the left 20 percent of Socar shares in the project will be financed by the third party, Prime News Agency reported.

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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