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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 8, 2000

vestigating the case, threatening the key witness Anatoly BABKIN and POPE's lawyer Pavel ASTAKHOV. Novye Izvestia reported that recent spy cases have been poorly prepared by former KGB agents who, "Are not trained to get information that would become a convincing argument in court and withstand the probe of the defense." Midway through the trial BABKIN was threatened with his own jail term if he recanted his testimony statement, signed under duress. Another POPE lawyer, Andrei ANDRUSENKO, also was threatened by agents who warned, "You lawyers need to know. The spy will sooner or later go, but you remain in this country, and it's not known who will be next on trial." The case further provides the FSB the opportunity to boast that Russia has secrets that need their protection. Russian media have noted that PUTIN's stance, not to intervene until the judicial process had been completed, has allowed the security services to flex their muscles while leaving the way open for him to demonstrate humaneness. The Segodnya daily wrote, "The FSB can save face, PUTIN can demonstrate that he's not beholden to outside pressure and Russian scientists are given a lesson about the consequences of para-scientific contacts with foreigners." But what does this say about Russia ¾it is back to the future.

The case has highlighted the return of a Russian security state, led by a former FSB director and KGB agent. PUTIN has appointed former KGB agents and its successor agencies' officers to

Russian Federation

Politics

Commission Recommends Pardon For Pope

· Russia's Pardons Commission unanimously recommended that President Vladimir PUTIN pardon Edmond POPE, a retired US Navy captain found guilty of spying and sentenced to 20 years in prison. POPE, arrested in April, was convicted of trying to buy secret information about a high-speed, anti-submarine torpedo, which is available in the open market. POPE, who is suffering from a rare form of bone cancer, sent a letter to PUTIN requesting a pardon rather than appealing to the Russian Supreme Court. US Ambassador to Russia James COLLINS has said that President Bill CLINTON has called on PUTIN to release POPE. Commission head Anatoly PRISTAVKIN said, "POPE is a sick man who has gone through a lot, and he should be let go." He added that the Commission considered POPE's sentence harsh, his poor health, and the terminal disease his father is suffering from. Commission member Marietta CHUDAKOVA said today's unanimous decision by the commission was a protest against, "alarming signs in the atmosphere today. The investigative and judicial organs of our country have remained in the Soviet era to a greater extent than society [as a whole." In the Soviet system, verdicts were usually dictated by the Communist Party and did not hinge on courtroom arguments. Judges took their cue from the party and prosecutors, The Washington Post pointed out.

It appears that the purpose of POPE's trial was that of a "kangaroo court" to get a guilty ruling and serve as a warning to Russians and other foreign businessmen. The case and trial against POPE has been criticized for the participation of the Federal Security Service (FSB) in collecting evidence, in

Today's News Highlights

Russia

Foreign Currency Rating Raised

LUK-oil-Getty Deal Delayed

European Republics

Austria To Advise Latvian Sale

Ukraine Approves Banking Law

South Caucasus & Central Asia

Budget Sabotage Investigated

Assassination Attempt Exposed

Gudauta Withdrawal Monitored

Customs UnionAgreementSigned

Politics-Economics-Business

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Friday

December 8, 2000

Intercon's Daily

his administration, Cabinet, and key government posts. Five out of the seven presidential envoys to the regions are former KGB agents. The President also seeks to restore the security services to the political and economic life they enjoyed during Soviet times. Human Rights activist Sergei GRIGORYANTS said the former KGB agents are doing what they know best. "That is why it is quite natural that we got…the ever-growing censorship and monopolization of the press, intensifying surveillance, bugging of Internet and telephone calls, a spy mania, a landslide of criminal cases sloppily and brazenly fabricated by the special services." The return of security forces threatens not only the Russian rule of law but individual freedoms and a free press, two components won from the collapse of the Soviet empire that most Russians will find hard to give up.

Simultaneous Explosions In Pyatigorsk

· The death toll and numbers of those injured during two simultaneous explosions that ripped through the southern Russian town of Pyatigorsk are rising. The current count is 4 killed and 45 injured. The first explosion was a car bomb near an outdoors market. Damage from this blast included 15 cars and five buildings; one of which contained a kindergarten school. The second explosion destroyed a bus, eight cars, and damaged five buildings. The explosions occurred 150 meters from each other with a force estimated to be equal to 20 kilograms of TNT. Interior Ministry officials declined to comment on the blasts as police quickly sealed off the area. A group of experts from the North Caucasus division of the Russian Prosecutor General's office have been assigned to conduct the investigation. Two suspects have been detained and a criminal case on a suspected "act of terrorism" opened. Pyatigorsk, located in the volatile North Caucasus region near the border with the breakaway republic of Chechnya, has come under a series of terrorist attacks in recent months. Kremlin spokesman Sergei YASTRZHEMBSKY noted that, "the closeness of Pyatigorsk to Chechnya makes it and other towns in the Stavropol region fairly vulnerable." He added, "It would be the easiest thing to point to some kind of Chechen link but this should not be done until the investigation has finished."

Economy

Ruble = 27.96/$1.00 (NY rate)

Ruble = 27.97/$1.00 (CB rate)

Ruble = 24.79/1 euro (CB rate)

NovDecJanFebMarAprMayJunJulAugSepOctNov

Foreign Currency Rating Raised

· Standard & Poor's (S&P) raised Russia's foreign currency credit rating from selective default, after the government completed the exchange of dollar-denominated defaulted Ministry of Finance bonds for new bonds. The B- issuer credit rating is six steps below investment grade and the same rating as Romania and Ecuador. The move comes about a month after Moody's Investors Service raised Russia's foreign currency rating to B2 from B3, a milestone in Russia's recovery from the $40 billion domestic bond default in 1998, Bloomberg News reported. Russia restructured $1.32 billion Ministry of Finance Series 3 bonds that it failed to redeem in May, 1999, for new securities between November 14, 1999 and November 30, 2000, S&P said in a statement. S&P's assigned a CCC+ long-term senior unsecured foreign currency debt rating to $864.666 million 3 percent bonds due on November 14, 2007. In addition, S&P assigned a B- long-term senior unsecured local currency debt rating to 8.8 billion ($336.1 million) rubles of bonds due November 14, 2003. S&P also affirmed an unsecured rating on Russian Eurobonds at B-.

Russia To Make IMF, Eurobond Payments

· On Thursday, Russia said it had reserved 64.4

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	Friday		December 8, 2000
	Intercon's Daily
	million Special Drawing Rights (SDR) ($83.03 million) to make two payments to the International Monetary Fund (IMF) and $73.4 million to pay interest on its 2003 sovereign Eurobond. A Finance Ministry spokeswoman said, "The two payments to the IMF, scheduled for December 9^th and 10^th, will be made tomorrow, because their due dates fall on a weekend. The funds are reserved." She also said the ministry has reserved $73.4 million in interest on the 2003 Eurobond. The due date for the interest payment is today. Under an original schedule of payments to the IMF, Russia was to pay the Fund 19,468,867 SDR on Saturday and 44,928,125 SDR on Sunday. The Fund expects Russia to make two more payments in December worth a total 64,396,992 SDR. Russia, the IMF's biggest single borrower, owed the Fund about $12 billion as of August, 2000. Russia has paid more than $3 billion to the Fund so far this year out of a total $3.6 billion due this year. Business LUKoil-Getty Deal Delayed · A New York State Supreme Court Judge has issued a temporary restraining order on Russia's LUKoil's $70 million bid to acquire Getty. The order comes after Getty rejected a higher offer from United Refining. According to the Financial Times, the Judge's injunction prevents the LUKoil-Getty deal going through, until Getty shareholders have had a "full and fair opportunity to consider the economically superior proposal" of United Refining. On Thursday, United Refining increased its offer from $84 million to $89 million to include a $5 million break-up fee agreed upon between LUKoil and Getty. Getty has rejected the higher offer, citing that United Refining has not proven that it has sufficient funds. A lawyer for United Refining has pointed out that PNC Bank has already agreed to prepare a loan agreement for the necessary funds.	pany. The Latvian agency in charge of state asset sales approved a consortium headed by Raiffeisen Investment, which also includes Latvia's Parex Banka and law company Blukis, Elksne & Rozenfelds. "The decision again confirms our commitment to continuing the privatization of major companies and, despite the reserved attitude of Ventspils Nafta's private shareholders to the privatization process, to sell the state's shares in that company in accordance with international practice," the agency said. Ventspils earned a net profit of 16.2 million lats ($26.1 million) in the first nine months of this year, up from 15.2 million lats over the same period of 1999. Its market capitalization is 83.6 million lats. The state owns a 43.62 percent stake in Ventspils Nafta, with a 5 percent stake reserved for Latvijas Naftas Tranzits, which has an option to but the shares before July 1, 2003. Latvijas Naftas Tranzits, Latvia's largest oil transporter, owns a 47.06 percent stake in Ventspils Nafta. Ukraine Approves New Banking Law · Ukraine's Parliament Thursday, in a vote of 309 for and eight against, approved the Law on Banks and Banking Operations, which defines the structure of the banking system and the economic, organizational, and legal bases for creating, operating, reorganizing, and liquidating banks and financial-credit institutions, Xinhua reported. The law stipulates the procedure for receiving licenses for banking services. It also introduces a differentiated approach to the definition of the minimum required level of authorized capital of a commercial bank, depending on the scope of territory, on which it operates. Igor YUSHKO, deputy chairman of the Parliamentary Committee for Finance and Banking, said that the previous Law on Banks and Banking Operations has largely exhausted its capability and hindered further development of the banking system. "The new law will bring Ukrainian banking rules in line with international standards and practices," he said. YUSHKO stressed that the new law not only stipulates the basis for creation and operation of banks, it also stipulates the basis for creating and operating various types of banking groups such as corporations, holding groups, unions, and associations and regulates the procedures for creating such groups. It was reported that adoption of the Law on Banks and Banking Operations is one of the International Monetary Fund's (IMF) conditions for

	European Republics Austrian Adviser For Latvian Oil Sale · Austria's number three bank Raiffeisen Zentralbank Oesterreich will head the consortium to advise Latvia on the state's sale of 38.62 percent of Ventspils Nafta, the country's biggest oil com

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resumption of crediting Ukraine under the Extended Fund Facility program. The IMF ceased lending to Ukraine last year due to slow economic reforms. The passage is also necessary to secure a disbursement of the last $100 million tranche of a World Bank financial sector loan.

South Caucasus & Central Asia

Zhvania Accused Of Budget Sabotage

· On Thursday, David GAMGRELIDZE, head of the New Faction, who recently quit the Citizens' Union Party of Georgia (CUG) has accused Parliamentary Speaker and CUG member Zurab ZHVANIA of using an estimated 300 million lari ($152 million) to ensure the CUG's victory in last year's parliamentary election. GAMGRELIDZE is chairman of the parliamentary commission charged with investigating Georgia's ongoing budget crisis, RFE\RL Newsline reported.

Assassination Attempt On Zhvania Exposed

· Chairman of the Parliamentary Committee for Security and Defense Giorgi BARAMIDZE has obtained information that a terrorist attack is being planned against Parliamentary Speaker and CUG member Zurab ZHVANIA. At a press conference today, BARAMIDZE called for the strengthening of the security around all top officials. He hinted that foreign intelligence forces have ordered the terrorist attack, Prime News Agency reported. State Security obtained information from sources, which indicated that the attempt against ZHVANIA may coincide with the 60^th birthday celebration for a member of the Georgian parliament on December 10^th. This attempt appears to be part of a larger effort to discredit Chairman ZHVANIA and the reformist team. It is also part of a larger struggle against Georgia in relations to the visa regime, Pankisi Gorge, and the cutting off of energy supplies.

Russia Prepares Withdrawals From Gudauta

· The withdrawal of Russian arms and military

technology from the Russian base Gudauta, located on Georgian territory, will begin this weekend. According to the Russian Defense Ministry, the withdrawn arms and technology will be transported to Russia. As it was agreed with Georgian side, the military technology will not be handed over to Abkhazians, the Russian Defense Ministry stressed. It added hope that the Abkhaz leadership will not obstruct the withdrawal and that Tbilisi will facilitate it, RFE\RL Newsline reported. The Georgian Defense Ministry said that a group of US experts from the Agency of Arms Control will arrive in Georgia to monitor the withdrawal. Intercon sources report that Russian intends to withdrawal an echelon of equipment while US inspectors are present in Gudauta. The second stage of withdrawal of Russian military base from Vaziani will start in the immediate future. The withdrawal from Vaziani and Gudauta was reached during the Organization of the Security and Cooperation in Europe (OSCE) Summit in November, 1999.

Central Asia-Russia Sign Custom Agreement

· Four Central Asian nations and Russia signed custom agreements to promote economic integration on Thursday following their meeting in Dushanbe, the capital of Tajikistan. Belarus, Kazakhstan, Kyrgyzstan, Tajikistan, and Russia agreed to tighten their cooperation on the protection of intellectual rights and on border inspection of tobacco and alcohol products. The five-nation Customs Union also agreed to standardize their information systems on customs inspections. The Customs Union must meet the challenges of setting up common laws and policies on tariffs and uniform customs formalities, said Mikhail VANIN, head of Russia's State Customs Committee, who was in Dushanbe for the meeting. He made this remark after meeting with Emomali RAKHMONOV, president of Tajikistan. The Customs Union was created in March, 1996 with the aim of coordinating economic reforms in Russia, Belarus, Kazakhstan and Kyrgyzstan. Tajikistan joined in February 1999 as the fifth member.

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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