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Business Watch: April 9, 2002

9 April 2002, Volume 2, Number 14
A source in the Russian Fuel and Energy Ministry told Reuters that data show that Russia's crude exports for March actually rose by 130,000 barrels per day, despite a pledge to the Organization of the Petroleum Exporting Countries (OPEC) to continue with 150,000 bpd oil cuts in the second quarter. The source added that oil exports might further rise during this period because the domestic market cannot absorb increased output. Russian crude exports via the state-controlled Transneft pipeline system rose in March to 11.563 million tons (2.73 million bpd) from 9.948 million tons (2.60 million bpd) in February. The source noted that the Transneft system is "dangerously full." The total volumes of exports from Russia, including transit volumes from neighboring countries and deliveries by rail, in March reached a record 13.438 million tons (3.18 million bpd) compared with 11.657 million tons (3.05 million bpd) in February. Transit volumes in March, mainly from Kazakhstan, Azerbaijan, and Turkmenistan, amounted to 1.594 million tons, or 376,000 bpd, compared with 1.392 million tons or 365,000 bpd in February 2002. The total also included 206,000 tons or 49,000 bpd of Russian crude that bypassed Transneft by rail or small ports, down from 243,000 tons or 64,000 bpd in February. Russian authorities say its cuts are based on peak exports of 2.69-2.70 million bpd last summer. (JMR)

U.S. Ambassador Alexander Vershbow and Russia's chief veterinary inspector, Mikhail Kravchuk, signed a protocol whereby Russia pledges to lift its ban on poultry imports from the U.S. before 10 April, seemingly resolving a nearly month-long dispute. The U.S. has agreed to tougher controls on veterinary documents and penalties against companies that export salmonella-tainted chicken. Chicken is the top American export to Russia, bringing in $600 million to $700 million a year to producers in 38 U.S. states. There were two central issues in the dispute: discovery of salmonella in some imported poultry and discrepancies, including forgery, in veterinary documents. The U.S. agreed to temporarily exclude 14 American poultry producers from the list of approved exporters after their products were found to contain salmonella, AP reported. The U.S. ambassador complained that Russia has fostered negative publicity about the safety of American food exports, tactics that he said could complicate Russia's desire to join the World Trade Organization (WTO). "The handling of this dispute has been very much at variance with the kind of rules of the game that WTO members are expected to observe," Vershbow said.

Meanwhile, Russia also lifted its ban on imports of Chinese pork, beef, and poultry imposed on 15 March, Reuters reported. The ban was imposed because China failed to cooperate with veterinary restrictions. The Chinese Ministry of Foreign Trade and Economic Cooperation (MOFTEC) said in a statement, "The issue was finally properly resolved, and this will have a beneficial impact on trade relations between the two sides." The ban by Russia was seen by analysts as having a small impact on Chinese trade as only a tiny fraction of China's pork, beef and poultry exports totaling hundreds of thousands of tons end up in Russia. (JMR)

Russian First Deputy Property Minister Aleksandr Braverman said the government plans to proceed with a delayed sell-off of 5.9 percent of its 15 percent stake in the nation's top oil producer, LUKoil, in June or July, Reuters reported. The global economic downturn prompted the postponement of proposed sales twice, in 2000 and 2001. Braverman said the LUKoil sell-off will take the form of a Level Three American Depositary Receipt issue on the London Stock Exchange. Braverman noted that Morgan Stanley and KPMG are working on the project. He said the minimum price for the LUKOIL stake will be $12-13 per share. Vladislav Metnev, oil analyst at Renaissance Capital, said the 5.9 percent stake translates into 50 million shares worth about $700 million at current prices.

Braverman also said plans call for the sale of a 19.68 percent stake in Russia-Belarus oil firm Slavneft, in which the government owns 75 percent, in October-November. The sell-off of medium-sized Slavneft was also postponed last year. "We are selling the Slavneft stake in October-November to avoid offering stakes in companies from the same sector at the same time," Braverman said. A source close to the State Property Ministry told Reuters the LUKoil and Slavneft sales will account for 85 percent of the 2002 privatization-revenue target of about 35 billion rubles ($1.12 billion). Braverman said the government also plans to sell a 25.5 percent stake in Sibir, Russia's second-largest airline, and a 75.0 percent in smaller Tomsk airlines. (JMR)

Russian Agricultural Minister Aleksei Gordeev said on 2 April that Moscow may leave its ban on U.S. poultry in place, despite the protocol signed between U.S. Ambassador Vershbow and Russian chief veterinary inspector Kravchuk on 31 March. He added that his ministry might introduce separate import quotas for poultry, ITAR-TASS reported. Russian officials insisted that the ban on U.S. poultry is not a protectionist measure but simply reflects health concerns. However, Gordeev last month criticized Russia's reliance on food imports, particularly meat, saying the issue affects national security, AP reported. (JMR)

The Russian Supreme Court on 1 April overturned a Central Bank order for corporations to sell 50 percent of export revenues on a special trading session of eight exchanges known as the unified session. The court ruling left intact the requirement to sell 50 percent of foreign currency earnings to the central bank, but sellers will now be free to choose their markets. The Moscow Stock Exchange said it will press on with its legal action to remove the obligation to sell currency earnings. Aleksei Mamontov, first vice president of the Moscow Stock Exchange, told Reuters, "This was the first step toward removing all regulations obliging private companies to sell currency, and we intend to challenge it in the Constitutional Court." The policy was adopted in the months after Russia's August 1998 financial crisis, when a volatile ruble had to withstand harsh speculative attacks. Exporters were also upset with the practice as they had to pay a 0.06 percent commission to Moscow Interbank Currency Exchange (MICEX), which accounts for the bulk of unified session volume. Natalya Orlova, a chief economist with Alfa Bank, said, "The change would be beneficial for companies as it would allow them to avoid paying commission and give them the right to sell currency directly to banks and their clients. It would also give a positive impetus to the development of the interbank currency-exchange market." (JMR)

The Supreme Court of Kazakhstan has ruled in favor of Parker Drilling Company in a $29 million tax suit. The Kazakhstan Ministry of State Revenues (MSR) had assessed the Kazakh branch of Parker Drilling Company International Limited (PDCIL) with $29 million in added taxes. That assessment was based primarily on the ministry's position that the $100 million received from PDCIL's customer, Offshore Kazakhstan International Operating Consortium (OKIOC), in reimbursement for capital expenditures incurred by PDCIL in making certain modifications to PDCIL's barge rig 257, was taxable income to the branch in connection with its drilling contract with OKIOC, according to a company press release. PDCIL countered that the reimbursement was not taxable under a U.S.-Kazakh treaty. It won the case in an Astana city court, but the ministry appealed to the Supreme Court. The Supreme Court affirmed the lower court decision and dismissed approximately $27 million of the ministry's total tax assessment. The Supreme Court ruled in favor of the ministry on other issues, the net effect of which is an assessment of approximately $2.3 million against PDCIL. However, since PDCIL is currently in an overpaid position with respect to its Kazakhstan taxes, management anticipates there will be little if any tax liability as a result of this decision. President and CEO Robert Parker said, "Our company's long-term commitment to Kazakhstan has been reinforced throughout this legal process." (JMR)

Parker Drilling Company and Halliburton announced on 4 April plans to provide training to Russians. The first training class is underway, with subsequent classes scheduled throughout the rest of the year and more classes allowed in 2003. Robert L. Parker Jr., president and CEO of Parker Drilling, said, "By increasing the knowledge and improving the skill level of workers, we help provide a safer workplace and more efficient, cost-effective operations." Russian engineers will receive training in western well-control techniques, and other Russian employees will receive training on building skills to succeed within the company. The Parker Training Center teaches classes for Parker employees and other companies' employees, and also provides down-hole well-control consulting for third parties. (JMR)

Kazakhstan's deputy prime minister and finance minister, Aleksandr Pavlov, announced that the government plans to sell part of the state-owned 16 percent stake in Ust Kamenogorsk Titanium and Magnesium Plant (UKTMK) through the stock exchange in the third quarter of 2002, Reuters reported. He stressed that selling the stake will underscore government intentions to launch a number of "blue chips" as the backbone of a thriving stock market. "There [is] absolutely no reason" for the state to keep control of a stake that is neither decisive nor a blocking minority, he said. Belgium's Specialty Metals Company S.A. holds 65.68 percent of the eastern Kazakh plant. A similar sell-off of copper monopoly Kazakhmys fell through in November. The government originally planned to sell 5 percent of Kazakhmys through the stock exchange, but a mere 0.35 percent was sold. (JMR)

Iraqi Deputy Prime Minister Tariq Aziz said revisions of UN sanctions against Iraq could harm export contracts between Baghdad and Moscow, Reuters reported. Citing Russian figures, Aziz said Russia's trade with Iraq under the oil-for-food deal for the period from July 2001 until the end of the year was more than $2 billion. He told a group of visiting Russian politicians and businessmen: "It is in the national interests of Russia not to let this resolution pass by the [UN] Security Council. Iraq rejects the goods review list, but if we suppose, theoretically, that we will accept it, then do not expect [Russia's] contracts of the 12th phase [of the oil deal] to reach half their amounts under the 10th and 11th phases. So we urge our Russian stand against this plan, which will cause a drop in economic dealings between Iraq and Russia, and this would harm both of us." The U.S. said last week it reached agreement with Russia on a program for tightening UN sanctions on Iraq that will further restrict the possible flow of goods to Iraq's military. The two days of talks, the third round of negotiations on the issue between Moscow and Washington, focused on a "goods review list" which identifies supplies that cannot be exported to Iraq without approval from the UN Security Council. (JMR)

VimpelCom, Russia's wireless operator, has reported profits for 2001. Jo Lunder VimpelCom director general, said, "We will be targeting a profitable year in 2002." The Moscow-based company posted net income of $47 million, or $1.41 per share, in 2001 versus a $77.8 million loss the year before, Reuters reported. Net revenues rose 54 percent to $422.6 million from $274.1 million in 2000. VimpelCom said that the profits are due to a rapid rise in subscribers and lower costs. By the end of last year, VimpelCom's subscriber base had risen to 2.11 million including 1.91 million subscribers in the key Moscow market, which represented a 153 percent annual rise. According to the firm's estimates, its Moscow market share totaled 46.5 percent. "We will defend our market share in the Moscow area and will start boosting our subscriber base in the regions," Lunder said. The director general reiterated that the company will tap markets with a dollar-denominated Eurobond issue in the first half of the year to finance its expansion, but he declined to say how large the issue will be. (JMR)

Kazakhstan will host the "Sustaining Growth In Uncertain Times" meeting of the World Economic Forum on 8-9 April in Almaty. The Eurasian Economic Summit 2002, according to the Forum, will focus primarily on the eight core countries (five in Central Asia, three in the Caucasus) of the region. Discussions will also touch on neighboring countries such as China, Iran, Russia, and Turkey as well as Afghanistan, India, and Pakistan. The summit will be interactive, consisting of workshops and brainstorming sessions, rather than the traditional panel discussions. The World Economic Forum provides a collaborative framework for the world's leaders to address global issues, engaging particularly its corporate membership in global citizenship.

Russian President Vladimir Putin has ordered the government to develop a bill aimed at reducing taxes for small and medium-sized businesses for debate by 10 April in the Russian State Duma. He called for the bill to reduce taxes and simplify accounting and audit procedures, RosBusiness Consulting reported. Putin said small entrepreneurs would have a choice of paying a 20 percent tax on profits or 8 percent on revenues, starting in 2003, the "Financial Times" reported. The new plan would apply only to those businesses that employed up to 20 people and received an annual income of no more than 10 million rubles a year (around $322,000). The plan does away with the value-added tax, sales tax, property tax, and income tax that businesses are currently required to pay. Putin pointed out that he has ordered the government numerous time to elaborate on such a bill but it managed to do that only recently. Putin has discussed the issue with Economic Development and Trade Minister German Gref. The new measures are aimed at reducing the tax burden for small and medium-sized businesses, which officially employ around 19 million people, and inducing unregistered companies out of the shadow economy.

First Deputy Finance Minister Sergei Shatalov said the cabinet will in a week consider replacing the individually calculated earnings tax on small businesses with a blanket 20 percent tax. "The new regime will make businessmen's lives much simpler.... This is a very advantageous tax regime which will create an incentive for small businesses to develop." He said the new regime will also allow firms to immediately write off all expenses and pay taxes once a quarter, instead of once a month, Reuters reported. Russia's confusing tax system and bureaucratic red tape have been blamed for discouraging businessmen from developing branches of their business in Russia. Shatalov pointed out that the government has improved the tax system by cutting the corporate tax to 24 percent and introducing a 13 percent flat income tax in 2001. "The main package of taxes will be passed in 2003, and by then the tax code will have acquired a completed form," Shatalov said. He added that the government plans to cut the tax on securities issuance to 0.2 percent of the volume of the issue from the current 0.8 percent from January 2003. He said the government is considering cutting the 35 percent unified social tax that companies pay for their employees, contributing to the state pension fund, medical insurance, and other social purposes. (JMR)

The Russian State Duma on 3 April approved with 231 votes a bill to introduce mandatory civil liability insurance cover for car owners in its third reading, Reuters reported. The bill must still win approval in the Federation Council and be signed into law by Russian President Putin. The legislation is due to become effective from 1 July 2003. The government needs to issue regulatory documents detailing how the law will be applied, including insurance tariffs. Car insurance in Russia is currently a loss-making business. The old and shoddily made cars that travel Russia's pot-holed roads translate into high accident rates and hefty payouts by insurance companies. The draft bill says insurance firms should pay no more than 400,000 rubles ($12,800) in indemnity, including 240,000 rubles for health damage and 160,000 rubles for property damage. Aleksei Poponin, deputy chief executive at United Insurance Group Soglassiye, said insurance in Russia will become a $1 billion business once the law is adopted, many times its current size. (JMR)

Legendary pop star Madonna will arrive in the Georgian capital Tbilisi on the evening of 10 April to hold a concert in Tbilisi Dinamo Stadium on 11 April. Madonna's representatives arrived in Tbilisi on 1 April to make concert arrangements. According to the Georgian newspaper "Resonance," Georgian President Eduard Shevardnadze will meet the U.S. star and bestow a medal on her. Tickets for the concert are expected to cost $50-100. Madonna's journey will start in New York, continue in Europe, the Caucasus, and Central Asia, and finish in Shankhay Stadium in China. "I want to go though the Great Silk Road and with this journey express my greatest support to all of the economic projects in the region, because trade and a healthy economy is one of the bases for peace everywhere," Madonna said in an interview with ABS news agency. The pop star met UN Secretary-General Kofi Annan in March. Annan supported Madonna's idea. (IAM)

The Ukrainian central bank cut a key interest rate from 11.5 percent to 10 percent, effective 4 April, Reuters reported. The bank also reduced reserve requirements for commercial banks to boost lending. The Ukrainian National Bank made its last refinancing rate cut in March, lowering the rate from 12.5 percent. A bank spokeswoman told Reuters that from 10 April, commercial banks will not have to set aside funds in reserve to cover long-term hryvnia deposits made by individuals and companies. The requirement for short-term individual deposits will be cut from 6 percent to 2 percent, while the same requirement for companies will drop to 6 percent from 12 percent. Commercial banks currently lend at an average interest rate of 30 percent. Government officials frequently complain that the high cost of borrowing makes it difficult for companies to attract loans to modernize obsolete Soviet-era equipment. The government expects gross domestic product to grow by about 6 percent this year. (JMR)

On 26 March, Russian newspapers were filled with sensational headlines concerning the most recent controversy surrounding retired KGB Major General Oleg Kalugin. Russian Federal Security Service (FSB) chief Nikolai Patrushev in ITAR-TASS unequivocally announced that Kalugin caused "colossal damage" to the Russian intelligence community.

But this is not the first time Kalugin has come under government scrutiny. His vocal attacks on the KGB won him both notoriety and a political following in the late 1980s and early 1990s. In 1990, Soviet President Mikhail Gorbachev signed a decree stripping General Kalugin of his rank, decorations, and pension followed by charges by the military prosecutor accusing him of leaking state secrets. Kalugin capitalized on these charges by running successfully for the Supreme Soviet, or "parliament" of the USSR, thereby obtaining immunity from prosecution. From that post, he continued his attacks on KGB abuses and his calls for democratic reform. Following the August 1991 putsch, all charges against him were dropped and his pension was restored.

According to Kalugin, he received a phone call at his home at around 9 o'clock on Friday evening, 22 March, from Second Secretary Consul Nikolai V. Pukalov of the Russian Embassy, who insisted on meeting Kalugin and immediately proposed coming to his home. When asked why, the Russian official refused to provide details over the telephone. "He made it clear this could only be done in person," stated Kalugin. Instead, Kalugin invited Pukalov to come to his office the following Monday. On 25 March, Kalugin was served a summons by Pukalov from the FSB to appear at chief investigator Y.V. Pospelov's office in Moscow for questioning on 28 March. No information was provided either by the official or in the summons as to the reason for the summons. Furthermore, the summons warned that failure to appear without a reasonable excuse could result in Kalugin being "taken by force" under the Russian Criminal Code. Kalugin described this as pure intimidation and an affront to the U.S. legal and diplomatic procedures.

But this came as no surprise to Kalugin. On 14 February 2001, NTV's "Top Secret" program included former Soviet intelligence chief Leonid Sherbarshin labeling Kalugin a traitor and admitting that he has not been formally charged but claiming, "We the veterans will find ways to settle scores with him." The next clip showed a man being hit on the head. According to RIA-Novosti in March 2001, Russian military prosecutors indicated a willingness to open a case against Kalugin for revealing state secrets for his statements to the media that two recent Russian defectors to the U.S. from Canada and the UN might very well be intelligence officers.

Kalugin has recently been the object of intense criticism in Russia, since he testified in the trial of alleged spy and former U.S. Army Colonel George Trofimov after being subpoenaed by the U.S. Department of Justice. Even friends and supporters of Kalugin in Russia were quick to distance themselves from him after his testimony in the Trofimov trial. While Kalugin has denied that it was he who revealed Trofimov as a spy, it did little to dampen the strong sentiments against him in the media. In a recent "60 Minutes II" broadcast that coincidentally aired on 27 March, it was clear the U.S. federal government had in its possession detailed information from British intelligence services, obtained from the archives of Vasilii Mitrokhin (see "The Sword And The Shield" by Christopher Andrew and Vasilii Mitrokhin). These archives contained the specifics of Trofimov's activities and his contacts. This allowed the U.S. government to subpoena Kalugin to testify, knowing full well his knowledge of Trofimov's espionage. At the time, with Kalugin's wife dying of cancer and his previous open letter of 20 March 2000 denouncing acting Russian President Putin for calling Kalugin a "traitor," his fate was sealed: either testify or face the consequences in Russia. Kalugin further explained that, after President Putin branded him a traitor two years ago for criticizing Russia as criminalized and corrupt, "It's simply unwise to go to Moscow under any circumstances." He added, "When the president of a country convicts you in the media as a traitor, it's impossible to expect fair treatment."

Kalugin's open letter to Putin of 20 March 2000 was incendiary. Kalugin made clear that he viewed Putin's rise as nothing more than a victory for "the spirit of Chekism-totalitarianism and the Bolshevik mentality with its inherent hatred and intolerance toward dissent." He cited Putin's decision to rehabilitate former KGB Chairman Yurii Andropov with a memorial plaque in Lubyanka and his visit to a former KGB chairman and the ringleader of the 1991 putsch, Vladimir Kryuchkov, Kalugin's KGB nemesis. Kalugin also quoted from Artem Borovik's last article, published in "Top Secret" magazine, that cited Putin saying, "There are three ways to influence people: blackmail, vodka, and the threat to kill." Kalugin pointed out that shortly after this article appeared Borovik died in a mysterious plane crash.

Concerning his statements at the trial, Kalugin explained, "I simply confirmed what had been known already for years. I confirmed that I was his supervisor," Reuters reported. But such confirmation is anathema to his former colleagues and something that was sure to bring condemnation. Clearly, the consequences of the U.S. Department of Justice subpoena for Kalugin were predictable and so was the reaction to his testimony. Kalugin's compliance only solidified the animus many in his old profession felt about the outspoken former KGB general. These actions, whether intentional or not, have probably permanently removed him from both Russia and its turbulent political scene.

Kalugin summarized his situation, "I will apply for U.S. protection, if necessary, but for the time being I see no reason because it's not a court action, it's an action of the domestic service which has no right to intervene." Kalugin said the action "shows an increasing influence of the old KGB guard on Mr. Putin and his security services.... It's an act of revenge and nothing else."

Kalugin's career has always been high-profile, from his days as one of the first Soviet Fulbright exchange students at Columbia University in 1958 as an undercover KGB agent to his election to the Supreme Soviet in September of 1990 with 57 percent of the vote in Kransnodar. Kalugin admits in his book, "The First Directorate," that he crossed the Rubicon after publicly denouncing the KGB in an address on 16 June 1990 at a meeting of the Democratic Platform organized by Yurii Afanasiev at the October Cinema in Moscow. Kalugin's long journey from Columbia University as the poster boy for the Soviet Union -- where he was described by "The New York Times" in a 1959 "Man in the News" piece as "a popular Russian" -- to the pinnacle of the KGB before finally returning to America in 1995 is among the most intriguing of post-Soviet dramas. Kalugin -- from popular exchange student, to Chekist, to outspoken critic -- is now exiled again.

Who is Oleg Danilovich Kalugin, the man who retired with the rank of major general in the Soviet KGB on 26 February 1990? He was born in Leningrad on 6 September 1934. His father was an officer in Josef Stalin's NKVD. He attended Leningrad State University (actually the Institute of Foreign Languages) in 1952 and was recruited by the KGB for foreign intelligence work, serving in the First Chief Directorate. Under cover as a journalist, he attended Columbia University in New York as a Fulbright scholar along with the man who was later to become known as the father of perestroika under Gorbachev, Aleksandr Yakovlev. (Yakovlev, who rose within the Politburo itself, would also eventually be accused of being a CIA agent by Vladimir Kryuchkov.) After Columbia, Kalugin worked as a Radio Moscow correspondent at the UN in New York, conducting espionage and influence operations. From 1965 to 1970, he served as deputy resident and acting chief of the KGB residency at the Soviet Embassy in Washington as first secretary, press officer. He was exposed as the "playboy spy" in a Jack Anderson article, leading to his return to Russia.

General Kalugin rose quickly in the First Chief Directorate, becoming the youngest general in the history of the KGB, and he eventually became head of Foreign Counterintelligence (KR Line). In this job, he built the organization into a huge one that managed all Soviet penetrations of foreign intelligence and security services. The staff of KR Line nearly doubled and foreign recruited assets tripled, according to Kalugin. Expansion included the establishment of security offices in all foreign Soviet embassies. He also expanded the disinformation service and managed high-profile defectors such as Kim Philby. While serving at the center of some of the most important espionage cases of his period, including John Walker, he quickly became known for his aggressive operational methodology.

Kalugin claims that his conflict with Vladimir Kryuchkov, the former chief of the KGB's First Chief Directorate and later the KGB itself, is the source of much of his troubles. The tension was based on a clash of character. Kalugin, outspoken, sometimes brash, and forthright, never got along with his new boss. Kryuchkov was clearly a man of different character. Kalugin describes Kryuchkov as a hypocrite and a bureaucrat who was obsessed with his own health. He was resented by his fellow officers as a man who entered the KGB from the Communist Party and rose through the ranks from his position in the KGB secretariat. According to Kalugin, Kryuchkov was a man with a clean desk who surrounded himself with "yes men" and had no operational experience. Kryuchkov, on the other hand, described Kalugin as undisciplined and unruly with a taste for the good life and alcohol, drinking with KGB colleagues after hours in the KGB offices. Kryuchkov believed Kalugin was overly self-confident and argumentative.

Kryuchkov received his college degree by correspondence during the war and avoided wartime service because of his Komsomol leadership role. This was another reason some veterans disliked him.

Kalugin thus could not be more different from Kryuchkov. Kalugin -- with his worldly, articulate ways and his fluency in languages -- never connected with his more dour boss. General Kalugin's internal criticism of cronyism within the KGB, specifically the leadership of Kryuchkov, caused friction within the KGB's top management. Kalugin would eventually be exiled to Leningrad in 1980-87 in the Second Chief Directorate (or internal KGB Service). As first deputy chief of Leningrad's regional KGB, he saw the Soviet internal system firsthand, and his alienation grew. In Kalugin's book, he claims his conflict with KGB top management reached a breaking point over allegations that the first asset Kalugin recruited in the U.S. was a CIA agent. The scientist in question, who provided Kalugin with samples of America's formulas for solid rocket fuel, eventually fled to Moscow to escape FBI scrutiny after the defection to the U.S. of Yurii Nosenko. His disillusionment with the system was interpreted as the actions of an American spy by the KGB's domestic service. Kalugin was ordered to obtain this man's confession. When he failed and challenged the judgment of his superiors, he was removed from the foreign intelligence service and posted -- or rather exiled -- to his native Leningrad. It was in Leningrad that he claims his tranformation into a full-fledged opponent of the regime took place.

Kalugin left the KGB in 1990 and became a vocal critic of the communist system. In 1990, after being charged with leaking secrets, Kalugin was elected to the Soviet Parliament -- and thus protected from prosecution. From that post, he continued his attacks on the KGB and the Communist system. Following the August 1991 putsch, Kalugin became an unpaid adviser to reformist KGB Chairman Vadim Bakatin, another man who would be branded a traitor in the Russia press. Bakatin's delivery to the U.S. Embassy in 1991 of surveillance-system plans for the unoccupied American Embassy annex in Moscow led to these accusations. In the first volume of Vladimir Kryuchkov's two-volume book published in 1996 by Olymp, "Personal File," on page 303 he states, "Bakatin and Kalugin are like minded and accomplices with Yakolev in the destruction of the [Soviet] Union and the destruction of the Committee of State Security."

In March of 1991, then-Senator David Boren (D-Oklahoma), who was chairman of the United States Senate Select Committee on Intelligence, first met Oleg Kalugin in Moscow. In an unpublished introduction to the paperback edition of Kalugin's book, "The First Directorate," Boren describes his attempt to gain access to the court proceedings Kalugin had initiated against Gorbachev to regain his pension and medals: The judge denied the senator access to the proceedings because he failed to obtain a pass six months in advance. He also recalls his meeting with Vladimir Kryuchkov, then the chairman of the KGB. The meeting so alarmed the senator that he immediately reported his concerns to President George Bush concerning Kryuchkov's strong anti-Gorbachev opinions. The senator warned President Bush that Kryuchkov might lead a coup against the government. History proved Senator Boren absolutely correct: The coup attempt occurred; Kryuchkov was arrested; then he was released and he has since been rehabilitated. For the first time in the history of the Soviet and Russian security services, Russian President Vladimir Putin hosted a gathering in January 2002 of present and former intelligence and security officials in the Kremlin Palace to celebrate V.I. Lenin's founding of the VChK-KGB, reported. Seated in the first row as an honored guest was Vladimir Kryuchkov.

In 1995, Kalugin came to the U.S. to take up a teaching position at the Catholic University of America and has since remained.

The controversy concerning Kalugin will no doubt continue, aggravated by almost continuous charges, media hype, and government actions. This is matched by the absolute disdain that many former KGB officials have for Kalugin's criticism of former colleagues. Kalugin finds much in today's Russia repulsive, and his outspokenness will no doubt continue to aggravate the powers that be. After a week in the news amid charges of Kalugin having caused "colossal damage" and being a "traitor," other voices are emerging. In "Pravda" on 4 April, Andrei Cherkasov writes, "Kalugin was chosen as a scapegoat, probably because he is unattainable." "Izvestiya" on 3 April reported that, "Each Russian regime -- the current regime, the Soviet regime, and the Tsarist regime -- shares an odious characteristic:... petty vengefulness." The article mentioned retired oligarchs Boris Berezovsky and Vladimir Gusinsky, along with intelligence officers Kalugin and Aleksandr Litvinenko as examples of this and how the actions of the government helps them become "successful and full-fledged political emigres."

Some claim that the latest vendetta against Kalugin and Litvinenko is related to the controversial Berezovsky film "Assault On Russia," which attempts to link the unsolved Moscow apartment bombings of 1999 to an FSB operation justifying the Chechen military campaign and catapulting the relatively unknown Vladimir Putin into the Russian presidency. Both Kalugin and Litvinenko appear in the movie.

Thus Kalugin has been thrust once again into a role that others have written for him, both in Russia and the U.S. But for now, it is a role in which he appears to revel and will no doubt play to the hilt. (PMJ)

As part of the revitalization of the old Silk Road, Kazakhstan has rehabilitated the 40-year-old port of Aktau on Kazakhstan's Caspian Sea coast. It is quickly developing as a key transit point for cargo, cars, trains, and even for people moving along the rapidly developing southern, overland route between East and West, Reuters reported. Alexander Glock, financial director and deputy director for capital construction at Aktau Commercial Sea Port, which runs a completely renovated terminal at Aktau, told Reuters, "Today we have a real sense that there are goods moving from Georgia across Azerbaijan and Kazakhstan to China." After a $72 million upgrade of Aktau, mostly funded by the European Bank for Reconstruction and Development with a $52 million loan, the throughput of goods is growing. "This was an investment made at the right time and in the right place," said Glock, adding that it is allowing western Kazakhstan, home of most of the oil that is the key to the country's booming economy, to develop far more quickly than otherwise possible. Last year, 5 million tons (100,000 barrels per day) of crude oil and oil products moved through Aktau, with a further 800,000 tons exported by the end of February. Metals from Kazakhstan and Russia to Iran also account for a major part of Aktau's throughput, and by February the port had exported 90,000 tons of grain to Iran from a brand new complex of grain elevators with a capacity of 13,000 tons. The port is clean, modern and well kept. Real growth of Aktau as a hub along the new Silk Road may come from greater use of the port as a container terminal, says Kuanysh Esetov of Aktau's marketing department, pointing out that it handled just 200 containers last year. "A container moving from China to, say, Hamburg takes around 25 days by sea, compared with 16 days through Aktau," he said. A container would move by rail from China to Aktau, then by ship to the Azerbaijani capital, Baku, by rail across Georgia to Batumi on the Black Sea, by ship to either Varna in Bulgaria or Constanza in Romania, then continue by train to its final European destination.

In Brussels in May 1993, the Transport Corridor Europe Caucasus Asia (TRACECA), a European Union program uniting all eight former Soviet states in the region, was launched. According to the TRACECA website, "The leaders of the partner states consider that the TRACECA route is of strategic importance, by assuring them of an alternative transport link to Europe.... It's been a reality since September 2001, when regular rail ferries started. Until then we could just carry cars and trucks. Now we can carry railway wagons as well." (JMR)