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Business Watch: June 18, 2002


18 June 2002, Volume 2, Number 24
OIL & GAS
PIPELINE DEAL COLLAPSES UNDER DEADLINE PRESSURES (14 June)
After more than a year of negotiation, Kazakh oil producer Hurricane Hydrocarbons Ltd. announced on 13 June that it is scrapping a $100 million pipeline deal after failing to reach agreement with Kazakh officials, Reuters reported. In an effort to lower its oil-transport costs, Hurricane aimed to gain a stake in the Caspian Pipeline Consortium (CPC). Hurricane could do so by acquiring a stake in Kazakhstan Pipeline Venters LLC, which in turn had a 1.75 percent interest in CPC. After the deadline for reaching an agreement passed, Hurricane announced, "The agreement could not be completed because certain approvals of the CPC shareholders could not be obtained within the applicable time limits," Reuters reported. The Hurricane deal first received approval by Kazakhoil in August but was later withdrawn when Kazakhoil merged with a transportation firm to become KazMunaiGaz. A second agreement was reached with KazMunaiGaz on 4 June, but that too fell through due to bureaucratic and time constraints. According to Reuters, Hurricane spokesman Ihor Wasylkiw said, "You've heard of being in the right place at the right time? This is called being in the wrong place at the wrong time." Wasylkiw also said that the company will now attempt to become a "third-party shipper on the CPC line." Failure to conclude the original agreement will now mean that Hurricane will see an increase in shipping tolls, but the company will also be able to free up $100 million in equity. (TGP)

KAZMUNAIGAS TO HOLD TENDER FOR OFFSHORE OIL FIELDS (12 June)
KazMunaiGaz President Lyazzat Klinov announced on 11 June in Astana that Kazakhstan is going to hold a tender for the Darkhan and Zhambai offshore oil fields in Kazakhstan's Caspian Sea sector. Kazakhstan is currently negotiating with the national oil company of India, ONGC, concerning its participation in a tender for the development of the Darkhan field. KazMunaiGaz will soon conduct limited exploration work in the Zhambai field. Klinov also indicated that Kazakhstan is ready to begin this project with a "huge sum" accumulated from pension funds for the development of the oil and gas projects. According to Kazakh news agency Bluebull the additional development costs will be covered by profits realized from the projects implementation. The North Caspian Operating Company (Agip KCO) is presently exploring the Kazakh sector of the Caspian and intends to start producing hydrocarbons at the huge Kashagan field in 2005. According to experts, the estimated oil reserve in Kazakhstan's Kashagan field is 7 billion tonnes. (IM/PMJ)

BUSINESS ALERT
MOODY'S SHOPPING FOR SHARES IN INTERFAX RATING AGENCY (10 June)
Moody's Investors Service on 10 June announced its intention to acquire shares in the Moscow-based Interfax Rating Agency (IRA). In a signed letter, Moody's expressed its interest in acquiring up to 20 percent of the independent information service provider due to a perceived growth in Russian credit rating opportunities, Reuters reported. Moody's released a statement that read, "With Russia's recent and expected future economic growth, we anticipate that credit ratings will gain importance as measures of borrower dependability and as tools used to allocate credit within the economy." Financial details of the inquiry were not made available. (TGP)

WINNCOM TO HELP UZBEKISTAN PROMOTE WIRELESS TECHNOLOGY (10 June)
Winncom Technologies Corp. and the Uzbekh Agency of Post and Telecommunications announced on 10 June that they have signed a Memorandum of Understanding, according to a Business Wire release. According to the memorandum, both sides have agreed to cooperate in developing communications projects in the Republic of Uzbekistan. These projects include the construction of a high-speed digital data transfer in Tashkent, the promotion of Internet access, and the development of a nationwide cellular network. Winncom will also train information-technology specialists in Uzbekistan by providing courses and educational seminars. The president and CEO of Winncom, Gregory Raskin, said, "The government of the Republic of Uzbekistan has indicated its intent for Winncom to assist in building a wireless infrastructure in an effort to revitalize and modernize its existing industry and accelerate the structural reforms of the country," the report said. Raskin added, "We are very excited for the opportunity to be a part of this project." (TGP)

UPCOMING CONFERENCES
AGRO-BUSINESS IN GEORGIA
The American-Georgia Business Council and the Business Information Service for the Newly Independent States (BISNIS) will host a conference called "Agribusiness in Georgia: The Potential for U.S.-Georgian Cooperation" on 25 June. The conference will be held at the Ronald Reagan Building/International Trade Center in Washington, D.C. Featured speakers include the U.S. Ambassador to Georgia Richard Miles, Georgian Minister of Agriculture David Kirvalidze, and Georgian Deputy Minister of Transportation and Communication Giorgi Nijharadze. Investment opportunities, product development, company perspectives, and U.S. support for agribusiness in Georgia are on the agenda. (TGP)

INVESTMENT AND TRADE WITH KAZAKHSTAN
A conference titled "Kazakhstan: The Premier Market for Investment and Trade" will be held on 1-2 July, at the Overland Park Marriott in Kansas City, Kansas. The event will bring together members of the Kazakh government, U.S. government, and international business community. President George W. Bush, President Nursaltan Nazarbaev, and Prime Minister Imangali Tasmagambetov have officially endorsed the event. A press conference will be held on 1 July. U.S. Senator Sam Brownback and several Kazakh Ministers will be available to answer questions. (TGP)

POLITICAL ECONOMY
TRILATERAL GAS TRANSIT CONSORTIUM FORMED (11 June)
The presidents of Russia, Ukraine, and Germany signed a joint statement pledging to establish a trilateral consortium to ensure reliable delivery of natural gas to Europe. The consortium will utilize the existing Ukrainian and Russian pipelines, according to a "joint-use" agreement that has yet to be defined, CEE News Flash (Bluebull) reported. All three presidents signed the statement in St. Petersburg, Russia. German President Gerhard Schroeder proposed that German gas giant Ruhrgas be allowed to participate in the consortium. Ruhrgas already has formal relations with the Russia gas giant Gazprom, which includes a gas-delivery contract and stock ownership. Deutsche Bank is also the lead manager of the Gazprombank Eurobond issue. Ruhrgaz and Gazprom are cooperating in the development of the Yamal natural-gas field in the Arctic, which will be a large factor in meeting future European gas needs. (PMJ)

GAZPROMBANK IS READY TO ISSUE SECOND EUROBOND TRANCHE (13 June)
Gazprombank President and Executive Board Chairman Yurii Lvov announced on 12 June that preparation for issuing the company's second five-year Eurobond tranche, amounting to 200 million euros, has begun. The actual process will most likely take place between July and September. According to the CEE newsgroup, the decision to start the project was approved on 7 June at an annual shareholders meeting. The exact timing of the Eurobonds placement will be determined after the second round is issued by Gazprombank's owner, Gazprom. According to Eurobond regulations, there should be at least 90 days between each issue. The bank's subsidiary in Holland will attract Eurobonds in exchange for the bank's 100 percent guarantee. Deutsche Bank will be the lead manager of the second tranche. The bank management believes that the new Eurobond rate will not increase above 9.13 percent annually, which was the estimated rate for the five-year Gazprom Eurobonds issue, totaling $500 million, RosBusiness Consulting reported on 11 June. The first tranche of Gazprombank's Eurobonds, totaling 200 million euros, started in December. According to the bank's executive board, Gazprombank's first Eurobond issue was divided up among 43 investors, mostly from Italy, Germany, and Great Britain. The redemption time of the issue was two years, while the dividend rate is under 10 percent. (IM/PMJ)

RUSSIA -- BELIEVE IT OR NOT
FORMER PRESIDENT YELTSIN STUDYING ENGLISH AT 71 (10 June)
In an interview broadcast on 9 June, Former President Boris Yeltsin told state-owned RTR television that he has started taking English lessons. Yeltsin commented that studying English has given him something to concentrate on in his retirement. "In order to exercise my brain, which isn't fully occupied now, I decided to start studying English at age 71," Yeltsin said, according to AP. "It's not easy,... but I am persistent." Yeltsin's successor, President Vladimir Putin, is the first modern Russian leader with a fluent command of a foreign language. Putin acquired German as a foreign language when he was posted in East Germany as a KGB agent. In his RTR interview, Yeltsin also expressed delight with increasing divisions within Russia's Communist Party. "The Communist Party is melting before our eyes," he said. "Thank God the time of living on illusions and deceiving people is over. How long can our Communist Party march under the red banner with portraits of Lenin and Stalin... calling for everything to be seized and evenly divided up and for everyone with a different point of view or who is inconvenient to be thrown in jail?" AP reported that Yeltsin looked healthy and in good spirits in the RTR interview. (TGP)

WHO IS IN? WHO IS OUT?
WESTVACOEASTPRINT TO OPEN PLANT IN RUSSIA (14 June)
MeadWestvaco Corporation and EastPrint Ltd. announced on 14 June that they will open a joint-venture plant in Moscow to produce paper-based packaging materials for use by tobacco companies. The new venture, WestvascoEastPrint, will begin production in the fall. According to a statement released by MeadWestvaco, "Several important tobacco customers are actively expanding their Russian presence, and their packaging needs will give WestvacoEastPrint a full order from the start," Reuters reported. According to PRNewswire, the new company will supply materials to both Russian-based and global tobacco companies. A senior executive was quoted in the statement as saying, "This new joint venture represents a modest financial investment but one that is consistent with our strategy of supporting the world's leading consumer products companies as they expand globally," a report on PRNewswire stated. (TGP)

TNK INTERNATIONAL APPOINTS NEW BOARD MEMBERS (13 June)
TNK International announced the appointment of two new board members. Sir Peter Walters will join TNK, one of Russia's largest oil and gas companies, as chairman of its Advisory Board. Sir William Purves will also join TNK as a member of the board. The new board has been created to "review company performance and make recommendations to the shareholders on matters concerning corporate governance, strategic planning, investment and financial activities, joint ventures, and health, environment, and safety" issues, according to a PRNewswire announcement. Walters previously served as chairman of British Petroleum (BP) and SmithKline Beecham, and as deputy chairman of GlaxoSmith Kline. Purves also was chairman of HSBC Holdings and director of Shell Transport and Trading Company. Sir Peter Walters said, "I look forward to working with TNK because of the hugely exciting prospects for and challenges facing both the company and the Russian oil industry. Good corporate governance has become a global capital markets issue, and strengthening the TNK board structure adds momentum to the company's department," according to the PRNewswire announcement. (TGP)

WHAT'S UP? WHAT'S DOWN?
WIMM-BILL-DANN INCREASES PROFITS, BUT FALLS SHORT OF EXPECTATIONS (10 June)
Wimm-Bill-Dann (WBD) announced on 10 June that its net income rose 48.6 percent in 2001. The only dairy and juice producer with countrywide distribution in Russia saw its net income rise from $21.4 million in 2000 to $31.8 million the previous year. Full-year sales increased from $465.4 million in 2000 to $674.9 million in 2001. Although the company experienced an increase in net income and sales, Wimm-Bill-Dann did not meet market expectations. Vladimir Savoy of Bruswick UBS Warburg said, "Investors were expecting a little more on both the full-year figures and the first quarter of 2002," Reuters reported. "On the other hand, the company's strategy is still strong and sound. We should not view the results as a sign of a problem." Wimm-Bill-Dann's core earnings before interest, taxes, depreciation and amortization (EBITDA) margin was 11 percent in the first quarter. Analysts will continue to watch this figure in order to judge company performance this year, Reuters reported. (TGP)

RUSSIAN ELECTRICITY UTILITY POSTS LOSSES (14 June)
Irkutskenergo, an independent Russian regional electricity utility, experienced net losses of $1.5 billion in 2001, Reuters reported on 14 June. This was a considerable jump from 2000 losses, which were recorded at $35.24 million. Irkutskenergo's financial director, Boris Isayenko, told shareholders, "The losses are due to the effect of re-evaluating fixed assets and setting up a fund to cover [bad] debts," Reuters reported. Irkutskenergo's sales jumped from $297.7 million in 2000 to $342.15 million in 2001. Operational spending rose from $314.8 million to $466.42 million in the same period. (TGP)

GOVERNMENT INSURED OSTANKINO TOWER (12 June)
The Russian government has insured the Ostankino television tower against fire and terrorist attacks. The federal agency Russian Television and Radio Telecommunications Networks (RTRTN) signed a $114 million insurance agreement with Gosinkor Holdings' subsidiary, GUTA Insurance, "The Russian Journal" reported on 7 June. The insurance does not extend to the telecommunications equipment owned by the approximately 20 independent TV channels and radio stations operating in the tower. The radio and TV owners insure the equipment independently. GUTA Insurance Managing Director Sergei Fedorov said, "Insuring a television-relay tower is not only unprecedented in Russia, but is also indicative that the domestic insurance market is maturing and gaining trust from private companies and government agencies," "The Russian Journal" reported. GUTA Insurance's charter capital is about 428 million rubles (about $14.3 million), but it plans to increase this amount to 1 billion rubles (about $33 million) by the end of 2002. GUTA Insurance's partners are international insurance broker Marsh and the Russian insurance giant Rosno. According to the insured risk policy, GUTA Insurance insured 2 percent of the risk, which is about $2 million. Marsh insured 68 percent (about $68 million) and ROSNO 30 percent (about $30 million). According to "The Russian Journal," Marsh reinsured 10 percent of its risk share with Ingosstrakh. Information concerning the amount paid by RTRTN was not released, but experts estimate the figure at 0.3 percent of the insured amount. The need to insure the Ostankino Tower arose after a devastating fire raged through the tower on 27 August 2000. Ostankino was built in 1967, and at the time was the world's tallest structure at a cost of about 2.8 billion rubles (about $80 million). The government agency Gosstroi spent more than $60 million to rebuild the structure after the August fire. Ostankino weighs approximately 51,400 tonnes, and occupies about 70,000 cubic meters. (PMJ)

PROFILE
NAZIR KHAPSIROKOV: VALIDATING RUSSIANS' WORST FEARS? (Part 2)
Nazir Khapsirokov's appointment as deputy to Russian Presidential Administration chief Aleksandr Voloshin, following a career of controversy and allegations of corruption and bribery, illustrates the power and usefulness of a career in the Prosecutor-General's Office can be -- even for the powers that be within the Russian president's entourage. The Russian media have often been filled with stories related to Khapsirokov and the use and abuse of the Prosecutor's Office to punish and hound enemies: the suggestion being that anything is possible for a price. Some of the allegations concerning Khapsirokov are covered below. While his activities have not received wide coverage in the Russian press recently, his continued presence in the Kremlin administration raises questions. It also points to the fact that much of former President Boris Yeltsin's old guard remains in power.

In 1993, Khapsirokov was appointed to a position in the Prosecutor-General's Office. He rose to become head of administrative affairs with responsibilities ranging from allocating housing and transportation to investigating staff at the Prosecutor's Office. He also effectively used his position to exercise control over the office's multimillion-dollar construction program. As a result of his position, Khapsirokov had ample opportunity to arrange kickbacks for himself and cooperative Prosecutor's Office staffers. He was in the perfect position to offer special "deals" to those whose friendship and trust he sought to develop and to whom he could later turn for assistance. "Kommersant" reported on 13 February that "tens of millions of dollars" were spent on Prosecutor's Office housing in "recent years." The implication was that housing was used by Khapsirokov to bribe Prosecutor's Office investigators and/or that he was skimming money off the top of projects for himself and his friends.

One of the most-talked-about investigations into the corrupt practices of the Yeltsin years was the Mabetex scandal. Mabetex was at the heart of an investigation by Swiss authorities into a construction-renovation project at the Kremlin. The case ultimately led to the detention of Pavel Borodin, the former Kremlin property chief who was wanted by Swiss authorities for questioning in New York City. It has been alleged that Borodin was involved in a kickback scheme involving the awarding of contracts for refurbishing Kremlin buildings. Swiss prosecutors have claimed that members of the "family" -- including Yeltsin's daughter, Tatyana Dyachenko -- were involved.

Some Russian media have speculated that the request by former Deputy Prosecutor-General Mikhail Katyshev to be removed from an investigation of the "family" in the Mabetex affair after becoming the owner of a new apartment provides evidence of kickbacks and of Khapsirokov's involvement. This slowed the investigation.

Moreover Khapsirokov and then-Federal Security Service (FSB) chief Vladimir Putin allegedly played an instrumental role in gathering compromising material ("kompromat") in the 1999 ouster of former Prosecutor-General Yurii Skuratov, who was pressing investigations of "family" activities, including the Aeroflot and Mabetex cases ("Moskovskii Komsomolets," 5 February 2000; "Segodnya," 21 March 2000; compromat.ru, 10 March 2000; "Novaya gazeta," 22 February, 6 April, and 23 March 1999; and gazeta.ru, 2 April 1999). This included the notorious video of the prosecutor-general in the Russian sauna with prostitutes.

Khapsirokov also reportedly was involved in an elaborate construction kickback operation in St. Petersburg. According to numerous sources, Turkish construction firm ATA in 1995 inflated costs for refurbishing the St. Petersburg Prosecutor-General's Office building. The original contract was for $2 million, but the final bill came to almost $6 million, "Sovershenno Sekretno" reported in March 1998. Khapsirokov, who had concluded the contract with ATA, spirited the difference to Swiss bank accounts ("Sobesednik," 21 December 2000 and "Moskovskiye novosti," 19 September 2000). This begs questions about his relationship with President Putin, who worked in the St. Petersburg mayor's office during the same period.

According to "Segodnya" on 21 March 2000, Khapsirokov has maintained "good relations" with Putin for some time and also appears to have enlisted the then-acting president and premier in legalizing the extortion of lawsuit targets by the prosecutor-general. According to this hypothesis, Putin's alleged involvement in Khapsirokov machinations could make him vulnerable to pressure from the former "gray cardinal" (gray eminence) at the Prosecutor-General's Office. It is for that reason that Khapsirokov's appointment to the position of assistant to Presidential Administration chief Aleksandr Voloshin was considered a possible attempt by Voloshin (a "family" man) to gather information on Putin. A different view is that the appointment is another effort to balance between the various interests of the main rival clans, the "chekists" and the "family." Voloshin appears to have eventually found a position where Khapsirokov can again work in his "specialty" ("Segodnya," 2 February 2001) after he was removed from the GP's office. Speculation continues that Khapsirokov continues to influence the prosecutor-general (grani.ru, 7 February 2001). Hence, he would be an invaluable asset for either clan in the Kremlin.

In summary, Khapsirokov appears to have been brought into the Kremlin to bolster the Voloshin faction. The struggle in the Kremlin for power and influence continues between the Yeltsin holdovers and those of the so-called "chekist" faction.

Khapsirokov's activities support the view that Russian law enforcement is primarily used as a weapon in the never-ending struggle between the country's "oligarchic clans." The target of these machinations is the vast property holdings of those who benefited from the Yeltsin years. The outcome will be a "redistribution of property" in their favor.

"Novaya gazeta," citing information gathered by police investigators, further reported on 1 December 1998 that by the time Khapsirokov was in place at the Prosecutor-General's Office, he had established "contacts" with a number of organized-crime figures and that Khapsirokov's office and mobile telephone numbers turned up in a number of gangsters' address books. Khapsirokov allegedly acted as a "roof" (krysha), or shelter, for gangsters. "Novaya gazeta" implied that Khapsirokov was behind the stalled investigations of the contract murders of TV executive Vladislav Listev (1995) and Duma deputy Galina Starovoitova (1998).

These allegations concerning Khapsirokov support a view held by many in Russia -- that power, crime, politics, and money are intimately connected on a scale that was unimaginable during the Soviet period. It also raises questions as to the power of the Russian president's office in controlling the direction of his own administration. Khapsirokov is a case study in how connections are used by the powerful and by clans to protect friends and harm enemies. Khapsirokov has been described as one of the most odiously corrupt officials of the Yeltsin period, and he was reappointed under the Putin regime. (PMJ)

(Part 1 of the Profile on Nazir Khapsirokov appeared in "RFE/RL Business Watch" on 4 June.)

IN FOCUS
TRANSCAUCASUS A BELLWETHER FOR BUSH-PUTIN COOPERATION PLEDGE (6 June)
The Russia-U.S. summit was accompanied by great expectations as Presidents Vladimir Putin and George W. Bush attempted to usher in a new era of bilateral relations. Great attention was focused on the strategic arms agreement as the culmination of the end of the Cold War. Perhaps a better barometer of the change in Cold War weather, however, was a joint statement signed by Putin and Bush on 24 May. According to various media outlets, the leaders pledged not only to cooperate in resolving ongoing conflicts in the former Soviet Union, but also to promote economic and political development in the post-Soviet states.

During the summit, Presidents Bush and Putin called upon the presidents of Armenia and Azerbaijan to "exhibit flexibility and a constructive approach" to resolving the Nagorno-Karabakh conflict and offered future assistance. The two leaders also expressed their commitment to settling conflicts in the Transdniester region as well as in Georgia's Abkhazia and South Ossetia. On 25 May, Georgian President Eduard Shevardnadze spoke out in support of plans that could resolve the conflict and at the same time maintain Georgia's territorial integrity.

Azerbaijan also expressed satisfaction with a joint statement made by the Russian and U.S. presidents. The status of the ethnic Armenians in Azerbaijan is one of the most complicated in the former Soviet republics, AP reported. Azerbaijan and Armenia fought a war in a conflict that has cost the lives of up to 30,000 people since 1994. The war ended in a cease-fire, and the failure to resolve the conflict has negatively affected regional economic development. Azerbaijani External Relations Department Chairman Novruz Mammadov said, "We welcome the readiness of the U.S. and Russia to help to resolve the Armenian-Azerbaijani conflict, but at the same time we think that the presidents of Russia and the U.S. should not be satisfied with calls but should exercise direct influence on the process." Azerbaijani President Heidar Aliyev on the same day urged Russia to take a more active role in settling the dispute. "I think that Russia, more than any other country, can play a decisive role in the peaceful resolution of the Armenian-Azerbaijani conflict. I would like this power to be used," Aliyev said. One commentator referred to the joint statement and the presence of U.S. troops in the Caucasus and Central Asia as putting an end to the Russian concept of a "near abroad."

Following the summit, evidence of Russia's interest in developing economic cooperation with former Soviet states could be seen in an agreement on pipeline cooperation. On 29 May, the "Daily Report on Russia and the Former Soviet Republics" reported that Russia's Rosneftegazstroi and the Georgian International Oil Companies (GIOC) agreed to establish a joint venture, Gruzrosneftegazstroi, to promote pipeline projects. This may be the most positive, tangible outcome of the Bush-Putin meeting. In a telephone interview conducted with GIOC President Giorgi Chanturia by the "Daily Report on Russia and the Former Soviet Republics," Chanturia acknowledged that after the Bush-Putin summit the time was right for greater cooperation between Georgia and Russia, especially in the economic realm.

Any success by the proposed Russian-Georgian joint venture in building a branch pipeline linking the Russian port of Novorossiisk with the Georgian oil terminal at Supsa will have powerful political implications for the resolution of the Abkhaz conflict. The construction of an oil pipeline connecting the Russian port to the Baku-Tbilisi-Ceyhan pipeline could be tied to the renovation of a railroad through breakaway Abkhazia to Supsa, Georgia. This could relieve pressure on Novorossiisk for Russian oil exports, especially during the winter months. Turkey would benefit from reduced Bosporus tanker traffic. Armenia could also benefit from a reactivated railroad carrying Russian goods and trade. The railway through Abkhazia has not operated since the Georgian-Abkhaz conflict in 1992-93.

In short, many believe that the greater involvement of Russian businesses in pipelines and other investments throughout the Caucasus could positively contribute to the resolution of simmering conflicts. The outlines of these regional projects are clear and the benefits apparent, but questions as to Russia's willingness to facilitate them remain. Thus far, genuine economic and political cooperation in the region has been elusive. The Gruzrosneftegazstroi proposal is not the first of its kind. In March, GIOC attempted to form a joint venture with LUKoil that was similar to the current proposal but failed to make any progress. Rosneftegazstroi is also interested in participating in the construction of the Baku-Tbilisi-Ceyhan (BTC) pipeline, as was LUKoil until it unexpectedly pulled out of the BTC consortium.

Cooperation in regional economic projects matched with political engagement may become a workable formula for Russian-U.S. cooperation in the Transcaucasus. Joint efforts would help confirm that the Bush-Putin relationship offers real possibilities for partnership and progress. However doubts remain about Russia's ability to become fully integrated into Western structures and the global international community. For example, on 29 May the third Russian television channel leaked supposedly classified information in the program "Antideza." That information was supposedly drafted in mid-February and obtained from sources within the U.S. State Department. The document was clearly forged. Forgeries were commonly used for black propaganda and active measures against U.S. interests during the Cold War. Documents were concocted by wrapping false information around plausible information leading the reader to a different conclusion. The KGB Service A, or disinformation service of the First Chief Directorate, under the direction of the International Department of the Communist Party normally crafted them. But in today's Russia, central authority and planning no longer keep private forces from improvising even forgeries such as this. However, the use of these techniques shortly after President Bush's trip and during the NATO signing ceremony is a troubling indication that all is not what it seems.

The transmission belt of the forgery must be analyzed. Television 3 is controlled by Mezprombank's (MPB) owner, Sergei Pugachev. It is the same channel that has been launching media attacks on Prime Minister Mikhail Kasyanov. More important is the orientation and ties of Pugachev (see "Profile" in "RFE/RL Business Watch," 16 and 23 April 2002). Pugachev has reputedly become the banker to the "chekist" faction from St. Petersburg that continues to vie for power and influence in the Kremlin. The "chekists" are related to the most unreformed elements of the security services. Their hatred for Shevardnadze and distaste for the U.S. presence in Central Asia and the Caucasus might help explain this forgery. Meanwhile, the struggle for control of the Kremlin continues to rage. Kasyanov, with his links to Voloshin and former members of the "family," is another target for removal.

The forged U.S. State Department internal document is rather crude. It pertains to the situation in Georgia and contains some legitimate concerns. But the scenarios that are spun out -- kidnappings, terrorist attacks, bombings, assassinations, and the landing of U.S. troops -- are preposterous and lack credibility. The wording and phraseology are also odd, including "terroristic acts" (rather than acts of terror) in Tbilisi and other Georgian towns. The document discusses the "destabilization of the situation in the republic up to the state coup. Rather dramatic consequences for President Shevardnadze are not excluded." Information is marked with the stamp "Confidentially, only for first persons of the U.S. State Department," which is another uncommon category of document classification and usage. Sources in the U.S. government confirm it is a forgery. But the most troubling aspect of the use of such a clumsy document is its timing. First, the release of the document occurred during activities surrounding the U.S.-Russian summit. This is unique and unparalleled even during the Soviet period. Second, the leak came just before Georgian local elections.

The question therefore remains: Can President Putin manage to lead his country away from the ways of the Soviet period to a new global position that is not defined by opposing the United States in a zero-sum game? Can President Bush manage to facilitate Russia's integration into the Western community while at the same time preserving the principles required to maintain domestic support and international standing? The pledge to cooperate in the Transcaucasus provides the most difficult challenge and clearest framework for evaluating whether Russia is ready for Western prime time. (PMJ/TGP)

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