COUNTRY OVERVIEW
President (Acting): Vladimir Putin (since December 31, 1999)
Premier: Vladimir Putin
Independence: August 24, 1991 (from Soviet Union). National holiday: Independence Day, June 12, 1990
Population (7/99E): 146 million
Location/Size: Eurasia/6,592,850 sq. mi., slightly more than 1.8 times the size of the United States
Major Cities: Moscow, St. Petersburg, Yekaterinburg, Irkutsk, Murmansk, Yakutsk, Vladivostok
Languages: Russian, others
Ethnic Groups: Russian (81.5%), Tatar (3.8%), Ukrainian (3%), and 100 other nationalities (11.7%)
Religions: Russian Orthodox, Muslim, other

ECONOMIC OVERVIEW
Currency: Ruble
Market Exchange Rate (2/14/00): $1 = 28.90 rubles
Gross Domestic Product, or GDP (1998 purchasing power parity): $593.4 billion
Real (adjusted for inflation) GDP Growth Rate (1998): -5%; 1999 estimate 1.5%
Inflation Rate (1999E): 43%
Current Account Balance (1999E): $13.0 billion
Merchandise Exports (1998): $71.8 billion
Merchandise Imports (1998): $58.5 billion
Major Exports: Petroleum and petroleum products, natural gas, wood and wood products, metals, chemicals, and a wide variety of civilian and military manufactures
Major Imports: Machinery and equipment, consumer goods, medicines, meat, grain, sugar, semifinished metal products
Major Trading Partners: Belarus, Cuba, Germany, Japan, Ukraine, United States
Monetary Reserves (gold and hard currency)(1999E): $11.5 billion
Foreign Debt (1/1/00E): $166.2 billion

ENERGY OVERVIEW
Minister of Fuel and Energy: Viktor Ivanovich Kalyuzhnyy
Proven Oil Reserves (1999E): 49-55 billion barrels (estimates vary)
Oil Production (1999E): 5.90 million barrels per day (bbl/d)
Oil Consumption (1998): 2.46 million bbl/d
Crude Refining Capacity (1/1/00E): 6.6 million bbl/d
Net Oil Exports outside FSU (1998): 3.5 million bbl/d
Net Oil Exports within FSU (1998): 0.3 million bbl/d
Major Oil Customers: CIS, Europe
Natural Gas Reserves (1/1/00E): 1,700 trillion cubic feet (Tcf)
Natural Gas Production (1998): 20.9 Tcf
Natural Gas Consumption (1998): 13.9 Tcf
Coal Reserves (1/1/99E): 173 billion short tons
Coal Production (1998): 272.5 million short tons (Mmst)
Coal Consumption (1998): 262.6 Mmst
Electricity Production (1998): 772 billion kilowatt-hours

ENVIRONMENTAL OVERVIEW
Chairman, State Committee for Environmental Protection: Viktor Ivanovich Danilov-Danil'yan
Minister of Natural Resources: Boris Aleksandrovich Yatskevich
Total Energy Consumption (1998E): 26.0 quadrillion Btu* (6.9%) of world total energy consumption)
Energy-Related Carbon Emissions (1998E): 405.0 million metric tons of carbon (6.6% of world carbon emissions)
Per Capita Energy Consumption (1998E): 177.3 million Btu (vs. U.S. value of 350.7 million Btu)
Per Capita Carbon Emissions (1998E): 2.8 metric tons of carbon (vs. U.S. value of 5.5 metric tons of carbon)
Energy Intensity (1998E): 74,200 Btu/ $1990 (vs U.S. value of 13,400 Btu/ $1990)**
Carbon Intensity (1998E): 1.2 metric tons of carbon/thousand $1990 (vs U.S. value of 0.21 metric tons/thousand $1990)**
Sectoral Share of Energy Consumption (1997E): Industrial (64.3%), Residential (17.9%), Transportation (17.1%), Commercial (0.7%)
Sectoral Share of Carbon Emissions (1997E): Industrial (64.8%), Transportation (17.8%), Residential (17.4%)
Fuel Share of Energy Consumption (1998E): Natural Gas (54.1%), Oil (19.8%), Coal (16.5%)
Fuel Share of Carbon Emissions (1998E): Natural Gas (50.0%), Coal (26.7%), Oil (23.3%)
Renewable Energy Consumption (1997E): 2,482 trillion Btu* (1% increase from 1996)
Number of People per Motor Vehicle (1997): 6.5 (vs. U.S. value of 1.3)
Status in Climate Change Negotiations: Annex I country under the United Nations Framework Convention on Climate Change (ratified December 28th, 1994). Under the negotiated Kyoto Protocol (signed on March 11th, 1999, but not yet ratified), Russia has agreed to stabilize greenhouse gases at 1990 levels by the 2008-2012 commitment period.
Major Environmental Issues: Air pollution from heavy industry, emissions of coal-fired electric plants, and transportation in major cities; industrial, municipal, and agricultural pollution of inland waterways and sea coasts; deforestation; soil erosion; soil contamination from improper application of agricultural chemicals; scattered areas of sometimes intense radioactive contamination
Major International Environmental Agreements: A party to Conventions on Air Pollution, Air Pollution-Nitrogen Oxides, Air Pollution-Sulphur 85, Antarctic-Environmental Protocol, Antarctic Treaty, Biodiversity, Climate Change, Endangered Species, Environmental Modification, Hazardous Wastes, Law of the Sea, Marine Dumping, Nuclear Test Ban, Ozone Layer Protection, Ship Pollution, Tropical Timber 83, Wetlands and Whaling.  Has signed, but not ratified, Air Pollution-Sulphur 94.

* The total energy consumption statistic includes petroleum, dry natural gas, coal, net hydro, nuclear, geothermal, solar and wind electric power. The renewable energy consumption statistic is based on International Energy Agency (IEA) data and includes hydropower, solar, wind, tide, geothermal, solid biomass and animal products, biomass gas and liquids, industrial and municipal wastes. Sectoral shares of energy consumption and carbon emissions are also based on IEA data.

**GDP based on EIA International Energy Annual 1998

After months of instability following the 1998 financial crisis, Russia's economy is showing signs of stabilizing. Russia's gross domestic product (GDP), after declining by 7-8% after the crisis, rose by about 1% during the second quarter of 1999. In addition, the Russian ruble has also stabilized, reducing the upward pressure on the cost of imported goods and consumer prices.

Russia's economic turnaround has been driven in large part by increases in its industrial production, which was about 6% higher during the first 8 months of 1999 compared to the same period a year earlier. Industrial output rose, in part, because the sharp decline in the value of the ruble in 1998 made domestic goods more price-competitive with imported goods. Improvements in the trade balance also helped the economy, as imports declined and exports increased (helped greatly by sharply higher world oil prices).

Meanwhile, fears of Y2K-related power disruptions in Russia proved unfounded. Despite international worries that Russian power grids and nuclear plants were not prepared to handle the Y2K computer bug, Russia greeted the New Year without problems.

OIL

Privatization

Legislation, Regulation, and Related Issues

Oil Exports

The majority of Russian oil is exported via terminals in the Baltic and Black Seas. Black Sea exports must pass through the increasingly crowded Bosporus Straits. Russian crude oil also is exported to Europe via the 1.2-million bbl/d capacity Druzhba (Friendship) pipeline. As traditional export routes through Black Sea ports have been running at full capacity, companies are turning toward the Baltic ports and the Druzhba pipeline as alternatives. Estonia, Latvia, and Lithuania are attempting to secure to get a bigger share of Russian oil exports.

To increase export capacity, Russia has a number of plans to build new export terminals and pipelines and to expand capacity at several existing terminals. The Baltic Pipeline System is the largest new pipeline export scheme proposed outside of the Caspian region. The proposal involves the construction of three ports on the Russian Baltic coast--at Ust-Luga, Bukhta Batereinayaat, and Primorsk.

Caspian Sea Activities
Russia has raised the stakes in its bid to become a major transit center for oil from the Caspian Sea Region. The legal status of the Caspian and the division of its wealth of resources are major points of contention between the states that border the sea (Azerbaijan, Russia, Turkmenistan, Iran, and Kazakhstan). Although an agreement was signed between Turkey, Azerbaijan, and Georgia in November 1999 for the construction of a pipeline bypassing Russian territory, Russia continues to be a major player in Caspian Sea energy politics.

Russia is pushing for the main export pipeline of the Azerbaijan International Oil Consortium (AIOC) in Azerbaijan to be routed through Russia to the port of Novorossiisk instead of to Ceyhan or to the Black Sea port Supsa, Georgia, where a 100,00 bbl/d pipeline is already in operation. In the meantime, Russia is guaranteeing its inclusion in the potential Caspian wealth through the construction of a 980-mile pipeline by the Caspian Pipeline Consortium. The pipeline, which is already under construction, will have the capacity to export 1.34 million bbl/d from the Tengiz field in western Kazakhstan to a terminal near the Black Sea port of Novorossiisk by 2015.

Meanwhile, the Transneft oil transport company announced in late December 1999 the completion of the first stage of a Baku-Novorossiisk pipeline bypassing Chechnya, and despite an estimated cost of $250-$300 million, the ongoing Chechen conflict may make the bypass pipeline more attractive. Russian oil strategists also are considering the feasibility of reviving a discussed pipeline located in the Astrakhan salient to pump Kazakh oil to Black Sea terminals, with a small branch that could provide a link to the under-utilized Baku-Novorossiisk route.

Many Russian refineries are relatively unsophisticated, oriented towards heavier products, and in need of modernization. Despite numerous economic, financial, and technical problems, several major refineries are undertaking modernization programs. The Yaroslavl 359,000-bbl/d refinery is undergoing a $416 million upgrade by 2002, and NORSI-Oil is undergoing a $350 million upgrade on its 438,000-bbl/d refinery by 2005. However, financial constraints still prevent most Russian refineries from undertaking major modernization work to boost efficiency.

NATURAL GAS
Since the breakup of the Soviet Union, Russian gas production has remained relatively steady, with a drop in annual output of only 1.7 trillion cubic feet (Tcf), or 8%, from 1992 to 1998. Consumption, however, has declined over 15%--from 16.5 Tcf in 1992 to 13.9 Tcf in 1998. As the world's largest producer of natural gas, Russia's gas production still far exceeds the country's consumption, and the excess 7 Tcf in 1998 helped maintain Russia's status as the world's largest gas exporter.

Russia's natural gas industry is dominated by Gazprom, which controls more than 95% of Russia's gas production. Gazprom oversees eight production associations, operates Russia's 88,000-mile gas pipeline grid, runs trading houses and marketing joint ventures in many European countries, and controls one-fifth of the world's natural gas reserves.

The Russian government recently approved a draft federal law envisaging development of the Russian gas market by setting up trade companies, encouraging investment opportunities, and gradually liberalizing prices. This follows on reforms aimed at ending Gazprom's monopoly position by offering equal access and competitive rates on Russia's national pipeline network to all, as well as abolishing price controls on gas sold by independent producers.

Still, Gazprom is Russia's largest earner of hard currency, and its tax payments account for around 25% of federal government tax revenues. Russia's gas industry is heavily dependent upon exports since only about 15-20% of Gazprom's domestic consumers pay promptly and in cash. As a result of the approximately $2.7 billion debt of domestic gas consumers, Gazprom has been unable to make all of its tax payments.

The Russian government is squeezing Gazprom's bottom line with a planned 5% natural gas export duty in 2000. In an effort to boost its cash flow, in late December 1999 the Gazprom board announced that the price of natural gas for Russian industry would be increased by 40%-50%, and that gas supplies for power generation would be reduced. Gazprom also is stepping up pressure on foreign debtors to pay their bills.

Exports and International Projects
Gazprom is attempting to diversify its gas export strategy to bring in more hard currency. In 1999, Russian gas exports outside the former Soviet Union were up by 5%, rising by over 200 billion cubic feet (Bcf) to reach 4.5 Tcf per year on the strength of a 350 Bcf per year jump in exports to Western Europe. Exports to Germany, Italy, and France all rose in 1999, and Gazprom forecasts another 140 Bcf hike in total exports in 2000 to lift the annual tally to 4.6 Tcf per year.

Russian gas exports to Turkey, up 33% in 1999, should continue rising this year, paving the way for a big leap in deliveries when the highly anticipated Blue Stream gas pipeline begins operations. Despite falling 6 months behind the original schedule, Gazprom still is trying to meet the original target of 2001 for commencing deliveries. By the beginning of 2001, Turkey should receive some 138 Bcf of extra natural gas annually from Russia. Gazprom is also working on expanding transit capacity through Romania and Bulgaria to allow for an eventual increase in deliveries to Turkey via the Balkans.

Gazprom's long-term aim is to reduce gas transit via Ukraine to between 35-40% of all exports outside the former Soviet Union (from around 90% now). Russia-Ukraine relations have been strained by allegations of Ukrainian natural gas theft, and Gazprom believes that transit capacity through Ukraine will decline because of Ukraine's failure to invest in maintaining its transit infrastructure. Gazprom also is seriously considering building a second leg of the Yamal-Europe pipeline to double capacity on the route, although it is not likely to be needed for a number of years.

COAL
Coal accounted for roughly 17% of Russia's domestic energy supply in 1998, down from approximately 20% in 1997. Russian coal production and consumption have followed a downward trend since the breakup of the Soviet Union, with production experiencing a 33% drop between 1992 and 1998 and consumption falling nearly 30% over the same time period.

The precipitous drop in coal production and consumption is a result of the painful restructuring of Russia's economy. Russia's restructuring plan calls for the closure of all unprofitable coal enterprises, with the intention of using the money saved from these closures to upgrade more profitable mines.

With $800 million in financing provided by the World Bank's Second Coal Sector Adjustment Loan, the government has embarked on the second phase of its restructuring program, attempting to completely liquidate the national coal company, RosUgol, and establish a substantially improved subsidy management system. In addition, the plan includes funding for an adequate social safety net to affected workers, their families and communities, as well as the continuing reduction of coal subsidies that sustain inefficient and uneconomic mines.

However, implementation of the restructuring program has been slow due to labor unrest and strikes in the coal industry, and even efficient mines in Russia are not without problems. Payment arrears have made it nearly impossible for mines to pay workers and purchase needed supplies and equipment. The country's financial crisis of August 1998 exacerbated these problems, and the coal sector is still feeling the effects. Russia's coal mining industry is likely to undergo further painful changes in coming years in its attempt to become more efficient and profitable.

ELECTRICITY
Russian power generation has continued a steady pattern of decline since the breakup of the Soviet Union. Power generation has dropped nearly 20% since 1992, from 964 billion kilowatt-hours (Bkwh) to 772 Bkwh, largely as a result of the transition to a market economy. Russian electricity consumption has followed a similar downward trend, falling from 880 Bkwh in 1992 to only 703 Bkwh in 1998.

Russia has a total of 440 thermal and hydroelectric stations, with a production capacity of 132 gigawatts (GW) and 44 GW, respectively, with 13 thermal electric stations with over 1,000 megawatt (MW) capacity and 13 hydro stations with over 1,000 MW capacity. Total current electric generation capacity is 205 GW, down from 213 GW in 1992 but still enough production potential to supply Russian producers and the public with electricity, as well as meet the country's obligation of export contracts. However, fuel shortages at power stations, as well as inefficient and obsolete capacity, are cause for power outages.

Russia's electricity sector is controlled by the majority state-owned Unified Energy Systems of Russia (UES). The UES, headed by former privatization minister Anatoly Chubais, controls 70% of the country's distribution system and oversees Russia's 72 regional electricity companies. Chubais has identified a number of priorities for UES, including abolition of payments arrears by customers, introduction of competition in the production and wholesale electricity markets, and pursuit of more rational pricing policies.

Without significant investments and equipment upgrades in the electricity sector, regional power shortages will likely be more widespread. Only 1 GW per year of new plant capacity was built during the past 5 years, and installation of new power lines also has dropped markedly. Russian officials estimate that the country will need $6 billion-$11 billion annually from 2001 to 2005 to carry out expansion plans. Financing will be difficult to secure domestically, especially in light of continuing payment collection problem by the power companies.

In August 1999, Gazprom announced it would supply significantly less gas to power producers in 2000-2002. UES analysts have estimated that reduced gas supplies will mean production at power stations will decrease by 40 Bkwh in 2000, by 70 Bkwh in 2001, and 100 Bkwh in 2002. Because of the reduced supplies, UES announced plans to spend $1.25 billion to convert all its power stations from gas to coal and other types of fuel. The decreased reliance on gas and the need to increase coal consumption to produce electric power will also cause more ecological problems with increased pollution.

Nuclear
Russia has 9 operating nuclear plants and a total installed capacity of 21 GW, accounting for 13% of the country's total generating electricity capacity. Russia maintains that its reactors are among the safest in the world, but safety issues are an ongoing concern, especially with regard to the 16 relatively old reactors of the design used at Chernobyl. However, Russian nuclear power plants entered year 2000 without any problems related to the Y2K computer bug. Although financing was low, the transition to 2000 went smoothly for Russian nuclear plants, defying many Western forecasts of possible accidents.

By 2001, four of Russia's 29 nuclear plants will be aged 30 years or older, the maximum prescribed service life for a reactor. By 2007, as many as 10 Soviet-era reactors will come to the end of their prescribed service life. Extending that service life has become a priority, but the industry lacks the large amount of money that renovation and modernization would require.

Lack of funding has forced Russia to focus on completing near-complete nuclear generating units rather than building new ones. The 1,000 MW Rostov 1 reactor is scheduled to be completed by end-2000, while the 1,000-MW Kalinin 3 and the 1,000-MW Kursk 5 reactors also should be operational this year. Russia's economic woes have put on hold plans to build any new nuclear plants, and the country will need private financing to cover the estimated cost of $1.5 billion per new nuclear reactor.

RENEWABLES
Hydropower accounts for 43 GW of Russian generating capacity, about one-fifth of the country's total. Over 70% of this is accounted for by 11 stations of more than 1 GW capacity, led by three of the four largest power stations in Russia: the 6.4-GW Sayano Shushenskoye station in Khakassia; the 6.0-GW Krasnoyarsk station in Krasnoyarsk province; and the 4.5-GW Bratsk station in Irkutsk province.

Russia has a single 11 MW geothermal plant (built in 1966) at Pauzhetskaya in the Kamchatka region. A 7-MW addition is planned by the year 2010. Another 80-MW geothermal power plant is under construction at Mutnovsk in the Kamchatka region. The European Bank of Reconstruction and Development signed a $100-million agreement for the construction of the first stage of this station; total costs are expected to reach $500 million for the power plant and $120 million for the pipeline. There are a total of 9 geothermal fields in Kamchatka, with an estimated aggregate capacity of 380-550 MW. In addition, a 30-MW power plant is planned for Iturup Island in the Kuril Archipelago.

ENVIRONMENT
After years of neglect under the Soviet Union, the environment has become a pertinent issue in today's Russia. Soviet policies that encouraged rapid industrialization and development left a legacy of air pollution and nuclear waste that Russia is struggling to clean up. Although environmental awareness in Russia is rising, the cost of environmental remediation remains high.