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January 29, 2005

Alexey Miller convenes meeting on Gazpromís restructuring

Alexey Miller, Gazpromís Management Committee Chairman convened a meeting dedicated to the corporate governance structure enhancement. Attending the meeting were members of the Management Committee and heads of Gazpromís structural units.

The participants summarized the progress in the preparations for the 2nd stage of the Companyís restructuring and reviewed proposals by a Working Group on a feasibility study and legal documentation for the reforms as well as on social packages for Gazpromís employees.

At the same time, the meeting explored in depth the unbundling of non-core businesses and the consolidation of the upstream and downstream sectors, with special emphasis falling on gas transmission, as well. The projected intra-corporate innovations stipulate the foundation of separate gas production and transmission subsidiaries to be cleared of non-core business. This move is expected to foster the transparency of gas transmission expenses as well as their objective disclosure when setting regulated gas transmission tariffs.

The parties also underscored the already commenced gearing up for the planned reforms, namely the setting up of an independent gas transmission business on the platform of Gazpromregiongaz founded in 2004.

Another step to be made in the short term is incorporating the Gazprom-UGS subsidiary that will comprise under leasing terms 24 underground gas storage facilities being operated nowadays by gas transmission companies.

Simultaneously, the meeting addressed the timing of structural changes at the subsidiariesí level. The year 2005 is scheduled to see a feasibility study resultant in the assessment of opportunities for the foundation of new subsidiaries preliminarily business-named as Gazprompererabotka (will oversee gas and liquid hydrocarbon processing and will potentially include the Sosnogorsk Gas Processing Plant, Surgut Condensate Stabilization Plant and a condensate treatment unit supplying feedstock to Urengoygazprom), Gazpromneftedobycha (oil and condensate extraction), Gazpromavtogaz (automated gas-filling compressor stations) and repair & maintenance units.

Thus, the aforementioned reforms will allow Gazprom to have its upstream and midstream sectors separated and cleared of non-core and auxiliary businesses, with expenses becoming transparent.

Furthermore, the Companyís next actions will be completing the communications sector consolidation and setting up specialized investment firms.

At the end of the meeting, the Working Group was tasked with finalizing before 15 February the paperwork relative to structural changes within gas transmission subsidiaries; to business schemes of projected firms in the power generation and technological communications sectors; additional analysis of restructuring risks in the social field.

The meeting mostly approved the consolidation of gas production, processing, storage, distribution and marketing through automated gas-filling compressor stations; well servicing; repairs and maintenance; repairs and construction along with investment; procurement and transportation and a range of other sectors.

ďThe work done to improve Gazpromís governance structure enables us to get to the implementation of the 2nd phase of restructuring at the subsidiariesí level under the schedule, that is in 2005. Weíre almost set to go on with the reforms,Ē- maintained Alexey Miller.


Gazpromís intra-corporate governance structure is being improved within the 2nd stage of the Companyís restructuring aimed at the enhancement of Gazpromís business efficiency as a vertically integrated company and optimization of the subsidiariesí core businesses.

The main challenges of the 1st stage of Gazpromís restructuring, namely improving the parent companyís governance structure, regulatory procedures and budgeting system, have been largely met.

The structural changes are expected to end up in the full unbundling of financial flows in the gas and liquid hydrocarbon production, transmission, processing, underground storage and marketing.

Along with consolidating its core businesses, Gazprom intends to have independent repair & maintenance units, distribution networks and social facilities.

Said reforms will allow the Company to achieve transparent gas production, transmission and marketing expenses.

Consolidating the core businesses will enhance the entire Gazprom Groupís operating efficiency and governance quality.





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