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On July 11 the rating agency Standard & Poor's has upgraded the long term credit ratings of OAO LUKOIL from "BB" to "BB +". The outlook is Positive. At the same time, the rating according to national scale has been raised from "ruAA" to "ruAA +". Upgrading of the ratings reflects the continued growth of cost efficiency of the company within the first quarter of 2006 (net profit per barrel was USD 9, what is by 29 per cent higher than the relevant indicator of the first quarter of 2005). Standard & Poor's expects that in future the gains of LUKOIL Group and its resistance to oil prices decline will continue to grow due to rapidly increasing gas production.

Credit rating of GMK Norilsk Nickel in 2006 was also upgraded by two leading rating agencies. Thus, on August 8 the international rating agency Standard & Poor's has upgraded the ratings of OAO GMK Norilsk Nickel from "BB+" to "BBB ".

This is the highest rating among private companies in Russia. The Outlook "Stable".

At the same time, the rating according to the Russian national scale was confirmed at the level of "ruAA +". According to common ratings of other agencies (Fitchs, "BBB ", Moody's "Ba1" and Standard & Poor's "BBB ") Norilsk Nickel is keeping the leading position among the highest ranking private Russian companies. Ac cording to the rating agencies, the ratings are based on the unique resource base, sound financial position, successful performance of the company managers, as well as leading positions of GMK Norilsk Nickel in the world market of nickel, palla dium, platinum, copper.

RUSSIAN ECONOMY IN trends and outlooks On October 9, the international rating agency Moody's Investors Service up graded the corporate rating of OAO GMK Norilsk Nickel to Baa2 "from" Ba1 ", i.e.

by two points, bringing it to the investment level. Rating of unsecured bonds was upgraded by 3 points from "Ba2" to "Baa2" according to the national scale; as per Moody's Interfax from "Aa1.ru". to "Aaa.ru" The Agency stated, that upgraded rating is based on strong basic performance indicators of the company. The Out look is Stable. According to consolidated ratings (Fitch, "VVB ", Moody's, "Vaa2" and Standard & Poor's, "BBB"), Norilsk Nickel holds a leading position with the highest ranking private Russian companies. These ratings reflect the unique re source base and sound financial standing company, as well as leading positions of GMK Norilsk Nickel in the world market for nickel, palladium, platinum, copper.

Results of financial performance. In the period between August December 2006, most companies published their financial performance statements for 2005.

The following companies should be mentioned.

On December 5, 2006, RAO UES of Russia disclosed the results of its per formance in the first half of 2006, prepared in accordance with international ac counting standards (IAS). For example, its earnings from basic activity totaled RUR 453.3 bln in the first half of 2006, what is RUR 62.2 bln higher than in the relevant period of preceding year. Profit from basic activities of RAO UES of Russia for the first half year of 2006 rose by RUR 6.6 bln (14 per cent) as compared with the first half of 2005 and amounted to RUR 53.4 bln. Profit before tax amounted to RUR 47.2 bln, having increased by RUR 8.5 bln. Net profit of RAO UES of Russia for January June 2006 amounted to RUR 27.2 bln. As compared with the first half of 2005, there had been an increase in net income by RUR 5.3 billion (24 per cent), based on the increase in operating income by RUR 6.6 bln and cut down of ex penses by RUR 1.6 bln.

On December 21 OAO Gazprom has disclosed unaudited consolidated interim financial statement for the first half of 2006, developed in accordance with Interna tional Accounting Standard 34 "Interim Financial Reporting" (IAS 34). Thus, within the six months of 2006 net proceeds from natural gas increased by RUR 225.bln, or 46 per cent, as compared to the corresponding period of 2005, and amounted to RUR 721.885 bln, what was mainly based on price growth for sales to Europe and former Soviet Union countries, as well as higher volumes of sales in natural terms. The profit of AOA Gazprom shareholders for the first half year of 2006 amounted to RUR 321.491 bln, what is RUR 168.681 bln, or 110 per cent more than in the same period of 2005. Net debt was decreased by RUR 126.bln, or 16 per cent, from RUR 797.465 bln as of December 31, 2005 to RUR 670.749 bln as of June 30, 2006. The decrease was mainly explained by a net re payment of long term debt due to an increase of monetary assets and raised pro ceeds from operational activities, as well as RUR exchange rate dynamics.

In early October, consolidated financial reporting for the first half of 2006 was disclosed by OAO Gazprom Neft, a daughter company of Gazprom. In accordance with the reporting, prepared in conformity of US GAAP, revenues for the first half of 2006, compared with the first half of 2005, increased by 77 per cent and amounted to USD 10.1 billion. Profit before tax, interest and depreciation (EBITDA) for the Section Monetary and budgetary spheres first half of 2006 to compare with the same period the previous year increased by 35 per cent and amounted to USD 2.6 billion. Net profit of OAO Gazpromneft for the first half of 2006 amounted to USD 1.8 billion, which is 26per cent more than in the same period of preceding year.

On October 18 LUKOIL has also issued consolidated financial statements for the first half of 2006, prepared in accordance with generally accepted accounting principles the United States (US GAAP). According to the information provided, the net profit for the first half of 2006 amounted to USD 4 010 billion, an increase of 54.8 per cent as compared with the same period of preceding year. The EBITDA parameter grew by 50.4 per cent to USD 6 464 million. Sales revenue rose to USD 33,210 billion, or by 38.1 per cent. The increase in net profit was based on favor able price environment, increased production, processing and effective control over expenditures, as well as higher oil refining margins. However, the increase in profit was constrained by RUR strengthening against USD, as well as increased tax burden.

On November 2 Rostelecom has published unaudited results for the first nine months of 2006 in compliance with the Russian accounting legislation (RAS). Ac cording to the reporting, revenues for the first nine months of 2006 increased as compared with the relevant period of the preceding year by 47. per cent and amounted to RUR 43,757.1.1 million. The EBITDA parameter decreased against the same period of 2005 by 21.9 per cent, to RUR 9,069.4 million due to significant increase in costs, caused by changes in mutual settlements with Russian compa nies. Cost efficiency as per EBITDA amounted to 20.7 per cent. Net profit of Ros telecom for the first nine months of 2006 amounted to RUR 5,004.6 million, as compared with RUR 7,843.8 million in the first nine months of the previous year.

Mergers and acquisitions. In 2006, several Russian companies continued to purchase new assets, including foreign ones, as well as establish long tem rela tions allowing them to expand and enhance efficiency of their businesses. In addi tion, some of these companies implemented business reorganization and restruc turing.

For example, January, Norilsk Nickel has informed on creation of a joint ven ture with Rio Tinto, one of the world largest mining and metal companies, which will deal with exploration and development of mineral deposits in Russia. The compa nies signed a agreement on cooperation in the Ministry of Natural Resources of the Russian Federation. Based on the principles of the agreement, a contract will be signed, which will stipulate the provisions of the joint venture. The agreement im plies establishment of a joint venture for exploration and development, 51 per cent of which would be owned by Norilsk Nickel and 49 per cent by Rio Tinto. Initially ex ploration works will be concentrated in the Siberian and Far Eastern Federal Re gions of Russia.

LUKOIL Overseas, the operator of international upstream projects OAO LU KOIL, has signed an agreement on merging with the company Chaparral Re sources, Inc., according to which LUKOIL Overseas acquires all Chaparral Re sources shares, issued in circulation. The agreement was approved by a special RUSSIAN ECONOMY IN trends and outlooks Committee of the Board of Directors of Chaparral Resources. Recommended pur chase price is USD 5.80 per share, which includes a bonus of 12.3 per cent to an average price of the share over the past 30 days. The total cost of the package of shares of Chaparral Resources, not owned by LUKOIL, amounts to USD 88.6 mil lion, what is equal to the value of acquired proven reserves of oil (USD 8.10 per bar rel). Consolidation of Chaparral Resources assets is executed by LUKOIL for com plete control over the company, as well as enhancement of management system.

Also in May LUKOIL, acting through its 100 per cent subsidiaries, and Mara thon Oil Corporation reached an agreement, that LUKOIL will acquire extraction fa cilities of Marathon Oil Corporation in Khanty Mansi Autonomous Region. Those assets include more than 95 per cent of OAO Hantymansiyskneftegazgeologiya, as well as 100 per cent of the shares of two other companies : OAO Paytyh Oil and OAO Nazymgeodobycha". The amount of the transaction is USD 787 million with regard to adjustment for circulating capital and other adjustments. Total oil produc tive capacity as of January 1, 2006 was 257 million tons of brand AVC1 + C2 (about 1.88 billion barrels).

On June 26 OAO Gazprom, represented by ZGG GmbH, signed with OOO LEVIT and SWGI GROWTN FUND (CYPRUS) LIMITED (main shareholders of OAO NOVATEK, a preliminary agreement on the acquisition (for market price) of their shares in the authorized capital of OAO NOVATEK in the amount of less than 20 per cent of outstanding stock of the company.

On November 20, 2006 GMK Norilsk Nickel has informed on the signature of a purchase agreement for nickel business of OM Group Inc. for USD 408 million for monetary assets, excluding financial indebtedness. The acquired Nickel business includes OMG nickel refinery, a unit OMG mining and refining of nickel ore, 20 per cent of the shares of MPI Nickel Pty. Ltd, a company that develops Black Swan nickel mines and Silver Swan, as well as up to 11.1 per cent in the form of ordinary shares and convertible debentures in Talvivaaran Kaivososakeyhti(project on con centrated bioleaching in the Kainuu Region in Finland). The transaction will allow GMK Norilsk Nickel to continue international expansion of its business activities, and to strengthen their position in the international mining and metal market.

Capital investment. In the preceding year the native companies have actively pursued the policy on investing additional volumes of assets, including those in for eign financial markets, ad well as in the world stock markets.

On March 2 OAO Mosenergo has placed the bond loan amounted to RUR bil lion, at the rate of 7.65 per cent from 1 to 12 coupon. The mature term is 10 years.

OAO Mosenergo has placed the bond loan to refinance debt liabilities and optimize financial activity of the company. Placement purpose of the loan is ZAO Stock Ex change MICEX. Agency Standard and Poor's has assigned ruBBB + rating to the loan. Furthermore, on September 19 there was placed a ruble bond loan of OAO Mosenergo, in which the output made RUR 5 billion, at the rate of 7.54 per cent from 1 to 6 coupons with the term of maturity of 5 years. The next day after posting the bond loan, the rating agency Standard & Poor's has increased the international credit rating of Mosenergo from B to B, the national rating was upgraded from ruBBB + to ruA.

Section Monetary and budgetary spheres On April 18, 2006 OAO Gazprom has announced the entry into force of the program of depository receipts (DR) of the Society of the First Level, as well as of the simultaneous amendments to correlation of a number of ordinary shares of OAO Gazprom per one DR, from ten shares for one DR to four shares per DR. Gaz prom DRs, available in circulation so far, were automatically converted at the effec tive rate (on the basis of existing restrictions). Depository receipts, issued under Program ADR of the first level will be freely circulating in the USA stock market, as well as in European stock markets. The maximum amount of ordinary shares, which may be the base asset for all ADRs of OAO Gazprom, will not exceed 35 per cent of the authorized capital of OAO Gazprom.

On 20 October OAO Sberbank of Russia has signed an agreement on a syndi cated loan in the amount of USD 1.5 billion between Sberbank of Russia and for eign banks, including bank founders of ABN AMRO Bank N.V., Barclays Capital, J.P. Morgan plc and Sumitomo Mitsui Banking Corporation Europe Limited. Thirty banks with the widest geographical representation participated in the syndicate.

The average prices for Syndicate has been much higher than in earlier syndicated borrowings of Russian borrowers. Syndicated loans held for a period of 3 years with a single payment at maturity. The borrowing was announced at the level of USD 1 billion. However, the proposals on the part of banks to participate in the loan amounted to about USD 1.7 billion, and in this regard, Sberbank of Russia has de cided to increase the loan amount up to USD 1.5 billion The rate of borrowing was LIBOR+0.3 per cent per annum, while the margin is the lowest for a three year syn dicated loans to Russian borrowers. The loan will be used for general corporate purposes. The transaction is the largest unsecured syndicated loan, ever granted to the financial institutions of Russia and other CIS countries, as well as countries in Eastern Europe, Middle East and Africa. The syndicated loan of Sberbank of Russia in the amount of USD 1.5 billion is the third largest syndicated transaction, organ ized in 2006.

On October 27, the Board of Directors of RAO UES of Russia has approved the issuance of additional shares of OAO Mosenergo for a closed subscription in favor of the Gazprom Group. During the additional emission, OAO Mosenergo in tends to attract at least USD 2.1 billion of investments. Monitoring of the implemen tation of investment projects will be implemented by a simple partnership, formed by RAO UES of Russia, Gazprom and OAO Mosenergo.

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