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On October 30, 2003 Sibneft published its financial report over a period of six months. Net profit of the company over the first half of 2003was almost tripled to $1,38bln US dollars against 476ml US dollars in 2002, according to the US GAAP standards. The revenues over 6months accounted for $3,4bln US dollars against $1,9bln US dollars over the same period in 2002, thereby increasing by 73%. Earnings before interests, taxation, depreciation and amortization grew by 139% and accounted for $1,7bln US dollars against $743,8ml US dollars in 2002. The record financial performance were achieved due to a substantial production growth, favorable oil prices in the world’s market and successful financial investments.

Gazprom presented interim financial reports over a period of three and six months in 2003: over a period of six months last year, returns from sales (after VAT and customs duties) was increased by 115,3ml rubles, or by 38% against the same period in 2002. Operating costs grew by 22% against the same period in 2002, which was caused mainly by transit costs, wages, refining, gas purchase, and increased amortization. Net profit accounted for 47,789and 103,761ml rubles correspondingly over three and six months in 2003.

On November 11, RAO Unified Energy System of Russia published financial reports of the Group RAO Unified Energy System of Russia over the first half of 2003according to the international standards of financial reporting. Total assets of the Group as of June 30, 2003accounted for 1,075bln rubles, earnings from core activity – 300,8bln rubles, which is 59,6bln as much as at the same period in 2002. Expenses on core activity increased by 35,9bln rubles mostly due to fuel and power energy. In the first half of 2003, net profit of the Group RAO Unified Energy System of Russia amounted to 16,9bln rubles, which is less than in 2002 (18,8bln rubles).

Over 9months in 2003, earnings of Rostelekom accounted for 20749ml rubles or grew by 36,7% against the same period of the previous year. Sales proceeds grew by 12,1% over the same period, reaching 6859ml rubles. Net profit dropped by 2,4% against nine months in 2002and accounted for 4781ml rubles.

In 2003, several Russian companies continued to purchase new assets, including foreign assets, and establish long-term relationships aimed at consolidating business and improving efficiency.

On February 11, Tyumen Oil Company and announced consolidation of the TNK assets with Russian assets held by BP, the third largest company in the world by oil production, which became the major deal in the history of domestic business. Daily oil production of the new company will account for 1,2ml barrels and proved oil reserves, 9,5bln barrels. Therefore, the new company will be listed among the three major petroleum companies in this country.

The most significant event in the Russian stock market occurred in April 2003, when a merger of the Russian major companies YUKOS and Sibneft was announced with the view to setting up a new company NK YUKOS – Sibneft, which could have become the forth largest oil company in the world by oil production. The deal was to be completed till year-end, however in November the representative of Sibneft announced the merger suspended by mutual agreement of the shareholders of both companies. Had the merger happened, the reserves of the joint company YUKOS – Sibneft (including Sibneft’s shares in the reserves of Slavneft) would have accounted for 19,4bln barrels of oil and gas equivalent, according to the data at year-end 2001obtained by the SPE method. Proved reserves (by the SPE method) of oil is 18,4bln barrels, gaz – 5,9trln cu ft. The joint company (including Sibneft’s share in Slavneft’s production) could have produced about 2,3ml barrels daily (YUKOS and Sibneft account for about 30% of the total oil produced in Russia). In 2002, all together production of the two companies accounted for 103.2ml tons of oil.

Another major event of the last year was the purchase of 51% of the Stillwater’s shares (major palladium producer in the United States) by GMK Norilsky Nickel by approval of the shareholders of the US company and the US Federal Trade Commission. This will allow Norilsky Nickel to sell palladium directly to US motor plants under long-term contracts. The merger was followed by GMK Norilsky Nickel giving out the results of a tender offer on purchase of shares from shareholders of Stillwater Mining Company in September, which was completed on August 26, 2003. Norimet Limited Company, a 100% affiliate of GMK Norilsky Nickel, was scheduled to purchase 4,35ml shares, which accounts for about 12,8% of the total shares offered for repurchase.

In 2003, companies pursued intensively a policy of additional borrowings both in the domestic and foreign markets, as well as strengthened their positions in the global capital markets. In February last year, Gazprom placed successfully a new 10–year bonded debt to the amount of $1,750bln US dollars. The bonds were placed at par value with coupon 9,625% and payments twice a year. Drezdner Klainvort Vasserstin and Morgan Stanley jointly were lead managers of the issue as well as of the application book.

Standard & Poor’s included the corporate governance rating on Mobilnye TeleSistemy (MTS) (7.4) into the Governance Watch list with Developing outlook due to the fact that AFK Sistema was reported to hold 40,4% of MTS’s shares, and an option agreement concluded with T–Mobile International AG (an affiliate company of Telekom AG), which is holding 40,1% of MTS’s shares, on a possible purchase of 10% of its share in the equity capital of MTS. AFK Sistema was authorized under the option agreement to purchase the foregoing share at the market value at any time till September 30, 2003. Since early in the month Deutsche Telekom also announced its intention to sell other 5% of MTS’s shares at the stock market, whereby AFK Sistema could increase its share to 55,4%, while the share of Deutsche Telekom could drop to 25,1%.

The experts of Standard & Poor’s believe that changes in the structure of shareholders may effect MTS corporate governance. When MTS was initially granted a corporate governance rating 7,4 (the highest rating in Russia), Standard & Poor’s noted that a highly efficient governance and monitoring was achieved by maintaining parity between the two major strategic shareholders. Such parity implied a rigid monitoring system, as well as equal representation and active participation of both parties in the Board of Directors. Any further changes in the structure of shareholders may disrupt the existing balance in the authority of the two major shareholders and have an adverse effect on the corporate governance standards of MTS.

Early in November, LUKINTER FINANCE B. V., a company incorporated in the LUKOIL Group, redeemed all outstanding bonds which still were in circulation from the issue of convertible bonds in November 1997to the amount of $350ml US dollars with maturity in November 2003. Bonds of total par value $51,48ml US dollars were redeemed and interest paid on November 3, 2003.

The amount of transactions with LUKOIL’s shares in the London Stock Exchange in October 2003grew by 121,4% against the total in the present September and accounted for over 1,8bln US dollars.

Furthermore, one way to render corporate securities, specifically shares, more attractive is to pursue a prudent dividend policy which should be aimed at increasing shareholders’ well-being. It was the last year that companies pursued this kind of active dividend policy. For instance, late in October, a shareholders’ meeting of NK YUKOS decided to pay dividends to the amount of 59,9bln rubles for the first 9months in 2003, which accounted for 26,78rubles per common stock. According to the decision made at the meeting, dividends are to be paid till February 28, 2004to the NK YUKOS shareholders registered in the shareholders’ ledger as of September 25, 2003. Therefore, YUKOS became the first Russian company to pay such a substantial amount of dividends.

Late in December, an extraordinary general meeting of shareholders GMK Norilsky Nickel approved interim dividends to the amount of 42,1rubles per share. The interim dividends were paid at the suggestion of the Board of Directors of the company according to the performance achieved over a period of 9months in 2003. The total amount of dividends distributed on the common registered uncertified stocks of GMK Norilsky Nickel will account for 9bln rubles.

An extraordinary general meeting of the shareholders of NGK Slavneft in December 24also made a decision to pay dividends, 78kopeks per common share, according to the performance achieved over 9months in 2003. Therefore, the dividends to pay will total 3,7bln rubles.

1 Under the Decree of the RF Ministry of Finance dated 18.92.2003, No. 43.

2 The term of conditional liabilities including budget guarantees as well as liabilities of organizations and enterprises owned by a region ( municipality ), on which the owner may have subsidiary liability resulted under the Federal Law of the Russian Federation.

3 Such share of administrations in the equity of enterprises was selected according to the Law On Joint-Stock Companies No. 208-FZ of 26.12.1995, specifying that 25% of voting stocks represent a minimum set which allows decisions on several issues to be blocked. A smaller share deprives the administration of efficient controls of the enterprises.

4 Indices ZETBI-Corp and ZETBI-Corp10 are calculated by Zenit Bank since 03.01.2002.

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