The Board of Directors’ meeting has adjourned at the Gazprom Headquarters.

The Board of Directors endorsed the main principles of the system of natural gas marketing to Russian consumers.

The Management Committee was tasked with further improving the system of natural gas marketing to Russian consumers with due regard of the need to switch to the market conditions of gas sales and achieving a price equally profitable on the domestic and foreign markets.

The Board of Directors entrusted the Management Committee with preparing proposals concerning “unowned” gas networks and improper state of the household gas infrastructure.

The Board of Directors addressed and endorsed the work being done by Gazprom’s respective subdivisions in cooperation with the federal state authorities with regard of taking legal actions aimed at developing the system of natural gas supply to Russian consumers based on long-term contracts.

The Management Committee was ordered to keep agreeing with the federal state authorities the draft Directive issued by the Russian Government on the adjustment of certain legislative acts regulating the gas supply procedure.

The Board of Directors entrusted the Management Committee together with the Ministry of Agriculture to review within a month the issues of gas supplies and sales to and payments by agroindustrial enterprises, with account of the seasonal factor in this sector.

The Board of Directors has also approved its business plan for the first half of 2009.

At the meeting it was underlined that Gazprom pursued the following principles in the area of natural gas marketing:

- securing guaranteed gas supplies to top-priority Russian consumers (as identified by law) at state-regulated prices;

- securing reliable gas supplies to various categories of Russian consumers based on strict observation of contractual obligations and balanced responsibility of a supplier and a consumer;

- giving priority to solvent consumers in long-term contracts on agreed terms and conditions stipulating, inter alia, guaranteed gas supplies and payoff schedule;

- ensuring the required profitability and efficiency of gas marketing in Russia including market pricing tools and techniques of stagewise transition to market-based gas trading.

When addressing the issue of the work being done by Gazprom with the federal authorities the Board of Directors emphasized that the currently applied patterns of long-term agreements complied with the Russian Federation Civil Code. At the same time, based on the long-standing practice consumers and legislative bodies, when resolving vexed issues, comply with the Rules for gas supplies in the Russian Federation approved by the Russian Government’s Directive #162 in February 1998. This document doesn’t reflect the specific nature of long-term contracts. Thus, there appeared the need to adjust the Rules for gas supplies in the Russian Federation provisions.

In this respect, in 2008 Gazprom and RAO UES of Russia jointly with specialized ministries carried out activities aimed at coordinating the draft Russian Government’s Directive in the aim of introducing additional provisions into the Rules for gas supplies in the Russian Federation, that would reflect the specifics of long-term agreements.

In particular, special attention was paid to the provisions dedicated to the responsibility of the parties in a long-term agreement in case of their improper execution of duties. A proposal was made to raise the coefficients applied to the payment for unapproved gas withdrawals for all consumers, exclusive the utility sector and population. Such an adjustment will make it possible to considerably reduce unapproved gas withdrawals, as well as to improve the relevant preventive measures.

Adjustment of the Rules is also conditioned by the need to introduce changes into standard long-term agreements. In particular, the item enabling a consumer to re-sell and re-distribute uncommitted gas volumes should be amended in such a way, that this could be feasible only with respect to the gas volumes purchased at free prices. In this context Gazprom has proposed to replace the right of a consumer to re-sell uncommitted gas volumes with the right to receive uncommitted resources during subsequent periods (if technically feasible by a supplier). This measure will finally enable to secure the operating reliability of the Unified Gas Supply System.

At present, the draft Directive is under consideration by the Russian Energy Ministry. Gazprom finds it necessary to adopt the Directive within the shortest possible time in order to promote rapid development of the system of gas supply to Russian consumers based on long-term agreements.

Background:

The relations between gas suppliers and customers in the Russian Federation are regulated by the Rules for gas supplies in the Russian Federation approved by the Russian Government’s Directive #162 of February 5, 1998.

Pursuant to the Minutes #42 of the Russian Federation Government Meeting of November 30, 2006, Gazprom and power generating companies were tasked to switch to gas under long-term agreements for a period of five years.

Gazprom and RAO UES of Russia, with an input from the Russian Ministry of Economic Development and Trade, developed and agreed upon a pattern for a standard long-term agreement for gas supply to power generating enterprises, based on which a pattern for a standard agreement with industrial enterprises was subsequently elaborated. Standard agreements set out in detail the rights and obligations of a gas supplier and consumer in respect of gas supplies and withdrawal discipline. The key condition for long-term agreements is the take-or-pay principle coupled with the right of a consumer to re-distribute uncommitted gas between its power facilities or re-schedule deliveries over subsequent periods.

For the purpose of improving the state regulation of gas prices and developing the market pricing principles the Russian Government adopted the Directive #333 “On the Improvement of State Gas Price Regulation” on May 28, 2007. The Directive states that starting from 2011 formation of wholesale natural gas prices are supposed to be formed under the market principles based on an achieved level of equal profitability of gas supplies on the domestic and foreign markets.