Open Joint Stock Company Gazprom

OAO GAZPROMNOTES TO THE IAS CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(In millions of Russian Roubles in terms of the equivalent purchasing power of the Rouble at31 December 2001, except as noted)25 COMMITMENTS AND CONTINGENT LIABILITIESOperating environmentThe operations and earnings of the Group continue, from time to time and in varying degrees, tobe affected by political, legislative, fiscal and regulatory developments, including those related toenvironmental protection, in the Russian Federation. Due to the capital-intensive nature of the industry,the Group is also subject to physical risks of various kinds. The nature and frequency of thesedevelopments and events associated with these risks as well as their effect on future operations andearnings, are not predictable.Legal proceedingsAt 31 December 2000, RR 6,416 of assets of one of the Group's banking subsidiaries were thesubject of a legal restraint in connection with a claim arising from derivative transactions with a foreigncounterparty. At 31 December 2000, the Group had provided RR 4,002 against the claim (see Note 17).The Group is a party to certain legal proceedings arising in the ordinary course of business.Additionally, the Group is subject to various environmental laws regarding handling, storage, anddisposal of certain products and is subject to regulation by various governmental authorities. In theopinion of management, there are no current legal proceedings or other claims outstanding which couldhave a material adverse effect on the result of operations or financial position of the Group.TaxationTax legislation in the Russian Federation is subject to varying interpretations and frequentchanges. Further, the interpretation of tax legislation by tax authorities as applied to the transactionsand activity of the Group may not coincide with that of management. As a result, transactions may bechallenged by tax authorities and the Group may be assessed additional taxes, penalties and interest,which can be significant. The Group's tax records remain open to review by the tax and customsauthorities with respect to tax liabilities for three years.Group changesThe Group is continuing to undergo significant restructuring and reform initiatives and the futuredirection and effects of such reforms are the subject of political considerations. Potential reforms in tariffsetting policies, settlements of outstanding debts by governmental entities, and other governmentinitiatives could each have a significant, but undeterminable, effect on enterprises operating in theGroup.Environmental mattersThe Group has operated in the gas exploration, extraction and transportation industry in theRussian Federation for many years. The normal activities of the Group have probably resulted indamage to the environment. The enforcement of environmental regulation in the Russian Federation isevolving and the enforcement posture of government authorities is continually being reconsidered. TheGroup periodically evaluates its obligations under environmental regulations. As obligations aredetermined, they are recognised immediately. Expenditures that extend the life of the related propertyor mitigate or prevent future environmental contamination are capitalised. Potential liabilities whichmight arise as a result of stricter enforcement of existing regulations, civil litigation or changes inlegislation or regulation cannot be estimated, but could be material. In the current enforcement climate,under existing legislation, management believes that there are no significant liabilities for environmentaldamage, other than amounts that have been accrued in the consolidated financial statements.F-34