Open Joint Stock Company Gazprom

Central and Eastern EuropeGazprom enjoys a dominant position in the Central and Eastern European gas markets due toexisting historical, economic and political reasons as well as the proximity of the Central and EasternEuropean markets to Russia.In 2001, Gazprom exported 40.4 bcm of natural gas to Central and Eastern Europe (38.6 bcm in2000), which amounted to 9.1% of the total natural gas supplied by Gazprom in 2001. The followingtable sets out natural gas export volumes to Central and Eastern Europe for the periods indicated:Year Ended 31 December6 monthperiodended30 JuneCountry 1999 2000 2001 2002(bcm) (bcm) (bcm) (bcm)Hungary 7.4 6.5 8.0 4.5Slovakia 7.5 7.9 7.5 4.0Czech Republic 7.8 7.5 7.5 3.6Poland 6.1 6.8 7.5 3.8Bulgaria 3.2 3.2 3.3 1.5Romania 3.2 3.2 2.9 1.7Yugoslavia 1.1 1.2 1.7 0.9Croatia 1.2 1.2 1.2 0.6Slovenia 0.6 0.7 0.6 0.3Bosnia 0.2 0.3 0.2 0.1Macedonia 0.04 0.1 0.1 0.05Total (1) 38.4 38.6 40.4 21.1Source: Gazprom.(1) Totals may not add up due to rounding.Until recently, Gazprom contracted with its Central and Eastern European customers for thesupply of natural gas on the basis of shorter-term contracts. In the last few years, Gazprom (actingthrough Gazexport) has adopted a policy of negotiating medium-term and long-term contracts with agradual introduction of Western European contract standards as the market economies of Central andEastern Europe further develop. The majority of the existing contracts contain similar features, includingtake-or-pay clauses and price setting mechanisms (which are mostly based on European liquid oilproduct prices) and do not allow for unilateral termination. Gazprom supplies natural gas in Central andEastern Europe through state-owned natural gas distribution companies and in certain countriesthrough joint ventures in gas marketing and distribution companies. Gazprom considers the formationof new joint ventures for the transportation and marketing of Russian natural gas as a promising formof co-operation with Central and Eastern European countries. Gazprom is paid in fully convertiblecurrency for the natural gas it sells in Central and Eastern Europe.Prior to 1999, Gazprom had supplied a significant volume of its natural gas to Central andEastern Europe under the Yamburg Inter-Governmental Agreements, agreements which originallyprovided for the settlement of construction costs by the delivery of natural gas to certain countries inCentral and Eastern Europe and the German Democratic Republic (now part of the Federal Republicof Germany). These Agreements expired in 1999. On 10 October 2001 an agreement was entered intobetween the Government and the Czech Republic whereby it was agreed that, in consideration of asingle payment to the Czech Republic of approximately U.S.$3,500,000 (to be made prior to 10November 2001), the Government be released from all outstanding obligations to deliver or to procurethe delivery by Gazprom of gas to the Czech Republic at preferential rates pursuant to the YamburgInter-Governmental Agreements. This payment has not yet been made as the Czech Republic has yetto fulfil certain conditions precedent to the agreement.32