Open Joint Stock Company Gazprom

In August 2002 the Board of Directors of Gazprom approved the increase of Gazprom's share inthe equity capital of OAO Severneftegazprom from 49% to 100% through the exchange of minoritystakes in Tarkosalneftegas and Sibneftegas held by Gazprom's subsidiaries for a 51% stake in OAOSeverneftegazprom held by Itera's affiliates TNG Power GmbH and TNG Services. OAOSeverneftegazprom holds the licence to the Yuzhno-Russkoye field with proven natural gas reserves of600 bcm. Annual production at the Yuzhno-Russkoye field is estimated at 15 bcm.Initially, Itera focused on customers in the Ukraine, Moldova and Belarus with a poor record ofpayments for natural gas supplies. Itera enjoys a higher degree of flexibility in dealing with thesecustomers as compared to Gazprom which is reliant on these countries for transit of natural gas toEurope and whose contractual terms for the supply of natural gas are dependent on inter-governmentalagreements with those countries.Gazprom has confirmed that all transactions with Itera have been conducted on an arm's lengthbasis and on normal commercial terms and that no member of Gazprom's Management Committee orBoard of Directors or any member of their respective families or person over whom or whose assets orresources any such member of the Management Committee or Board of Directors has direct or indirectcontrol or significant influence or over whom any such member, together with any other party or partieshas common control or significant influence, own, directly or indirectly, any equity interest in Itera.In early 2001, the Board of Directors of Gazprom appointed PricewaterhouseCoopers to reviewthe financial, property, commercial and production relations between Gazprom and the Itera group forthe years 1997 to 2000. In May 2001, the Board of Directors also adopted the Procedure.PricewaterhouseCoopers has completed its review and presented the Report to a meeting of the Boardof Directors in July 2001. The Board of Directors took the decision that the Report will remainconfidential and that it will not publish or disclose the contents of the Report. The Board of Directorsconsidered the Report and found that certain of its recommendations had already been addressed bythe adoption of the Procedure. The Board of Directors has directed the Management Committee to drawup plans for the implementation of those recommendations made in the Report that are not addressedby the Procedure.ReservesAs at 31 December 2001, Gazprom's wholly-owned subsidiaries held production licenses forapproximately 26.0 tcm of A, B and C1 natural gas reserves and subsidiaries, in which Gazprom holdsless than 100% of the shares, held production licenses for another 5.0 tcm of A, B and C1 natural gasreserves, of which 2.1 tcm is attributable to Gazprom in proportion to its actual shareholding. Gazprom'stotal A, B and C1 estimated natural gas reserves of 28.1 tcm are equivalent to approximately 60% ofthe total estimated A, B and C1 natural gas reserves in Russia.Gazprom estimates its hydrocarbon reserves in accordance with Russian classifications andmethodologies. Russian reserves classification standards differ significantly from standards acceptedby international practices, in particular, with respect to the manner in which and the extent to whichcommercial factors are taken into account. Once they are reviewed and approved by the CentralReserve Commission, reserve estimates may be subject to minor changes. The results are to bepublished in the State Balance of Natural Resources.In 1997-2000, DeGolyer & MacNaughton, a U.S. independent engineering consultancyevaluated, on the basis of international classifications and methodologies, approximately 84% ofGazprom and its subsidiaries' proved and probable natural gas reserves as defined by the Society ofPetroleum Engineers (representing 18 of Gazprom's oil and gas fields). DeGolyer & MacNaughton (seeAppendix B — Part II) confirmed:• high accuracy of estimates for initial geological hydrocarbon reserves (approximately98%);• high percentage of reserves migrating to proved category (within a 90% accuracy); and• economic effectiveness of gas condensate production in the audited fields.37