Alfa-Bank - Alfa Group

AlfaGroupa n n u a l r e p o r t2006

NOBLESSE OBLIGELeadership – it is not only about success, acknowledgment and reputation, but also presupposes a responsibilityto continuously claim your right to be the best, to be a “star” in your sphere of activity. The virtues - talent,professionalism and promise – of those who are leading are appraised with particular attentiveness…4th ANNUAL NATIONAL INDEPENDENT AWARDFOR ACHIEVEMENTS IN THE COUNTRYSIDE REALTYCottage community “Dynasty”, Gelendzhik (A1 project):“Village of the Year” (2007)5th NATIONAL AWARD FOR ACHIEVEMENTS IN THE CINEMA BUSINESSEdward Pichugin, CEO of “Epos” (Management Company of the CinemaChain “Kronverk Cinema”) (A1 project): Laureate in the Nomination “ForContribution to the Elaboration of National Film Distribution” (2006)10th INTERNATIONAL EXHIBITION PRODEXPO-2003Trade House of P.A. Smirnov’s Descendants(Managed by Alfa-Eco): Gold Medal for Smirnov Vodka No. 21; Silver Medalfor Liqueur “Mozzevelovaya” and “Klyukvennaya”; Bronze Medal for Liqueur“Limonnichek” and “Perzovaya” (2003)ADVERTISING INDUSTRY MAGAZINEAND INTERNET EDITION SOSTAV.RUVimpelCom: “Brand of the Year”, “Marketing Concept of the Year”,“Promotion Campaign of the Year” (2006)AGENCY FOR CULTURAL AFFAIRS AND AUTONOMOUS NON-PROFIT ORGANIZA-TION ART IN PROGRESSVimpelCom: Social and Cultral Business Award “For Tariff PlanCommunications” (2006)ALL RUSSIAN JOURNALISTIC CONTEST “GOLDEN GONG”TNK-BP: Corporate Journal “Your Company” – “Best Corporate Edition”(2004); Corporate TV program “Oil Formula” – “Regional Media Project ofthe Year” (2005), “Russian Press Favour Award (Simpre)” (2005)Alexander Izosimov, CEO of VimpelCom: “Russian Press Favour Award(Simpre)”(2006)ALL RUSSIAN CORPORATE PRESS CONTESTTNK-BP: Corporate Journal “Your Company” – “Best Corporate Edition” (2006)VimpelCom: Corporate Journal “BeeLife” – “Best Corporate Edition” (2006)ASSOCIATION OF MANAGERS IN RUSSIA“Business Leaders in Russia”: Mikhail Fridman, Chairman of the SupervisoryBoard of Directors of Alfa Group; German Khan, Executive Director of TNK-BP; Petr Aven, President of Alfa-Bank (2006)“Top-500 Most Professional Top Managers of Russia”: (4th Place – Finance),Vladimir Skvortsov, CEO of AlfaStrakhovanie Group; (1st Place – Communication),Alexander Izosimov, CEO of VimpelCom; (1st Place – FuelIndustry), Robert Dudley, President and CEO of TNK-BP; (1st Place – RetailTrade), Lev Khasis, CEO, Chairman of the Executive Board of X5 Retail GroupN.V.; (4th Place – Commercial Banks), Petr Smida, CEO of Alfa-Bank (2006)“Top-100 Most Professional Commercial Directors of Russia”: (1st Place –Communication), Kent McNeley, Vice President, Chief Marketing Officer ofVimpelCom; (2nd Place – Fuel Industry), Alexander Kaplan, Vice-President,TNK-BP Marketing Division; (Laureate), Vladimir Sorokin, Deputy GeneralDirector of the Regional Policy of AlfaStrakhovanie Group (2006)“Top-100 Most Professional IT Directors of Russia”: (2nd Place –Communication), Vladimir Filippov, Vice-President of Information Technologiesof VimpelCom; (2nd Place – Finance), Sergey Mednov, Director of InformationTechnology of Alfa-Bank; (2nd Place – Fuel Industry), Richard Ames, Vice-President of Information Technology of TNK-BP; (Laureate), Andrey Pedorenko,Director of Information Technology of AlfaStrakhovanie Group (2006)“Top-100 Most Professional HR Directors of Russia”:(2nd Place – Communication), Marina Novikova, Vice President, OrganizationalDevelopment and Human Resources of VimpelCom; (1st Place – Fuel Industry),Sergey Lyalikov, HR Director of TNK-BP (2006)“Top-100 Most Professional PR Directors of Russia”: (1st Place – Communication),Mikhail Umarov, PR Director of VimpelCom; (3rd Place – Communication),Anna Chin-Go Pin, PR Director of Golden Telecom; (1st Place – Finance),Alexander Gafin, Vice-President, Member of Board of Directors of Alfa-Bank (2006)ASSOCIATION OF REGIONAL BANKS OF RUSSIAAlfa-Bank: 1st Place, “Best Advertising Campaign of the Year Among Banks”(2006)ASSOCIATION FOR THE PROTECTION OF INVESTOR RIGHTSVimpelCom: “Best Corporate Governance” (2004)BEER, WINE & BEVERAGES INTERNATIONAL EXHIBITIONBrewing Company “Syabar” (A1 project): Gold Medal for Beer “BobrovKrepkoe”, Silver Medals for Beer “Bobrov Svetloe” and “BobrovKlassicheckoe” (2006)BUSINESS WEEK MAGAZINEMikhail Fridman, Chairman of the Supervisory Board of Directors of AlfaGroup: “The Stars of Europe – 25 Leaders” (2003)CAREER MAGAZINETNK-BP: 1st Place, “Best Employers for Young Specialists” (2005)Svetlana Ovchinnikova, First Deputy CEO of AlfaStrakhovanie Group:73rd Place, “Top-200 Business Women in Russia” (2006)COMPANION MAGAZINEIgor Litovchenko, President of Kyivstar: “Best Manager – íelecommunications”(2003)COMPANY MAGAZINEAlfaStrakhovanie Group: “Company of the Year” (2004, 2006)Vladimir Skvortsov, CEO of AlfaStrakhovanie Group: “Best Manager –Financial Sector” (2004)TNK-BP: “Deal of The Year” (2003); “Company of the Year” (2004, 2006)Rober Dudley, CEO and President of TNK-BP: “Best Manager – Oil Sector”(2004)MegaFon: “Best Telecommunications Company” (2004)VimpelCom: “Company of the Year” (2005)CNEWS ANALYTICS (CNA)Alfa-Bank: “Best IT Bank in Russia” (2005, 2006)Alfa-Mobile, banking system of Alfa-Bank: “Best IT Project in FinancialServices Management” (2007)CORPORATE LAWYER MAGAZINETNK-BP: “Best Legal Department” (2006)CREATIVE & CREATIVITY MAGAZINEAlfa Bank Express: 1st Place, “Creative Company” (2003)CRYSTAL BOAT AWARD FOR HOTEL SERVICES DEVELOPMENTIN MOSCOWGolden Telecom: “Best Partner in Control Automation of Moscow Hotels” (2005)DAL’PISHEPROM-2006 INTERNATIONAL FAIRBrewing Company “Vladpivo” (A1 project): Big Gold Medal for “VladpivoKlassicheskoe” (2006)DECREE OF PRESIDENT OF RUSSIAN FEDERATIONPetr Aven, President of Alfa-Bank: Honor of the State Award for “AchievedLabour Success and Long-Term Conscientious Work” (2005)Alexander Gafin, Member of the Board of Directors of Alfa-Bank: Order “ForAchievements for the Motherland” 2nd Degree (2005)EFFIE AWARDS/BRAND OF THE YEARAlfa Bank Express: “Banks” (2003)TNK-BP: “Corporations and Organisations” (2004)Perekrestok: “Trading Chains and Centres” (2002, 2003, 2005)VimpelCom, BeeLine GSM: “Highly Technological Services” (2000, 2002,2003, 2004); “Image Change” (2005)AlfaStrahovanie Group: “Insurance” (2005)EMERGING MARKETS NEWSPAPERAlfa-Bank: “Most Improved Bank in Emerging Europe” (2003); “Best TradeFinance Bank in Russia and the CIS”, “Best Correspondent Bank in Russiaand the CIS” (2004)EUROMONEY MAGAZINEAlfa-Bank: “Highly Recommended Bank – Russia” (2000), “Best Bank inRussia” (2002), “Best M&A House in Russia” (2004), “Best M&A Deal of theYear” (2004), “Best Forex Bank in Russia” (2006)TNK-BP: “Best Borrower” (2003), “Eurobond of the Year” (2006)VimpelCom: “Best Borrower” (2005)EUROPEAN MARKET RESEARCH CENTRE (EMRC)Igor Litovchenko, President of Kyivstar: Award “For Outstanding MarketingAchievements of Kyivstar and for Innovative Policy” (2003)EXPERT MAGAZINE (Awards for Best Annual Reports)Alfa Group: “Internet Presentation” (2001 – Nominee; 2002 – Winner),“Richness of Information” (2002 – Nominee), “Classic Genre” (2002 –Nominee), “Design and Printing” (2003 – Winner)Alfa-Bank: “Classic Genre” (1999, 2000 – Winner), “Internet Presentation”(2000 – Winner; 2002, 2003 – Nominee), Richness of Information” (2000,2001 – Winner; 2002, 2003 – Nominee), “Design and Printing” (2001 –Nominee, 2003 – Winner, 2004 – Nominee)Alfa-Eco: “Design and Printing” (2002, 2003, 2004 – Laureate)VimpelCom: “Design and Printing” (2005 – Winner)EXPERT MAGAZINEAlfa-Bank: “Best Reputation among Commercial Banks” (1997, 1998, 1999,2000, 2001, 2002, 2003)EXPOSITION OF THE FAR EASTEN FEDERAL DISTRICT ACHIEVEMENTSBrewing Company “Vladpivo” (A1 project): Gold Medal for beer “StudenoeSvetloe” (2006)FINANCIAL TIMESMikhail Fridman, Chairman of the Supervisory Board of Directors of AlfaGroup: “Leaders of the New Europe” (2004)FINANS MAGAZINEAlfa Capital Management: “Best Performing Balanced Fund for 3 years”(2006)Vasily Ivanov, Asset Manager of Alfa Capital Management:“Best AssetManager” (2006)FOOD DIRECTOR-2006 FORUMX5 Retail Group N.V.: “Best Retail Trade Chain” (2006)FORTUNE MAGAZINEMikhail Fridman, Chairman of the Supervisory Board of Directors of AlfaGroup: “Most Powerful People in Business – Europe’s Power 25” (2004)FORBES MAGAZINETNK-BP: 1st Place, “200 Major Private Companies of Russia” (2005)GLOBAL FINANCE MAGAZINEAlfa-Bank: “Best Russian Domestic Bank” (1999, 2000, 2001, 2002, 2003)Alfa-Bank: “Best Russian Trade Finance Bank” (2001, 2002, 2003, 2004,2007)Alfa-Bank: “Best M&A Advisor” (2003, 2004)Alfa-Bank: “Best Foreign Exchange Provider in Russia” (2004, 2005)Alfa-Bank: “Best Retail Bank in Russia” (2004)HEALTH AND SAFETY 2006 CONTESTTNK-BP: 2nd Place, “Technologies of Preventive Treatment andRehabilitation of Employees Working in Unfavourable Conditions” (2006)HOLMES REPORT EDITIONVimpelCom: “SABRE Award for Re-branding PR Campaign” (2006)IMEESH’ PRAVO MAGAZINEAlfaStrakhovanie Group: 1st Place, “Services Quality Rating Among theInsurance Companies” (2006)Alfa-Bank: “Best Bank in Terms of Customer Service Levels” (2006)INDEPENDENT EXPERT COUNCIL OF SUPERBRANDS INTERNATIONALPerekrestok: “Russian Consumer Market Super Brand” (2004)Alfa-Bank: “Super Brand of the Year” (2005)AlfaStrakhovanie Group: “Strongest Brand of the Inter-Corporate Business –B2B” (2006)INSTITUTE OF ECONOMIC STRATEGY AND ECONOMIC STRATEGY MAGAZINEMikhail Fridman, Chairman of the Supervisory Board of Directors of AlfaGroup: 1st Place, “100 Most Strategic Managers” (2004)Alfa-Bank: 1st Place, “Leading Russian Companies” (2002)AlfaStrakhovanie Group: 3rd Place, “Leading Russian InsuranceCompanies” (2002)Alfa Group Consortium: 1st Place, “100 Leading Companies with the HighestRating Status AAA and Maximum Strategic Level 88.0” (2004)INSTITUTIONAL INVESTOR MAGAZINEPetr Aven, President of Alfa-Bank: “Best Manager of Financial Services inRussia” (2004)Alexander Izosimov, CEO of VimpelCom: “Best Russian Top – Manager inTelecommunications” (2005)INTERBRAND ZINTZMEYER& LUX AG AND BUSINESSWEEK RUSSIA MAGAZINEAlfa-Bank: “Best Bank in Russian Brand Rating” (2006)Pyaterochka: “Most Valuable Brand in Russia” (2006)INTERREGIONAL ENTREPRENEURS ORGANIZATIONVimpelCom: “National Taxpayer of the Year Award” (2006)INTERNATIONAL ACADEMY OF REAL ECONOMYAlfa-Eco Group: “Enterprise of the Year” (2004)Alexander Fain, General Director of Alfa-Eco Group:“Man of the Year” (2004, 2005, 2006)INTERNATIONAL ADVERTISING FESTIVALAlfa-Bank: 1st Place, “TV Advertising” (2001); 2nd Place,“PrintedAdvertising” (2002), 2nd Place, “Advertising in Internet” (2002)AlfaStrakhovanie Group: 1st Place, “Best Creative Idea for a TelevisionCommercial” (2001); 2nd Place “Printed Advertising – Financial Servicesand Insurance” (2004)INTERNATIONAL ASSOCIATION OF BUSINESS COMMUNICATIONSTNK-BP: 1st Place, “Golden Net – Petrol Stations” (2004);“Best Corporate Site” (2004)Perekrestok: 1st Place, “Golden Net – Foodstuffs” (2002, 2003); 1st Place,“Supermarkets” (2005)INTERNATIONAL BEER EXHIBITIONBrewing Company “Vladpivo” (A1 project): Golden Medals for beer“Vladpivo Klassicheskoe Svetloe” and beer “Vladpivo Krepkoe Svetloe” (2006)INTERNATIONAL EXHIBITION (ECOPRODEXPO)Perekrestok: Grand Prix – “Supermarket of the 21st Century” (2003)INVEST-GAZETAKyivstar: “Most Dynamic Ukrainian Company” (2003)INVESTFUNDS INFORMATIONAL SERVERAlfa Capital Management: 3rd Place,“For Net Asset Value Among Openendedand Interval Mutual Funds Managers” (2006), 4th Place, “Inflows”(2006)IR MAGAZINE AWARDSVimpelCom: “Best Corporate Governance Award”, “Best InvestmentCommunity Meetings and Roadshows”, “Grand Prix for Best Overall InvestorRelations” (2003, 2004, 2005); “Best Annual Report” (2004)Alexander Izosimov, CEO of VimpelCom: “Best Investor Relations by aCEO/CFO” (2004)Valery Goldin, Vice-President of International and Investor Relations ofVimpelCom: “Best Investor Relations Officer – Large Cap” (2004)JP MORGAN CHASE BANKAlfa-Bank: “Best Bank in Terms of the Quality of US Dollar Clearing” (2002,2003, 2004, 2005)MASTER OF BRAND BUILDING-2006 CONTESTVimpelCom: “Grand Prix” (2006)MASTERCARD WORLDWIDEAlfa-Bank: “Best Launch in 2005/2006” (Alfa-Bank and Aeroflot Program)(2006)MEN. EVENT.TIME. CONTESTVimpelCom: “Amber Wing for Charity” (2006)MOSCOW BUSINESS TIMESTNK-BP: “Best Corporate Web-Site” (2005)NATIONAL ASSOCIATION OF STOCK MARKETPARTICIPANTS (NAUFOR) STOCK MARKET ELITE AWARDSAlfa-Bank: “Best Credit Institution” (2001, 2002); “Best Trading Institution”(2002); “Best Institution in Bond Market” (2002),“Special Award forBroadening Investment Horizons” (2006)NATIONAL AWARD OF RUSSIAN ACADEMY OF BUSINESS AND ENTERPRISE«DARIN»Mikhail Fridman, Chairman of the Supervisory Board of Directors of AlfaGroup: “Grand Prix Laureate of Russian Academy of Business andEnterprise” (2004)Perekrestok: “Russian Trademark” (2004)NATIONAL AWARD OF RUSSIAN INTERNETGolden Telecom: Bronze Statuette for “Ru-Net Technology/Ru-Net Provider”(2004)NATIONAL TRADE ASSOCIATIONPerekrestok: “Best Trading Chain” (2001); “Best Chainin Central Region” (2002); “Best Chain in Russia” (2004)“Best Project in Format of Supermarket” (2006)Pawel Musial, Chief Commercial Officer of X5 Retail Group N.V.: “TradingMan” (2006)Pyaterochka: 1st Place, “Top-200 Largest Retail Chain of Discounters inRussia” (2006); 1st Place, “Top-200 Largest Retail Chain of Discounters inthe Republic of Bashkortostan” (2006)OPERATIONAL RISK MAGAZINEAlfa-Bank: Operational Risk Achievement Award for “Operational RiskFramework at a Financial Institution in an Emerging Market” (2004, 2005)ORGANIZING COMMITTEE OF THE INTERNATIONAL FORUM “WORLD EXPERI-ENCE AND THE ECONOMY OF RUSSIA”Alexander Vinogradov, President of Golden Telecom: Medal “Leader of theRussian Economy” (2003)POPULAR FINANCE MAGAZINEAlfa Capital Bonds Plus Fund: 1st Place,“Bond Funds” (2006)PRIMORSKY GROCERY FORUMBrewing Company “Vladpivo” (A1 project): Gold Medal for beer “StudenoeKrepkoe” (2006)PROFIL MAGAZINEAlfaStrakhovanie Group: “Most Professional Advertiser – Insurance” (2003)PROJECT “iOne: Information Technologies” and PUBLISHING HOUSE “FIRMSECRET”Vladimir Kiva, Director of Information Technology at Perekrestok: 1st Place,iTop 50 Rating of CIOs in Russia (2004)ROSBUSINESSCONSULTINGPerekrestok: National Award “Company of the Year – Consumer Services toPopulation”, “For Corporate Governance” (2003); “Company of the Year inConsumer Trading” Award (2005)Lev Khasis, Chairman of the Board of Directors of X5 Retail Group N.V.:National Award “Person of the Year – Manager of Retail Business” (2002),“Person of the Year – Entrepreneur” (2003)TNK-BP: “Company of the Year” Award – Industry. Fuel and EnergyComplex” (2005, 2006)Golden Telecom: “Company of the Year in High Technologies” Award (2005)Robert Dudley, President and CEO of TNK-BP: “Person of the Year” Award–“Foreign Top-Manager in Russia” (2005)Alfa Capital Management: (Laureate) “Top 10 Mutual Funds AssetManagement Companies” (2006)X5 Retail Group N.V.: “Company of the Year” (2006)Olga Turisheva, Marketing Director of VimpelCom: “Marketing Director”(2005)RTS STOCK EXCHANGE AND EQUITY MARKET MAGAZINE (Awards for BestAnnual Reports)Alfa-Bank: Corporate Web-Site 1st Place “Best Level of InformationDisclosure for Clients” (2005), 3rd Place “Best Design and Navigation”(2005)RUSSIADEAL LEAGUEAlfa-Bank: “Leading Financial Consultant of Investment Banking Services onRussian Market” (2003)RUSSIAN CHAMBER OF COMMERCE AND INDUSTRY, GOLDEN MERCURYAWARDPerekrestok: “For Achievements in Creation and Development of EffectiveNational Trading Net and Active Social and Charity Activity” (2005)RUSSIAN MOBILE MAGAZINEVimpelCom: “Best Cellular Operator. Choice of the Editors” (2003)RUSSIAN NATIONAL OLIMP AWARDPerekrestok: “Trading Service” (2005)RUSSIAN TRADE OLIMP AWARDPerekrestok: “Best National Retail Net” (2005)TNK-BP: “For Regeneration of the Industrial Potential of Russia” (2006)SILVER SHARK INTERNATIONAL FESTIVALVimpelCom: Award “For Efficient Interaction with Mass Media” (2006)SOTOVIK AGENCYVimpelCom: “For Innovation Leadership in the Development of GSM Net”(2004)STATE COMMISSION OF THE RUSSIAN FEDERATIONFOR TELECOMMUNICATIONS AND INFORMATION TECHNOLOGIESAlexander Vinogradov, President of Golden Telecom: Title “Master ofCommunications” (2003)WORLD BRAND ACADEMYMikhail Fridman, Chairman of the Board of Directors of Alfa-Bank and PetrAven, President of Alfa-Bank: Award “For Creation of Successful RussianBrand” (2006)

AlfaGroupContact InformationContentsAlfa GroupAnnual report2006ALFA-BANKChairman of the Board of Directors:Mikhail FridmanPresident: Petr AvenCEO: Petr SmidaAddress: 27 KalanchevskayaStreet, Moscow, 107078,RussiaTel.: +7 (495) 929-91-91,+7 (495) 974-25-15E-mail: mail@alfabank.ruALFA CAPITAL MANAGEMENTCEO: Mikhail KhabarovHead of PR: Dmitry NazarkinAddress: 32/1 Sadovaya-Kudrinskaya Street, Moscow,123001, RussiaTel.: + 7 (495) 797-31-52Fax: + 7 (495) 797-31-51E-mail: info@alfacapital.ruALFA CAPITAL PARTNERSCEO: Richard SobelAddress: 32/1 Sadovaya-Kudrinskaya Street, Moscow,123001, RussiaTel: + 7 (495) 775-18-28Fax: + 7 (495) 775-18-27E-mail: info@alfacp.ruALFASTRAKHOVANIE GROUPCEO: Vladimir SkvortsovPresident: Mikhail BershadskyAddress: 31 B ShabolovkaStreet, Moscow, 115162, RussiaTel: +7 (495) 788-09-99Fax: +7 (495) 785-08-88E-mail:alfastrah@alfastrah.ruTNK-BPCEO and President: Robert DudleyAddress: 1 Arbat Street,Moscow, 119019, RussiaTel.: +7 (495) 777-77-07Fax: +7 (495) 777-77-08E-mail: company@tnk-bp.comA1Managing Director: AlexanderSavinAddress: 12 KrasnopresnenskayaNaberezhnaya, Moscow,123610, RussiaTel.: +7 (495) 967-00-00,+7 (495) 967-00-66Fax: +7 (495) 967-00-76E-mail: a-1@a-1.comRUSSIAN TECHNOLOGIESManaging Partner: Mikhail GamzinAddress: 6 Gasheka Street,Floor 12, Moscow, 125047,RussiaTel.: +7 (495) 255-83-64Fax: +7 (495) 255-83-65E-mail: info@ru-tech.ruX5 RETAIL GROUP N.V.Chairman of the Board:Herve DefforeyCEO and Chairman of theManagement Board: Lev KhasisAddress: 28 SrednayaKalitnikovskaya Street,Building 4, 109029, RussiaTel.: +7 (495) 662-88-88,+7 (495) 789-95-95Fax: +7 (495) 662-88-88ext. 41-265E-mail: info@x5.ruALTIMOCEO: Alexei ReznikovichVice-President: Kirill BabaevAddress: 11 SavvinskayaNaberezhnaya, Moscow,119435, RussiaTel./Fax: +7 (495) 981-44-88E-mail: info@altimo.ruCTF HOLDINGS LTDDirector: Franz WolfHead Office: 4 Irish Place, Suite2, GibraltarTel.: +(350) 41977Fax: +(350) 41988Moscow Contact InformationDirector of Corporate Development,Finance and Control: NigelRobinsonDeputy Director of CorporateDevelopment, Finance and Control:David GouldDirector of Group PortfolioManagement and Control:Vladimir AshurkovManager of Corporate Relations:Nataliа DymovaAddress: 6 SechenovskiyPereulok, Building 3, Floor 3,Moscow, 119034, RussiaTel.: +7 (495) 787-00-77Fax: +7 (495) 637-36-00E-mail: info@ctf.ru166Supervisory Board of Directors16Statement by the Chairman of the Supervisory Boardof Directors of Alfa Group1214Alfa Group’s Investment Philosophy9Alfa Group’sCorporate CentreAlfa Group Financial HighlightsFinancial Reviewand Strategic21Development of the GroupAlfa Group’s Principal HoldingsAltimo2252Russian Technologies 56Alfa-Banking Group; Alfa Capital Management;Alfa Capital Partners; AlfaStrakhovanie Group40A166 71TNK-BP60X5 Retail Group N.V.Combined Financial Statementsand Auditor’s Report4 / ALFA GROUP / ANNUAL REPORT 2006ALFA GROUP / ANNUAL REPORT 2006 / 5

Statementby the Chairmanof the SupervisoryBoard of Directorsof Alfa Group2006 marked the eighth straightyear of expansion of the Russianeconomy with real year-over-yearGDP growth averaging 6.7% perannum from the beginning of 1999through the end of 2006.Continued strength in worldwidecommodity prices, growth in realwages and disposable incomes,exports and forex reserves rising toall time highs and a palpable reductionin the perceived Russian equityrisk premium all bolstered foreignfund flows into Russia’s burgeoningequity markets in 2006.2006 marked Alfa Group’s secondmost profitable year in our 18-yearhistory with profits of US$1.66 billion and also marked theGroup’s eighth straight year ofstrong profitability, with cumulativenet profits of US $8.96 billionfor the eight years ended 31 December2006. At 31 December2006, Group shareholders’ equityreached US $9.39 billion – its highest-everlevel.A significant beginning of year2006 cash and cash equivalentsbalance of US $974 million as wellas the strong balance sheets of oursubsidiary companies provided uswith an unprecedented financialflexibility allowing us to actopportunistically in pursuinglarge-scale investment during2006 and into 2007.In the telecommunications sphere,during 2006 we increased our votingstake in VimpelCom from32.9% at 31 December 2005 to36.3% at 31 December 2006 andfurther increased our voting staketo 44.0% by 30 June 2007. Additionally,the companies in whichwe invest continued to expandrapidly into the CIS and beyondwith VimpelCom entering Georgiaand Armenia and with GoldenTelecom, Inc. continuing its rapidconsolidation of the alternativecommunications market inMoscow as well as Russia’s regionsand in Ukraine.In May 2006 we merged our supermarketchain Perekrestok withLondon Stock Exchange listedPyaterochka, one of the largest groceryretailers in Russia with operationsin St. Petersburg and inMoscow. In doing so, Pyaterochkapurchased 100% of Perekrestok andAlfa Group, became the owners of54% of the combined company.This merger created the clear leaderin the fast growing Russian foodretail market with more than 1,200stores (including franchisees) andconsolidated pro-forma net sales ofapproximately US $3.5 billion forthe year ended 31 December 2006 a50% increase over the prior year.Both chains are united under LSElistedX5 Retail Group N.V.Regarding TNK-BP, its outstandingperformance in 2006 was not onlydriven by high world oil prices.Since our merger in August 2003,TNK-BP’s international managementteam has learned how to worksuccessfully together to overcomechallenges and achieve successes.In particular, during 2006 TNK-BPdelivered production growthexceeding the industry average,achieved impressive reservesreplacement of 129% (under SECmethod) and CAPEX reached6 / ALFA GROUP / ANNUAL REPORT 2006ALFA GROUP / ANNUAL REPORT 2006 / 7

US $2.6 billion – three times higherthan in 2003.During 2006 A1 established a jointventure with Diageo, the world’slargest alcoholic drinks maker toact as exclusive distributor ofDiageo spirit brands as well as A1’sSmirnov vodka brand in Russia andalso concluded a number of smalleropportunistic transactions.Also, Russian Technologies, whichfocuses on the commercial exploita-has a long history of co-operationwith foreign investors – both portfolioand strategic. We have appreciatedfor a long time that onlywell-managed, progressive companieswhich are committed to thehighest levels of transparency andgovernance principles will be fullyvalued and will manage to attractforeign investment. As theinevitable foreign participation inRussia continues to increase, and aswe look to make new investmentand partially or completely exit cer-Early indications suggest that 2007promises to be another excellentyear for the Group. As we movebeyond 2007, we are making extensivepreparations to secure an evenmore successful future for theGroup as we consider new investmenthorizons.On behalf of the Supervisory Boardof Directors, I wish to thank all ofour clients and business partnersfor their unwavering trust, supportand loyalty. I would also like toSupervisoryBoard of Directors“We are not bankers, nor are we oil or telecommunications or retail experts.We are investors. We do not have a business which we have been involved in allof our lives. We are people who are able to assess and anticipate certain markettrends, understand which businesses will develop faster and which businesseswill stagnate or decline…and based on these speculations, we makecompetent investments. At the same time, we are not “silent” investors — wework hard on the companies we have invested in and we attract professionalmanagers who we can trust. We know that someday we will leave these businessesand make other investments when we consider the price, time and placeare right.”tion of promising technologies,continued to make and manage anumber of small-scale, but interestinginvestments in 2006 both individuallyand jointly with foreignstrategic partners.As has been the case in prior years,we continue to re-invest substantiallyall of the Group's net profitsinto our existing businesses andmake new investments on our beliefthat this is the best and highest useof our capital. In the eight-yearperiod ended 31 December 2006we re-invested US $8.55 billion ofour US $8.96 billion in net profits -a 95.4% re-investment rate.As investors, we view co-operationwith foreign investors as critical tothe development of our companiesand also as a logical and attractivemeans of exiting our investments.It is not accidental that our Grouptain of our investments, we are confidentthat we are well positionedto benefit from co-operation withforeign investors.For the past two years Russian companiesacross practically all industrysegments have engaged in a predictablepattern of consolidatingtheir market segment inside ofRussia as well as expanding, bothorganically and through acquisition,beyond Russia into the mostattractive CIS and other emergingmarkets. Having anticipated thesetrends, it has been clear to us forsome time that focused investmentin developing markets outside ofRussia would play an increasinglyimportant role in the future developmentof the Group. A meaningfuldiversification will provide alarger pool of attractive opportunitiesand will increase stability inearnings for the Group.express my appreciation to AlfaGroup’s management and employeesfor their superb and continuingcontributions.Mikhail Fridman24 September 2007Mikhail FridmanThe Supervisory Board of Directors of Alfa Group is the Group’ssupreme consultative and oversight body that sets the generaldirection for the strategic development of the Group as a wholeas well as of its individual companies. The Supervisory Boardcomprises 12 members who represent the main companies of theGroup. Supervisory Board meetings are held once every twoweeks, and serve as a forum to exchange ideas and opinions aboutthe current developments in the world economic and politicalarenas. The Supervisory Board also considers key strategic issuesfor the Group, including the review of major financial andinvestment transactions, the critical evaluation of companyperformance, and the development of strong corporate governanceand control mechanisms.The Annual Meeting of the Group is held each April at which timethe Supervisory Board reviews the results of the yearlyperformance, approves performance-related compensation for topexecutives, ratifies forward-looking budgets, and agrees on theoverall strategy for each of the Group’s companies.The authority and activity of the Supervisory Board as well as ofour individual companies’ Boards is regulated by the Group Statuteand corporate regulations, which are periodically reviewed andappended.8 / ALFA GROUP / ANNUAL REPORT 2006ALFA GROUP / ANNUAL REPORT 2006 / 9

Mikhail FridmanChairman of the Supervisory Board ofAlfa Group ConsortiumGerman KhanExecutive Director of TNK-BPAlexey KousmichoffChairman of the Board of Directorsof A1 and of Russian TechnologiesPetr AvenPresident of Alfa-BankAndrei KosogovChairman of the Board of Directorsof Alfa Asset Management and AltimoAlexander SavinManaging Director of A1Alexander FainGeneral Director of Alfa-Eco GroupLev KhasisChief Executive Officer and Chairmanof the Management Board of X5 RetailGroup N.V.Mr. Fridman is a principal founder of AlfaGroup Consortium. He graduated from theMoscow Institute of Steel and Alloys. Mr.Fridman also serves as Chairman of the Boardof Directors of Alfa-Bank and TNK-BP and isa member of the Board of Directors ofVimpelCom and the Supervisory Board ofDirectors of X5 Retail Group N.V. Mr. Fridmanis a member of the Board of Russian Union ofIndustrialists and Entrepreneurs (employers)and a member of Russia’s Public Chamber.He is also a member of the InternationalAdvisory Board of the Council on ForeignRelations (USA). Mr. Fridman was born inLvov, Ukraine in 1964.Mr. Khan is the Executive Director and amember of the Management Board of TNK-BP Management. Mr. Khan is also a memberof the Board of Directors of Slavneft and AlfaFinance Holdings SA. (oil and financialassets). From 1992 to 1998, he held variousmanagerial posts in Alfa Group. From 1995to 1998 he held the post of Director of theDepartment of Commodity Trading at Alfa-Eco. From 2000 until early 2003 Mr. Khanserved as Deputy Chairman of theManagement Board of TNK. Mr. Khan graduatedfrom the Moscow Institute of Steel andAlloys. He was born in Kiev, Ukraine in 1961.He is married and has three children.As Chairman of А1, Mr. Kousmichoff isresponsible for the strategic co-ordinationand development of А1 proprietary and forclientinvestment business in Russia, theCIS and other developing markets. Mr.Kousmichoff also serves as Chairman ofthe Board of Directors of RussianTechnologies and is a member of the Boardof Directors of Altimo as well as a memberof the Board of Directors of Alfa FinanceHoldings SA. (oil and financial assets). Mr.Kousmichoff is a graduate of the MoscowInstitute of Steel and Alloys. He was born inKirov, Russia in 1962.Mr. Aven is President of Alfa-Bank, where heis responsible for the Bank’s overall strategyand for relations with business and governmentleaders in Russia and abroad. Prior tojoining Alfa-Bank in 1994, Mr. Aven wasMinister of Foreign Economic Relations forthe Russian Federation (1991-1992), servingas Russia’s representative to the Group ofSeven, and conducting a number of highleveltrade and economic missions toWestern capitals. An economist by training,Mr. Aven spent several years at theInternational Institute for Applied SystemsAnalysis in Laxenburg, Austria (1989-1991).Currently, he is Chairman of the Board ofDirectors of AlfaStrakhovanie Group, Co-Chairman of the Board of Directors of CTCMedia, a member of the Board of Directors ofGolden Telecom, and a trustee of the Boardof the Russian Economic School. Mr. Aven isa member of the Board of theCompetitiveness and EntrepreneurshipCouncil of the Russian Federation government,and a trustee of the Board of theNational Association for National FinancialReporting Standards. Since April 2006 he hasbeen a member of the Board of RussianUnion of Industrialists and Entrepreneurs(employers). He holds a PhD in Econometricsfrom Moscow State University. Mr. Aven wasborn in Moscow, Russia in 1955.Since November 2005 Andrei Kosogov isChairman of the Board of Directors of AlfaAsset Management and Altimo and since2003 until 2007 he has been Chairman of theBoard of Directors of AlfaStrakhovanie. Mr.Kosogov is also a member of the Board ofDirectors of Alfa-Bank, Alfa Finance HoldingsSA. (oil and financial assets) and a memberof the Supervisory Board of Kyivstar sinceJuly 2002. Until May 2005 Mr. Kosogov wasFirst Deputy Chairman of the Board ofDirectors of Alfa-Bank and Director of Alfa-Bank’s Investment banking division. SinceNovember 2005 he has been Chairman of theSupervisory Board of Alfa-Bank Ukraine.Mr. Kosogov graduated from the MoscowPower Energy Institute in 1987. He was bornin Sillamaë, Estonia in 1961.Mr. Savin serves as Managing Director of A1where he is responsible for overall strategicbusiness development. From 1992 until2001, Mr. Savin worked at Bain & Companyin Moscow, Boston and London. While atBain he was focusing on consulting for privateequity businesses in various sectors aswell as on development of strategy for leadingmultinational corporations. In 2000 and2001 he served as an external consultant tothe Supervisory Board of Directors of AlfaGroup. From September 2001 Mr. Savinworked as a Director in the investment bankingdepartment of Renaissance Capitalwhere he supervised major investment projectsin the electricity and other sectors. Heis also a former member of the Board ofDirectors of Mosenergo and Kuzbassenergo.Mr. Savin is a graduate of Moscow StateUniversity and received his MBA at HarvardBusiness School in 1996. Mr. Savin alsostudied at Dalian Institute of ForeignLanguages in China and Russian-AmericanIndependent University. Mr. Savin was bornin Moscow, Russia in 1969.Mr. Fain graduated with honours from theMoscow Institute of Chemical Engineering,Engineering Department in 1958. From 1958until 1988 he was involved in a number ofinnovative engineering projects. Mr. Fain isthe author of more than 70 scientific articles,manuals, books, monographs, and patents.He also holds the honorary title of activemember of International Academy ofSustainable Development and holds a candidate'sdegree and is a professor in thefield of applied mathematics. Mr. Fain isoften cited by the leading Russian businessperiodicals as one of the most influentialbusinessmen in Russia. He was born inMoscow, Russia in 1936.In 1989 Dr. Khasis graduated from theKuybyshev Aviation Institute, faculty of aircraftconstruction and in 1995 from theFinancial Academy of the Government ofthe Russian Federation, Faculty of banking.In 2001 he graduated from the University ofthe Ministry of the Interior, Faculty of law. Dr.Khasis holds a PhD in technical sciencesand law. From 2001 until 2003 Dr. Khasisserved as Chairman of the Board ofDirectors of Trade House TsUM. From 2003until 2004 Dr. Khasis served as Chairman ofthe Board of Directors of Trade House GUM.Dr. Khasis had held position of Chairman ofthe Board of Directors of Perekrestok Groupof Companies prior to merging withPyaterochka in 2006, at which time he wasappointed CEO of X5 Retail Group N.V., AlfaGroup's retail holding company, whichincludes Pyaterochka and Perekrestok. Dr.Khasis was born in Kuybyshev (nowSamara), Russia in 1966.MEMBERS OFAlexander KosiyanenkoMember of the Supervisory Board ofDirectors of X5 Retail Group N.V.Mikhail GamzinManaging Partner of RussianTechnologiesAlexei ReznikovichChief Executive Officer of AltimoNigel RobinsonDirector of Corporate Development,Finance and Control – Alfa GroupSUPERVISORYBOARD OF DIRECTORSMr. Kosiyanenko helped to found Perekrestokin 1994 and from that time untilMay 2006 served as Chief ExecutiveOfficer, responsible for the overall strategyand development of the Company, buildingPerekrestok into one of the largest supermarketchains and one of the leading retailersin Russia. Prior to establishingPerekrestok, Mr. Kosiyanenko served asChairman of the Board of Directors of theJoint-Stock Commercial Bank Moskva-Centre. Since Perekrestok's merger withPyaterochka in May 2006, Mr. Kosiyanenkois a member of the Supervisory Board ofDirectors of X5 Retail Group N.V. Mr.Kosiyanenko graduated from the MoscowInstitute of Steel and Alloys. He was born inVolgograd, Russia in 1964.As the principal founder and a ManagingPartner of Russian Technologies VentureFund, Mr. Gamzin is responsible for itsoverall strategy and development. Prior toforming Russian Technologies, Mr. Gamzinserved as Chairman of the Board ofDirectors of Intec Group, a sugar and grainbusiness which in 2001 merged with AlfaGroup’s sugar business to create UnitedFood Company. UFC was sold to a Russianstrategic investor at the end of 2002. Mr.Gamzin graduated from the MoscowCommercial Institute in 1989. Mr. Gamzinwas born in Krasnodar, Russia in 1964.In 2002 Mr. Reznikovich joined theSupervisory Board of Directors of AlfaGroup, where he was responsible for strategicasset management. In June 2005 hewas appointed Chief Executive Officer ofAlfa Telecom (later re-named Altimo). In May2007 he was elected Chairman of the Boardof Directors of Golden Telecom. From 1993to 2000 Mr. Reznikovich worked inMcKinsey & Co. In 2001 he became thefounder and general director of the internetcaf_ network Cafemax (Russia). Mr.Reznikovich is a graduate of the MoscowState University, Economics Faculty andreceived his MBA from both GeorgetownUniversity (USA) and INSEAD (France) in1993. Mr. Reznikovich was born in Moscow,Russia in 1968.Mr. Robinson joined Alfa Group in January2000. His responsibilities include co-ordinatingthe financial control and reporting of allAlfa Group companies and corporate governancefor the Group as a whole. Prior to joiningAlfa Group, Mr. Robinson was s seniormanager in the audit and business advisorygroup at PricewaterhouseCoopers andspent 6 years with PwC in Moscow and St.Petersburg. Mr. Robinson is a British qualifiedChartered Accountant and a member ofthe Institute of Chartered Accountants inEngland and Wales. He graduated from theAccounting Faculty of Norwich City Institutein the UK. He was born in Corringham,England in 1967.10 / ALFA GROUP / ANNUAL REPORT 2006ALFA GROUP / ANNUAL REPORT 2006 / 11

ALFAGROUP’SCCORPORATEENTREThe work performed by the Corporate Centre covers an extensive range of key functions including:Financial Control and AuditIncludes the development of a Groupwideaccounting and reporting policy;Review of quarterly company IFRSaccounts; Preparation of Group consolidatedIFRS accounts; Coordination ofthe external audit; Attracting strong personnelfor key finance and accountingpositions; Creation of and oversight overInternal Audit Departments in our companies;Group compliance role.Legal and Shareholder MattersResponsibilities extend to developmentof an efficient and transparent Groupwideownership structure; Developingformal, transparent decision-makingprocedures; Efficient structuring ofinvestment transactions and restructurings;Representation of shareholders'interests in respect of various legal, regulatoryand financial matters.Corporate GovernanceIncludes working to increase effectivenessof the Boards of Directors, includingthe recruitment of independent directorsand establishing fully functioning Boardcommittees; Updating and enforcementof the Group corporate statute whichgoverns decision-making in the Group;Improving transparency of the Groupthrough the Group's website and publicationof the Group annual report.Investment PlanningResponsibilities include the developmentand implementation of Group-wide standardsfor evaluating and approvinginvestment decisions; Issuance of policymanuals to our companies regulating theapproach, process, methodology and formatto investment decision-making;Enforcement of investment decisionmakingregulations; Monitoring andcontrol over individual investment projects;Organization of the work of ourcompanies' Investment Committeesincluding assistance in preparing majorinvestment decisions taken by theInvestment Committees and Boards ofour companies.Strategic PlanningResponsibilities include developing andimplementing Group-wide standardsand recommendations to facilitatemeaningful and timely strategic planningin our companies; Critical analysisof strategic plans, operating plans andbudgets through direct work with ourcompanies' management and activework on the Board and Board committeesof our companies; Support to ourcompanies in development and implementationof an effective system of keyperformance indicators (KPIs) andassistance in developing KPI-basedcompensation mechanisms.IT DevelopmentIncludes assessment and control ofmatching IT strategies with businessobjectives; Development and introductionof the efficient monitoring and controlmechanisms for the Group companies’IT services, including budgetingand key projects; Optimization of Groupcompanies’ IT expenses through negotiationof Group framework agreements;Advisory support to management of ourcompanies; Organization and participationon the Group’s IT, Security andAudit Boards which were established totransfer best practices and share expertknowledge.Organizational Structureand Human ResourcesIncludes the provision of assistance toour companies in hiring key management,finance and other senior personnel;Conducting organizational auditsof our companies; Establishing appropriatesystems of motivation and compensation.Special ProjectsIncludes significant involvement in facilitatingGroup acquisitions and divestituresas well as Group restructuringsand other ad-hoc projects.CTF Holdings Ltd (CTF), founded in 1996, is the main holding company of the Alfa Group Consortium andfulfils the functions of the Group Corporate Centre. The Corporate Centre reports directly to theSupervisory Board of Directors through both the Director of Corporate Development, Finance andControl who heads CTF and serves as Secretary of the Supervisory Board, and through the Director ofGroup Portfolio Management and Control.The primary mandate of the Corporate Centre is to increase shareholder value by managingdevelopment-related risks of the Group through the implementation and maintenance of strongmechanisms of corporate governance and financial, strategic and investment control within theGroup. More specifically, this includes providing decision-making and implementation support to theSupervisory Board, the representation and protection of shareholder interests as well as the provisionof direct assistance to the companies forming the Group.ALFA GROUP / ANNUAL REPORT 2006 / 13

alfagroup’sinves tmentphilosophy1234We are opportunisticinvestors.We believe the mostattractiveopportunities are inworld emergingmarkets.We are interested ininvestments over whichwe can exercisecontrol.We typically take alonger-term view, inorder to realise thefull potential of ourinvestments.Simply stated, we are value-oriented investors. In evaluating any investmentopportunity, our investment philosophy is driven by the opportunity to purchaseassets that, due to perceived risk, low liquidity, disinterest or a lack ofunderstanding on the part of market participants, are undervalued.Much of our past success has been the result of our comprehensive knowledgeand understanding of emerging markets, in particular, the Russian and CISmarkets. We believe there are still substantial opportunities in the world'semerging markets and that we are well placed to take full advantage of them.We typically make investments on the basis that we will have either majorityor joint control, through share ownership, board representation, or both. Noncontrolledinvestments are generally not attractive to us because the lack ofcontrol makes it difficult to guide the development of these companies andmaximise shareholder value. Joint control is acceptable in cases where thejoint venture partner is reliable and brings experience or skills that complementour own, or shares funding obligations and risks, which due to their sizeor nature, we wish to share.The relative lack of liquidity of emerging market assets makes any plannedexit strategy tenuous. This is particularly true of direct, privately-heldinvestments. We therefore take this time to do everything necessary todevelop our investments, thus making them more attractive to a potentialbuyer. While we do not particularly welcome the inflexibility of being wed toan investment for the longer term, we lower our risks by seeking undervaluedinvestments that provide ample down side protection and, when possible,interim cash flows.We rely on our investment philosophyto generate superiorreturns for our shareholdersover the long term, to promotesound corporate governanceand business practicies, and tobenefit our partners, counterparties,employees, the Russianconsumer and society at large.567We view co-operationwith foreign investorsand the attraction offoreign capital asimportant to thedevelopment of ourcompanies.First and foremost weare investors, notbusiness managers.We are guided by thephilosophy ofinvesting in onlythose companies thatare leaders in theirrespective fields ofbusiness.The need to attract foreign investment is becoming increasingly critical.Foreign investors provide not only capital investment, but also the expertise,credibility and advancement of reputation which is needed to successfullydevelop and realize the full value of our investments. We know from experiencethat the failure to attract longer-term foreign investment will result inunder-developed assets and missed business opportunities. Also, with regardto exit strategy, sale to foreign investors provides us with a logical and attractivemeans of exiting our investments.We do not consider ourselves experts in managing and operating the companiesthat we own — we leave the day-to-day management and operatingdecisions of our companies to professional, competent management withindustry experience. Our companies are independent entities and are givenfairly wide latitude to conduct their affairs. We do, however, actively adviseand take decisions on important strategic matters that have an impact on theshareholder value of our companies. We also continually evaluate managementand measure the financial performance of our investments.We require those in which we invest to be one of the top three in their businessfield or with a clear potential to become one of the top three within areasonable period. Where we see that our investments are not meeting thiscriterion, we take active measures to divest and free up our financial andmanagement resources for more effective investments.ALFA GROUP / ANNUAL REPORT 2006 / 15

ALFA GROUP FINANCIAL HIGHLIGHTSTotal Assets 7,179,160 12,071,600 14,278,906 20,256,668 32,194,759Cash and Cash Equivalents 405,694 1,460,080 1,217,687 974,066 1,989,289Trading Securities and Investments Available for Sale 552,416 1,128,863 1,507,107 2,557,554 3,943,530Long-term Funding * 341,404 252,723 427,646 1,440,947 3,308,238Shareholders’ Equity ** 2,517,175 4,648,617 5,629,621 6,863,594 9,391,639Profit ** 625,765 1,991,172 771,047 1,417,150 1,664,493Source: Annual audited IFRS combined financial statements.* - Includes non-current: borrowings, customer accounts and due to banks (effectively debt);** - Amount attributable to majority shareholders (excludes minority interest).(’000 USD) 2002 2003 2004 2005 2006Financial Review and Strategic Development of the GroupSUMMARY ANALYSIS OF THE GROUP’S FINANCIAL RESULTS FOR 2006By almost any measure, 2006 was another banner year for the AlfaGroup Consortium. Not only did 2006 mark our second mostprofitable year in our 18-year history, but also all five of ourmajor business segments contributed positively to Group net profits(excluding the effect of redeemable capital – see note 18 of theCombined Financial Statements for further explanation). We ended theyear larger and stronger with financial resources which allow us to beeven more flexible in funding existing businesses and pursuing newinvestment opportunities.After registering profits of US $1.42 billion in 2005, profits for 2006were US $1.66 billion – a year on year increase of 16.9%.Shareholders’ equity (hereinafter is Net assets attributable to equityGrowth of US $1 Invested into MSCI Index, RTS Index and Alfa Group for the 7 Year Period 1 January 2000 through 31 December 2006MSCI EmergingMarkets Index:RTS:ALFA GROUP$1.86 (86%)$10.97 (997%)Qualification of Audit Opinionholders of the Parent Companies in the Combined Balance Sheet) grewfor an eighth straight year to an unprecedented high of US $9.39 billion.Return on shareholders’ equity for 2006 was 20.5% while returnon assets was 6.3%.Balance sheet strength continued to be within acceptable ranges. Theratio of debt to shareholders’ equity increased to 0.35 at the end of2006 from 0.21 at the end of 2005 and the ratio of debt to assetsincreased modestly to 0.10 at the end of 2006 from 0.07 at the end of2005. The Group also continued to benefit from an already strong liquidityposition, which was bolstered by healthy dividend paymentsfrom TNK-BP during 2006.$77.65 (7,665%)*0 1000% 2000% 3000% 4000% 5000% 6000% 7000% 8000%* As measured by change in Group shareholders’ equity (based on historic USD at 31 December 1999). Note that there were no capital contributions into the Group during this 7-year period.During 2006 the Group was engaged in a dispute with Telenor, another shareholder in Ukrainian mobile telecommunications operator CJSCKyivstar GSM (“Kyivstar”), in respect of a shareholder agreement with them. As a result of court rulings, there is an active injunction whichprevents the receipt and use of certain financial information of Kyivstar and accordingly the audit opinion covering our 2006 CombinedFinancial Statements has been qualified by our independent auditors for the inability to obtain sufficient and appropriate audit evidenceabout the carrying amount of our investment in Kyivstar and certain other related items. Based on our assessment (including consultationswith external legal counsel) it is our judgment that the current injunctions do not prevent the Group from exercising significant influenceover Kyivstar and accordingly the Group has accounted for its 43.48% investment in Kyivstar under the equity method of accounting at31 December 2006. Carrying amount of the Group’s investment in Kyivstar of US $800 million 31 December 2006 and the Group’s share of2006 results of Kyivstar have been estimated based on available interim information of Kyivstar.Analysis of the Group’sFinancial Results for 2006by Industry SegmentIn 2006, the Group’s activities spannedfive business segments – FinancialServices (includes banking, asset management,and insurance), Oil & Gas,Investment Group (includes proprietary,for-client and venture investment), RetailTrade and Telecoms. Not only was 2006the 4th consecutive year in which all segmentscontributed positively to the Group’sprofits of US $1.66 billion, but all segments,contributed more net profit in absoluteterms than as compared to 2005 and2004 (see table below for relative profitcontributions in 2006 and 2005).Percentage Breakdown of Alfa Group’s Profitby Industry Segment*2006 2005Oil & Gas 57.9% 76.3%Retail Trade 20.0% 1.6%Telecommunications 11.6% 4.3%Finance Services 10.0% 15.6%Investment Group** 0.5% 2.2%Total 100.0% 100.0%Source: Derived from the Annual audited combinedIFRS financial statements.* - Excludes the effect of redeemable capital. See note18 of the Combined Financial Statements for furtherexplanation. Excludes other segment and eliminations.** - Note that this segment is comprised of results ofA1 and Russian Technologies.Oil&GasOnce again, the contribution from ouroil and gas segment, represented byTNK-BP (including also investmentin Sidanсo and Slavneft), accounted for thelargest part of the Group’s profit (excludingthe effects of redeemble capital) – 57.9% ofaggregate Group profit. This contribution, inrelative terms was, however, significantly lessthan in previous years, as we effectivelyreduced our overall exposure to oil and gas inthe latter part of 2003 by realizing part of ourinvestment by merging our Russian andUkrainian oil and gas assets with BP’s Russianoil interests.In 2006 TNK-BP delivered productiongrowth more than 2%, exceeding the onshoreindustry average of 1.8%. Also,importantly, the Company continued tobalance growth with robust reservereplacement — 23 new licenses wereacquired and a 65% exploration/appraisaldrilling success rate was achieved. Also,during 2006 TNK-BP achieved a veryimpressive 129% (under SEC method)reserve replacement.In the area of downstream, modernization ofthe Ryazan refinery was completed,enabling incremental production of 1 milliontons of high-octane gasoline and 10%reduction of harmful emissions. Also TNK-BP introduced a new type of fuel to theRussian market (BP Ultimate) and beganadvancing popular TNK and BP retail brandsThe financial services segment comprisesAlfa-Banking Group (“Alfa-Bank”), Alfa Capital Management(“АСМ”), Alfa Capital Partners (“АСР”) andAlfaStrakhovanie Group. For the year 2006,Alfa-Bank earned record profit of US $190.3million – 5.4% higher than in 2005, whiletotal assets grew by 54.6% to US $15.2 billionat year-end 2006. The largest contributionto 2006 profit came from the corporatebanking and investment banking operations.At the same time, we continued to make furtherinvestment into the development ofAlfa-Bank’s retail banking projects includingroll-out of branches into regions, consumerfinance, auto lending and mortgage lending.Alfa-Bank is optimistic about its future as itcontinues to realize its strategy of developinga modern, client-oriented universalbank, represented among all principal segmentsof the financial and banking marketincluding retail, corporate, and investmentbanking businesses. Alfa-Bank will continueto focus on introducing new technologiesand cutting-edge service channels and willfocus on increasing its efficiency by optimizingits cost structure and staffing to meetgrowing competition.At the end of 2006, Alfa CapitalManagement’s business strategy wasaligned with a five-year strategic visionproposed by the company’s new managementteam. Following the approval of thenew strategic plan, ACM launched six newmutual funds increasing substantially itsretail product line. In 2006, ACM ranked#4 in Russia by net cash inflow into retailinto new regions including St. Petersburgand Krasnodar. In 2006 CAPEX reached US$2.6 billion – three times higher than in2003 and during 2006 the Company paidmore than US $20 billion in taxes, duties andexcises to state budgets of all levels.While the exposure we have as investors tooil and gas assets is large, it is an exposurewhich we are comfortable given forecastedadvantageous market conditions on worldenergy markets, our perception of a continuingfavorable risk-to-reward ratio of holdingversus selling oil and gas assets, the significantand growing contribution fromother business segments in our Group, andthe advantages provided by our successfulpartnering with BP.Financial Servicesmutual funds, and #3 by assets under managementon the retail mutual funds market.Total assets under management increasedfrom US $346 million in April 2006 to US$498 million by February 2007.In the beginning of 2006, Alfa CapitalPartners managed US $285 million of capitaland during 2006 raised an additionalUS $259 million for its private equity andreal estate funds which focus on Russia,Ukraine and the CIS. By the end of the firstquarter 2007 ACP raised an additional US$77 million to bring total funds under managementto US $621 million. This hasplaced ACP among the leaders in institutionalfund management in Russian andCIS private equity. With fundraising completed,ACP is now focused on the investmentstage of its business which includesinvesting in and partnering withentrepreneurs and real estate developers tohelp them realize their potential in the fastgrowing markets that ACP serves.During 2006, AlfaStrakhovanie, a growingbusiness which offers a full spectrum ofinsurance cover for corporates and for individuals,registered a small net loss of US$14.4 million. This loss was mainly driven byinvestment into the life and accident insurancebusiness lines as well as the continuingexpansion of the Company’s regional network.As an insurance culture continues todevelop in Russia and demand continues toincrease, we expect that AlfaStrakhovaniewill continue to grow its business at least asfast as the Russian insurance market.16 / ALFA GROUP / ANNUAL REPORT 2006 ALFA GROUP / ANNUAL REPORT 2006 / 17

TelecommunicationsOur telecommunications segment is representedby Altimo (primarily comprisingstakes in integrated telecommunicationsand internet provider GoldenTelecom, Inc. and cellular providersVimpelCom, MegaFon, Kyivstar) and theGroup’s investment in Turkcell. In absoluteterms, the telecoms segment in 2006contributed nearly four and one halftimes more profit (excluding the effect ofredeemable capital) than in 2005. Whileall of our cellular companies are experiencingrapid subscriber and revenuegrowth on the markets where they operate(mainly Russia, Ukraine, Kazakhstan(USD)60and Turkey), they are also securingfuture growth by continuing to expandinto the most attractive markets of theCIS and Europe. Notably, in early 2005Altimo purchased Bakrie UzbekistanTelecom (“Buztel”), the fourth largestGSM operator in Uzbekistan and thensold it to VimpelCom in early 2006 for US$60 million plus the assumption of debt.Additionally, in early 2006 VimpelComacquired Unitel, the second largest GSMoperator in Uzbekistan for US $200 millionplus the assumption of debt. In mid-2006 VimpelCom purchased a 51% stakein Georgian GSM-operator Mobitel forUS $12.6 million plus an option to purchasethe remaining 49% of the company.In late 2006 VimpelCom purchased a90% stake in Armenia’s integrated telecomprovider Armentel for US $445 millionand the remaining 10% stake in2007 for EURO $38.6 million. GoldenTelecom, Inc. was busy completing anumber of acquisitions of alternativetelecommunications and internetproviders during 2006 in Russia’s regions(Ekaterinburg, Nizhniy Novgorod, theRepublic of Tatarstan and theKrasnodarsky region of Russia) as well asinto Ukraine. In early 2007 GoldenTelecom, Inc. acquired a 65% interest inFortland Limited which holds Kolangon-Optim LLC which holds licenses to offerdigital television services in several ofthe largest cities of Russia. Also in May2007 Golden Telecom, Inc. purchased a51% stake in Corbina Telecom Group, afacilities based alternative telecommunicationsprovider of broadband Internet,voice and data services in Moscow and24 regions of Russia.Altimo itself made a number of acquisitionsduring 2006. During 2006 Altimoincreased its voting stake inVimpelCom by 3.4% from the end of2005 until the end of 2006 to 36.3%.Altimo made additional purchases in2007 of 7.7% of the common sharesincreasing their voting control to44.0% through 30 June 2007. Also, inmid-2006 Altimo entered the Kyrgyzmarket through acquiring control overSky Mobile.As investors, we view emerging marketstelecommunications assets as an attractivemarket segment. We are certainthat in the years to come that telecommunicationswill play a growing role inthe development of the Group and willcontribute on an increasingly largescale to Group profits.Since having made our first investments into the telecoms sector in mid-2001 through purchase of significant stakes in USNASDAQ-listed Golden Telecom, Inc. and US NYSE-listed VimpelCom, their share prices have risen 437% and 2007% respectivelythrough 30 June 2007. Additionally, since having made investment into NYSE-listed Turkcell, in November 2005, itsshare price has risen 22% through 30 June 2007.Golden Telecom, Inc.(USD)120VimpelCom(USD)20TurkcellINVESTMENTGROUPProprietary and For Client InvestmentDuring 2006 A1 established a jointventure with Diageo, the world’slargest alcoholic drinks maker toact as exclusive distributor of Diageo spiritbrands as well as A1’s Smirnov vodkabrand in Russia. Diageo paid A1 US $50million and A1 remained a blocking minorityshareholder. Additionally, A1 participatedin a number of opportunistic transactionsincluding the acquisition and saleof an oil field located in the Tomsk regionof Russia to TNK-BP, the acquisition andsale of a stake in a warehouse complex toits joint venture partner and the purchaseand sale of a controlling stake in a commercialbank to its minority shareholder.After posting modest net profits in 2005,A1 posted similarly modest profits in2006. During the past few years A1 hasmade a number of longer term investmentsfor which it expects to realize significantprofits in the ensuing years. Suchinvestments include the development of adomestic Russian low-cost airline, thedevelopment of a national chain of cinemas,investment into an interregionalmunicipal water operator and others.Venture Investment in TechnologyRussian Technologies, which also forms part of the Group’s investment segment, did not impact significantly onprofit in 2006 as it only began to make its first investments during 2004. Russian Technologies has been seededwith US $50 million in initial capital. Noteworthy projects which have already received initial funding include:4836241296724824161284Ultra Motor Company Ltd. PLT Electro-Com Ltd. Yutec Technologies Ltd. PBC Lasers Ltd. Wostec Inc. SJ Labs Inc. UHT Inc.Patented, rechargeableelectric propulsionsystem forlight vehiclesincluding bicycles.Aimed at high-populationcountriessuch as India andother regions ofAsiaUse of existingpower supply networksto enablehigh-speed andhigh- quality communicationsfor useon the Russian market.Intel Corporationis a co-investor inthe projectDisk crystallizertechnology providessignificantimprovements inprocessing oil andparaffin in thepetrochemicalindustryDevelopment ofnew laser diodetechnology for CDand DVD readersand writers, scannersand otherapplicationsSelf-forming waveordered-structurednanostructures.Potential for a widerange of applicationsincludingadvanced LCD displays,integratedcircuits and opticalcomponentsVoIP technologyadd-on to existingsoftware and businessapplicationsWi-Max technologyfor use with wirelessinternet accessand telecommunicationsin Ukraine.Intel Corporation isa co-investor in theproject2001 2002 2003 2004 2005 2006 2007 20082001 2002 2003 2004 2005 2006 2007 2008Beginning of YearBeginning of YearCommon SharesADS2005 2006 2007 2008Beginning of YearADS18 / ALFA GROUP / ANNUAL REPORT 2006ALFA GROUP / ANNUAL REPORT 2006 / 19

Retail TradeIn May 2006 we merged Perekrestokwith London Stock Exchange listedPyaterochka, one of the largest groceryretailers in Russia with operations inSt. Petersburg and in Moscow. In doingso, Pyaterochka purchased 100% of Perekrestokand Alfa Group, together with itsfriendly minorities, became the owners of54% of the combined company (48% AlfaGroup effective stake). This merger createdthe clear leader in the fast growingRussian food retail market with over 1,200stores (including franchisees) and consolidatedpro-forma net sales of US $3.55 billion(includes Merkado) for the yearended 31 December 2006, a 50% increaseover the prior year and consolidated proformaEBITDA for 2006 was US $295 million(including one-time expenses andgains), a 21% increase over the prior yearand pro-forma gross margin of 27.9% in2006 versus 25.4% in 2005. In October2006, the LSE-listed holding company wasre-named X5 Retail Group N.V.We believe that the combined business willbenefit from: 1) A clear leadership positionin the fast growing Russian food retailmarket; 2) A diversified and complementarygeographic presence in Moscow andSt. Petersburg with a strong and provenplatform for expansion into the underdevelopedmarkets of Russia’s regions aswell as into the CIS; 3) A multi-formatcapability of Pyaterochka’s successful discountformat with Perekrestok’s leadingchain of supermarkets; 4) Potential forsubstantial synergies including economiesof scale in purchasing, logistics and IT; 5)Increased opportunities in the area ofmergers and acquisitions in pursuingmulti-format acquisition targets.At the end of 2006 X5 Retail Group N.V.closed a US $200 million purchase(including assumed debt) of theMerkado retail chain having 16 supermarketsas well as a wholly-owned17,000 m 2 distribution and office center.The supermarkets and the distributionand office center are located in attractivelocations in Moscow.We are certain that prudent, large-scaleexpansion through the acquisition oftechnologically sound retail chains willplay a key role in expanding Alfa Group’sretail presence in Russia and in key CISmarkets.Continuing Development of the GroupAs investors we have taken the view that substantial re-investment of the Group's net profits, both into our existing businessesand investment into new businesses is the highest and best use of our capital. In the eight-year period ended 31December 2006 we re-invested US $8.55 billion of our US $8.96 billion in net profits – a 95.4% re-investment rate. Duringthe same period only US $408.7 million (4.6%) of the Group's net profits were paid as dividends.alfa group’sprincipalholdingsAlfa-BankLargest private bank in Russia andsignificant presence in Ukraine.Wide range of financial services,including commercial andinvestment banking, trade finance,and asset management.Alfa CapitalIncludes Alfa Capital Management(“ACM”) and Alfa Capital Partners(“ACP”). ACM managesinvestment portfolios of publiclytraded debt and equity securities.ACP manages private equity andreal estate investments.AlfaStrakhovanieGroupLeading issuer of non-obligatoryinsurance in Russia.AltimoOne of the largest private investorsinto wireless and fixed-linetelecommunications companiesin Russia, the CIS and otherpromising emerging markets.MegaFon3rd largest wirelesstelecommunications servicecompany in Russia.Golden TelecomLeading facilities-based providerof integrated telecommunicationsand Internet services in major populationcentres in Russia and CIS.KyivstarLeading wirelesstelecommunications servicecompany in Ukraine.X5 Retail Group N.V.Largest food retailer in terms of salesin Russia listed on London StockExchange.PerekrestokLeading chain of supermarketsand hyper-markets in Moscowand other population centersin Russia and the CIS.PyaterochkaLeading food retailer in Russia witha dominant position in the highgrowthdiscounter segment.OutlookWhile we believe that Russiawill continue its inevitableintegration into the worldeconomy, as investors, while we seeopportunity, we also see a number ofpotential risks – some more manageablethan others. Undeniable macro-economicprogress has served to furtherbroaden the Russian investor base andhas given companies with access tointernational capital markets a lowercost of funding. Foreign direct investmenthas risen to respectable levels during2006 and the strong domestictrends of rising consumption andincreasingly-wide availability of creditwill bolster the Russian economy wellinto the medium-term. Fiscal expansionwill surely start to play a biggerrole in influencing the Russian economyas Russia’s surpluses are reinvestedback into public infrastructure beginningin 2007. Despite the laudableachievements of the Russian economy,progress could be significantly hinderedby sluggish reforms and as the statebecomes increasingly embedded in theRussian economy, as well as domesticpolitics in the run-up to parliamentaryelections at the end of 2007 and thepresidential elections in 2008.Furthermore, the diminishing impact ofRussia’s high oil and other naturalresource prices and an appreciatingRussian Rouble signifies that the yearsof easy opportunistic growth are over.Notwithstanding our best attempts atforecasting Russia’s economic future,one thing is for sure – Russia always hasthe capacity to surprise. As experiencedinvestors we are comfortablewith our ability to navigate the changes,manage the risks and surprises that areendemic to Russia, and most importantlyto capitalize on investment and exitopportunities.In addition to prudent investment inRussia, we are increasingly interested insensible expansion outside of Russia inthe CIS and other emerging markets.The most attractive CIS markets are inparticular attractive to us as Russia hasa shared history with them and thebusiness climate and practices arefamiliar to us. A meaningful diversificationwill provide a larger pool of attractiveopportunities, increased stability inearnings, and should lower the risk profilefor the Group. Furthermore, webelieve that the additional risks fromentering new geographic markets aremanageable. As investment outside ofRussia continues to play a larger role indevelopment of the Group we are resolutethat such investment will not be incontravention to our investment philosophy(see page 15), an investment philosophywhich has served us well for thepast 18 years.TNK-BP3 rd largest (by production) verticallyintegrated oil company in Russia.А1Proprietary and for-client investmentin Russia, the CIS and other developingmarkets.Russian TechnologiesInvestment in and developmentof promising Russian commercial andconsumer technologies.CTC Media, Inc.One of the largest commercial televisionbroadcasters in Russia offeringentertainment programming.VimpelComLeading wireless telecommunicationsservice company in Russiawith presence in Kazakhstan,Ukraine, Tajikistan, Uzbekistan,Georgia and Armenia.Turkcell*Leading wireless telecommunicationsservice company in Turkey.* Investment in Turkcell is managed by Altimo andis owned by Alfa Finance Holdings SA20 / ALFA GROUP / ANNUAL REPORT 2006 ALFA GROUP / ANNUAL REPORT 2006 / 21

AlfaBankingGroupPetr SmidaCEO of Alfa-Bank“For us, 2006 was a year ofgrowth and rapid infrastructuredevelopment. Alfa-Bank extendedits four retail business lines,expanded distribution in theregions, and maintained its solidpositions in corporate financeand investment banking. Meetingthe demands of our clients andsaving them time are the cornerstonesof our strategy in years tocome.”In terms of competition from bothforeign and Russian banks, Alfa-Bank successfully combines internationalstandards of businessand corporate management with expertisein the Russian market. Being one ofthe top recognized brands in theAlfa-Bank TodayRussian banking industry, Alfa-Banktoday services over 2.4 million individualsand 45,000 corporate clients. Itsfranchise is supported by an extensivedistribution platform with multipledelivery channels, including in-personservice through 229 branches andoffices, 831 ATMs spread across Russiaand the CIS, as well as remote accessthrough internet and phone banking.According to Russia’s Central Bank, as of1 January 2007, Alfa-Bank was Russia’sfourth largest bank both in terms ofassets and shareholders’ equity.Recognition of Alfa-Bank’s success isillustrated by awards from leading financialpublishers. Euromoney, a prestigiousinternational magazine, acknowledgedAlfa-Bank as “The Best Local BankTrading Roubles in 2006”. Alfa-Bankwas also included among the top tenbanks for “The Best Forex Desk 2006”and “The Best Forward Desk 2006” bythe Moscow International CurrencyAssociation. Alfa-Bank co-branded loyaltyprogram with Russian national airlineAeroflot was acknowledged byMasterCard as the “Best Launch in2005/2006”. Alfa-Bank was ranked “TheBest Bank in Russian Brand Rating 2006”by Interbrand Zintzmeyer & Lux AG andBusinessWeek Russia. Alfa-Bank hastaken the leading spot in the “Top 20Best IT banks in Russia 2006” for threeconsecutive years according to theannual study performed by CNewsAnalytics (CNA), an independentRussian research group, focused on theRussian IT and telecommunication sectors.Alfa-Bank was also recognized asone of the most transparent banksaccording to the “Transparency andDisclosure by Russian Banks” researchissued by Standard & Poor’s. In thebeginning of 2007 Global Finance recognizedAlfa-Bank as “The Best TradeFinance Bank” in Russia.Alfa-Bank is one of the few Russiandomestic banks that report underInternational Financial ReportingStandards (IFRS). It is audited byPricewaterhouseCoopers (and predecessorfirm Price Waterhouse) since 1993.Alfa-Bank’s creditworthiness is one of thehighest among Russian private banks. InDecember 2006, international ratingagency Standard & Poor’s upgraded Alfa-Bank’s long-term credit rating to BB fromBB- (both with stable outlook). In May2007, Moody’s raised the Alfa-Bank’s longtermforeign currency deposit rating toBa1 from Ba2 (both with stable outlook).Alfa-Banking Group (“Alfa-Bank”), which, among others, includes OJSC“Alfa-Bank” - Russia’a largest privately owned bank, and its subsidiaries,was founded in 1990. Alfa-Bank offers a wide range of products andoperates in every key sector of the financial services industry, includingcorporate banking, retail banking and investment banking. Alfa-Bank’sbranch network has grown to 229 by the end of December 2006,including subsidiary banks in Russia, Kazakhstan and the Netherlands.In addition, Alfa Capital Markets (UK), a branch of Alfa Capital Holding(Cyprus) Ltd., operates in London, and Alfa Capital Markets (USA),a subsidiary of OJSC “Alfa-Bank”, provides its services in New York.Alfa-Bank serves over 45,000 corporations (including Russia'a largestcompanies) and 2.4 million individual clients.www.alfabank.comFinancial HighlightsAlfa-Bank had a very successfulyear in 2006 reflected both inits operational and financialresults. Positive trends in theRussian economy benefited this growth.In 2006, Alfa-Bank recorded an increaseof net profit after tax of 5.4% to US $190.3million, up from US $180.6 million in2005. This growth was mainly driven by astrong increase of net interest income,growing commission income and effectivecost control. Alfa-Bank’s after tax returnon equity stood at a solid 17.6%.Alfa-Bank’s total assets grew by 54.6% toUS $15.2 billion at the end of 2006 fromUS $9.8 billion at the end of 2005. Its loanportfolio net of provisions, significantlyincreased by 65.5% to US $9.5 billion atthe end of 2006 from US $5.7 billion at theend of 2005. Funds raised from individualsand corporate clients increased by 45.7%to US $7.9 billion compared to US $5.5 billionat the end of 2005.Alfa-Bank at a Glance (2006)Total equity of Alfa-Bank increased toUS $1.3 billion in 2006, up from US$855.8 million in 2005. Of the US $444million increase in equity, US $184 millionwas from a capital contributionmade by Alfa-Bank’s shareholders inOctober 2006.Total assetsUS $15.2 billionNet profitUS $190.3 millionTotal equityUS $1.3 billionNet loan portfolioUS $9.5 billionCustomer accountsUS $7.9 billionNumber of clients- retail clients 2.4 million- corporate clients 45 thousandNumber of branches 229Number of personnel 11 25222 / ALFA GROUP / ANNUAL REPORT 2006 ALFA GROUP / ANNUAL REPORT 2006 / 23

Petr AvenPresident of Alfa-Bank“We are happy to report, that Alfa-Bank has again led the market in meeting the demands ofthe growing economy of Russia. Our success is a result of an unwavering commitment to ourprinciples. We combine international standards of business and corporate management withour unique expertise in the Russian market. Having chosen universality as the centerpiece ofour business development strategy, today we are able to offer our clients a full spectrum oftop quality, world class banking products and services. We continue to innovate, continuallystrengthening our professional team and technology, always seeking to improve the serviceand reliability that has become associated with the name of Alfa-Bank.”Despite the significant growth of the loanportfolio, the share of overdue loans isgradually decreasing. In 2006, overdueloans decreased to 0.4% from 0.8% at theend of 2005 of the total amount of loans.The top priority for Alfa-Bank’s developmentin 2006 was intensive regional businessgrowth, especially among mediumsizedcompanies. In response to these marketrequirements, the Bank made a concertedeffort to improve infrastructure andbusiness processes, and to consolidateproduct lines in its regional divisions. Thecash management business was anothertop priority, and for further developmentof this area, branch offices began implementinga special IT platform which willbecome the basis for development of thecash and settlement business in the yearsto come. In 2006, the overall volume ofAlfa-Bank’s regional business (excludingMoscow) amounted US $3.24 billion (36%of credit portfolio) compared to US $1.83billion (31% of credit portfolio) at the endof 2005, which demonstrates steadygrowth of the regional credit portfolio.In 2006, Alfa-Bank continued to strengthenits position in the area of structuredcredit products.The most significant deals included theparticipation in provision of a RUR 1.85billion syndicated loan to SakhaRepublic (Yakutia) and participation asthe joint sponsor of a syndicated loan foran amount of RUR 1 billion for threeyears to the pharmaceutical distributorCJSC NPK “Katren”.Trade finance has traditionally been oneof the top priorities in the developmentof Alfa-Bank. In 2006, the total amountof trade finance deals reached almost US$500 million.Alfa-Bank’s International Funding InitiativesFollowing the strategy of increasingdiversification of funding sources, Alfa-Bank was very active in internationalcapital markets.In 2006, Alfa-Bank increased itsMedium-Term Notes Program (“MTN”)from US $1 billion to US $2 billion. Inaddition, the Euro-Commercial Paper(“ECP”) Program increased in size fromUS $400 million to US $1 billion.In December 2005, Alfa-Bank issued US$225 million tranche of 10-year subordinatedunsecured notes, which is includedin its equity capital calculations – thefirst private Russian bank ever to havedone so. In February 2007, Alfa-Bankissued another US $300 million trancheof subordinated unsecured notes.In March 2006, Alfa-Bank successfullyclosed its debut US $350 million transactionfor the securitization of diversifiedpayment rights (“DPR”). This transactionmarked the first ever securitizationof diversified payment rights by aRussian institution. The second diversifiedpayment rights transaction (twotranches of US $260 million and EUR230 million) was completed in December2006. In March 2007, Alfa-Bank successfullyclosed the third securitization issueunder its DPR Program, which consistsof two tranches — EUR 145 million andUS $200 million.During 2006 Alfa-Bank raised US $778million through syndicated loans. InOctober 2006, Alfa-Bank also closed aUS $400 million note issuance under itsMTN Program.The total amount of funds raised by Alfa-Bank in the international capital marketsthrough syndicated loans, under its DPR,Short and Medium-Term Note Programsapproximated US $2.6 billion.Alfa-Bank intends to expand further itsfunding base and to diversify its overallsources of funding among corporate,consumer and international funding.Corporate Banking2006 was a successful year for Alfa-Bank’s Corporate Banking division,which offers its customers a wide-rangeof services including lending and foreigntrade transactions, bank account,deposit and settlement services, tradefinance, structured corporate lending,corporate finance and leasing.Top priorities in the Corporate Bankingdivision in the past year were thedevelopment of structured debt instruments,and innovative settlement productsfor the Russian market offered bythe cash management group. Specialattention was given to the developmentof strategies to promote cross-sales ofproducts between Alfa-Bank businesses(investment banking and retail bankingproducts). This helps to create significantsynergies, both for clients andfor Alfa-Bank.By the end of 2006, Alfa-Bank’s commercialloan portfolio before provisionsexpanded by 54.1% to US $9 billion,while its total customer accounts grewby 42.1% and totalled US $5.2 billion. Interms of the volume of loans placed,Alfa-Bank is still the most active privatebank in providing finance. Its portfolioyields only to those of state-ownedSberbank, VTB, and Gazprombank. Interms of customer accounts attracted,Alfa-Bank was in fifth place in the countryas at the end of 2006.At the end of 2006, Alfa-Bank had morethan 45,000 corporate clients, includinggovernmental customers. The leadingindustries in Alfa-Bank’s credit portfolioin 2006 were trade, construction, ferrousmetallurgy, electric power, and mechanicalengineering. The highest growth wasachieved by companies in power generation,trade, construction, ferrous metallurgy,and aviation industries.For the past several years Alfa-Bank has significantlyincreased the diversification of itsloan portfolio. In 2006, the credit portfolioconcentration demonstrated a positivetrend when the share of the 10 largest borrowerswas reduced to 22.3% by end of2006 from 24.1% at the end of 2005.President of Alfa-Bank Petr Aven and Director of the Lauder Institute Richard Herring presented to Peter Tils, CEO Central and Eastern Europe, Deutsche Bank AG, Award forExcellence in Foreign Investment in Russia – Moscow, Russia (June, 2006)24 / ALFA GROUP / ANNUAL REPORT 2006ALFA GROUP / ANNUAL REPORT 2006 / 25

Corporate FinanceThe main area of activity of Alfa-Bank’s Corporate Financedepartment has been the provision of financial advice on mergersand acquisitions to Russian and foreign clients, attractingstrategic and portfolio investors as well as preparing companiesto raise capital through IPO. Alfa-Bank’s Corporate Financedepartment draws on the extensive reach of its branch networkand the international expertise of the investment banking divisionto advise on investments into and within Russia.In 2006, Alfa-Bank was hired by Unified Energy Systems ofRussia (“RAO UES”) as the general financial consultant regardingthe placement of additional equity of subsidiary companiesOGK and TGK. Alfa-Bank also acted as a consultant in M&Adeals, which included: the arrangement of an open auction tosell the stocks of OJSC Taymirenergo; the sale of CJSC Nortoilpublic oil company to West Siberian Resources; the acquisitionof Atomenergomash; and the formation of TGK-6 through anexchange of shares of six regional power generation companies.Alfa-Bank is one of the leaders in M&A consulting in Russiaaccording to ratings published in 2006 by Mergers andAcquisitions magazine.Alfa LeasingLLC Alfa Leasing (“Alfa Leasing”) was established in 1999. Itacquires capital assets and leases them to Russian enterprises ina variety of industries. Through Alfa Leasing, Alfa-Bank providesclients with assistance in establishing cost effective leasing plansbased on minimizing tax exposure and maximizing depreciation.According to the Expert rating agency, the company was Russia’sthird largest leasing company in 2006.2006 results showed that Alfa Leasing has a significant share invarious leasing market segments, including railway transportation,road construction and other construction equipment, cargotransport vehicles, and power equipment.In 2006, Alfa Leasing continued to cooperate with leading Russianand foreign suppliers of equipment, including the Federal StateUnitary Enterprise Production Association affiliate Uralvagonzavod,Altaivagon, Azovobschemash (Ukraine), Volvo,Hitachi, Komatsu, Toyota (Japan), and others.Retail BankingIn 2006, Alfa-Bank continued to dynamically develop its retailbusiness, increasing the deposit base, loan portfolio, and offeringother banking services. At the end of 2006, Alfa-Bank was the fifthlargest retail bank in Russia in terms of retail deposits according toRussia’s Central Bank (behind Sberbank, VTB, Raiffeisenbank andGazprombank) with over 2.4 million retail customers. As of 31December 2006, Alfa-Bank’s total customer accounts totalled US$7.9 billion of which US $2.7 billion, or approximately 34.5%,comprised current accounts and term deposits of individuals.Alfa-Bank’s lending to retail customers is developing rapidly.Currently the Bank’s loan products to retail customers includeconsumer loans, overdraft loans, personal installment loans,credit card loans, auto loans and home mortgages. By the endof 2006, loans to retail customers increased by 5.6 times toUS $809.3 million compared to US $144.9 million at the endof 2005.Alfa-Bank KazakhstanAlfa-Bank Kazakhstan, established in December 1994, providesa full range of banking products and services to corporateand individual clients. The Bank, the head office ofwhich is located in Almaty, has one branch in Astana, andthree representative offices in Ust-Kamenogorsk, Karagandaand Ekibastuz.Alfa-Bank Kazakhstan services more than 22,000 corporate andindividual clients, across a number of industries. Alfa-BankKazakhstan’s assets increased by 45.5% to US $179.5 millionby the end of 2006. The total loan portfolio grew by 33.8% toUS $96.7 million by the end of 2006, while total equity of Alfa-Bank Kazakhstan stood at US $40.1 million.According to Moody’s international credit rating agency, thelong-term credit rating of Alfa-Bank Kazakhstan are rated Ba3with a stable outlook and the financial strength rating of Alfa-Bank Kazakhstan is acknowledged as E+.Amsterdam Trade Bank N. V.Amsterdam Trade Bank N.V. (“ATB”) was founded in 1994 toprofessionally service European and Russian trade and financialflows. ATB is one of the most dynamically developingbanks in the Netherlands. It offers services of Alfa-Bank alongwith the advantages of a classic Dutch bank. At the end of2006, ATB served over 600 corporate clients and over 23,700private clients.By the end of 2006, ATB's assets increased to EUR 2.3 billionfrom EUR 1.6 billion at the end of 2005. In close cooperationwith Alfa-Bank, ATB continues to expand its loanportfolio. By the end of 2006, it had grown to almost EUR1 billion.ATB’s net profit for the year ended 31 December 2006 amountedto EUR 22.1 million as compared to EUR 13.5 million for theyear ended 31 December 2005. ATB's total equity on 31December, 2006 amounted to EUR 159.8 million.Alfa-Bank UkraineAlfa-Bank Ukraine was registered in January 2001. The headoffice and two branches of the Alfa-Bank Ukraine are located inKiev, and the regional network includes branches in Donetsk,Kharkov, Dnepropetrovsk, Zaporozhye, Mariupol, Odessa, Lvov,Krivoi Rog, Kirovograd, Nikolaev, Ivano-Frankovsk, Chernigov,Sumy and Lugansk. Alfa-Bank Ukraine operates in all key sectorsof the banking sphere, including retail and corporate banking,custody business, organization and underwriting of corporatebond issue and consulting services. Alfa-Bank Ukraine servicesmore than 149,000 individuals and 1,400 corporate clients.As at 31 December 2006 total equity comprised US $98.3 millioncompared to US $43.9 million as at the end of 2005. As atthe end of 2006 total assets were US $1.2 billion compared toUS $421.6 million as at the end of 2005. Loan portfolio of individualsand corporates amounted to US $951.8 million at theend of 2006 compared to US $309.7 million at the end of 2005.According to Moody’s international credit rating agency, the longtermcredit rating of Alfa-Bank Ukraine is rated B2 with a stableoutlook and the financial strength rating of Alfa-Bank Ukraine isacknowledged as E+.In August 2006, Alfa-Bank’s Ukraine business was separated fromAlfa-Bank in Russia. This separation allows Alfa-Bank to concentratemainly on developing opportunities in Russia while allowingAlfa-Bank Ukraine to focus on new opportunities within theUkrainian banking sector under a separate management teamdedicated to Ukraine.Retail Branch BusinessIn 2006, Alfa-Bank achieved significant success in the retailbusiness. The strategic aim for 2006 was an active roll out ofregional offices and outlets. By the end of 2006, Alfa-Bankopened 55 new-format offices in 25 regions of Russia, servingaround 370 thousand clients. Alfa-Bank also continued furtherdevelopment of its Moscow retail network. During 2006Alfa-Bank opened four new retail branches in Moscow, includingtwo VIP branches.In late 2005 and early 2006 Alfa-Bank was re-branded, whichsimplified the perception of the brand by retail clients. Obstaclesbetween the old and the new format (which earlier operatedunder different names and color schemes) were removed.In 2005, Alfa-Bank launched a new product - personal loans.At first, such loans were available only to employees of companiesserved by Alfa-Bank’s payroll projects, but in 2006 theseloans became available to all clients, both in Moscow and in allregions of the Russian Federation. Another success has beenthe plastic card program with its unique 60-day no interestrepayment period. By the end of 2006 the total loan portfolioof personal loans and credit cards was US $398 million.A strong indicator of client trust, and therefore an importantfactor in measuring success of any banking institution, isgrowth in current account balances. In 2006, Alfa-Bank’s currentaccount balances almost doubled, which translates into4.0% of the total retail current accounts balance in the Russianmarket. This was the fifth best result in the country and thefirst among Russian private banks.Affiliate programs constitute one of the most important elementsin making banking services more attractive. It is a crucialcomponent in gaining client trust and increasing customerloyalty. In 2005, Alfa-Bank initiated a number of affiliate programs,including co-branding projects which allowed clients torealize maximum benefit from integration of their bankingproducts with the services offered by other large consumerenterprises. One such affiliate program was a card offering alink between Aeroflot and MasterCard. The card offers a possibilityto accumulate bonus miles under the Aeroflot Bonus program.By the end of 2006, more than 50,000 of these cardshad been issued. Another successful affiliate program was ajoint project with Cosmopolitan magazine, which focuses onwomen in the 20-35 age group. The project offers a stylish cardof regular size, a similar card of smaller size, unusual forRussia, and a broad system of discounts.26 / ALFA GROUP / ANNUAL REPORT 2006ALFA GROUP / ANNUAL REPORT 2006 / 27

Another project deserving special mention is the developmentof a VIP sector in Alfa-Bank’s client base. Towards the end of2006, Alfa-Bank opened two offices in the VIP format, while athird office is under construction. These offices are called A-Club, and are set up as a closed elite association. Their focus ison providing exclusive customer services and providing financialservices at the highest level.In December 2005, a direct sales channel was launched tostimulate intensive growth of retail banking products. This wasdeveloped further in 2006. Alfa-Bank will aim to use directsales as one of its strongest tools in promoting banking servicesamong new and existing clients. For maximum convenience inthe use of Alfa-Bank’s products, and to support customers, ithas been actively developing a network of ATM’s, which numbered831 by the end of 2006.In 2006, Alfa-Bank was considered to be the best bank in termsof customer service levels,, according to “Secret Customer”, anindependent market survey conducted by Imeesh Pravo magazineand marketing communication agency Nextep Promotion.Consumer Finance2006 was a crucial year for Alfa-Bank in promoting its consumerfinance services in the regions. At the same time, Alfa-Bank has managed to diversify its product line, optimize relationshipswith business partners, further develop distributionchannels and improve lending technologies.In 2006, Alfa-Bank’s already extensive network was enhancedwith the addition of sales outlets in 64 cities. Contracts signedwith new business partners totaled 1,575. At the end of thereporting year, Alfa-Bank had 2,418 active outlets. In 2006, theconsumer finance loan portfolio grew by 131.1% to US $171million. In the past year, the portfolio structure changed significantly:its regional share has grown to around 75% by theend of 2006 from around 40% at the end of 2005.The main strategic aims of Alfa-Bank in cooperating with tradeenterprises in 2006 were extension of the consumer loan portfolioand increase of Alfa-Bank’s share in their credit turnover.As a result of efforts made in order to reach these aims, Alfa-Bank won tenders in 2006 for strategic cooperation withnational retail networks, whereas the market in generalshowed a reduction in the number of bank partners. A significantpartnership was established with Eldorado, one of themajor players in the electronics and home appliances sector,and large gains were made in the credit turnover of commercialenterprises like Tehnosila, MIR and DIXIS.In order to improve the quality of customer service, and to simplifythe process of obtaining and repaying loans, Alfa-Bank isproactively implementing up-to-date customer service andinformation technologies. Alfa-Bank transferred the entireprocess of issuing consumer loans to an online system based ona centralized platform. This system is capable of working 24/7and of assisting clients in all the regions of the RussianFederation simultaneously, while loan approval takes only 1minute.Jointly with the development of distribution channels, thenumber of offices where it is possible to repay loans is alsogrowing and include the branches of numerous business partners,post offices of Russian Post, payment systems Eleсsnet,CONTACT, Rapida, CyberPlat, as well as money machines anddeposit terminals of Alfa-Bank. In November 2006 Alfa-Banklaunched a new internet product called Alfa-Payment (Alfa-Platezh).Auto FinanceAt the end of 2005 Alfa-Bank established its Auto FinanceProgram to introduce auto loan programs. In 2006, this businessunit issued over 15,000 auto loans for a total amount ofUS $194 million.In 2006, Alfa-Bank developed the following auto loan plans:classic car loan, express car loan, zero down payment loan.Along with the creation of these auto loan products, Alfa-Bankstarted testing and streamlining its customer service system inthis area.During 2006, Alfa-Bank made an effort to expand its presencein this sector and by the end of 2006, Alfa-Bank had establishedauto loan offices in over 60 Russian cities. The numberof car dealer offices constituting the basis for Alfa-Bank autofinancing activities, has exceeded one thousand. Alfa-Bankcooperates with both authorized dealers and non-authorizeddealers in the new and previously-owned markets for carsmanufactured in Russia and abroad.In 2006, Alfa-Bank put in place a GM Finance Private LabelAgreement to promote cooperation in the area of auto loanswith General Motors CIS, a major car manufacturer. Other keybusiness partners of Alfa-Bank include Severstal-Auto andHonda Motors Rus Co Ltd. Cooperation with big manufacturershas enabled us to develop and implement special auto loanoffers with low interest rates on car brands like Opel,Chevrolet, Saab, Cadillac, Hummer, Fiat, Ssang Yong, UAZPatriot, and Honda. These offers are valid anywhere in Russiathrough the dealer networks of our business partners whichoffer Alfa-Bank as the bank of primary choice.Mortgage LendingAlfa-Bank introduced its mortgage lending program in August2006. Alfa-Bank’s goal is to create a powerful mortgage network,based on the existing network of branches and offices,and to offer to clients a simple and convenient method to buy ahome.In the middle of 2006, Alfa-Bank successfully started its mortgageprograms in four cities: Moscow, St. Petersburg, NizhnyNovgorod, and Novosibirsk. Specialized new mortgage centerswere built in Moscow and St. Petersburg.Alfa-Bank paid special attention to the development of relationshipswith real estate companies, mortgage brokers, corporateclients, and clients of Alfa-Bank to whom mutually beneficialterms of cooperation were offered. Additionally, Alfa-Bankis able to offer the personal loan program to clients in all theareas where it is active.In 2007, new products are being planned, among them loans tobuy apartments in buildings under construction. Alfa-Bankalso plans to expand its mortgage lending activities to at leastthe twenty most economically developed regions in Russia.ALFA GROUP / ANNUAL REPORT 2006 / 29Translation: EARN 1 OR 2 BONUS MILES FOR EVERY 30 RUBLES PURCHASE PAID BY Aeroflot-MasterCard-Alfa-Bank cardEvery time you pay with the plastic card Aeroflot-MasterCard-Alfa-Bank for services or goods you earn bonus miles, which could be converted into a free air ticket or an upgraded service class.Welcome a board! As a holder of the Aeroflot-MasterCard-Alfa-Bank card you automatically receive 500 welcome miles for your classic and 1 000 miles for your Gold or Platinum card.(+7 495) 78 888 78 (for calls from Moscow) 8 800 2000 000 (toll free for calls from other Russian regions) www.alfabank.com

Alfa BankingGroup locationsMurmanskArkhangelskNEW YORKLONDONAMSTERDAMKaliningradPetrozavodskSyktyvkarRaduzhnyMegionVologdaGlazov BereznikiNizhnevartovskZheleznogorskSt. PetersburgUvatKirov Votkinsk Perm Nizhniy TagilNoyabrskYaroslavlIzhevskKrasnoyarskNizhnyEkaterinburgChaykovskiyTyumenPskovNovgorod CheboksaryKamensk-UralskySurgutTverTomskNaberejnye ChelnySarapulNeftekamskZlatoustZelenogorskIvanovoElabugaKurganKemerovoMOSCOWArzamas KazanChelyabinskVladimirNijnekamsk UfaAlmetevskMiasNovosibirskKalugaUlyanovskOmskNovokuznetskTulaTambovTolyattiMagnitogorskSyzranRyazanSterlitamakBarnaulBuzulukSamaraLipetsk PenzaKurskAbakanVoronezhSaratov Balakovo OrenburgBelgorod StaryyOrsk NovotroitskKharkov OskolKamyshinKIEVVolgogradASTANAUst-KamenogorskDnepropetrovskDonetskKaragandaRostov-on-DonAstrakhanKrasnodarNovorossiskTuapseStavropolAlmatySochiAngarskIrkutskYakutskKhabarovskYuzhno-SakhalinskVladivostokNakhodkaNicosiaSource: Company dataInvestment BankAlfa-Bank provides a broad range of investment bankingand brokerage services including equity and debtcapital markets services, and equity and fixed incometrading. The primary emphasis of the investmentbanking business is on Russia and Ukraine, althoughbrokerage operations also have been establishedin New York, London and Nicosia (Cyprus).Equity andBrokerage Business2006 was another excellent year for theRussian and CIS stock markets and alsofor Alfa-Bank’s Equities business. Everyaspect of Alfa-Bank business – equitydistribution, research, trading andinternet brokerage – expanded significantly.The Equity division’s total transactionvolumes reached almost US $50billion, more than double last year’sresults. The number of active clients,most notably domestic investors,increased dramatically.Alfa-Bank was also active in Ukraineand Kazakhstan – trading shares,holding conferences and investor visits,and expanding research coverageto local companies. The total numberof companies under coverage in theCIS exceeded 200, including morethan 140 Russian companies and morethan 60 companies in Ukraine andKazakhstan.In 2006, the number of client accountsof Alfa-Direct grew by around 70% tomore than 8,500. This makes Alfa-Bank the largest provider of internettrading services among Russian banks.2006 was a defining year for Russiancapital markets in terms of both sizeand number of deals. The total volumeof IPOs topped US $18 billion andincluded the largest public offering inRussian history, which raised nearlyUS $10.7 billion for the state-ownedoil company Rosneft. Alfa-Bank participatedin this deal and several others,including acting as bookrunner in thefirst public offering of OGK-5, thepower generation asset of nationalutility giant UES. Alfa-Bank also actedas a senior co-manager in the IPO ofVaryag Resources on the StockholmStock Exchange.Alfa Capital Markets (UK) is a FSAregisteredLondon branch of AlfaCapital Holdings (Cyprus) Ltd. Since2005 Alfa Capital Markets (UK) possessesthe highest-level license, allowingit to product a broad spectrum oftransactions with securities in thefinancial markets of the UnitedKingdom. This branch, having recentlybecome a member of the LondonStock Exchange (LSE), started tradingsecurities on the LSE on its own behalfin January 2005, giving clients directaccess to one of the leading financialmarkets of the world. The client baseof Alfa Capital Markets (UK) grew bymore than 20% in 2006, and continues30 / ALFA GROUP / ANNUAL REPORT 2006ALFA GROUP / ANNUAL REPORT 2006 / 31

to develop rapidly. This resulted in ayear-on-year increase of almost 30%in the volume of client orders throughthe company.Alfa-Bank’s U.S. operation, AlfaCapital Markets Inc. (USA) servicesclients in North and South Americafrom its offices in New York. AlfaCapital Markets Inc. (USA) providesbrokerage and investment services toa wide range of institutional clientsinvesting in Russia. Alfa CapitalMarkets Inc. (USA) is a NASD memberfirm and is registered by the SEC.Fixed IncomeSince the establishment of the roubledebt market, Alfa-Bank has maintaineda leading position among lead managersof fixed-income securities forRussian companies. In 2006, Alfa-Bankparticipated in the placement of 29rouble bonds for a total amount of RUR61 billion, 1.8 times higher than in2005. The largest issue organized byAlfa-Bank in 2006 was the OJSCMOESK rouble bond transaction ofRUR 6 billion.Alfa-Bank is a leader in arrangingCredit Linked Notes (“CLNs”). Withinthe framework of its GlobalRepackaging Program, Alfa-Bank hasplaced five issues of CLNs for Russianand Ukrainian companies. In 2006,Alfa-Bank took part in the preparationand placement of five issues ofEurobonds and CLNs for a totalamount of US $635 million, twice theamount as 2005.In 2006, Alfa-Bank was one of theleading operators and market makersin Russian government and corporatebonds. The share of client business inthe total volume of operations was relativelylarge. The market dealt withthe flow of volumes from foreign currencysovereign bonds and corporateEurobonds trading, to rouble-denominatedcorporate bonds, CLNs andLoan Participation Notes (“LPNs”). Inmany cases Alfa-Bank acted as bothlead-manager and market maker.In 2006, Alfa-Bank actively traded fromits own portfolio of promissory notesdenominated in foreign currencies,mainly those of emerging markets. Alfa-Bank also offered its clients access tothe debt markets of these countries andthe bond markets of the US Treasuryand the Group of Seven countries.In 2006, Alfa-Bank significantlyincreased the volume of trading in thedomestic market of rouble bonds. TotalAlfa-Bank turnover in the rouble marketin 2006 was US $5.2 billion, 50%higher than the turnover in 2005. Alfa-Bank maintained its leading position inthe turnover of corporate and sub-federalbonds at MICEX. Alfa-Bank’sincome on own and client operationsgrew steadily.Derivatives andStructured ProductsTrends in the Russian derivatives markethave been very positive. In the reportingyear, Alfa-Bank has significantlyincreased the volume of its operationson internal and external derivativesmarkets. This growth was achieved dueto a significant expansion in the spectrumof derivative instruments and services,especially in the area of financingsecured by Russian shares.Regulatory acts made it possible forAlfa-Bank to obtain access to a newcategory of participants. In 2006,equity options were in great demand,while client interest in foreign currencyoptions dropped. The equitylinkedfinancing business transformedinto a business of complexstructured products.Among the new clients are Russianmutual funds and companies thatmanage portfolios of wealthy clients.The number of international counterpartieshas increased. They signedISDA and other documents with Alfa-Bank for further development of thebusiness.Forex and MoneyMarketAlfa-Bank acts as a leading marketmaker on the Russian Rouble/U.S.Dollar foreign exchange markets.Total Alfa-Bank turnover for RussianRouble/U.S. Dollar transactions in2006 was US $300 billion, or approximately5% of the total Russian foreign-exchangemarket.In 2006, Alfa-Bank steadily increasedtrading volumes on the interbankmarket, reaching a total turnover ofUS $1.3 billion and a market share ofaround 15% by the end of the year.In 2006, Alfa-Bank established leadingpositions on the CIS and Balticcurrency markets. The economic integrationamong Russia, Kazakhstanand Belarus has enabled Alfa-Bank toincrease turnover and operationsprofitability in the Belarusian Roubleand the Kazakh Tenge.On the money market, Alfa-Bank continuesto occupy one of the top positionsamong Russian players.Aggregate daily turnover remainedhigh, reaching the equivalent of US $2billion by the end of 2006.Transaction volume on the roubledenominatedinterbank market comprisedaround 15% of the segment’stotal turnover.A lfa CapitalManagementAlfa Capital Management (“ACM”) is a fund manager with a highlyspecialized focus — Russia. ACM is Russian-owned and Russiabased,with a well-established and diversified portfolio ofgrowing and profitable businesses, embracing a range of mutualfunds, pension funds, trust management and offshore funds.Mikhail KhabarovChief Executive Officer of AlfaCapital Management“The year 2006 marked a turningpoint for Russia`s mutualfund industry. The volume ofinflows brought the marketplaceto a sustainable criticalmass. We are convinced thatthis is only the beginning of abroad process which will seethe establishment of a newclass of private investors inRussia. We plan to spur thatprocess and, with our clients,to be foremost among its beneficiaries.Our 2006 sales resultssuggest that we are alreadybeing rewarded for assemblinga superior team of professionals,and for the years of worknurturing quality investmentproduct.”www.alfacapital.ru2006–a yearof a New StrategyAlfa Capital Management celebrated its 10thanniversary in 2006 and in the same year a numberof strategic changes were implemented in theCompany. In September 2006 Alfa CapitalManagement adopted a new development programconsolidating the Company target performanceindicators for the period 2007-2011.The target indicators are the following: increasingassets under management up to US $10 billionand realizing market share of 10% of theRussian mutual funds market by 2011. In additionto the development of the retail sales areaof the business, trust management services forlarge private and corporate investors is anotherkey emerging business interest for Alfa CapitalManagement.Implementation of the Company’s new developmentstrategy has affected all aspects of theCompany’s activities. In the second half of 2006 anew management team upgraded the Company’sorganizational structure, created new departmentsresponsible for acquisition and retention oflarge private and corporate investors and implementednew investment products and services.In the period from September until December2006 the staff at Alfa Capital Managementdoubled and a new motivation system wasdeveloped and implemented in order to attractand retain a highly professional team. The newmotivation system gives wide opportunities forCompany employees to fully realize individualprofessional aspirations.Profitability Figures of Selected Mutual Funds Managed by Alfa Capital Management in 2006Mutual Fund 2006 Return %OEMF “Alfa Capital Stocks” 42.4%OEMF (Balanced) “Alfa Capital Balanced” 34.9%OEMF “Alfa Capital Bonds Plus” 14.9%OEMF (Bonds) “Alfa Capital Reserve” 6.3%IMF (Balanced) “Alfa Capital” 39.9%ACM's Assets under Management on 31 December 2006(in USD mln)State funds – 7.1Corporate clients – 24.8Institutional clients – 96.2Mutual Investment funds – 314.4Individual Trust accounts – 12.6Source: Company data32 / ALFA GROUP / ANNUAL REPORT 2006ALFA GROUP / ANNUAL REPORT 2006 / 33

Starting From the Leading PositionAt the end of 2006 the aggregatevalue of assets of private andcorporate investors managed byAlfa Capital Managementreached more than US $455 million. Netasset value (NAV) of funds under theCompany’s management has grown morethan two times exceeding US $314 millionat the end of 2006 and the number ofclient accounts increased from 4,897 at theend of 2005 to 15,847 at the end of 2006.In 2006 Alfa Capital Management rankedthird in terms of NAV of funds under managementof open-end and interval mutualfunds among asset managers in Russia.Market RecognitionIn December 2006 the Company establishedand launched six new mutualinvestment funds: Interval MutualInvestment Fund “Alfa Capital GrowthStocks”, Open-End Index MutualInvestment Fund “Alfa Capital MICEXIndex” and four sector open-end stockfunds: “Alfa Capital Oil & Gas”, “AlfaCapital Telecommunications”, “AlfaCapital Power Industry”, “Alfa CapitalMetallurgy”. Presently the Companymanages eleven mutual funds. By thefirst quarter 2007 sector funds under AlfaCapital Management: Alfa CapitalMetallurgy Fund, Alfa Capital TelecommunicationsFund and Alfa CapitalElectricity Fund were ranked byInvestfunds as top-performers in the ratingsevaluating returns of mutual fundsoperation.For the convenience of clients, inDecember 2006 Alfa Capital Managementintroduced a new service based onAlfa-Bank’s “Alfa-Click” Internet-banking.It gives clients an opportunity tomake on-line investment into AlfaCapital Management mutual funds.In 2006 Alfa Capital Management was highly rated by independent experts. Recognition included:■ Best balanced fund in the past three years: IMF (Balanced) “Alfa Capital” became a prize-winner of“Finance 2006” (Finance Magazine);■ 1st place in the Bond mutual funds rating: OEMF “Alfa Capital Bonds Plus”. (Popular Finance Magazine);■ Highest ranking awarded to IMF (Balanced) “Alfa Capital” (Smart Money Magazine);■ А – high level of quality of investment management of OEMF “Alfa Capital Bonds Plus” – the highest positionin the rating of mutual funds performance quality (Expert RA-National League of Management).A lfa CapitalPartnersAlfa Capital Partners (“ACP”) is a Moscow-based private equity and real estate fund managerfocused on opportunities in Russia and the CIS. With US $621 million under management at theend of the first quarter 2007, ACP has established itself, in short period, as one of the leadersin institutional fund management in Russian and CIS private equity. ACP’s mandate is to generateattractive returns for its investors, which include international institutions, privateinvestors and Alfa Group.www.alfacp.ruOperational Highlights 2006itself as a partner to bothinternational investors seeking toenter the region and localACPpositionsentrepreneurs and companies seekingfinancing for growth. Under the leadership of CEO RichardSobel and Senior Managing Director Daniel Wolfe, ACPemploys a rigorous investment process which combines the bestof international and local approaches. In 2006, ACP continuedto build the foundation for its business. ACP currently serves asmanager or advisor to three investment fund initiatives - privateequity, maritime infrastructure and real estate - each with adedicated team - with over US $621 million under managementat 31 March 2007. Total staff is 38 with 21 professionals.Private Equity FundRichard SobelCEO of Alfa Capital PartnersIn December 2006, ACP accomplished a closing of AlfaPrivate Equity Partners, L.P. (the “Private Equity Fund”) withcommitments of US $170 million. In February 2007, thePrivate Equity Fund held its final closing at US $200 million.The Private Equity Fund seeks to provide equity capital to emergingleaders in the new economy in Russia, Ukraine and the CIS.Target sectors include consumer products and services, media andentertainment, business infrastructure, light manufacturing,health care, and agribusiness. These sectors are experiencing highgrowth and profitability, little government interference and,notwithstanding their attractiveness to investors, these sectorshave limited representation in the region's public equity markets.In the first quarter 2006, the Private Equity Fund made its firstinvestment buying World Class, Russia’s leading fitness clubchain with eleven clubs in Moscow, Russia and the CIS and sixfranchise locations throughout the Former Soviet Union(FSU). Jointly with ACP, the company plans to develop theWorld Class fitness chain and enter the mid-market segment.“We are pleased with our success in establishing our platform, attractinginvestors and developing our pipeline. We look forward with great anticipationto increased focus on the investment stage of our business, which includespartnering with company managers and real estate developers to help themrealize their potential. The current environment in Russia and Ukraine remainsvery favorable for private equity groups like ours who focus on the consumersector and new economy.”In 2005, ACP made an investment in United Bakers, a leadingRussian producer of crackers, biscuits, fillers and extrusion products.This investment was made using a bridge facility from Alfa-Bank. In May 2006, ACP’s stake was sold to United Baker’s management.During this period, ACP, also on behalf of Alfa-Bank,managed a strategic sale of Noble Gibbons to CB Richard Ellis.Maritime Infrastructure FundAlfa Capital Partners entered and was instrumental inrelaunching the US $180 million Great Circle Fund inApril 2005. With sponsorship from the US Government'sOverseas Private Investment Corporation, theGreat Circle Fund’s mandate is to invest in maritime transportation,transportation infrastructure and logistics in Russia,Ukraine, Central Asia, Central and Eastern Europe, the BalticStates and Turkey. Linked to both the commodities and retail markets,expansion and renewal of both infrastructure and transportationrelated assets and services in these regions are rapidlyunderway. The Great Circle Fund made an investment in June2006 in Russian Logistic Service (“RLS”), a leading Russian logisticscompany servicing the FMCG sector with nationwide coverage.RLS’s strategy is to use capital and other support from theGreat Circle Fund to build out its national network, increase warehouserelated services and generally to facilitate and take advantageof the rapid retail expansion throughout Russia and the CIS.Real Estate FundThe Marbleton Property Fund (the “Marbleton Fund”)was set up as a joint venture between ACP and JERPartners, a leading international real estate private equityfirm based in McLean, Virginia. The Marbleton Fundseeks to generate attractive risk-adjusted returns by investing inreal estate and real estate related assets in Russia, Ukraine and theCIS, with a focus on Moscow, the Moscow region, St. Petersburgand Kiev. Although originally aiming to raise US $150 million, theMarbleton Fund had commitments of US $241 million as of theend of the first quarter of 2007. ACP expects the final closing ofthe Marbleton Fund to take place in the second quarter of 2007.The Marbleton Fund will invest in modern property, in valueadded refurbishment and selectively in development, across a fullrange of property categories.34 / ALFA GROUP / ANNUAL REPORT 2006ALFA GROUP / ANNUAL REPORT 2006 / 35

Alfa StrakhovanieGroupAlfaStrakhovanie Group is one of the largest Russianinsurers with a diversified portfolio of services comprisingboth comprehensive business insurance coverage and anextensive range of retail insurance products.AlfaStrakhovanie is an established market leader withmore than 300 offices and branches in Russia.Customerswww.alfastrah.ruMore than 20,000 companies chose AlfaStrakhovanie fortheir business insurance. Among these companies thereare the leading banks, vessels owners and carriers, atomicpower enterprises, metallurgic and machine-buildingenterprises, representative offices of foreign companiesand public and state institutions, including:■Alfa-Bank■SUAL Group■Aeroflot Russian Airlines■TAIFVladimir SkvortsovCEO of AlfaStrakhovanie Group■■■APPMDeltaCredit BankVimpelCom■■■TNK–BPTransnefteproductBEIERSDORF“The most important success factor ofany Company on the market is theteam - its professionalism andharmonious performance. The factthat experts have acknowledged ourcorporate achievements confirms theright approach of our HR policy.” -Vladimir Skvortsov, CEO ofAlfaStrakhovanie Group on the resultsof a poll conducted by the Associationof Russian Managers. (Fourrepresentatives of AlfaStrakhovanieGroup were included in the rating ofthe most highly-qualified Russianmanagers).■ Megapolis Group of companies■ Independence Group of companies■ Rolf Group of companies■ Don-Stroi■ Kommersant Publishing House■ Kazanorgsintez■ KMB-Bank■ NOVATEK■ Joint Depositary Company■ RAO UES■■■■■■■■■■CampinaDaimler Chrysler AGFrito Lay RussiaGolden TelecomMarktkaufMETRO Cash&CarryMIRAX GroupTELE2 RussiaWimm-Bill-DannUrals Energy■Dixis MobileThe number of customers of AlfaStrakhovanie is reached almost one million.Translation: We propose simple solutions for complicated things! Now you can buy New Motor Insurance product AlfaKASCO with 500 RUR. Tel. 8 800 333 0 999 www.alfastrah.ruALFA GROUP / ANNUAL REPORT 2006 / 37

ResultsProductsRegionsAlfaStrakhovanie has a reputation as a reliable and stable company.Сonsolidated share capital of the Company grew fromRUR 1.5 billion (US $52.1 million) at the end of 2005 to RUR2.3 billion (US $87.4 million) at the end of 2006.AlfaStrakhovanie gross premium rose from RUR 6.70 billion(US $236.9 million) in 2005 to RUR 8.68 billion (US $319.8 million) in2006. Total insurer’s liability assumed by the Group rose fromRUR 2,425 billion (US $85.6 billion) in 2005 to RUR 3,160 billion(US $116.5 billion) in 2006.The Russian market for voluntary insurance and mandatory third-partyliability insurance coverage (CMPTL), which are Group priorities,expanded by 16% in 2006. The Group’s portfolio in these insurancesegments grew by 29%, enabling growth of market share to 2.2%. Mostof the growth came from the mass retail motor insurance market.THE STRUCTURE OF THE INSURANCE PORTFOLIOSTAYED THE SAME IN 2006.76% Property Insurance• real estate insurance – 23%• vehicle insurance – 50%• cargo insurance – 2%• finance risk insurance – 1%14% Compulsory Motor ThirdParty Liability Insurance (CMTPLI)6% Personal Insurance• voluntary health insurance – 4%• accident insurance – 2%3% Liability InsuranceAlfaStrakhovanie Group is developing complex individual,tailored insurance programs for corporate customers, takinginto account the business specifics of each customer.Policies for individuals are simple, understandable andeasy to set up, enabling customers to choose the cover, which theyrequire, namely:AlfaDrive I AlfaKasko I AlfaBusiness I AlfaPredprinimatel IAlfaRemont I AlfaCity I AlfaCity Complex I AlfaCountry I AlfaCountryWeekend I AlfaEstate Complex I AlfaIpoteka (Mortgage) I AlfaTravel IAlfaTourALFASTRAKHOVANIE GROUP’S PREMIUMINCOME DYNAMICS(in USD mln)332AlfaStrakhovanie Group continued its regional expansion in2006, by opening 70 new branches. The Group now has morethan 300 branches in Russia offering insurance services.The Group cares to ensure that rapid expansion of the business doesnot impair high service quality. Large sums have been invested inimproving of all business processes, modernization of infrastructure,creation of a single information space within the Company and provisionof information security. A number of systems for monitoring customerrelations and specialized systems for insurance policy accountinghave been installed and are functioning successfully.NUMBER OF CONTRACTS CONCLUDED BYALFASTRAKHOVANIE GROUP880,353Rapid increase in gross premiums of the Group is partly due to growthof the customer base as the Group was successful in attracting a largenumber of new customers last year. The total number of agreementssigned rose from 715,000 in 2005 to more than 880,000 in 2006.The structure of the insurance portfolio stayed the same in 2006.1% Life InsuranceSource: Company data203253609,094715,883GoalsReliability124136172,358441,826The long-term strategy of AlfaStrakhovanie is to strengthen its leadingpositions on the Russian insurance market and increase market sharefrom 2.2% in 2006 to 7% by 2010. Strategic goals will be achieved byinnovative approach and include the following:■ Increasing brand awareness of AlfaStrakhovanie;■ Improving distribution and developing sales channels;■ Improving service quality and increasing customer loyalty;■ Growth in the segments, that are a key importance in the portfolio(motor insurance, mandatory third-party liability insurance coverage(CMPTL), real estate insurance, voluntary health insurance)and segments, which are most popular among customers;■ Development of life insurance;■ Development of compulsory insurance for high-risk items;■ Regional expansion.High reliability of the Group’s insurance operations is supportedby reinsurance programs with leading international companies:Munich Re, Swiss Re, Hannover Re, Gen Re, SCOR,as well as Lloyd’s of London (via international brokers Willis,Marsh, Aon, Benfield, etc.).Surveys by United Financial Group (UFG) and Expert rating agency suggestthat AlfaStrakhovanie Group is one of the top five companies on theopen insurance market. In December 2006, Expert RA confirmed thehighest reliability rating, A++, which was awarded to AlfaStrakhovanieGroup in 2003 for the first time. This rating means that the Group isvery likely to perform its financial obligations even during unfavourableeconomic conditions.TOTAL INSURER’S LIABILITY OFALFASTRAKHOVANIE GROUP(in USD mln)13,92526,84934,76552,89685,629116,500Source: Company data782001 2002 2003 2004 20052006Source: Company dataRecognition2001 2002 2003 2004 2005An established professional team that won recognition from professional and business communities may be regarded as a specialachievement of the Group. First Deputy CEO Svetlana Ovchinnikova has entered the rating of “Top - 200 Business Ladies in Russia”organized by Career magazine. By the results of the “Top - 500 Most Professional Managers of Russia” annual rating of theAssociation of Russian Managers Vladimir Skvortsov, CEO, took the fourth place in the financial section. The rating also includedSvetlana Ovchinnikova, First Deputy CEO (Top - 100 financial directors), Vladimir Sorokin, Deputy General Director of the Regional Policy(Top - 100 commercial directors), and Andrey Pedorenko, IT Director (Top - 100 IT directors).The Superbrand Expert Council voted to include AlfaStrakhovanie Group in a short list of strongest B2B brands of intercorporate business in2006. This is not the first award that AlfaStrakhovanie Group has won in brand advertising. In October 2005 the Group took the silver medal inthe Insurance section of the Brand of the Year/EFFIE 2005 contest, which is the world’s most authoritative contest in effective market communicationsand is held in 30 countries worldwide.101,81520062001 2002 2003 2004 20052006In October 2006 according to independent research held by Imeesh’ Pravo magazine AlfaStrakhovanie Group took first place in the insurance section,for “Best customer service quality in 2006 and marketing of a mass product in the comprehensive insurance (KASKO) segment”.Source: Company data38 / ALFA GROUP / ANNUAL REPORT 2006ALFA GROUP / ANNUAL REPORT 2006 / 39

TNK-BPTNK-BP is a major, vertically integrated Russian oil and gas company.Created in August 2003, as the result of the merger of the Russiancompanies Tyumen Oil Company (TNK), SIDANCO and ONACO withmany of BP’s oil and gas assets in Russia, it united these companies andassets into a unified and focused enterprise. The Company is equallyowned and managed by BP (50%) and by Alfa Group Consortium,Access Industries and Renova Group (AAR) (50%) comprising a numberof prominent Russian investors. TNK-BP operates in most of themajor hydrocarbon provinces of Russia, as well as in Ukraine, employing71,000 people.www.tnk-bp.com1431,60071,000620 million567,660US $2.6 billionUS $3.4 billionUS $20 billion7.810 billion8.949 billion129% and 156%producing oil and gas fieldsservice stationsemployees in Russia and Ukrainebarrels of oil equivalent – production in 2006*barrels average daily refining throughputcapital invested in 2006planned capital invested in 2007contributed in taxes, duties and excises to Russian budgetsat all levels in 2006barrels of SEC proven oil and condensate reserves **barrels of SPE proven oil and condensate reserves **proven reserves replacement ratios, for SEC and SPE,respectively***excluding a 50% interest in Slavneft** On December 31, 2006

STRATEGY AND VALUESThe goal of TNK-BP is to build a world-classcompany in Russia with a strong focus onefficiency, sustainability and renewal.Business Goals■ Ensure stable production througheffectively developing mature fields andincreasing production by bringing newprojects on stream;■ Capture the best possible returns forthe oil and gas produced by theCompany through effective use ofexport, refining and marketing channels;■ Offset the depletion of TNK-BP’sresource base with an active reservereplacement and addition;■ Continuously increase productivityacross all our businesses;■ Work within the discipline of a robustfinancial framework;■ Apply new technologies to raise efficiencyand ensure renewal of theresource base;■ Develop gas resources and build a successful,long-term gas business;■ Enhance downstream value throughfocused refinery modernisation;■ Expand retail sales in Russia andUkraine;■ Raise health, safety and environmentalstandards and corporate governance tomatch international best practice.These goals are included in the 5 and 20-year plans as well as in the Company’sannual business plans.DividendsThe long-term strategy of theCompany is based on clear,well-defined principles: movingresources to reserves andlater to production, enhancingnetbacks from downstreamoperations, building amaterial gas business, effectivelymanaging the assetportfolio, improving corporategovernance, and buildingorganizational capacity todeliver long-term growth.The basic values of theCompany are articulatedthrough TNK-BP’s Code ofBusiness Policies. These policiesand the procedures supportingthem set out the standardsof TNK-BP’s businessconduct and apply to allemployees. Seven behaviouralareas are specificallyaddressed – ethical conduct;employee relations; externalrelations; health safety, andenvironmental performance;control and finance, securityand operations.German KhanExecutive Director of TNK-BP“We are proud of our assetportfolio which is large, diversifiedand efficient... and we areworking to improve it.”Robert DudleyCEO of TNK-BP“One of the features that makeour company distinctive is itsmultinational managementteam, which combines the considerableexperience of Russianand International executiveswho have worked in more than50 countries worldwide. Theteam combines the best ofRussian and International talentand experience – executivesfrom BP, TNK, SIDANCO, aswell as other international companies.”In 2007 TNK-BP Holding (TBH)held an Annual GeneralShareholder Meeting and approvedthe Company’s annual report for2006. The Company presented its firstset of consolidated financial statementsprepared under US GAAP accountingstandards. The meeting also elected anew Board of Directors for TBH andapproved the proposed dividend payment.The Annual General Meeting approved arecommended dividend payment of RUR22.3 billion (US $861 million and RUR1.37 per share), consistent with the levelof retained earnings reported in the statutoryRussian Accounting System (RAS)accounts and the cash requirements of theCompany. Dividends will be paid to allpreferred and ordinary shareholders.Including the interim dividend of RUR97 billion (RUR 5.95 per share)approved by the Extraordinary Meetingof shareholders held in November 2006,TBH’s annual dividend for 2006 totalsRUR 119.3 billion (US $4.6 billion).42 / ALFA GROUP / ANNUAL REPORT 2006ALFA GROUP / ANNUAL REPORT 2006 / 43

UPSTREAMTNK-BP’s main oilproducing operationsare concentrated inWest Siberia and theVolga-Urals basin.A number of largemature oil fieldsand new opportunitiesunderpin the assetbase. West Siberiaoffers TNK-BP theopportunity to growoil production. Thegas focus is in Westand East Siberia.44 / ALFA GROUP / ANNUAL REPORT 2006ALFA GROUP / ANNUAL REPORT 2006 / 45

Production growthАssets and resources20,00016,00012,000Output from TNK-BP’s assets hasincreased more than 25% sincethe Company was established in2003, adjusted for disposals. Well interventionsand other production enhancementtechniques should ensure a productiongrowth rate above the industryaverage in Russia. New technology drivingthis expansion is stewarded by expertnetworks established by the Upstreamand Technology businesses. The networksreach across the Company’s assetOil production from 2003 until 2007(‘000 tonnes)17,08017,84618,88718,889base and to operations in the field toensure learning from “best practices” isshared widely.In total, TNK-BP operates more than140 producing oil and gas fields, ofwhich the top 20 oil fields account for80% of the Company’s proved and probablereserves.TNK-BP’s shareholders also own about50% of Slavneft (currently managed as18,20519,00319,87719,95418,643an independent company). Slavneft’sprincipal assets are Megionneftegas,which operates the block directly adjacentto the Samotlor field, and theYaroslavl refinery (YANOS) which isstrategically located near the Moscowand St. Petersburg markets. Productionat Slavneft produced 23.3 million tonsof oil in 2006, half of which is net toTNK-BP.19,11718,42117,798KalugaTulaUKRAINELisichanskKurskRostovSaratovMOSCOWRyazanKareliaOrenburgneftTNK-NizhnevartovskTNK-NyaganYekaterinburg(Uralskaya NK)SamatlorneftegazUpstream companiesNew projectsRefineryMarketingRetail market share50%Source: Company dataRospanVarieganneftegasTNK-UvatNNPNNPOTyumenneftegazYugraneftOrenburgNovosibirskneftegazR U S S I AVanyoganneftNizhnevartovskVerkhnechonskneftegaz (ESGCo)East SiberianGas Company (ESGCo)RUSIA Petroleum (ESGCo)(Kovykta Project)8,0004,0000Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q42004 2005 2006Note: Including JVs, excluding Slavneft production46 / ALFA GROUP / ANNUAL REPORT 2006ALFA GROUP / ANNUAL REPORT 2006 / 47

Developing Gas ResourcesTNK-BP is actively developing its naturalgas business and is seeking to become asignificant player in Russia’s gas sector.In developing its gas business theCompany focuses on the Rospan licenseareas in the Yamal-Nenets AutonomousArea (Russia’s most prolific gas province)as well as the production of associatedpetroleum gas in its traditional upstreamoil regions.The Company’s resource base is about2.7 trillion cubic meters of gas according toSPE standards. These resources are capableof generating annual production of upto 50 billion cubic meters.Having initially acquired a 56% stake inRospan in 2004, TNK-BP now owns100% of this Company. Rospan developsdeep-seated gas reservoirs at the Novo-Urengoi and Vostochno-Urengoi gas-condensatefields in the Yamal-NenetsAutonomous Area. These fields are estimatedto have proved reserves at 950 billioncubic meters of gas and 180 milliontons of gas condensate. By SPE standards,Rospan’s additional probable andpossible natural gas reserves are estimatedat 325 billion cubic meters.Rospan International’s key achievement in2006 was a 82% production and salesgrowth for natural gas (2.5 billion cubicmeters). In the future Rospan plans togrow its production and sales based on itscurrent assets and assuming it receivesGazprom’s approval to start a full-scaledevelopment. This will raise production to15 billion cubic meters of natural gas andthree million tons of gas condensate.TNK-BP also holds approximately 62% inRUSIA Petroleum, the licenseholder to theKovykta gas and condensate field in IrkutskRegion, East Siberia. The field’s resourcesare 2 trillion cubic meters of gas and 103million tons of condensate. In 2006, TNK-BP commenced a regional gasification project,designed to bring gas to local customersin the Irkutsk region. RUSIAPetroleum and East Siberian Gas Co(equally owned by TNK-BP and the Irkutskregional administration) are constructingthe first phase of the regional pipeline.An international project to supply gas fromKovykta to the growing markets of Chinaand Korea has been under discussion, butits development remains subject to relevantgovernment approvals.TNK-BP sold 12 billion cubic meters ofassociated gas in 2006. The major event in2006 was the creation of a joint venturewith SIBUR-Holding based on theNizhnevartovsk and Belozerny gas processingplants. Yugragazpererabotka jointventure processes associated gas fromTNK-BP and other producers in theNizhnevartovsk area. TNK-BP suppliesthese plants with associated gas on a longtermbasis and TNK-BP receives 100% ofits dry stripped gas, while SIBUR receives100% of its liquid products from theseplants. This project provides TNK-BP witha good base from which it can develop itsassociated gas processing in the key regionof Nizhnevartovsk and this facility willmonetize associated gas and help toreduce the volumes of flared gas.Another part of TNK-BP’s gas business isimplementation of power generation. Itsdevelopment will be shaped by a numberof factors such as the availability of majorassociated gas volumes, the growth anddevelopment of a free electricity marketand the fact that TNK-BP is a major consumerof electric power.DOWNSTREAMBased primarily in European part of Russia and Ukraine, the Company’s downstream operationscover the refining, logistics, marketing and sale of oil and oil products on wholesale andretail markets. The Company’s primary downstream objective is to monetize TNK-BP’s crudeoil production. TNK-BP works to expand and widen its sales options while ensuring a constantsupply of its products to rapidly growing markets inside Russia and Ukraine.In Russia, TNK-BP operates two main refineries. The largest one is Ryazan refinery, locatedabout 180 kilometers south-east of Moscow, It is ideally situated to supply both the Moscowmarket and export markets in northwest Europe. The Company’s portfolio also includes twotopping plants and one lubricant blending plant. In Ukraine TNK-BP owns Lisichansk catalyticcracking refinery which supplies Kiev, the country’s largest market.In 2006 TNK-BP completed a major modernization project at the Ryazan refinery. This projectaimed to reduce the sulphur content in gasoline and diesel fuel. At present most gasolinegrades produced by the Ryazan refinery contain less than 50 ppm of sulphur, which also meetsthe requirements of the Company’s foreign customers. Ryazan refinery has also begun productionof premium gasoline and diesel fuel grades under the BP Ultimate brand. TheCompany expanded production of high-quality gas oil (50 ppm) for the European market andbegan supplying gasoline from the Lisichansk and Ryazan refineries to the United States market.In addition to these benefits the refinery’s modernization has helped to significantlydecrease sulphur emissions.Volumes of Oil Refining in Russia and UkraineIn September 2006, the BP Ultimateunleaded gasoline (with octanenumbers 95 and 98) went on sale atall BP service stations in Moscow andMoscow Region. The new fuel increasesengine power, cleans engine depositsand prevents such deposits from formingagain, provides fuel economy andreduces the sulphur content emitted by66%. Shortly after the launch, morethan 50% of existing (A95) customershad switched to Ultimate 95. Ultimate98 sales have also grown by more than30% compared with the period beforethe launch.TNK-BP is a market leader in the Russianlubricants market. A single business unit,based on TNK operations, comprises twobase oil manufacturing plants, threeblending plants and an integrated salesorganization.The Company’s retail sales outlets (about1,600 service stations) are mainly locatednear the refineries, which is typical inRussia and Ukraine. TNK-BP both ownsand operates about 600 service stations.TNK-BP’s retail strategy is focused oninvesting in Company-owned andCompany-operated sites in the largest andfastest growing metropolitan markets.The TNK brand has recently undergone amakeover resulting in a new look for theTNK retail sites. The goal was to create adistinct identity and position the brandin such a way as to increase customertrust and loyalty as the Companyimproves the quality of products and services.By the end of 2006, 68 TNK sites inRussia already had a new look and feeltogether with newly installed convenienceshops. In addition, another 150will carry the new livery in 2007.28,50028,00027,50027,00026,50026,00025,50025,00024,50024,000Annual Volume of Refining(‘000 tonnes)24,9602004Note: Excluding Slavneft27,26927,6602005 200648 / ALFA GROUP / ANNUAL REPORT 2006ALFA GROUP / ANNUAL REPORT 2006 / 49

Revision of TNK-BP assets portfolioAs part of its review of the assets portfolio and in line with best international practice, TNK-BP sold its upstreamsubsidiary (Saratovneftegaz), the Orenburgnefteprodukt retail network, Orsk refinery and the Orenburg lubricantsplant to RussNeft in December 2005. In 2006 TNK-BP sold Udmurtneft to China’s Sinopec.In the beginning of 2007 TNK-BP acquired a 50% interest in Vanyoganneft, a joint venture with the U.S. companyOccidental Petroleum operating in West Siberia. Following the acquisition, TNK-BP became the sole owner ofVanyoganneft.A balanced assets portfolio will strengthen the Company’s position in its main markets and also help TNK-BP utilizeits competitive advantage as demand grows for a quality fuel inside and outside Russia.Introduction of new technologyTNK-BP’s strategy places an emphasis on the introduction of new technologies in orderto continuously improve the Company’s performance and facilitate stable longtermgrowth. A particular focus is on technology that is capable of increasingrecovery rates substantially at the Company’s largest oil fields.To facilitate the introduction of new technology throughout the Company, TNK-BP established an in-house technologystream. The stream has networks across the Company’s exploration and production business with a view to stimulatingthe renaissance of the Company’s older fields by ensuring a lasting and stable production growth for these assets. Thenetworks address areas such as drilling and recovery performance, the prevention and inhibition of pipeline corrosion,pump reliability, well tracking and evaluation, operations efficiency and reservoir pressure maintenance systems.By making full use of these expert networks, TNK-BP accelerates the spread of world-class technologies and processesacross the Company. Technology division also supports the modernization of the Company’s refineries, explorationoperations as well as other Company’s businesses.Health, safety and environment (HSE)’s HSE goals are, simply stated: No workplace injuries, no accidents and nodamage to the environment. TNK-BP management believes that industrial safe-TNK-BP ty, health protection and environmental issues are among the top priorities forthe Company.When TNK-BP was formed in 2003 the Company inherited more than 5,000 hectares of polluted land, 875 sludge pitsand about 500,000 tons of oil sludge. Between 80-90% of this pollution was concentrated in the Samotlor field, discoveredin 1965. In 2004 TNK-BP committed itself to remediate more than 80% of the polluted land over five years. Forthis purpose the Company has established a dedicated reserve of about US $200 million.In 2006 TNK-BP spent about US $20 million on the liquidation of legacy environmental damage in the upstream business.The Company has committed to resolve this problem completely by 2011 and, starting from 2007, it will substantiallyincrease funding for the liquidation of its decommissioned facilities in the downstream business.As a result of this effort about 80% of oil-contaminated land is expected to be remediated by 2009.At the time it was established the Company had more than 28,000 kilometers of field pipelines, many of which havebeen in operation for more than 15 years. Since 2004 TNK-BP installed more than 1,400 kilometers of new pipelines ata cost of almost US $200 million. The Company intends to spend a further US $650 million over the next five years toreplace more than 4,500 kilometers of older pipelines.50 / ALFA GROUP / ANNUAL REPORT 2005ALFA GROUP / ANNUAL REPORT 2005 / 51

A1TheThe investment policy of A1 is focused on the investment of its ownassets and those assets of its partners and shareholders in thegrowing Russian and CIS markets. А1’s capabilities allow it toefficiently implement all types of projects typical of large directinvestment funds: leveraged buy-outs (LBO); growth strategyfinancing; acquisition of undervalued assets; corporaterestructuring and portfolio company development; strategicinvestor alliances; acquisition of financially distressed companiesand crisis management; conflict resolution and others. A1’s longterminterests are aimed at establishing strong and competitivebusinesses, producing modern and very high quality goods andservices to satisfy Russia’s growing demand, and developingefficient organizational and management systems.I nvestment Activitypotential of A1 is unrivalledamong Russian investmentmarket. A1 has at its disposalconsiderable capital as well asaccess to other significantfinancial resources. At all stagesof a project, A1 maintains a highlevel of control over theinvestment process. The teamattracted by A1 for businessdevelopment is highlyprofessional with extensiveRussian and internationalexperience. Professionals of A1have worked as top managers onmany Alfa Group projects,including Tyumen Oil Company,Alfa-Bank, VimpelCom andMegaFon, Perekrestok andprojects with Russia’s largestmetallurgical and timber plantsand with leading manufacturersof consumer goods.A1’s extensive resources andexpertise allow it to seek andexecute projects with clearpotential and sufficient flexibilityto ensure their successfulaccomplishment. They are basedon winning business models thathave already been tested in Russiaand internationally. A1’s projectsare notable for their sophisticatedstrategy with clear plans forinvestment and businessdevelopment. A1’s investorsactive role in creating value isalways a strong point.Alexander SavinManaging Director of A1“A1's strategy is to become the leaderin direct investments in Russia, byreturn on shareholder capital and byquality of investment process andcorporate governance. Our purpose isto give to the shareholders anopportunity on a long-term basis toinvest in the most attractive projects ofdirect investment in Russia, the CISand other emerging markets.”Alexey KousmichoffChairman of the Board of Directors of A1“A1 fully agrees with the classicstatement of three “p” – “peopleproduct-profit”,that, in the long run, allbusiness operations can be reduced to.We place people first. Our chief priorityis a strong reliable team, involving thebest professionals in the market,efficient team-players who have alreadyproven their ability to implementsuccessful projects. JP Morgan saidthat, “People not assets should be thebase for investments”. In any project,A1 strives for the ultimate in thisconnection with each project startingfrom the selection of a perfectlybalanced and highly professional team.www.a-1.comALFA GROUP / ANNUAL REPORT 2006 / 53

Selected projects in 2006Kronverk CinemaOne of the largest cinema chains in RussiaKronverk Cinema is one of the largest movie theater chains in theNorth-West of Russia and rates among the top 5 largest across thecountry. The highly professional team created the company from thestart-up stage and within 3 years the Kronverk Cinema holds around 35% ofthe film exhibition market in St. Petersburg. As the first company to introducethe concept of a world-standard movie theatre chain in the region, KronverkCinema has also radically restructured the film exhibition business there.The film exhibition market has developed rapidly and is very attractive forstrategic investment. Russia demonstrates the fastest growth in box officereceipts and attendance as compared to other countries worldwide. A1 hasretained the Kronverk Cinema team and is now investing to create a Russiawidenetwork, an industry leader, on its strong initial base. The scale of thebusiness and the ambitious plans for proactive growth will ensure advantageousfinancing and preference from film distributors, equipment suppliersand commercial property owners.In 2007, the company plans to enter the Moscow market, with intention toopen three cinemas. In addition, several new multiplex cinemas in otherRussian cities are being launched. In the near future, the company willincrease its presence in St. Petersburg opening a new IMAX cinema, whichis currently under construction. A1 is also exploring Ukrainian andKazakhstan markets, holding talks with local developers.RosvodokanalInterregional water operatorsuccessfully developed a project in the public housing sectoras the reform of the sector has created a new and promisingmarket with many opportunities for long-term invest-A1hasment. A1 is involved through acquisition of control in Rosvodokanal, anenterprise with a well established name, significant civil engineeringexperience and management potential.Rosvodokanal has been a 60-year leader in municipal water industry. It wasreorganized in 2006 into an interregional holding company that includesthe service company "RVK Consulting" (which renders engineering and consultingservices) and city water companies with a network of engineeringcenters. Rosvodokanal introduced on the market what analysts believe to bean extremely promising public-private partnership model. TheRosvodokanal concept allows municipalities, being the owners of the enterprisesto move quickly to free-market operation.Rosvodokanal project results are some of the best in the industry. InOrenburg, administration production costs were reduced by 30%, waterlosses were reduced by 20%, and the overall state of the networks and qualityof services were considerably improved. The city water channel achieveda record high payments collection (up to 98%).Rosvodokanal manages water supply assets in Barnaul, Kaluga, Krasnodar,Tyumen, Tver and other Russian cities serving about 4 million people.Along with the expansion into the Russian regions, Rosvodokanal considersprojects in large cities in Ukraine. Rosvodokanal is an attractive partner forwell-known international financial institutions that offer long-term lendingto the company. Within the next few years, A1 plans to make Rosvodokanala multinational operating company – an industry leader in Russia and theCIS, and to prepare it for IPO.Trade House SmirnovManufacturer and distributor of the world-known vodka brandSmirnovDiageo DistributionExclusive supplier of world-wide premium alcohol brandsin RussiaDiageo, the largest global manufacturer and distributorof alcoholic beverages, set-up a joint venture to promote, sellA1and distribute premium alcoholic beverages in Russia. Thejoint venture has an exclusive right to distribute Diageo’s world brands inRussia including: Johnnie Walker, J&B, Baileys, Captain Morgan, Cuervo,Tanquaray, and Crown Royal. A1 transferred the Smirnov brand andrelated operating businesses to the joint venture company.Russia has become a leader in the growth in sales of Diageo brands which exceedthe growth rates in many developing markets. Diageo now has 25% of the premiumalcohol market in Russia; its share in the sale of whiskey and liquor isaround 50%, and of gin more than 30%. The single brand portfolio of the legendarybrands Smirnoff and Smirnov makes it possible to optimize the strategyfor their promotion in Russia and global markets.Low-Cost Airline CompanyIn 2006, A1 initiated a project on creating a budget domestic airline companyin Russia. The company’s mission is to make air transport affordableto a large portion of Russian population. Such popular airlines asRyanair, easyJet, Southwest Airlines, and JetBlue Airways have successfullyrealized the model of budget airlines worldwide. Today, this model is themost competitive and effective in civil aviation.The new airline company plans to begin flights in 2008. Indigo Partners, aU.S. direct investment fund, specializing in investments into budget airlinesworldwide, is A1's partner in this project. David Bonderman, the Founder ofTexas Pacific Group and Chairman of the Board of Directors of Ryanair, is theprincipal investor in the Fund.VladpivoBeer producer in Prymorsky RegionIn 2005, A1, jointly with Detroit Investments, purchased PivoIndustriaPrimoria, a brewerer in Vladivostok on the verge of bankruptcy. Theinvestment idea of the project was to create an industry leader in thefast growing market in the Far East of Russia. The project develops successfullydue to A1’s experience in corporate restructuring combined withthe experience of Detroit Investments in creating a brewery businesses.During 2005-2006, A1 and its partners created a new company Vladpivo,based on PivoIndustria Primorya, modernized and increased productioncapacities, paid overdue debts, carried out a corporate restructuring,launched production and achieved substantial increases in sales volumes.Today, Vladpivo is one of the largest brewers in the Far East, with anassortment of modern, quality products and advanced production technologies.SolnechnyLarge modern logistic complex in Moscow RegionIn the mid of 2006, A1 jointly with its partners – owners of the UnifiedInternational Network of Customs Warehouses (UINCW) – invested inthe development of large logistic center Solnechny in MoscowRegion. Solnechny is reconstructed from the low-grade terminal "C-" to"A-" class.Solnechny is located in the most attractive area from the viewpoint of logistics– 5 kilometers from the Moscow Ring Road in the south-west area of thecity. It has its own railway line with efficient cargo-handling facilities, andconvenient road scheme for accepting trailers. The reconstructed terminalarea is well equipped; the clients receive a package of high-quality customsclearance and information services. Solnechny is particularly appealing tocompanies, whose operations are connected with Moscow consumers. Theymay efficiently receive large goods inflows in assortment, arrange speedytransport from western borders of Russia and Baltic ports directly to the doorsof consumers, and use Solnechny as a hub in regional and national transport.By the end of 2006, half of warehouses in Solnechny were reconstructedand rented. They were all leased out to format clients at rates much higherthan the average in the industry.DynastyCottage community in Krasnodar Region, the Black Sea coastIn 2006, A1 participated in a large residential real estate project in thesouth of Russia. Together with Seagate Group, A1 was a co-investor inconstruction of Dynasty cottage community in Gelendzhik, one of themost popular and dynamically growing cities in the Black Sea coast of Russia.The partners invest in the construction of one of the first large villa complexesin this district with its own infrastructure. According to market participants,this is a very promising project: the complex is located in a comfortablelocation with nice climate, close to the beach, with the largest seafronton the Black sea coast, aqua-park and other resort facilities. Thanks tothese advantages and the construction of a new airport in Gelendzhik,experts forecast high demand from buyers from various Russian regions.Since early 2007, Dynasty is under active construction, and A1 and Seagatedevelop the marketing policy for the sale of villas, which will be launchedin mid-2007. Construction is scheduled for completion in mid-2007.Alfa-CarbonThe company provides services in registering and implementingquotas for greenhouse gas emissions under the Kyoto protocolAlfa-Carbon was created by A1 and RusCarbon, and specializes inservices in registering and sale of quotas for emissions of greenhousegases within the framework of the Kyoto Protocol. Alfa-Carbon supports Russian enterprises with the identification of new projectssuch as the renovation, upgrading and new construction with the purposeof reducing emissions of greenhouse gases, registration of this reductionwith the Russian and international authorities as emission quotas, and saleof these quotas on the global carbon markets.The company currently has several projects at the stage of registration andin 2007 it plans to complete the sale of the first projects.MordovnefteproductA major regional operator in the oil products marketA1implements the investment project in Mordovnefteproductcompany (MNP) (Saransk, Mordovia Republic), in whichfrom the beginning of 2006, it controls around 73% ofshares. Mordovnefteproduct (MNP) owns 40% of all petrol stations in theregion, the main network of petroleum storage depots, controls 70% ofretail sales and 25% of wholesale sales of oil products in the region.Mordovnefteproduct has a great growth potential, as the leading Russianvertically integrated oil companies are not represented there.A1 has restructured MNP by optimizing operations and marketing.Additionally, the purchase price of oil products was reduced, and retailsales and wholesale sales were substantially increased, due to the activeparticipation of MNP in the Republic’s programs on fuel supplies to industrialand agricultural enterprises.A1’s aim is to continue fast and effective changes in the company: to increasesubstantially fuel purchases, wholesale and retail sales (by 130% in 2007).A1 UkraineA1’s strategic priority is to expand to emerging markets. Thegrowing Ukrainian economy will surely be an attractive destinationfor investment, financial and managementresources in the years to come.54 / ALFA GROUP / ANNUAL REPORT 2006ALFA GROUP / ANNUAL REPORT 2006 / 55

RUSSIANTECHNOLOGIESRUSSIAN TECHNOLOGIES HAS BEEN INVESTING IN EARLY-STAGE, INNOVATIVE COMPANIES SINCE 2003, ASSISTINGTHEM TO SUCCESSFULLY DEVELOP THEIR BUSINESSES ONRUSSIAN AND GLOBAL MARKETS.www.ru-tech.ruFrom left to right: Joseph P. Bowman, Partner; Mikhail Gamzin, Managing Partner; Vladimir Bernstein, Partner; Vitaly Belik, PartnerVenture Capital in Russia:Market OpportunityThe Russian market represents a uniqueopportunity for venture capital in that itis both a source of unique and innovativetechnologies and a dynamic marketplacewith a growing demand for technologydrivenproducts and services.Russia has a strong scientific and technologicalbase, founded on the heritage ofthe former Soviet Union which made significantinvestment into research anddevelopment. Today, Russia is one of theleaders in the world (ranking fourth afterthe US, China and Japan) in terms ofnumber of scientists (over half a million)with the number of post-graduate futurescientists growing every year. Substantialscientific potential of Russia and emergingscientific developments createfavourable conditions for development ofa venture capital industry in Russia.Throughout the 1990’s, a number ofRussian scientists emigrated from Russiataking with them technologies developedduring the Soviet era. Until recently this“immigration model” was the only practicalway for Russia-originated technologiesto be exploited for commercial applications.This was primarily due to thelack of local venture capital firms and thevolatile business environment in Russia.Russia’s continuing economic developmentand political stabilization coupledwith broadening access to local venturecapital provide the right environment forcommercialising Russia-originated technologiesin global markets and developingtechnology-driven businesses on localand adjacent markets. Russian Technologiesis positioned as a key player inbuilding successful partnerships withlocal entrepreneurs assisting them toachieve their goals to build industry leadingcompanies.

RMikhail GamzinManaging Partner of Russian Technologies“The Fund is focused on investments in companies developing disruptive technologies with sustainablecompetitive advantages which enable them to capture significant market share in large existingand new expanding industries. Investment in high-technology has not only become a priority for theRussian government but a profitable endeavor giving a competitive edge to Russian enterprises in theglobal market place.”ussian Technologies makes equity investments in technologycompanies addressing large existing or expanding newmarkets. The Fund targets companies with managementteams and specialists capable of demonstrating viable businessmodels and a solid vision for future business development.The Fund is focused on early-stage investments where we can workclosely with the management team to influence the formation of thekey aspects of the business to ensure the long term success of the company’sdevelopment. Each investment is approached as a partnershipwith the entrepreneur, the basis of which is the creation of long-termshareholder value.■ Information Communication Technologies■ Digital media■ Semiconductors & optoelectronics■ Clean TechInvestment StrategyFund Operational HighlightsThrough participation on the Board of Directors of all portfoliocompanies, the Fund actively contributes to strategic planning,selection of the key personnel and securing of financing for subsequentinvestment rounds using a broad network of business partners,investors and consultants both inside Russia and on globalmarkets.Russian Technologies often co-invests together with western venturecapital funds forming a powerful syndicate based on synergisticrelationships. The Fund continues to work on building a reputationin the global venture capital industry as a reliable and valuablepartner specializing in mitigating country-specific risk, organizingand scaling local research and development operations, and openinglocal market opportunities through a network of contacts withinRussia’s leading companies.The Fund operates as a financial investor and assumes it will be ableto exit from the investment process within three to five years achievinga high return on investment. The ability to project an exit opportunityis regarded as one of the major criteria in the investment projectselection.In 2007 Vitaly Belik joined the Fund as a Partner. Vitaly is an investment professional with several years of experience working inleading institutional corporate private equity funds. In 2003-2007 Mr. Belik worked at Intel Capital in Moscow. At Intel Capitalhe was responsible for equity investments and M&A initialization. Prior to working at Intel Mr. Belik had worked in various rolesat Delta Capital, Alfa-Bank in Ukraine and Credit Swiss First Boston.Within the past three years (2003-2006) the Fund has established a reputation of the premier venture capital fund on the Russianmarket and has built a portfolio of dynamic companies operating in a wide variety of industries.The Fund focuses on investments in several primary technology domains:Major Highlights of 2006 and Q1 2007In 2006 and beginning of 2007 the Fund continued to strengthen its investment portfolio. In 2006 the Fund made a new investmentin MCC Technologies Ltd. and signed an agreement to participate in a telecommunication project for the development ofan all-Russian network of digital television in DVB-T standard throughout Russia which will be implemented by Golden Telecom.Investment portfolio of the FundUltra Motor Company Ltd.http://www.ultramotors.co.ukUltra Motor is engaged in the production of electric vehicles based on its proprietary technology solutions. In 2006 Ultra Motor raised US $7 million inprivate equity from existing shareholders. Russian Technologies led this round of financing. The proceeds are being used to support the rollout of thecompany’s products on the Indian market and to enter new international markets. In September 2006 the Company signed a strategic partnershipagreement with the world’s largest producer of two-wheeled vehicles the Hero Group (http://www.herocycles.com). As per the framework agreementHero will manufacture co-branded two-wheeled electric vehicles based on Ultra Motor technology and distribute them throughout India in exclusiveretail stores. By the end of March 2007 Hero and Ultra have opened seventeen stores under the joint brand of Hero Electric – Ultra Powered. In the firstsix weeks since the product launch the company’s sales reached US $400,000.PLT Electro-Com Ltd. (Operational subdivision – Electro-Com)http://www.spark-com.ruPLT Electro-Com Ltd. offers a broadband access to the Internet and IP Telephony through its subsidiary group of companies Electro-Com, under thetrademark “Spark”. The network leverages in-building electric grids which circumvent the necessity to make installations in individual apartments,thus providing a true “plug-and-play” service. The consumer buys an adapter and a scratch card in a retail store, and connects to the service throughany electric outlet of the apartment. To support its expansion the company raised US $26 million in private equity in 2006. Russian Technologiesparticipated in the financing round in order to maintain its equity position. By the end of the first quarter 2007 the company had built out a networkwhich covers more than 180,000 apartments in Moscow, Rostov, Kaluga, Ryazan.Lythgoe Enterprises Ltd. (Operational subdivision – Ukrainian High Technologies LLC.)http://www.alternet.uaLythgoe Enterprises Ltd., through its subsidiary Ukrainian High Technologies Ltd., launched the first WiMAX network in Ukraine in October 2005 underits trademark “Alternet”. In 2006 the company raised an additional US $7.5 million in private equity from existing shareholders. By participating in theround and acquiring shares from other shareholders Russian Technologies gained a controlling interest in the company. By the end of the first quarter2007 the company had launched services for fixed broadband radio-access in four major regions of the country (Kiev, the Kiev region, Kharkov, Lvov).The network is also being operated in test mode in three additional cities Dnepropetrovsk, Odessa, and Donetsk.Yutec Technologies Ltd.Yutec develops and sells equipment known as Crystallizers used for paraffin separation to oil and gas refineries. Yutec built and installed its firstcrystallizer in the summer 2005 which was sold to Orsk Refinery of TNK-BP in November 2005 after successful testing and demonstration of theequipment. The operating parameters of the new crystallizer significantly outperformed existing models, both in performance and maintenancecosts. The company is planning to sell its crystallizers to all refineries in Russia, and then enter the global refinery equipment market.PBC Lasers Ltd.PBC Lasers Ltd. is commercializing its patented Photonic Bandgap Crystal Lasers technology for a wide range of high power semiconductor lasers.The company is currently focused on developing products for projection displays, optical storages, and industrial applications. In 2006 the companyengaged with several leading companies in Asia and the United States including JDS Uniphase, Hamamatsu, JVC, and Hitachi. PBC successfullydemonstrated the competitive advantages of its new laser design and continues to work closely with these and other customers to prioritize initialtarget applications. Russian Technologies provided additional financing to the company in 2006 and further increased its equity ownership tobeyond a controlling stake. The Fund also assisted PBC to attract a new Chief Executive Officer to support product and market development. RobertDuboc joined PBC in early 2007 and brings more than 25 years of management experience (including 17 years in the display industry). PBC aims tolaunch its first commercial products in early 2008.Wostec Inc.Wostec Inc. is developing a new non-contact process technology for creating nanostructures on the surface of different material substrates. Wostectechnology can be applied in a wide range of different products. The first products the company is focusing on are high-performance optical componentsfor projection displays and ultra thin membranes for hydrogen fuel cells.SJ Labs Inc.http://www.sjlabs.comSJ Labs, Inc. is one of the world leaders in VoIP softphone development winning numerous industry awards over the past several years. In the first quarterof 2007 the Fund sold its minority stake of the company as per the framework acquisition transaction to the strategic investors (Dan Borislow andDonald Burns) founders of Ymax Communications Corp (MagicJack).MCC Technologies Inc.In 2006 Russian Technologies invested in MCC Technologies Inc. The proceeds were used to continue the research and development of the company’sinnovative technology for separation of fly ash of thermoelectric power stations and landfill fly ash with the aid of a flotation plant. In 2007 the companyplans to begin preparation of pilot production.58 / ALFA GROUP / ANNUAL REPORT 2006ALFA GROUP / ANNUAL REPORT 2006 / 59

X5 RETAIL GROUP N.V.X5 RETAIL GROUP N.V.is Russia’s largest foodretailer in terms of salesOperates in morethan 30 cities in Russia andthe CISMore than500 mln customersperyearMore than1000 stores(includingfranchisees)ABSOLUTE LEADERSHIPX5 RETAIL GROUP N.V. (“GROUP”) IS RUSSIA'SLARGEST FOOD RETAILER IN TERMS OF SALES.ON MAY 18, 2006, X5 RETAIL GROUP N.V.(FORMERLY KNOWN AS PYATEROCHKAHOLDING N.V.) UNITED THE LEADING NATIONALSUPERMARKET CHAIN PEREKRESTOK ANDPYATEROCHKA, ONE OF THE LARGEST RUSSIANDISCOUNTER SUPERMARKET CHAINS. THEGROUP USES A MULTI-FORMAT STRATEGY TOSIMULTANEOUSLY DEVELOP THREE FORMATS:DISCOUNTERS, SUPERMARKETS, ANDHYPERMARKETS. THE GROUP’S STRATEGICMISSION IS TO BECOME THE MAINCONSOLIDATOR OF THE RUSSIAN FOOD RETAILMARKET AND THE ABSOLUTE LEADER OFRUSSIAN RETAIL, AND TO COMPETE AS ANEQUAL WITH LEADING INTERNATIONAL CHAINS.www.x5.ru

Lev KhasisCEO of X5 Retail Group N.V.”The strong financial performance of X5 Retail Group in 2006 and the specific progress in integration ofPyaterochka and Perekrestok clearly demonstrate that we are passing smoothly through the integrationprocess, stepping now into the period of capitalisation on practical synergies of the merger. We are inprocess of building a solid multi-format foundation to continue our further expansion in the role of themain consolidator of the Russian food retail market. I am excited and confident about our future.”Today, Perekrestok is one of the leading nationalsupermarket chains and one of the first chains inthe history of domestic retail. The chain consists ofthree store formats: convenience stores, supermarketsand city hypermarkets. The first Perekrestok store wasopened in Moscow in September 1995. Perekrestok’s Netsales was US $373 million in 2003 and by the end of 2006net sales reached US $1.5 billion. As of April 2007,Perekrestok stores operated in 15 Russian regions, includingMoscow and the Moscow region, St. Petersburg,Samara, Kazan, Tolyatti, Volgograd, Nizhny Novgorod,Voronezh, Lipetsk, Rostov-on-Don, Krasnodar, Yaroslavl,Ioshkar-Ola, Cheboksary and others. In 2005, Perekrestokentered into other CIS markets by acquiring the SPARsupermarket chain in Ukraine.The Pyaterochka soft discounter chain was founded in1999. By the beginning of 2000, the company consistedof 16 stores and turnover for 2000 was US $70 million.By the end of 2006, Pyaterochka’s net sales were US$1.97 billion. At December 31, 2006, Pyaterochka andits franchised stores had a presence in 12 RussianHistoryregions, Kazakhstan and Ukraine. In May 2005,Pyaterochka launched a successful IPO on the LondonStock Exchange (LSE) and raised approximately US$600 million, which were used to further develop thechain.As of 31 December 2006, the Group had 605 franchisedPyaterochka soft discount stores located in Russia,Ukraine and Kazakhstan. There were 10 franchisedPerekrestok stores in Moscow.On 18 May 2006, the Perekrestok supermarket chainand the Pyaterochka soft discounter chain merged. InOctober 2006, the united company was renamedX5 Retail Group N.V. The Company’s shares are listed onthe London Stock Exchange (LSE) under the ticker“FIVE”. As of 31 December 2006, the total number of theGroup’s stores (including franchises) was 1,234. Therewere 451 Pyaterochka soft discounters located inMoscow (222), St. Petersburg (204), and Ekaterinburg(25). There also were 168 company-owned Perekrestoksupermarkets in Russia’s central regions and in Ukraine,including 100 stores in Moscow.Concept and StrategyAAfter the merger of Pyaterochka and Perekrestok, the Company started creating an integratedplatform for future growth. From May until the end of 2006, two key objectives were successfullyreached: a successful beginning of integration process and continuous rapid growth. InMarch 2007, X5 Retail Group N.V. announced the Company’s 5-year development strategy.In 2007, the Group plans to conclude the integration process and build a durable multi-formatplatform for future growth. The Group’s long-term strategy focuses on multi-format growth andinvesting in technological development in such areas as logistics, IT, and HR – the key factors ofthe Company’s competitiveness in the future.The five-year development strategy of X5 Retail Group N.V. in Russia is supported by the SupervisoryBoard and key Group shareholders. Management team has been brought together that processes allthe necessary resources for carrying out the approved strategy.Х5 Today: Operation GeographyTotal stores as of 31 December 2006 –1234 (including franchisees)Russia – 1179 storesUkraine – 27 storesKazakhstan – 28 storesTotal company managed stores:Perekrestok storesPyaterochka storesCombined storesX5 Retail Group N.V. TodayGroup N.V. today is the undisputed leader of food retail and the only multi-formatoperator in Russia, with a significant regional presence. The Group’s Net sales reachedX5Retailnearly US $3.6 billion in 2006 with the total net trading area of X5 Retail Group N.V.stores of approximately 466,000 m2. In 2006, approximately 446 million people shopped in theGroup’s stores. More than 33 thousand people work in the Company.Note: The map shows coverage of X5 RetailGroup N.V. managed stores (including franchisees),excluding Ukraine and Kazakhstan.62 / ALFA GROUP / ANNUAL REPORT 2006 ALFA GROUP / ANNUAL REPORT 2006 2004 / 63

Vitaliy PodolskiyCFO of X5 Retail Group N.V.“Strong financial results of the Group in 2006 maintain our confidence in successfulrealization of our further investment plans and in our ability to attract necessary capitalfor the execution of these plans.”Key Long-Term Goalsof X5 Retail Group N.V.:PricingNet sales($ in million)YOY Growth = 49.6%3,551■ Preserve and strengthen its position as the leading Russian chain in eachformat and on the food retail market as a whole in order to provideshareholders with the best return on investment in this industry;Group N.V. has clearprinciples guiding its pricing,X5Retailwhich are aimed at giving customersaccess to high-quality products atreasonable prices. In addition to constantlyinvesting in prices, the Company bringsthis into reality also by means of large volumesof purchases and using advantagesprovided by the Company managed distributioncenters: direct deliveries of goodssignificantly reduce product on costs andallow stores to maintain attractive prices.Direct deliveries of large shipments ofgoods also significantly reduce productprices and allow stores to maintain attractiveprice levels.Customers who choose X5 Retail Group’sstores know that they will always find notonly reasonable prices that correspond tothe level of quality and service, but alsointeresting special offers that differentiatethe Group’s stores from its competitors.The stores regularly conduct promotionsand have widespread customer loyalty programs,and offer private label products atthe most attractive prices on the market.20052006Note: Above figures are pro-forma for Pyaterochka, Perekrestok and Merkado supermarketchains for the full years 2005 and 2006Gross profit($ in million)EBITDA($ in million)2,374604226YOY Growth = 63.8%Note: Above figures are pro-forma for Pyaterochka, Perekrestok and Merkado supermarketchains for the full years 2005 and 2006YOY Growth = 31.0%990295(% margin)Gross ProfitGross ProfitMargin(% margin)EBITDAEBITDAMargin■ Support the multi-format concept and focus on three main formats:discounters, supermarkets and hypermarkets;■ Active expansion using organic growth as the primary engine ofdevelopment, while also relying on mergers and acquisitions;■ Develop partnership relations with other market companies, includingdevelopers, financial institutions, suppliers and other partners, to promotenew products and services for customers;■ Complete the integration of the two chains and create an organizationalplatform for rapid and effective Company growth;■ Create an in-house supply chain, including distribution centers andtransportation center, that will guarantee X5 Retail Group N.V. a stablecompetitive advantage;■ Provide the Company’s primary business divisions with the most modern andeffective IT systems;■ Become the best employer on the market by building effective HR processesfor recruiting, training and motivating personnel.Note: Above figures are pro-forma for Pyaterochka, Perekrestok and Merkado supermarketchains for the full years 2005 and 200664 / ALFA GROUP / ANNUAL REPORT 2006ALFA GROUP / ANNUAL REPORT 2006 / 65

Alexei ReznikovichChief Executive Officer of Altimo“In December 2005, we presented the new international investment company Altimo inLondon. We opened a new phase in our activities under a new name aiming to take theleading positions on the emerging telecommunications markets of Eurasia.Within one year Altimo's achievements are evident, and the Company has the right to beproud of them. Our experience of investing into the telecommunications markets of Russia,the CIS and Turkey gave us the opportunity to become one of the leading investors in theindustry; we increased the value of our investment portfolio in 2006 by workingsystematically and productively with the management of our companies. We intend tocontinue the promotion of the growth in value of our assets and continue our activity on theemerging markets of Asia and Eastern Europe.Also, within one year we became an integral part of the international telecommunicationsmarket and consolidated our status as a major and experienced investor. Altimo's team ofprofessional managers maintains a high international standard of corporate governance.”Telecommunications: trends and prospectsEurasian markets have an immense investment potential. Thetotal sales revenues of the three leading Russian operators grewby more than 35% in 2006, and the total number of subscribersincreased by 21%.The attractiveness of the developing markets of Eurasia isexplained by high economic growth rates, large populations,low mobile penetration and high GDP growth rates.The mobile communication coverage in many countries of theCIS and Eurasia is insufficient and the sector will develop at avery fast rate over the next few years. Altimo is ideally placed totake advantage of major development opportunities on thesemarkets.Altimo is one of the largestinternational investmentcompanies acting in the field ofmobile and fixed-linetelecommunications, holding aleading position on thetelecommunications markets ofEurasia. Mobile companies, in whichit invests, operate in Russia,Ukraine, Kazakhstan, Uzbekistan,Kirghizia, Tajikistan, Georgia,Armenia, Moldova, Azerbaijan andTurkey. The market capitalisationof Altimo's assets totals more thanUS $20 billion and the companies inits investment portfolio have over150 million mobile subscribers.Altimo is committed to the development of companies in itsinvestment portfolio. Altimo participates pro-actively in theBoards of Directors of the companies in which it invests, andalso provides consulting services to the management of thesecompanies. The Company’s goal is to fully realise the potentialof each company and maximise its value.Altimo is a financial investor which doesn’t seek to obtain controlover the companies in which it invests. The Company isinterested in exercising its position as a strong minority shareholderthe result of such form of balanced corporate managementallowing the company’s management to steer the companyindependently in the interests of all its shareholders.Altimo’s aim is to expand its presence on the developing marketsof Eurasia with the most attractive markets being thoseAltimo’s Strategycountries with large populations, low current levels of mobilecommunications penetration, high GDPs and low market competition.The chosen priorities are the countries of South,Central and Southeast Asia.Having set its sights on Eurasia and considering the fact thatthe international mobile communications industry is nowundergoing global consolidation, Altimo intends to take part inthat process by partnering with a leading European GSM operator.Creating a major alliance in mobile communications willgive Altimo an opportunity to use in full the best practices experienceof the European partner combined with Altimo’s practicalexperience investing in the developing markets.www.altimo.orgALFA GROUP / ANNUAL REPORT 2006 / 67

Our assetsAt present, Altimo manages assets with a total market capitalisation of more than US$20 billion. Investments include:VimpelCom[Beeline Trademark]VimpelCom is one of the two leading cellular communications operatorsin Russia; it provides services under the Beeline trademark.VimpelCom's cellular communications service license covers a territorywith 94% of Russia's population (134 million people). In 2005, thecompany received a license to provide long-distance and internationalcommunications services.In November 1996, VimpelCom became Russia's first company to listits shares on the New York Stock Exchange (NYSE). For over ten yearsSubscriber Growth(end of year)60 mln5,000Total Operating Revenues(in USD mln)now, VimpelCom has been a leading Russian company in terms of professionalstandards and transparency. Independent organizationshave on many occasions cited VimpelCom as a leader in corporategovernance and investor relations.In 2006, VimpelCom exhibited a high rate of growth on the Russiantelecommunications market. At 31 December 2006 the company'scustomer base in Russia exceeded 48 million subscribers. The companycontinues to execute its strategy of expanding into the emergingmarkets of the CIS, and it is Kazakhstan's second largest operator.In 2005, VimpelCom successfully entered the markets ofUkraine, Uzbekistan and Tajikistan and in July 2006 and inNovember 2006 acquired operators in Georgia and in Armenia,respectively.MegaFonKyivstarKyivstar GSM is the leader on the Ukrainian mobile communications market. The company is licensed to use mobile, municipal, long-distanceand international telephone networks and holds licenses for the construction and servicing of its own stationary networks and datatransmission networks. The company networks use the GSM 900/1800 standards.In 2006, Kyivstar once again confirmed its status as a leader of the Ukrainian market by increasing the number of subscribers to 21.5 millionand bringing mobile communications to 99% of the Ukrainian population.Growth in Net Revenues and EBITDA (in USD mln)for the Years 2002–20061,8001,5001,200900600300250144Net RevenueEBITDAMargin, %374224Source: Company data* According to Altimo’s estimates64137758 60 592002 2003 20041 ,1366351 ,7801,05956 59.02005 2006*100%50%Growth in Kyivstar’s Subscriber Base (end of year)24,000,00020,000,00016,000,00012,000,0008,000,0004,000,0001,855,90020023,036,6076,252,022Source: Company data* According to Altimo’s estimates13,924,96621,500,0002003 2004 2005 2006*50 mln40 mln30 mln45,430,30055,200,0004,0003,0003,2114,868MegaFon is Russia's third largest provider of GSM 900/1800 mobilecommunications with license coverage of 100% of the Russian population(143 million people) in all 89 regions of the country. The widerange of the mobile service licenses gives the company a solid competitiveadvantage in the midterm. At 31 December 2006 the mobilecommunications market share of the company exceeded 19% and thenumber of subscribers totaled 30 million people.Golden Telecom,Inc.Golden Telecom, Inc. (listed on NASDAQ) is a leading independent fixed-line communications operator in Russia; it possesses its own infrastructurefor the provision of integrated telecommunications and Internet services in Russia and a number of the CIS countries. In early 2007,the company started providing long-distance and international communications services.20 mln10 mln11,436,90026,583,3002003 2004 2005 2006Source: Company dataSky Mobile2,0001,0001,3362,1132003 2004 2005 2006Source: Annual audited US GAAP consolidatedfinancial statementsMegaFon operates in compliance with international standards of technologyand subscriber services. MegaFon uses advanced GSM-equipmentto provide Russian subscribers with world class services.MegaFon provides mobile communication services in Tajikistan whereits subsidiary, TT Mobile, is a leading mobile communicationsprovider.In 2006, Altimo acquired 51% of the shares of Sky Mobile, LLC operating on the dynamically growing mobile communications market ofKirghizia. Today, Sky Mobile is Kirghizia’s largest GSM mobile operator with a license covering its entire territory. At 31 December 2006 SkyMobile had 900 thousand subscribers and a market share of more than 87%.The efficient work of Golden Telecom's new management team enabled the company to double its market capitalisation in 2006. Golden Telecom is theleader among corporate service providers in the large cities of Russia and the CIS such as Moscow, Kiev, and Nizhniy Novgorod, and runs second in St.Petersburg. Golden Telecom Ukraine, LLC is one of the leading independent fixed-line communications operators active in all major cities of Ukraine.Consolidated Revenue for the Years 2000–2006 (in USD mln)900800700600500400300200100113200014020011992002361200358420046678552005 2006Source: Annual audited US GAAP consolidated financial statementsTurkcellTurkcell Iletisim Hizmetleri A.S. started operating GSM mobile communicationservices on the Turkish market in 1993 and is the currentmarket leader. As of 1 January, 2007 Turkcell served 32 million subscribers,which is a 60% share of the Turkish market.The company also holds mobile communications assets in Ukraine,Georgia, Moldova, Kazakhstan and Azerbaijan. In July 2000,Turkcell became Turkey's first company to be listed on the New YorkStock Exchange (NYSE). Turkcell is also quoted on the Istanbulstock exchange (IMKB).Turkcell is owned by Alfa Finance Holdings S.A. and is managed byAltimo.68 / ALFA GROUP / ANNUAL REPORT 2006 ALFA GROUP / ANNUAL REPORT 2006 / 69