Updated September 23, 200

8

The deal of Russia's Severstal JSC on the purchase of the US coal company PBS Coals Corporation for $1,3 billion is in its final stage.

It is the fourth asset already purchased by the Russian metallurgical company in the USA this year. In April, the separate Severstal International division was established to manage Severstal's foreign steel making assets. Its head, Gregory Mason, said that the company had occupied already the 4th place at the steel market of the USA, and it wasn't interested in China's assets, but studied deals in Europe, India and the CIS.

- How significant is the contribution of three American assets purchased this year to the overall financial indices of the Group by the IFRS standards (International Financial Reporting Standards) for 1H?

- At the moment, the contribution is small, because the reporting has covered the indices of Sparrows Point and WCI Steel for several months only within which we have owned new assets. Moreover, the deal on Esmark was finalized only on August, 6, therefore, we will calculate its indices from 3Q. Our enterprises in North America were given EBITDA of $228 million, including $128 million from single transactions. For comparison: in 1H 2007, this index totaled $38 million. The results of the North-American affiliate turned out higher than we had planned. If we mention the synergistic effect, we estimate it at about $135 million as per the result of this year, and by 2011 – over $200 million. We speak here about our four enterprises in the USA, except for the fifth – SeverCorr that we have incorporated in one group, Severstal North America (SNA). We operate SNA as the combined company.

- What investments volume do your American assets require?

- The overall amount on SNA's enterprises can reach nearly $1,4 billion by 2011.

- Did you calculate the total capitalization of SNA?

- No, and we don't have any intentions, since we assess Severstal as one company and calculate the capitalization of one company.

I can say now that, according to the proforma of this year, the American enterprises will produce nearly 9,7 million tons of steel.

- Why don't you pay any attention to the assets in Asia?

- Why so? We watch carefully this region as well.

The Asian market is huge, but the profitability, especially of the assets we have studied, is quite low.

Moreover, we have studied the range of enterprises in China and have come to the conclusion that they are not worth of purchasing, since the country's raw materials are expensive and it has problems with the electric energy. So, we have decided that we have to concentrate on the market, where we are presented already. However, now, we study the market of India and don't eliminate the probable purchases in this region. There are some interesting M&A projects in Europe as well, and we are studying them. Moreover, we pay much attention to the assets in the CIS countries: if there are some interesting assets, we will be pleased to enter this market. For instance, we would be interested in some Ukrainian assets.

- What were the aims in the USA, when you were purchas ing Rouge Steel in 2004? What are they now, when you have already five steel making assets in this region?

- At the very beginning, we intended to establish a strong and flexible company at the American market that will gain high earnings at the growing market and will manage to remain stable at the falling market from the financial viewpoint. Probably, it is a recipe for success in any industry. Now, SNA occupies already the 4th place in America by the production capacities after ArcelorMittal, Nucor and US Steel. The overall price of assets that Severstal purchased this year totaled nearly $2,8 billion, or $380 per one ton of steel.

Now, the US aggregate capacities total about 12,5 million tons of steel a year. By 2009, when we will launch the second section of Severstal Columbus, they

will grow by 1,5 million tons. Now, we would have occupied the 3rd place with such volume of flat rolled products production.

- Are you intended to hold IPO of the incorporated SNA

?

- At the moment, no.

- Why did it take you four years to reach the second deal in the USA after the first one?

- Don't forget that within this period we purchased Lucchini Group in Europe. We had to settle all issues and problems with the purchased asset, and later, we will study the next objects.

The construction of SeverCorr in the USA was started after one and a half year passed from the day of Rouge purchase.

- If you characterize the market of the USA as good, so, why are the majority of your purchased assets unprofitable or close to bankruptcy?

- It is better to mark that the companies that we purchased this year can't be characterized as bankrupts or unprofitable. Our first purchase made in 2003-2004 was indeed unprofitable, because it had concurred with the bankruptcy of the range of the American enterprises.

Then, it was related to the very low market prices for metal products and to the low demand as well. However, after China resumed its activity, the demand, as well as the prices, went up within two quarters. So, at the moment, we have the opposite American market condition.

- To what markets do your productions orient?

- After we had purchased new enterprises in the USA, we extended the range of products that our assets produce. Now, we produce the tinplate, and we have extra volumes in the galvanization. Sparrows Point is specializing in slabs with the gauge of 315-350 mm to make thick plates both for the further production and for the sale. Worren WCI is engaged in the production of high tensile, alloyed and high carbon steel. These products have their separate niche at the market. If earlier we were focused on the motor industry in Detroit, now, we entered already the market of building structures, household appliances, domestic technique, and heavy engineering. Thus, our stake in the motor industry didn't fall, but we increased our presence at other markets due to the diversification.

- What criteria do you use to select the next structure for the takeover?

- The key criteria for the selection of any company are as follows: whether it satisfies us from the strategic viewpoint, whether it fits into our business in a region by products and assets, whether it has any synergy with our productions. In addition, we assess the price of the purchase to one ton of the produced capacity (EV/ton.). If we take to account this ratio, in 2004 for Rouge we paid about $98 per one ton, and two years later, the world metallurgical companies were sold for $1000-1200. For instance, Turkey's Erdemir. Even now, we select our purchases with the lower ratio: we paid nearly $225 per ton for Sparrows Point, WCI Steel – nearly $275, Esmark Inc.- about $500. The construction of SeverCorr, one of the most today's technologically perfect enterprises worldwide, cost nearly $500-550 per one ton. In other words, we assess the benefits from the purchase first of all and the opportunity of value creation later.

The value creation implies the potential realization of an enterprise.

- Why did you buy these assets exactl

y?

- They satisfied our criteria and strategy. For instance, the US Antimonopoly Committee has forced ArcelorMittal to sell Sparrows because of the non-competitiveness in the area of tinplate production. It was sold by means of the tender that E2 Consortium had won with the offer of $1,35 billion for the asset. We didn't take part then in the tender because the asset was too expensive in our opinion. However, the winner couldn't close the deal. As per the results of the second tender, we purchased this asset for $810 million. By the way, the following reassessment of this asset made by the public accountants resulted in the extra $219 million to Severstal's net income according to the results of 1H 2008

The strategy of our purchases is that we buy companies with the potential for the additional value. Therefore, when we make such purchases, we don't indicate EBITDA in the reporting on the new asset that the market would like to see.

Some time is required. However, we are convinced that we make good and important investments.

- How did you manage to settle the issues with the American trade unions?

- You should understand that the United Steel Workers (USW) assists us not because we are nice guys with blue eyes and charming smile. Severstal has approved itself in the USA as a very strong and serious metallurgical company since our first purchase of Rouge Steel in 2004.

In fact, we both made investments in this enterprise settled with the trade unions and launched extra projects targeted at the company's development. Moreover, the following construction of the brand new works of Severstal Columbus in Mississippi has proved that we have serious intentions to settle at the American market.

- Will you continue to follow the strategy at the international agreements you have presented?

- Not necessarily. Everything depends on a situation and assets. Though, I can say that at the moment, I don't see large companies similar to WCI in the USA that could integrate easily into the synergistic structure that we have there now. Moreover, it doesn't go about synergistic effect alone, it goes about the opportunity to sell them. I admit that there are some enterprises, but the companies would hardly sell them.

- It means that in the future you will have to focus on the purchase of the related productions in the USA to establish the vertically integrated structure?

- This would be logic.

Now, when we have the large stake in the steel making, we have to close ourselves with raw materials. Foremost, we require the coal for our coke-oven blocks, the ore for our blast furnaces, as well as the scrap or alternative materials for our electric furnaces and converter processes. We have announced already the next object of our purchase – PBS Coals Corporation, and we will pay $1,3 billion for it.

- Don't you afraid that your forecasts in the USA may not realize due to the aggravated geopolitical situation after Georgia-South Ossetia war conflict

?

- We are doing business, and we are treated as businessmen.

Our future in the USA will be predetermined by the current Severstal's reputation as the global metallurgical company that has specific aims concerning the long-term growth at the North-American market.

Gregory Mason
Was born in Odessa, Ukraine in 1952.

Graduated from the Leningrad Shipbuilding Institute. In 1978 emigrated to the USA. Was the Vice President in Detroit Steel Company, the technical director in Caparo Steel, the director for metallurgical production technology in Davy International and the senior engineer in KRUPP Industries. Since 1997 was heading own consulting company, Metal Strategies. At 2003-end, provided Severstal with consultations in the agreement on the purchase of Rouge Steel. Works in Severstal since 2005. This year, was named CEO of Severstal International division. The deputy CEO for production in Severstal JSC.

Severstal International
One of three Severstal JSC's divisions. Was established in April, 2008 to manage the holding's foreign assets. It integrates Italian Lucchini (79,8% belongs to Severstal) and the range of assets in the USA: Severstal Columbus (former SeverCorr) in Mississippi and the incorporated company Severstal North America (SNA) that consists of Severstal Dearborn in Michigan (former Rouge Steel), Severstal Sparrows Point in Maryland (Sparrows Point), Severstal Warren in Ohio (WCI Steel) and Severstal Wheeling in Western Virginia (Esmark Inc.), as well as several joint ventures. The total production capacities of all division's enterprises attain 12,5 million tons of steel products. SNA alone occupies the 4th place by the volume of the produced steel in the USA among the full integrated works.

Updated September 23, 2008

The world financial crisis resulted in the first sale at Russia's pooled investment market.

The owners of AntantaPioglobal Group that had sustained losses on the equity investments in small issuers sold its asset management business. The former CEO of Aton Investment Company Ivan Tyryshkin is the buyer of Russia's eldest managing company Pioglobal Asset Management.

He intends to establish the new financial holding under Pioglobal brand.

As it came out, the former CEO of Aton Investment Company Ivan Tyryshkin purchased 100% stocks of Russia's eldest managing company (MC) Pioglobal Asset Management. "The deal on the purchase of the managing company at the owners of AntantaPioglobal Group, Alexander Gaydamak and Evgeny Kogan, is in its final stage and will be closed any day", Mr. Tyryshkin said. The head of AntantaPioglobal Group confirmed this information, but refused to announce the details. The parties don't disclose the sum of the deal.

The agreement on the sale of Pioglobal Asset Management MC was being concluded within the framework of the assets sale owned by AntantaPioglobal Group of Companies that became one of the first victims of Russia' financial crisis. According to the source in the Group, the equity investments in the second- and third-tier companies turned into the Group's losses of "several tens of millions of dollars". It was the core reason, why the French bank group BNP Paribas refused to purchase AntantaPioglobal.

Then, AntantaPioglobal's core owner, Alexander Gaydamak, decided to sell the Group's assets in parts.

On September, 22, Evgeny Kogan declared that in the nearest future, the Group of Companies would announce about the sale of its investment business as well.

Pioglobal Asset Management MC was founded in 1996. In 2007, it was incorporated in Antanta Capital Group of Companies that was renamed into AntantaPioglobal.

According to the data of Dengi journal, as of January, 1, 2008, Pioglobal Asset Management occupied the 38th place in the rating of the largest managing companies. The company manages ten open mutual funds and two venture funds. The volume of the managed assets attains RUR 1,5 billion.

The buyer of Pioglobal Asset Management MC Ivan Tyryshkin reported that he intended to establish the integrated retail brand – Pioglobal. Mr. Tyryshkin declared about the intention to pay attention to his own business projects in July of this year, after he had left the chief executive post in Aton Investment Company.

According to him, at the initial stage, the managing company will be amalgamated with the Internet broker, NetTrader.ru (earlier, it has been purchased at AntantaPioglobal owners), under Pioglobal brand. "The basic concept is the establishment of the financial holding", Mr. Tyryshkin explained. According to some information, the bank may join the holding in the future.

The market participants surveyed agree that under today's conditions, the fair price for the asset management business is at the level of 8-10% from assets under the management, or RUR 130-150 million.

However, the deal sum could have been less, because the key asset of the managing company – Pioglobal real estate investment fund with the volume of nearly RUR 3 billion – still belongs to the former owners of the company.

According to the data, now, it is being put up for sale as well. "The fair price for Pioglobal Asset Management MC is nearly 6% from assets, or RUR 90 million", Kapital Asset Management MC CEO Evgeny Zaytsev considers.

The market participants name the purchase of the asset management business at the height of the crisis quite timely. "Sooner or later, the crisis ends at the markets, and the assets price will grow", the member of Solid Management directors' board Vadim Sachkov says. Moreover, the new company's owner has gotten benefit from the purchase – the well-known brand, he adds. "The company doesn't have to spend on the promotion of the name, and that will permit to save 30-40% of the marketing budget", Mr. Sachkov considers.

At the same time, Mr.

Tyryshkin has to make large investments in the development of his business, the experts warn.

"The annual budget of the whole structure may reach about $15 million. The new owner shouldn't save, if he wants to see serious and real results", Mr. Zaytsev sums up. "In the nearest year, about $20 million will be allocated to establish the financial holding", Ivan Tyryshkin declared.

Updated September 17, 2008

   Russia's Basic Element Company owned by Oleg Deripaska is hold ing

talks with RusHydro JSC about the construction of the HPP cascade in the Sochi city.

Other investors, as well as foreign ones, may take part in the project. They should share the project's risks, since the ecologists are against the construction, and the HPP's electric energy may be in low demand after the Olympics ends.

   En+ Development, incorporated in Oleg Deripaska's Basic Element, can take part in the project on the construction of the HPP cascade in Sochi. According to the company's representative, the project is discussed with RusHydro JSC. The source in En+ Development said that "the company is taking much interest, though it has the preliminary nature". According to the source, the preliminary agreements with the co-investors of the project are already reached and the various options

of the participation are studied.

One of them is the consortium incorporation, with the participation of the foreign company as well.

   "We are holding talks with the prospective investor", RusHydro's managing director and the head of South division Ilya Gorev said. "Within the project framework, RusHydro will act as a customer, take part in the construction and ink the long-term contract on the operation for the term of 20-50 years". According to the source aware of the talks, En+ Development will get the controlling interest in the project of the Sochi HPP. The HPP's total capacity is 122,7 MW. "The construction of these capacities may total $250-320 million", the analyst of Sovlink Investment Company Ekaterina Tripoten supposes.

   Earlier, RusHydro was working out the versi on of the independent c

onstruction of the HPP cascade on Mzymta river. However, the ecologists were against this project because

the cascade is located in the buffer zone of the Sochi reserve. In RusHydro confirm that the project covers very high risks.

Nevertheless, in spring, the Sochi HPPs were integrated in the prospective projects of RusHydro' s inve stment program.

   The installed capacity of Sochi's power plants is 350 MW, however, RAO UES of Russia has promised to increase city's total capacity by 900 MW by 2014. Now, the highest demand for the electric energy in Sochi falls to summer. According to the secretary of the Center for completion of RAO UES reorganization Marita Nagoga, after the Olympics, when the winter infrastructure objects will be constructed, Sochi will become not only the summer, but the winter resort as well, and the demand for the electric energy will balance out.

   However, according to Ekaterina Tripoten, "the generating capacities' extra volumes may be in low demand, since the wide range of new industrial productions will not be constructed in the region". At the same time, Alexander Seleznev from Uralsib Investment Company supposes that after the Olympics ends, Sochi will "develop rapidly as a tourist center", therefore the HPP's electric energy will be in demand.

Updated September 11, 2008

   Gazprom Neft will both buy out 51% in Serbia' s

NIS oil monopoly at the state, and 20% of stocks at the minority stockholders – individuals.

The assessment of Deloitte & Touche that estimated NIS (Naftna Industrija Srbije) at €2,2 billion should become the basis to determine the price of the agreement.

Thus, Gazprom Neft has to pay €428 million more for the deal without getting the additional rights.

   As it came out, on Tuesday, September, 9, Serbia's Vice Premier, Minister of Economy and Regional Development Mladjan Dinkic declared that if Gazprom Neft bought out 51% of NIS, it should make the obligatory offer to

the individuals – stockholders of

the company. According to the calculations of Serbia's government, the individuals will own almost 20% of the enterprise's stocks.

   On Tuesday, September, 9, Serbia's parliament ratified the energy agreement with Russia that covers the sale of NIS's controlling interest to Gazprom Neft and guarantees the joint construction of the 400-km-long section of South Stream gas pipeline in Serbia.

NIS owns two oil refineries in Pancevo and Novi Sade with the aggregate capacity of 7,3 million tons and two chains of gas filling stations. The company is the monopolist in Serbia's oil and gas industry (occupies 72% of the wholesale and retail market). According to the protocol attached to the agreement, Serbia agreed to sell 51% of NIS for €400 million plus €500 million of investment commitments. However, then, some representatives of Serbia' s authoritie

s stated that the price was inadequate.

Later, in Gazprom Neft declared that the company was ready to consider the significant increase of the investment amount, but didn't announce the sum.

   On Tuesday, September, 9, the agreement was ratified. However, if Gazprom Neft considered the protocol as signed automatically, Serbia's authorities didn't agree and declared that the price would be discussed additionally taking to account the independent assessment of the enterprise made by Deloitte & Touche (€2,2 billion). The offer became the additional commitment for the citizens of Serbia. NIS's employees and citizens are assumed to get the stocks free of charge.

As the adviser of Serbia's Economy Minister Nikola Papak explained, the stocks' transfer to the employees will be carried out at €200 for one year of employment. So, the enterprise employs 24 126 people with 491 000 years of employment, and they can expect to receive 4,46% of the company's stocks. 15% more will be directed to Serbia's citizens within the framework of privatization (each citizen receives in one stock), and the state will own 29,6% of stocks. According to Mladjan Dinkic, Gazprom Neft is obliged to buy out stocks at the price not less than the assessment of Deloitte & Touche, i.e. it should pay at least €428 million more.

   Gazprom Neft was aware of the obligatory offer for the individuals, but refused to name its price, as declared in Russia's oil company.

"The buyout's terms are one of the many issues that will be discussed with Serbia's party within the preparation of the deal", as say in the company. The gas section of the agreement can become one of

the issues of these talks.

Mr. Dinkic marked that Serbia wasn't satisfied with the capacities of its section in South Stream and wanted to increase the volume from 10 bcm to 18 bcm of gas per year. The project capacity of the overall South Stream attains 31 bcm of gas per year, and the launch of the sea section is planned for 2013.

In Serbia's Economy Ministry did not explain, whether Gazprom's concession on the capacity of the gas pipeline would influence on NIS's price.

   "The final route of South Stream is not approved yet, and its crossing through Serbia's territory is quite favorable, and both NIS and Gazprom Neft can demonstrate their strong positions in the negotiations", as Konstantin Batunin from Alfa Bank considers. Former adviser of Serbia's Energy Vice President Zorana

Z. Mihajlovic Milanovic agrees that the terms of NIS's sale "are closely related to the gas agreement with Russia". In Mr. Batunin's opinion, the parties should reach a compromise to ink

the deal.

Updated September 10, 2008

   Domina Hotels Group (DHG) launches the project on the construction of three- and four-star hotel chain for 1 000 rooms estimated at €150 million in Russia.

Unlike other western operators, such as Rezidor SAS, Marriott, Hilton, the Italian company will construct hotels independently instead of taking control over them.

This strategy will assist DHG in catching up the rivals: the opening of DHG's hotels will not depend on the financial condition of Russia' local developers that can suspend the projects because of

the expensive loans.

   Italy's Domina Hotels Group hotel chain (DHG) (owns about 20 hotels for 3 000 rooms in Europe and in the Near East) enters Russia's market, as the company' s co-owner Erne

sto Preatoni said. The Group intends to construct from scratch a hotel chain for 1 000 rooms in Russia by 2010.

As Vladimir Maslov representing Ernesto Preatoni reported, by 2010, the company plans to finalize the construction of five three- and four-star hotels in Kal

iningrad (170 rooms), Lipetsk (180 rooms), Novosibirsk (225 rooms), Tomsk (100 rooms), and Tyumen (171 rooms). In addition, Ernesto Preatoni's objects own 60% in stakes of House on Moika Ltd. engaged in the construction of five-star hotel for 108 rooms located on Bolshaya Morskaya Street in St.

Petersburg. The business director of Azimut Hotels Company Mikhail Feldman is aware of DHG's plans in Russia. According to his calculations, the investments' volume in the chain development can reach €150 million.

   Along with the development of the hotel chain, the other developer structure of the Italian businessman – Pro Kapital Grupp (since 1998 invests in the real estate of the Baltic countries) – will construct four or five shopping malls and several residential estates in the Russian cities. The overall sum Mr.

Preatoni is going to invest in Russia's real estate exceeds €2 billion.

   DHG is entering the Russian regions two or three years later as compared to other foreign chains: today, almost all world hotel operators, such as Rezidor SAS, Marriott, Intercontinental Hotels, Hyatt International Hotels & Resorts, Accor Group, Hilton, launch their projects in Russia. Thus, the western chains prefer leasing hotels or taking control over them instead of constructing from scratch, because they don't want to divert resources from the key business.

   Unlike its rivals, DHG is targeted at the implementation of the developer projects, and the problems of the local market players with the funding give large advantages for the Italian company, as the experts and market participants mark.

"Because of the expensive loans that led to the facilities' shortage among Russia's developers, the western chains can face the failure of realization terms or even freezing of the regional projects. The launch of DHG's hotels depends only on the company's financial condition", as the head of the representative office of Starwood Hotels & Resorts Worldwide in Russia and the CIS Anatoly Kondratenko explains.

The price of Pro Kapital Grupp's assets (owns DHG) exceeds €1 billion. According to the results of 2007, DHG' profit totaled €66 million.

   Moreover, there is a certain number of small regional companies that are ready to sell parcels and projects with the 30-percent (and even more) discount because of some troubles with attracting loans, as the partner of S.

A. Ricci/ King Sturge Vladimir Avdeev adds.

   According to the data of Knight Frank, despite the plans of the western players, there is a heavy shortage of hotels in Russia's cities: in Kaliningrad, 4,73 rooms fall to 1 000 men, in Yekaterinburg and Novosibirsk – 3,76 and 0,86 respectively. Thus, this index ranges from 10 to 15 rooms in the large European cities.

Updated September 5, 2008

   Russia's Rostelecom and Japan's KDDI launch a new communication system, the Russia-Japan Cable Network, that will lay under the Sea of Japan along the Nakhodka-Naotcu route.

According to the calculations of the analysts, the total volume of investments in the project reached $50 million. The construction will be conducted pari passu.

   The new system that consists of two parallel cable lines with the total length of 1 800 km links Russia and Japan by the direct high-speed route.

According to KDDI's (the second largest mobile operator in Japan) vice president Yasuhiko Ito, the system's bandwidth is 640 Gb.

Along with the redundancy, its peculiarity is less delay time of traffic transmission as compared to the devices through which the data between Europe and Asia has been transmitted.

   As Rostelecom's chief executive Konstantin Solodukhin marked, the core service of the cable system is the sale of the capacitance to other operators and organization of the separate networks for the corporations between Japan and Europe and back.

Moreover, Russia's Rostelecom intends transmitting the traffic from Europe to Asia and doesn't eliminate the opportunity of the cooperation with China and the CIS. Konstantin Solodukhin marked also that the system foresees the replacement of the faulty channel with the new one in case of emergency.

   On the background of the cable system launch, Rostelecom discussed the issue of its representative office opening in Asia. The company has already prepared the lease contracts for the international communication lines, and these contracts will be signed in the nearest future.

   "According to our calculations, the project is estimated at nearly $50 million. Rostelecom has already invested $25 million, and this sum is about 10% from the whole investment program of the Russian holding for 2008", as the analyst of Solid Invest Evgeniya Talalaeva says.

"Due to this system, Rostelecom will increase the traffic and will develop the services of transmitting data from Europe to Asia, as well

as will optimize the company's business processes reducing the cost of phone calls due to the construction of its networks in the Asian countries".

   "Rostelecom gets the major part of the revenue in Russia.

Despite the fact that the holding is taking much interest in the European and Asian markets, all its foreign projects have the image character now", as the analyst of Otkritie FC Kirill Tischenko says.

   It is better to remind that the construction of the cable system linking Japan and Russia was launched in 2006. The project is one of the strategic activity directions of Russia's operator that already possesses high-speed paths to Europe, as well as points of presence in London, Stockholm, Helsinki, New York, Frankfurt and Hong Kong.

Updated September 3, 2008

   Russia's metallurgical companies are taking much interest in the metal service business, thus, their ambitions are not restricted to Russia only. As it came out on September, 2, the Russian steel company, Mechel, is going to purchase the German trading and metal service company – HBL Holding. In the experts' opinion, this purchase will enlarge favorably Mechel's business that already owns sever al m

etallurgical enterprises in Romania.

   Russia' Mechel has already applied to Germany' antimonopoly body to purchase the controlling stake in

the German steel trading and processing company, HBL Holding GmbH.

The application was submitted on August, 28.

HBL Holding GmbH is a private company that owns six metal service facilities and acts as a chain of the warehouse, service and trading areas, as HBL Holding GmbH's owner and the chairman of

the board Laurenz Herting explained. However, he refused to comment the deal with Mechel and to give the financial information about his company.

In Russia's Mechel refused to comment the purchase of HBL as well.

   In the experts' opinion, this deal is a logic continuation of Mechel's expansion to the European market. "Via the metal service you find a target consumer and continue your vertical integration", as the member of Roland Berger Strategy Consultants' board Nadezhda Larina says. "You c an export your products and sell them via a chain. It is easier to reach a target consumer in such a way". Obviously, Russia's Mechel will realize the products of its Romanian divisions – Mechel Targoviste and Mechel Campia Turzii – through the German chain, since after Romania has joined the European Union, the Russian company doesn't have any administrative barriers concerning these enterprises

anymore.

   It is better to mark that Mechel is already developing its own sales chain in Russia and Romania within the framework of its subsidiary Mechel-Service.

The company has about 30 branches in Russia.

However, it is relatively hard to develop the own metal service direction.

"It is quite hard to establish the chain independently in Europe, since the European market has already developed.

If you purchase a good chain abroad, you will gain both experience and technologies that can be used in Russia later", Mrs. Larina says.

   The entry to the regional market through a purchase or establishment of a service and sales chain is a widespread method.

"Such companies, as ThyssenKrupp and ArcelorMittal enter Russia's market through the metal service sector", as the analyst of Veles Capital IC Stanislav Fomenko says. In particular, it came out in summer that ArcelorMittal was holding talks with Inprom, the large Russian metal service chain, however, the deal wasn't finalized. As the Russian company's representative Sergey Korzhov said, the talks with ArcelorMittal continue.

   Mechel is not the first among the Russian companies that tries to reach the target mass consumer at the European market. Last year, Novolipetsk Steel MMC established the joint venture with Duferco that comprises the large service chain and the steel-making capacities. Magnitogorsk Iron and Steel Works OJSC (MMK) decided to enter the market of Asia Minor and Near East by means of establishment of large trading and service centers. The joint venture of Russia's MMK and Turkey's Atakas will be launched with the opening of its own metal and service chain.

Updated September 3, 2008

   Russia's Lukoil Overseas, Lukoil's operator of the international projects, signed the agreement with the French company Gaz de France on the 15%-stake sale in the offshore project D-222 (Yalama) in the Azerbaijan sector of

the Caspian Sea.

As it is said in the press release of the Russian company, the State Oil Company of Azerbaijan Republic (SOCAR) should approve the deal. At closing of the deal, Lukoil will own the 65%-stake in the project, SOCAR – 20% and Gaz de France – 15%.

   The total area of the contract block is 3 037 sq. km. In July, 1997, Lukoil and SOCAR signed the agreement on exploration, development and production sharing (Production Sharing Agreement; PSA) in the offshore D 222 Block (Yalama), and in November, the agreement was ratified by the National Parliament of Azerbaijan and in December, 1997 it came into effect. The term of the exploratory period ends in 2011.

The period of the development and extraction is 25 years, and can be extended by 5 years more.

   The drilling of the first exploratory well in this area was started in October, 2004 and was finished in June, 2005. The drilling activities were conducted from Geydar Aliev semi submersible offshore

drilling rig. As it is marked in the press release, the depth of the first drilled well reached 4 500 meters with the water depth of 332 meters.

"During the drilling, the signs of gas showings were fixed, the commercial hydrocarbons' reserves were not found", Russia's company specifies. The minimum exploratory program on Yalama D 222 Block lists 2D and 3D seismic surveys and the drilling of two

exploratory wells. The drilling of the second exploratory well is planned for November, 2008.

    Russia-France agreement became the first project of Lukoil and Gaz de France. Earlier, the French company declared about the intention to take part in the development of Azerbaijan's gas fields, in the development of the deep-lying production formations of Azeri-Chirag-Guinishli gas

fields in particular.

Yalama D 222 Block is the first project of Gaz de France in Azerbaijan.

Expert comments

Maxim Rozov, the head of 2K Audit – Business consulting Group's department for mergers and acquisitions

Inviting the French company to take part in the project, Russia's Lukoil tries to share the investment risks. The first exploratory well didn't found the hydrocarbons' reserves. Thus, the investment risks of the project grew. In addition to the risks' reduction, Lukoil gets Gaz de France as the experienced partner that will give a hand, if

the results of the exploration are positive.

It is better to mark that Lukoil keeps the control over the project and the stake reduction will affect insignificantly the Russian company, if hydrocarbons are found on D 222 Block

Updated September 2, 2009

   The development of Iran's North Azadegan oil field can become the first foreign project of Russia's Gazprom Neft. In fact, the Russian company will execute only the service contract, but, under the certain terms, it can book the oil reserves and get the stake in the extraction of 5,5-6,5 million tons

of oil annually. Gazprom Neft is ready to develop three more oil fields in Iran under the analogical terms.

   As Gazprom Neft's chairman of the board Alexander Dyukov said, in August the company had sent the letter to the Iran authorities in what it had agreed to take part in the development of the North Azadegan oil field under the buyback terms. "There is a certain range of issues that should be clarified and examined. Now we are waiting for the invitation from the Iran party to come and to discuss these issues", as Mr.

Dyukov said. Gazprom Neft received the geological data of the Iran oil field and took an interest in the project, as he explained.

   According to the company's calculations, the North Azadegan's oil reserves total 150 million tons.

If the company agrees

the long-term contract to realize

the extracted oil, it can book the oil reserves. "In fact, it is a service contract.

We are bearing the already agreed losses that will return to us with a certain degree of profitability.

Also, we have to agree on the profitability and on the amount of oil that we will realize", the head of Gazprom Neft specified, and added that oil extracted at this deposit could attain 5,5-6,5 million tons per annum. However, he refused to name the exact stake the company expects to receive from the extraction and reserves. In June Mr. Dyukov supposed that Gazprom Neft could get 60% of the extraction.

The buyback contract is a type of the service contract, as the head of SRP Ekspertiza Mikhail Subbotin agrees.

The expert adds that investors act as a contractor foremost, and the government takes the key decisions.

   The Russian company would like to develop three more Iran's oil fields under the analogical terms – Shurum, Kukh-i-Rig, Dudru, and it is already holding talks with the Iran party. The western companies, vice versa, are leaving Iran – at the beginning of summer, Total left the country, and in spring Repsol and Shell withdrew from the plans of participating in the development of the 13th phase of South Pars gas field. The USA doesn't permit the companies within its jurisdiction to invest in Iran, and is against Iran's request to enrich uranium. Besides, the European Union has applied a range of sanctions against the companies cooperating with Iran.

However, the Russian companies are increasing their presence in Iran. In the mid-summer, Gazprom (owns Gazprom Neft) and National Iranian Oil Company (NIOC) signed the agreement about the cooperation under which the Iran party offered Russia "the full package of projects" on oil and gas extraction.

In addition to Gazprom, Lukoil that owns 25% in the project on

the geological exploration in the Anaran block is also operating in Iran.

Moreover, Tatneft wants to extract oil in this country as well.

   Gazprom Neft has the ambitious strategy of development, therefore it requires the foreign projects, and at the moment, the company is engaged in the extraction on Russia's territory, as VTB Bank's analyst Lev Snykov says.

He adds that from the viewpoint of the geological resources, Iran is a good market. "So, the positive fact is that Gazprom Neft is taking interest in such projects and the company will get them obviously due to its core stockholder", the expert marks. On the other hand, the political risks are very high in Iran, as Mr.

Snykov adds. At the same time, if the Russian companies don't sign contracts here, India and China will fight for these oil fields.

Updated September 1, 2008

   Accord ing to the results of the August trades at the Istanbul Stock Exchange (ISE), the price of stocks of one of the largest Russia's general contractors, the Turkish company Enka, fell by 22%. However, the ISE index fell by 7% only. In Enka explain the severe capitalization drop by the problems of their European customers that can't finance the projects.

The international analysts say that the stocks fell on the background of the war conflict with South Ossetia, and the investors are afraid for the success of Enka's business in Russia because of Turkey's membership in NATO.

   According to the results of August, Enka's stocks lost 22% at the ISE and settled at 10,6 of the Turkish lira (TRY). The company's dollar capitalization fell by 24%, to $10,8 billion (taking to account the dollar to TRY rate fall). The ISE index fell as well,

but by 7% only. Even the company's reporting for 2Q 2008 published at the end of August didn't stop the quotations' drop, though, according to it, the company's net income totaled TRY 436,5 million ($397 million), and that exceeds the last year&

#039;s results more than 2,3-fold (TRY 185,84 million). Enka' s revenue grew to TRY 2,118 billion a s compared to TRY 1,654 billion in the last year.

   "Enka was severely punished for its wide presence at the Russian market.

The investors afraid that the business of the Turkish companies can bear losses in Russia because of Turkey's membership in NATO", as Ekspresinvest's trader Stuart Hakket says.

Bloomberg agency marks that Enka's stocks started falling since August, 8, when "the Russian and Georgian troops started fighting for South Ossetia and Abkhazia".

   The quotations' drop at the Istanbul Stock Exchange is the consequences of the financial crisis in Europe, as the source in Enka states. "The European customers cooperating with Enka lack financial resources.

Therefore, some projects on the infrastructure construction in the Eastern Europe, in Romania in particular, were suspended", the source says.

However, this statement sounds unconvincing.

According to Enka's reporting for 1Q 2008, the company received $82,4 million due to the European projects, and the company's business in Russia, Ukraine, Tajikistan and Kazakhstan brought almost the same revenue ($746,9 million), as its business in Turkey ($798 million).

   According to the August results, the stocks of one of the largest general contractors of Europe – the Austrian Strabag (25% belongs to Oleg Deripaska) – lost only 2,3%.

Neither the representative of Enka's Moscow office, nor Enka's headquarters in Istanbul commented the situation.

   The Turkish holding Enka was established in 1957. The company is engaged in construct

ing the industrial, infrastructure and civilian objects in Turkey, Europe, North Africa and in the CIS.

The company is operating in Russia since 1988. Enka' developer portfolio in Russia comprises the business center Naberezhanaya Tower in the International Business Centre Moscow-City (265 600 sq.m.) and 60% in the integrated project with MCG within Taganskaya subway station (500 000 sq.m). Enka owns the chain of Ramstor supermarkets as well. According to Enka's reporting, as of March, 31, 2008, the company's property in Russia was estimated at $505 million, in Turkey – at $12 million only. Along with the civilian objects,

the company is engaged in the construction of strategic projects, for instance, the construction of new term inals in Sheremetievo airport.

According to the rating results of the Russian Forbes for 2007, Enka occupies the 3rd place in the country by the revenues from the space leasing ($ 517 million) after IKEA and the business group of Zarakh Iliev and God Nisanov.

   The short-term drop of stocks' quotations shouldn't affect the company's activity, if the business is successful and

the situation is related only to the political risks, the managing director of KIT Finance Sergey Zharov is convinced. He does not eliminate that the price drop of Enka's stocks is a result of the stock speculators' activity which have used the political risks for the bearish operations. "The overall inactivity of the large investors in August assisted them, since all key managers are on vacation and there is no one to take decisions about the purchase of large stocks' volumes", the expert explains. In Sergey Zharov's opinion, Enka's owners can get the high revenue, as they can buy the cheap stocks up and sell them when quotations recover.

   The Russian developers cooperating with Enka confirm that the company's business develops quite successfully in Russia. "Enka is engaged in almost all MCG's objects, even in Ukraine: the price of contracts exceeds $1 billion", the chairman of MCG directors' board Pavel Fuks says.

AFI Development, Coalco and Eurasia Logistic are also cooperating with Enka.

Capital Group's business manager Aleksey Belousov estimates the price of contracts with Enka at $100 million.