Actuality January 28, 2008

For close of South Stream route Aleksey Miller, Gazprom head, should drum up support of Hungary yet.

   The agreement of Russia and Serbia has provided Gazprom with extremely favorable terms of work in this country.

It acquired the state NIS cheap and got advantages in admission to the Serbian area of future South Stream gas pipeline. Gazprom drummed up support of Austria also, and within the agreement frames got a half in one of the largest European gas trad ing floors.

Hungary should become the last element of South Stream. In analysts' opinion, in such situation it "can propose any price". Especially in the conditions of strong criticism of European countries' loyalty to Gazprom from the USA part.

   During a visit to Russia of Boris Tadich, Serbia President, and Prime Minister Voislav Koshtunitsa was signed an intergovernmental agreement about collaboration in oil and gas industry, approved by Serbia government on January, 22. As Vladimir Putin, Russia President, reported according to signing results, except for the intergovernmental agreement, was signed an additional protocol about a sale of 51% of Serbian public corporation Naftna Industrija Srbije (NIS) to Gazprom Neft.

Sale-Purchase Agreement of NIS stocks, as Dow Jones reports, should be signed no later than December 31, 2008.

In it, in particular, will be specified grant of Gazprom Neft rights for NIS operative management.

   The intergovernmental agreement is signed for 30 years with an automatic extension for five years, if parties will not want to break it. In the document is specified the collaboration in construction of trans-Serbian gas pipeline (power no less than 10 bcm a year) and Banatski Dvor UGSF (Underground Gas Storage Facilities), which will become the area of South Stream gas pipeline (Gazprom will carry out this project in partnership with Italian Eni), and also in NIS reconstruction (produces 1 mln tons and processes more than 7 mln tons of oil a year). Gazprom Export and Gazprom Neft are responsible for projects.

   Additional protocol about NIS sale to Gazprom Neft is dated January, 23.

In it Serbia authorities are obligated to sell to Gazprom Neft 4 158 040 NIS stocks (51% of the authorized capital) for €400 mln. Gazprom Neft is obligated to invest in NIS €500 mln in 2008-2012.

Serbia is obligated to save technical requirements to quality of produced oil products without changes before modernization completion, and also to provide defense of oil products' market, produced by NIS, within at least two years.

   In own analytic review UBS marks that, although as a result of NIS acquisition own powers of Gazprom Neft on processing will increase, one should remember that processing abroad is far less profitable than Russian one that uses tax allowances.

But still Gazprom Neft will gain control over 78% of oil products retail market in Serbia, and Russian business on the whole – more than 90%. Lukoil occupies the second place on the market (15%) after subsidiary company NIS Yugpetrol.

In 2003 the company has acquired 79,5% of Beopetrol for €117 mln plus €90 mln investment obligations, and gained control over 178 gas stations in Serbia and 28 gas

stations in Kosovo.

   Besides NIS low cost (the cost of its assets at the year-end was estimated at $1,9 bln) there are Gazprom projects will get additional support from Serbia part. According to the intergovernmental agreement, the country government has obligated to afford projects with preferential tax and custom treatment, to provide energy supply and land acquisition for gas pipeline construction. The document foresees an exemption of VAT services also, works and materials for the term, necessary for achievement of projects' payback.

   For carrying out of project gas part the parties will set up a joint venture (JV), in which 51% will belong to Gazprom, 49% – to Serbian public corporation Srbijagas.

JV will be gas pipeline and UGSF operator, setting tariffs for gas transportation

and its storage. An absolute right for the use of gas pipeline whole power and UGSF will belong to the Russian part. This point of agreement has fundamental value for Gazprom, as new rules of the European gas market foresee the equal admission to the pipeline for all suppliers.

Until now among all new transport projects in Europe Gazprom had the prerogative right for admission only to Yamal-Europe gas pipeline.

   Gazprom positions on the market of gas distribution in Europe strengthened additionally another agreement about collaboration – with Austrian OMV. The document foresees the monopoly transfer of 50% in Central Europe Gas Hub (CEGH), to OMV subsidiary Gas International.

CEGH – one of the largest floors on gas trading in Europe located in Austrian Baumgarten.