Actuality February 27, 2008

   Gazprom and Siberian Coal Energy Company (SUEK) agreed on the parameters of transaction for joint venture establishment after more than one year of negotiations. SUEK will become the center for assets consolidation. It will hold additional emission that Gazprom will pay by the part of its energy assets. As a result the monopoly receives 50% plus one stock in the largest Russian energy company with the general installed capacity 30,5 thousands MW and the cost more than $16 bln. The strategic line of its development was already defined by the first vice-prime minister, the head of board of directors of Gazprom Dmitry Medvedev: he sent SUEK to IPO.

   Gazprom and SUEK officially declared about signing of agreement for consolidation of energy and coal assets of companies on SUEK basis. The document stipulates that SUEK will hold the additional emission of stocks that will be fully placed in favor of Gazprom subsidiaries (they will become owners of 50% plus one stock of SUEK and will pay the additional emission by stocks of the energy company). The board of directors of joint venture will consist of 11 people – 5 are Gazprom representatives, 4 are representatives of SUEK stockholders and 2 are independent directors. The present director general of SUEK Vladimir Rashevsky will head the company.

   In the report of the companies is said that Gazprom and SUEK stockholders will conclude the agreement at English law that will regulate their relationships, including principles of corporate management. The parties plan to complete the transaction up to August 31, 2008. In the near future they will file an application to the Federal Antimonopoly Service.

   Gazprom will contribute electric assets to the capital of SUEK, falling at the stake of the monopoly in the capital of "RAO UES of Russia" after its reorganization, and also 15,61% stocks of OGC-2, 17,13% stocks of OGC-6, 5,27% stocks of OGC-5 and 5% stocks of TGC-5. Taking into account the stocks that Gazprom exchanged with other minorities of RAO UES in summer, 2007, SUEK will get the controlling stock interest of OGC-2 and OGC-6.

   First about intention to establish joint venture Gazprom and SUEK declared in February, 2007. Negotiations passed very hard as parties could not coordinate the cost of assets of the monopoly and SUEK. At transaction formation, in which Renaissance Capital, Citi and Gazprombank were engaged, SUEK turned out to be more expensive. But the monopoly declined to pay the margin by money. As a result SUEK stockholders yielded. As participants of transaction told, the assets of both companies are estimated at $8 bln. This figure was officially confirmed by Vladimir Rashevsky, the director general of SUEK, yesterday. He specified, that "estimation of the diverse assets of SUEK and energy assets of Gazprom that can be underestimated on the first stage of energy restructure is an extraordinarily hard task".

   Igor Vasilev from Troika Dialog estimates the cost of Gazprom energy assets contributed to SUEK at more than $8 bln. The source in Gazprom supposes that the monopoly made concessions as the real SUEK value, as evaluated by independent experts, does not exceed $5,5 bln. But the senior analyst of Bank of Moscow Dmitry Skvorcov considers that taking into account high prices at energy coal SUEK capitalization can total $10 bln, therefore the estimation at $8 bln is "low". With him agrees investment banker close to the transaction. According to his forecasts, in 2008 EBITDA SUEK is expected at the level $1-1,2 bln. Director of UBS analytical department Alexey Morozov says that growth of contract prices at energy coal can total 80% to the level of the last year. But Rio Tinto already offers the Japanese consumers to conclude contracts at price $135 per ton with FOB supply. In this case the price growth at coal can total 140%.

   According to the official data of SUEK and Gazprom, the general installed capacity of the incorporated company (stations OGC-2, OGC-6, TGC-12, TGC-13) will total about 25 000 MW (about 30,5 thousand MW taking into account the corporate participation of SUEK in the electric power system of Far East). The current and future stockholders the of renewed SUEK estimate its stake on the Russian energy market at 12% (about 15% taking into account the electric power system of Far East), the proved and possible reserves of SUEK coal are about 5,8 bln tons.

   How SUEK will develop under Gazprom control determined Dmitry Medvedev, the first vice-prime minister, the head of board of directors of the monopoly. He marked that "in the long run we will get another large company with the subsequent entrance to IPO and public offering of sticks". Mr. Rashevsky says that IPO can take place already in 2008-2009, offering volume – up to 25%. The company needs IPO for "capital attraction", because it has the large investment program. For the nearest three years, as reported in SUEK, investment program totals $1 bln.

   According to Dmitry Skvorcov, it is impossible to estimate the joint venture capitalization by the simple investment. The analyst supposes that the value of the renewed SUEK will total about $20 bln, i.e. during IPO it can attract $5 bln. "IPO should be interesting to the stockholders of SUEK that give Gazprom control over the company, not receiving a penny", considers Mr. Skvorcov. However, in Gazprom mark that it will be real to conduct IPO no sooner than in 2009 and it is expedient to place about 20% company stocks on a stock exchange.