Gazprom reports its consolidated interm condenses financial results under International Financial Reporting Standards (IFRS) for six months ended 30 June

On 19 November 2004 OAO Gazprom issued its unaudited consolidated interim condensed financial information prepared in accordance with International Accounting Standard 34 “Interim Financial Reporting” (IAS 34) for the six months ended 30 June 2004.

The table below presents the unaudited IFRS consolidated interim condensed statement of operations for the six months ended 30 June 2004 and 2003. All amounts are presented in million Russian Roubles, unless otherwise stated.

Sales (net of excise, VAT and customs duties) increased by RR49,647 million, or 12%, to RR471,474 million in the six months ended 30 June 2004 compared to the six months ended 30 June 2003. More detailed information on our sales for the six months ended 30 June 2004 and 2003 is presented in the table below.

Net sales of natural gas increased by RR 32,701 million, or 9%, to RR 379,102 million in the six months ended 30 June 2004 compared to the six months ended 30June2003. This increase was primarily due to higher domestic prices for gas.

Net sales of natural gas to Europe decreased by RR 6394 million, or 3%, to RR 215941million in the six months ended 30 June 2004 compared to the six months ended 30 June 2003. This was primarily due to a 10% decrease in net prices in RR terms, offset by a 8%, or 6.1 bcm, increase in sales volumes. Average net prices decreased primarily as a result of the 8% appreciation of the RR against the U.S. dollar for the six months ended 30 June 2004 compared to the six months ended 30 June 2003.

Net sales of natural gas to FSU countries increased by RR 5,207 million, or 21%, to RR 29,689 million in the six months ended 30 June 2004 compared to the six months ended 30 June 2003. This is explained primarily by the increase in volumes of gas sold to FSU countries, in particular due to a 3.1 bcm increase in sales volumes to Ukraine.

Net sales of natural gas in the domestic market increased by RR 33,888 million, or 34%, to RR 133,472 million in the six months ended 30 June 2004 compared to the six months ended 30June2003. This was due to the increase in domestic gas tariffs set by the Federal Tariffs Service, which was slightly offset by the 2%, or 3.2 bcm, decrease in sales volumes.

Total excise taxes on natural gas sales decreased by RR 78,884 million, or 96%, to RR 2,954 million in the six months ended 30June 2004 compared to the six months ended 30June 2003. The decrease was due to the fact that excise tax on natural gas produced after 1January 2004 was abolished. This decrease was offset by the RR 73,195 million increase in customs duties to RR 86,288 million in the six months ended 30June 2004 compared to RR 13,093 million in the six months ended 30June 2003.

Sales of gas condensate and oil and gas products increased by RR 15,839 million, or 40%, to RR 54,968 million in the six months ended 30 June 2004. This increase was primarily due to consolidation of additional petrochemical companies in the six months ended 31 December 2003 and increased volumes and prices for sales on the domestic market. Sibur and our other petrochemical companies accounted for 61% and 57% of sales of gas condensate and oil and gas products in the six months ended 30 June 2004 and 2003, respectively.

Operating expenses increased by RR67,208 million, or 24%, to RR346,582 million in the six months ended 30 June 2004. Operating expenses accounted for 74% and 66% of sales in the six months ended 30 June 2004 and 2003, respectively.

This increase in operating expenses was primarily due to higher taxes other than on income (RR 21,532 million), higher staff costs (RR 14,790 million), higher cost of purchased gas (RR 10,002 million), materials (RR 8,514 million) and depreciation (RR 6,209 million) which were partially offset by lower cost of processing services and lower transit costs. The increase in taxes other than on income was primarily due to changes in tax legislation related to natural resources production tax. The increase in staff costs was primarily due to the increase in the number of employees following the acquisition of controlling interests in a number of petrochemical companies in 2003 and the increase in average base salaries in June 2003, December 2003 and April 2004. The increase in the cost of purchased gas was primarily related to purchases of gas by Sibur and purchases of Central Asian gas, both in Central Asia and in Europe, for resale to customers in Western Europe and FSU. The increase in the cost of materials was primarily related to the acquisition of controlling interests in a number of petrochemical companies in 2003 and higher prices of materials.

In the six months ended 30June 2004 profit tax expense decreased by RR 1,675 million, or 4%, compared to the six months ended 30June 2003, to RR 38,561 million. Our overall effective profit tax rate of 30% in the six months ended 30 June 2004 increased by 2% compared to the six months ended 30 June 2003.

In the six months ended 30 June 2004 our net profit totaled RR 89,964 million which is RR 13,797 million, or 13%, lower compared to the six months ended 30 June 2003.

Our net debt balance (defined as the sum of short-term borrowings, current portion of long-term borrowings, short-term promissory notes payable, long-term borrowings, long-term promissory notes payable and restructured tax liabilities, net of cash and cash equivalents and balances of cash and cash equivalents restricted as to withdrawal under the terms of certain borrowings and other contractual obligations) increased by RR 596 million, from RR 425,910 million as of 31 December 2003 to RR 426,506 million as of 30 June 2004. The repayment of current portion of long-term borrowings and short-term and long-term promissory notes payable was more than offset by the new long-term borrowings, primarily U.S.$1,200 million of Loan Participation Notes issued in April 2004 and U.S.$1,100 million loan from Calyon (the corporate banking unit for Credit Lyonnais S.A. and Credit Agricole Indosuez), and proceeds from short-term borrowings.

More detailed information on the IFRS consolidated interim condensed financial information for the six months ended 30 June 2004 can be found here.

Information Directorate, OAO Gazprom