Gazprom Reports Its Consolidated Interm Condensed Financial Results Under International Financial Reporting Standards (IFRS) for the Three Months Ended 31 March 2004

On 20 September 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 three months ended 31 March 2004.

The table below presents the unaudited IFRS consolidated interim condensed statement of operations for the three months ended 31 March 2004 and 2003. All amounts are presented in million Russian Roubles, unless otherwise stated.

Sales (net of excise, VAT and customs duties) increased by RR 23,595 million, or 10%, to RR 255,845 million in the three months ended 31 March 2004 compared to the three months ended 31 March 2003. More detailed information on our sales for the three months ended 31 March 2004 and 2003 is presented in the table below.

Net sales of natural gas increased by RR 13,221 million, or 7%, to RR 208,251 million in the three months ended 31 March 2004 compared to the three months ended 31 March 2003. This increase was primarily due to higher domestic prices for gas.

Net sales of natural gas to Europe decreased by RR 5,822 million, or 5%, to RR 110,372 million in the three months ended 31 March 2004 compared to the three months ended 31 March 2003. This was primarily due to a 13% decrease in net prices in RR terms, slightly offset by a 9%, or 3.6 bcm, increase in sales volumes. Average net prices decreased primarily as a result of the 9% appreciation of the RR against the U.S. dollar for the three months ended 31 March 2004 compared to the three months ended 31 March 2003; and the fact that the customs duties rate increased from 5% to 30% effective 1 January 2004, the effect of which more than offset the decrease in excise tax as a result of excise tax on natural gas produced after 1 January 2004 abolished.

Net sales of natural gas to FSU countries decreased by RR 2,252 million, or 15%, to RR 12,374 million in the three months ended 31 March 2004 compared to the three months ended 31 March 2003. This was due to a 9% decrease in net prices in RR terms and a 7% decrease in volumes. The 9% decrease in the net average RR price of gas to RR 984.3 per mcm primarily resulted from the 9% appreciation of the RR against the U.S. dollar for the three months ended 31 March 2004 compared to the three months ended 31 March 2003 and the increase in customs duties. The decrease in volumes of gas sold to FSU countries was primarily due to a 3.4 bcm reduction in sales volumes to Belarus, which more than offset a 1.3 bcm increase in shipments of gas to Ukraine and 0.9 bcm of shipments to Armenia, Georgia and Azerbaijan.

Net sales of natural gas in the domestic market increased by RR 21,295 million, or 33%, to RR 85,505 million in the three months ended 31 March 2004 compared to the three months ended 31 March 2003. This was due to the increase in domestic gas tariffs set by the Federal Energy Commission (from March 2004 – Federal Tariffs Service), which was slightly offset by the 2%, or 2.7 bcm, decrease in sales volumes.

Total excise taxes on natural gas sales decreased by RR 42,784 million, or 95%, to RR 2,216 million in the three months ended 31 March 2004 compared to the three months ended 31 March 2003. The decrease was due to the fact that excise tax on natural gas produced after 1 January 2004 was abolished. This decrease was offset by the RR 42,116 million increase in customs duties to RR 47,552 million in the three months ended 31 March 2004 compared to RR 5,436 million in the three months ended 31 March 2003.

Sales of gas condensate and oil and gas products increased by RR 8,204 million, or 43%. This increase was primarily due to consolidation of additional petrochemical companies in the three months ended 30 June and 30 September 2003. Sibur and our other petrochemical companies accounted for 62% and 57% of sales of gas condensate and oil and gas products in the three months ended 31 March 2004 and 2003, respectively.

Operating expenses increased by RR 18,132 million, or 12%, to RR 175,604 million in the three months ended 31 March 2004. Operating expenses as a percentage of sales remained almost unchanged.

This increase in operating expenses was primarily due to higher taxes other than on income (RR 11,248 million), higher cost of purchased gas (RR 7,629 million), higher staff costs (RR 7,189 million), which was partially offset by lower provision expenses, 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.

Profit tax expense increased by RR 3,026 million, or 15%, to RR 22,921 million in the three months ended 31 March 2004 compared to RR 19,895 million in the three months ended 31 March 2003. Although, our overall effective profit tax rate of 26% remained unchanged.

In the three months ended 31 March 2004 our net profit totaled RR 66,042 million which is RR 10,070 million, or 18%, higher compared to the three months ended 31 March 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) decreased by RR 27,506 million, or 6%, from RR 425,910 million as of 31 December 2003 to RR 398,404 million as of 31 March 2004. This was primarily due to a decrease in the current portion of long-term borrowings and short-term promissory notes payable.

Information Directorate, OAO Gazprom