According to the power holding’s press service, a UES delegation chaired by deputy chairman Leonid Drachevsky will take part in the annual Energy Forum e7 summit. The power holding is to be recognized as a full-fledged member of e7 at the summit on June 1-2.

Since e7 is an international organization, in which nine major energy companies from the G8 countries are members, the entry of UES into this alliance will positively impact the corporate image of the Russian power holding in the eyes of the international investment and energy community.

However, we again underscore the growing need for the power holding to focus on its core activity of utility sector reform in Russia and upgrade domestic electric power facilities. We maintain that in light of the recent blackout in the Moscow energy system last week, the power holding will temper its expansionary ambitions.

Finam
Russian Brokerage Company
http://www.fin-rus.com

On Wednesday, trading was low-key on the Russian equity market. Most blue chips eased back on the absence of the any major internal drivers after Tuesday’s landmark verdict in the Khodorkovsky trial. Rising Western indexes did nothing to breathe some life into the stock market.

A moderate negative came from speculation over oil shares on the back of an 8% hike in gas transportation tariffs for Transneft’s pipeline system. However, not all Russian oils receded on this news.

The majority of RTS blue chips ended up in negative territory on Wednesday, within a range varying from -0.3% (Sberbank) to -3.7% (Surgutneftegaz). The RTS Index pulled back 1.08%, landing at 666.13 on average trading volumes amounting to $20.6 mln.

The mood on MICEX was similarly downbeat with most blue chips closing down within a band ranging from -0.1% (Tatneft) to -3.3% (Mosenergo). The advancers included bellwether UES (+0.2%) and Lukoil (+0.5%). The MICEX Index finished at 601.29 (-0.4%) on trade volumes amounting to $560.3 mln.

Gazprom was also moving on a downward track yesterday, losing 0.79% to Rub 80.01 on SPICEX with 5 mln shares changing hands.

Finam
Russian Brokerage Company
http://www.fin-rus.com

Thursday’s equity trading session was driven by a favorable environment on global stock and commodity markets, with Russian ADRs racking up sizeable gains abroad. But after a morning rally, blue chips ran out of steam and locked into a side trend until the close of the session. Russian oils led the way, with strong demand fueled by yesterday’s 5% crude spike on NYMEX.

High oil prices reflected forward-looking concerns that supply will outstrip demand for the crude and product sides in Q405 as well as output snags at ExxonMobil and Royal Dutch/Shell refineries in the US.

Most RTS blue chips traded up yesterday, with the band of advancers ranging from +0.5% (Rostelecom) to +3% (NorNickel). The RTS Index advanced 1.37% to 676.28 on average volumes totaling $24.8 mln.

MICEX blue chips ended up within a range varying from +0.4% (Lukoil) to +2.4% (NorNickel). On the other side of the spectrum, Sberbank (-0.27%) finished in mildly negative territory. The MICEX Index settled at 606.95 (+0.94%) on trading volumes equal to $653.47 mln.

Gazprom (0.58%) also moved up moderately along with the market. The last deal was closed at Rub 80.47 on SPICEX with 6.3 mln shares changing hands.

Finam
Russian Brokerage Company
http://www.fin-rus.com

Narianmarneftegaz, Lukoil’s subsidiary on the basis of which a JV with ConocoPhillips is being established to tap oilfields in the Timan-Pechora oil and gas province, is about to launch the development of the Yuzhnoye Khilchuyu field, a highly promising deposit. The project offers strong margins both in terms of financial and technological parameters. The occurrence depth is approximately 2,000 m, recoverable oil reserves are estimated at 80 mln tons and target well yield rates reach 300 tons per day. This project seems to be one of Lukoil’s most attractive new domestic ventures, especially taking into account possible exports through the Varandeisky oil loading terminal.

As for the JV with ConocoPhillips where the American oil major is supposed to own a 30% stake, according to the company’s President for Russia David Barrington the venture is expected to kick off by the end of June.

Finam
Russian Brokerage Company
http://www.fin-rus.com

Friday’s trading session was largely an extension of the mood that prevailed in the previous session. In the absence of pronounced domestic drivers the dominant news flow came from external markets, although Western markets were a mixed bag. American stock indexes began to drop on news that the US May jobs report came in at less than half of the median forecast, fueling speculation that the Fed rate hikes could be coming to an end, with maybe one or two more hikes until year-end 2005.

Meanwhile, quite a few Russian blue chips were marking time in a side trend again. Surgutneftegaz showed fairly robust growth as the oil major was looking undervalued after a 3-month losing streak. The big mover and shaker on Friday was Gazprom, which caught the updraft on a newswire that the gas monopoly’s BoD is to review transactions between the subsidiaries of Gazprom and Rosneftegaz and set the price of shares in Gazprom subsidiaries which are to be sold to Rosneftegaz.

The list of decliners on benchmark RTS was as follows: Sberbank (-0.15%), UES (-0.21%), Lukoil (-0.34%) and NorNickel (-0.34%). On the other side of the spectrum, Tatneft (+0.75%), Sibneft (+0.82%) and Surgutneftegaz (+1.15%) closed in the black. The RTS Index was fractionally down (-0.02%), landing at 676.17 on run-of-the-mill trading volumes which came to $20 mln.

MICEX blue chips also ended up mixed: the gainers ranged within a band from +0.2% (Lukoil) to +1.4% (Tatneft); the list of losers featured NorNickel (-0.06%), Rostelecom (-0.5%) and Mosenergo (0.5%). The MICEX Index settled at 609.09 (+0.35%) on a lower-than-average turnover totaling $640.23 mln.

The top Russian blue chip on Friday was Gazprom, which traded up a healthy 1.65% to close at Rub 818.8 on SPICEX with a heavy turnover – 14.9 mln shares changing hands.

Finam
Russian Brokerage Company
http://www.fin-rus.com

According to Gazprom’s press release, the company’s regular AGM is scheduled for June 15 at which the coordination of transactions among Gazprom’s subsidiaries and Rosneftegaz and the selling price of Gazprom’s shares owned by its subsidiaries will be addressed. As reported previously, the transaction is slated for completion by Gazprom’s BoD meeting on June 24, 2005.

For the record, Dresdner Kleinwort Wasserstein investment bank appraised a 10.74% stake in Gazprom at $10.2-11.5 bln ($3.94-4.52 per share), while the official consultant of the Russian Federal Property Fund Morgan Stanley valued this stake at $8.39-9.92 bln ($3.3-3.92 per share). The media reported that the state is looking to acquire a 10.74% stake in Gazprom at $5-6 bln, as confirmed by head of the Department of State Tariff Regulation and Infrastructural Reforms of EDTM Kirill Androsov. He said that EDTM estimates fair price in the range of $6.5-7 bln and pointed out that given the amount of the transaction, it would be reasonable for the government to effect payment by tranches over a 1-year period.


While the government’s standpoint is clear, we have yet to see any breakthrough on raising loans for financing the acquisition of Gazprom’s shares listed on the balance sheets of its subsidiaries. For this reason, it may well be that the government would insist on payment by installments. However, the gas giant would hardly be pleased at the acquisition at $6.5-7 bln or payment by installments within a year, since its market cap could advance significantly during this period and a 10.74% stake had already gone up to $7.3 bln as of Friday.

Finam
Russian Brokerage Company
http://www.fin-rus.com

Monday’s trading session was dictated by a downbeat news flow that came in on Saturday. More harsh criticism by President Putin against the top management of Mosenergo was the tune the market kicked off to first thing on Monday morning.

Following a discussion at the Security Council in Moscow on the recent energy crisis, the Russian president made a harshly worded statement about the management of Mosenergo,, accusing it of negligence, cynicism and professional ineptitude, after which the CEO of Mosenergo stepped down. After sliding for the better part of the morning, power stocks corrected slightly only to flatline into a side trend, as was the case with most other chips.

Based on the results of yesterday’s session, the majority of RTS blue chips displayed mixed performance, with the top decliners including Sibneft (-1.13%), bellwether UES (-0.89%), and NorNickel (-0.85%). On the other side of the spectrum, Rostelecom (+0.25%), Tatneft (+0.57%) and Surgutneftegaz (+0.57%) ended up in positive territory. The RTS Index was flat compared to the previous session (676.18) on thin volumes totaling $14.3 mln.

A more negative mood set in on MICEX, with the spread of decliners ranging from -0.4% (Lukoil) to -3.2% (Mosenergo). In the black were Rostelecom (+0.05%) and Surgutneftegaz (+1%). The MICEX Index closed at 606.33 (-0.45%) on trading volumes equal to $554.68 mln.

Gazprom (+0.12%) was marginally up yesterday on SPICEX, with the last deal going for Rub 81.9, and 6.7 mln shares changing hands.

Finam
Russian Brokerage Company
http://www.fin-rus.com

The media reported that AFK Sistema is in negotiations over the acquisition of a 49% block of shares in Indian wireless operator Aircel Televentures Ltd. (ATVL) for $450 mln. Moreover, the Russian investment holding intends to pick up a 10.15% equity stake in MTS from Deutsche Telekom.

Deutsche Telekom is under obligation to refrain from divesting its 10.15% stake in MTS until August 15, 2005. Meanwhile, head of Sistema’s Investor Relations Department Andrey Blizhnyuk admitted that his company is currently in talks over the purchase of this stake.

It is noteworthy that Sistema currently owns 50.4% of MTS. The reason for snapping up an additional 10.15% equity position appears to be vague, since the investment holding does not pursue any strategic targets (it has full control over the wireless provider) and cash would obviously come in handy in the run-up to the privatization of Svyazinvest. On the other hand, Deutsche Telekom views Sistema and MTS itself as the only preferable buyers of its stake, since there are no other strategic investors interested in acquiring 10.15% of MTS and it is not possible to sell this stake on the free market without offering a considerable discount.

Another potentially interesting takeover target is a 49% block of shares in Indian Aircel Televentures Ltd. (ATVL). The company plans to enter into an intricate deal with roughly the following structure: Sistema would acquire a certain portion of India’s debt to the FSU; the Indian government would buy out a stake in AVTL from Sterling Infotech; Sistema would gain ATVL in exchange for the share in FSU debt. In the future, Sistema intends to increase its stake in ATVL to a controlling one.

At present, the investment community is aware of only one figure - $450 mln for a 49% stake, as a result of which we can only guess as to what advantages the potential deal could offer and according to Bliznyuk the Indian government has run into some hurdles. Nonetheless, we are upbeat about Sistema’s expansion outside the CIS, since India has one of the world’s most rapidly growing markets and offers enormous potential.

Finam
Russian Brokerage Company
http://www.fin-rus.com

Reuters news agency reported citing the oil major’s vice president Nikolai Chyorny that Lukoil intends to gain 20% of the refined products market in Turkey in an attempt to boost sales from its Black Sea refineries and raise supplies bypassing Turkey’s Bosporus Strait. A Lukoil spokesperson said that Lukoil is currently in talks over the acquisition of several marine terminals on Turkey’s Black Sea coast which could import substantial volumes of petroleum products.

In reality, entry into the Turkish market would allow Lukoil to efficiently diversify supplies away from its refineries located in Ukraine, Bulgaria and Romania and get one step ahead of the perpetual traffic jams in the Bosporus Strait. In addition, according to the oil major’s estimates, 70% of the Turkish petroleum products market (with a total consumption of about 20 mln tons a year) consists of diesel fuel and fuel oil. Thus, Lukoil plans to bring to the Turkish market diesel fuel and dark oil products which are in low demand in Europe.

We reiterate our Buy recommendation on Lukoil shares with a fair price of $38.74 per share.

Finam
Russian Brokerage Company
http://www.fin-rus.com

Russia’s equity market trading was again low key on Thursday with most stocks drifting off into a side trend. Volumes were soft on the absence of any pronounced drivers. Investors focused mainly on Lukoil and Surgut, which trended up on rising global oil prices. All eyes were also on NorNickel ahead of what investors believe will be robust FY04 financials.

Norilsk Nickel’s IAS financial statement is due out on Friday. Investors have high hopes on account of the high dividends payable on 2004 results. In line with the company’s dividend policy, 20-25% of IAS net is to be allocated to shareholders. And the icing on the cake was an announcement Thursday that NorNickel will be shelling out additional FY04 results to the tune of Rub 28/share. This way, given the previous interim dividend payout on 9M04 results equal to Rub 41.4, the metal maker will make a total payout of Rub 69.4 on last year’s financial performance.

RTS blue chips were a mixed bag on Thursday, with the list of losers including Rostelecom (-0.25%), Sberbank (-0.38%), Tatneft (-0.55%) and Mosenergo (-0.67%). The gainers included UES (+0.17%), Lukoil (+0.43%) and Surgutneftegaz (+1.01%). The RTS Index advanced 0.27% to 673.72 on slightly-less-than-average volumes that came to $15.2 mln.

This time MICEX was more downbeat that the benchmark with the decliners falling into a band ranging from -0.04% (Rostelecom) to -2% (Tatneft). On the other side of the spectrum, the gainers included Lukoil (+0.15%) and Surgutneftegaz (+0.9%). The MICEX Index pulled back 0.24% to 605.43 on average volumes totaling $735.89 mln.

Meanwhile, Gazprom (0.3%) continued to trend upward on SPICEX with the last deal going for Rub 82.19 and 8.6 mln shares changing hands.

Finam
Russian Brokerage Company
http://www.fin-rus.com

Russian blue chips got off on the right foot in early Friday morning trading and most stocks locked in some fairly solid gains due to the favorable foreign economic news flow. With oil prices heading north (+3%), the heavily oil-weighted Russian stock market easily gathered momentum. However, by mid-afternoon the market began to run out of steam and slipped into another drab side trend.

On the international economic front, Fed chairman Alan Greenspan’s testimony on Thursday before the US Congressional Joint Economic Committee pointed to the likelihood that the Fed will stick to its “measured” rate hike policy at least for a while longer. This dashed the hopes of emerging markets, which were looking for FOMC to be done with fiscal tightening.

By Friday’s close, most RTS blue chips fell within a growth band ranging from +0.86% (Lukoil) to +1.29% (Surgutneftegaz). The decliners included Sberbank (-0.15%) and Rostelecom (-0.25%). The RTS Index advanced 0.45% to 676.78 on an average turnover reaching $19.3 mln.

MICEX was slightly more upbeat on Friday, with the range of gainers varying from +0.27% (Sberbank) to +6.1% (Mosenergo). On the losing end of the equity spectrum was Tatneft (-0.39%). The MICEX Index climbed 0.95% to 611.19 on thin trading volumes amounting to just $664.71 mln.

Gazprom continued its winning streak, adding on a healthy 1.23% to close at Rub 83.2. A total of 13.6 mln share changed hands on SPICEX.

Finam
Russian Brokerage Company
http://www.fin-rus.com

According to deputy chairman of Gazprom Alexandr Medvedev, Gazprom and Shell have coordinated the general terms for the Russian gas giant to enter the Sakhalin-2 project. Gazprom plans to acquire a blocking stake in the Sakhalin-2 project from Royal Dutch/Shell in exchange for the right of the latter to participate in the development of the Neocomian deposits of the Zapolyarnoye gas field. As a result, Gazprom will come on board the Sakhalin-2 project as Sakhalin Energy’s shareholder, while Shell will join the Zaolyarnoye- Neocomian project as a shareholder.

Needless to say, this transaction is profitable for Gazprom and is squarely in line with the new Russian subsoil use policy – increasing participation of state-run crude production companies in strategic projects (Russian companies have not been shareholders of the Sakhalin-2 project before and only British-Dutch Royal Dutch/Shell (55%), and Japanese Mitsui (25%) and Mitsubishi (20%) were members of the international consortium). In addition, Gazprom has acquired a stake in the launched project and access to the LNG market (an LNG plant as part of the Sakhalin-2 project is slated to be commissioned as early as in 2007). Shell has lost nothing either, since now it has the chance to take part in another major Russian petroleum project. Gas reserves of the Zapolyarny-Neocomian project are estimated at 2.6 tln cu m.

Alexander Medvedev has also announced Gazprom’s interest in the Sakhalin-1 project. The eventual buyout of Rosneft’s stake in this project is at issue.

Finam
Russian Brokerage Company
http://www.fin-rus.com

The late beginning of the trading week saw most blue chips in positive territory on Tuesday. The lackluster internal market was again driven by a positive global crude oil market. Global markets and Russian ADRs also combined to push up the market. What’s more, high hopes pinned on Gazprom’s Wednesday BoD meeting translated into a big positive which contributed to the overall bullish mood.

The gas monopoly’s board is widely expected to set the price of its assets to be sold to Rosneftegaz for subsequent consolidation of a controlling stake in the monopoly using Rosneft. According to the most recent statements by German Gref, the buyout price of the 10.74% stake will be $6-8.5 bln. The market continues to hope that the government will finally shift from words to deeds so as to muster a controlling stake in Gaprom and remove the ring fence.

Most RTS blue chips caught the updraft yesterday, finishing within a band ranging from +0.75% (Rostelecom) to +2.09% (NorNickel). The RTS Index advanced 1.25% to 685.23 on heavy volumes totaling $32.12 mln.

MICEX was a little more bullish on the whole than the benchmark, with most blue chips falling within a spread ranging from +0.4% (Sberbank) to +2.5% (NorNickel). Mosenergo (-0.53%) ended up in negative territory. The MICEX Index settled at 619.97 (+1.94%) on average volumes amounting to $692.23 mln.

Meanwhile, Gazprom kept plodding along and ended up 0.6% to Rub 83.7 on SPICEX, with 12.8 mln shares changing hands.

Finam
Russian Brokerage Company
http://www.fin-rus.com

Wednesday’s trading session kicked off with moderate growth across the board, but before long most blue chips began to contract. While awaiting the outcome of Gazprom’s BoD meeting investors opted for a bout of profit-taking. What dampened the mood was a newswire that the state is willing to pay only $7.15 bln for a 10.74% stake in the gas monopoly. This figure is well below the amount the concern was looking for, i.e. at least $8 bln.

It’s noteworthy that Dresdner Kleinwort Wasserstein investment bank appraised Gazprom at $93.27-107 bln ($3.94-4.52 per share). This valuation puts the 10.74% stake which the state needs in the gas monopoly to secure a controlling interest at $10.2-11.5 bln. The other official appraisal by Morgan Stanley was for $78.12-92.32 bln. ($3.3-3.9 per share), which would put the stake in question within the range of $8.39-9.92, which is still way above the state’s stingy proposal. As a matter of fact, the figure visibly undershoots the lower valuation plank set by the two expensive appraisers.

Against this backdrop, most RTS blue chips ended up in mildly negative territory on Wednesday within a band ranging from -0.14% (Surgutneftegaz) to -0.84% (Lukoil). The benchmark retreated by 0.54% and finished at 681.51 on trading volumes totaling $23.9 mln.

MICEX was in just about the same mood yesterday, with most blue chips ending up within a spread varying from -0.4% (Sberbank) to -4.2% (Mosenergo). On the other side of the spectrum were NorNickel (+0.75%) and Surgutneftegaz (+0.4%), which finished in the black. The MICEX Index settled at 616.69 (-0.53%) on trading volumes totaling $811.72 mln.

Meanwhile, Gazprom fell out of favor with investors over the soured appraisal deal, with the gas monopoly shedding 0.86% to Rub 82.98. A total of 14.3 mln shares changed hands on SPICEX.

Finam
Russian Brokerage Company
http://www.fin-rus.com

Trading kicked off to a strong start on Thursday on the back of rising Western stock indexes and bullish global crude oil prices. But dithering over the buyout price of the state’s 10.74% stake eventually encouraged most market participants to opt for another round of profit taking.

Meanwhile, the majority of blue chips, including Gazprom, were blissfully oblivious to news that the gas monopoly’s BoD apparently came to terms on the buyout price. The media wired yesterday that the BoD of the gas mammoth set the buyout price for the 10.74% stake at Rub 203.5 bln ($7.11 bln based on the June 16 forex rate). This price falls well short of the figures appraised by both DrKW and Morgan Stanley.

The list of RTS blue chip decliners was as follows yesterday: Lukoil (-2.68%), Sibneft (-1.77%) Rostelecom (-0.5%) and bellwether UES (-0.34%). On the other end of the equity spectrum, NorNickel (+2.31%), Surgutneftegaz (+1.11%) and Sberbank (+0.67%) finished in the black. The RTS Index pulled back 0.28% to 679.60 on average trading volumes equal to $23.3 mln.

MICEX was feeling a bit more chipper with the band of gainers ranging from +0.1% (Tatneft) to +1.7% (NorNickel).The top losers of the day on the ruble-denominated bourse turned out to be Lukoil (-0.79%) and Sibneft (-0.13%). The MICEX Index edged up 0.36% to 618.93 on average volumes totaling $869.53 mln.

Meanwhile, Gazprom headed north on hopes that the buyout transaction will eventually deliver the anticipated outcome. The gas monopoly notched up 0.55% to Rub 83.44 with 10.6 mln shares changing hands.

Finam
Russian Brokerage Company
http://www.fin-rus.com