The Board of Directors’ meeting is underway at the Gazprom Headquarters.

The Board of Directors took notice of the information on the Company's pricing policy for natural gas and oil products supplied by Gazprom to Russian consumers in the financial crisis environment, as well as on the domestic gas sales efficiency.

The Management Committee was entrusted to continue cooperating with federal executive authorities on transition to market-based pricing principles in the domestic gas sector from 2011.

The Board of Directors’ meeting noted that efforts were taken to coordinate the draft Russian Federation Government Decree “On marking changes in the governmental acts related to gas supply, including price (tariff) regulation”, as well as to adopt the Russian Federation Government Decree providing for resumption of natural gas sales at the electronic trading platform on the basis of gas exchange technologies and for arrangement of natural gas sales at commodity exchanges.

Background:

Gazprom sells over 50 per cent of the overall amount of produced gas on the domestic market. At the same time export supplies make up the bulk of Gazprom Group’s gross proceeds (82 per cent according to the 2008 operating results). Over the recent nine years, unprofitable domestic sales have been compensated with exports. In 2009 Gazprom is planning to profit from natural gas sales on the domestic market for the first time ever. The profitability level is, however, expected to be considerably lower than the one that may ensure efficient development of the domestic gas supply business.

The Scenarios for Economic Performance of the Russian Federation and basic parameters of Russia's socio-economic development forecasts for 2010 and for 2011–2012 (approved by the Russian Federation Government on July 13, 2009) stipulate for a 15 per cent indexation of regulated wholesale gas prices for industrial consumers in 2010.

Meanwhile, pursuant to the Russian Federation Government Instruction, the relevant ministries, Federal Tariff Service (FTS of Russia) and Gazprom are working out the issues related to the transition, starting on January 1, 2011, from regulation of wholesale gas prices to regulation of tariffs for gas transmission services and to wholesale gas pricing (except for the residential supplies) under the market-based price formula. So far, Gazprom has signed long-term gas supply contracts stipulating the market-based price formula utilization from 2011 with the bulk of industrial consumers.

Timely transition from prescriptive to market-based gas pricing principles, which reflect the consumer properties of gas and the inter-fuel competition, under state regulation of tariffs for the gas transmission services referred to as a natural monopoly business, will promote creation of the conditions that will make the domestic market a real driver for sustainable development of the gas sector and related industries, as well as for enhancement of the energy efficiency of the national economy in general.

Along with streamlining the approaches to domestic gas pricing, resumption of gas sales by Gazprom and independent producers at the electronic trading platform is another form of developing market-based gas sales principles. The respective draft decree is under consideration by the Russian Federation Government.