Gazprom’s Regional Policy Commission convened on its regular meeting moderated by Valery Golubev, Head of the Commission, Deputy Chairman of the Gazprom Management Committee.

The Commission members considered the progress in implementing the Gasification Program for the Russian Federation constituents.

It was noted that the implementation of the Gasification Program for the RF constituents in 2005-2007 had not only enabled to enhance the gasification level in Russia, but also showed the necessity of continuing active efforts in this field. In 2008 Gazprom was planning to invest circa RUB 23.05 bln in the gasification of the Russian regions. Based on the intermediate results a decision was taken to increase the amount of investments to RUB 24.18 bln. The large-scale Russian Regions Gasification Program is a long-term project aimed at achieving the level of gasification throughout Russia that will ensure maximum economic viability.

The meeting participants identified the major challenges Gazprom was facing during the Program implementation, such as the fact that the heads of some RF constituents had not performed the obligations having been undertaken in relation to the preparation of consumers for gas supply. Such constituents primarily include Volgograd, Lipetsk, Ryazan and Samara Oblasts, as well as the Komi Republic. In addition, the meeting addressed the necessity of streamlining the cooperation with local authorities in registering land plots for the gasification facilities construction.

Core business units of Gazprom were tasked with continuing work with the administrative authorities of the RF constituents in order to successfully implement the Gasification Program in 2009, as well as to develop a proposal for the improvement of the Gazprom’s Concept for participation in the RF regions gasification and submit the proposal to the management of the Company for consideration. Special attention has to be paid to detailed elaboration of the General Gasification Schemes for the constituents in East Siberia and the Far East to pursue the Gazprom’s strategic goal of ensuring gas supply to these regions.

Background:

Gazprom invested RUB 43 bln in the implementation of the Russian Regions Gasification Program in 2005-2007. By 2008 the average gasification level in Russia totaled 62 per cent including 67 per cent in urban area and 44 per cent in rural area. In early 2005 the identical figures totaled 54, 61 and 36 per cent respectively.

In the course of the Russian Regions Gasification Program implementation responsibility areas are distributed in the following way. Gazprom carries out the construction of inter-settlement gas pipelines at its expense. The construction of street-level gas distribution networks, household-level networks, acquisition and installation of gas equipment is ensured by the administrative authorities (government) of an entity by attracting funds from the budgets of all levels and from local population. A synchronization schedule for gasification facilities commissioning is approved by Gazprom and the administrative authorities of the Russian constituent entities involved in the Program for the purpose of work coordination.

One of the most significant factors for the allocation of investments within the Gasification Program is the fulfillment of the obligations undertaken by regional administrative authorities in respect to the preparation of consumers for gas supply. Where the consumers are successfully prepared for gas supply, the amount of Gazprom's investments in the succeeding year will be at least equal to those in the preceding year. As for those regions where the administrative authorities, based on the end of year results, failed to meet their obligations to prepare consumers for gas supply, investments in the succeeding year will be provided only for the completion of the gasification facilities under construction.

In order to reduce the financial burden and set a favorable environment for the local population to participate in gasification, the synchronization schedules contain recommendations for the regional administrative authorities, as a social support measure for the poor, to minimize the expenses of the local population for the acquisition and installation of in-house gas equipment, gas meters, ventilation and heating systems, as well as for hook-up (tie-in or connection). It was also recommended to ensure the construction of street-level gas distribution networks without attracting funds of the local population and to exempt local population from payment for the hook-up of such networks, since in a number of regions charging the population for the hook-up fully or partially compensates for the state expenditures for street-level networks.

The Gazprom's Concept for participation in the Russian Federation regions gasification was approved by the Company’s Management Committee on August 21, 2003. It provides for the main areas of Gazprom’s activities in gasification and gas utilization, as well as the respective implementation mechanisms. The document lays the basis for the development of programs, organizational measures and regulatory documents to govern the participation of Gazprom in the gasification.