The Board of Directors’ meeting has adjourned at Gazprom’s Headquarters.

The Board has taken up the issue of substantiating the need for higher domestic gas prices.

The Board gave instructions to keep on agreeing with Russian Ministries and departments on Gazprom’s proposals on wholesale gas pricing adjustments for 2007 to 2009.

Reference:

Gas supply to the domestic market remains unprofitable for Gazprom. Under projections for 2006 and 2007, the Company’s losses in this sector will be around RUR 9 bln and RUR 11 bln, respectively.

The boundary parameters of gas price adjustments have been identified by Gazprom with the account of projected inflation rates, cost optimization program results and scope evaluation for the investment needed to secure gas deliveries to customers.

According to Gazprom’s experts, in 2007 and 2008 wholesale gas prices are expected to be on an average rise of 22%. This will allow Gazprom to secure minimum return on domestic gas sales. Provided gas prices are also on a 22% upswing in 2008, the Company could considerably improve its bottom lines and raise finance needed for reliable gas supply to Russian consumers at the expense of gas sales within Russia.

Said upswing of gas prices will have an insignificant impact on inflation rates in Russia and will be around 0.5% in 2007. Another factor to be taken into account is that a considerable portion of gas intensive products goes for exports and has no impacts on inflation processes within the RF.

At the same time undervalued gas on the domestic market does have a negative impact on Gazprom’s financial and economic standing, and bolsters more negative trends in the economy in general. If gas as a major energy source remains undervalued, gas prices will continue providing no economic incentives for customers to use energy conservation technologies, will contribute to reducing the high energy intensity of the national economy and will hamper its higher competitiveness.