The Gazprom Board of Directors considered the information regarding the work being done by the Company on expanded use of natural gas as a motor fuel in the Russian Federation.

It was noted that the growth of Russian NGV fuel market would produce a considerable economic and social effect. Conversion of motor vehicles to gas will reduce road transport costs due to the difference in prices for conventional fuels. It will bring about cost reduction in all economic sectors.

The environmental factor should also be taken into consideration. Car emissions impose a substantial load on the atmosphere, which is most urgent for big cities. The use of gas instead of gasoline in motor vehicles allows reducing harmful emissions fivefold on average. The environmental improvement will directly influence public health.

Gazprom takes pro-active and sustained efforts on expanding the Russian NGV fuel market. This is the Company's profitable core business enabling to establish a vast natural gas sales market on its basis.

In order to improve the efficiency of Gazprom's strategy on the NVG fuel market development, a special-purpose company, Gazprom Gazomotornoye Toplivo, was set up in 2012. The appearance of a single operator will, for instance, help to improve the regulatory and engineering framework as well as boost the production of gas-using and gas-filling equipment. The expansion of the CNG retail network will allow attracting new NGV fuel consumers, including the agricultural sector, water- and rail-borne transport.

In 2013 the volume of financial resources allocated to investment projects for CNG filling stations construction under the Russian Regions Gasification Program will amount to RUB 1 billion. As part of the Program, preparations are underway to start building 21 CNG filling stations in the Republic of Tatarstan, the Vologda, Novgorod, Nizhny Novgorod, Kaluga, Voronezh, Novosibirsk, Orel, Rostov, Ryazan, Tambov Regions, the Perm and Stavropol Territories. Feasibility studies are being developed for 18 CNG filling stations in the Kaluga, Leningrad, Nizhny Novgorod, Saratov, Volgograd and Voronezh Regions. Another 23 regions are defining possible locations of future CNG filling stations.

The basic criteria for deployment of CNG stations include, notably, an acceptable rate of profit, sufficient traffic flows, conversion of motor vehicles to NGV fuel provided by the regions or purchase of such motor vehicles in the amount of at least 50 units annually per one CNG filling station.

Meanwhile, Gazprom will gradually increase the share of its own vehicles (motor, specialty, road-building and weight-lifting equipment) running on natural gas. A program for expanded conversion of Gazprom Group's vehicles to natural gas between 2014 and 2017 will be elaborated this year.

Gazprom intensified the cooperation with federal and regional authorities.

Thus, the NGV fuel market development section was included into Cooperation Agreements between the Company and Russian regions. The Agreements on Wider Use of Gas as a Motor Fuel were signed with the Kaluga, Nizhny Novgorod, Orel and Tambov Regions. This year Moscow, Saint Petersburg and the Republic of Tatarstan may join them.

Special focus on this work is placed in Eastern Russia. In 2012 seven-year programs for motor transport conversion to NGV fuel were approved for the first time by the executive authorities of the Primorye and Khabarovsk Territories and the Sakhalin Region jointly with Gazprom.

In addition, starting from 2013 Russian regions gasification programs contain mandatory sections stipulating the parties' obligations on regional NGV markets development.

Gazprom takes part in updating the national regulatory framework governing gas production and use as a motor fuel. The relevant proposals were submitted to concerned agencies, including the Energy Ministry. This sector may be considerably enhanced through adoption of a federal law containing a set of measures to boost the conversion of motor vehicles to gas. At present, the issue of creating such a document is being considered by the Russian Federation Government at Gazprom's initiative.

The Board of Directors tasked the Management Committee to continue the work on expanding natural gas use as a motor fuel in Russia jointly with state authorities.

Background

Natural gas use as a motor fuel is rapidly expanding around the world and nowadays involves more than 80 countries. The average annual increase in gas-powered vehicle fleet makes up 26 per cent. The world's leading vehicle producers turn out more than 80 models of gas-powered cars. The Russian fleet of gas-powered vehicles numbers some 90 thousand units, with 4.6 per cent owned by Gazprom.

Nowadays 246 CNG filling stations with the total design capacity of some 2 billion cubic meters of gas a year are operating in 58 Russian regions. Gazprom Group owns 210 Russian CNG filling stations.

According to preliminary data, in 2012 Russian CNG filling stations sold 390 million cubic meters of compressed natural gas, which is 28.4 million cubic meters more than in 2011.