Due to the default on the obligations undertaken by E4 Group and the Bank of Moscow, Gazprom Group’s funds allocated for OGK-2 investment projects at the Stavropol State District Power Plant (SDPP) are not being used for the purpose intended.

The current situation demonstrates the inability of E4 Group to act efficiently as the general contractor for the construction projects in the fuel and energy sector.

The irresponsible behavior of the Bank of Moscow can be called deplorable, as the banking guarantees provided by the Bank according to the General Contractor Agreement have been acknowledged invalid by the Moscow Arbitration Court. The inability of the Bank to secure fulfillment of its financial obligations causes irreparable damage to the reputation of a largest financial institution in Russia.

At present, Gazprom, being the most reliable and prominent investor in the national power generation sector, is endeavoring to settle the situation. The prioritized task is to return the target investment funds to OGK-2.

Background:

Gazprom Group has allocated funds to execute the OGK-2 investment program through acquisition of the company’s shares additionally issued in October 2007.

On December 29, 2007 the former management of OGK-2 signed the contract, under which E4 Group, as the general contractor, was to construct two combined-cycle gas turbine units each with 400 MW in capacity on the premises of the Stavropol SDPP.

By March 7, 2008 OGK-2 made advance payments to E4 Group in the total amount of RUB 8,843.34 million, having raised the funds from the additional share issuance.

The advance payments were secured by the Bank of Moscow with its banking guarantees to return the advance payments.

OGK-2 fulfilled the customer’s obligations, having created the necessary conditions for the general contractor to complete the work.

The general contractor failed to implement any stage of the Agreement, disrupted the time schedule with a lag of over four months. At the same time, E4 Group inappropriately spent the advance payments.

On April 6, 2009 according to the Agreement, OGK-2 exercised its right of the customer to dissolve the Agreement due to improper execution of the obligations by the general contractor. E4 Group was forwarded a notice of the Agreement dissolution and was demanded to return the unspent funds. E4 Group returned no funds.

On April 20, 2009 OGK-2 addressed the Bank of Moscow demanding to repay the banking guarantees in the amount of RUB 3.8 billion and EUR 139 million. In conformity with the banking guarantee terms and conditions, the Bank of Moscow assumed the obligations to make the guarantee payments within 5 workdays.

On April 23 the Moscow Arbitration Court initiated proceedings regarding the claims filed by E4 Group against the Bank of Moscow to acknowledge these banking guarantees as invalid.