On 12 July2004 ???Gazprom issued its audited consolidated financial statements prepared in accordance with the International Financial Reporting Standards (IFRS) for the year ended 31 December 2003.

The table below presents the condensed statement of operations for 2003 compared to 2002.  As the characteristics of the economic environment of the Russian Federation indicate that hyperinflation has ceased, effective from 1 January 2003, we no longer apply the provisions of IAS 29 “Financial Reporting in Hyperinflationary Economies”. Accordingly, no adjustment for the effects of changes in general purchasing power have been made for periods starting from 1 January 2003 and all RR amounts related to financial information for periods prior to 2003 are expressed in constant RR as of 31 December 2002 purchasing power, unless otherwise stated. All amounts are expressed in millions of Russian Roubles unless otherwise stated.

For the year ended 31 December 2003 sales revenues were RR175,066 million,or 27% higher than in 2002, primarily due to the increase in revenues from natural gas sales in the Russian Federation and Europe.

More detailed information on structure of sales in 2003 and 2002 is presented in the table below:

In 2003 net revenues from natural gas sales (including excise, VAT and customs payments) increased by RR 123,977 million or by 23% compared to 2002. The increase resulted primarily from higher gas prices and growth of sales volumes both to domestic and to European customers.

In 2003 the average price for gas exported to Europe, expressed in constant RR (including excise and excluding VAT) increased by 12% compared to 2002. That was a result of the increase of the world oil prices in USD in 2003. Increase of the domestic sales prices in constant RR (including excise tax and excluding VAT) by 25% compared to 2002 primarily resulted from higher tariffs for gas established by the Federal Energy Commission.

Sales of gas condensate and other oil and gas refined products increased primarily due to the growth in operations of OAO AK Sibur, as a result of the Group’s efforts to normalize and expand operations of the company, and increase in oil product prices in 2003 compared to 2002.

The operating expenses increased in 2003 as compared to 2002 by 19%, amounting to RR 593,415 million. The increase resulted primarily from growth of payroll costs (RR 34,405 million), gas purchase costs (RR 19,693 million), gas transit costs (RR 6,079 million), repair costs (RR 18,737 million), electricity (RR 10,851 million) and processing costs (RR 3,017 million), as well as the growth in depreciation charges (RR 6,194 million). The increase in these expense items more than offset decrease in taxes other than on income (RR 8,887 million) and decrease of the cost of materials (RR 2,915 million). Increase of the gas purchase costs primarily resulted from the increase in volumes of Central Asian gas purchased by foreign subsidiaries of Gazprom Group. Transit costs increased primarily due to higher volumes of gas sold to European customers in 2003, new agreements on gas transit from Central Asia and increase of transportation tariffs (especially transportation through Poland). Refining costs increased due to the increase in operations of OAO AK Sibur. The increase in staff costs was primarily due to a rise in average salaries as well as consolidation of a number of production companies controlled by OAO AK Sibur (after the Group established control over these entities).

In 2003 profit tax decreased compared to 2002 by RR 61,315 million, totalling RR 74,817 million. The decrease primarily resulted from the fact, that as from 1 January 2003 we no longer apply the provisions of IAS 29, which in prior periods increased the book value of our fixed assets compared to their tax basis and resulted in a deferred tax expense.

Net profit of the Group for 2003 totalled RR 159,095 million, RR 130,140 million higher than in 2002. 

More detailed information on the 2003 IFRS consolidated financial statements of
OAO Gazprom can be found on OAO Gazprom’s web site (www.gazprom.ru).

PRESS SERVICE OF OAO GAZPROM

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