RPI International Conference

1. RPI International Conference Services and Equipment for the Russian Oil and Gas Industry December 2003 Moscow, Russia

2. Contents: • Development of Financing for the Russian Oil Sector • Role of Multilateral Financial Institutions in Financing Russian Oil & Gas (O&G) Services • Future Trends in Financing Russian O&G Industry 2

3. Russian Oil Production

4. Role of the Oil Sector in Russian economy 7% of GDP 12% of industrial output 24% of fiscal revenue 28% of export revenue Source: Oxford Analytica, 2002 figures

5. Major industry drivers Developing Russian capital markets and overall macro stability  restructuring of companies, increase in transparency, desire to enter international capital markets Availability of assets / reserves Improving world oil market fundamentals (late 1990s – early 00s)  strong increase in Russian oil production Follow-up sector consolidation (mid- to late 1990s) Initial asset distribution (early to mid 1990s) 1990 1995 2000 2003 5

6. Sources of Financing Developing Russian capital markets and overall macro stability  restructuring of companies, increase in transparency, desire to enter international capital markets Equity / Cash Flow Bank Loans Availability of assets / reserves Cash Flow and Export Receivables-Backed Loans Improving world oil market fundamentals (late 1990s – early 00s)  strong increase in Russian oil production Follow-up sector consolidation (mid- to late 1990s) Initial asset distribution (early to mid 1990s) 1990 1995 2000 2003 6

7. Early External Financing of Russian Oil Companies • Export receivables-backed loans • The structure survived the 1998 test • The product is now commoditized • 30-40 banks active in the market • Market size estimated at $20-25 bn • Tenors are increasing (5 years + - recent Lukoil deal) • Margins are tightening (150-175 bp over Libor – recent Yukos deal) • Increase in facility sizes (up to $1bn) 7

8. Export Receivables Backed Loans – Trend 2000-2003 Pricing (LIBOR+) Most Majors ‘00-’02 400bp 300bp TNK ‘03 LUKoil ‘03 200bp Yukos ‘03 100bp 1 2 3 4 5 6 7 Tenors (years) 8

9. Producers vs. Services Providers • Financing to-date focused mainly on producers, not O&G services providers • Experience to date: • International O&G services providers often bring their own financing to Russia • Russian O&G services providers often lack adequate long-term financing in Russia 9

10. Contents: • Development of Financing for the Russian Oil Sector • Role of Multilateral Financial Institutions in Financing Russian Oil & Gas (O&G) Services • Future Trends in Financing Russian O&G Industry 10

11. O&G Services providers • In emerging markets, often driven by: • Government’s commitment to increase local content in the O&G sector • O&G companies’ drive for efficiency and use of Western O&G technologies • Local players often face limited range of financing options, compared to international players 11

12. IFI’s Role - Complementing the market • Complementing commercial funding • Extending tenors • Leading structures • Guarantees • Project Finance • ECAs – source-based funding • International Financial Institutions (IFIs) – mitigation of country risk

13. IFC’s way to address the market gap: • Contractor Revolving Credit Facility • Basis for the facility: the relationship between a contractor and a large O&G company through a medium term contracts of about 2-3 years with a portion of foreign exchange payments • Use of funds: to fund working capital requirements and capital expenditures for specific contracts • Facility size: $15M and above

14. Contractor Revolving Credit Facility – cont. • Modus operandi: the facility is managed by a local bank, familiar with IFC’s operating procedures • Criteria for contract approval: eligible contracts approved on a case-by-case basis, through a desk review. Counterparties often pre-agreed.

15. Contractor Revolving Credit Facility – cont. • Funding: per contract, to a maximum percentage (e.g., 60%) of the total expected payment • Maximum percentage determined by the Contractor’s general level of liquidity and indebtedness • The facility is linked to the dollar component of the contract proceeds • Payments: made directly to a secured accounts under the facility • Security arrangements: depending on project and type of contract

16. Contents: • Development of Financing for the Russian Oil Sector • Role of Multilateral Financial Institutions in Financing Russian Oil & Gas (O&G) Services • Future Trends in Financing Russian O&G Industry 16

17. Future Trends in Financing Russian O&G Industry • Large Investment Projects • Further Sector Consolidation • Inflow of Foreign Capital and Technology

18. I. Large Investment Projects • Why? Why Russia? Why now? • Need to replenish reserves • Global acceleration of decline rates (China, UK/ North Sea) • Availability of reserves in Russia • Need to export oil • Need to further develop transportation infrastructure

19. I. Large Investment Projects – cont. About 70% of Russia’s oil is extracted in Western Siberia and needs to be transported to export terminals on the Baltic and Black Seas • Transportation infrastructure • Need to develop stronger pipelineinfrastructure, to bypass bottlenecks in the existing export pipeline system • Railcars and railway infrastructure – need for cars (quantity and quality), and effective leasing structures • Shipping: tankers / icebreakers for offshore fields

20. I. Large Investment Projects – cont. • Revamp / debottlenecking of existing facilities and new facilities • Upstream assets • Refineries and other downstream assets O&G Services

21. II. Further Sector Consolidation • Rationalization of existing players • Drive for efficiency

22. III. Inflow of Foreign Capital and Technology • Potential M&A of the existing players in Russia • New fields – Western and Eastern Siberia, offshore fields in the North • Pipelines investments • Oil Services • New financing structures (securitization, etc.) O&G Services

23. IFC in Russian Oil Sector International Bank for Reconstruction and Development (IBRD) Established in 1945 International Development Association (IDA) Established in 1960 International Finance Corporation (IFC) Established in 1956 Multilateral Investment Guarantee Agency (MIGA) Established in 1988 • IFC’s fundamental role is to promote economic development by encouraging private investment, both foreign and domestic, in developing member countries. • IFC participates in private ventures that benefit the host country economy, promote high environmental standards, and provide strong demonstration effect.

24. Kazakhstan Russia Russia Bitech-Silur Aminex Lukoil Overseas Loan $50 million Syndicated loan $75 million C loan $25 million Further development of Karachaganak oil field Loan $17.5 million Equity $7.5 million Establishment of a joint-stock company to develop two oil fields in Timan Pechora Basin Loan $20.5 million Increase production of the Kirtayel Oil Field in Komi Republic Signed: October 2002 Signed: June 1999 Signed: November 1996 Russia Russia Polar Lights Vasyugan Loan $60 million Development of the Ardalin oil field and related facilities in Northern Russia Loan $11.5 million Expansion of hydrocarbon production from existing oil and gas reservoirs in Tomsk Signed: March 1995 Signed: September 1993 IFC in Russian Oil and Gas Sector

25. IFC Has Delivered a Wide Range of Services to Businesses in Russia and the CEU region • Financed over 40 projects in various sectors • Provided loans totaling $960 million • Invested $152 million in equity • Over $160 million mobilized from loan syndication with commercial banks • Provided technical assistance • Covered mining, agribusiness, financial, and forestry sectors • Worked directly with SMEs and large companies 25

26. IFC Committed $500 million in Russia in FY2003 26

27. Thank you! For further discussion, please contact: Alzbeta Klein Principal Investment Officer (W) 7-095-411-7555 ext. 2053 (M) 7-095-991-0153 E-mail: aklein@ifc.org International Finance Corporation 36 Bolshaya Molchanovka, Building 1 121069 Moscow, Russia 27