1 November 11, 2004 OECD roundtable task force on implementation of IFRS in RUSSIA Elena Krasnitskaya Moscow

2 Incentives and market drivers for IFRS conversion Incentives 1.External financing need 2.Access to international markets 3.Lower risk perception Listing on reputable exchanges From voluntary to statutory Future: Compliance with state policy and statutory requirements Market drivers 1.Stock price performance 2.Access to cheap long term capital 3.Role of the market practitioners, analyst community, rating agencies Exchanges: listing admission rules and reporting requirements Role of activist shareholders Role of the state, as a shareholder Role of the state, as a regulator

3 The incentives that prompt companies to pursue better corporate governance Planning to improve corporate governance: 78% of votes YES 78% NO 22% Planning to attract debt or equity finance: 65% of votes YES 65% NO 35% Source: 2003, public survey by the RSPP Corporate governance committee

4 Accounting reform from the bottom up Number of companies reporting to international standards is growing % 20% 40% 60% 80% 100% % 29 51% 39 65% Companies with effective ADR programs Percentage of these reporting to international standards

5 Well governed companies show higher correlation between corporate governance and price performance

6 Corporate governance and price performance CompanyRelative price performance, y-o-yCorporate governance risk category Surgutneftegaz40%High risk GAZ–12%High risk Bashkirenergo–7%High risk Purneftegaz223%High risk AvtoVAZ–19%High risk Kuzbassenergo4%High risk Novosibirskenergo 18%High risk Megionneftegaz36%High risk FESCO153%High risk OMZ–60%High risk RosBusinessConsulting47%Low risk Central Telecom–1%Low risk Kalina3%Low risk Far Eastern Telecom15%Low risk Wimm-Bill-Dann22%Low risk Ural SI27%Low risk Sun Interbrew112%Low risk Golden Telecom–6%Low risk MTS59%Low risk VimpelCom71%Low risk Risk grows

7 Corporate governance and price performance: top 10 best governed vs. top 10 worst governed VimpelCom MTS Golden Telecom Sun Interbrew Ural SI Wimm-Bill-Dann Far Eastern Telecom Kalina Central Telecom RosBusinessConsulting OMZ FESCO Megionneftegaz Novosibirskenergo Kuzbassenergo AvtoVAZ Purneftegaz Bashkirenergo GAZ Surgutneftegaz –100 –

8 Market forces: role of analyst community

9 2004: Russia’s best and worst governed companies Worst governedBest governed SurgutneftegazVimpelCom BashkirenergoGolden Telecom AvtoVAZMTS GAZSun Interbrew PurneftegazUral SI Source: Troika Dialog