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

2. Services and Equipment for the Russian Oil & Gas Industry 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. Services and Equipment for the Russian Oil & Gas Industry Russian Oil Production

4. Services and Equipment for the Russian Oil & Gas Industry 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. Services and Equipment for the Russian Oil & Gas Industry Major industry drivers 5 1990 199520002003 Initial asset distribution (early to mid 1990s) Follow-up sector consolidation (mid- to late 1990s) Improving world oil market fundamentals (late 1990s – early 00s)  strong increase in Russian oil production Availability of assets / reserves Developing Russian capital markets and overall macro stability  restructuring of companies, increase in transparency, desire to enter international capital markets

6. Services and Equipment for the Russian Oil & Gas Industry Sources of Financing 6 1990 199520002003 Initial asset distribution (early to mid 1990s) Follow-up sector consolidation (mid- to late 1990s) Improving world oil market fundamentals (late 1990s – early 00s)  strong increase in Russian oil production Availability of assets / reserves 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 Cash Flow and Export Receivables-Backed Loans

7. Services and Equipment for the Russian Oil & Gas Industry 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. Services and Equipment for the Russian Oil & Gas Industry Export Receivables Backed Loans – Trend 2000-2003 8 Tenors (years) Pricing (LIBOR+) 1234567 100bp 200bp 300bp 400bp LUKoil ‘03 Yukos ‘03 TNK ‘03 Most Majors ‘00-’02

9. Services and Equipment for the Russian Oil & Gas Industry 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. Services and Equipment for the Russian Oil & Gas Industry 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. Services and Equipment for the Russian Oil & Gas Industry 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. Services and Equipment for the Russian Oil & Gas Industry 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. Services and Equipment for the Russian Oil & Gas Industry 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. Services and Equipment for the Russian Oil & Gas Industry 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. Services and Equipment for the Russian Oil & Gas Industry 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. Services and Equipment for the Russian Oil & Gas Industry 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. Services and Equipment for the Russian Oil & Gas Industry Future Trends in Financing Russian O&G Industry I.Large Investment Projects II.Further Sector Consolidation III.Inflow of Foreign Capital and Technology

18. Services and Equipment for the Russian Oil & Gas Industry 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. Services and Equipment for the Russian Oil & Gas Industry I. Large Investment Projects – cont. –Transportation infrastructure Need to develop stronger pipeline infrastructure, 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 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

20. Services and Equipment for the Russian Oil & Gas Industry I. Large Investment Projects – cont. –Revamp / debottlenecking of existing facilities and new facilities Upstream assets Refineries and other downstream assets O&G Services

21. Services and Equipment for the Russian Oil & Gas Industry II. Further Sector Consolidation Rationalization of existing players Drive for efficiency

22. Services and Equipment for the Russian Oil & Gas Industry 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. Services and Equipment for the Russian Oil & Gas Industry IFC in Russian Oil Sector 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. International Bank for Reconstruction and Development (IBRD) Established in 1945 International Finance Corporation (IFC) Established in 1956 International Development Association (IDA) Established in 1960 Multilateral Investment Guarantee Agency (MIGA) Established in 1988

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

25. Services and Equipment for the Russian Oil & Gas Industry 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. Services and Equipment for the Russian Oil & Gas Industry IFC Committed $500 million in Russia in FY2003 26

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