Gazprom – Joint Stock Company

On February 17, 1993, pursuant to the Russian Federation Government’s Directive following the Russian Federation Presidential Decree of November 5, 1992, State Gas Concern Gazprom was transformed into Russian Joint Stock Company (RAO) Gazprom. In 1998 RAO Gazprom was reincorporated into an open joint stock company.

Any prominent corporate structure continuously changes in accordance with a company’s development logic. Gazprom is not an exception.

The corporate structure of OAO Gazprom undergoes reform for improvement purposes. Stage one of the reform, which was aimed at improving the governance methods, regulatory procedures and budgeting system at the parent company’s level, has been successfully completed.

Stage two of the reform is targeted at enhancing the operating efficiency of OAO Gazprom as a vertically integrated company and streamlining the core business governance structure at the subsidiary level. This calls inter alia for concentrating individual activities within specialized wholly owned subsidiaries of OAO Gazprom.

The intra-corporate reform centers upon Gazprom’s gas production and transmission companies. Underground gas storage capacities that used to be part of those are now consolidated within a specialized company – OOO Gazprom UGS. While the Group’s processing companies were integrated in 2008 within OOO Gazprom pererabotka, the well maintenance functions were vested in OOO Gazprom severpodzemremont and OOO Gazprom yugpodzemremont. OOO Gazprom tsentrremont (consolidates repair and service assets) and OOO Gazprom dobycha shelf were set up.

In order to enhance the investment performance efficiency the wholly owned specialized subsidiaries OOO Gazprom invest Zapad and OOO Gazprom invest Vostok were established. Besides, during the reorganization of subsidiaries OOO Gazprom transgaz Kuban was separated from OOO Kubangazprom to focus on gas transportation.

Further plans include completing the consolidation of communication, IT and other services.

The structural reform is expected to result in the full unbundling of accounts in production, transmission, processing, underground storage and marketing of gas and liquid hydrocarbons. The reform will allow the Company to significantly enhance the transparency of costs in the gas production, transmission and marketing sectors.

The restructuring of the intra-corporate governance system aimed at ensuring the structural transparency of the Company and visual identification of OAO Gazprom in Russia and abroad have spelled the development of the major wording principles for subsidiary names. According to these principles each subsidiary name must contain the parent company’s name – Gazprom. The single corporate identity will be adopted by 57 subsidiary companies and organizations of OAO Gazprom.

RAO Gazprom (since 1998 – OAO Gazprom) was privatized fully in line with the Russian Federation privatization laws as well as the Decrees and Directives of the Russian Federation President, and the Resolutions of the Council of Ministers – the Government of Russia.

The Decree to transform Concern Gazprom into a joint stock company was considered by the Presidium of Russia’s Supreme Council on October 26, 1992. At the time RAO Gazprom was founded, 100% of the Company’s shares were owned by the Russian Federation.

The sales of shares commenced in 1993 and ended in 1995 with the results as follows: 41% of the shares remained under the state ownership, 10% of the shares were acquired by Gazprom for privatization vouchers, 15% of the shares were purchased by the Company’s current and former employees for vouchers (at least 50% payment) and in cash, 32.9% of the shares were bought by residents of Russia’s 60 regions for vouchers and 1.1% of the shares were handed over to AO Rosgazifikatsiya.

8.3 million worth of privatization vouchers and around RUB 17 billion was submitted as payment for Gazprom’s shares, with 1 million 30 thousand citizens of Russia becoming the Company’s shareholders.

Just like shareholders of other joint stock companies, Gazprom’s stockholders have the following primary rights:

• to take part in the General Meeting with the right to vote on all issues falling under the purview of the General Meeting;
• to receive dividends.

Ownership of a 2% stake enables a shareholder or a group of shareholders of the Company to nominate candidates for the Gazprom Board of Directors and Audit Commission as well as to bring forward items for the Shareholders Meeting agenda. A shareholder or a group of shareholders with a 10% stake ownership may call for an Extraordinary Shareholders Meeting of Gazprom to be summoned.

In 2002, in order to facilitate efficient protection of the rights and interests of its stockholders, Gazprom was one of the first Russian companies to adopt the Corporate Governance (Behavior) Code. The document sets out the major principles and mechanisms enabling shareholders to exert their rights as well as creating conditions for the Board of Directors to exercise efficient control over the activity of Gazprom’s executive bodies, i.e. the Management Committee and the Management Committee Chairman.

Moreover, in compliance with the Code’s requirement in relation to the disclosure of corporate data to shareholders, the Board of Directors has adopted the ОАО Gazprom Information Disclosure Rules.

The Company is both the participant and organizer of numerous charitable and sponsorship events aimed at developing culture, sports, science and education as well as renders assistance to socially unprotected categories of the population. The Company does not provide any direct financial support to its shareholders.

The Chairman and the Members of the Company’s Management Committee are elected to a five-year term by the Board of Directors that has the right to terminate their term of office ahead of time.

The dividend size depends on the amount of net profit, which is determined based on the Company’s operating and financial results.

The OAO Gazprom Dividend Policy Provision was endorsed by the Board of Directors on April 24, 2001. The Provision sets the net profit allocation rules for a reporting period.

A part of the profit in the amount of no less than 2% of the Company’s capitalization but no more than 10% of the overall net profit is earmarked to pay out dividends. From 50% to 75% of the net profit is reserved for technical upgrading, new technology development, R&D, turnover asset replenishment and other similar purposes.

A further part of the net profit goes to the reserve fund (under the Company’s Statutes – no less than 5% of the authorized capital).

The remainder is allotted in equal portions as dividends and reserves used for production and social development purposes.

The decision to pay out annual dividends, including with regard to their size and payment method, is taken by the Shareholders Meeting under the recommendation of the Board of Directors. The annual dividend size can not exceed the figure recommended by the Board of Directors.

The share prospectus did not initially provide for any preference shares. All shares of Gazprom are ordinary equities.

An independent auditor of Gazprom is selected through an annually conducted competitive procedure. The procedure results are considered by the Board of Directors of Gazprom, and the auditor’s candidacy is approved at the annual General Shareholders Meeting.

ZAO PriceWaterhouseCoopers Audit was selected as the auditor of OAO Gazprom for 2008 under the decision of the June 27, 2008 annual General Shareholders Meeting of the Company. ZAO PriceWaterhouseCoopers Audit performs:

• the audit of the OAO Gazprom (parent company) Accounting Statements in accordance with the requirements of the Russian legislation;
• the audit of the Gazprom Group Annual Consolidated Accounting Statements prepared under the requirements of the Russian legislation;
• the audit of the Gazprom Group Annual Consolidated Financial Statements filed under the International Financial Reporting Standards.

ОАО Gazprom shares can be bought from their legal holder. Shares can be acquired under a purchase and sale agreement drawn up in pursuance of the existing legislation with subsequent re-registration of ownership rights in a depositary (register holder office) at the share owner’s banking account location. The Company’s shares can also be bought or sold at Gazprombank locations.

Additionally, one can buy or sell Gazprom’s shares through a stock market professional providing brokerage services. Such services are offered, as a rule, by investment companies and commercial banks.

ADR is an American Depositary Receipt freely circulating on foreign stock markets as a receipt for foreign shares deposited with a US bank. ADR is a form of international trading in shares. ADRs for Gazprom’s shares are issued to ensure circulation of the Company’s shares on foreign markets. Before April 18, 2006 one ADR equaled 10 shares of OAO Gazprom.

Beginning from April 18, 2006 the correlation of Gazprom’s ordinary shares per one ADR has been reduced to a 10/4 ratio. The ADRs already in circulation were automatically converted in accordance with the new ratio.

The April 18, 2006 move also enabled to convert ОАО Gazprom ordinary shares into ADRs and vice versa.

Yes, it is possible. There are currently no legislative restrictions on foreign ownership of OAO Gazprom shares.

The OAO Gazprom ADR Program gives any shareholder the opportunity to convert the Company’s shares into ADRs. To accomplish this, the shares are to be deposited with a local custodian bank (currently Gazprombank), after which the Bank of New York (ADR Program Depositary) issues a relevant amount of ADRs to the shareholder’s account opened with a foreign bank. Since this depositing procedure requires a thorough understanding of the entire process (including respective paperwork, fees and timing), it is more expedient to vest the converting operation in a securities market professional – a brokerage company or a bank that, at the stockholder’s request, will take all necessary actions. At the same time, it is noteworthy here that upon receipt of an ADR the shareholder becomes owner of a foreign security and is liable to the Russian Federation currency laws.

Gazprom’s shares are traded on a foreign market in the form of ADRs. Thus, in order to be sold on a foreign market, shares are first to be converted into ADRs. Naturally enough, it is more expedient to vest such an operation in a securities market professional – a brokerage company or a bank that, at the stockholder’s request, will take all necessary actions.