FRIDAY - PDF by liuqingyan


									                                                                     May 25, 2007

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1. Evraz Group: another explosion at Yuzhkuzbassugol
2. LUKoil and Gazprom Neft expected to establish JV today
3. Russian Railways to form alliance with Transmashholding
4. UES BoD meets today, finalization of asset swaps-key topic
5. Belgorod Supply Company sold at 270% premium;
6. Federal budget revenue is 9.5% short of target in 1Q07
7. Gazprom gains control of SalavatNOS
8. Norilsk Nickel tops Xstrata offer for LionOre by CN$6 to lead bidding battle
9. Basic Element and VKM to form railcar joint venture
10. Nizhnov and Kuzbass SupCo auctions reveal healthy premiums
11. Strategy committee supports the sale of UES' stakes in Novosibirskenergo and
12. Strong growth in fixed investment becomes a steady trend
13. First foreign company to IPO in Russia
14. Russian government has approved construction of BPS-2
15. UES to delegate responsibility to government ministry
16. AvtoVAZ to build 440,000-car plant with Magna
17. Gazprom signs agreement to purchase 50% of Beltransgaz
18. Rosoboronexport offers RUB35/share to Kazan Helicopters
19. UES investment goals overfulled

1. Evraz Group: another explosion at Yuzhkuzbassugol
Friday, May 25, 2007

Yuzhkuzbassugol - an equity affiliate of Evraz Group - reported yesterday a serious
accident at its Yubileinaya mine, killing more than 30 miners. This is the second
major accident at Yuzhkuzbassugol's coal mines this year, following a methane blast
at the Ulyanovskaya mine last March. Yubileinaya is smaller than Ulyanovskaya, its
2006 output totaling 1.1m tonnes of coking coal (10% of the company's total
production) compared with Ulyanovskaya's 2.3m tonnes.

Yubileinaya, however, mines the coal of the most valuable Zh blend, which currently
sells at a 20325% premium to others. The accident should have a material impact on
Yuzhkuzbassugol's earnings, as the mine will probably be offline for a considerable
time. Moreover, the Federal Environmental, Engineering and Nuclear Inspection

Service (Rostekhnadzor) is growing increasingly anxious to suspend the miner's
production license, which would result in a temporary shutdown of all of the
company's mines.

The accident should not seriously affect production at Evraz Group's steel mills,
although the Zh blend is currently in short supply in Russia, and it might be difficult
for the company to source it from elsewhere. More importantly, the accident
potentially undermines the value of Evraz Group's 50% equity stake in
Yuzhkuzbassugol and may raise concerns over the long3term sustainability of coal
supplies from the company. Given that the miner's position has significantly
deteriorated after its former CEO, Vladimir Lavrik, died last year in a helicopter
crash, we believe that Evraz Group should take serious measures before the situation
spins out of control. In our view, the stock's valuation has already suffered enough.
We value Evraz Group's 50% stake in Yuzhkuzbassugol at the purchase price, which
was around $675m. This translates into roughly $1.90 per Evraz Group GDR, which
fell by $1.30 yesterday.,,

2. LUKoil and Gazprom Neft expected to establish JV today
Friday, May 25, 2007

LUKoil and Gazprom Neft are expected to sign an agreement on the establishment of
a JV today. LUKoil would have a 49% stake, but would run the new outfit on a parity
basis with its partner. The JV's official goal is to secure cooperation between the two
companies in asset acquisitions in Russia and overseas. We believe that in promoting
cooperation, both oil companies are pursuing their own tactical and strategic goals.

For instance, LUKoil may fear possible amendments to the subsoil use law that would
restrict access to strategic fields even for domestic private sector firms. This is one
reason why the company is looking for a partnership with Gazprom. In this way an
alliance with Gazprom Neft could enhance LUKoil's chances of winning upcoming
reserve auctions in the strategically important Timan Pechora oil province.,,

3. Russian Railways to form alliance with Transmashholding
May 25, 2007

Russian Railways (RZD) is to purchase a blocking stake in Transmashholding (TMX),
Russia's largest manufacturer of railroad equipment, RZD President Vladimir Yakunin
announced yesterday. The price of the transaction was not disclosed, although RBC
Daily reported a price of some $2bn, citing sources close to the deal. Payment will be
partially in cash and partially through assets, and the deal is expected to be signed

RZD's investment in Transmashholding was agreed in principle last year. However,
one of the conditions of the deal was the consolidation of stakes in TMX plants on its
own balance sheet (previously the holding only managed these assets). Last year the

group consolidated stakes in three factories - Kolomensk, Oktyabrsk, and
Metrovagonmash - and this week it added several more companies.
Transmashholding also owns a 25% stake in the Tver Wagon-building Factory, the
country's largest producer of passenger wagons. The owners of the holding are
reported to be Kuzbassrazrezugol's co-owners Iskander Makhmudov and Andrei
Bokarev, and TransGroup AC's owners Maxim Liksutov and Sergei Glinka.

In our view, a strategic alliance with the state-owned company should be a positive
for Transmashholding: RZD is the largest freight and passenger carrier in the
country, its park is requires a major upgrade, and the growing need to renew its
rolling stock should ensure a long-term portfolio of orders. We would not expect the
business to be highly profitable, however: RZD is likely to use its monopoly position
to prevent suppliers from sharply increasing prices.

Although we have no formal recommendation on companies in the sector, we
suggest that investors look at the public subsidiaries of the holding, particularly the
Kolomensk factory (KLMZ, KLMZP), whose shares trade at low 2006 multiples
compared to other companies in the sector. Its common shares are quoted on the
RTS at $23-$30/share, prefs at $16.25- $18, for a market capitalization of roughly
$156mn. We would also call attention to Altaivagonzavod (ALVG), which is not part
of Transmashholding, but which also trades below peers. The company is one of the
few in the sector outside of Transmashholding and therefore a possible acquisition
target. The company is part of the Siberian Business Union, but it is unclear whether
it can compete with the TMX-RZD alliance. The company could also unite with other
machine-buiding groups, such as Oleg Deripaska's Russian Machines.

ALVG shares were quoted on the RTS yesterday at $1.22 for a market capitalization
of $136mn.

4. UES BoD meets today, finalization of asset swaps-key topic
May 25, 2007

News The UES BoD will meet today, according to the company. Key topics on the
agenda include:

(1) Swaps among UES shareholders of their claims on underlying UES assets

(2) Sales of UES stakes in Novosibirskenergo and Bashkirenergo [Buy 2]

(3) Parameters of the share issue by TGK-7

(4) Share issue by Power Machines

(5) Split of the Government-attributable stakes in thermal GenCos between FSK and
Hydro OGK

UES CEO Anatoly Chubais will host a conference call on the results of the meeting at
19:00 (Moscow), 16:00 (London) and 11:00 (New York)

UK access number is +44 (0) 20 7075 6551 The code 222954# is for the original
Russian version The code 406975# is for simultaneous English translation

Comment We do not expect this BoD meeting to bring news having a major stock-
moving effect on UES. Decisions on most of the topics listed above are either
preannounced / guided for (items 2, 3, 4 as well as item 1 to a certain extent), or
directly affect only a limited number of UES shareholders (item 1)

However, the news may affect to a certain extent shareholders of UES subsidiaries

Nevertheless, we are looking forward to this BoD meeting to produce the final
decision on the asset swaps among UES shareholders see Item 1 above (a topic that
has been discussed for more than two months). In particular, we expect this meeting
to resolve the following unknowns:

_ Which non-Governmental shareholders will be involved in the asset swaps?
According to Interfax and Kommersant, UES received applications from 3 non-
governmental shareholders, including Gazprom [Buy 2] (>11% of UES) and Norilsk
Nickel (3.5% of UES). Shareholders could have applied to qualify for the asset swaps
by May 21, 2007

_ Will Hydro OGK and FSK be subject to swaps (along with thermal generation)?
According to the position taken by UES at its previous BoD meeting, shareholders
could only have exchanged their claims on thermal generation (thermal OGKs and
TGKs). However, at the conference call following that BoD meeting, UES CEO Anatoly
Chubais signalled that this issue is subject to further discussion. And indeed,
according to today's reports by Kommersant, Gazprom will be allowed to exchange
its claims on Hydro OGK and FSK for Government stakes in select thermal OGKs and

_ Will the Government be involved in swaps? This uncertainty is closely related to
the previous one above. In our view, the Government will only have an economic
interest in participating in the swaps if it decides to take higher stakes in Hydro OGK
and FSK in exchange for lowering its stakes in thermal GenCos. Therefore, we think
that the Government will only be involved if Hydro OGK and FSK will be subject to
the swaps along with thermal GenCos

_ Will Gazprom be able to acquire control of some of the GenCos as a result of the
asset swaps? Which asset will this be? In theory, swapping its interests in Hydro OGK
and FSK for claims on select thermal GenCos may bring Gazprom's stakes in select
GenCos to high levels (depending on how focused Gazprom would be in those
swaps). Kommersant suggests that Gazprom will focus on OGK-2 [Buy 2] and OGK-6
[Reduce 2] where it already has minor stakes. If Gazprom indeed gets control of
those companies directly as a result of the asset swaps, these would be negative for
the minority shareholders of these companies, because their minority shareholders
may not be eligible for a potentially lucrative buy-back offer by the new controlling
shareholders (as happened to shareholders of OGK-3 [Reduce 2] after its acquisition
by Norilsk Nickel)

_ (A technical uncertainty). What would be the swap ratios? To remind, those ratios
are to be set by UES (as opposed to be subject to negotiations among involved
parties). Although these ratios will not affect the claims of UES minority shareholders
on underlying assets, it still should be informative in terms of how UES (or effectively
the Government) will see the relative valuations of Hydro / Thermal / Grid assets for

the purposes of swaps. However, we do not expect this information to come out of
today's meeting. The swap ratios will be discussed further

We are also looking forward to seeing how UES (or effectively the Government) will
split its stakes in thermal GenCos for contribution into the capital of Hydro OGK and
FSK (i.e. how much will go to Hydro OGK and how much will go to FSK)-see Item 5
above. The most important issue relating to this, however, is at which levels the
government will value Hydro OGK and FSK when it contributes the stakes of thermal
GenCos into the capital of Hydro OGK and FSK

We are looking forward to today's Conference Call by UES CEO Anatoly Chubais to
bring clarity on these unknowns

5. Belgorod Supply Company sold at 270% premium;
May 24, 2007

Three more auctions for the sale of UES's supply companies were held yesterday.
The outcome of was even more mixed than in previous auctions. As can be seen,
Belgorod Supply Company was sold at the highest premium (268%) to its starting
price, while Vologda SupCo went for exactly the starting price of the auction.
Meanwhile, the auction for the sale of Kola SupCo failed to take place due to the
presence of only one bidder instead of the minimum of two.

It is still unclear whose interests the buyers represent. According to a representative
of KIT cited by Interfax, the company is affiliated with Sibur-energo and is basically
involved in the business for construction of some small energy assets. According to
Interfax, Roskummumenergo was unavailale for comments.

While the results of the auctions look mixed, there is no real competition for most of
the assets sold at their starting prices. On the other hand, we acknowledge the huge
interest from strategic buyers in certain SupCos (e.g. the Nizhnov and Belgorod
SupCos). However, this fact is somewhat overshadowed by the disappointing results
of the sale of Kola Supply Company.

In any event we see this news as POSITIVE for the supply companies overall, as the
results of these auctions demonstrated huge interest from strategic investors in
certain supply companies. In our view, the lack of competition in some of the
auctions, leading to the sale of the assets without any premium, can be explained by
huge risks concerning the supply business at the moment (a possible drop in
revenues due to the exit of some customers, uncertainty with future regulation,
etc.). These risks are fully reflected in the starting prices of the auctions.

We believe the news is also marginally POSITIVE for UES, because the total value of
its stakes in the supply companies amounts to only around 3% of its total sum-of-
the-parts value. Meanwhile, we are still cautiously watching how UES will use the
proceeds from the sale of these assets and how it might affect minorities.


6. Federal budget revenue is 9.5% short of target in 1Q07
May 24, 2007

The government is due to discuss the report on the federal budget for 1Q07 today.
According to a press release, revenues for 1Q07 were 9.5% lower than projections.
The total of RUB1,421.9bn represented a 5.5% y-o-y drop in real terms. The
shortfall of almost R150bn is the first such instance in 1Q since 1999. Also, budget
revenue amounted to just 20.4% of annual projections, which is the lowest level
since 2004.

According to the report, the gap is mostly due to lower gas and petroleum prices, as
well as the lower R/$ exchange rate, RBC Daily writes. Moreover, according to a
preliminary report released in April by the Ministry of Finance, the current budget
does not properly account for a 2006 change in the VAT tax base. As a result, 1Q
VAT receipts came up short by about RUB70bn.

The VAT revenue shortage implies that the budget problems may affect not only the
stabilization fund, but also non-oil budget revenues. As a result, the government
may start to use part of the stabilization fund in 2007 (the "reserve fund," according
to the new classification) to finance growing expenditures. These developments are
already accounted for in the revised government GDP outlook released earlier this
week and are included in the three-year financial plan set to be approved by the
Duma in the upcoming weeks.

We also note that the reported revenue shortage means that tax authorities have not
fulfilled their quarterly tax collection plan for the first time since the 1990's. This
fact, given upcoming elections, raises the possibility of more aggressive tax
collection efforts throughout the year. While the government still has a chance to
catch up with its budget revenue target in the subsequent quarters, we find the
revenue miss - especially set against the backdrop of massive social and
infrastructure spending plans - a worrying sign.


7. Gazprom gains control of SalavatNOS
May 24, 2007

Yesterday Bashkortostan's government announced that 54% of
Salavatnefteorgsintez (SalavatNOS) has been sold to Gazprom.

Vedomosti speculates that the deal was made without the Federal Antimonopoly
Service's (FAS) approval. According to the newspaper, management company Leader
(affiliated with Gazprom) petitioned the FAS at the end of March and has yet to
receive approval.

We expect that Gazprom will target 100% in the petrochemicals giant, the share for
which it has previously petitioned the FAS.

We consider this news to be NEUTRAL for the stock, as it was largely expected.
However, we believe that the company is fundamentally undervalued and maintain
our BUY recommendation with a target price of $106.4 and 49% upside.

Dmitry Loukashov

8. Norilsk Nickel tops Xstrata offer for LionOre by CN$6 to lead
bidding battle
May 24, 2007

Norilsk Nickel yesterday increased its offer for Canadian LionOre Mining International
Ltd. by CN$6 to CN$27.5 to top the offer from rival Xstrata to acquire the company.

The cash offer will be open until 8pm Toronto time on June 18. Previously Norilsk
Nickel offered of CN$21.50 per common share, and a premium of 10% over the
CN$25.00 price per share offered by Xstrata plc in its increased bid for LionOre last

The deal is now worth CN$6.8bn, and provides around Cdn$620m more cash to
LionOre shareholders than the Xstrata offer.

"Norilsk Nickel's decision to increase its offer reflects the quality and strategic value
of LionOre to our Company, which will give us greater scale in key commodities,
enhanced geographic diversification and an exciting pipeline of growth projects,"
Norilsk Nickel's General Director, Denis Morozov, was quoted by Interfax as saying.

"Our bid has been discounted to take into account the additional costs arising from
the excessive Cdn$305m break fee payable to Xstrata. This break fee has
compromised a fair bidding process, and value, which should have been delivered to
LionOre shareholders, instead may go to Xstrata," Morozov said.

9. Basic Element and VKM to form railcar joint venture
May 23, 2007

Russkiye Mashiny holding, the management company for Basic Element's machine-
building assets, plans to create a joint venture with the VKM machine-building group,
Vedomosti reports. According to the newspaper, the JV will be a 50: 50 partnership,
with VKM contributing its industrial assets, the largest of them being its controlling
stakes in VKM-Steel and Ruzkhimmash (RUHM), and Russkiye Mashiny paying for its
stake with cash.

Russkiye Mashiny-controlled Abakankhimmash is not to be folded into the JV initially,
but over time the partners plan to create a single company managing their core
assets. The JV will be founded by end-June or early July 2007 and will be called
Russian Vehicle Corporation and registered in the Volga region of Mordovia.

In our opinion, Basic Element's interest in the Mordovian machine-building business
is understandable. Ruzkhimmash is one of the biggest vehicle and specialized
transport builders in Russia. The plant's core business is tanker cars for crude and
product transportation. At the moment railroad machine-building is a fast-growing
sector, thanks to the high demand from Russian Railroads and private cargo carriers:
demand for park modernization far surpasses the capabilities of local producers.
Vedomosti quotes data from the Ministry of Industry and Energy indicating total
Russian capacity of 33,400 new cargo cars in 2006, while demand was 48,900.
According to Russian Railroads, its demand for cargo wagons through 2015 is about
450,000 units. Russkiye Mashiny and VKM plan for the JV to produce at least 10,000
cargo cars pa already in 2008, which would make it a market leader.

The partners have not disclosed the financial terms of the deal, but we consider this
news to be positive for Ruzkhimmash and other car builders' shares. In addition,
Ruzkhimmash's increased competitiveness should diminish the level of
monopolization in this sector; currently Transmashholding controls almost all active
car-building plants in the country.

RUHM shares are quoted at $1,100 on the RTS Board, which implies a market
capitalization of $72mn. We have no formal recommendation for Ruzkhimmash.


10. Nizhnov and Kuzbass SupCo auctions reveal healthy

The results of the most recent auctions of UES's supply companies have been
announced (summarized in the table below). As can be seen, Nizhnov Supply
Company and Kuzbass Supply Company were sold at significant premiums to their
starting prices. Nizhnov Supply Company especially stands out, as it was sold at a
173% premium. Meanwhile, the Sverdlov and Orenburg supply companies were sold
to Integrated Energy Systems at exactly the starting auction price, as was the case
with yesterday's sale of Kuban Supply Company.

* The companies were sold within the framework of UES's plan to sell its stakes in
the supply business prior to its breakup by mid-2008. The next portion of auctions
for the remaining three supply companies will be held tomorrow, while the next
series of auctions is set for this autumn.
* We see this news as POSITIVE for the supply companies overall, as the results of
these auctions demonstrated huge interest from strategic investors in certain supply
companies. Once again, one may expect that the deals' prices will be used by
investors as well as appraisers determining the benchmark for the valuation of the
supply companies.
* We believe the news is also marginally POSITIVE for UES, because the total value
of its stakes in the supply companies amounts to only around 3% of its total sum-of-
the-parts value. Meanwhile, we are still cautiously watching how UES will use the
proceeds from the sale of these assets and how it might affect minorities.


11. Strategy committee supports the sale of UES' stakes in
Novosibirskenergo and Bashkirenergo
May 23, 2007

According to Interfax, UES' strategy committee supported the sale of UES' 14.7%
and 21.3% stakes in Novosibirskenergo and Bashkirenergo respectively. The
proposed date for the auctions is October 2007. We see the news as positive for
Bashkirenergo and Novosibirskenergo shares, because the auctions should increase

UES' full board is to discuss the sale on Friday, May 25.

We have no formal recommendations on Bashkirenergo and Novosibirskenergo.


12. Strong growth in fixed investment becomes a steady trend
Deutsche UFG
May 23, 2007

Fixed investment growth reached 19.4% in April, which significantly exceeds both
the consensus forecast (15.6% YoY) and our estimates (18.5% YoY). It is also higher
than the growth in March.

In our view, the low base effect which we saw at the beginning of the year was fully
eliminated by April and so we believe that the high growth in investment was due to
fundamental, long-term factors. This supports our view that the investment boom
will become the key driver of economic growth this year.

The PPI accelerated sharply in April, reaching 4.3% MoM, the highest monthly
reading since October 1999. Still, we would not like to dramatise the reading: the
PPI is a relatively volatile indicator and the 12-month rolling PPI stands at 9.9% YoY.
This only slightly exceeds our full year forecast and we see signs of the catch-up
effect in the high reading: despite domestic oil prices starting to increase in March,
this has had no effect on the fuel raw materials component of the PPI. Prices in the
sector declined by 6.0% MoM and 5.2% MoM in February and March, respectively.
This may also be due to the seasonal factor, as oil prices on the domestic market are
usually lower in the cold season when the export capacities for oil and oil products
are limited by pipeline and railway transportation constraints. The price of oil
products also increased sharply in April. The sharp increase in the PPI is adding to
inflationary pressures and is another argument supporting the possibility of the
rouble appreciating in the course of the year.

Disposable income growth slowed down in April reaching 9.2% YoY compared with
10.8% YoY in March (although Rosstat lowered this estimate from 12.6% YoY)
despite strong growth in real average wages, lower unemployment and an increase
in pensions implemented in April (pensions were raised by 7.5-9.5%). Real average
wage growth comes on the back of lower inflation and could also be related to the
ban on foreigners working in Russia's retail sector as of 1 April 2007 (which could
have resulted in wage increases in the sector).


13. First foreign company to IPO in Russia
May 22, 2007

Turkish jewellery chain Goldas has opened talks with Russia's MICEX exchange and
plans to become the first foreign-owned company to float on a Russian exchange
later this year.

Goldas is a successful retailer of gold jewellery in Turkey, where the company has
over 80 stores. It set up in Russia over a year ago and already operates some 30

According to a source close to the company, Goldas has opened talks with MICEX
stock exchange in preparation of organising the first ever IPO of a foreign-owned
company in Russia.

The Goldas subsidiary is a Russian legal entity, 100% owned by the Turkish parent.
The company has been enjoying extremely fast growth in Russia and will use the
rubles raised from an IPO on MICEX to finance further growth of its Russia's
operations. The talks are at an initial stage says the source.

14. Russian government has approved construction of BPS-2
Deutsche UFG
May 22, 2007

According to Interfax, the Russian government has approved the construction of
BPS-2, a pipeline around Belarus. Transneft's management proposed the idea of
BPS-2 in January after the company experienced problems with the transit of crude
oil through Belarus via the Druzhba pipeline. While the proposed pipeline would
improve the security of Russian crude oil deliveries to Europe, we do not believe that
the project is economically justified. Transneft will essentially have to build a backup
pipeline and, as a result, neither Druzhba nor BPS-2 will be used at or near full

We estimate the total cost of this project (building the line and expanding the
Primorsk port on the Baltic Sea) at $2.0-2.5 bn. This is essentially the cost that
Transneft shareholders or oil companies have to pay because the Russian
government is unable to strike a good deal with the Belarusian government. While
this is not necessarily Transneft's fault, we remind readers of another occasion, when
crude exports via the Baltic states were stopped, which also required additional
capex spending from Transneft to provide crude oil transportation capacity

We believe that this current example once again underpins our view of Transneft as
a technical instrument in the hands of the Russian government and not a corporate
which operates for the benefit of its shareholders. Our recommendation on Transneft
remains SELL.


15. UES to delegate responsibility to government ministry
May 22, 2007

According to Interfax, UES CEO Anatoly Chubais has suggested appointing a special
ministry to be the successor to UES in the utilities sector after the company's break

This ministry would be responsible for control over the execution of investment
programs by utilities companies as well as general monitoring of the sector and
technical regulations. Other functions might be delegated to non-commercial
partnership Market Union, which is planned to be established on the basis of the ATS
(electricity trading system).

These proposals seem logical because UES's break up threatens a loss of control over
the regulation and infrastructure of the complicated Russian utilities sector. However,
these proposals had been floated in some capacity previously, thus we view this
news as NEUTRAL for the company's stock.

Alexander Kornilov


16. AvtoVAZ to build 440,000-car plant with Magna
May21, 2007

Event: On 18 May, AvtoVAZ reported that it had signed a memorandum of intent
with Canadian auto-parts maker Magna International to jointly develop a new budget
model and build a plant. The level of investment for a facility manufacturing 440,000
cars per year is estimated at around $1.5bn. The budget model will be priced at
around $12,000. The documents for establishing the 50/50 joint venture will be
signed in autumn 2007.

Action: We do not cover this stock.

Rationale: We view this news as positive. The outdated model range was the main
issue for the country's largest car producer. Last year the company lost 10% market
share to foreign brands.

Eduard Faritov


17. Gazprom signs agreement to purchase 50% of Beltransgaz
May 21, 2007

Last Friday Gazprom signed an agreement with Belarusian authorities for the
purchase of 50% of Beltransgaz. A JV based on Beltransgaz with equal stakes held
by both parties had been announced in late 2006 as one of the terms for settling the
dispute between Russia and Belarus regarding their gas supply agreement. However,
since that time Gazprom's acquisition of a 50% stake in the company had been
constantly delayed.

Within 20 days Gazprom will pay its first installment of $625 mln and gain a 12.5%
economic interest in the enterprise. The remaining 37.5% will be acquired by 2010 in
a further three installments of 12.5%.

We see this news as POSITVE for Gazprom as the gas company will gain 50% control
over the Belarusian gas transportation system, which transports almost one-third of
Gazprom's gas exports to Europe. Moreover, the agreement will hopefully allow the
gas company to avoid further conflicts regarding the transportation of Russian gas
through Belarus.

18. Rosoboronexport offers RUB35/share to Kazan Helicopters
May21, 2007

Event: Rosoboronexport (ROE) has made an offer of RUB35 per share to Kazan
Helicopters' shareholders. The offer was made in accordance with Russian legislation
a company that consolidates a greater than 30% stake should propose the offer to
other shareholders. The 30.3% stake in Kazan Helicopters was controlled by
Oboronprom, the ROE-controlled defence holding. Kazan Helicopters' shares
comprise 154,089,390 common and 594,300 preferred shares. The offer will be
effective for 76,747,544 common shares (49.8% of total common shares). We
believe that the remaining 50.2% stake is currently controlled by Oboronprom.

Action: The company trades within a $1.3-1.4 price range and the offer price is
approximately $1.35 per share. We believe this offer could be interesting in terms of
reducing the company's illiquid position in the short term. In the long term, the
company's share-price performance will be affected by growth of the order book,
which, according to Kazan management, will result in 2007-2008 revenue of $350-
360mn and pre-tax profit of $29-30mn.

Rationale: The company reported a weak bottom line in FY06 despite relatively good
revenue growth due to additional selling costs connected with exports. We believe
this result reflects relatively low financial and cost management. In 1Q07, the
company reported lower revenue due to lower deliveries YoY. However, we are still
positive on the potential for growth in the company's order book.

Marina Alexeenkova

19. UES investment goals overfulled
May 21, 2007

United Energy Systems CEO Anatoly Chubais believes the power monopolist will
receive $6bn more investment capital than it planned and will triple investments into
the sector.

Speaking at the EBRD annual meeting, Chubais said that the effort to raise the
private investment needed to finance the building of desperately-needed generating
capacity has constantly surprised on the upside.

The process started with the privatisation of OGK-5 last November. In all UES has
sold stakes in five power generators from a total of 20 that are on the docket for
privatisation in the next few years.

The company invested $2bn in 2005 before the privatisations began adding to the
coffer. Investments jumped to $6bn after UES received this much from sell offs -
$2bn more than it was expecting to raise.

"This year we are planning to invest $20bn, but I am very confident that we will now
actually raise $26bn," said a visibly pleased Chubais.

In all Chubais says UES plans to invest some $80bn over the next five years in the
construction of 20,000MW of new generating capacity, work that has already been

The basic philosophy of UES' strategy is to divide the power sector into the natural
monopoly that is the grid, and a generating sector governed by market forces.

Interest in UES' privatisation was slow to build but took off last year as the first so-
called gencos went under gavel. "We are now standing on the finish line," said
Chubais. "We are testing the practices and the prices to see how they relate to prices
in the rest of the world."

While the financing of the gencos will be raised from private investors and this part is
going well, it is impossible to raise private money for the grid.

"The natural monopoly part of the system not only belongs to the state, but is a part
of the state," said Chubais. "For the first time ever, the billions of dollars needed for
investment have been included in the state budget. Some of Russia's regions are
also intending to invest into this infrastructure."

While the two main pieces of reform to the power sector now seem to be well in
hand the only thing left to do is create a market for power. A wholesale market for
power has been set up, but only small amounts of power are traded on it.

UES will cease to exist at the end of next year and the powers of the current
regulator will be expanded to oversee the operations of the power market. In the
meantime UES intends to continue experimenting with the market to find the
optimum regulations and practises to ensure a smooth transition to unregulated

At the same time at the end of November last year the government signed off on a
plan to slowly raise prices to match international rates.

"By 2011 there will be equal prices for internal and external markets," said Chubais.
"This is essential as it will by itself wipe away most of the major distortions that
could arise."



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