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TransneftNon-Deal Roadshow
2
Table of Contents
I. Transneft today
II. Business and operating profile
V. Financial profile
VI. Credit summary
I. Transneft today
4
Transneft today
Transneft is an owner and monopoly operator of Russia’s crude oil pipeline infrastructure
Russia is the world’s largest producer and second largest exporter of crude
Transneft transports over 90% of all Russian crude production to internal and export destinations
Transneft’s pipelines and sea terminals are Russia’s principal oil export channels, handling approx. 80%1 of Russian crude oil export
Key facts
Financial highlights
Support/Services Subsidiaries
Main pipeline subsidiaries
2003
1 Note: non-CIS crude exports (excluding transit)
US$mSales 5,698 5,223 3,721EBITDA 2,864 2,678 1,977EBITDA Margin 50.3% 51.3% 53.1%Net Income 1,514 1,429 996CFO 2,342 2,105 1,025CAPEX (1,996) (1,978) (1,014 )Total Debt/Equity 6.0% 6.6% 8.0%Total Debt/EBITDA 0.2x 0.2x 0.3xEBITDA/Gross Int. Exp. 37.0x 34.1x 34.0x
100%
100%
100%
100%
64%
100%
100%
75.5%
100%
100%
Upper Volga Main Pipelines
Nizhny Novgorod
Druzhba Main PipelinesBryansk
Volga Main PipelinesSamara
Northern Main PipelinesUkhta
North Western Main Pipelines
Kazan
SibnefteprovodTyumen
Trans-Siberian Main Pipelines
Omsk
Ural-Siberian Main Pipelines
Ufa
Central Siberian Main Pipelines
Tomsk
Black Sea Main PipelinesNovorossiysk
100% Baltic Main PipelinesSaint Petersburg
Notes: 1) IFRS accounts2) Exchange rate calculation:
Average $/RUR rate used for cash flow and income statement numbers; End of period $/RUR rate used for balance sheet items Source: Transneft
2004LTM 1Q05
100%
100%
100%
100%
100%
100%
99.5%
100%
100%
100%
SvyaztransneftMoscow
Volzhysky PodvodnikNizhy Novgorod
Centre for Technical Diagnostics
Moscow
Stroyneft Moscow
GiprotruboprovodMoscow
Transneft (UK) Ltd.London
“Transneft” Insurance CompanyMoscow
Centre for Metrological SupportMoscow
Primorsk Specialised Sea Port
Leningrad area
TranspressMoscow
Diagnostics/ repair of underwaterpipelines
Main pipeline construction management
Feasibility studies and research
Financing for importprocurement
Insurance services
Metrology support
Freight loading/ unloading, oil transport
Publishing
Communication and network support
100% Supplementary pension plans
“Transneft” Pension Fund
Moscow
TransneftleasingMoscow
100%
Diagnostics of mainpipelines
Leasing services
Subsidiary companies
5
Transneft is the world’s largest crude pipeline network operator
Transneft’s pipelines link Russia’s main oil producing provinces to domestic refineries, export sea terminals and connection points with oil pipeline networks of neighboring countries
Only 52%2 of Russian export oil transported by Transneft have to transit through Ukraine, Belarus or the Baltic countries
Oil provinces with the highest production growth prospects, such as West Siberia and Timan-Pechora, are already connected with Transneft’s main pipeline system
Good geographic coverage and the size of Transneft’s pipeline network allow for substantial economies of scale
2 Note: as of July 2005; Source: Transneft
Transneft’s pipeline network
Highlights
48,075 km1 of trunk pipelines with diameters ranging from 420 to 1,220 mm
336 pumping stations
861 surface storage tanks with total capacity of 14.2 million m3
Three oil loading sea terminals in Novorossiysk, Tuapse (Black Sea) and Primorsk (Baltic Sea)
Comprehensive Environmental Management System
Conformity to ISO 14001 standards
Key facts and figures
Russia’s proven reserves by region
50
10 5 3 20
204060
WestSiberia
Volga-Urals
Timan-Pechora
EastSiberia
Far East
bln
to
nn
es
1 Note: as of 30-Jun-05
Source: International Energy Agency: World Energy Outlook 2004
6
Russian government owns and runs Transneft
Source: Transneft
Government stake - 75% capital and 100% control Consideration towards company’s interests Control over investment and dividend policy Implicit government support in negotiations with off-
takers, suppliers and transit countries
Unique status of exclusive agent for Russian oil exports
Considers key financial and financing parameters of Transneft
History of reinvesting earnings into business development and modest dividends
Management structure
Stockholder’s Meeting(Government maintains 100% of
voting rights)
Board of Directors(7 government appointed members
and 2 Transneft executives)
President (Mr. Vainstock)
Administrative Board(9 Transneft managers)
Auditing Committee (3 members from various government ministries)
Direct government control Supportive regulatory environment Prudent shareholder with long-term strategic vision
Shareholder structure
Domestic & International Investors
Russian Government
Transneft
25% of Equity (Preferred shares)0% Control
75% of Equity (Common Shares)100% Control
Russian Federation Support for TransneftRussian Federation Support for Transneft
7
Transneft is a government tool and a source of income Transneft’s crude oil load
Non-CIS crude exports (excluding transit)
Critical role in Russian economy
The oil sector is key to the Russian economy as it provides: A quarter of national GDP and government income Two thirds of country’s export revenues
Transneft is the Russia’s primary crude oil export channel Economics of oil pumping via a pipeline are superior to any
alternative mean of transportation Alternatives often are complimentary, not competing
Transneft is one of the tools the Russian government uses to exercise control over oil companies by means of determining tariffs and new pipeline projects
161 169 187 207 210
166
18714
20
20
20
21
216
153138
95.2%95.7%
95.2%
94.3% 94.5%
0
50
100
150
200
250
300
350
400
450
500
2000 2001 2002 2003 2004
Vo
lum
e (m
ln,
ton
nes
)
85%
87%
89%
91%
93%
95%
97%
Percen
tage o
f total R
U o
il ou
tpu
t carried b
y Tran
sneft (%
)
Exports of transit oil
Exports of RU oil
Shipments of RU oil to refineries
Percentage of Ttl RU oil output
Source: Ministry of Industry and Energy; Renaissance Capital 2005 Russia Oil & Gas Yearbook; Transneft Source: BP’s Statistical Review of World Energy; Transneft
81%79%83%90%92%
16%18%
14%5% 6% 4%
2%
4%3%
3%
0
50
100
150
200
250
2000 2001 2002 2003 2004
Vo
lum
e (m
ln,
ton
nes
)
Transneft Rail Other by-passing infrastracture
133 143159
186
216
8
380
421
459
490505
520
450 450
187208
238 246 254 261
223 226 226
480
445 445
420
241
223
211
0
100
200
300
400
500
600
2002 2003 2004 2005E 2010E 2015E 2020E
Vo
lum
e (m
ln t
on
nes
)
Actual Production Production - best case
Production - base case Actual Export
Export - best case Export - base case
Russian crude oil production and export in comparison with forecasts of “Russia’s Energy Strategy to 2020”
Unique position to benefit from increasing global oil demand
Actual Forecast
2002-2020 Production growth rate:
Best case: 37%Base case: 18%
2002-2020 Export growth rate:
Best case: 40%Base case: 21%
Source: Ministry of Industry and Energy; Energy Strategy of Russia for the Period to 2020, Transneft
World 2002-2020 growth: 39%
Global annual oil demand
27%
12%
58%
51%
67%
38%17%
Source: International Energy Agency: World Energy Outlook 2004
0
50,000
100,000
150,000
200,000
250,000
300,000
2002 2010 2020
Vo
lum
e (m
ln t
on
nes
)
North America EuropeAsia & Pacific Latin AmericaAfrica and Middle East Transition economiesMisc
9
Sales, EBITDA and EBITDA margin evolution Debt financial ratios evolution
Strong financial performance
1,399
1,923
2,567
3,121
3,721
5,223
5,698
534
2,864
972
1,5291,727
1,977
2,678
38.2%
50.6%
59.6%
55.3%53.1%
51.3% 50.3%
0
1,000
2,000
3,000
4,000
5,000
6,000
1999 2000 2001 2002 2003 2004 LTM1Q05
US
$, m
ln
0%
10%
20%
30%
40%
50%
60%
70%
Pe
rce
nt
Sales (left axis)
EBITDA (left axis)
EBITDA margin (right axis)
0.05 0.04
0.23 0.23
0.32
0.24
0.22
34.137.0
21.1
34.0
24.1
47.1
70.7
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
1999 2000 2001 2002 2003 2004 LTM1Q05
Tim
es
(X
)
0
10
20
30
40
50
60
70
80
Tim
es
(X)
Total Debt/EBITDA (left axis)
EBITDA/Gross Interest Expense (right axis)
Source: Transneft
II. Business and operating profile
11
Year
Average annual tariff(RUR/t) 123.2 165.2 224.5 250.3 296.2
Number of revisions 6 1 2 3 2
Average annualincrease 34.1% 35.9% 11.5% 18.3%
Russian PPI 33.1% 9.7% 17.5% 13.0% 28.4%
Clarity and supportive nature of tariff regulation
Introduced in 2002, the new tariff methodology provides a clear and transparent framework for tariff-setting and tariff-changing processes
The current tariff structure is flexible and takes into account costs of running different pipelines individually
The tariff-setting mechanism is essentially a “cost-plus” system, allowing for recovery of operating costs and costs of funding of new projects
In addition to the tariffs set by the government, there is a possibility for Transneft to set long-term, negotiated and bilateral tariffs with some of its customers
Tariff changes are proposed by Transneft and either approved or modified by the regulator
The Company has been able to successfully justify its requests for the tariff increases
200420022000 2001 2003
Superior economics of oil transportation via pipelines allow Transneft to keep its tariffs significantly below those charged by railways while still fully recovering costs and maintaining healthy profit margins
Route
Western Siberia-Western border 15.69 44.59
Western Siberia-Novorossiysk 20.13 32.24
Western Siberia-Primorsk 20.75 26.90
Western Siberia-Meget (Irkutsk) 15.28 55.90
Bashkiria-Primorsk 15.35 21.03
Bashkiria-Novorossiysk 12.79 21.03
Timano-Pechora-Primorsk2 27.33 16.71
Timano-Pechora-Western border 22.30 34.65
Samara-Tuapse 6.43 17.42
Transneft’s tariff (US$/ton)
Railway tariff1 (US$/ton)
Source: Transneft
History of average annual tariff increases
Transneft’s vs. railway tariffs
Comments Superior economics of transportation via pipeline
Source: Russian Railways1) Using railway cars with capacity of 125 tonnes2) Transneft tariff to the the railway point
12
Route
Belarus (to southern border) 1.14 245 0.53
Transneft's average1 10.28 2440 0.42
Belarus (to western border) 2.6 521 0.41
Ukraine (to Odessa) 6.3 1112 0.57
Ukraine (to western border) 5.6 634 0.78
Lithuania (to Butinge) 2.12 226 0.94
Kazakhstan (to Russian border) 22.92 1379 1.66
CPC (Tengiz-Novorossiysk) 30.83 1600 1.93
HaulageTariff US$/ 100 t-km)
Tariffs still have room to grow
Despite a consistent trend of tariff growth, they still remain low in comparison to tariffs in other countries
Given the expected levels of international and domestic Russian oil prices, the share of Transneft’s tariffs in oil producers’ costs is modest. Transneft’s tariff currently stands at 3.5% of the oil price
As a result, Transneft is well positioned to apply for further tariff increases to meet costs of maintaining and upgrading the existing pipeline infrastructure as well as developing new pipelines
Transit tariff (US$/tonne)
1 Note: excluding foreign transits.Source: Average annual tariff data - Transneft; Crude oil price - Bloomberg
Russia (Transneft)1 10.28 48,700 2440 0.42
Enbridge Energy LP 5.63 5,635 706 0.80
Average Haul
Tariff US$/ 100 t-km)
Revenues (US$/tonne)
Network (km)
Transneft’s tariffs in perspective Transneft’s vs. international tariffs
$12.25$4.38 $5.66 $7.15 $8.16 $10.28
$252.36
$198.41
$173.16$166.95$194.25
$353.474.08%4.11%4.13%
3.39%
2.25%3.47%
$0
$50
$100
$150
$200
$250
$300
$350
$400
2000 2001 2002 2003 2004 2005
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
Transneft's average tariff Urals Med Tariffs as % of Urals
Transneft’s average annual tariffs as % of oil price
Source: Transneft, Enbridge Energy LP
13
Transneft’s customer base is solid and well diversified
01,0002,0003,000
4,0005,0006,000
2000 2001 2002 2003 2004
Domestic tariffs Export tariffs Non-core revenue
For 2005 Transneft has 146 contracts for oil transportation services with oil producing companies and other market participants
None of the customers, including foreign transit shippers, accounted for more than 20% of the oil volume pumped by Transneft in the 1st half of 2005
Comments Share (%) in volumes transported in 1H05
Evolution of revenues2004 Revenues composition
Domestic tariffs 37%
Export tariffs 52%
Other revenues 11%
LUKoil 17.1%
TNK-BP 15.3%
Rosneft 14.2%
Surgutneftegaz 13.8%
Sibneft 6.5%
Tatneft 5.5%
Slavneft 5.2%Tomskneft 3.1%
Bashneft 2.4%Samaraneftegaz 2.3%
Russneft 2.2%Others 12.4%
Source: Transneft
14
Transneft’s pipeline network is relatively young, compared to the US inter-state liquid pipeline network
At the same time, with appropriate maintenance, repair and replacement programs in place, the physical life of a pipeline is virtually unlimited
Since 1999, Transneft has been implementing a massive asset modernization program, spending approximately $1 billion annually on asset repairs and upgrades. As a result, today: Fewer defects have to be repaired annually Proportion of replaced or repaired pipeline is on a downward trend
Transneft’s pipelines are modern and well maintained
Transneft has a strong track record in asset management
Pipelines by time of construction
CapEx per pipeline kilometer (US$)Transneft’s maintenance record
Source: Company data, excluding new constructions
23,651
41,033
63,063
23,400
83,103
3,392 4,183
21,09620,892
2002 2003 2004
Transneft Enbridge Energy Valero LP
Pipeline replaced, km 775 674 629 645 430 797
Coating replaced, km 863 818 494 374 267 87
Replacement & rehabilitation,
% of network 3.5 3.1 2.3 2.1 1.5 1.8
Pumping stations upgraded 10 57 103 73 41 7
Underwater crossings repaired - - 579 373 - 41
Underwater crossings replaced - - 19 66 42 37
Diagnostics,’000 km 13.3 12.9 18.8 22.5 24.7 27.7
Defects repaired, thousands 86.1 108.8 75 49 58.9 41
200420022000 2001 20031999
Source: Transneft, Media reports, Renaissance Capital
67%
7%
34%
7%
26%
59%
1930s - 1960s 1970s - 1980s 1990s - 2000+
US liquid pipeline industry Transneft
Source: AOPL, media reports, Transneft, Renaissance Capital
15
Accident Rate, per 1,000km
Safety and environment protection are paramount concerns for Transneft’s management
Transneft’s accident rate is enviable
Accidents at Transneft’s pipelines happen due to the same reasons as those at other pipeline companies, but less frequently
Commentary
Spill accident rate is an ultimate indicator of Transneft pipelines’ condition
Causes of incidents, US
Causes of incidents, Transneft
Source: US Department of Transport’s Office of Pipeline Safety, Transneft, FERC, CONCAWE
Causes of incidents, Europe
Corrosion 25%
Equipment failure or personnel mistake
20%Third-party 19%
Pipe defects 17%
Other 19%
Construction 22%
Third-party 49%
Corrosion 12%
Pipe defects 17%
0.27
0.42
0.270.280.31
0.31
0.30
0.39
0.19
0.040.08
0.04 0.060.04
0.000.050.100.150.200.250.300.350.400.45
2000 2001 2002 2003 2004
US Europe Transneft
Mechanical Failure 10%
Third Party 90%
16
Growing Russian oil export is the driving force behind Transneft’s capacity extension
Factors behind Transneft’s capacity extension needs are market driven:
As European demand for Russian oil is growing slower than its production, Russian oil producers are trying to enter new markets in North America and Far East
China and India have emerged as large importers of crude oil and their needs are growing at a faster rate than anywhere else in the World
Throughput capacity of Bosporus, and Danish passages is limited and close to saturation
…technologically driven:
The optimal capacity utilization for oil pipelines is around 60-80%
…and geopolitically driven:
By construction a Baltic Pipeline System Transneft has created a new Baltic route, eliminating dependence on pipelines and sea terminals of Baltic States
The US government wants to reduce dependence of the US economy on oil from the Middle East
Japan and China are interested in diversification of their sources of oil supply
Route
Western Siberia-Primorsk 98.9%
Western Siberia-Eastern Siberia 87.7%
Western Siberia-Samara 96.4%
Samara-Novorossiysk 82.0%
Samara-Western Border 85.2%
T-Pechora-Yaroslavl 95.0%
New pipelines are needed Current capacity utilization by route
Average network capacity utilization (2004, %)
Source: Transneft, annual reports
Capacity Utilization
92%
28%
60%
Transneft Enbridge Energy Valero LP
17
Completed investment projects
Potential projects under construction/consideration
All new projects are well considered before being undertaken
Transneft has significant experience in successfully completing large-scale projects and is well positioned to do the same in the future
Extensive economic and technical feasibility studies are conducted before the implementation stage of the project is reached
Large projects are typically broken into stages allowing for spreading CapEx over the period and using cash flows generated by the first stages to fund subsequent phases
The priorities in terms of route directions and the general features of a project are approved by the government and outlined in a special government program “Russia’s Energy Strategy to 2020”
For the next few years the Company has identified a number of projects, with ESPO being a principal one, that would allow its clients to enter new markets
Project
Chechnya bypass $165m 7m tpa2000
Sukhodolnaya – Rodionovskaya extension (Ukrainian bypass) $240m 26m tpa
2001
Baltic Pipeline System $2.5bn Current 50m2004
up to 60m tpa3rd stage:
by 20062006
Total Capacity
Timing of Completion
Total Investment
Source: Transneft, FactivaNote: 1) Estimated in 2004 prices 2) Estimated in 2005 prices
Project
Eastern Siberia – Pacific Ocean $11.5bn1 80m tons pa1st section:
2008
Kharyaga-Indiga $2.2bn2 24m tons pa-
Total Capacity
Timing of Completion
Total Investment
Comments
18
Baltic Pipeline System overview
Rationale Transit of Russian oil to the sea terminals of Latvia (Ventspils) and
Lithuania (Butinge) cost Russian oil producers US$ 140 million per year
Construction of the Baltic Pipeline System and the sea terminal of Primorsk considerably reduced that amount
Implementation phases The first phase of the project with throughput capacity of 12m tpa
was completed in 2001. It leveraged existing infrastructure and required 457 km of new pipelines, two pumping stations, 700 thousand cubic meters of storage and a new specialized sea port at Primorsk to be built
The second phase was completed in several stages during 2003-04, eventually expanding throughput capacity of the system to 50m tpa. The project included construction of 945 km of new pipelines and three pumping stations
Expansion to throughput of 60/m tpa is to be completed during the 1st half of 2006
Project highlights BPS added significant new export capacity for Russian oil Gradual capacity build-up proved to be efficient and boosted
Transneft’s return on investment
Comments BPS route
BPS commissioning stages
Phase I 12 0.24 Dec-2001Phase II 18 0.36 Jul-2003
30 0.60 Nov-200342 0.84 Feb-2004
47.5 0.95 Aug-200450 1.00 Sep-2004
Phase III 60 1.20 2006
Million barrels/day
Completion Date
Million tons/year
Export Capacity
19
Eastern Siberia - Pacific Ocean project overview
Rationale The reference direction for the pipeline is the Asia-Pacific region, a
rapidly growing segment of the world’s crude oil and oil products market
Limited potential for incremental demand for the Russian oil in Europe, its major market
Implementation phases The first phase of construction would include building the 2355 km
pipeline with diameter of 1220/1067 mm from Taishet to Skovorodino, 6 pumping stations, a tanker sea terminal in the Perevoznaya Bay with 3 loading berths, and oil storage facilities with total capacity of 1,36 mln cubic meters
Further development will involve extension of the Taishet-Skovorodino route and Perevoznaya Bay terminal and building a Skovorodino-Perevoznaya route
Project highlights Planned throughput capacity of up to 80 million tons per year (at
completion) Will open up a new Pacific port, from which Russian oil exports
could be shipped by tanker to other Asian markets and possibly North America
Comments ESPO route
ESPO gradual commissioning
Phase I 24-30 2,377 6.6 2004 2008Completion 80 1,991 4.9 2004
Projected Cost
(US$bn)
Export Capacity (MMT)
Pipeline Length
(km)
Completion year
Year of Decision
III. Financial profile
21
Financial highlights
Established track-record of profitable, strongly cash generative operations and prudent financial management: Robust and sustainable profitability with EBITDA margin over 50% and EBIT margin over 40% over the past 5 years Strong cash generation allowing for full coverage of maintenance CapEX Significant degree of financial headroom and flexibility in our business plan
Excellent credit fundamentals Strong balance sheet Sound credit ratios Utility business model with a near-monopoly, predictable and diversified revenue stream deriving from a financially very strong group of
corporate clients Sound financial policy
Policy of maintaining significant cash balances allows for financial flexibility Low dividend pay-out ratio, determined by the Russian government Transneft was one of the first Russian companies to prepare consolidated IFRS accounts (1998)
Transneft’s corporate credit ratings are the highest in Russia. Moody’s senior unsecured rating would pierce Russia’s sovereign rating, when assigned to future unsecured debt issues: Moody’s:
Corporate Rating – Baa3 / Positive Senior Unsecured Rating – Baa1 / Positive1
S&P: Corporate Rating – BB+/Stable Senior Unsecured Rating – BB+/Stable
1 According to Moody’s GRI (Government Related Issuer’s) methodology, Transneft’s future unsecured debt issues would be rated Baa1, currently 2 notches above Russia’s sovereign ceiling of Baa3
22
Sales growth Vs. crude oil price Transneft’s profitability
1,399
1,923
2,567
5,698
5,223
3,121
3,721
43
35
27
2423
27
17
0
1,000
2,000
3,000
4,000
5,000
6,000
1999 2000 2001 2002 2003 2004 LTM1Q05
US
$m
0
5
10
15
20
25
30
35
40
45
$/b
bl
Sales (left axis) Urals CIF Med (right axis)
534
972
1,529
1,727
1,977
2,678
2,864
133 161
1,5141,429
924 889996
0
500
1,000
1,500
2,000
2,500
3,000
3,500
1999 2000 2001 2002 2003 2004 LTM1Q05
US
$m
EBITDA Net Income
Transneft is able to grow revenues and maintain profitability in various market conditions
23
0.180.18
0.93
0.55
0.0
0.2
0.4
0.6
0.8
1.0
US inter-statepipelines
BP Pipelines(Alaska) Inc.
Enbridge EnergyLP
Transneft
US
$/t
-km
Controllable cash* expenses comparison
Transneft operating costs breakdown
Other 21%
Strong profitability is supported by a continuously competitive cost structure
Cash generation capacity
1,399
1,923
2,567
5,223
5,698
2,778
3,721
3,121
946819
1,109
2,485
1,766
1,445
48.8%47.6%
58.6%
49.2% 47.5%46.3%
43.2%
0
1,000
2,000
3,000
4,000
5,000
6,000
1999 2000 2001 2002 2003 2004 LTM1Q05
US
$, m
ln
0%
10%
20%
30%
40%
50%
60%
70%
Sales (left axis)
Operating Expenses (Excl. Depreciation) (left axis)
Operating margin (right axis)
Note: data as of LTM1Q05
Controllable Cash Expenses = Total Expenses less Depreciation and Taxes (other than income taxes) Source: Transenft, companies, FERC, all data for FY2003
Depreciation 18%
Salaries 16%
Electricity 15%
Maintenance and Repairs 8%
COGS 8%
Materials 7%
Insurance 7%
24
CommentsCash Flow and CapEx
Cash flows and CapEx
Strong cash generating capability allows to fully cover maintenance CapEx, estimated at approximately $1 bn annually
Future tariffs for new pipelines will be set to fully recover construction costs, including costs of financing
590
800
2,342
897
1,025
1,185
2,105
478
1,0781,014
1,978 1,996
0
500
1,000
1,500
2,000
2,500
2000 2001 2002 2003 2004 LTM1Q05
US
$, m
ln
Cash Flows from Operations CapEx
25
CommentsEvolution of income and dividends
High profitability and conservative dividend policy rapidly increase Company’s equity base
The existing tariff structure, based on “costs plus” system and set by the government, calls for a low dividend payout ratios
Conservative capital structure characterized by low leverage
133 161
889
1,429
6 74 90 86 138
996924
00
500
1,000
1,500
1999 2000 2001 2002 2003 2004
US
$m
0.00
0.02
0.04
0.06
0.08
0.10
0.12
%
Net Income (left axis)
Dividend payments (left axis)
Divident payout ratio (right axis)
Capital structure
Evolution of Leverage and Coverage
0.05 0.04
0.23 0.23
0.32
0.24 0.22
0.00
0.10
0.20
0.30
0.40
1999 2000 2001 2002 2003 2004 LTM1Q05
Tim
es
(X
)
0
10
20
3040
50
60
70
80
Tim
es
(X)
Total Debt/EBITDA (left axis)
EBITDA/Gross Interest Expense (right axis)
IV. Conclusion: Credit summary
27
Credit summary
Oil pipeline transportation monopoly in the World’s largest crude oil producing and second largest oil exporting country
Strong relationship with the Government, which has no foreseeable intention to privatize Transneft
Favorable tariff environment which guarantees Transneft profitable growth
Experienced management team with proven expertise
Established track–record of profitable, cash generative operations and prudent financial management
Transneft has one of Russia’s strongest corporate financial profiles and is the highest-rated Russian corporate borrower
Key credit investment highlights