ITERA TO SELL ITS SHARE IN THE ARMENIAN GAS DISTRIBUTION COMPANY

Agency WPS
The Russian Oil and Gas Report (Russia)
October 13, 2004, Wednesday

ITERA is negotiating on sale of a 10% stake in the Armenian company
Armrosgazprom for $30 million. Representatives of Armrosgazprom say
that a large European investment holding will be the buyer. A source
in Gazprom presumes that the shares will be bought out by the incumbent
shareholders of Armrosgazprom.

Armrosgazprom was established in 1997 in the framework of the
Russian-Armenian intergovernmental agreement. Authorized capital
of the company amounts to $280 million. The company owns a trunk
gas pipeline and gas distributing networks in Armenia. The Energy
Ministry of Armenia and Gazprom have 45% stakes in Armrosgazprom each
and ITERA has 10%.

Since the moment of establishment of Armrosgazprom as an exclusive
wholesale supplier of Russian gas to Armenia the company has been
buying gas from ITERA. ITERA paid in the share of Gazprom in the
Armenian company but in 2002 Gazprom paid the price of its stake in
Armrosgazprom to ITERA ($126 million). In June 2003, Gazprom became
the monopoly gas supplier to Armenia.

Press secretary of ITERA Yevgeny Ostapov confirmed the fact of
negotiations with the new investor but did not name the buyer.
Ostapov adds that the negotiations are held in the framework of
“getting rid of non-core assets” and over the last few years
Armrosgazprom has been working at a loss.

Armrosgazprom does not comment on the information about a possible
changing of shareholders officially. A source in the company says
unofficially that “negotiations are held with a well-known West
European investment holding” and the value of the deal may amount
to about $28 million, which corresponds to the nominal value of 10%
of the company’s shares.

At any rate, a strategic investor will hardly buy a minority stake
in a company whose business fully depends on Gazprom. Most likely,
the interest of ITERA will be bought out by the two remaining
shareholders or one of them (they have a preemption right for such
deal). Sergei Kupriyanov, press secretary of the CEO of Gazprom,
reports that Gazprom has received a relevant offer from ITERA but
has not made a decision yet.

Source: Kommersant, October 12, 2004