January 12 - 16, 2004

Industry & Company

Oil & Gas

Gas Transporting Consortium Starts Operations on February 1st

Ukrainian-Russian Gas Consortium starts its operations on February 1, 2004 from the projection of Bogorodchany (Ivano-Frankivsk region) - Uzhgorod (Zakarpattya region) gas pipeline. German partners of the project have to decide on their participation in the gas pipeline project by February 1, 2004. Building of the Bogorodchany-Uzhgorod part of the pipeline is the first step of the larger scale project on construction of Alexandrov Gai (Kazakhstan) - Novopskov - Uzhgorod pipeline designed to transport gas from Middle East. Representatives of the Ukrainian government announced, that construction of the Bogorodchany-Uzhgorod part of the pipeline would increase the transportation of natural gas up to 8 billions of cubic meters per year on this part of the pipeline. Besides, new working places will be created.

Ukraine And Poland Agree To Create Joint Venture On Finalizing Construction Of Odesa-Brody Pipeline To Plotsk

On Wednesday, the Cabinet of Ministers approved the agreement with the government of Poland on utilization of the facilities of Odesa-Brody and its integration with Polish facilities, which was signed in November last year and is envisaging completing construction of Odesa-Brody to Plotsk.

Simultaneously, the company Ukrtransnafta and the polish company PERN Przyjan has signed an agreement on creation of a joint venture enterprise for finalizing construction of the Odesa-Brody oil pipeline to the Polish city of Plotsk. The length of the Brody-Plotsk oil pipeline will consist of nearly 500 kilometers, will have annual output of 25 million tons of oil and not less than USD 500 million in investments will be required. Ukrtransnafta hopes to start construction of the Brody-Plotsk not later than 2004 and the completion of its construction within two-three years. Ukrtransnafta completed construction of Odesa-Brody with annual output of 9 million tons and length of 674 kilometers in late 2001.

Another important task for the Ukrainian government is to decide whether oil pipeline Odessa-Brody will be used for transporting Russian oil to Odessa (reverse variant), or Caspian oil to Brody with further transporting of Caspian oil through Druzhba pipeline to Europe. The U.S. Company Energy Solution recommends using the reverse variant of the oil transport for 3 years. Gainsfor Ukrainian side in this case will equal up to $ 35 million per each of 3 years. PricewaterhouseCoopers elaborates a business-plan for the direct transporting of the Caspian oil in Brody direction.

Metallurgy

An Active Collaboration Between Industrial Union of Donbass and Duferco Continues

The Industrial Union of Donbas Corporation (IUD, Donetsk) plans to supply semi-finished goods from the controlled by the corporation metallurgical enterprises to Italian Duferco plants in the U.S. (Pennsylvania), Italy and the Hungarian metallurgical works Dunaferr. In September 2003, IUD and international holding Duferco signed and agreement on creation of the joint trading net. Holding Duferco - one of the largest steel trading organizations in the world, which controls more than 15 million tons of materials for the metallurgical industry and has plants in Belgium, South Africa and Macedonia.

Another important event was signing an agreement between IUD and Duferco Italia and on creating a joint venture for investing the construction of a complex for continuous casting of steel at the Alchevsk metallurgical plant (Luhansk region). Stakes of the Industrial Union of Donbas and Duferco Italia at the new company will be distributed 50/50. It is planned that the new company, whose name is not disclosed yet, will start work in February. The need to create the JV was caused by the fact that the Alchevsk metallurgical plant is at a stage of readjustment, owing to which a direct drawing of investment for its modernization is impossible.

Prices for Metallurgical Production Will Increase

According to the Ukrainian Industrial Export Examination Board, prices for the metallurgical production in Ukraine in 2004 will increase as result of the outside factors, such as growth in the world economy, economic boom in China and increase of the euro to US dollar exchange rate. We believe, that not only external, but also internal factors, such as natural gas price increase, will have an effect on metallurgical products prices growth. Since January 1st , 2003, prices for natural gas supplied for industrial users increased by approximately 6-7%.

Energy

Ukraine Will Export Electric Power to Balkans and Romania

Ukraine plans to export electric power to Balkans. For making export possible, it is required to repair the high-voltage power distribution network from South-Ukrainian Atomic Energy Station to Isakcza (Romania) for integration of the Ukrainian energy system with the European one. Overall, supply of electric power to Romania is a part of the larger-scale plan of the Ukrainian Fuel and Energy Ministry to diversify export of Ukrainian electric power.

Stock Market Review

Source: PFTS, KINTO calculations

Market Capitalization of Companies Included in KINDEX, January 16, 2004

MCap based on Quoted Price
Source: PFTS, KINTO calculations