July 1, 2012

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TOP STORY INVESTMENT 1. Gazprom May Sue Over 2012 Ukraine Contract Violations 2. Russia expects $70bn in foreign investments in 2012 3. World Bank: Investment climate in Russia is better in regions than in Moscow 4. Turkey and Azerbaijan sign off on TANAP 5. Armenia and EU Launch Free Trade Talks 6. Back from the dead - Shah Deniz plumps for Nabucco West 7. Gazprom denies lower 2013 gas supplies to Ukraine 8. Lithuania launches first shale gas tender 9. PGE delays tender on Poland's first nuclear power plant 10. Poland ignores CEE slump as it wows investors NEWS INVESTMENT 11. Belarus, Russia to sign nuclear plant deal in July 12. Russian business confidence index grows in June 13. Corporate profit growth continues decline in April 14. Deals worth RUB360 signed at St Petersburg forum in 2012 15. World Bank: Investment climate in Russia is better in regions than in Moscow 16. Polish business attacks EU climate policy 17. Russia expects $70bn in foreign investments in 2012 18. Russia eyes new $3bn steel complex 19. Russia's Yandex invests in Turkish online retail firm OTHER NEWS INVESTMENT 20. Anti-corruption blogger Navalny elected to Aeroflot board 21. Growth in health spending grinds to a halt, says OECD 22. Magnit retail chain CEO says Russia's trade law discriminatory 23. No need for industrial policy law- Putin SECTOR Gas 24. E.On Russia broadens the pool of gas suppliers 25. Gazprom May Extend Nord Stream to UK 26. Gazprom decreases 2012 production and EBITDA forecast 27. Gazprom might face some issues relating to its Vietnamese offshore projects 28. Gazprom plans to annually invest RUB800bn in 2013-2014 29. Gazprom to offer EU $615m discounts in 2012 30. Gazprom to open LNG plant in Vladivostok by 2017 - CEO 31. Gazprom: no agreement on Shtockman reached at St Petersburg economic forum 32. TNK-BP to invest over $1bn in gas utilization SECTOR Oil 33. Bashneft awarded Block 12 in Iraq 34. Gazprom Neft and JOGMEC agree on joint geological study of Ignyalinsky field 35. Gazprom Neft sells oil field in Timano-Pechora region 36. Novatek may refuse to admit 3rd partner to Yamal LNG project 37. Oil output up by 1.9% y-y in January-April

38. Rosneft approved several deals as part of JV with Itera 39. RussNeft approves 2017 strategy, $500m investment per year 40. Russia to suffer from U.S. new energy strategy – paper 41. Surgutneftegas will spend RUB180bn in CAPEX this year 42. TNK-BP seeks partner to build new electricity capacity 43. Transneft’s ESPO launch might be delayed SECTOR High Tech 44. GVA launches Russia Plug and Play startup accelerator 45. Plans to consolidate technology assets with Nvision Group SECTOR Metals and Natural Resources 46. CIS steel and iron: From negativity to uncertainty 47. Mechel suspends operations at the Lenin underground mine 48. Norilsk Nickel mulls coal mining project in Indonesia 49. Norilsk plans to invest $1.5bn in Australian nickel deposit 50. RUSAL ready for new talks as IES deal fails 51. Russia, Ukraine and Kazakhstan further diversify into gold 52. Titanium and magnesium production in Russia up in 5M12: Positive for VSMPO-Avisma SECTOR Power 53. Consumption growth for 2013 might surprise on the upside 54. Government might conduct international road show for the energy sector 55. Inter RAO might ask Rosneftegaz for extra liquidity to finance M&A activity 56. Inter RAO puts foreign expansion on hold 57. Large costumers in isolated regions are banned from buying directly from the wholesale electricity market 58. MRSK Holding Deputy CEO Mikhail Kurbatov appointed Deputy Minister of Energy 59. RusHydro approves 2012-16 capex programme 60. RusHydro freezes international projects SECTOR Retail, FMCG 61. Dixy Group: Minorities could create a free put option on 14% of their shares on 28 June 62. M.video: Targets reiterated, no deterioration in consumption patterns observed 63. Magnit: In the thick of success SECTOR Telecom, Internet 64. VimpelCom fully covers Far East area with GSM network SECTOR Transport 65. Deripaska, Sberbank, Changi set $820m airport JV 66. NCSP lowers grain handling tariff by 4.8% 67. NCSP releases 1Q12 figures: EBITDA above forecasts on higher bunkering margin 68. Transaero’s passenger turnover increased by 19% y-o-y 69. Watchdog allows VIM-Avia to resume flights to Europe SECTOR Agriculture 70. Corn rally could be supportive for fertilizer prices in the near term 71. Government will compensate RUB2bn to Rusagro for Tambov project 72. Russia to harvest 85m tons grain in 2012 73. Sberbank to finance Miratorg's investment projects SECTOR Automotive 74. AGC Bor Glassworks disclosed strong financial outlook for 2012 and 2013 75. Russian-German factory JV boosts 2011 brake system output 62% SECTOR Aviation, shipbuilding and defence 76. Russia to supply arms to India for almost $1bn 77. Russia's UAC to unify airliner brand

78. Russia, France to Jointly Build Armored Vehicle 79. Russian Helicopters, Turbomeca sign engine service deal 80. Sukhoi aircraft maker posts record revenues SECTOR Infrastructure, Construction & Real Estate 81. Italy’s Itaco precast to build factory in Rostov region 82. Moscow housing prices exceed pre-crisis levels in RUB terms at the end of June SECTOR Chemicals, Fertliser 83. Acron’s 1Q12 revenues outperformed on revenues but disappointed on EBITDA 84. Corn rally could be supportive for fertilizer prices in the near term 85. PhosAgro’s site visit - main takeaways 86. Uralkali reiterated the guidance and view on the market SECTOR Pharmaceutical 87. Pharmstandard announces acquisition of 50.1% of Cyprus-based Bigpearl Trading 88. Protek expects the pharmaceutical market to expand by 11-12% YoY in 2012 and company to outperform the sector 89. Russian pharmaceuticals market may grow 16% in 2012 with government’s support 90. Veropharm reported decent 1Q12 IFRS results, beating expectations GOVT REFORMS, REGULATIONS, ECONOMICS, REGIONS 91. Gazprom, NOVATEK: MinEnergo proposes gas MET rate for independent producers of 80% of Gazprom’s rate by 2015 92. Government considers reducing crude oil export duty 93. Large costumers in isolated regions are banned from buying directly from the wholesale electricity market 94. Medvedev orders curb on fertilizer prices 95. Mineconomy plans to introduce amendments to the Retail law 96. No need for industrial policy law- Putin 97. Oil companies' fines for gas flaring to reach $500m in 2012 98. Russian Government considers reducing crude oil export duty 99. United Russia suggests WTO support measures to agriculture sector 100. Zero corporate income tax for agriculture producers may be extended two years UKRAINE INVESTMENT 101. AvtoVAZ in talks to assemble Lada Granta in Ukraine 102. Brussels praises Ukrainian bill on liberalization of electricity market 103. EBRD plans to invest in ED&F Man Ukraine up to $15.9m 104. Gazprom sees less LD pipe demand in 2012-14; negative for HRTR 105. Kernel’s subsidiary attracts $210m 106. Kyivenergo to receive %280m in compensation from Kyiv 107. Luhanskteplovoz to cut production capacity to 15 sections a month 108. Motor Sich: President signs bill supporting demand for locally made aircraft 109. Ukraine’s President signs law to raise taxes on mineral resources 110. Prices of Ukrainian rolled steel keep sliding 111. Russia’s Avtovaz may assemble Lada Granta saloon in Ukraine 112. Ukraine among leading manufacturers of armored vehicles - defense minister 113. Ukraine hopes to attract investors to car building sector in period of imports restrictions 114. Ukraine’s 2012 grain harvest down to 43m tons 115. Ukrlandfarming increases land bank, widens investment program 116. Ukrlandfarming to invest over $1bn in construction of pig farm 117. Zakhidenergo has $0.2bn reconstruction program approved KAZAKH INVESTMENT 118. ENRC to raise salaries for Kazakh workers

119. Max Petroleum’s NUR-1 gets stuck again, additional funding needed 120. Samsung Engineering signs $2.1bn power plant contract in Kazakhstan CENTRAL ASIA INVESTMENT 121. MTS may lose Uzbek licence 122. Interglass restarts plant in Kyrgyzstan EURASIA INVESTMENT 123. Azerbaijan and Turkey sign agreement to build TANAP 124. Azerbaijan announces willingness to participate in construction of oil refinery in the Kyrgyzstan 125. Azerbaijan increases volume of construction work by 42% 126. Azerbaijan: SOCAR selects financial consultants for new oil-chemical complex 127. Mongolia: Rio Tinto expects to have Oyu Tolgoi expansion funds by end 2012 SOUTHEAST INVESTMENT 128. Turkey climbs to 6th most popular tourist destination in the world 129. Antalya Airport gets best investment award 130. BSEC summit kicks off in Istanbul with a new regional vision 131. Bulgaria begins investor meetings ahead of eurobond float 132. Bulgarian Vivacom to change hands by end of year - Media 133. Bulgarian freight railway tender attracting interest, government says 134. Germans declare Antalya most trusted tourism spot 135. Greek OTE to sell Bulgarian units 136. Incentives tempting foreign energy players to Turkey 137. Kosovo revives telecom sale 138. Row over property sales to foreigners 139. Pipeline leak disrupts Iranian gas supply to Turkey 140. Turkey calls for clean production plans from textile producers 141. Turkey to push overseas investment in bid to reduce trade deficit 142. Turkey's TAV wins Abu Dhabi terminal tender 143. Turkey's tourist numbers continue to sag 144. Turkey's Yapı Merkezi signs contract on $1.7 bln Ethiopian rail line 145. Turkish Air Industry's first military and civilian use airplane set for unveiling 146. Turkish business associations will support Bursa to establish its own ferry firm CENTRAL EUROPE INVESTMENT 147. Aditya Birla is planning to expand its investments in Turkey 148. Brussels demands Estonia separate telecoms regulator from operating services 149. European Uranium Drills Double Expected Grade at Kuriskova Deposit, Slovakia 150. Jet hit forces Turkey to boost air defense 151. Launch of Hungary's fourth mobile operator delayed again 152. Ortac Resources appoints MD for Slovakia to push gold/silver project 153. Polish gas exchange set to open this year, claims URE 154. Rathdowney updates results from 2012 drilling at Poland's Project Olza 155. Scania Reduces Its Bus Production in Poland 156. Slovakia negotiating dozens of investment expansions reports Sario 157. Slovakian PM demands more funding from EU to close nuclear plant

TOP STORY INVESTMENT 1. Gazprom May Sue Over 2012 Ukraine Contract Violations RIA Novosti 30 June 2012

Russian gas giant Gazprom may sue Ukraine if Kiev reduces imports below the minimum contracted volumes of 41 billion cubic meters for 2012, Gazprom CEO Alexei Miller said on Friday. "If the minimum contract volume is not purchased, it may be grounds for sueing Ukraine," Miller told a news conference, adding the contract signed with Ukraine still stipulated Russian gas supplies in 2012 at 52 billion cu m. Under the contract, Ukraine can accept not less than 80 percent of the contracted sum. Ukrainian Energy Minister Yuriy Boyko announced in January that Ukraine was seeking to cut Russian gas imports to 27 billion cubic meters, from the 2012 contracted volume of 52 bcm. Gazprom reacted by stating the current gas supply contract did not envisage unilateral changes in gas purchases. This week Boyko said Kiev had agreed with Gazprom to import 27 bcm of natural gas from Russia next year, but Gazprom denied this. Ukraine has long been seeking to alter the terms of the 2009 gas deal, tying the price of gas to oil prices, which have risen strongly since 2009 and boosted Ukraine's gas bill. Miller also said gas discounts for EU countries were based on huge bilateral projects, while Russia and Ukraine did not have similar deals. "We don’t have such qualitative cooperation and bilateral mega-projects in gas production and transportation with Ukraine [as we have with Europe]," Miller added. Ukraine is contracted to pay $416 per cubic meter of Russian gas in 2012. Kiev insists the price and volume of its gas imports should be reduced. Ukrainian Prime Minister Mykola Azarov has said $200 per 1,000 cubic meters is a fair gas price for Ukraine, while Gazprom says the company sees no reason to revise the standing contract. Russia has previously said Ukraine has missed its chance to alter gas purchase volumes for this year as the annual contracted volume has to be changed at least six months before the start of gas supplies. 2. Russia expects $70bn in foreign investments in 2012 bne June 25, 2012 Total foreign direct investments in Russia are expected to work out at $70bn in 2012, forecasts Economic Development Minister of Russia Andrei Belousov, cited by BFM. The current amount is about $53bn a year which makes 3.5% of the world market of foreign direct investments (FDI), said the minister. "We think this is not enough. Our target for this year is $70bn," he stated at the round-table discussion during the St. Petersburg International Economic Forum-2012.

The government will increase the amount in the future, said Andrei Belousov. "If there is no crisis, we'll be increasing. What's the use of stopping?" he said. The inflow of investments in fixed assets exceeded expectations, said the minister. "The growth of investments over the past two months has been about 7% compared with the last year," he said. Andrei Belousov forecasts that the growth in the first half-year will be 10-11% year on year. "This is a good pace. We like it and are going to keep it," concluded the Economic Development Minister. 3. World Bank: Investment climate in Russia is better in regions than in Moscow bne June 27, 2012 According the new "Doing Business in Russia" rating presented by World Bank at the St. Petersburg Economic Forum, the Top-3 Russian cities for doing business are Ulyanovsk, Saransk and Vladikavkaz. Major cities, such as St. Petersburg, Yekaterinburg, Novosibirsk, Samara and Khabarovsk are found at the bottom of the list. Moscow ranks last among 30 cities selected. "The cities for rating purposes were selected based on a number of criteria," say the authors of the rating, cited by Kommersant Dengi. "We were interested in large cities: they make the biggest contribution to the GDP. Also, we tried to cover as large geographical territory as possible and observe the variety of the regions on the ground of national origin." Large cities performed better in individual indicators. For example, St. Petersburg ranks 1st and Volgograd 2nd by the easiness of a new business registration. St. Petersburg's leadership in this respect is due to the improved effectiveness of a "one-stop" service: immediately after being registered, entrepreneurs have all necessary certificates in hand, including certificates from the funds of pension, social and medical insurance. Starting a business costs 2.3% of income per capita in the 30 cities studied, says the report. It is easiest to start a business in Saint Petersburg and more cumbersome in Surgut. The number of interactions to start a business ranges from 7 in Kirov, Murmansk, Perm, Petrozavodsk, Saint Petersburg, Stavropol, Yakutsk and Yaroslavl to 12 in Vladikavkaz. The time needed varies from 16 days in Kaliningrad to 33 in Yekaterinburg. The average start-up cost of 2.3% of income per capita places Russia among the 30 cheapest economies to start a business. According to the rating, time for obtaining construction permits varies greatly. For example, 16 steps are needed in Murmansk and 20 in Novosibirsk— but 47 in Moscow. Russian capital is also the most expensive to get an electricity connection. The cheapest city to get connection is Omsk, Rostov on Don ranks second, however, it is only No.26 in terms of business registration.

4. Turkey and Azerbaijan sign off on TANAP bne June 27, 2012 Turkey and Azerbaijan signed an inter-governmental agreement on June 26 on the $7bn Trans-Anatolian pipeline (TANAP), which is planned to carry gas from the Azeri Shah Deniz II gas field across Turkey. Turkish Prime Minister Tayyip Erdogan and Azeri President Ilham Aliyev signed the deal at an Istanbul ceremony, reports Rueters. The project, which more than any other sounded the death knell for the EU-backed Nabucco pipeline, is set to be completed in six years, and will pipe 16bn cubic metres (bn cm) of gas a year towards Europe. "Today's signing is the most important step in completing the legal framework for this project," Erdogan said. "This project won't just deepen ties between our countries, it will create an organic tie between Azerbaijan and Europe via Turkey." TANAP cut the ground from under Nabucco, which also planned to carry gas from Shah Deniz II across Turkey, before heading to Austria, but was struggling to convince the operators of the field of its viability. Estimated costs had risen to €12bn-15bn, and the failure to secure the extra gas from Central Asia and the Middle East needed to fill its 31bn cm/y capacity provoked unrest from members of the consortium trying to build the route. Yet TANAP, which will cost just $5bn-7bn and will be 80% owned by Azeri state firm Socar (a member of the Shah Deniz consortium) and 20% by Turkey's Botas, gets round this problem by limiting its capacity to 16bn cm/y, of which Turkey will take 6bn cm whilst the remainder is shipped to Europe through a connecting project. A scaled down "Nabucco West," the Trans-Adriatic Pipeline (TAP) and South East Europe Pipeline (SEEP) are competing for that role, with the Shah Deniz consortium yet to make a decision on its eventual European route. Construction on TANAP is expected to start at the end of 2013 or in early 2014, with the first phase planned to go into operation by 2018. The project is designed to be expandable to 30bn cm, and ultimately 60bn cm. Erdogan said the link will initially carry fuel from Shah Deniz II, then from other Azeri sources, and possibly from Central Asia. "Additionally, gas from the other side of the Caspian could be directed to the TANAP pipe, transiting via Azerbaijan," the Turkish PM claimed. Despite those larger ambitions for TANAP, and the scaled down plans for the EU-backed pipeline, Turkish officials have also said that the country will continue to be a part of Nabucco. That may offer the project some much-needed impetus for its bid to connect to TANAP, given the disadvantages that appear to be mounting. TAP, being built by a consortium of Statoil, E.On and EGL, will require the shortest pipeline to be built - a 520km section with 10bn cm/y capacity that will transport gas via Greece and Albania and across the Adriatic Sea to Italy’s southern Puglia region. The cost of the project is approximately $2bn. Until recently, TAP was the only project competing to serve the Azeri field that has one of the members of the Shah Deniz consortium in its shareholder structure:

Statoil with a 42.5% stake. However, BP, which is the lead operator of the Shah Deniz consortium, has entered the fray by unveiling SEEP in September. That pipeline would run from eastern Turkey to the Baumgarten hub in Austria. "BP's SEEP proposal has gone from dark horse to frontrunner in the past three and a half months since it was first mooted," says Andrew Neff of IHS Global Insight. 5. Armenia and EU Launch Free Trade Talks Lilit Gevorgyan Russia/ CIS Country Analyst IHS Global Insight 26 June 2012 Preparations for the Deep and Comprehensive Free Trade Agreement (DCFTA) between Armenia and the EU that launched last week had intensified in the past three years. To be able to start the talks, the Armenian authorities had to meet a number of criteria, or "recommendations" set out by the EU in 2009. This included a number of trade-related reforms that Armenia managed to get through with the EU's technical help. As a World Trade Organization (WTO) member since 2002, Armenia had already significantly improved its regulations to gain membership of the international trade-regulating body. The EU had much more stringent demands in terms of intellectual property rights protections, however, as well as on some of the sanitary and phytosanitary measures that were deemed to be restricting free trade. The last remaining obstacle was the Armenian customs services' valuation and taxation of imported alcoholic beverages, which the EU insisted should be abandoned in order to start the talks, a condition eventually met by Armenia. The actual process of economic and regulatory integration started even earlier, in November 2006. At that time, the Armenian government signed an action plan within the framework of the Eastern Partnership (EaP) and the EU Eastern Neighbourhood Policy (ENP). The European bloc initiated these two drives to co-ordinate its economic and political relations with those of its neighbour states that are not bidding for EU membership. The ENP includes some of the former Soviet countries—Belarus, Ukraine, Moldova, Georgia, Armenia, and Azerbaijan—but also all Mediterranean North African countries and Middle Eastern countries. The EaP thus overlaps with the ENP, including only the six abovementioned former Soviet states, some of which aspire to joining the EU at some point. Both policies are essentially designed to promote good relations through economic co-operation with EU neighbours, but the key difference is that, unlike other bilateral government-level economic co-operation agreements, the EU is using its vast economic market as a leverage on its neighbouring countries to promote good governance, political reforms, and economic suitability. In return for compliance, the EU bloc offers the DCFTA. On 17 February, the EU's executive branch, the European Commission, concluded that Armenia has achieved sufficient progress in its preparations. It then recommended that the member states launch the talks, a decision backed by the European Council's Trade Policy Committee. Commenting on the event, EU trade commissioner Karel De Gucht stated that it marks "a turning point in our trade relations with Armenia. We are entering a new phase that will bring our economic ties to a new level of depth and ambitions. The EU is Armenia's first trading partner and a deep and comprehensive free trade area will enable closer economic integration of Armenia with the European Single Market, thereby helping to boost economic growth in the country." Balanced Foreign Policy

Given the lengthy preparations and willingness on both sides, the talks are likely to end successfully. The parties now have 15 chapters to go through, which will fully harmonise trade and business relations between the bloc and Armenia. The talks are likely to conclude by the end of 2012 or the beginning of 2013. Developing economic relations with the EU will help Armenia to counterbalance its already close relations with the Commonwealth of Independent States (CIS), and particularly Russia. The news of the DCFTA comes less than one year after Armenia joined the Russian-led CIS Free Trade Agreement, also designed to facilitate trade but between CIS member states. Along with Belarus, Kazakhstan, and Russia—the core countries united within a Customs Union—Armenia, Kyrgyzstan, Moldova, Tajikistan, and Ukraine have also become members of the CIS FTA. Still, Armenia, Moldova, and Ukraine are currently engaged in DCFTA talks with the EU. Armenia has never hidden its intentions not to be part of the post-Soviet integration process that is to culminate in the creation of the Eurasia Union at some point in the future. Indeed, Armenia has very close political and economic ties with Russia, but on a number of occasions has stated that it is not planning to join the Customs Union, nor the Eurasia Union that is to be modelled on the troika customs bloc. One of the arguments against this integration has been the lack of a common border with Russia or any other member of the customs bloc. Once the DCFTA talks are tackled, it will be relatively easy for Armenia to push ahead with the Association Agreement, although it still has to make a significant effort to meet some of the rule of law and good governance benchmarks set by the EU. Some work has already been done in this regard, some of that within the framework of the 10-year Partnership and Cooperation Agreement with the EU. Much like other former Soviet states, Armenia signed its first comprehensive agreement with the EU, the PCA, in the late 1990s, entering into force in July 1999. The EU is currently in the process of negotiating an Association Agreement that will replace the old deal. The difference between the PCA and Association Agreement is not only the economic advantages offered by the DCFTA, but also relaxed visa regulations and further assistance with the regulatory reforms that will benefit Armenia, making it more attractive for foreign investors. The Association Agreement in particular puts an emphasis on strengthening democracy, the rule of law, the judicial system, and the fight against corruption. It also covers the issues of energy security and the eventual closure of Armenia's Soviet-era Metsamor nuclear power plant (NPP). The bloc does not condition signing the Association Agreement to the closure of the NPP. Being a political document, the Association Agreement is also about peacefully resolving the regional conflicts, in particular the Armenian-Azerbaijani standoff over the final status of the ethnic Armenian self-declared republic of Nagorno Karabakh (NK). When launching the action plans for EaP members, particularly Armenia and Azerbaijan, the EU has made sure not to take sides in the conflict by invoking the two relevant principles of international law: the right of self determination of NK and Azerbaijan's territorial integrity. Outlook and Implications The DCFTA is a good example of how the EU can exercise its leverage on some of the EaP countries to promote economic and political reform. The Armenian parliamentary election on 6 May signified how these incentives work. Although a number of irregularities were reported, significant progress was made nonetheless, especially in

terms of balanced media coverage and free campaigning. The Armenian government was fully aware that failure to uphold democratic principles could derail the upcoming free trade talks. The EU is Armenia's largest trading partner and main export market. Bilateral trade has increased by 16.3% year-on-year, reaching USD1.8 billion. With the removal of further obstacles to trade, this figure is set to increase. A large part of exports is non-ferrous metals, mineral products, diamonds, and foodstuffs. As mentioned, Armenia has already lowered its trading tariffs and improved its trade regulations in the run-up to and after becoming a WTO member. By successfully negotiating the DCFTA and the Association Agreement, however, Armenia could benefit from an improvement of its business environment with the EU's technical help. Solid economic relations with the EU and easier travel could boost the country's economy. In this way, Armenia could also benefit from its relatively large Armenian diaspora in the EU. Unlike a number of former Soviet states, since its independence, Armenia has been keen to avoid a scenario where it has to choose between close ties with Russia or the West. Successive governments have tried to develop equal relations within the limitations of the ongoing military standoff with Azerbaijan and broken down relations with Turkey. Unlike Georgia, Armenia does not have any aspirations to join NATO. EU membership is also a somewhat distant project that is overshadowed by more pressing economic and security issues. While the EU's policy towards the South Caucasus, Armenia included, remains somewhat unclear, the country is content to push ahead with economic ties with the bloc for now. 6. Back from the dead - Shah Deniz plumps for Nabucco West bne June 29, 2012 The international consortium developing Azerbaijan's offshore Shah Deniz II field has selected the planned Nabucco West pipeline as its preferred option for a northern gas transit route from Turkey to Europe. A final decision on whether to export the gas through Nabucco West or via the southern route, for which the Trans-Adriatic Pipeline (TAP) has already been selected, will be made within a year. BP, which leads the Shah Deniz consortium alongside Statoil, said in a statement on June 28 that Nabucco West had been selected as the "single pipeline option" for exports of Shah Deniz stage II gas to Central Europe. The consortium picked Nabucco West over the South East Europe Pipeline (SEEP), a second option for the northern route to carry Azeri gas from the Turkish border into Central Europe. "Development of the South East Europe Pipeline (SEEP) project, which had been assembled by Shah Deniz partners in collaboration with Bulgaria, Romania and Hungary, will cease," the statement said. According to BP, which was one of the shareholders in SEEP, the principal reason for the decision in favour of Nabucco West was the greater greater maturity of the project. This "gave the consortium confidence that this project could be developed and delivered on the same timeline as Stage II." Shah Deniz is one of the world's largest gas condensate fields, with reserves of over 1 trillion cubic metres. The second phase development, which started in April 2012, will cost an estimated $25m, wirth commercial production due to start in 2017.

The announcement comes just two days after Azerbaijan and Turkey signed off on the 16bn cubic metre per year (cm/y) Trans-Anatolian Pipeline (TANAP), which will carry the gas from Shah Deniz to the EU border. That project did much to drive the final nail into the coffin of the original EU-backed Nabucco scheme, which had planned a 31bn cm/y pipeline to span the entire 4,000km route. Besieged by worries over a lack of progress in sourcing supplies to fill it, as well as cost, Nabucco - which was a centerpiece of Brussels' Southern Gas Corridor strategy to diversify EU gas supply away from Russia - finally outlined the smaller Nabucco West in May. Meanwhile, the signing of the intergovernmental agreement on TANAP means that it now needs to know its eventual European connection to move forwards, and the announcement of that Nabucco West has won the northern route appears to signal an acceleration of the decision process. There are now just two options remaining. In mid-2013, the Shah Deniz consortium will make a final decision between Nabucco West and TAP - which would run from the Turkish border through Greece and Albania, and under the Adriatic to Italy. TAP was selected for the alternative southern route, over the Interconnector Turkey-Greece-Italy (ITGI) pipeline in February. BP says that the Shah Deniz consortium will continue to work with the owners of both Nabucco West and TAP. However, the fact that the British-based energy giant said on June 27 that it intends to take a significant stake in the TAP consortium - which currently consists of Statoil, E.On and EGL - will likely set alarm bells ringing for Nabucco. At 520km and a cost of around $2bn, TAP is both the shorter and the cheaper of the two options. Rashid Javanshir, president of BP for Azerbaijan, Georgia and Turkey region, said in a statement that the June 28 decision in favour of Nabucco West represented "another important milestone in the development of Shah Deniz Stage II and the transportation of gas resources from the Caspian to Europe." Rovnag Abdullayev, president of the State Oil Company of the Azerbaijan Republic (SOCAR), also welcomed the announcement. ''This decision constitutes a significant step towards implementation of the Southern Gas Corridor Strategy which would serve the strategic interest for sustained energy security of European countries as well as Azerbaijan, Georgea and Turkey," he said. 7. Gazprom denies lower 2013 gas supplies to Ukraine bne June 28, 2012 Russian gas giant Gazprom denied it has agreed with Ukraine's national energy company Naftogaz to reduce gas import volumes to 27 bcm from the current 52 bcm for 2013, Gazprom CEO Alexei Miller said, cited by RIA Novosti. "The contract signed with Ukraine still stipulates Russian gas supplies at 52 bcm. We act firmly under terms of the contract and have no agreements to reduce supply volume," Miller said.

Earlier the Ukrainian Minister of Energy, Yuri Boyko, said that Ukraine and Russia had agreed on a gas export contract for 2013. The minister said the contract volume would be lower than 27 bcm of gas. Alexei Miller also said that he saw no grounds to reduce gas price for Ukraine. "We do not see any reason to adjust [gas] prices. The prices are absolutely market, and price for Ukraine is considerably lower than for some European countries," he added. Ukraine has long been seeking to alter the terms of the 2009 gas deal. The deal ties the price of gas to oil prices, which have risen strongly since 2009, boosting Ukraine's gas bill. Ukraine will have to pay some $416 per cubic meter of Russian gas in 2012. Kiev insists the price and volume of its gas imports should be reduced. Ukrainian Prime Minister Mykola Azarov has said $200 per 1,000 cubic meters is a fair gas price for Ukraine, while Gazprom says the company sees no reasons for a gas price revision. VTB Capital's analysts doubt that Ukraine has been able to decrease its gas import volumes so sharply. "In addition, it is not clear how the ‘take-or-pay’ scheme would work in this case, as the country has to pay for not less than 33bcm of gas whatever the actual amount purchased. However, if this news turns out to be true, we believe it would be negative for Gazprom," analysts say. 8. Lithuania launches first shale gas tender bne June 28, 2012 Lithuania launched its first shale gas tender on June 27, the next step in the country's accelerated drive to reduce its energy dependence on Russia. However, it may find interest lower than it hopes. "Shale gas could become a realistic and economically competitive alternative to natural gas supplied by Gazprom, now the sole gas supplier," the Energy Ministry said in a statement announcing the tender, reports Reuters. The call for interest in exploring two fields - Silutes-Taurages with 1,800 square km and Kudirkos-Kybartu with 281 square km - has a four-month deadline for offers, and contracts are expected to be signed in the first quarter of 2013, the ministry added. However, with US giant Exxonmobil abandoning its shale gas exploration in nearby Poland last week after failing to find commercial flows, it may struggle to whip up interest amongst the majors. In recent months, Warsaw has increasingly pushed state-owned companies to lead the charge in Poland as an alternative, and Vilnius may have to take the same route. Polish state-owned oil refiner Lotos, which in turn controls top Lithuanian oil company Lotos Geonafta, said in January that it planned to take part in a Lithuanian shale gas tender.

With recoverable reserves estimated at 113bn cubic metros by the EIA, Lithuania has been keen to kick start their development, joining Poland in the shale gas cheerleading camp. That is a small group in the EU, where environmental concerns over extraction techniques have produced moratoria on drilling in several countries, including Romania and the Czech Republic. However, whilst both of those countries rely heavily on Russian gas, the Baltics are 100% dependent, and their energy networks remain isolated by history from the wider EU systems. Lithuania is pushing to have an LNG platform operational by the end of 2014, and this week passed legislation to allow a plan to build the €6bn Visaginas nuclear power plant to go forwards. 9. PGE delays tender on Poland's first nuclear power plant bne June 27, 2012 Poland's top utility, state-controlled PGE, announced that the lack of a clear financial plan has delayed a technology tender for the country's first nuclear power plant. "We will not launch the tender in June (as previously planned), we will have a slight delay," CEO Krzysztof Kilian said, according to Reuters. "We are working on a financing model, facilitating the launch of the tender for nuclear technology." The executive did not say when the tender would now move forward. Part of Warsaw's huge push to expand its power generation capacity, PGE has been charged with building the station at one of three sites on the Baltic coast at a cost of PLN30bn - PLN50bn (€7bn - €11.7bn). However, the government is also pushing it to develop other plants, as well as to get involved in the shale gas hunt. In a bid to reduce its reliance on highly-polluting coal and provide energy for its expanding economy, Poland is planning to launch operations of a 3-gigawatt nuclear plant by 2023 and hopes to double the capacity by 2030. PGE, which may run the project with a partner, is also considering whether to pursue state guarantees. Two state-controlled utilities Tauron and Enea have expressed interest in participating in the nuclear programme. 10. Poland ignores CEE slump as it wows investors bne June 25, 2012 Powered by the country's robust macro figures and strong economic development, Poland ranks as the second best destination in Europe according to a new survey by Ernst & Young. Coming in on the heels of Germany, the country thrust ahead even as the CEE region as a whole drops down the scales. In a publication which offered a far more optimistic outlook on investment across Europe than many hold in the current maelstrom, Ernst & Young's 2012 European attractiveness survey saw investors hand Poland second place in a list of the continent's top targets for FDI, with 10% of respondents crediting it as the top destination. Germany topped the poll with 35%, whilst the UK and Russia took the votes of 7%. "[Poland] is a beacon of hope in the CEE region, which witnessed a phenomenal decline in its attractiveness," the survey notes. " With strong domestic demand and

robust growth through 2011, the country has been less affected by the 2011 slowdown than some of its neighbours." Poland's investment attractiveness has been bolstered by the Flexible Credit Line granted it by the IMF, the consultants add. That programme offers the country support should crisis hit, whilst the lack of attached conditions gives Warsaw's track record in economic performance and fiscal policy the thumbs up. "Once dominated by labor-intensive industries, inflows are increasingly knowledge centered," it continues. "Well-qualified and productive workers, a pro-business environment and transparent tax and legal systems have helped give Poland a positive image among company and economic development executives worldwide." However, even better news for Poland is that reality is still catching up with perception, meaning that the country's good image is likely to lead to ever-greater investment in the coming years. "Poland is ceasing to be one of the countries in Central and Eastern Europe. The market and investors are finally beginning to see how diverse ... CEE is," said Duleep Aluwihare, managing partner at Ernst & Young Polska. "Projects announced in 2011 may have been in gestation for several years," Ernst & Young points out. "A corporate executive asked to identify the most attractive countries today may ponder a country's prospects for a decade or more ahead before reaching a conclusion. Today, investors are saying that Germany, Poland and Russia are on a path of sustained attractiveness, and that FDI in these countries is likely to progress as a result. The UK and France, by contrast, are perceived to be declining in attractiveness relative to the three leaders."

NEWS INVESTMENT

11. Belarus, Russia to sign nuclear plant deal in July RIA Novosti June 25, 2012 Belarus will sign a master contract with Russia to construct the first nuclear power plant in the country in July, First Deputy Prime Minister Vladimir Semashko said on Friday. "Discussions about a master contract to build the nuclear power plant in Belarus have almost completed and it will be signed in early July," Semashko told the Belarusian parliament. The head of Russia’s state-owned nuclear energy corporation Rosatom, Sergei Kiriyenko, said in May that Moscow would invest $204 million at an early stage in the plant's construction. The $10-billion plant will be built by Russia’s Atomstroyexport company, a Rosatom subsidiary. The plant will consist of two reactors with a capacity of 1,200 MW each and will boost the entire Belarusian energy system's capacity to 8,000 MW. The power station’s first unit is due to be ready in 2017 and the second in 2018. Belarus began preparing to build a nuclear plant back in the 1980s, but the project was shelved following the 1986 Chernobyl nuclear disaster in neighboring Ukraine. Belarusian opposition and environmental activists have raised concerns over the project, which were further fuelled by the March 2011 accident at Japan’s Fukushima nuclear power station. Russia says it employs advanced technology to ensure accident-free operations at all the power stations it builds.

12. Russian business confidence index grows in June bne June 26, 2012 Russia's Business Confidence Index, reflecting generalized entrepreneurs' behavior, grew in June for mineral extraction and processing industries, as well as for production and distribution of electric power, the Federal State Statistics Service reported. For mineral extraction the index grew to 9% in June from 7% in May, for processing industries - to 1% from 0%, for power production and distribution - to 14% from 10%. The seasonal character of production influenced the index, the service said. 13. Corporate profit growth continues decline in April ISI June 25, 2012 Local enterprises (excluding banks, insurance companies, agricultural and entities that receive financing from the budget) posted net profit of RUB 623.2bn (USD 18.6bn) in April 2012, declining by 6.9% m/m after declining by 3.2% m/m in March. In Jan-Apr 2012 overall corporate net profit amounted to RUB 2.808tn, declining by 2% y/y (6.6% in Q1/12, 19.4% y/y in Jan-Feb 2012). To compare, the indicator went up by 33% y/y in H1/11 and by 20% y/y in 2011 overall to RUB 7.253tn. In 2011 monthly corporate profit growth averaged to about 40% y/y in H1/11 but started sliding in July 2011 (36% y/y) decreasing to 20% y/y in December 2011. In Jan-Apr 2012 35,800 enterprises earned profits worth RUB 3.26tn; 17,500 entities suffering losses, which amounted to RUB 448.8bn. In the reporting period of Jan-Apr the smallest aggregate net profit in the major industries were posted by construction and agriculture (RUB 9.2bn loss and RUB 38.8bn profit, respectively). Out of major industries extraction, processing, and trade continued showing considerable profits in Jan-Apr (RUB 625bn, RUB 664bn, and RUB 743bn respectively). Extraction and processing profit, however, declined by 8.1% y/y and 8.6% y/y, respectively, while trade enterprises' net profit slipped by 0.5% y/y. According to previous report by RosStat, while for extraction and processing y/y net profit growth rates negative dynamics started already in Q4/11 (dropping to 13% from 64% in Q3 for extraction and to 22.5% from 83% in Q3 for processing), for companies employed in wholesale and retail trade net profit growth in Q4/11 soared to 3-fold y/y vs. 32.4% y/y seen in Q3/11. In 2011 number of profitable companies remained roughly flat across all segments as compared to 2010, amounting to 69% in extraction, 74% in processing, 51% in utilities, 74% in construction, 80% in trade, 63% in transport and communication, and 77% in agriculture. 14. Deals worth RUB360 signed at St Petersburg forum in 2012 bne June 25, 2012

Deals worth over RUB360bn were signed during the St. Petersburg International Forum, the forum's organizer said, RIA Novosti reported. "The St Petersburg Economic Forum, as we saw in 2012, harvested more agreements and contracts than the one a year ago," the organizer said. The 5,300 plus participants of the forum, held between June 23 and 25, signed 84 agreements, including four loan contracts worth RUB164.4bn, while last year 68 agreements worth RUB338bn were signed. 15. World Bank: Investment climate in Russia is better in regions than in Moscow bne June 27, 2012 According the new rating presented by World Bank at the St. Petersburg Economic Forum, the Top-3 Russian cities for doing business are Ulyanovsk, Saransk and Vladikavkaz. Major cities, such as St. Petersburg, Yekaterinburg, Novosibirsk, Samara and Khabarovsk are found at the bottom of the list. Moscow ranks last. In addition, Moscow ranks last in two of four indicators of the rating: obtaining construction permits and connection to power grids. "The cities for rating purposes were selected based on a number of criteria," say the authors of the rating. "We were interested in large cities: they make the biggest contribution to the GDP. Also, we tried to cover as large geographical territory as possible and observe the variety of the regions on the ground of national origin." Large cities performed better in individual indicators. For example, St. Petersburg ranks 1st and Volgograd 2nd by the easiness of a new business registration. St. Petersburg's leadership in this respect is due to the improved effectiveness of a "one-stop" service: immediately after being registered, entrepreneurs have all necessary certificates in hand, including certificates from the funds of pension, social and medical insurance. These practices enabled Ulyanovsk, Kazan and Irkutsk to rank 3rd, 4th and 8th in the rating. None of the cities studied showed equally high results in all indicators. For example, Samara ranks 8th in terms of property registration, but is at the bottom of the ranking in all other indicators. Rostov-on-Don ranks 3rd in terms of connection to power grids and 4th in terms of the aggregate result, but is only No.26 in terms of business registration. The rating’s authors also noted that many Russian cities relay too much on the presence of the raw materials. As a result, they are less interested in improving the business climate. "The practice shows that many cities managed to move ahead. If their practice is spread over the country in general, Russia could double the pace of its economic growth and the level of living," they say.

16. Polish business attacks EU climate policy bne June 27, 2012 The Polish Chamber of Commerce (PCC) threw its weight behind Warsaw's campaign against the EU's decarbonisation goals for 2050 on June 26, launching a study which claims that Polish jobs, growth, inflation and the environment are under threat, reports Euractiv. It argues that compliance with the measures in the EU's low carbon roadmap will cost the country €22.7 billion per year after 2050, a GDP slump of 10% by 2030, and a 400% increase in electricity prices after 2020. "The effects will be catastrophic for the polish economy and budget," said Boles_aw Jankowski, a PCC spokesman and author of Warsaw's energy strategy between 1991 and 1995. "The current problems in Greece, Portugal and Spain show that implementing [the same climate] policies and mechanisms in all EU countries could generate problems and risks," he warned. Environmentalists and some academics dismissed the study as a biased position paper, funded by Poland's energy intensive industry. Jankowski was speaking in the European Parliament at the launch of the PCC's review of the EU's Low Carbon Roadmap for 2050, written by an ex-government minister, and uncritically received by Poland's environment and economy ministries, speakers said. Polish representatives in Brussels contacted by EurActiv deferred comment to the environment ministry representative in Warsaw, who did not return calls. The Polish veto The coal-dependent east European country has repeatedly blocked attempts by the EU to ratify the goal of an 80-95% cut in carbon dioxide emissions across the continent by 2050. The report, which has already been launched in Poland, has been cited by some as the reason for Poland's veto of climate measures at past European Council meetings. However, its results have been disputed by an economics professor at Cracow University, Jadwiga Berbeka, for neglecting the economic benefits of decarbonisation - which Greenpeace say could create 350,000 jobs in renewable energy by 2020 - and thus lacking credibility. Other environmental groups such as the Polish Climate Coalition noted that the report was funded by two Polish power utilities - TAURON and PGE - which between them control most of Poland's electricity output and distribution networks. Isaac Valero Ladron, a spokesman for EU Climate Action Commissioner Connie Hedegaard, told EurActiv that Poland was isolating itself and that the rest of the EU would "move on" with the Roadmap.

"We are working on further measures needed to reach the cost-efficient milestones," he said. "It's difficult to understand why some businesses are against reduced energy bills and more competiveness and innovation." EU 'Communism' But Marek K_oczko, the PCC's secretary-general accused the EU of behaving like Soviet-era Communists in pushing through an ideological environmentalism that could brook no disagreement. He singled out the EU's attempts to bring international airlines into the Emissions Trading System (ETS) for particular criticism. "Europe cannot just announce some policy and then oblige others to not fly to Europe," he told EurActiv. "Some European leaders have become kind of ideologists, and I think that economic life needs a bit more rationality," he said. Asked whether the EU's environmentalism was comparable to Soviet-era communism he replied: "Yes, it is an ideology if the enemies of discussion and negotiations and facts are not taking into account some rational arguments." "We have got a bad lesson in history from that and are a bit afraid of that," he added. K_oczko said that a compromise between Poland and the EU could involve a revision to the EU's benchmarking rules for its carbon market, or Poland being given a less stringent target than 80-95% decarbonisation by 2050. But environmentalists argue that the PCC's opposition to EU climate policy is often based on assumptions that have not been made public, and speculative guesses. "The Polish Chamber of Commerce is playing a dangerous game in being openly hostile to an issue so critical to so many major donors to the EU budget, because they are also key investors in the Polish economy," Sanjeev Kumar, a senior associate at the E3G environmental consultancy told EurActiv. "The more Poland tries to block European climate legislation, the more of a backlash they are risking from governments which will almost certainly seek to protect their economies from fossil fuel-intensive countries," he said. 17. Russia expects $70bn in foreign investments in 2012 bne June 25, 2012 Total foreign direct investments in Russia are expected to work out at $70bn in 2012, forecasts Economic Development Minister of Russia Andrei Belousov, cited by BFM. The current amount is about $53bn a year which makes 3.5% of the world market of foreign direct investments (FDI), said the minister. "We think this is not enough. Our target for this year is $70bn," he stated at the round-table discussion during the St. Petersburg International Economic Forum-2012.

The government will increase the amount in the future, said Andrei Belousov. "If there is no crisis, we'll be increasing. What's the use of stopping?" he said. The inflow of investments in fixed assets exceeded expectations, said the minister. "The growth of investments over the past two months has been about 7% compared with the last year," he said. Andrei Belousov forecasts that the growth in the first half-year will be 10-11% year on year. "This is a good pace. We like it and are going to keep it," concluded the Economic Development Minister. 18. Russia eyes new $3bn steel complex Reuters 29 June 2012 Russia could team up with foreign investors to build a new steel complex worth 104bn roubles ($3.15bn) in the Rust Belt region of Chelyabinsk, the local government said in a statement. The iron ore mining and smelting facility could be built in the Nyazepetrovsky district, home to 6.5bn tonnes of titanium magnetite used in iron, titanium and vanadium production, the local government's www.gubernator74.ru website said late on Wednesday. It aims to produce rolled steel by 2020, it said. The government intends to attract a group of three foreign investors - Fleming Family & Partners, Kobe Steel and Sun Investment Partners. A final agreement should be signed in the coming months, Deputy Governor Sergei Komyakov was quoted as saying in the statement. A spokeswoman for Fleming Family & Partners declined comment. Kobe Steel, contacted by the Vedomosti business daily, could not provide a comment, while an executive at Sun Investment told the newspaper his company was not participating in the project. The mill, if built, would become one of the largest investments in Russia's mining and steel sector in recent years, as the global steel industry has been hit by softening demand and easing prices. 19. Russia's Yandex invests in Turkish online retail firm Hurriyet Daily News June 29, 2012 Russian search engine Yandex's investor Ru-net has invested six million Turkish Liras in Turkish firm lidyana.com, which sells jewelry and accessories online. Lidyana's largest shareholder is Hakan Ba_, who is also the creator of Peak Games and social media company Krombera. Turkish football star Arda Turan, who plays for Atletico Madrid, also holds an 11 percent stake in the company.

Lidanya was established in February with a 2 million lira investment. Since then many foreign investors have expressed interest in joining onboard. Ru-Net has over 30 different investments in various countries, but according to Hakan Ba_, this is Ru-Net's first investment in Turkey. "As for us, we first want to enter the Russian market and then from there branch out to the whole Middle Eastern market," said Ba_. Murat Biçer, who is managing Ru-Net's investment in Lidanaya, said: "When we look at Eastern Europe and Western Asia, the most encouraging sector appears to be Turkey's online retail market."

OTHER NEWS INVESTMENT 20. Anti-corruption blogger Navalny elected to Aeroflot board RIA Novosti June 26, 2012 Anti-corruption blogger and opposition leader Alexei Navalny has been elected to the board of directors of Russia’s largest airline Aeroflot, at the airline’s annual shareholders’ meeting on Monday. Navalny was nominated by the National Reserve Bank controlled by businessman Alexander Lebedev whose structures hold about 15 percent in the flagship airline. The controlling stake of 51.17 percent is held by the Russian government. A total of 787 million votes were cast in favor of Navalny’s candidacy. Aeroflot’s issued share capital consists of 1.11 billion ordinary shares with a par value of one ruble. Anti-corruption blogger Navalny has sought in the past few years to obtain documents via court rulings from a number of state-run companies, in a bid to make their activities transparent. As a minority shareholder in state-run oil major Rosneft, Navalny attempted to get the company’s minutes of board meetings for 2009, and also copies of agreements on crude oil supplies to China. Navalny has also been a leading figure in the protest movement which emerged in Russia after last year's parliamentary elections. Last week, Rosneft President Igor Sechin accused Navalny of working for London-based Hermitage Capital, the company at the center of the Magnitsky scandal, a charge he denied. 21. Growth in health spending grinds to a halt, says OECD OECD June 28, 2012 Growth in health spending slowed or fell in real terms in 2010 in almost all OECD countries, reversing a long-term trend of rapid increases, according to OECD Health Data 2012. Overall health spending grew by nearly 5% per year in real terms in OECD countries over the period 2000-2009, but this was followed by zero growth in 2010. Preliminary figures for a limited number of countries suggest little or no growth in 2011. The halt in total health spending in 2010 was driven by a fall of 0.5% in public spending for health, following an increase of over 5% per year in 2008 and 2009.

While government health spending tended to be maintained at the start of the economic crisis, cuts in spending really began to take effect in 2010. This was particularly the case in the European countries hardest hit by the recession. In Ireland, cuts in government spending drove total health spending down by 7.6% in 2010, compared with an average yearly growth rate of 8.4% between 2000 and 2009. Similarly, health spending in Iceland fell by 7.5%, as a result of a 9.3% reduction in public spending. In Estonia, following an average growth rate of nearly 7% per year from 2000 to 2009, expenditure on health dropped by 7.3% in 2010, driven by reductions in both public and private spending. In Greece, estimates suggest that total health spending fell by 6.5% in 2010 after a yearly growth rate of more than 6% on average since 2000. Reductions in public spending were achieved through a range of policy measures. In Ireland, most of the reductions have been achieved through cuts in wages or the fees paid to professionals and pharmaceutical companies, and through actual reductions in the number of health workers. Estonia cut administrative costs in the ministry of health and also reduced the prices of publicly reimbursed health services. Investment plans have also been put on hold in a number of countries, including Estonia, Ireland, Iceland and Czech Republic, while gains in efficiency have been pursued through mergers of hospitals or ministries, or accelerating the move from in-patient hospitalisation towards out-patient care and day surgery. The use of generic drugs has also been expanded in a number of countries. Other measures have been introduced to make people pay more out of their pockets. For example, Ireland increased the share of direct payments by households for prescribed medicines and appliances, while the Czech Republic increased users' charges for hospital stays. Outside of Europe, health spending growth slowed in 2010, to around 3% in the United States, Canada and New Zealand. Growth remained at more than 8% in Korea. As a result of the zero growth in health spending across OECD countries in 2010, the percentage of GDP devoted to health stabilised or declined slightly in most countries. Health spending accounted for 9.5% of GDP on average across OECD countries in 2010, compared with 9.6% in 2009. In 2010, health spending as a share of GDP remained by far the highest in the United States (17.6% of GDP), followed by the Netherlands (12%), France and Germany (11.6%). The lowest shares of national income devoted to health are in Mexico (6.2%) and Turkey (6.1%). In Japan, the share of spending allocated to health has increased substantially in recent years to 9.5%, up from 7.6% in 2000, and is now equal to the OECD average. The share also increased in Korea to 7.1% in 2010, up from 4.5% in 2000. These are some of the short- and long-term trends shown in OECD Health Data 2012, the most comprehensive source of comparable statistics on health and health systems across the 34 OECD countries. Covering the period 1960 to 2010, this interactive database can be used for comparative analyses on health status, risk factors to health, health care resources and utilisation, and health expenditure and financing.

22. Magnit retail chain CEO says Russia's trade law discriminatory bne June 25, 2012 Russia's trade law, imposed in February 2010, is discriminatory and should be canceled, Sergei Galitsky, CEO and founder of large domestic food retail chain Magnit, wrote in his microblog. "We have warned that the trade law won't bring anything good. It is just a discrimination of the fastest growing industry. The law should be canceled because other laws already regulate everything," Galitsky said. Signed in late 2009, the Federal Law on State Regulation of Trade Activities forbids food retailers from holding more than a 25% share in the local markets. "Restricting the competition with regards to share limits will cause the opposite effect. But again, I am afraid no one is going to listen to or ask us," Galitsky said. 23. No need for industrial policy law- Putin RIA Novosti June 28, 2012 Russia has no need to develop a federal industrial policy law, President Vladimir Putin said on Wednesday. “Industrial policy is an issue that has been discussed for 15 years. Instead of an industrial policy law, we need industry: how to organize our work to cause industry to develop actively. This is the most important and key issue,” Putin told the

Federation Council, Russia's upper house of parliament, in response to a question by senator Yury Shamkov. Russia should consider the approach of some economists who believe that there can be no special industrial policy, but there must be economic policy as a whole which creates conditions for the development of its components, including industry, agriculture abd services, Putin said.

SECTOR Gas 24. E.On Russia broadens the pool of gas suppliers VTB Capital June 29, 2012 News: The Supervisory Board of E.On Russia has approved a 10-year gas delivery contract with LUKOIL. The contract assumes 200mcm of annual gas deliveries at prices linked to federal tariffs (with adjustments for energy content). NOVATEK is the other gas supplier for Yaivinskaya GRES, with a contract until 2017. Our View: It is this management action that makes the difference in cost control for utility companies and is likely to help EONR keep its leading position among fossil fuel gencos in Russia through the period of contained electricity price growth that is starting. We believe that cost optimisation is the key factor driving utilities’ investment case in the medium term. Our back of the envelope calculation indicates that annual gas consumption at Yaivinskaya GRES is to be close to 1.6bcm after the launch of the new CCGT unit last year. Assuming a potential 5-10% discount to Gazprom’s price, the new contract could save up to RUB 210-420mn in 2012, which is close to 1% of our FY12 EBITDA projection for the company. 25. Gazprom May Extend Nord Stream to UK RIA Novosti 30 June 2012 Russian gas monopoly Gazprom has decided in principle to extend its Nord Stream pipeline project to reach Great Britain, CEO Alexei Miller said on Friday. “British Petroleum has shown an interest,” Miller said, adding however there were no specific agreements. Nord Stream ferries Russian gas through the Baltic Sea to Germany. The first of the project's two lines was opened in November and will have an annual capacity of 27.5 bcm. Gazprom owns 51 percent in Nord Stream, Germany's Wintershall and E.On each have 15.5 percent, and the Netherland's Gasunie and France's GDF Suez each own 9 percent of the shares. 26. Gazprom decreases 2012 production and EBITDA forecast VTB Capital June 29, 2012

News: Gazprom has reduced the amount of natural gas it expects to produce in 2012, reports Interfax (it had previously guided for 529.3bcm, with 2011 production at 513.2bcm). According to Deputy CEO Andrey Kruglov, gas production will be close to the 2011 amount. The company expects EBITDA to decrease to USD 58bn in 2012 (10% down from the USD 66bn in 2011) due to the increase in MET. Revenues are expected at USD 160bn. Additionally, Gazprom’s Chief Accountant Elena Vasilieva said that retroactive payments to European customers (primarily Eni) amounted to RUB 20bn (USD 609mn) in January-May 2012. Our View: While we expect 1% production growth YoY in 2012, our forecasts for Gazprom’s 2012 revenues and EBITDA are much lower, at USD 156.7bn and USD 51.4bn, respectively. As for the retroactive payments, the company previously expected total payments of up to USD 7-10bn in 2012, which means that we might see an accelerating trend in the second half of the year. As retroactive payments are conducted via discounts to European customers, i.e. via revenues, we are comfortable with our estimates at the moment given that our forecasts are more conservative than the company’s guidance. 27. Gazprom might face some issues relating to its Vietnamese offshore projects VTB Capital June 29, 2012 News: According to Kommersant, Gazprom might face some issues over its rights to Vietnamese offshore projects. Chinese oil company CNOOC has offered the right to explore offshore projects in the South-China Sea to international investors. Vietnam claims that the Chinese proposals are illegal and threaten the country’s sovereignty over its offshore territory. Moreover, some of these fields have already been distributed by the Vietnamese government and PetroVietnam. Gazprom is currently participating in the development of six blocks in the Vietnamese offshore. Our View: We do not expect any impact on Gazprom’s share price, as the fields are too small to have a significant effect on the company’s operations. 28. Gazprom plans to annually invest RUB800bn in 2013-2014 bne June 28, 2012 Gazprom's investment program in 2013-2014 amounts to around RUB800bn per year, Deputy CEO Andrei Kruglov said, cited by Prime. In January-March the investment program for 2012 was increased to RUB843bn from RUB777bn approved in December 2011. 29. Gazprom to offer EU $615m discounts in 2012 RIA Novosti June 29, 2012 Russian energy giant Gazprom will offer West European consumers 20 billion rubles ($615 million) in price discounts this year, Gazprom Deputy CEO Yelena Vasilyeva said on Thursday.

“Retroactive payments will amount to 20 billion rubles in 2012,” she said. Retroactive payment implies gas price discounts granted to consumers retroactively. Gazprom Deputy CEO Andrei Kruglov said the sum of the retroactive payments was flexible and depended on the results of negotiations with Gazprom’s partners. All gas price discounts have been taken into account in the Gazprom budget, including its 2012 export revenue target of $160 billion. Gazprom cut gas prices for long-term contracts with European energy firms from early 2012 to bring them in line with trends on spot markets. 30. Gazprom to open LNG plant in Vladivostok by 2017 - CEO bne June 29, 2012 Gazprom plans to launch a LNG production facility in Russia's Far East in 2016-2017, CEO Alexei Miller said, Prime reported. "In 2016-2017, we plan to launch a new LNG plant in Vladivostok and consider the possibility of creating other facilities in this region," Miller told an annual shareholder meeting. "There are new possibilities for operations appearing on the market. The demand for LNG from traditional markets like Japan, Korea and Taiwan is rising," Miller said. "New large consumers, India and China, have great potential. LNG markets are widening in Singapore, Pakistan, Philippines, Thailand, Bangladesh. Restricted supplies from countries, traditional LNG exporters, Indonesia, Malaysia and Oman, are forecast. Gazprom plans to become a large player on the LNG market." Miller said that Gazprom exported 2.3m tonnes of LNG in 2011, and the output of Sakhalin-2 rose to 10.67m tonnes. In Europe, consumers increased LNG purchases from by 8.2% to 150 billion cubic meters in 2011, raising the company's market share by 4 percentage points to 27%. Miller also said that Gazprom plans to complete a feasibility study of the Chayandinskoye field in the republic of Sakha (Yakutia) and the building of a pipeline to Vladivostok in August. End 31. Gazprom: no agreement on Shtockman reached at St Petersburg economic forum VTB Capital June 25, 2012 News: According to Vedomosti, no agreement on the Shtockman project was reached in negotiations at the St Petersburg economic forum.

The paper speculates that Statoil suggested that Shell should become the main international partner of the project. Also, Total might leave the Shtockman project. The current agreement between Gazprom, Statoil and Total expires on 1 July. Our View: As we mentioned previously, we do not see any immediate stock implications coming from the Shtockman newsflow. However, in the longer term, a lack of progress in negotiations might delay the launch of the project (we currently expect production at Shtockman to start in 2016), which would be fundamentally negative for Gazprom. At this stage, the decision is not final and we prefer to wait for more clarity. As Gazprom’s shares are not trading on fundamentals, we do not expect any market reaction to the news. 32. TNK-BP to invest over $1bn in gas utilization RIA Novosti June 25, 2012 TNK-BP will allocate over $1 billion in associated petroleum gas (APG) utilization projects in the Orenburg region in the Urals, the company said in a statement on Friday. The company implements four projects in the region in terms of the program to increase the value-added use of the APG to 95 percent from the current 83 percent in 2014. Two projects will be completed in the second half of 2012. "The projects will help bring our APG utilization figure to 95 percent with the total regional gas production of nearly three billion cubic meters. We have already invested about $500 million in this program," TNK-BP Gas and Power Projects Program Director in Southeast Area Division Pavel Strunilin was quoted in the statement as saying.

SECTOR Oil 33. Bashneft awarded Block 12 in Iraq Alfa Bank June 29, 2012 As a result of negotiations with the Iraqi Ministry of Oil, Bashneft was granted the right to explore and develop Block 12 in Iraq with a remuneration fee of $5/bbl. We remind that Bashneft took part in the fourth round of bidding in Iraq in late May. In a consortium with Petrovietnam and Premier Oil, Bashneft applied for Block 12. The block was not awarded the project at that time, as the remuneration fee requested by the consortium ($9.85/bbl) was too high. According to Bashneft, Premier Oil remains a partner in this project. 34. Gazprom Neft and JOGMEC agree on joint geological study of Ignyalinsky field Alfa Bank June 25, 2012 Gazprom Neft has signed an accord with Japan Oil, Gas and Metals National Corporation (JOGMEC) on joint geological study of reserves in the Ignyalinsky field. The Ignyalinsky field is part of the Chonsk group, located in Irkutsk region, with a

C1+C2 reserve base estimated to exceed 40mt. Gazprom Neft and JOGMEC will perform a 3D seismic study at the field by the end of 2013. Gazprom Neft First Deputy CEO Vadim Yakovlev announced that JOGMEC will carry most of the investment burden during the exploration phase, which is estimated at ~$100m. Based on the results of the exploration, the sides will decide on further cooperation, with JOGMEC being granted an option for a 49% stake in the project, Yakovlev said. 35. Gazprom Neft sells oil field in Timano-Pechora region VTB Capital June 27, 2012 News: According to Kommersant, Gazprom Neft is to sell its South Toraveyskoye oil field in the Timano-Pechora region to LLC Enisei, which belongs to Russian businessman Yuri Yakubenko (the owner of the nearby refinery). The paper speculates that the deal value is USD 50-70mn. Our View: As we have expected, Gazprom Neft is taking steps to exit Timano- Pechora and focus on West Siberia and the Central Region. According to our calculations, the market value of the field is around USD 50mn. Were the deal to be closed at a higher price, that would be positive for Gazprom Neft. In any case, though, we would expect the company to cover its historical costs (the majority of which is the acquisition price of USD 43mn). Due to the small value of the asset, we do not expect any market reaction to the news. 36. Novatek may refuse to admit 3rd partner to Yamal LNG project bne June 26, 2012 Russian gas company Novatek may refuse to admit a third partner to the Yamal LNG project, as the conditions offered by Qatar are inadequate, Novatek CEO Leonid Mikhelson said, cited by Prime. "Yamal LNG obtained very good long-term tax incentives - a zero mineral extraction tax rate for gas. We shall see whether (giving) a relatively large stake in the project (to) other partners is reasonable. I am not ready to answer this question at the moment. Neither we nor our partner Total are bothered by the presence or absence of other partners," Mikhelson said. Mikhelson added that Qatar was interested in participating in the project but it offered unsuitable conditions with regards to the guarantees required of the Russian party. Novatek plans to announce an international tender to construct the LNG plant, Yevgeny Kot, director of the company's department for LNG project development, told reporters. "We have begun to prepare the tender. Here is a huge set of documents, a big international tender among the companies that are participants of the so called LNG club," he said. According to Mikhelson, the front-end engineering design stage was almost complete. The contract of equipment supply was signed at the St Petersburg

International Economic Forum held earlier in June; the advanced payment must be made by the end of 2012, which may impact the timeline of the entire project. Mikhelson also said that the funds required to finance the project may be attracted in 2013-2014. Sberbank, Gazprombank, and Societe Generale were appointed as consultants, he added. 37. Oil output up by 1.9% y-y in January-April ISI June 25, 2012 Russia’s total oil output increased by 1.9% y/y to 170.5mn tons in Jan-Apr 2012, report by RosStat shows. To compare, Russia’s total oil output declined by 0.7% y/y to 487.6mn tons in 2008, went up by 1.2% y/y to 493.7mn in 2009, went up by 2.1% y/y to 504.9mn tons in 2010, and inched up by 0.8% y/y to 509.4mn in 2011. In Jan-Apr domestic oil refining increased by 5.1% y/y to 87.9mn tons, while oil exports declined by 2.8% y/y to 77.9mn tons (45.7% of total oil output). Notably, in April actual average oil exports price slipped by strong 0.8% m/m to USD 813.5 per ton (after picking 4.2% m/m in March), while average global price of Urals blend oil declined by 4.5% m/m to USD 854.8 per ton. In the reporting period weight of oil exports in total Russia’s exports was 35.1% (36.2% a year ago) and weight of oil exports in the total exports of fuels and energy sources was 48.9% (50.8% a year ago). To remind, in August 2011 EconMin increased the forecast for oil output forecast for 2011, taking into account the actual output figures. Oil output forecast was up by 0.8% to 509mn tons last year. Oil exports target was upped by 1% to 244.5mn tons. EconMin’s base scenario for 2012-2014 sees oil output stabilising at 510mn tons annually, while a negative outlook presupposes the output at 498mn tons. 38. Rosneft approved several deals as part of JV with Itera VTB Capital June 27, 2012 News: According to Interfax, Rosneft’s Board of Directors has approved several deals as part of the creation of a joint venture with Itera. In particular, Rosneft is to i) sell equipment to Kynsko-Chaselskoe Neftegaz (KCN) (to be sold to Itera) for RUB 2.7bn (USD 81mn) and ii) make a cash contribution of around RUB 2.86bn (USD 86mn) to KCN. After the deal with Itera, Rosneft will get a 51% stake in the independent company. Our View: According to the newswire, Rosneft will not need any additional financing for this joint venture, as the contribution to KCN’s share capital is almost equal to the cost of the equipment that will be sold to KCN. The news is therefore neutral for Rosneft in the short to medium term. However, in the longer term this joint venture might became value accretive for the company. 39. RussNeft approves 2017 strategy, $500m investment per year bne

June 26, 2012 Russian oil company RussNeft has approved its development strategy until 2017, with annual investments capped at $500m, the company's Director Mikhail Gutseriyev said, cited by Prime. The company also plans to repay its debt to Russia's Sberbank by 2015 and to Swiss commodities trader Glencore International by 2017, Gutseriyev said. RussNeft also expects its annual oil output to reach 18m tonnes in 2017, he added. 40. Russia to suffer from U.S. new energy strategy – paper RIA Novosti June 29, 2012 The United States is going to cut oil imports from the Middle East twice by 2020 and stop them entirely in future thanks to growing domestic hydrocarbons production, under a new strategy which could hit the current global oil export leaders, RBC daily business newspaper reported on Thursday citing analysts. The U.S. government plans to cut oil imports from the Middle East, Africa and Europe to 2.5 million barrels per day by 2020 from the current volume of over four million barrels a day, and stop imorting entirely by 2035. The country is unlocking new sources of oil in shale-rock formations, oil sands and deep beneath the ocean floor, strengthening its economy and energy security, The Wall Street Journal has said. The new U.S. strategy, which will lead to international oil prices falling, will have major consequences for leading oil exporting states, including Russia, Institute for Strategic Studies and Analysis head Vagif Guseinov told RBC daily. "A considerable quote decrease may be devastating primarily for ... Iran, Venezuela and Russia as their budgets have been recently formed on the basis of a $100-120 per barrel price. [The strategy] gives grounds to the U.S. and its allies to succeed in their new energy policy not only in the Middle East but also all around the world," Guseinov said. Despite the new energy strategy, the Middle East will continue to be at the center of Washington's foreign policy, since the region largely determines the international price of 'black gold', RBC daily said. 41. Surgutneftegas will spend RUB180bn in CAPEX this year Metropol June 29, 2012 According to Surgutneftegas management, the company will spend RUB180bn in CAPEX this year, with a 22% y-o-y increase in 2013 to RUB220bn and RUB250bn in 2014. Though the company has a significant cash reserve of $27bn to spend on investment, we still lack clarity regarding specific projects to be funded. 42. TNK-BP seeks partner to build new electricity capacity RenCap

June 29, 2012 Kommersant reported yesterday (28 July), quoting sources at the company, that TNK-BP is seeking a partner for the construction of 800-1,000 MW of new generation capacity to meet electricity demand from expanding oil fields in Tyumen. According to the report, TNK-BP is ready to offer a long-term associated gas supply contract and a bilateral contract for electricity and capacity purchase at a price that would guarantee the investor a return on investment on a par with the current capacity agreements (DPM) offered by the Russian state. Kommersant reported that E.ON, Enel and Fortum are all in discussion with TNK-BP, as is the state-controlled InterRAO. We think it is illustrative that a profit-oriented company such as TNK-BP understands that providing economically-rational levels of return is a necessary incentive to promote investment in the power sector, while Russian state policy is to set rigid ceilings on tariffs for end-users, with seemingly little regard for the negative consequences in investment. The reported positive response from Enel and E.ON to TNK-BP's invitation contrasts with the declared view of those two companies with respect to Russia's public electricity system, which is that there is a financial case to support new investment. 43. Transneft’s ESPO launch might be delayed VTB Capital June 25, 2012 Transneft’s ESPO launch might be delayed – difficulties with registration of land for ESPO – government attention required to facilitate conflict resolution and if necessary approve budget overrun News: According to Vedomosti, Transneft is facing difficulties with the registration of land for the construction of ESPO in the Amur region, which might delay the commissioning of the pipeline (officially planned for December 2012). Our View: ESPO is a strategically important pipeline and with the conflict leaking into the public sphere, the parties need to timely coordinate an agreement, we believe. Last year, Transneft faced a similar problem with permission to repair pipelines to the Moscow refinery through a Moscow park, which was quickly resolved once it attracted the attention of the government. However, this might mean certain additional commitments to invest in the region: Transneft currently proposes investing over USD 100mn into the Amur region and paying USD 50mn in annual taxes. Also, the company might want to ensure the government approved potential budget overrun.

SECTOR High Tech 44. GVA launches Russia Plug and Play startup accelerator RIA Novosti June 26, 2012 The Global Venture Alliance (GVA) will launch Russia’s first start-up acceleration center on Monday to promote their entrance to global markets, GVA said.

The technological center will provide co-working space, communications and a chance for start-ups to draw investors’ attention, GVA said. GVA launched the project with the support of the Moscow Government and jointly with the California-based Plug and Play company, which has created a network of such acceleration startups across the world. “The management of GVA and PnP attended the Economic Forum - Russian Startups: local or global players, held in St.Petersburg, and it showed that the most frequent mistake of Russian startups is an attempt to build their own channels for conducting foreign businesses instead of using the existing resources of big corporations,” GVA said in a statement. Any high-tech start-up that has been assessed as meeting the necessary requirements and proved the innovative nature of its products will be able to work in the center. In exchange for a place to work, the start-up accelerator will get a share in the company’s business, a GVA representative said. Aside from providing premises and equipment at reduced rates, the start-up accelerator will give companies access to the best experts from Silicon Valley and a pool of global venture capitalists. 45. Plans to consolidate technology assets with Nvision Group UrlaSib June 28, 2012 Binding agreement to acquire a 50% stake in NVision to be signed in July. AFK Sistema (SSA LI – Buy) is planning to consolidate its high technology assets on the base of NVision Group, Interfax re- ported yesterday. In January, Sistema’s subsidiary RTI signed a pre- liminary agreement to acquire a 50% stake in the Russian systems integrator NVision Group for $200 mln, originally planning to ex- change the remaining 50% for its own shares. However, the latest plans, according to Interfax sources, imply that Sistema will increase its share in NVision to a controlling stake, while existing shareholders of NVision could later sell part of their stakes in an IPO as a potential exit. A firm agreement between Sistema and shareholders of NVision should be signed in early July. A leading Russian systems integrator. NVision is a leading Russian systems integrator, with estimated sales of RUB25 bln ($850 mln) in 2011, and has likely delivered an EBITDA margin of about 10% (the same as in 2010). Following its acquisition by Sistema, NVi- sion will probably consolidate the IT and telecom solution segments of Sistema’s technology subsidiary Sitronics (SITR LI– Not rated), while Sitronics’ microelectronics segment will be consolidated into RTI. Sitronics’ shares should be delisted, having lost about 92% of their value since its IPO in 2007, as the company has failed to deliver a clear strategy and cash flows sufficient for its high debt and financing R&D development. Sistema has yet to prove to markets that it can successfully manage its technology assets. The acquisition of NVision Group should strengthen AFK Sistema’s technology business and the price looks reasonable. That said, NVision group will need to prove that it can successfully develop within Sistema before markets will put their trust into

another technology IPO involving Sis- tema, given their bad experience with Sitronics. Sistema’s stock is fundamentally undervalued, offering 51% upside to our target price of $27/share. We reiterate our Buy recommendation for the name.

SECTOR Metals and Natural Resources 46. CIS steel and iron: From negativity to uncertainty Alfa Bank June 28, 2012 What was earlier in the year a negative outlook for steel prices and stocks has now improved to an uncertain outlook with a mix of negative and positive elements. We move to E/W, avoiding an O/W rating, as we believe steel prices will hover around current levels in the coming years as iron ore prices taper off amid ample iron ore supply. SVST remains our favorite on a mix of better regional exposure, low financial leverage and earnings multiples. We reiterate our O/W rating on the stock. MMK and NLMK’s respective negative factors have been priced in after their underperformance, and we upgrade to E/W. EVR’s high leverage has led to a substantial increase in earnings multiples to unattractive levels, and we believe the stock will underperform, leading us to downgrade it to U/W. We reiterate our E/W rating on the undervalued FXPO due to heightened political risk. 47. Mechel suspends operations at the Lenin underground mine VTB Capital June 26, 2012 News: According to Interfax, Mechel has suspended operations at the Lenin underground mine in Southern Kuzbass after a court ruled that the company had violated safety rules. Our View: The suspension is likely to be temporary, with operations resumed as soon as the company complies with the safety requirements. On our numbers, the mine will account for 12% of Mechel’s total 2012 coking coal output. Thus, the suspension implies only a marginally negative impact on the company’s FY12 operating and financial performance, in our view. 48. Norilsk Nickel mulls coal mining project in Indonesia bne June 27, 2012 Norilsk Nickel is considering developing coal deposits in Indonesia within the framework of a railway construction project in Eastern Kalimantan in cooperation with Russian Railways, the company said without providing details. Russian Railways plans to build a 300 kilometer-long electrified single track in Indonesia, including double track sections. The project also calls for the construction of a special purpose railroad, infrastructure for the transportation of coal, and a coal terminal. 49. Norilsk plans to invest $1.5bn in Australian nickel deposit

RIA Novosti June 25, 2012 Russia's largest nickel producer Norilsk Nickel plans to invest over $1.5 billion in development of the Honeymoonwell Nickel Deposit in Australia, Norilsk Director of Overseas Operations Department Roman Panov said on Friday. Planning for the deposit will be held in 2012-2013 and the company will start infrastructure construction in 2014. The deposit is scheduled to be launched in 2016-2017, Panov said on the sidelines of the St. Petersburg International Economic Forum. "When the project reaches full design capacity, it will allow us to increase our overall nickel concentrate production by 40,000-45,000 tons," Panov also said adding that the nickel giant was holding talks with several banks, including Asian financial institutions, to get loans for the project. 50. RUSAL ready for new talks as IES deal fails bne June 26, 2012 The deal of Russian aluminum giant RUSAL to acquire the Bogoslovsk thermal power plant from Russian power utility Integrated Energy Systems (IES Holding) fell through, but the management remains open to negotiations, Vladislav Solovyov, RUSAL’s first deputy CEO, said in an interview with Prime. “The deal was disrupted by IES. It is over. We are always ready for negotiations, but there are still no new proposals from IES,” he said. 51. Russia, Ukraine and Kazakhstan further diversify into gold bne June 28, 2012 Russia expanded its gold reserves by 15.5 metric tons in May as Ukraine and Kazakhstan increased their holdings of the metal, IMF data shows according to Bloomberg. Russia’s bullion reserves climbed to 911.3 tons last month when gold averaged $1,587.68 an ounce, data on the IMF’s website showed. Ukraine’s raised by 2.1 tons to 32.7 tons. Kazakhstan boosted reserves by 1.8 tons to 100 tons, according to the data. 52. Titanium and magnesium production in Russia up in 5M12: Positive for VSMPO-Avisma RenCap June 29, 2012 Event: Russian titanium ingots and semi-finished titanium products (wires, rod, sections) production in the first five months of 2012 grew by 42.1% YoY and 37.4% YoY, respectively, according to the Federal State Statistics Service. The situation was

similar for the magnesium production sector: output increased by 29.9%, with magnesium alloy production rising by 27.8%. Action: The news should be positive for VSMPO, in our view, as it is the only titanium producer, and one of the biggest magnesium producers, in Russia. Rationale: In FY11, titanium and magnesium accounted for 87% and 2% of VSMPO's revenue, respectively. The company produced 24.1kt of titanium in FY11, +10% YoY. It plans to increase titanium and titanium alloys production by 22-33% YoY to 30-33kt in FY12, according to COO Dmitry Trifonov, which we view to be quite ambitious but achievable. Company guidance, which was given last year, includes target revenue of $2bn ($1,034mn in FY11 under RAS) and target net income of $450mn ($104mn in FY11 under RAS) by the end of FY15.

SECTOR Power 53. Consumption growth for 2013 might surprise on the upside Alfa Bank June 29, 2012 Yesterday, the Federal Tariff Service FTS approved the combined energy balance for the Unified Energy System for 2013, Interfax reported. According to the document, overall country consumption will grow by 2.1% in 2012 and 2% in 2013, which is above our forecasts of 1.2% for 2012 and 1.6% for 2013. We therefore view this news as POSITIVE for generating companies across the board (both the OGK/TGK universe and RusHydro) and for the overall power sector, as demand is the fundamental factor that drives these stocks. 54. Government might conduct international road show for the energy sector Aton June 25, 2012 Minister of Energy Alexander Novak said that the Russian government is considering the idea of conducting a road show for the domestic energy sector, Interfax reported on Friday (22 June). The road show would travel to the world’s largest financial centres, such as London and New York, providing the opportunity to describe market conditions in Russia and explain which assets are available for investment, the minister said. The road show could also encompass the oil and gas, coal, and utility sectors, as well, he said. While we generally support the idea of a road show, we would prefer to see real actions that could have a material impact on the investment attractiveness of Russia’s energy industry, for example, the promotion of a consistent market?based regulatory policy. The news is neutral for utilities stocks, in our view. 55. Inter RAO might ask Rosneftegaz for extra liquidity to finance M&A activity VTB Capital June 27, 2012

News: Yesterday, Boris Kovalchuk, the CEO of Inter RAO, was quoted by Interfax as saying that the company’s long-term capex programme was well balanced and that there was no rush to raise additional capitalisation. He also stressed the lack of liquidity to finance potential M&A activity, while should Inter RAO resume its expansion abroad it would have to apply for extra liquidity from the state, its shareholders or Rosneftegaz. Our View: Over the last week, RusHydro and Inter RAO (which have, of late, been seen as the names most interested in foreign expansion) have started talking about freezing their international projects, which we consider to be logical in a normal situation. Meanwhile, given the recent increase in Rosneftegaz’s role in the sector, this might just be a temporary freeze (rather than a change of strategy) while plans could be resumed once the liquidity situation improves and new targets are set. In that case, the potential expansion might have a double negative effect on the company’s fundamentals: Inter RAO might be involved in new projects abroad with doubtful profitability (or bought with a premium to its own valuation) and financed through new equity injections (the most expensive way of financing). 56. Inter RAO puts foreign expansion on hold VTB Capital June 26, 2012 News: Inter RAO CEO Boris Kovalchuk has said that the company is putting its p otential expansion abroad on hold, according to Interfax. The key reasons iven were volatile regulations on the domestic market and the downward trend of generation companies’ capitalisation. Our View: We believe the company’s decision to put its foreign M&A activity on hold and effectively focus on internal issues (restructuring its large equity portfolio and optimising its controlled gencos) is appropriate given the current challenging environment, and is also likely to soften the company’s risk profile. To recap, at the beginning of the year, the company guided that one or two deals might be closed by the year-end: a potential partnership with Gazprom with the primary focus on Western Europe, Turkey and the Balkans. Moreover, Inter RAO intended to raise up to EUR 1.65bn of extra leverage to finance the potential deals. Based on an average 2012-13 EV/EBITDA multiple, international peers (DM and EM) currently trade in the range of 6.0-8.0x and, in our view, are unlikely to sell assets at a lower valuation. By contrast, Inter RAO itself trades at the lower end of the aforementioned valuation range and the new acquisitions might be value destructive. In addition, the majority of utilities companies in Western Europe see their profitability stagnating or even declining due to high ecological payments, almost zero growth in electricity demand and the expansion of renewables. 57. Large costumers in isolated regions are banned from buying directly from the wholesale electricity market VTB Capital June 29, 2012 News: As Kommersant reports today, the Federal Tariff Service has rejected the application of large electricity customers (Transneft and Severstal) to operate in the

isolated energy regions, which would disrupt the electricity supply agreement with the retail company of the last resort, enabling large customers to purchase electricity directly from the wholesale electricity market (WEM). Our View: The recent amendments to the retail market legislation strongly facilitate large costumers buying directly from the WEM, one of the measures used to maintain growth in electricity tariffs. However, with regards to the isolated energy regions operated under regulated tariffs only, such a move might have the opposite effect and result in an extra spike in the tariffs for other electricity consumers. All in all, the FST’s decision is another step keeping tariff growth contained, which would bring about a new reality and the state’s general strategy towards the utilities sector. For more details, please refer to our note Russian Utilities: Paradigm Shift of 14 June. 58. MRSK Holding Deputy CEO Mikhail Kurbatov appointed Deputy Minister of Energy VTB Capital June 27, 2012 News: Yesterday, Interfax reported that the Deputy CEO of MRSK Holding, Mikhail Kurbatov, had been appointed Deputy Minister of Energy and would be responsible for developing the utilities sector. Our View: The new appointment continues the series of policymaker changes within the ministry that started with the new Minister of Energy being appointed last month. This might lead to some changes in the Ministry of Energy’s strategy, in particular over the utilities sector, although any changes could take some time and depend on various external factors. 59. RusHydro approves 2012-16 capex programme VTB Capital June 27, 2012 News: Yesterday, RusHydro published its 2012-16 capex plan, which has ecently been approved by the company’s Board of Directors. In total, over the n ext five years the company intends to spend RUB 285bn, net of VAT excluding the capex for RAO of Far East and the BEMO project, which is a joint ( venture with RUSAL) with the primary focus being on modernising the fleet. The latter accounts for 57% of the total capex programme. Our View: The 2012-16 capex figures which have finally been approved are 17% above our expectations, mainly due to the discrepancy in the maintenance capex in 2015-16, which is set to reach RUB 41.2bn per year (twice our assumption over the same period of time). With the higher than expected capex spending, RusHydro will only turn FCF positive in 2016 (according to our model), dampening any expectation of a change in dividend policy. Initially, we had expected to see positive FCF as of 2014 which was the last available year in the previous capex outlook for the genco. Overall, our short-term outlook on the stock remains quite cautious, with the main risk being a possible SPO, as per Rosneftegaz’s recent suggestion to inject RUB 85bn into the company.

60. RusHydro freezes international projects Aton June 25, 2012 RusHydro has temporary halted the execution of foreign projects to focus on domestic investments, Deputy CEO George Rizhinashvili told RIA Novosti on Friday (22 June). We welcome the decision since RusHydro’s foreign investments seem to have been serving political rather than economic goals, creating value?erosion risks for shareholders. However, we note that some of the company’s domestic investment projects could also be value destructive. We view the news as marginally positive for RusHydro.

SECTOR Retail, FMCG 61. Dixy Group: Minorities could create a free put option on 14% of their shares on 28 June UralSib June 26, 2012 AGM on 28 June could trigger a partial share buyback. Dixy (DIXY RX – Buy) has announced that it will hold an AGM on 28 June to ap- prove a syndicated loan of RUB18 bln ($600 mln, point 8 in agenda). As the new loan exceeds 25% of the company’s net assets of RUB19.7 bln or roughly $650 mln, the transaction is significant and subject to shareholder approval. Those minority shareholders who voted against the proposal or refrained from voting will then be entitled to sell their shares, on a pro-rata basis, back to the issuer, as stipulated in article 44 of the Federal Law on joint stock companies. Buyback price set at a premium of 17% of the current market price. The buyback price has been set at RUB338.95 (roughly $10) per share, or at a premium of 17% to the current market price. The cut-off day for shares was 14 May. Under Russian corporate law, the total amount of the buyback is limited to 10% (RUB1.8 bln or $60 mln) of Dixy’s net assets, calculated according to RAS; i.e., only about 14% of the free float can be bought back. Minority shareholders will have 45 days (not later than August 13) to put their shares to the company, with payment to be made within 30 days after the transaction; the buyback will be irrevocable after 13 August. Dixy needs this loan to refinance its current maturities and to secure funds for its 2012 capex program. Mercury controls over 54% of Dixy and its decision is likely to be approved at the AGM. Not voting will generate a free put option, downside protection to minorities. We recommend minority shareholders to refrain from voting on 28 June, in order to secure a put option, on a pro-rata base, on their stake. This will give them partial pro- tection from downside market price risks and they can make a profit if the market price falls below the buyback price between 28 June and13 August. We believe that the buyback price will set a temporary support level for Dixy’s shares during the buyback period. Otherwise, we find the name very attractive at these levels and confirm our strong Buy recommendation. 62. M.video: Targets reiterated, no deterioration in consumption patterns observed

RenCap June 26, 2012 M.video presented at the 16th Annual Renaissance Capital Investor Conference. Management expects a healthy LfL and revenue growth slowdown in 2Q12, after seasonally high above-30% 1Q12 top- line growth, and reiterated its target of 25-35 new stores in 2012. Due to current unfavourable market conditions, the company plans to postpone its SPO (placement of existing shares), which was intended to improve liquidity and to be executed in autumn 2012, according to Interfax. The company estimates that the Russian consumer electronics (CE) market, in which M.video remains a leader (its closest competitors are Media Markt and Eldorado), will grow 13-14% YoY in 2012. Any macro deterioration is considered to be favourable for further market share increases and margin expansion, as management believes that small, inefficient players will disappear with any economic growth slowdown. On the dividends front, as M.video has plenty of cash on the balance sheet, it aims to increase dividends in absolute terms. The company is fully involved in internet store development and still needs to refine many details on the procurement and logistics side before setting/reaching any particular targets. Action: Positive for M.video shares, in our view. Rationale: Overall, M.video’s management sounded very positive on the current stance of the Russian consumer. All things considered, we remain comfortable with our 2012 revenue forecast of +18% YoY and we target new openings of 30 stores – in the middle of management’s guidance range, although we believe our LfL revenue growth forecast (rouble- based) of 5.0% YoY has some risks to the upside. 63. Magnit: In the thick of success Troika Dialog June 26, 2012 We visited Krasnodar, Magnit's hometown, to gain some insight into the company's recent developments and new projects. We met the CEO, CFO and format heads, while one day was devoted to store visits, which left us with a very positive impression. We were pleased to see that Magnit stores are not mimicking X5 Retail Group's aggressive promotions. The company's new cosmetics format is poised to be a segment consolidator and generate a 36% ROI, while further efficiency improvements loom ahead. We reiterate our positive stance on Magnit. The retailer is in perfect shape to cheer the market with a guidance upgrade in July. Meanwhile, we have become more cautious on X5 Retail Group in the short run, as sales growth may slow in June, with traffic returning to competitors. X5 Retail Group more aggressive on prices in May. Pyaterochka stores offered an 80% discount on every second item from selected SKUs in the second half of May. Another promotion gave a 5% discount on the entire assortment from 09:00 to 13:00. We argue that consequent traffic gains may prove to be unsustainable and drop out in June once the heavy promos are over. We deem Magnit's approach to be more sensible. As part of its aim to invest in traffic, the retailer cut prices by 3-5% on 10% of the assortment.

No downside to margins and cash flow. The management confirmed that the company continues to renegotiate better terms from vendors. For a number of suppliers, Magnit is becoming the No 1 purchaser, giving it stronger firepower. Hence gross margin gains are sustainable, as is operating cash flow (the company reiterated its intention to be self-sufficient in financing in 2013 and generate material free cash flow in 2014). The retailer also sees scope to improve labor efficiency, while shrinkage expenses should come down as the proportion of immature stores declines in the company's portfolio. Cosmetics should be a winning format. We liked the assortment, prices and interior of the recently launched Magnit Cosmetics format. More importantly, we were impressed by the number of old-fashioned stores operating in this niche in Krasnodar and offering a meager assortment at higher prices. Magnit's financial and logistics platform should help the format take the leading position in Russia, which will further enhance economies of scale and ensure better input prices. We expect leased Magnit Cosmetics stores to deliver ROI above 36% upon maturity on capital investment of over $650 mln during 2012-15. Greenhouse project underway. The company's hypermarkets already offer cucumbers grown in Magnit's own greenhouses. EUR70 mln has been invested in this business to date, and a total of EUR300 mln is planned. Given the early stage of the project, Magnit is reluctant to discuss the economics, but we calculate a ROI of 9-12%. Cucumbers and tomatoes account for less than 1% of total revenues, so vertical integration will not have a significant impact on profitability. That said, fresh vegetables are an important element for customers in terms of store perception, so upside could arise from any traffic increase.

SECTOR Telecom, Internet 64. VimpelCom fully covers Far East area with GSM network bne June 28, 2012 VimpelCom has fully covered all the regions of the country’s Far East with GSM services that are regarded as second generation mobile service, Vladimir Kopyl, director of the operator’s Far Eastern branch, said, cited by Prime. Kopyl said that VimpelCom launched commercial operations of its GSM network in the Primorsky Region on Wednesday, while earlier in 2012, the company launched GSM networks in the constituent republic of Sakha (Yakutia), Jewish and Chukotka autonomous districts, and Magadan Region. Due to the lack of frequencies suitable for the development of GSM networks, VimpelCom was forced to launch third generation (3G) services using the UMTS (Universal Mobile Telecommunications System) standard in the Far East in 2008, while now the company could simultaneously provide services based on the two technical standards. In April 2011, VimpelCom won licenses to provide GSM mobile services in the Magadan and Primorsky regions, the Jewish Autonomous District, and Yakutia, as well as in a number of other regions, within the 1,800 megahertz (MHz) band.

The launch of GSM services is now expected to increase the operator’s subscriber base in the area, as even the oldest cellular phones are suitable for GSM standards, while only 20% of VimpelCom’s subscribers in the Far East own mobile phones adopted for 3G standard, Kopyl said, adding that the coverage of GSM networks is larger than that of 3G networks. Kopyl promised that the company will further develop GSM services in distant rural areas in the Far East. “The development of a GSM network will help us cover 99% of the territory in 2013–2014,” Kopyl said.

SECTOR Transport 65. Deripaska, Sberbank, Changi set $820m airport JV RIA Novosti June 25, 2012 Basic Element (BasEl) holding company owned by Russian billionaire Oleg Deripaska, the country's top bank Sberbank and Changi Airports International signed an $820m deal on Friday to establish a joint venture of airports management in Russia's south. The agreement, signed during the St. Petersburg International Economic Forum, stipulates that BasEl's stake in the joint venture amounts to 50 percent plus one share. Sberbank will have 20 percent minus one share, while Changi Airports International, a manager of Singapore's Changi Airport, will hold 30 percent. The bank will invest $120m in the venture, while Changi's investment will be $200 million. As for BasEl, it will include its airports in Sochi, Krasnodar, Gelendzhik and Anapa in the venture, which are estimated at $500m. The three parties see key targets of the venture in further airport development in the region and their expansion. 66. NCSP lowers grain handling tariff by 4.8% Alfa Bank June 28, 2012 NCSP announced yesterday that it will decrease the grain handling tariff at Novorossiysk Grain Terminal (NGT) by RUB30/t from the current RUB630/t as of July 1. We view the news as NEUTRAL for NCSP. A lower tariff will support NCSP’s grain export position, which has recently been hampered by increased competition from smaller ports in southern Russia. However, the effect on the company’s financials is likely to be limited. 67. NCSP releases 1Q12 figures: EBITDA above forecasts on higher bunkering margin VTB Capital June 25, 2012 News: NCSP has reported 1Q12 earnings. Revenue came in at USD 275mn, up 18% YoY and 3% QoQ, which was broadly in line with our and below consensus estimates, EBITDA was up 17% QoQ (47% YoY) to total a strong USD 171mn, 5% above

consensus and 11% above our estimates. Net income rose 332% QoQ (76% YoY) to USD 253mn, 7% above consensus and 2% higher than our forecast. Our View: Revenues were up YoY after the lifting of the grain export ban in 3Q11 and QoQ on the back of higher throughput (+3% QoQ) mainly of oil products, ferrous metals growth and a better cargo mix. The top line was slightly below our expectations and consensus due to a 15%QoQ revenues decline on lower volumes of bunkering services – as a result of the harsh winter. Notwithstanding the bad weather conditions, management was able to reach adequate handling growth YoY, confirming our top line forecast for FY12. The improvement in the bunkering services margin was above our expectations as well as good cost control (cost of services adjusted for bunkering and own fuel costs decreased 3%YoY, while SG&A declined 10% YoY), which basically explains the strong EBITDA in absolute terms and the highest historical number in relative terms after the enclosure of PTP. A large forex gain from a USD-denominated loan on the back of the stronger RUB, as we expected, drove the bottom line and was in line with our estimates. During the conference call, management stated its intentions to speed up the construction of the iron ore terminal to attract Metalloinvest products, which NCSP previously planned for 2015-2016. We believe the measure is aimed at diversifying the risks of a possible decline in volumes of other cargoes as well as their margins. To summarise, the results confirm our FY12 forecasts as well as our positive view on NCSP and we are reiterating our Buy recommendation. Our TP of USD 11.8 implies 86% upside. 68. Transaero’s passenger turnover increased by 19% y-o-y bne June 26, 2012 Transaero’s passenger turnover increased by 19% y-o-y to 3bn PAX-km in May 2012, indicating slowing growth compared to the 29% y-o-y increase in April 2012. In January-May, passenger turnover grew by 26% y-o-y to 14.2bn PAX-km, which was above the market average growth of 18.5% y-o-y, according to the Transport Clearing House. 69. Watchdog allows VIM-Avia to resume flights to Europe bne June 27, 2012 The Federal Air Transportation Agency lifted all restrictions on flights to E.U. countries from Russian air carrier VIM-Avia, an official from the watchdog said, Prime reported. Agency Director Alexander Neradko said in May that the restrictions will be lifted once the company presents documents requested by the agency. He said then that E.U. experts found three minor faults in the company’s activities during a check.

SECTOR Agriculture 70. Corn rally could be supportive for fertilizer prices in the near term Alfa Bank June 28, 2012 The active corn contract price has risen 24% over the last two days after the USDA lowered its assessment of corn crop conditions in the US from 72%, rated "good" and "excellent" reported on May 18, to 56% on June 25. The ongoing drought in US corn producing regions might cause a continued rally in corn futures. The USDA’s latest forecast was for a 20% rise in US corn output this year to 375mt (vs. 314mt last year). However, taking into account dry weather in key corn producing regions, corn yields are at risk and the next two weeks will be crucial for the US corn harvest, and we need to closely watch USDA crop updates. We believe that a continued corn rally will support fertilizer prices and be positive for fertilizer producers. From farmers’ perspective, stronger corn prices will decrease the cost of fertilizers as a percentage of revenue, thus providing incentive to buy and apply more fertilizers to achieve greater crop yields. 71. Government will compensate RUB2bn to Rusagro for Tambov project Alfa Bank June 27, 2012 Interfax reported yesterday that the government will compensate around RUB2bn to Rusagro related to its Tambov pork complex capex. According to the company, total capex for the Tambov complex is RUB12bn, with 20% own cash and 80% debt financing. The interest rate on debt for the project is subsidized to the amount of 100% of the CBR refinancing rate (80% from the federal budget plus 20% from the regional budget). Thanks to the subsidized interest rate, Rusagro’s effective interest rate in 2011 was 2.3%. We think the news is NEUTRAL for Rusagro as the mentioned support, in our view, relates to the interest rate compensation, which is a common support measure for Russian ag producers (~50% of total direct subsidies to the sector) and is already factored in in our and market assumptions. 72. Russia to harvest 85m tons grain in 2012 RIA Novosti June 26, 2012 Russia may harvest 85 million tons of grain and export at least 20 million tons, Agriculture Minister Nikolai Fyodorov said on Monday. “We ...estimate the [harvest] level at 85 million tons of grain and grain legumes,” Fyodorov told a government meeting. Grain carryover stocks amount to 51 million tons while domestic consumption for the next agricultural year is estimated at 72.7 million tons, he said. “Proceeding from these figures, we are confident that the country’s export potential is at least 20 million tons,” Fyodorov said.

Russia’s harvest last year amounted to 94.2 million tons. Russia introduced a temporary grain export ban in 2010 following a heatwave and drought that wiped out about a third of the nation's harvest. 73. Sberbank to finance Miratorg's investment projects bne June 25, 2012 Sberbank has signed a cooperation agreement with agricultural holding Miratorg to finance its investment projects, the bank said. Sberbank plans to take part in the financing of Miratorg's development of meat processing facilities in the Belgorod Region and the creation of a cattle breeding production complex with a capacity of up to 3,800 tonnes of meat per year in the Kaliningrad Region. Total investments are to amount to RUB5bn for the first project, and RUB2bn for the other one, the company's representative said. Both of them are to be completed by the end of 2012.

SECTOR Automotive 74. AGC Bor Glassworks disclosed strong financial outlook for 2012 and 2013 Metropol June 28, 2012 AGC Bor Glassworks offered a financial outlook for 2012 and 2013 as past of the annual report to the AGM. According to the management forecast, revenue is expected to increase by 59% y-o-y to RUB 8.87bn while net income is projected to rise by 190% y-o-y to RUB 1.02bn for 2012. Strong results are also anticipated for 2013. The company’s 2012 revenue forecast exceed our figure by 18% while projected net income is 10% higher than our estimate. For 2013, the company’s revenue project exceeds ours by 21%, while anticipated net income is also 21% higher than our estimate. In our view, the company’s projections are likely to be reliable if based on signed contracts with foreign automakers localizing production in Russia. In particular, the company announced that it plans to build a logistics and service center in Kaluga to serve automotive manufacturers located in the region. Moreover, the company will increase the number of retail auto glass replacement centers. Based on the outlook, we reiterate our BUY on the stock and our fair price of USD 82.20. 75. Russian-German factory JV boosts 2011 brake system output 62% bne June 25, 2012

A joint venture between Russian car maker Kamaz and German industrial producer Knorr-Bremse, Knorr-Bremse Kama, raised the production and sales of brake systems 62% to RUB2.3bn in 2011, Kamaz said in a statement. Knorr-Bremse Kama raised its output 54% on the year to RUB1.3bn in January-May. It also plans to set up a joint project with Neftekamsk Auto Plant to develop brake systems for trailers.

SECTOR Aviation, shipbuilding and defence 76. Russia to supply arms to India for almost $1bn bne June 29, 2012 Russia signed contracts for the supply of sabots, artillery shells, and antitank missiles of various kinds to India for almost $1 billion at the beginning of 2012, Vedomosti reported citing a source from state-owned arms exporter Rosoboronexport. The CEO of Rosoboronexport Anatoly Isaykin said earlier that the firm signed contracts for arms supplies totaling about $5bn in 2012. As for other large contracts, Rosoboronexport signed a contract in September-November 2011 for the supply of equipment to Algeria for more than $1bn. 77. Russia's UAC to unify airliner brand RIA Novosti June 28, 2012 Russia's United Aircraft Corporation plans to unite its Sukhoi Superjet 100 and MS-21 airliners under one brand within five years, a source familiar with the matter said on Wednesday. "UAC has plans to unify the planes for a move to one brand," the source told reporters. The Superjet 100 is a short-medium haul passenger aircraft developed by Sukhoi in cooperation with U.S. and European aviation corporations, including Boeing, Snecma, Thales, Messier Dowty, Liebherr Aerospace and Honeywell. The aircraft is capable of carrying up to 100 passengers for up to 4,500 kilometers. Sukhoi has received over 200 firm orders for Superjet 100 airliners so far. The Irkut MS-21 airliner is a twin-engine jet with a capacity of 150-215 passengers, currently being designed by Irkut and the Yakovlev design bureau, part of the UAC. The aircraft is designed to replace the ageing Tupolev Tu-154 and Tu-204 on medium-haul routes. 78. Russia, France to Jointly Build Armored Vehicle RIA Novosti 29 June 2012 Russia and France will jointly build a new armored infantry vehicle in the next 18 months, the Rosoboronexport arms export monopoly said on Friday. ?Speaking at

the Engineering Technologies forum at Zhukovsky near Moscow, Igor Sevastyanov, the company’s deputy chief, said he was heading a working party incorporating new technology from both nations and that a model had been made.??"We have a project under the aegis of a Russian-French group for land forces, which I head," Sevastyanov said. "Now we are working on development of some vehicles with a French base but with Russian weapons and Russian turrets.”??“The vehicle should appear in the near future, around 18 months. We have a draft design and a model has been made," he added.??He said France is also interested in co-production, with Russia, of an armored personnel carrier to be sold to third countries. It may also be used by the French or Russian armed forces, he said, adding that the new vehicle would have to meet both Russian and NATO standards. Previous media reports have suggested that talks have taken place between Russia and French military vehicle manufacturer, Panhard, on purchasing Panhard vehicles for Russia’s border guard service. The results of the talks have not been disclosed. Sevastyanov also said Russia and the United States could cooperate in joint development of arms and military equipment. He did not mention any specific projects, only saying a “joint product” might be around in five to 10 years. In addition, he said, all arms contracts previously signed with Egypt will be carried out. “Egypt’s Defense Ministry confirmed that all contracts concluded with Russia will be implemented, possibly with some adjustments,” he said. ?“Egypt is an excellent paying client.” On Libya, Sevastyanov said the country’s authorities were interested in continuing military-technical cooperation with Russia and unfreeze the contracts that were put on hold after the revolution. Last August, Rosoboronexport chief Anatoly Isaikin put Russia’s “foregone profits” from the frozen contracts at $4 billion. 79. Russian Helicopters, Turbomeca sign engine service deal RIA Novosti June 28, 2012 Russian Helicopters, which designs and manufactures civil and military rotorcraft, and France's helicopter engine maker Turbomeca signed an agreement on Wednesday to service and repair Turbomeca engines in Russia. Russian Helicopters will provide "engine support services in Russia for the engines manufactured by Turbomeca and used in Russian Helicopters' new light-class Ka-226T and medium twin Ka-62 models operated by Russian military and government customers." The Russian company will also repair Turbomeca engines in its Urals subsidiary under a license agreement. "This agreement reflects the high quality of the technical support ... It also means that we can offer even better service to our customers across the world through enhanced after-sales care," Russian Helicopters CEO Dmitry Petrov said.

"This general agreement on support cooperation lays the groundwork for joint aftersales service of Russian rotorcraft fitted with Turbomeca engines. Once this agreement being operational, it will allow to ensure the best service for state of the art Turbomeca engines used in Russia," Turbomeca Chairman and CEO Olivier Andries was quoted in the statement as saying. 80. Sukhoi aircraft maker posts record revenues RIA Novosti June 26, 2012 Sukhoi, Russia's leading producer of civilian and military aircraft, posted revenues of 47.8 billion rubles ($1.45 billion) in 2011 a record figure since the company’s establishment, according to Sukhoi’s financial statements posted on its website on Monday. The company’s 2011 net profit increased more than fivefold to 5.24 billion rubles while operating profit equaled slightly over 7 billion rubles. The company continued implementing its major projects in 2011, focusing both on military aircraft and the Suikhoi Superjet 100 regional airliner, Chairman of the Sukhoi Board of Directors Mikhail Pogosyan and Sukhoi CEO Igor Ozar said in a statement. The company managed to considerably boost after-sale and aircraft maintenance services, with revenues in this business exceeding $300 million and coming close to 20 percent of the company’s earnings.

SECTOR Infrastructure, Construction & Real Estate 81. Italy’s Itaco precast to build factory in Rostov region RIA Novosti June 28, 2012 Itaco Precast S.r.l. of Italy will build a factory for the manufacture of precast concrete structures in Russia’s southern Rostov region, the local governor’s press service reported on Wednesday. Governor Vasily Golubev and Itaco President Michele Angelo Randolphi signed a memorandum on cooperation between the regional government and the company in Rostov-on-Don on Tuesday. Some 4 bln rubles ($120.5 million) will be invested in the plant. Its design capacity is estimated at 400,000 square meters of housing per year. “This project will help us create a more powerful construction industry infrastructure and implement our housing construction program in the region,” Golubev said after the signing ceremony, adding that the regional government is keen to have better-quality housing which conforms to European standards. The project will also create 1,200 new jobs with salaries that cannot, according to the agreement, be lower than the average pay for the region.

Randolphi asked the governor to help expedite the paperwork, promising that the factory will take just over a year to build. He said the project would be implemented in two stages: first, the factory would be built, and then the company would start building new housing. The Rostov Region ranks sixth in Russia and second in the Southern federal district in terms of new housing built. In 2011, 1.88 million square meters of housing were built in the region. 82. Moscow housing prices exceed pre-crisis levels in RUB terms at the end of June VTB Capital June 26, 2012 News: Vedomosti reports that Moscow housing prices have reached an average of RUB 169,980/sqm (USD 5,071/sqm), 7% higher than the pre-crunch level of RUB 158,499/sqm (USD 5,014/sqm). The key reasons are rouble depreciation and a shortage of supply, coupled with increasing demand for high quality housing in Moscow. Our View: According to IRN, blended Moscow housing prices increased 5% during 5mo12. We estimate the price of housing in Moscow will grow 9.5% YoY in 2012, 3% above CPI, so this tendency is in line with our forecast.

SECTOR Chemicals, Fertliser 83. Acron’s 1Q12 revenues outperformed on revenues but disappointed on EBITDA VTB Capital June 28, 2012 News: Acron has posted 1Q12 revenues of USD 609mn, up 29% YoY and 6% above the Interfax-reported consensus. EBITDA grew 3% YoY to USD 162mn, and came in 4% below consensus. Net profit rose 37% YoY to USD 160mn, beating consensus by 42%. Our View: The EBITDA margin underperformance (it was 3pp below consensus) came as a negative surprise. It was mostly due to higher COGS per tonne, which might have come from inflation in input costs at Hongri, as well as potash and apatite inflation. Of the main raw materials affecting COGS, potash is to remain stable this year due to the relatively weak potash market, gas is to grow 15% in 3Q12 and the cost of apatite might drop 22% when own supplies are put on stream (closer to the end of 3Q12). So, the COGS outlook for the rest of the year is balanced, in our view. Net profit was inflated by forex and other one-off gains, which explains the strong result. We note that the basis for calculating dividends is 30% of RAS net income, which implies RUB 24.65/share (USD 0.75). While purely hypothetical, as Acron does not usually pay dividends for the first quarter, we still highlight the significant dividend yield potential: it would have amounted to 6.6% for 1Q12. Net debt remained stable at a comfortable 1.5x 12-month EBITDA, although with the launch of construction of the new ammonia unit, leverage is set to increase this year and might reach up to 1.9x (on our numbers).

While reiterating our Hold recommendation and 12-month Target Price of USD 48, we highlight that any price weakness could be viewed as an attractive buying opportunity. 84. Corn rally could be supportive for fertilizer prices in the near term Alfa Bank June 28, 2012 The active corn contract price has risen 24% over the last two days after the USDA lowered its assessment of corn crop conditions in the US from 72%, rated "good" and "excellent" reported on May 18, to 56% on June 25. The ongoing drought in US corn producing regions might cause a continued rally in corn futures. The USDA’s latest forecast was for a 20% rise in US corn output this year to 375mt (vs. 314mt last year). However, taking into account dry weather in key corn producing regions, corn yields are at risk and the next two weeks will be crucial for the US corn harvest, and we need to closely watch USDA crop updates. We believe that a continued corn rally will support fertilizer prices and be positive for fertilizer producers. From farmers’ perspective, stronger corn prices will decrease the cost of fertilizers as a percentage of revenue, thus providing incentive to buy and apply more fertilizers to achieve greater crop yields. 85. PhosAgro’s site visit - main takeaways RenCap June 28, 2012 Below are our main takeaways from PhosAgro’s participation in Renaissance Capital’s 16th Annual Investor Conference and the company’s site visit on 21-23 May. ??The company is comfortable in the current macroeconomic situation. Thanks to a flexible production model, PhosAgro operates under full capacity utilisation, compared with the average capacity in the phosphate fertiliser industry of 75%. In FY12, it plans to increase NPK production to 1.5mnt, from 1.2mnt in FY10. ??PhosAgro plans to fully consolidate its subsidiaries, as follows. 1. The company is considering announcing a buyout offer to minority shareholders of PhosAgro Cherepovets (the new company to be formed after the merger of Ammophos and Cherepovetsky Azot) by the end of the year. 2. PhosAgro intends to acquire the state’s 20% stake in Apatit. 3. If successful in acquiring the state’s Apatit stake, PhosAgro plans to announce the buyout offer to minority shareholders in Apatit, for both common and preferred shares. ??PhosAgro is aiming to announce the projections of the financial synergy effect of the Ammophos and Cherepovetsky Azot merger in August-September 2012. ??PhosAgro is looking into improving its liquidity, although it acknowledges that this may be difficult in the current macroeconomic environment. Any potential SPO is unlikely to be priced below the IPO price of $14/GDR. ??The company believes there is a high probability that it will triumph over Acron in their dispute over the price for phosphate rock supply.

86. Uralkali reiterated the guidance and view on the market RenCap June 28, 2012 At Renaissance Capital’s 16th Annual Investor Conference, Uralkali reiterated the guidance and view on the market that it gave during the company’s site visit on 14-15 June. ??Production and sales guidance is 10mnt for FY12, including 2.2mnt in sales to the domestic market. ??The company anticipates that contracts for potash supply to India and China will be negotiated in July-August. It expects prices for the contracts to at least match previous levels ($470/t CFR for China and $490/t CFR for India). ??Uralkali plans to distribute all excess cash to its shareholders. In addition to regular dividends (at least 50% of net income) and its current buyback programme, the company is considering the possibility of distributing cash through a special dividend and/or tender offer for its shares. ??Uralkali said there is risk of the company’s tax burden increasing if the oil price drops to $60/bl. ??The company thinks that potash demand will likely return to its historical growth trend of 3% over the next couple of years. It also believes that Uralkali will at least maintain its share of the global potash market.

SECTOR Pharmaceutical 87. Pharmstandard announces acquisition of 50.1% of Cyprus-based Bigpearl Trading VTB Capital June 27, 2012 News: Pharmstandard has announced the acquisition of 50.1% of the voting shares in Bigpearl Trading Ltd (Cyprus) which is affiliated with Russian producers Biomed and Pharmpark. No details have been provided about the valuation and the structure of the deal, or the target's financials. Pharmstandard plans to do so in a separate press release shortly, while the deal price is to be disclosed in the 1H12 IFRS results. Meanwhile, Vedomosti reports that Bigpearl Trading owns 50% in Pharmapark while 100% of Biomed is nominally owned by DDK. Biomed is located in the Moscow region, is GMP certified and is involved in the production of, among others, vaccines, immune boosters and allergy treatment drugs. The company produces over 100 pharmaceuticals, many of which are reportedly unique in Russia.Pharmapark produces three APIs at its own production plant in Moscow (not GMP certified) and three Rx products, outsourcing production to Biomed and some to Petrovax.DSM estimates Biomed's revenues in 2011 at RUB 170mn and Pharmapark's at RUB 307mn. Our View: This development is not a surprise since Pharmstandard’s application to the Federal Anti-Monopoly Service, and the latter’s approval, have been public since

the end of February. Management had been guiding for two acquisitions of around USD 100mn combined, and we believe this acquisition (of both Biomed and Pharmapark, via the stake in Bigpearl Trading) is within the company’s own guidance. Potential acquisitions are one of the key growth drivers for Pharmstandard, and at first glance the target seems to have quality manufacturing assets and a decent portfolio of Rx products and APIs. We therefore view this deal as a positive development for the company. However, more details are required to estimate the fundamental impact. Yet again, though, we stress the poor communication from the company: the lack of transparency over the acquisition dilutes the positive sentiment from the fact that management is working on creating value for shareholders. 88. Protek expects the pharmaceutical market to expand by 11-12% YoY in 2012 and company to outperform the sector RenCap June 26, 2012 Protek management presented at the 16th Annual Renaissance Capital Investor Conference. The company expects the Russian pharmaceutical market to expand by 11-12% YoY in 2012 and Protek intends to outperform the sector by c. 100-150 bpts. According to Protek, a recent update on market share, in which agency Pharmexpert estimates all major pharma retailers (including Rigla) lost share YoY in 1Q12, is not representative, as the agency has changed its methodology. Protek stated that competition has softened vs 2011 and price wars should be over, meaning less pressure on margins. The company indicated that a 2012 distribution EBITDA margin of above 1.7% is achievable and sustainable (unless SIA International starts to aggressively invest in prices). On the operating front, Protek management is targeting material SG&A/revenue improvements due to fewer personnel and lower opening costs. The company is excited about its discounter format (Bud Zdorov), which constitutes c. 65% of its total pharmacy openings, and capex/store is c. 33% cheaper than Rigla’s. On the procurement side, c. 37% of Protek’s accounts payable are in foreign currency (35% in dollars and 65% in euros), so the company is vulnerable to FX fluctuations. Thus, management confirmed that if the currency changes are material, then special compensation agreements will be negotiated with the suppliers to try to nullify the exposure. Action: Positive for Protek, in our view. Rationale: According to management, the company seems to be on track to grow ahead of the market and improve profitability in its largest segment (distribution). The main challenge we see is negotiations on FX with suppliers. 89. Russian pharmaceuticals market may grow 16% in 2012 with government’s support bne June 26, 2012 The Russian pharmaceuticals market will expand by 10%–16% this year, as the government plans to inject billions of rubles into the sector to produce the bulk of drugs locally, industry specialists say, cited by Prime.

“The market is demonstrating confident growth as the government intends to invest more and more funds into the development of this industry,” according to the Cegedim Strategic Data’s research. In monetary terms, Cegedim expects the market to grow by 12% this year. In 2012, the government plans to allocate RUB551bn to the healthcare industry, a 9.4% increase from last year. Cegedim estimates government funding to amount to $5.5bn–$6bn between 2011 and 2020 with about 60% being spent on drug development. According to a study by domestic market research center Pharmexpert, the commercial retail sector, including medicines not covered by state programs assisting disabled and senior citizens with drugs, is to increase by 10.8% to $17.6bn in 2012, if the gross domestic product expands by 3.5%–4%, as the Economic Development Ministry expects. The government will also launch a number of programs, including a nosology plan, aimed at preventing and fighting such diseases as hepatitis, tuberculosis, and diabetes. Even without government aid, the commercial segment climbed by 15.3% to RUB468bn in 2011, according to marketing agency DSM Group. Between January and March this year, the sector grew by 10.4% to RUB126bn. 90. Veropharm reported decent 1Q12 IFRS results, beating expectations Alfa Bank June 27, 2012 Veropharm reported 1Q12 financial and operating results yesterday. Despite a high base effect in 1Q11, with 50% y/y growth, the company managed to grow sales 18% y/y to RUB1.633m in 1Q12. We view the results as strong, taking into account that the commercial segment of Russian pharmaceutical market has showed only 10% growth y/y over this period. EBITDA came slightly above consensus and our estimates at RUB499m, implying margin of 30.6%, which is slightly above our 2012E EBITDA margin forecast of 29%. Net income jumped by an impressive 46% y/y to RUB494m, but we note that this growth was supported by RUB152m forex gains. If adjusted for forex, net income decreased 3% y/y and came in 14% below our expectations of RUB399m. Overall, we treat the results as moderately POSITIVE for Veropharm and maintain our neutral stance toward the company.

GOVT REFORMS, REGULATIONS, ECONOMICS, REGIONS 91. Gazprom, NOVATEK: MinEnergo proposes gas MET rate for independent producers of 80% of Gazprom’s rate by 2015 VTB Capital June 25, 2012

News: According to Interfax, the Ministry of Energy has proposed setting the g as MET rate for independent producers at 80% of Gazprom’s rate by 2015. The Minister of Energy Alexander Novak said that MET for independent roducers and Gazprom should not be equalized until export netback parity is Novatek, GDR p eached, as independent companies do not have export rights. Our View: The news continues the MET discussions story. To recap, the government postponed the decision on the MET formula to September and March for the 2013 and 2014 rates, respectively. We reiterate our view that lowering MET on gas would be positive for Gazprom and especially for NOVATEK in the long term financially-wise; however, in the shorter term, we do not expect any market reaction to the news, as no decision is set to be made until September. 92. Government considers reducing crude oil export duty Alfa Bank June 25, 2012 The Russian government is considering further lowering the upstream tax burden for oil companies, Deputy Energy Minister Pavel Fedorov announced Friday, June 22. Fedorov said that the ministry is mulling lowering the crude oil export duty to 55% of the barrel’s value from the current level, 60%, in the event that the 60-66 reform proves to be successful by year-end. We see this news as a potential positive for major upstream players, as the 5pp reduction to the crude oil export duty may boost the profitability of the upstream sector by up to 24% to $16.7 per bbl under a $90 per bbl crude oil price environment. The reduction of the crude oil export duty, however, may negatively affect downstream heavyweights, as it will lead to an increase in the domestic netback price, thus resulting in higher cost of crude purchases. We thus estimate the potential positive effect on Russian major upstream producers’ 2013E EBITDA at 5-12% across the board, with Tatneft and Gazprom Neft seen as the key beneficiaries. For downstream-heavy Bashneft and Alliance Oil, the negative effect on 2013E EBITDA is estimated at ~1.5%. However, this negative effect would be mitigated in the following years as the companies’ crude production rises. At the same time, we question the government’s willingness to loosen its grip on the oil sector by decreasing the upstream tax burden without any corollary measures to compensate for a drop in budget revenues, such as raising downstream taxation or hiking MPT, as in the case of the 60-66 reform. 93. Large costumers in isolated regions are banned from buying directly from the wholesale electricity market VTB Capital June 29, 2012 News: As Kommersant reports today, the Federal Tariff Service has rejected the application of large electricity customers (Transneft and Severstal) to operate in the isolated energy regions, which would disrupt the electricity supply agreement with the retail company of the last resort, enabling large customers to purchase electricity directly from the wholesale electricity market (WEM). Our View: The recent amendments to the retail market legislation strongly facilitate large costumers buying directly from the WEM, one of the measures used to

maintain growth in electricity tariffs. However, with regards to the isolated energy regions operated under regulated tariffs only, such a move might have the opposite effect and result in an extra spike in the tariffs for other electricity consumers. All in all, the FST’s decision is another step keeping tariff growth contained, which would bring about a new reality and the state’s general strategy towards the utilities sector. For more details, please refer to our note Russian Utilities: Paradigm Shift of 14 June. 94. Medvedev orders curb on fertilizer prices RIA Novosti June 26, 2012 Prime Minister Dmitry Medvedev instructed the government on Monday to work out measures by the third quarter of this year to curb rising fertilizer prices and protect domestic agricultural producers. “The situation may be aggravated from the start of next year, when the price of fertilizers will be determined by the world agrarian market situation and seasonal factors. In these conditions, we need an effective mechanism of support for agricultural producers,” Medvedev said. “And I would like this mechanism to be created and submitted to the government by the end of the third quarter,” Medvedev said, adding fertilizer prices had risen by 12 percent on average from June 2011. Russia will have to lower import duties, after it officially joins the World Trade Organization later this year after almost two decades of negotiations, opening the door to cheaper imports and tightening competition on the domestic market. Representatives of Russian agriculture have already asked the government for 400 billion rubles ($13 billion) to offset the effects of Russia's accession to the world trade club. 95. Mineconomy plans to introduce amendments to the Retail law VTB Capital June 25, 2012 Mineconomy plans to introduce amendments to the Retail law – cancel the 25% threshold on local markets, positive–rework the 10% bonus scheme –current gross margin level might not be repeated News: Kommersant reports that MinEconomy plans to amend some articles in the Retail Law. They relate to the 10% maximum bonuses from suppliers and the 25% threshhold on the local markets controlled by one player. According to the Ministry, retailers get more than 10% of bonuses as they mask them under other items, such as services, while setting a threshold is negative for the competition between companies. The proposed timing of the amendments is 1 July. Our View: We are positive on the potential cancellation of market share limits as it ensures equal rights for all market players. Apart from that, there is a lack of proper

information on the market size as a significant proportion of market players lack cash desks (like open markets) or do not properly reflect their trading volumes. With regards to the bonuses, we think that the recent strong gross margin expansion reported by public companies was a key trigger for the proposed amendment. Were the Minister to find that companies had been using such schemes and ban them in the future, the reported gross margin levels might not be repeated. This would have a negative effect on the gross margin, but we still see room inSG&A costs that could help to offset this negative development and support EBITDA. 96. No need for industrial policy law- Putin RIA Novosti June 28, 2012 Russia has no need to develop a federal industrial policy law, President Vladimir Putin said on Wednesday. “Industrial policy is an issue that has been discussed for 15 years. Instead of an industrial policy law, we need industry: how to organize our work to cause industry to develop actively. This is the most important and key issue,” Putin told the Federation Council, Russia's upper house of parliament, in response to a question by senator Yury Shamkov. Russia should consider the approach of some economists who believe that there can be no special industrial policy, but there must be economic policy as a whole which creates conditions for the development of its components, including industry, agriculture abd services, Putin said. 97. Oil companies' fines for gas flaring to reach $500m in 2012 bne 28 June, 2012 Deputy Natural Resources and Environment Minister Denis Khramov named a hefty sum that oil companies will pay this year in penalties for natural gas flaring. The total will be about RUB16.5bn ($500m), he said, RIA-Novosti reported. Compared with last year, the amount represents a 50-fold increase. It is in line with what the Skolkovo Business School Energy Center predicted in February. The center estimated the payments would reach RUB16.7bn. The government raised the penalties in an effort to do away with the massive gas flaring at oil fields. Under the measure, companies suffer the fiscal punishment for the gas that they burn above the 5% limit. 98. Russian Government considers reducing crude oil export duty Alfa Bank 25 June 2012 The Russian government is considering further lowering the upstream tax burden for oil companies, Deputy Energy Minister Pavel Fedorov announced Friday, June 22.

Fedorov said that the ministry is mulling lowering the crude oil export duty to 55% of the barrel’s value from the current level, 60%, in the event that the 60-66 reform proves to be successful by year-end. We see this news as a potential positive for major upstream players, as the 5pp reduction to the crude oil export duty may boost the profitability of the upstream sector by up to 24% to $16.7 per bbl under a $90 per bbl crude oil price environment. The reduction of the crude oil export duty, however, may negatively affect downstream heavyweights, as it will lead to an increase in the domestic netback price, thus resulting in higher cost of crude purchases. We thus estimate the potential positive effect on Russian major upstream producers’ 2013E EBITDA at 5-12% across the board, with Tatneft and Gazprom Neft seen as the key beneficiaries. For downstream-heavy Bashneft and Alliance Oil, the negative effect on 2013E EBITDA is estimated at ~1.5%. However, this negative effect would be mitigated in the following years as the companies’ crude production rises. At the same time, we question the government’s willingness to loosen its grip on the oil sector by decreasing the upstream tax burden without any corollary measures to compensate for a drop in budget revenues, such as raising downstream taxation or hiking MPT, as in the case of the 60-66 reform. 99. United Russia suggests WTO support measures to agriculture sector Alfa Bank June 27, 2012 United Russia has proposed a number of measures to support Russian ag producers after WTO entry, which will be considered by the government. The list includes keeping the corporate income tax at 0% until 2016 and 18% until 2020 (currently the rate is 0% for ag producers, but will be increased to 18% from 2013 and to 20% from 2016) as well as compensating up to 35% of capex for ag producers for construction and modernization of machinery and facilities. As has been discussed previously, Russia’s WTO entry is expected to impact the ag sector negatively, especially pork producers. Currently, discussions about possible support measures are under way, and we may see support for the ag sector that is greater than currently planned in the budget during this transition period. We view this news as NEUTRAL at this stage pending further developments, but the suggested measures would be positive for Cherkizovo and Rusagro if approved. 100. Zero corporate income tax for agriculture producers may be extended two years Alfa Bank June 29, 2012 Deputy Finance Minister Sergey Shatalov announced yesterday that the 0% corporate income tax rate for ag producers may be extended for two years until 2015, then gradually increase to 20% starting from 2021 (the rate is currently 0% for ag producers but is planned to be increased to 18% in 2013 and to 20% starting from 2016). This amendment to the tax law has already been prepared and will be considered by the government. The news is moderately POSITIVE for Cherkizovo and Rusagro. As has been discussed previously, Russia’s WTO entry will likely negatively impact the ag sector (especially pork producers). Discussions about possible support measures are

ongoing, and there might be higher support for the ag sector during the transition period than is currently planned in the budget.

UKRAINE INVESTMENT 101. AvtoVAZ in talks to assemble Lada Granta in Ukraine bne June 28, 2012 AvtoVAZ, a Russian automaker, is in talks with two Ukrainian companies to produce Lada Granta cars at their plants, Kommersant-Ukraine reported, citing company officials. PAT Bohdan Motors Automobile Co., a Ukrainian maker of cars and buses, offered AvtoVAZ to assemble Lada Grantas at its plant in Cherkassy in central Ukraine, company spokesman Serhiy Krasulya, said, cited by Kommersant. 102. Brussels praises Ukrainian bill on liberalization of electricity market bne June 27, 2012 Brussels highly evaluates a bill aimed at achieving the liberalization of the electricity market of Ukraine, which is "a good step forward," EU officials say, according to Interfax-Ukraine. While commenting on the fulfillment of Kyiv's energy-related obligations to the EU and the Energy Community, a representative from the European Commission's Directorate-General for Energy, Jeffery Piper, said that "Ukraine has missed the deadline." At the same time, he noted that in recent months Ukraine "has been moving in right direction in both the electricity and gas segments." "It strengthens energy security and is very important for attracting investors. This is good news," Piper said, cited by Interfax-Ukraine. He also expressed hope that the Verkhovna Rada, Ukraine's parliament, will take the necessary measures to promote the bill. Head of Unit Energy Policy Power Generation at Eurelectric Susanne Nies added that the bill proves that Ukraine is "moving in the right direction." "After several negative publications in the media, and against the background of gossip that Ukraine is becoming distanced from the Energy Community, it looks like good movement in the right direction," she said. 103. EBRD plans to invest in ED&F Man Ukraine up to $15.9m bne June 26, 2012 The European Bank for Reconstruction and Development (EBRD) is considering making an equity investment of up to $15.9m in ED&F Man Ukraine Investments BV,

to acquire a minority stake in the company and finance the purchase and installation of sugar beet processing equipment, according to a bank report. The report says that the project is pending final review by the bank's board on July 24, 2012. The project's cost is $69m. 104. Gazprom sees less LD pipe demand in 2012-14; negative for HRTR Concorde Capital June 27, 2012 Gazprom’s (GAZP RX) demand for large diameter pipes will decrease 40% yoy to 1.35 mmt in 2012, the company’s representative said yesterday. Gazprom decreased purchases of LD pipes 4x yoy to 0.32 mmt in 6M12. The company’s needs for large-diameter pipes are estimated at 1.40-1.45 mmt for the next two years – far less than the 2.2 mmt recorded in 2011. Roman Topolyuk: Gazprom’s new forecast has negative implications for Khartsyzk Pipe (HRTR UK), which benefited reported a record production volume of 630 kt in 2011, partially due to deliveries to Gazprom. Now that Gazprom’s demand is shrinking, we believe it can be satisfied entirely by Russian producers. This will leave Khartsyzk Pipe to potential orders from Russian Transneft or projects in other markets. So far, the company seems to have no large projects in its portfolio: having fully supplied contracted volumes to Kazakhstan and Turkmenistan in April, the company cut its pipe output 42% mom to 23 kt in May 2012. 105. Kernel’s subsidiary attracts $210m bne June 26, 2012 Kernel (KER PW), the largest-Ukrainian sunflower oil producer, reported yesterday that its subsidiary Inerco Trade SA entered into a $210m secured revolving facility agreement with a syndicate of the European banks. According to the company’s report, the facility is attracted through June 30, 2013 to finance the purchase, storage, transportation and transshipment of agricultural commodities. 106. Kyivenergo to receive %280m in compensation from Kyiv Concorde Capital June 27, 2012 The city of Kyiv will repay Kyivenergo (KIEN UK) UAH 2.23 bln (roughly USD 280 mln) to compensate for losses from its heating supply business, the deputy head of the Kyiv City Administration said yesterday. The city will receive UAH 2.52 bln from the state budget to partially cover the accumulated losses of utility companies from low tariffs, and will start repayment in mid-July. Kyivenergo claimed UAH 2.24 bln in accumulated compensation arrears from the city of Kyiv as of end-2011. Alexander Paraschiy: The news is in line with our expectations that Kyivenergo might receive about USD 250 mln this year (refer to our news of April 11 and 26). The

amount would allow Kyivenergo to post profits in 2012 (vs. a UAH 1.34 bln net loss in 2011) and benefit the consolidated 2012 financials of DTEK (DTEKUA), Kyivenergo’s controlling shareholder. On the downside, the municipal representative suggested heating tariffs in Kyiv are unlikely to increase, which keeps Kyivenergo’s future profits highly dependent on further budget compensations. 107. Luhanskteplovoz to cut production capacity to 15 sections a month Art Capital June 26, 2012 According to the head of Luhansk Oblast Administration, Vladimir Pristyuk, Luhanskteplovoz plans to optimize its production facilities by limiting output capacity to 15 sections a month. As a result, the company will have to either divest half of its production facilities or switch to the production of new kinds of products. Oleksiy Andriychenko: The news is NEGATIVE for Luhanskteplovoz as it exposes new significant risks to the company’s development. The new management’s optimization will not only affect the company’s labor force (see June 14, 2012 Daily), but will also address the use of production facilities and the product line. At 15 sections a month, the company will output a maximum of 180 sections a year, which is 10% below our long-term forecast based on today’s capacity for diesel locomotives. In addition, the decision to cut down unused production facilities shows the management’s conviction that with the exception of diesel locomotives ordered by Russian Railways, the remainder of the product line is not going to be demanded going forward. That includes suburban trains for Ukrzaliznytsya and electric locomotives, which can now be produced at other subsidiaries of Transmashholding. The full scope of the reorganization is yet to be announced by the management, and we can adjust our rating based on the further information from the management. 108. Motor Sich: President signs bill supporting demand for locally made aircraft Dragon Capital June 27, 2012 News: President Viktor Yanukovych has signed amendments to the law on state support for domestic aircraft manufacturers. The legislation is aimed at stimulating domestic demand for locally produced aircraft and offers five-year subsidies (starting from 2013) to local buyers of Ukrainian-made aircraft, including partial compensation of loan interest in the amount equaling the NBU discount rate. (Interfax) Dragon view: The news is positive for the domestic aircraft sector, particularly for Motor Sich [Buy; PT $602], the sole producer of engines for locally made Antonov airplanes (including the most promising models of regional passenger jet An-148/158, medium-range cargo aircraft An-70 and modernized cargo plane An-124 “Ruslan”). The new law will also support local demand in Motor Sich’s new business niche, the modernization Mi-2 and Mi-8 helicopters produced at the company’s brownfield workshops in Konotop and Vinnytsia (both were launched last year). We maintain our positive view on the company and reiterate our Buy recommendation on the stock. 109. Ukraine’s President signs law to raise taxes on mineral resources bne

June 25, 2012 President Viktor Yanukovych has signed into law amendments to the Tax Code that eliminate royalties and change the system for collecting payments for use of subsoil resources in fossil fuel production, Interfax-Ukraine reported. The payments previously amounted to UAH147.63 per tonne of produced oil and condensate; UAH42.05 per 1,000 cubic meters of gas (regardless of depth); UAH5.33 per tonne of anthracite; UAH3.51 per tonne of thermal coal; UAH0.57 per tonne of brown coal; and UAH0.59 per tonne of peat. Under the new law, oil and condensate will be subject to a tax of 39% of its value if produced at a depth of up to 5 km, and 17% if produced at a depth of more than 5 km. Gas (including nontraditional) will be subject to a tax of 17% of its value (but not less than UAH594.64 per 1,000 cubic meters) if produced at a depth of up to 5 km, and 9% (but not less than UAH318.34 per 1,000 cubic meters) if extracted from a greater depth. The rate for offshore gas production will be 15%, but not less than UAH53.90 per 1,000 cubic meters. For production of gas that is subsequently sold for household consumption, the subsoil resource use payment will be 28% of its value (but not less than UAH101.30 per 1,000 cubic meters) if produced at up to 5 km, and 25% (but not less than UAH89.45 per 1,000 cubic meters) if extracted from a greater depth. Fields being developed under production sharing agreements will be subject to a resource use tax of 2% of the value of oil and 1.25% of the value of gas produced. The tax will be 0.5% of the value for anthracite (but not less than UAH5.33 per tonne); 0.4% (but not less than UAH3.51 per tonne) for steam and coking coal; 1% (but not less than UAH0.57 per tonne) for brown coal; and 1% (but not less than UAH0.59 per tonne) for peat. According to the Dragon Capital's analysts, the new law will have mostly neutral impact on listed oil and gas producers such as Ukrnafta and JKX at current oil and gas prices as the new taxes are close to what these companies currently pay (royalties plus mineral extraction tax). "Yet the new minimum taxes on gas production are close to the rates implied by current gas prices, thus should gas prices for industrial consumers decline from their current level of $438/tcm (e.g. in case of revision of the gas contract with Russia), gas producers would still pay the same minimum rate, implying an increased amount of taxes in relation to revenues. As for coal producers, the rates are very low and we see no material influence on traded companies," experts say. 110. Prices of Ukrainian rolled steel keep sliding Art Capital June 26, 2012 Prices of all grades of Ukrainian-made rolled steel continue falling. Long steel prices dropped $5-20 a tonne over the past week; flat steel prices dropped $10-15 a tonne, according to Ukrpromvneshekspertiza. The deflation is driven by buyers’ worsening outlook on the world economy.

The ongoing euro-zone crisis is a negative factor as well. We expect prices to fall further in July on weakening steel demand in Muslim countries ahead of Ramadan. Price dynamics will depend heavily on how the euro-zone situation and on the Chinese government.

111. Russia’s Avtovaz may assemble Lada Granta saloon in Ukraine bne 28 June 2012 Russia’s iconic carmaker Avtovaz says that it may set up a car production plant in Ukraine to assemble the Lada Granta saloon, the most recent addition to the Lada family, reports Kommersant-Ukraine. Despite the beleaguered nature of Ukraine’s economy, domestic demand, and especially car sales, are holding up well this year. Zaporizhia Automobile Plant (ZAZ), the largest producer of passenger cars in Ukraine and part of UkrAVTO Corporation, said in June that sales are stable and Motor Sich, the biggest car market in the country says sales are doing well. Sales of new passenger cars in Ukraine in January-May 2012 grew by almost 9% year-over-year, the AUTO-Consulting information-analytical group has reported. In May alone, almost 20,000 cars were sold, which was 3.5% up on the previous month and almost 20% up on May 2011. Hyundai remains the market leader, but its competitors are not far behind. PAT Bohdan Motors Automobile Co., a Ukrainian maker of cars and buses, offered AvtoVAZ to assemble Lada Grantas at its plant in Cherkassy in central Ukraine, Kommersant said. UkrAvto’s Zaporizhskyi Avtozavod is also in talks with AvtoVAZ, the newspaper said. 112. Ukraine among leading manufacturers of armored vehicles - defense minister

bne June 25, 2012 Ukrainian Defense Minister Dmytro Salamatin has said that Ukraine is among leading global manufacturer of armored vehicles, Interfax-Ukraine reported. "I believe the stabilization of the situation with the execution of foreign economic contracts is a strategically important result," the minister said in an interview with Interfax-Ukraine. According to him, shipments of BTR-3E1 armored vehicles to Thailand go smoothly, and a contract for the sale of 49 latest Oplot tanks has been signed with Thailand. "This is currently a breakthrough of Ukrainian tank manufacturing," the minister said. He added that they were successfully carrying out a contract to supply the BTR-4 armored vehicles to Iraq. Five out of six An-32 aircraft have been handed over to the Armed Forces of Iraq, he said. The minister said that they were timely complying with a contract with China for the production of air cushioned landing craft. "On the whole, for the first time in 20 years, Ukraine sold its military equipment and special purpose products worth more than $1 billion in 2011. We currently are in the lead among the world manufacturers of armored vehicles," the defense minister said. 113. Ukraine hopes to attract investors to car building sector in period of imports restrictions bne June 25, 2012 The main goal of possible sanctions under a special investigation into imports of cars to Ukraine is the attraction of investors to the Ukrainian car building sector, so that they could bring the sector out of crisis and retain jobs in it, a source in the interagency commission for international trade said, cited by Interfax-Ukraine. "If the restrictions were not introduced – the car building sector in the country would simple die. If an investor is ready to come to the country we're ready to compromises during the talks," the source said. According to him, the commission had all the grounds for making a decision to protect domestic manufacturers: the growing market share of imported cars, 75-90% idle facilities, the loss of jobs and subsidiary support of the sector in importing countries. He said that the commission's decision to introduce special duties has not been published, as it would be better to carry out consultations with the interested countries. He said that Ukraine is ready to make some concessions, for example, the application of combined protective measures with the introduction of quotas and not duties, although the main national interest is the attraction of investors to the Ukrainian car industry.

The source said that there are such potential investors who are ready to organize SKD assembly (including dyeing and welding) and present modern models, despite the construction of facilities in neighbor countries, in particular, in Russia. "We have a chance to attract an investor to Ukraine and we should use it," the source said. He said that with the volume of the new car market of around 600,000 cars per year, domestic production could deliver 300,000-400,000 cars. 114. Ukraine’s 2012 grain harvest down to 43m tons bne 28 June 2012 Ukraine’s crucial grain harvest will fall to between 43m and 44m metric tons this year from 56.7m a year previously, says Tetiana Adamenko, the head of the agro-meteorology department at the national weather center. The struggling economy is literally living off its agricultural sector as the only sector that is performing well. A fall in grain harvest will impact both prices in the country and the foreign exchange revenues as a key export commodity. 115. Ukrlandfarming increases land bank, widens investment program Foyil Securities June 25, 2012 Ukrlandfarming, the biggest diversified Ukrainian agro holding, has increased its land bank by 4.7% to 532,000 hectares. Ukrlandfarming also intends to invest up to USD 1bn in construction of a pig farm in Mykolayiv region in 2013-2014. The total capacity of the pig farm project will reach 2,000,000 heads per year. The pig farm will include its own feed mill, nursery, meat processing plant and biogas plant to eliminate waste. Ukrlandfarming also plans to build a port elevator in 2013 with the storage capacity of 300,000 tons and 5-6m tons of throughput capacity. The company intends to launch two sugar mills in Lviv and Ternopil regions in 2013. Ukrlandfarming also intends to spend up to USD 100m on the Vinnytsia seed plant to produce quality rapeseed for the local market. Our view: We estimate Ukrlandfarming will spend up to USD 1.2bn on the announced CapEx program, which will be partially financed through the commodity credit agreement with Chinese Engineering Corporation Sinomach. The above investment program strengthens the company’s vertical integration and supports its position as the largest Ukrainian agro holding. 116. Ukrlandfarming to invest over $1bn in construction of pig farm bne June 27, 2012 Ukrlandfarming, the largest agro holding in Ukraine, plans by 2015 to build a pig farm for two million pigs per year, with the company investing over $1bn in the project, Ukrlandfarming Chief Operating Officer Halyna Vasylyk said, cited by Interfax-Ukraine. She said that the project would include not only pig farms, but also a biogas installation, a fodder plant, a pork factory and other infrastructure facilities.

She said the project is being developed. It is expected that it will be realized in five phases. At present, the holding has not selected a site for the complex. Mykolaiv region is a preliminary location. "Our specialists are drawing up potentially attractive land plots where pigs can be bred," she said. Vasylyk said that products made by the complex would be sold on domestic and foreign markets. At present, the holding has around 20,000 pigs. 117. Zakhidenergo has $0.2bn reconstruction program approved Dragon Capital June 26, 2012 Ukraine’s Cabinet of Ministers approved the reconstruction plan for two power units of Zakhidenergo (ZAEN UK) of UAH 1,562 mln (USD 195 mln), which includes the reconstruction of the #10 power unit at Burshtyn TPP and #7 unit at Dobrotvir TPP. Alexander Paraschiy: The approval of the investment program is the last step for Zakhidenergo to receive partial compensation for CapEx costs via a special tariff mark-up, which will have a direct positive impact on its P&L. Earlier this year, the government approved a USD 220 mln reconstruction program for Zakhidenergo’s other two power units and the company has been granted compensation of USD 116 mln for that program, which it will receive over 2012-2016. Given the compensation rate for these newly approved projects would remain the same, Zakhidenergo is likely to get extra USD 103 mln over the next 5-6 years from tariff mark-up, which will be translated into additional annualized income for the company of about USD 18 mln.

KAZAKH INVESTMENT 118. ENRC to raise salaries for Kazakh workers Troika Dialog June 28, 2012 ENRC announced yesterday that it will increase salaries for its entire Kazakh workforce, numbering some 65,000 people, by 20% from July 1. Troika's view: The salary rise is in line with guidance and constitutes the bulk of ENRC's expected 15-20% cost inflation for 2012. Total labor costs last year were $605 mln, so the salary hike will increase total staff costs by $120 mln to $730 mln for the year. The costs are in tenge, but we do not expect any relief from tenge depreciation given that the Kazakh National Bank intends to keep the exchange rate at the current level. Our $2.5 bln EBITDA projection for 2012 already incorporates rampant cost inflation in Kazakhstan, so we will not make any model adjustments. That said, as we have

highlighted before, the consensus is still lagging (currently at $2.8 bln) and is slow to adjust. Overall, both Kazakh miners (ENRC and Kazakhmys) have limited scope to cut their workforces given the companies' social status, and they are being required to progressively raise salaries in light of the tragic event at Zhanaozen last year and recent strikes at Kazakhmys, which were all related to pay rises. 119. Max Petroleum’s NUR-1 gets stuck again, additional funding needed Visor Capital June 25, 2012 Impact: NEGATIVE Facts/News. On Friday, Max Petroleum announced that its NUR-1 deep exploration well is now delayed with its TD of 7.3km “not expected to be reached before August”. A drill pipe has become stuck once again in the Kungarian Salt (as in April) at a depth of 5.7km. This delay is estimated to bring the total cost of the well to US$43m, with a further US$10m to be funded by Max. Max also reported it has commenced negotiations with its primary lender, Macquarie Bank, for increasing the borrowing threshold and postponing the amortisation payment, which is to start in July 2012. Currently Max has ca. US$4m available out of the US$58m credit facility offered by Macquarie. Analysis. While we have previously stated the risk of further delays of NUR-1 is likely due to the technical difficulty of the well, Max facing financial difficulty at this stage was unexpected. Further need to fund NUR-1 drilling and lower Macquarie facility available could put into risk any further exploration of the Company. Valuation/Conclusion. We believe the news on funding and delay of NUR-1 is negative, while following the share price plummeting by 54% on Friday, we do not expect further significant share impact. We downgraded our TP to GBp12/sh (from GBp25), valuing existing discoveries only, until the company sorts out its funding or until further updates on NUR-1. We maintain our BUY rating. We published a flashnote on Friday, entitled “Nur-1 delay – déjà vu”, where we provide deeper insight into the matter. The research piece is available to our clients upon request. Zhanar Nazkhanova 120. Samsung Engineering signs $2.1bn power plant contract in Kazakhstan bne June 27, 2012 Samsung Engineering said June 26 that it has won a $2.1bn contract to build the planned Balkhash thermal power plant. The 1,320MW coal-fired power plant will be built in on the southwestern shore of lake Balkhash, central Kazakhstan, and will supply the south and centre of the country.

According to a statement from Samsung Engineering, the company will be responsible for the engineering, procurement, construction and commissioning for the project on a lump-sum turnkey basis. Construction of the plant is expected to start before the end of this year, and to be completed by 2018. A consortium of Korean companies are working with Samruk Energo, the energy generation division of Kazakhstan's sovereign wealth fund Samruk-Kazyna, on construction of the plant. Kazakhstan and South Korea signed an intergovernmental agreement on the plant in August 2011. It is one of the largest in a series of investments by state owned Samruk Energo to increase Kazakhstan's energy generation capacity and ensure a stable power support across the country. Kazakhstan's main energy resources are concentrated in the oil rich west and Ekibastuz coalfield in the north, where most of its power plants are located, hundreds of kilometres from the densely populated southern cities.

CENTRAL ASIA INVESTMENT 121. MTS may lose Uzbek licence bne June 26, 2012 The Uzbekistan authorities have threatened to revoke the licence for the local subsidiary of Russian mobile company Mobile TeleSystems (MTS). According to reports in the Uzbek press, the State Communications Inspectorate may strip MTS-Uzbekistan of its licence after receiving alleged complaints from customers about its poor quality of service. MTS-Uzbekistan, which has around 9.5 customers, is also being investigated by the government after fraud allegations. And it has come under fire from government officials who say it does not have the necessary authorisation to use 48 mobile towers in Uzbekistan. Former director Bekhzod Akhmedov is belived to have fled the country after the fraud accusations surfaced. The news comes just six weeks after MTS achieved a breakthrough in another Central Asian country, when the company struck a deal to return to Turkmenistan. Its Turkmen subsidiary lost its licence in December 2010, but after MTS officials reached agreement with the Turkmen government services are due to be restored within the next two to five months. 122. Interglass restarts plant in Kyrgyzstan bne June 25, 2012 Central Asia’s largest industrial glass producer has relaunched its float glass plant after a modernisation programme funded by the European Bank for Reconstruction and Development. The EBRD provided around $22m to the Tokmok-based company to rebuild the plant and install modern equipment. Speaking after the opening

ceremony, the head of the EBRD’s resident office in Bishkek, Larisa Manastirli said that Interglass is now “in a good position to resume supplying glass to the local market and to export to neighbouring markets in Central Asia and Siberia.”

EURASIA INVESTMENT 123. Azerbaijan and Turkey sign agreement to build TANAP bne June 27, 2012 Azerbaijan and Turkey signed an intergovernmental agreement in Istanbul on Tuesday, June 26, for the construction of the Trans-Anatolian gas pipeline (TANAP), Azerbaijan's official media reported, according to Interfax. The media reports said that the document was signed by Azerbaijani President Ilham Aliyev and Turkish Prime Minister Recep Tayyip Erdogan In addition, a preliminary agreement was signed on Tuesday between Turkey's Botas and State Oil Company of the Azerbaijani Republic (SOCAR) for organizational issues regarding the TANAP project company. 124. Azerbaijan announces willingness to participate in construction of oil refinery in the Kyrgyzstan APA-Economics june 25, 2012 Deputy Prime Minister of Economy and Investment of Kyrgyzstan Djoomart Otorbaev and Deputy Prime Minister of Azerbaijan Yagub Eyyubov discussed the participation of Azerbaijan in the construction of a refinery in the Kyrgyzstan, APA reports. The meeting was held in the framework of the International Summit on Sustainable Development in Rio de Janeiro (Brazil). During the meeting, the Azerbaijani side confirmed its willingness to invest in this project and interest in participating in other large infrastructure projects in Kyrgyzstan. 125. Azerbaijan increases volume of construction work by 42% APA-ECONOMICS June 25, 2012 The volume of construction work in Azerbaijan during January-May, 2012, increased by 41.7% in comparison to the previous year. The State Statistics Committee told APA that 74.7 percent of the work was the new constructions, reconstruction and enlargement, 12.1 percent – fundamental repair, 2.2 percent – current repair, 11 percent – other construction work. 26.1 percent of the work was conducted by the public construction companies, 73.9 percent - by the private companies. 126. Azerbaijan: SOCAR selects financial consultants for new oil-chemical complex APA-Economics June 25, 2012

SOCAR has started to attract financial consultants for new oil-chemical complex, to be built near Baku. Vice-president of SOCAR on economic issues Suleyman Gasimov says the company has appealed the main banks of Europe some days ago and held meetings with them in London: ‘The bank, including BNP-Paribas, Societe Generale, RBS, Unicredit, as well as Russia’ VTB bank have presented tender offers during the meeting. The offers are wide and they must be studied attentively’. 127. Mongolia: Rio Tinto expects to have Oyu Tolgoi expansion funds by end 2012 bne June 25, 2012 Rio Tinto expects have have the funds needed to expand the massive Oyu Tolgoi copper-gold project in Mongolia by the end of this year. In an interview with Reuters, Cameron McRae, Mongolia country manager for Rio Tinto, said the company had been in talks with banks for around two years over raising funds for the $13bn project. “Hopefully in the next six months we will conclude that,” McRae told the newswire. Oyu Tolgoi is one of the world’s largest copper-gold deposits, and investments into developing the deposit are estimated to account for around one third of the Mongolian economy. Around $7bn has already been invested into the deposit, and a further $5bn is expected to be needed for the next phase of development. Production of ore is due to start in August 2012, six months ahead of schedule, with commercial production to start in 2013.

SOUTHEAST INVESTMENT 128. Turkey climbs to 6th most popular tourist destination in the world Balkans.com June 26, 2012 Turkey has climbed to become the 6th most popular tourist destination in the world, according to the World Tourism Organization's (UNWTO) "Tourism Highlights 2012" report. The country is the only destination in the top 10 list that rose in rank in 2011. A major holiday destination in the Mediterranean region, Turkey saw 29.3 million international arrivals in 2011, displacing Britain to become the 6th popular destination in the world. The country is becoming increasingly popular for tourists from the Middle Eastern countries, as well as Europeans, and is foreseen to enter top 5 tourism destinations over the next 10 years. 129. Antalya Airport gets best investment award Hurriyet Daily News

June 27, 2012 The ICF Airports Antalya Airport has been chosen as "Turkey's Most Successful Tourism Investment," according to a survey sponsored by the Tourism Investors' Association (TYD), Eurbank Tekfen and economy magazines Capital and Ekonomist. "We started [investments] in 2012. Renewal and expansion work at the second international terminal was completed in March. We have raised the comfort level of passengers substantially and increased the total annual passenger capacity to 47 million," said Salih Çeçen, an IC Holding board member, as he received the award. Antalya Airport was recognized as the "Best Airport in Europe" by the Airports Council International Europe (ACI Europe) in the 10-25 million passenger category in 2011. The survey also identified successful tourism investments in 10 different categories. The national flag carrier, Turkish Airlines, won the award in the airlines category. "Very large investments have been made in Turkey in the last five years. Those giant investments have produced facilities that will make significant contributions to the economy of the country," said Rauf Ate_, the editor-in-chief of weekly Ekonomist. Doyens who contributed to the development of the Turkish tourism industry were also honored. Aydın Do_an, the honorary president of Do_an Holding, gave the Honor Award to Semahat Arsel. k HDN Turkish Travel Agencies Union (TÜRSAB) President Ba_aran Ulusoy was honored with the Contribution to Tourism Special Award. 130. BSEC summit kicks off in Istanbul with a new regional vision Hurriyet Daily News June 26, 2012 The heads of states and political leaders from 12 member countries of the Black Sea Economic Cooperation convene in Istanbul for a summit marking the 20th anniversary of the organization. The summit will focus on sustainable development, sustainable growth, energy, climate change and political dialogue Leaders of the member countries of the Organization of the Black Sea Economic Cooperation (BSEC) are set to convene at a summit in Istanbul to commemorate the 20th anniversary of the BSEC today. During its presidency starting July 1, Turkey is preparing to submit a new vision paper to enhance political dialogue in the Black Sea region, seeking to address the frozen conflicts that hinder economic progress amongst the member states of the BSEC, a senior official from the Turkish Foreign Ministry has said. Turkey and Serbia, the current president, co-chair the Istanbul event. "When you talk about economic cooperation, you also need to have a certain level of political dialogue amongst the member states ... However, frozen conflicts are hindering economic progress and economic cooperation," the official said.

Today's summit will be co-chaired by Serbia and Turkey, the two consecutive chairmanships-in-office of the BSEC during 2012. Turkish President Abdullah Gül, Azerbaijani President _lham Aliyev, Georgian President Mikheil Saakashvili, Moldovan President Nicolae Timofti, Serbian President Tomislav Nikolic, Bulgarian Prime Minister Boyko Borissov and Russian Deputy Prime Minister Olga Golodets are amongst the participants. Armenia will participate in the summit at deputy foreign ministerial level. Ahead of the summit meeting, which will take place in the afternoon, a special session of the council of ministers of foreign ministers is planned, as well as parallel events. Turkish Prime Minister Recep Tayyip Erdo_an is scheduled to host a luncheon, and Turkish President Abdullah Gül will join the event in the afternoon. The Tekfen Black Sea Philharmonic Orchestra will perform a concert as part of the opening ceremony of the summit. A new vision "The BSEC should also enhance political dialogue. We are planning to mark a new vision in our chairmanship. Everybody should have the right to be heard. We should be able to discuss every issue in the long run," the foreign ministry official said. The summit will focus on sustainable development, sustainable growth, energy, climate change and political dialogue. Energy is another important issue. The Black Sea is a major energy route. "We also need to cover the climate issue at a regional level," he added. The governments of BSEC member states, observers and sector dialogue partners, as well as several international and regional organizations have been invited to the summit. In parallel with the summit, several side events such as parliamentarian forums, academic and NGO forums, and business forums are also planned. Currently, there are two important projects of the BSEC ongoing: the Black Sea ring highway and the motorways by the sea. The ring highway - which will have a length of 7,700 kilometers and which will make it able to travel the whole way round the Black Sea - is particularly important for intensifying relations among all sectors, the official said. Other issues that are on the agenda are visa facilitation for lorry drivers and unemployment, which is widespread across the young population of BSEC countries. A declaration will be announced at the end of the summit 131. Bulgaria begins investor meetings ahead of eurobond float bne June 25, 2012 Bulgaria is beginning a series of investor meetings June 25 across Europe ahead of the eurobond issue the country plans to float this year, one of the banks organizing the meetings announced, Novinite reported.

At the beginning of June, Bulgaria's parliament ratified contracts with BNP Paribas, HSBC and Raiffeisen as mediators for the eurobond issue. The three banks will organize the meetings with investors. Bulgaria plans to tap international markets to raise funds to repay the first tranche of about EUR835m in 11-year eurobonds maturing on January 15, 2013. The bonds offered on international markets will be worth up to EUR950m. Bulgaria is likely to issue its five-year sovereign eurobond on better terms than the country's foray into international capital markets back in 2002, according to analysts. The country expects the yield it would have to pay on the new five-year bonds to be 5.5%, 2% lower than the 11-year eurobonds issue maturing in January. According to unconfirmed information, Finance Minister Simeon Djankov has decided to go for a five-year maturity partly because of the low indicative prices that the three financial institutions offered - less than a 4% yield - on bonds with that maturity. The finance minister is also believed to be counting on the banks' assurance that managers will help Bulgaria tap international markets at an affordable cost if the eurobond placement does not draw strong demand. 132. Bulgarian Vivacom to change hands by end of year - Media bne June 26, 2012 Bulgarian telco BTC, which operates under the brand name Vivacom, may finally get new owners this year, according to a report in the daily Capital. "Bulgaria, a nation of 7.7 million people has three mobile operators, which are foreign owned and whose ownerships are expected to change hands this year," Capital reported, Novinite news agency quoted June 25. Bulgaria's largest mobile operator Mobiltel is controlled by Telekom Austria, while Globul is the local unit of Greece's OTE. However, OTE announced last week that it plans to sell its Bulgarian units to help refinance EUR3.4bn debt maturing in the next two years. In a statement released June 25, Turkcell, the biggest Turkish mobile-phone company, said it has made no decision regarding the purchase of Globul, but continues work on evaluating acquisition opportunities in countries near its home market, Bloomberg reported. Meanwhile Mexican tycoon Carlos Slim made a deal to acquire 21% of Telekom Austria, which will translate into changes in the Bulgarian unit Mobiltel. "The BTC sale, the longest awaited deal, is also just about to see a denouement," Capital wrote without disclosing any details. BTC's planned sale failed earlier this year after its creditors rejected the offers of all three bidders, including Turkcell.

Now the lenders are expected to hold restructuring talks, which will aim at securing better terms and reducing the debt, which is burdening BTC, its parent company NEF Telecom Bulgaria and the holding company that owns NEF Telecom. 133. Bulgarian freight railway tender attracting interest, government says bne June 27, 2012 Without saying who, or how many, Bulgaria's Privatization and Post-Privatization Control Agency has confirmed investor interest in the upcoming sale of the Freight Services unit of the Bulgarian State Railways (BDZ), Novinite reported June 26. The privatization company has not specified the number of companies that had already purchased tender documents and refused to comment on the allegations of the participation of Russian state railways in the deal. Transport Minister Ivaylo Moskovski was equally evasive June 25 about claims that the key player in the privatization of the cargo unit of BDZ would be a Russian investor. He would say though that he had repeatedly received signals "at a political level" to expect investors from China, Russia and Turkey. On June 12, the privatization agency announced a public tender for selling 100% of the capital of BDZ Freight Services. The privatization of the cargo unit of BDZ has been a highly controversial matter for the past few years, mainly because it is the only profitable unit of the embattled BDZ. Both strategic and financial investors are eligible to apply with strategic bidders expected to have at least 10 years of experience with railway freight services, possess the respective certification, boast revenues of at least EUR400m per year, and to have undergone financial audits. Financial bidders are expected to own shares worth at least EUR1bn, to have own capital of at least EUR20m in the past year, and to have undergone financial audits for the past three years. 134. Germans declare Antalya most trusted tourism spot Hurriyet Daily News June 27, 2012 The southern province of Antalya, one of Turkey's premiere tourism destinations, has been chosen as the most trusted tourism destination among Germans along with Mallorca, according to 4,000 travel agencies surveyed by a Turkish tourism portal. "Some 95 percent of the elderly, 85 percent of families with children and 70 percent of the youth find Antalya trustable. Antalya has become the most trusted destination of German families," said Hüseyin Baraner, the representative for Turkey at TUI AG (Touristik Union International), a German multinational travel and tourism company headquartered in Hanover. "The elderly and children feel safe the most during vacations in Antalya," he said, noting that some of the reasons respondents distrusted other places was poor infrastructure. "It is a source of pride that Antalya has been chosen as the most trusted destination shining out among other destinations."

The Information Service for Travel Agencies and Travellers, TourExpi.com, conducted the survey covering 4,000 travel agencies in Germany this month, he said, adding that the detailed results of the survey would be revealed July 10. Families with children visit Antalya the most among all the destinations in the world, he said, adding that nearly 3 million children and youth came to Antalya last year. "You may think [as an adult] that 'nothing will happen to me' and just go to some place," he said, but added that families never considered going to an "unsafe" place. The most important criterion for tourists going on holiday is ultimately "safety," he said, noting that this proved how safe the southern Turkish province was. It was particularly meaningful that Antalya is the most visited destination despite economic crises in the European and Russian markets, he said. 135. Greek OTE to sell Bulgarian units bne June 25, 2012 The largest telecoms operator in southeastern Europe, Greek group OTE, plans to sell its Bulgarian units to help refinance EUR3.4bn debt maturing in the next two years. "OTE is considering the possible sale of its units in Bulgaria Globul and Germanos Telecom Bulgaria and plans to start the necessary procedures," the company said June 23, Reuters reported. In Bulgaria, OTE controls Globul, the country's second-biggest mobile operator with a market share of 36% and a customer base of 4.3m people, and electronic appliance retailer Germanos. Industry analysts have said Turkish mobile operator Turkcell might be interesting in acquiring Globul. Turkcell had been interested in buying debt-ridden Bulgarian telecoms operator Vivacom earlier this year, until its owners cancelled the sale. OTE reported a big one-off gain in the first quarter after selling its 20% stake in Serbian group Telecom Srbija. 136. Incentives tempting foreign energy players to Turkey Balkans.com June 28, 2012 With a rapidly growing demand for energy and investment incentives scheme in place, Turkey offers foreign energy companies hard-to-miss deals in one of the most promising emerging countries. Most recently, South Korean LPG specialist SK Gas and Portuguese energy company EDP have both visited Turkey's Energy Markets Regulatory Authority (EMRA) office in Ankara, seeking investment opportunities in the country's lucrative energy market. Guided by Investment Support and Promotion Agency of Turkey (ISPAT), SK Gas has put Turkey under the microscope for its ever-increasing LPG usage, a field the company excels in. Company executives, who visited EMRA Head Hasan Köktas for a

briefing on the country's LPG market, stated that SK Gas is looking for an active position in Turkey. A division of South Korea's third largest industrial conglomerate SK Group, SK Gas is seeking to enter the Turkish market via an M&A or through a direct investment, according to the company officials. The SK Group has recently signed a strategic partnership and cooperation agreement with Turkey's Dogus Holding to focus on a number of sectors such as ICT, energy, infrastructure, media and tourism in Turkey. Another likely candidate to invest in Turkey's energy market is EDP of Portugal, which expressed interest in tapping Turkey's vast wind energy potential. The fourth largest wind energy producer in the world is now looking for new opportunities outside the Iberian Peninsula, according to company officials who visited EMRA. Turkey's growth potential, high dependency on imported energy and willingness to increase local energy production has led EDP to investigate investment opportunities in the country, sources reveal. Source: IIT 137. Kosovo revives telecom sale bne June 26, 2012 Kosovo is relaunching the sale of state-owned post and telecom firm PTK, the economy ministry announced June 25. The pre-qualification process to take part in the sale of 75% of Kosovo's most profitable company, with around 1m mobile and 100,000 landline subscribers, will last until July 30, Reuters reported. "The contracting authority wishes to identify bidders who have experience in the telecommunications sector and who have sufficient financial, technical, managerial and organisational capacity to successfully manage the company," the ministry said. No deadline was set for naming the winner, however Kosovo has organised conferences for potential investors in London and Istanbul. PTK's original sale failed in October when Croatian T-HT announced it would drop its bid after company officials were faced with mismanagement charges. That left Telekom Austria as the only bidder which prompted the privatisation committee to halt the sale. Former PTK Chief Executive Shyqyri Haxha and ex-Chairman Rexhe Gjonbalaj are accused of "entering into harmful contracts" and "abusing (their) official positions" in a case set to go on trial late next month. 138. Row over property sales to foreigners Hurriyet Daily News June 25, 2012 A crisis over the issue of foreigners purchasing real estate in Turkey has occurred in Parliament's Constitution Conciliation Commission. The main opposition Republican People's Party (CHP) and Nationalist Movement Party (MHP) asked for a limitation on foreigners purchasing real estate in Turkey, claiming that many people from foreign countries and particularly from Israel are buying land in Turkey with fake contracts.

The ruling Justice and Development Party (AKP) and Kurdish issue-focused Peace and Democracy Party (BDP) have objected to this. The related article could not be written after the argument escalated. Parliament's Constitution Conciliation Commission has discussed "freedom of travel and settlement," "freedom of science and arts" and "property and legacy right" while chaired by Parliamentary Speaker Cemil Çiçek. A crisis occurred on the issue of foreigners purchasing real estate in Turkey while the "property and legacy right" was being discussed. The CHP and MHP took a common stance for the first time over an article and wanted a limitation on property sales to foreigners. The AKP and BDP objected to this. MHP deputy Oktay Öztürk said, "Lands are being sold to Israelis and Jews. Our country is being nearly invaded by foreigners. There has to be a limitation on this issue." CHP deputy Atilla Kart said "One-seventh of the lands in Konya are being sold, and most of these sales are in collision. They are buying real estate using other people's names in a fixed way. A limitation has to be brought to this." AKP deputies Mehmet Ali _ahin, Mustafa _entop and Ahmet _yimaya rejected putting limitations on property sales to foreigners. AKP deputies said during the term of single-party government, there were also land sales to foreigners and showed the documents proving the sales. They also claimed that the "the mutuality organized in Article 16 of the Constitution is enough for the regulation." BDP deputy Altan Tan also rejected the limitation. Kart said, "The sales during the one-party term were for countries that wanted to open embassies in Turkey in the first years of the young [Turkish] republic. It is not the same thing as today's sales." After long discussions, the article on the sale of property to foreigners could not be written because of lack of consensus on the issue. The writing committee will discuss the article again this week. If consensus cannot be reached, the article will be skipped and left to the end of the related chapter. Sevda Tepesi (Love Hill) which belongs to the king of Saudi Arabia, has been one controversial property. Environment Minister Erdo_an Bayraktar recently said the king would be able to build four villas on the hill, which was zoned for construction last week in a debatable decision by the municipality council. "The king's family will not build a hotel there. They will build villas for the family, maybe four of them. They are not allowed to cut even one tree. I believe they will protect the area; they will make it better. The process has not ended yet. The municipality has approved it; now, six ministers and the prime minister need to approve it too so that a problem of 25 years will be solved," he said. 139. Pipeline leak disrupts Iranian gas supply to Turkey bne

June 29, 2012 A "major leakage" on the gas pipeline linking Turkey to Iran cut supply from the Persian peninsular on June 28. Local authorities say there is no evidence to support Ankara's suggestion that the incident stems from a terrorist attack however. In a statement on the website of the Agri governorate website, authorities in the eastern Turkish province said that security forces found "no sign or indication that explosives were used on the pipeline," reports Bloomberg. Energy Minister Taner Yildiz suggested earlier that the gas may have been cut due to an attack by the Kurdistan Workers' Party, or PKK. 140. Turkey calls for clean production plans from textile producers bne June 26, 2012 Turkey's Environmental Ministry has asked large textile producers to submit plans for cleaner production by the end of the year, reports Bloomberg Producers with a daily processing capacity of 10 tonnes or more will be required to present their plans by Decemeber 31 to abide by a series of best practices for clean production, water and energy conservation and recycling, the ministry said today in an e-mailed statement from Ankara. 141. Turkey to push overseas investment in bid to reduce trade deficit bne June 26, 2012 In a bid to reduce the country's huge current account deficit, Anakara plans to offer incentives for Turkish companies opening operations overseas, Sabah reported, citing Economy Minister Zafer Caglayan. Technology companies, educational institutions, filmmakers and games producers are being targeted in the push, with the government seeking to raise exports to balance Turkey's large import demand. Companies opening offices in technology centers will get as much as $600,000 to help with the costs of rent, salaries and cooperation with other agencies, the newspaper said, according to Bloomberg. Games makers can have half of the cost of entering foreign markets covered as the government seeks to increase the industry's revenue to $1bn, whilst educational institutions will receive as much as $200,000 to cover 60% of the cost of renting offices. Filmmakers can have half the costs of advertising covered up to $100,000 per film. 142. Turkey's TAV wins Abu Dhabi terminal tender bne June 28, 2012

Turkish airport developer and operator TAV announced on June 27 that it has won a tender to build a new terminal at Abu Dhabi International Airport. The project is slated to cost more than $3bn, reports Hurriyet Daily News. IN a press statement, TAV said a consortium including CCC and ARABTEC as the junior partners would complete the project in 49 months. The new terminal at the Abu Dhabi Airport will be 702,000 square meters and will have the capacity to service 27m passengers per year. "As you know we are currently constructing the Qatar, Oman and Tripoli airports. In addition to the tender we have just won in the Saudi Arabian cities of Medina and Jeddah, we are very pleased to have won the Abu Dhabi tender," said TAV Managing Director Sani _ener. With the help oof such projects, TAV's turnover has reached $11bn annually in less than 10 years, _ener says. He also claims that the new terminal at Abu Dhabi international airport will be one of the world's most impressive. 143. Turkey's tourist numbers continue to sag bne June 25, 2012 Tourist numbers arriving in Turkey dropped for a fourth consecutive month in May, although the pace of the contraction slowed, data released by the Ministry of Tourism on June 25 showed, according to RTT. Tourism visits to the country fell 1.53% to around 3.23m in May, a significantly slower drop than the 5.33% slowdown seen in April. Arrivals from France dropped a full 26.6% year in year during the month, whilst the number of German visitors swelled by 12.13%. Ovearll, approximately 8.84m tourists visited Turkey in January-May, a 4.34% drop year on year. 144. Turkey's Yapı Merkezi signs contract on $1.7 bln Ethiopian rail line bne June 28, 2012 Turkey's Yapı Merkezi on June 26 signed a $1.7bn contract to build a railway line in Ethiopia, one of the largest overseas projects to be fully undertaken by a Turkish construction firm, reports Hurriyet Daily News. Yapı Merkezi won the tender to build the 390km Awash-Wedie line following a four-month negotiation process. According to the newspaper, the company's bid managed to beat out competition from Chinese firms - which often have the advantage of cheap state funding in their corner. The Turks appear to have come armed with similar, and Turkey's Eximbank will provide a country loan to Ethiopia. "The project will use local labor as well as 1,500 Turkish employees," said Emre Aykar, chairman of the executive board at Yapı Merkezi. Yapı Merkezi has found no little success in securing large contracts overseas. In 2009 the company joined with a Japanese consortium to build the Dubai metro - a project that cost $7.6bn. According to data provided by the Turkish Contractors' Association (TMB) Turkish construction firms have taken on two projects in Ethiopia to date worth $42m.

145. Turkish Air Industry's first military and civilian use airplane set for unveiling Hurriyet Daily News June 27, 2012 The Turkish Air Industry's (TAI) first military and civilian use airplane Hurkus (free bird) will roll out today with a ceremony. The TAI will make a show of its productions by flying Turkish UAV ANKA and the T-129 attack helicopter for the first time in front of public. The ceremony will take place on the anniversary of the approval of the law on the foundation of the company in 1984. Prime Minister Recep Tayyip Erdo_an is scheduled to observe the vehicles - as well as the Hurkus. a pilot trainer plane, will be demonstrated to the public for the first time at the event. The plane is expected to be ready to fly within a year and will also be shown to the audience at the Farnborough International Air Show. The aircraft will be used to execute basic pilot training, instrument flying, navigation training, and weapons and formation training missions. Hurkus is expected to be exported as a civilian and military flight trainer aircraft. The first Hurkus prototype will carry civilian use specifications. It is built adhering to the EASA CS 23 standards. Upcoming prototypes will have military standards. The last and most developed version of Hurkus will carry weapons in the future. The development program of the Hurkus began in March 2006 as part of the contract signed between the SSM and the TAI. The agreement covered four aircraft to be designed, built, examined, verified and certified by the TAI. The aircraft was named after Turkey's first aviator Vecihi Hurkus. Hurkus's daughter will participate in the ceremony, and her parents are expected to fly from U.S. in order to attend ceremony. Tandem cockpit Hurkus has an analog and digital cockpit with a tandem seat configuration for two crew members - a student pilot and an instructor. The next configuration will be a glass cockpit. TAI engineers are very proud of cockpit as it is thin enough to easily break in case of emergency for the exit of emergency seat but it is strong enough to protect the pilot in the event of bird crash at the speed of 300 km/h. In 2007 it was forecasted that the first prototype would fly in late-2009 with first delivery, upon completion of the certification process, forecast for 2011. The date for the first flight is not known yet, as TAI authorities say they can not predict how the EASA certification would be processed. 146. Turkish business associations will support Bursa to establish its own ferry firm Balkans.com June 25, 2012 Local business associations have put their support behind the efforts of Bursa Metropolitan Municipality to establish its own ferry firm between the Mudanya district of the province and Istanbul as it claims that _DO, Istanbul's ferry company, abuses its monopoly position in marine transport in the Marmara Sea.

Celal Sönmez, the president of the Bursa Trade and Industry Chamber, said Bursa's ferry firm will bring competition and higher quality to the marine transportation between Istanbul, which is the locomotive of the economy, and Bursa, which is a major industrial province, Bursa Hakimiyet, a local newspaper, reported over the weekend, Hurriyet Daily reports.

CENTRAL EUROPE INVESTMENT 147. Aditya Birla is planning to expand its investments in Turkey Balkans.com June 26, 2012 India-based multinational Aditya Birla is planning to expand its investments in Turkey, head of Turkey's official investment promotion agency has said. "Aditya Birla is preparing for a second investment project in Turkey worth USD 500 million.." Investment Support and Promotion Agency of Turkey (ISPAT) President Ilker Ayci told reporters in Boston, USA where he is attending the 2012 BIO International Convention. The new investment will raise the company's total investments in the country to more than USD 1 billion, he added. World's leading viscose staple fiber producer had announced the building of a production plant for USD 510 million in Adana province late last year. "Biotech event has been extremely fruitful in attracting attention to Turkey's pharmaceutical industry..", the ISPAT President said when talking about the country's investment atmosphere in general. "Biotech convention is strategically important for us as Turkey is among the top 5 pharma markets in the world. Turkish companies such as Nobel Ilac and Abdi Ibrahim received a large number of meeting requests from possible investors during the event.." he added. Turkey's growing pharmaceutical sector ranks 6th in Europe and 14th in the world in size and foreign interest to the market has been high. Last April, US biotechnology company Amgen acquired local generics manufacturer Mustafa Nevzat for USD 700 million. Turkey is also eyeing more foreign investments in other critical sectors such as automotive, Ayci noted. Germany's VW Group is clearly aware of Turkey's potential in this regard and the Agency is in contact with the company about a possible investment in Turkey, the ISPAT President said without providing further details. "ISPAT is working all over the world to promote Turkey's new incentive system..", he added. Turkey's new investment incentive scheme covers sectors that depend heavily on imports and promotes local production in energy, petrochemicals, automotive. It includes supports aimed specifically at auto makers such as; a car maker planning to produce at 100,000 vehicles a year is given the right to import goods free of customs tax for 15 percent of their capacity. 148. Brussels demands Estonia separate telecoms regulator from operating services bne June 25, 2012

The European Commission has sent an official demand to Estonia to implement EU regulations for the telecoms sector erecting chinese walls between regulators and operators and other service providers, LETA/Postimees Online reports. According to the EU regulations, the state's regulatory institutions cannot be among owners of telecommunications companies nor participate in managing them. In Estonia, radio frequencies, numeration resources and universal service providing is administered by the economy and communications ministry. It also controls the state-owned company Levira Ltd., which provides telecommunications services including broadcasting and wireless broadband connection. 149. European Uranium Drills Double Expected Grade at Kuriskova Deposit, Slovakia Press release June 27, 2012 European Uranium Resources Ltd. (EUU: TSX-V; TGPN: Frankfurt) intersected double the expected grade in its first of three planned metallurgical drill holes at Kuriskova. This drill program is designed to collect additional metallurgical samples as part of the ongoing feasibility study on the Company's flagship property, the high-grade Kuriskova uranium project in Slovakia. A preliminary feasibility study, announced January 30, 2012, demonstrates that Kuriskova could be one of the lowest cost uranium producers in the world. Drilling of three holes planned for metallurgical samples began in May and is expected to be completed in July 2012. The first of these holes, LE-K-73, was completed last week and intercepted higher than expected uranium grade in the Main Zone of the Kuriskova deposit. As planned, the hole intersected the western part of the Main Zone of the deposit at a depth of about 455 metres. Based on the most recent Kuriskova resource estimate (April 2011), the modeled thickness and grade in this part of the deposit is 4.5 metres @ 0.39% U3O8. Mineralization intersected is thus about 10% thicker and more than double the grade in the resource model. "Kuriskova is recognized as one of the highest grade uranium deposits in the world," said Dorian L. (Dusty) Nicol, European Uranium's president and CEO. "This drill hole confirms the tremendous potential that Kuriskova has to grow beyond its already impressive resource." The April 2011 NI 43-101 compliant resource estimate, audited and approved by Tetra Tech, Inc., comprises an Indicated Resource of 28.5 million pounds of U3O8 at a grade of 0.555% U3O8 contained in 2.3 million tonnes and an additional Inferred Resource of 12.7 million pounds of U3O8 at a grade of 0.185% U3O8 contained in 3.1 million tonnes, at a cut-off of 0.05% U (see news release dated April 26, 2011). The Company will continue advancing critical path aspects of a feasibility study and environmental impact study for the Kuriskova deposit. The metallurgical samples collected from the ongoing drill program will be tested by AREVA, a significant shareholder of European Uranium Resources Ltd., later in the summer and fall of 2012 as part of the Company's technical services agreement with AREVA. The

objective is to optimize the process flow sheet as described in the preliminary feasibility study. Concurrently, the Company has been conducting surface exploration work on targets within the Kuriskova license area. The objective is to define drill targets that could lead to expansion of the current resource. The Company continues its efforts to define the structure which would allow uranium production from Kuriskova to be developed for the benefit of Slovakia's energy future. This could be a production off-take arrangement with Slovakia or a partnership with a Slovak entity. Work programs for the recently acquired Swedish and Finland uranium prospects are being designed and will be conducted in late summer and fall of 2012. 150. Jet hit forces Turkey to boost air defense Hurriyet Daily News June 29, 2012 Turkey's highest defense procurement body is expected to select the winner in a $4 billion competition to select the country's first long-range anti-air and anti-missile defense systems soon, following the downing of a Turkish jet by Syria. The Defense Industry Executive Committee, whose members include Prime Minister Recep Tayyip Erdo_an, Defense Minister _smet Yılmaz, Chief of the Turkish General Staff Gen. Necdet Özel and procurement chief Murad Bayar, is set to meet in July. The meeting was expected on July 4, but it was later delayed indefinitely. Competitors in Turkey's long-range air-missile systems include U.S. partners Raytheon and Lockheed Martin with their Patriot-based system; Eurosam with its SAMP/T Aster 30; Russia's Rosoboronexport, marketing the country's S-300 and S-400 systems; and China's CPMIEC (China Precision Machinery Import and Export Corporation), offering its HQ-9. Eurosam's shareholders include MBDA - jointly owned by British BAE Systems, Italian Finmeccanica and pan-European EADS - and France's Thales. These companies will work with Turkish partners. The contest comes less than a month after a Turkish RF-4E reconnaissance fighter was shot down by Syria. The Syrian Foreign Ministry said the plane had been hit by a barrage of short-range anti-aircraft machine-gun fire, but Turkish officials said the attack did not bear the traces of anti-aircraft fire. They instead said it had no traces, suggesting that the aircraft might possibly have been hit by a Russian missile defense system. This was not confirmed. France back in game Around that time, Turkey agreed to restore all military ties with France, and a senior procurement official said June 27 that the restored relations covered all arms deals between the two countries. The deal effectively means that Eurosam, the European missile maker whose members include major French companies, may now compete for Turkey's Long-Range Air and Missile Defense Systems (Loramids). Eurosam has never been officially excluded from that competition, but the earlier legislation made the European missile maker difficult to select.

Ankara canceled all economic, political and military meetings with Paris in December after the lower house of French Parliament voted overwhelmingly in favor of a draft law making it illegal to deny that the killings of Armenians in World War I in the Ottoman Empire amounted to genocide. France's highest court overturned the law two months later but the Turkish measures taken against France, which included restrictions on French military aircraft and ships landing or docking on its territory, have remained in place. Erdo_an ordered the sanctions be lifted after a positive meeting with France's new President François Hollande. "We definitely expect a decision this time. The program has been delayed since 2009," said a business official. Many Western officials and experts say that the Russian and the Chinese systems are not compatible with NATO systems. Their potential eventual victory thus might inadvertently provide them with access to classified NATO information, and as a result may compromise NATO's procedures. Despite this criticism, Turkey has so far ruled against expelling the Chinese and Russian options, saying there is no need to exclude them from the competition. One Western expert countered: "If, say, the Chinese win the competition, their systems will be in interaction, directly or indirectly, with NATO's intelligence systems, and this may lead to the leak of critical NATO information to the Chinese, albeit inadvertently. So this is dangerous." "NATO won't let that happen," said another Western official here, familiar with the matter. "If the Chinese or the Russians win the Turkish contest, their systems will have to work separately. They won't be linked to NATO information systems." This was the first time that NATO had strongly urged Turkey against choosing the non-Western systems. "One explanation is that Turkey itself doesn't plan to select the Chinese or Russian alternatives eventually, but is still retaining them among their options to put pressure on the Americans and the Europeans to curb their prices," the Western expert said. 151. Launch of Hungary's fourth mobile operator delayed again Equilor June 27, 2012 The upcoming mobile service provider faces postponements again due to some legal challenges, press sources reported. Earlier, the company proposed it would start service in the capital (Budapest) by the end of the current year and reach generous coverage by the end of 2014. The process has been halted several times recently, therefore the base case is rather a start in Q1 2013 than Q4 2012. Although this is negative for the fourth operator, it might ease pressure on MTEL and other current service providers. 152. Ortac Resources appoints MD for Slovakia to push gold/silver project Press release June 27, 2012 Ortac Resources Ltd, the AIM listed exploration and development company focussed on natural resource projects in Europe, has appointed Mr. Viktor Pomichal as Managing Director in Slovakia with immediate effect. Mr. Pomichal, a native

Slovakian with extensive experience in investment and development within Eastern Europe, will be instrumental in delivering the Company's _turec Gold-Silver Project ('_turec') in Slovakia through to commercial production following the positive Scoping Study released in January 2012 which demonstrated a post-tax Net Present Value ofUS$309 million. Mr. Pomichal, a graduate from University College London, has held various senior positions at leading institutions including UBS Bank where he was Director of Fixed Income and Derivatives Structuring and Sales, responsible for numerous landmark transactions covering Central Europe, Russia, Central Asia and sub-Saharan Africa. He was also a Director and Partner at Private and Syndicated Investments where he made investments and aided the recovery of distressed debt in Central and Eastern Europe. Most recently he was Managing Director of Finance and a Partner at Slovak Forestry Company, responsible for establishing, financing and running the timber trading division and establishing an Asset Management division of the business. Ortac CEO Vassilios Carellas said, "We are delighted to welcome Viktor to our growing team in Slovakia, home to our _turec gold-silver project, where we are working together with the local communities and authorities to evaluate the optimum path toward monetising the asset in order to complement and benefit local and regional development. Viktor's strong in-country and European-wide network, as well as extensive knowledge of Slovakia's economy and market environment, will, I am certain, be pivotal in our endeavors to advance the project following the successful Scoping Study released in January 2012, which confirmed its economic viability. We look forward to working with him during this key time for the Company and building _turec into a significant gold production asset in the region." 153. Polish gas exchange set to open this year, claims URE bne June 26, 2012 A Polish gas exchange could be launched this year, energy regulator URE claimed on June 25, saying that current monopolist PGNiG is ready to jump-start the market in the last quarter of the 2012 by putting 100m cubic metres up for sale. URE chief Marek Woszczyk said "there is constructive co-operation between URE, PGNiG, POLPX and Gaz-System, which lets me say responsibly that it is possible to launch a gas exchange in the fourth quarter," reports Reuters. In January energy exchange PolPx and gas network operator Gaz-System began talks on setting up a gas exchange. However, as the current monopolist, PGNiG is the key to liberalizing the market. The company's engagement with a gas exchange has been secured via URE's regulatory powers - with PGNiG spending much of last year pushing to raise domestic tariffs that it says left it selling gas below cost. In February, PGNiG agreed to support the gas exchange in return for movement on tariffs, and offered auction off as much as 70% of its gas to potential rivals in the future. Power exchange POLPX is now awaiting approval of the statute of the future gas exchange by the financial regulator KNF, Woszczyk added. 154. Rathdowney updates results from 2012 drilling at Poland's Project Olza Press release June 28, 2012

Rathdowney Resources Ltd. is pleased to announce this latest update on drilling results from its Olza zinc project, located 70 km northwest of Krakow in southern Poland. Compilation of results and resource modelling is progressing according to plan. Additional holes have been drilled which will be included in the resource estimate. A number of these are currently awaiting final QA/QC and will be released shortly. Project Olza is a Mississippi Valley Type (MVT) zinc-lead prospect in Poland's historic Silesian mining district, an area with extensive infrastructure including power, rail and smelter facilities. "Rathdowney's 2012 drill program commenced in January with up to six drills operating and has rapidly advanced our geological understanding of the Silesian MVT zinc-lead system," confirmed John Barry, Rathdowney's President and CEO. "We are pleased to report that our results continue to correlate strongly with previous drilling undertaken in the region, and will facilitate our goal of converting historical resource estimates into a 43-101 compliant resource in the near-term. "Rathdowney's drill hole pattern is designed to optimize the testing and verification of historical resource estimates in this highly prospective district. Significant mineralization has been encountered since drilling commenced last year. Results to date demonstrate the continuity of mineralization within zones along several kilometers of strike length. The drill results for 40 new holes appended to this release continue to build confidence in the reported historical resources. Assays from the first 69 holes drilled were reported by Rathdowney on September 22, 2011, December 15, 2011 andApril 02, 2012. A drilling location map is available at www.rathdowneyresources.com. Rathdowney has completed over 200 drill holes as part of a multi-million dollar resource delineation program at Project Olza. Drilling continues to verify the presence, and build confidence in, the reported grade and continuity of historic mineralization in the Rokitno and Zawiercie concessions that comprise Project Olza. The Company's goal was to announce its first resource estimate for OLZA by mid-2012, however recent additional drilling has just been completed which will be included in the estimate to maximize the project's first mineral resource in compliance with National Instrument 43-101. Zinc and lead has been mined in this area since the 12th century. The Upper Silesian district has, by far, the most important accumulation of metal in any of the world's Mississippi Valley Type districts, with an estimated endowment of some 40 million tonnes of zinc and lead (USGS, 2010; endnote 1). Given its geological potential and excellent location, Rathdowney's Project Olza presents a compelling investment opportunity among a small peer-group of zinc-focused juniors. Zinc demand continues to grow globally while significant zinc producers are set to be taken offline over the medium term, resulting in looming deficits in concentrate supply from the world's mines. As a result, some of the world's largest zinc producers are already starting to acquire smaller suppliers in order to secure zinc concentrate. This clearly places Rathdowney in a very favourable position. 155. Scania Reduces Its Bus Production in Poland Press release June 28, 2012

Scania Production Slupsk, in Poland, is issuing redundancy notices to 142 employees due to continued weak demand for buses and coaches for public transport in the most important markets for Scania's fully-built buses in the Omni range. Various support programmes have been developed in consultations between the company and the trade unions that for instance will offer the affected employees the possibility of early retirement and redundancy payment. "The economic situation in our most important markets is showing no sign of improvement, which means that we expect continued weak demand for public transport buses in the coming year. Therefore, we have to adjust production to significantly lower volume," says Klas Dahlberg, Senior Vice President, Scania Buses & Coaches. The facility in SIupsk, with close to 700 employees, is the hub of Scania's European production of fully-built (bodied) buses for public transport. The Scania OmniCity and OmniLink models are bodyworked here. Chassis for the Scania OmniCity are also assembled in SIupsk. These chassis are also delivered to other, independent bus bodybuilders in Europe, Africa and Asia. 156. Slovakia negotiating dozens of investment expansions reports Sario bne June 25, 2012 Slovakian investment agency Sario is negotiating with 36 companies that are planning to expand existing production facilities, local media reports. The projects represent a total investment of €650m and may create as many as 8,100 jobs, Hospodarske Noviny reported, citing Sario spokeswoman Lubomira Gabrielova. That's good news for an economy so heavily dependent on FDI for its development, but it is not reported what the investors are demanding from the state in return. Slovakia sped off in the last decade as it attracted large investors targeting exports into the Eurozone. The automotive and electronics sectors have been particular successes, and carmakers Volkswagen and Kia are amongst those to have announced increased investment to expand capacity in the last year or so, as demand in emerging markets booms and makes up for the slowdown in the Eurozone. However, clearly aware of their importance for an economy with unemployment bubbling just below 15%, other investors have been pushing the government for new incentives to follow up their original generous subsidies. Early this year it was reported that South Korean electronics giant Samsung was threatening to leave Slovakia altogether unless it was handed €28m in tax relief on a planned €90m investment to modernize its plant in Galanta, which produces LCD screens. Facing almost certain defeat in the snap elections in March, the previous government decided to pass the decision on the case over to its successor. Local media reported in March that despite receiving investment aid of over €130m since 2006, Samsung is no longer obliged to remain in Slovakia as the incentives ran out last year. Meanwhile, the prospects for further investment from the company look limited. Whilst lower-added value production left the country in 2009 for lower cost operations in Hungary and Romania, analysts doubt that Samusng is ready to move in significant R&D functions.

157. Slovakian PM demands more funding from EU to close nuclear plant bne June 26, 2012 Struggling to implement fiscal consolidation, Slovakia is set to demand the European Union to boost funds to help cover the costs of decommissioning two nuclear reactors, according to a somewhat petulant speech by Prime Minister Robert Fico, who threatened to halt the process. The Slovak administration will demand that the EU contributes at least €300m to help cover the costs of the closures, Fico said, according to Bloomberg. The EU in the 2014-2020 budgetary cycle allotted €115m to help finance the 2006-2008 shutdown of two Soviet-style reactors at the Jaslovske Bohunice nuclear plant. "At this time, we can't afford to spend money on decommissioning of reactors we didn't want to shut down," Fico told lawmakers in Bratislava. A failure to win more aid would halt the process, whose costs the government estimates at €425m.