Most significant changes in the taxation of Russian gas business became effective on January 1, 2004.

Excise tax on sales to Russian consumers (15% of revenue net of VAT), CIS (15% of revenue net of VAT and export tax) and Europe & Baltic States (30% of revenue net of export tax and FSU transit cost) was eliminated.

Export tax on sales out of the Customs Union (Kazakhstan, Belarus) was increased from 5% to 30% of revenue.

• The new export tax alone has increased Gazprom's tax payment in 2004 by an estimated $1.2 billion.

Mineral production tax was raised from 16.5% of producer price (or average of $0.70/mcm) to the fixed rate of RUR107/mcm or about $3.80/mcm.

• Note that from January 1, 2005, the mineral production tax rate went up to RUR135/mcm or $4.81/mcm.

• The change of mineral production tax rate strongly affects the production cost of both Gazprom (see chart) and independent producers.

Asset tax rose from 2.0% to 2.2% of asset book value (excluding pipelines).

VAT decreased from 20% to 18% of net sales price in Russia and CIS.