Governance Services Standard & Poor’s

1. Corporate Governance Services in Russia Governance Services Standard & Poor’s MoscowFebruary 2008

2. Corporate Governance Score Measuring corporate governance performance • Corporate governance is: • A mechanism that encourages efficient use of resources and equally demands responsibility for managing these resources (Sir Adrian Cadbery) • A set of internal mechanisms to lead the company and control it (OECD) • The system of interaction of a company’s management, board of directors and shareholders designed to ensure maximization of the company’s value and that all financial stakeholders receive their fair share of the company’s earnings (Standard & Poor’s) • A corporate governance score (CGS) is Standard & Poor’s opinion on the effectiveness of corporate governance practices and mechanisms • The assessment of non-financial risks – primarily the risks associated with inefficient or dishonest management

3. Investors are the CGS target audience • Governance evaluation helps investors to minimize their risks • Is particularly important for institutional international investors • CGS is importantfor equity investors, as well ascreditors (examples include Enron, WorldCom, Kmart, Global Crossing, Marconi, Lucent, Nortel, ABB, Tyco International, Adelphia, Cable & Wireless, Parmalat, Finmatica, HealthSouth, Hollinger, Qwest, Adecco, AIG, Refco etc.) • In Emerging Markets, governance-related risks are particularly high; hence governance assessment is critical, despite high growth and volatility • Standard & Poor’s is the most reliable source of independent professional information on that (11,000 original subscribers to RatingsDirect)

4. Reasoning behind a company’s decision to receive a CGS CGS can • Push the share price and liquidity up by providing additional assurance to investors • Decrease the cost of debt and equity, diversify the sources of funding • Reduce the costs of D&O insurance policies • Help to improve the image for clients and investors; build up reputation and corporate history • Provide companies with benchmarks for internal change • particularly if an enhanced comparative analytical report is produced in the framework of ‘Corporate Governance Evaluation’, or CGE

5. Global Investor Opinion SurveyMcKinsey & Co. (July 2002) • 200 institutional investors (collectively responsible for some USD 2 trillion of assets under management) • 85% - put corporate governance on a par with financial indicators when evaluating investment decisions • 78% - willing to pay a premium for a well-governed company • Premium for good corporate governance may be as high as 40% (see graph on the next slide) Corporate governance is at the heart of investment decisions

6. Average premium investors would pay for a well-governed company by country and region 33% 22% 22% 14% 13% Global Investor Opinion SurveyMcKinsey & Co. (July 2002)

7. Corporate Governance and Equity Prices Survey by Andrew Metrick (Wharton School of business), Paul A. Gompers and Joy L. Ishii (Harvard University) of 1,500 US companies for period 1990-1999 Stock returns Hewlett-Packard, IBM, Wal-Mart, DuPont, Southern Company 16% 15.5% CG premium – 8.5% GTE, Waste Management, Time Warner, Kmart, United Technologies 10% 12% 7% 4% well-governed companies companies with low standards of corporate governance S&P Index *August 2001

8. Relation between CGS and value: Deutsche Bank study, 50 emerging-marketscompanies Note: Group 1: Score > 80% Group 2: Score 70-80% Group 3: Score 60-70% Group 4: Score < 60% Source: Deutsche Bank, January 2003 Companies under study: 50 leading companies operating in Eastern Europe and Middle East Score components: country infrastructure, financial transparency, independence, openness, equal shareholder rights, etc.

9. Relation between CGS and value: Deutsche Bank study, 50 emerging-markets companies Companies under study: 50 leading companies operating in Eastern Europe and Middle East Score categories: country infrastructure, financial transparency, independence, openness, equal shareholder rights, etc.

10. Relation between CGS and value: Deutsche Bank study, 50 emerging-markets companies 380 330 280 230 180 130 80 30 110 100 90 80 70 60 50 40 30 Group 1 MSCI index Group 1 Groups 3&4 Groups 3&4 MSCI index 11/16/00 02/16/01 02/16/02 05/16/01 08/16/01 11/16/01 05/16/02 08/16/02 11/16/02 11/12/97 11/12/98 11/12/99 11/12/00 11/12/01 11/12/02 Relative stock performance by the groups for 5 years Relative stock performance by the groups for 2 years Source: Deutsche Bank, January 2003 Score components: country infrastructure, financial transparency, independence, openness, equal shareholder rights, etc.

11. Link between Valuation multiples and CGS of Russian companies 40.00 35.00 35.00 30.00 CGS level 25.00 4 - 6 20.00 6 or higher 15.00 11.47 10.00 6.98 5.78 5.45 2.71 2.46 5.00 1.69 0.00 EV/EBITDA P/E EV/Sales P/BV Source: Standard & Poor’s CGS, Valuation multiples - Bloomberg (average for October 2006 – May 2007) Companies with CGS ranging from 4 to 6: NWT, Sibirtelecom, CenterTelecom, STC, MGTS, Dalsvyaz, VolgaTelecom, WGC-5, WGC-4 Companies with CGS higher or equal to 6: MTS, WBD, TMK, VimpelCom

12. Link between P/BV and CGS of Russian companies 10.000 9.000 y = 1.0 x - 2.0 8.000 Vimpelcom 7.000 WGC-5 6.000 TMK P/BV 5.000 МТS WGC-4 4.000 WBD CTC 3.000 MGTS Sibirtelecom 2.000 Volgatelecom STC Dalsvyaz NWT 1.000 0.000 4 4.5 5 5.5 6 6.5 7 7.5 8 CGS Source: Standard & Poor’s CGS, P/BV - Bloomberg

13. S&P Corporate Governance Score – a global instrument • Company scores are comparable on a global basis • Country context critical Country infrastructure Maximum shareholder protection Selected companies on the CGS/country scale strong average weak CGS 0 10 5 Minimum shareholder protection

14. Interpretation of Scores • 7-10: strong global governance standards • Ownership structures do not pose conflicts • Shareholder rights well defined and protected • High transparency and disclosure (IFRS or GAAP) • Effective board structure and active engagement by non-executives and independent directors • 4-6: basic governance standards in place, though certain shortcomings are apparent • Ownership structures and the board are often the weakest areas of assessment • 1-3: fundamental weaknesses or holes in governance structures and practices

15. List of public Corporate Governance Scores (CGS) in Russia

16. List of public Corporate Governance Scores (CGS) and Governance Assessments (GA) assigned outside Russia in 2001-2005

17. Standard & Poor’s CGS: methodology 1.Ownership structure and external influences • Interactive analytical process • Four main mechanisms of mitigating risks -- Four components of analysis (and 11 sub-categories) • Scores from 1 (the lowest) to 10 (the highest) – sub-scores and overall score 4.Board structure and effectiveness 2.Shareholder rights and stakeholder relations 3.Transparency, disclosure and audit 1 10

18. CGS evaluates the effectiveness of co-ordination mechanisms between management, board of directors and shareholders • Accountability and succession • Timely provision of information • Balanced influence • Fair and integrate disclosure of company operations and financial results • Distribution of profits Shareholders Board of directors CEO, management • Independent oversight over management • Strategic decision-making

19. Key analytical issues:1. Ownership structure and external influence • Transparency of ownership • Disclosure of beneficiariesof large blocks, including their external interests • Management shareholdings • Group structure, affiliate parties • Concentration and influence of ownership and external stakeholders • Clear and balanced influence • Existence of conflicts of interests of different shareholder groups (cross-subsidization, transfer pricing) • If that exists, how it is balanced (decisions on related party transactions) • Influence of external stakeholders (federal government, local authorities)

20. Key Analytical issues (cont.):2. Shareholder rights and stakeholder relations • Shareholder meetings and voting procedures • Ease of access • Quality of materialsprovided • Voting procedures and discussions • Ownership rights and takeover defenses • Guarantees of ownership rights • Dividend policy and discipline • Mechanisms impeding change of ownership • Stakeholder relations • Social policy • Ecological policy • Labor relations

21. Key Analytical issues (cont.):3. Transparency, Disclosure and Audit • Content of public disclosure • Financial reporting standards, completeness of disclosure • Non-financial information (assets, strategy) • Analysis of risks • Management and director remuneration • Auditor compensation • Non-financial reporting (GRI standards) • Timing of, and access to, public disclosure • Timeline • Ways of disclosure, non-discriminating access • Timeliness of event-driven commentaries • The audit process • Auditor selection process • Scope of services provided by the auditor • Independent oversight (Audit Committee) • Internal controls

22. Key Analytical issues (cont.):4. Board structure and effectiveness • Board structure and independence • Balance of interests • Independent directors • Skill mix and personal qualities • Committees • Role and effectiveness of the board • Oversight and audit (related-party transactions, material transactions, investments) • Strategic planning • Risk management policies (incl. non-financial risks) • Evaluations of efficiency, management nomination procedures • Director and senior executive remuneration • Adequacy of director remuneration policy; evaluation procedures • Principles and forms of remuneration (BSC, KPI system)

23. Russian companies CGS and their components

24. Selected comparative governance data on Russian companies Note: all data for 70companies is based on public sources (*) share of the disclosed private ownership in aggregate private ownership (**) based on results of 15 companies (except for Eurochem, TransTeleCom, TGC-1 and WGC-4) (***) including 47% -- independent Audit committees

25. Analytic services and products provided by Standard & Poor’s are the result of separate activities designed to preserve the independence and objectivity of each analytic process. Standard & Poor’s has established policies and procedures to maintain the confidentiality of non-public information received during each analytic process.