February 20, 2009

Transport infrastructure of Russia: specific features of investment

Market situation and expectations of participants: mid-2008

Market situation and expectations of participants: mid-2008

MARKET

• Freight turnover growth rate – over 7% per year

• Growth of railway transportation tariff – 16% since the beginning of 2008

• Government forecast: railway tariff growth within 5 years - 50%, inflation rate - 36%.

ASSETS

• High degree of wear of the fleet of railway cars in the RF: peak of rolling stock decommissioning in 2008-2010 – over 60 ths. cars per year, rolling stock decommissioning in 2011-201 – over 40 ths. cars per year

• Rolling stock deficit, growth of manufacturer’s prices of the rolling stock - 30-40% per year

• Peak of rolling stock purchases by private operators: order waiting list of manufacturers – over 6 months

• Forecasts of 70% growth of the rolling stock production volumes in the next 5 years to satisfy the growing demand and fleet renewal

• Major source of acquisition of assets is credit or leasing

CAPITAL

• Easy availability of loan capital for rolling stock acquisition and long-term trend of interest rate decline stimulate shorter loan terms and use of floating rates

• Rolling stock becomes a highly liquid and popular collateral (the discount reduces to 10-15%, the leasing down payment to 0%)

• The major currency of long-term credits (over 3 years) is US dollars

• The credit/leasing periods are generally much shorter than assets recoupment periods

Surplus of capital against the backdrop of assets deficit and glowing expectations for further market growth

Surplus of capital against the backdrop of assets deficit and glowing expectations for further market growth

Current situation: early 2009 Current situation: early 2009

MARKET

• 33% drop of freight turnover in January 2009 compared to January 2008

• Growth of railway transportation tariff - 5% since the beginning of 2009

• Devaluation of the ruble by 40% over 4 months

• Problems of non-payments in settlements between consignors and operators, tougher requirements for settlements on the part of the RRW. As a result, redistribution of the client base and transportation volume in favour of big stable players

ASSETS

• Lack of solvent demand for cars against the backdrop of rolling stock over-production

• Drop of rolling stock market prices: from 30% to 50% down from the peak values of August 2008

• Forced outage: up to 150 ths. cars in RRW networks

• Mass withdrawal of operators from operating lease agreements

CAPITAL

• Limited access to loan capital for a period of over 1 year

• Substantial depreciation of loan/leasing mortgage security

• Twofold growth of the cost of credit resources

• Numerous defaults of operators in credits, leasing and public loans

Excess of assets against the backdrop of capital deficit and sharp drop of the demand for railway transportations

Excess of assets against the backdrop of capital deficit and sharp drop of the demand for railway transportations

Market of railway transportation:comparison of indicators

Market of railway transportation:comparison of indicators

Price of an open carPrice of an open car

Cost of loan capitalCost of loan capital

Monthly freight turnover volumeMonthly freight turnover volume

Mid-2008Mid-2008 Early 2009Early 2009

2.6 mln. rbl.

113.7 mln. tons

10% 20%

74.4 mln. tons

1.5 mln. rbl.

Railway tariff growthRailway tariff growth

+16% +5%

-35%

-45%

+100%

-69%

Situation on the railway transportation market: current stateSituation on the railway transportation market: current state

Cardinal change of the correlation between the demand and supply on the market of railway transportation

Rapid change of market expectations: depressed mood instead of rosy forecasts

Financial difficulties of many private operators who advocated aggressive investment policy amid mistakes in financial risk management:

• Long-term investments in railway assets were financed by short liabilities, including those in foreign currency

• Ruble revenues and financial obligations in foreign currency

Mass collection of collateral under credits and lessees’ refusal to fulfill obligations обязательств

Emergence of non-core participants on the market who became owners of railway assets

Emergence of non-core participants on the market who became owners of railway assets

Situation on the market of railway assets: redistribution

Situation on the market of railway assets: redistribution

Rolling stock (non-core assets) concentration on balance sheets of lending institutions

Rolling stock (non-core assets) concentration on balance sheets of lending institutions

Desire to sell rolling stock to mobilize their monetary funds and to preserve the capital

Desire to sell rolling stock to mobilize their monetary funds and to preserve the capital

Prospect of further decline of rolling stock market prices due to lack of demand

Prospect of further decline of rolling stock market prices due to lack of demand

Need for coordinated actions in the new market conditions to preserve investment attractiveness of

the industry

Need for coordinated actions in the new market conditions to preserve investment attractiveness of

the industry

Process of consolidating the railway operating ndustry

Process of consolidating the railway operating ndustry

Situation on the market of railway transportation: government efforts of stabilization

Situation on the market of railway transportation: government efforts of stabilization

Proposals for faster checking and recovery of old carsProposals for faster checking and recovery of old cars

Proposals for placing some part of the inventoried car fleet into the government reserve

Proposals for placing some part of the inventoried car fleet into the government reserve

Proposals for programmes of government support of operator companies and rolling stock manufacturers

Proposals for programmes of government support of operator companies and rolling stock manufacturers

Proposals for creating ВГК and consolidation of “problem” rolling stock on its balance

Proposals for creating ВГК and consolidation of “problem” rolling stock on its balance

Process of consolidating the railway operating industryProcess of consolidating the railway operating industry

Market of railway transportation: Possible development options

Market of railway transportation: Possible development options

Centers of consolidation

RRW’s

subsidiaries

RRW’s

subsidiaries

Large private

operatorsLarge private

operators

Market of railway transportation: possible centers of consolidation

Market of railway transportation: possible centers of consolidation

RRW’s subsidiariesRRW’s subsidiaries

Dominant lead of RRW: volume of assets, influence

Dominant lead of RRW: volume of assets, influence

Other participants:

passive participation

Other participants:

passive participation

Government supportGovernment support

Market of railway transportation: possible centers of consolidation

Market of railway transportation: possible centers of consolidation

Possibility of parity relations between

banks and business

Possibility of parity relations between

banks and business

Large private

operators

Large private

operators

Flexible terms of shareholder value realization in future

Flexible terms of shareholder value realization in future

Thank you for your attention!

““Eurosib” CJSCEurosib” CJSCphonephone:+7 (812) 326-81-01:+7 (812) 326-81-01 faxfax:: + +7 (812) 326-81-107 (812) 326-81-10

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Pavel IljichevFinance director of “Eurosib” GC