IMPORTANT NOTICE

THIS OFFERING IS AVAILABLE ONLY TO INVESTORS WHO ARE NOT IN THE UNITED STATES,CANADA AND THE REPUBLIC OF SOUTH AFRICA. THE SECURITIES REFERRED TO HEREIN (THESECURITIES) ARE BEING OFFERED AND SOLD IN ‘‘OFFSHORE TRANSACTIONS’’ AS DEFINED IN,AND IN ACCORDANCE WITH, REGULATION S (REGULATION S) UNDER THE US SECURITIES ACTOF 1933, AS AMENDED (THE SECURITIES ACT).

You must read the following before continuing. The following applies to the offering circular following this page, andyou are therefore advised to read this carefully before reading, accessing or making any other use of the offeringcircular. In accessing the offering circular, you agree to be bound by the following terms and conditions, including anymodifications to them any time you receive any information from us as a result of such access.

NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER OF SECURITIES FORSALE IN ANY JURISDICTION WHERE IT IS UNLAWFUL TO DO SO. NOTHING IN THIS ELECTRONICTRANSMISSION CONSTITUTES AN OFFER OR ADVERTISEMENT OF SECURITIES IN RUSSIA.

THE SECURITIES HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACTOR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES AND, SUBJECT TO CERTAINEXCEPTIONS, THE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISETRANSFERRED WITHIN THE UNITED STATES EXCEPT IN TRANSACTIONS EXEMPT FROM, OR NOTSUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ALLAPPLICABLE STATE SECURITIES LAWS.

THE FOLLOWING OFFERING CIRCULAR MAY NOT BE FORWARDED OR DISTRIBUTED TO ANYOTHER PERSON AND MAY NOT BE REPRODUCED IN ANY MANNER WHATSOEVER, AND INPARTICULAR, MAY NOT BE FORWARDED OR TRANSMITTED TO ANY PERSON IN THE UNITEDSTATES OR ANY US ADDRESS. ANY FORWARDING, DISTRIBUTION OR REPRODUCTION OF THISOFFERING CIRCULAR IN WHOLE OR IN PART IS UNAUTHORISED. FAILURE TO COMPLY WITH THISDIRECTIVE MAY RESULT IN A VIOLATION OF THE SECURITIES ACT OR THE APPLICABLE LAWS OFOTHER JURISDICTIONS.

Confirmation of your Representation: To be eligible to view this offering circular or make an investment decision withrespect to the securities, investors must be outside the United States. This offering circular is being sent at yourrequest and by accepting the e-mail and accessing this offering circular, you shall be deemed to have represented tous that (1) you and any customers you represent are outside the United States, and that the electronic mail addressthat you have given to us and to which this e-mail has been delivered is not located in the United States, and (2) thatyou consent to delivery of such offering circular by electronic transmission.

You are reminded that this offering circular has been delivered to you on the basis that you are a person into whosepossession this offering circular may be lawfully delivered in accordance with the laws of the jurisdiction in which youare located and you may not, nor are you authorised to, deliver this offering circular to any other person.

The materials relating to the offering do not constitute, and may not be used in connection with, an offer orsolicitation of securities in any place where offers or solicitations of securities are not permitted by law. If ajurisdiction requires that the offering be made by a licensed broker or dealer and the underwriters or any affiliate ofthe underwriters is a licensed broker or dealer in that jurisdiction, the offering shall be deemed to be made by theunderwriters or such affiliate on behalf of Open Joint Stock Company ‘‘Mostotrest’’ (the Company) in thatjurisdiction.

This offering circular is being distributed only to and directed only at persons in the United Kingdom incircumstances where section 21(1) of the Financial Services and Markets Act 2000 does not apply and in memberstates of the European Economic Area, to ‘‘qualified investors’’ within the meaning of the law in that relevantmember state implementing Article 2(1)(e) of Directive 2003/71/EC.

This offering circular has been sent to you in an electronic form. You are reminded that documents transmitted viathis medium may be altered or changed during the process of electronic transmission and consequently none of theCompany, the Selling Shareholder, Deutsche Bank AG, London Branch, J.P. Morgan Securities Ltd, TKB Capital(CJSC), CJSC ‘‘Investment Company ‘‘Troika Dialog’’ and TD Investments Limited (the Managers), any person whocontrols the Company, the Selling Shareholder, or a Manager, a director, officer, employee or agent of the Company,the Selling Shareholder, or a Manager or an affiliate of any such person accepts any liability or responsibilitywhatsoever for any difference between the offering circular distributed to you in electronic format and the hard copyversion available to you on request from the Managers.

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11OCT201017285319

Open Joint Stock Company ‘‘Mostotrest’’(a company incorporated in Russia)

Offering of 62,060,000 ordinary sharesOffer Price: US$6.25

This offering circular relates to an offering (the Offering) of 62,060,000 ordinary shares (the Shares), eachwith a nominal value of RUB0.14 (the Ordinary Shares) in Open Joint Stock Company ‘‘Mostotrest’’ (theCompany), a company incorporated in Russia, consisting of an offer of 62,060,000 Ordinary Shares by MarcO’Polo Investments Ltd. (the Selling Shareholder), a company incorporated in Cyprus.

The Company will not receive any proceeds directly from the Offering. However, in connection with theOffering, the Company has authorised the issue of 62,060,000 Ordinary Shares (the New Shares) to beplaced by way of an open subscription under Russian law (the Open Subscription). The Company’sshareholders of record as at 8 September 2010, including the Selling Shareholder, have statutorypre-emptive rights to subscribe for the New Shares pro rata to their existing shareholding, as at that date.See ‘‘Description of the Offering—Open Subscription’’. The price per New Share in the Open Subscription isexpected to be equal to the Offer Price. The Selling Shareholder will participate in the placement of theNew Shares on the basis of its statutory pre-emptive rights as an existing shareholder and has agreed in theUnderwriting Agreement (as defined below) to subscribe for a total of not less than 24,824,000 New Shares(the Committed Shares), which once completed, is expected to result in the Company receivingapproximately US$155.2 million. See ‘‘Use of Proceeds’’. The New Shares to be subscribed for in the OpenSubscription, as well as the statutory Russian prospectus relating to the New Shares, were registered by theRussian Federal Service for Financial Markets (the FSFM) under State registrationnumber 1-03-02472-A-001D on 5 October 2010.

The Ordinary Shares are listed on the ‘‘B’’ list of the Open Joint-Stock Company ‘‘Russian TradingSystem’’ Stock Exchange (RTS) and are admitted to trading on the Closed Joint-Stock Company ‘‘MICEXStock Exchange’’ (MICEX), in each case under the symbol ‘‘MSTT’’.

The Shares are being offered in Russia and to certain institutional investors outside of Russia and outsideof the United States in ‘‘offshore transactions’’ in accordance with Regulation S (Regulation S) under theUS Securities Act of 1933, as amended (the Securities Act).

This offering circular is intended for use only in connection with offers and sales of the Shares outside of theUnited States in accordance with Regulation S and is not to be sent or given to any person within the UnitedStates. The Shares have not been, and will not be, registered under the Securities Act, or with any securitiesregulatory authority in any state of the United States and may not be offered, sold or delivered within theUnited States. Purchasers of the Shares may not offer, sell, pledge or otherwise transfer the Shares in theUnited States, except pursuant to an exemption from, or in a transaction not subject to, the registrationrequirements of the Securities Act. See ‘‘Plan of Distribution, Selling and Transfer Restrictions’’.

This offering circular is for information purposes only and is not a prospectus prepared or filed with anyregulatory or other governmental authorities in any jurisdiction in connection with the registration of theissue, the offer or sale of the Shares described in this offering circular.

The Shares are of a specialist nature and should only be bought and traded by investors who areparticularly knowledgeable about investing in emerging markets. An investment in the Shares is speculativeand carries a high degree of risk. See ‘‘Risk Factors’’ for a discussion of certain matters that prospectiveinvestors should consider prior to making an investment decision. Potential investors must be prepared tobear the risk of total loss of their investment.

Joint Global Coordinators and Joint Bookrunners

Deutsche Bank Troika DialogJ.P. Morgan

Co-Lead Manager

TKB Capital

The date of this offering circular is 3 November 2010.

IMPORTANT INFORMATION

This offering circular is confidential. Potential investors may use this offering circular solely for thepurpose of considering the purchase of the Shares outside the United States in ‘‘offshore transactions’’ inaccordance with Regulation S under the Securities Act. Potential investors may not reproduce, distributeor forward this offering circular, in whole or in part, and may not disclose any of the contents of thisoffering circular or use any information contained herein for any purpose other than considering aninvestment in the Shares, except to the extent that such information is otherwise publicly available. Eachpotential investor shall be deemed to agree to the foregoing by accepting delivery of this offering circular.In particular, this offering circular may not be forwarded or transmitted into the United States.

The Company and the other sources identified in this offering circular have provided the informationcontained in this offering circular. The Company confirms that all the information contained in thisoffering circular, including all information regarding the Company, each of its subsidiaries and the Shares,is in all material respects true and accurate and not misleading and does not omit anything the omission ofwhich could reasonably be expected, in the context of the Offering, to make any statements in this offeringcircular misleading.

The joint global coordinators (the Joint Global Coordinators) and the co-lead manager of the Offeringreferred to on the front cover of this offering circular (the Managers) and their affiliates or advisers makeno representation or warranty, express or implied, as to the accuracy or completeness of such informationand accept no responsibility therefor. Nothing contained in this offering circular is, or shall be relied uponas, a promise or representation by the Managers.

This offering circular replaces and supersedes any prior document or other correspondence that wascirculated to potential investors with respect to the Shares prior to the date of this offering circular. EachManager is acting for the Company and for no-one else in connection with the contents of this documentand will not be responsible to anyone other than the Company for providing the protections afforded tocustomers of such Manager, or for affording advice in relation to the contents of this document or anymatters referred to herein. Any prospective purchaser of Shares is recommended to seek its ownprofessional advice. The contents of the Company’s website do not form any part of this offering circular.

No person has been authorised to give any information or to make any representation other than thosecontained in this offering circular in connection with this Offering or sale of the Shares and, if given ormade, potential investors should not rely on such information or representation as having been authorisedby the Company, the Selling Shareholder or the Managers. Neither the delivery of this offering circular norany sale made in connection with the Offering hereunder shall, under any circumstances, create anyimplication that the Company’s or its subsidiaries’ affairs remain unchanged since the date of this offeringcircular or that the information contained in this offering circular is correct at any time subsequent to itsdate.

The contents of this offering circular do not comply with the disclosure or other regulatory requirementsapplicable to offerings to the public in the United States, the United Kingdom or any other jurisdictions bythe relevant regulatory or listing authorities and, accordingly, none of the Company, the SellingShareholder or the Managers or their respective officers, directors, employees, affiliates, representatives,advisers or agents accept any responsibility for the compliance of this offering circular with the disclosurestandards of any jurisdiction or stock exchange.

The Shares have not been approved or disapproved by the US Securities and Exchange Commission (theSEC), any state securities commission in the United States or any other US regulatory authority, nor haveany of the foregoing authorities passed upon or endorsed the merits of the offering of the Shares or theaccuracy or adequacy of this offering circular. Any representation to the contrary is a criminal offence inthe United States.

The Managers and their respective officers, directors, employees, affiliates, representatives, advisers oragents expressly disclaim, to the fullest extent permitted by law, any and all liability for representations,express or implied, whether contained in or omitted from this offering circular or any other written or oralcommunications with the recipient in relation to the evaluation of their proposed investment in the Sharesand/or relating to or resulting from the use of such information and communications by any potentialinvestors or any of their affiliates, advisers or representatives. No duty of care or otherwise is owed by theManagers or any of their respective affiliates, directors, employees, officers, advisers or agents (or any oftheir affiliates’ directors, employees, officers, advisers or agents) to recipients of this offering circular orany other persons in relation to this offering circular. Neither the Managers nor their respective advisershave separately verified the information contained in this offering circular.

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The Company and the Selling Shareholder reserve their right, in their sole discretion, and for any reasonwhatsoever, to modify, amend and/or withdraw all or any part of the Shares and/or reject, in whole or inpart, any prospective investment in the Shares or to allot to any prospective investor less than the numberof the Shares that such prospective investor desires to purchase. Neither the Company nor any Managershall have any liability to any prospective investor if any of the foregoing occurs.

The information set forth in this offering circular is only accurate as at the date on the front cover of thisoffering circular. No obligation is accepted by the Company, the Selling Shareholder or the Managers toprovide any recipients of this offering circular with access to any additional information, to update thisoffering circular, provide any additional information or to correct any inaccuracies in this offering circularthat may become apparent.

This offering circular, or any prior or subsequent communication of any prospective investor from or withthe Company, the Selling Shareholder or the Managers or any professional adviser of any of the foregoingin connection with the Offering, is not and shall not be relied upon as legal, financial, investment or taxadvice.

In connection with the Offering, the Managers and any of their respective affiliates acting as an investorfor its or their own account(s) may acquire Shares and, in that capacity, may retain, purchase, sell, offer tosell or otherwise deal for its or their own account(s) in such securities of the Company or other relatedinvestments in connection with the Offering or otherwise. Accordingly, references in this offering circularto the Shares being issued, offered, subscribed or otherwise dealt with should be read as including anyissue or offer to, or subscription or dealing by, the Managers or any of them and any of their affiliatesacting as an investor for its or their own account(s). The Managers do not intend to disclose the extent ofany such investment or transactions otherwise than in accordance with any legal or regulatory obligation todo so.

This offering circular does not constitute an offer or an invitation by or on behalf of the Company, theSelling Shareholder or the Managers to subscribe for or purchase any of the Shares in any jurisdictionwhere the offer and sale is not permitted under applicable law. The distribution of this offering circularand the offering or sale of the Shares in certain jurisdictions are restricted by law. Neither of the Company,the Selling Shareholder nor the Managers represent that this offering circular may be lawfully distributed,or that the Shares may be lawfully offered, in compliance with any applicable registration or otherrequirements in any such jurisdiction, or pursuant to an exemption available thereunder, or assume anyresponsibility for facilitating any such distribution or offering. Accordingly, the Shares may not be offeredor sold, directly or indirectly, and this offering circular may not be distributed or published in anyjurisdiction except in accordance with the legal requirements applicable in such jurisdiction. The Company,the Selling Shareholder and the Managers require persons into whose possession this offering circularcomes to inform themselves about and to observe any restrictions imposed by such laws and jurisdictions.For a further description of certain restrictions on offers and sales of the Shares and on distribution of thisoffering circular, see ‘‘Plan of Distribution, Selling and Transfer Restrictions’’ and ‘‘Settlement and Delivery’’.Neither the Company, the Selling Shareholder nor the Managers accept any legal responsibility for anyviolation by any person, whether or not a prospective investor, of any such restrictions.

Each person contemplating making an investment in the Shares must make its own investigation andanalysis of the Company’s and the Group’s (as defined below) financial condition, affairs andcreditworthiness, and its own determination of the suitability of any such investment, with particularreference to its own investment objectives and experience, and any other factors that may be relevant to itin connection with such investment, and neither the Company, the Selling Shareholder nor any Manager orany of their respective professional advisers will be responsible for any costs, losses or expenses incurred byany person in connection therewith. Prospective investors should obtain their own tax advice in connectionwith the Offering.

NOTICE TO EEA RESIDENTS

This offering circular has been prepared on the basis that all offers of the Shares will be made pursuant toan exemption under the Prospectus Directive (as defined below), as implemented in member states of theEuropean Economic Area (EEA), from the requirement to produce a prospectus for offers of the Shares.Accordingly any person making or intending to make any offer within the EEA of the Shares which are thesubject of the offering contemplated in this offering circular should only do so in circumstances in which noobligation arises for the Company, the Selling Shareholder or any Manager to produce a prospectus forsuch offer. Neither the Company, nor the Selling Shareholder nor any Manager have authorised, nor dothey authorise, the making of any offer of the Shares through any financial intermediary, other than offers

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made by the Managers which constitute the final placement of the Shares contemplated in this offeringcircular.

Each person in a Member State of the European Economic Area which has implemented the ProspectusDirective (each, a Relevant Member State) who receives any communication in respect of, or who acquiresany Shares under, the offers contemplated in this offering circular will be deemed to have represented,warranted and agreed to and with each Manager, the Selling Shareholder and the Company that:

• it is a qualified investor within the meaning of the law in that Relevant Member State implementingArticle 2(1)(e) of the Prospectus Directive; and

• in the case of any Shares acquired by it as a financial intermediary, as that term is used in Article 3(2)of the Prospectus Directive, (i) the Shares acquired by it in the Offering have not been acquired onbehalf of, nor have they been acquired with a view to their offer or resale to, persons in any RelevantMember State other than qualified investors, as that term is defined in the Prospectus Directive, or incircumstances in which the prior consent of the Managers has been given to the offer or resale; or(ii) where Shares have been acquired by it on behalf of persons in any Relevant Member State otherthan qualified investors, the offer of those Shares to it is not treated under the Prospectus Directive ashaving been made to such persons.

For the purposes of this representation, the expression ‘‘offer of Shares to the public’’ in relation to anyShares in any Relevant Member State means the communication in any form and by any means ofsufficient information on the terms of the offer and any Shares to be offered so as to enable an investor todecide to purchase or subscribe for the Shares, as the same may be varied in that Relevant Member Stateby any measure implementing the Prospectus Directive in that Relevant Member State and ProspectusDirective means Directive 2003/71/EC and includes any relevant implementing measure in each RelevantMember State.

NOTICE TO UNITED KINGDOM RESIDENTS

This offering circular is for distribution only to persons who (i) are outside the United Kingdom, or(ii) have professional experience in matters relating to investments, or (iii) are persons falling withinArticle 49(2)(a) to (d) (‘‘high net worth companies, unincorporated associations etc’’) of The FinancialServices and Markets Act 2000 (Financial Promotion) Order 2005 (all such persons together being referredto as relevant persons). This offering circular is directed only at relevant persons and must not be acted onor relied on by persons who are not relevant persons. Any investment or investment activity to which thisoffering circular relates is available only to relevant persons and will be engaged in only with relevantpersons.

NOTICE IN RELATION TO AUSTRALIA

This offering circular does not constitute a prospectus or other disclosure document under Chapter 6D ofthe Corporations Act 2001 (Cth) (the Corporations Act) and does not purport to include the informationrequired of a prospectus or other disclosure document under chapter 6D of the Corporations Act. Thisoffering circular has not been lodged with the Australian Securities and Investments Commission (ASIC)and no prospectus or other disclosure document has been lodged with ASIC in relation to the offering.Accordingly: (i) an offer of Shares and an invitation to apply for Shares in Australia may only be made topersons who are ‘‘sophisticated investors’’ (within the meaning of section 708(8) of the Corporations Act),who are ‘‘professional investors’’ (within the meaning of section 708(11) of the Corporations Act) or whootherwise are persons to whom securities can be offered without a disclosure document pursuant to one ormore of the other exemptions contained in section 708 of the Corporations Act, so that it is lawful to offer,or invite applications for, the Shares without disclosure to those persons under Chapter 6D of theCorporations Act; and (ii) this offering circular may only be made available in Australia to persons as setout in (i) above.

A person in Australia who receives this offering circular or a copy of this offering circular must not treatthe offering circular or the copy of the offering circular as constituting an invitation or offer to such personto apply for Shares unless such an invitation or offer could lawfully be made to such person withoutcontravention of any Australian registration or other Australian legal requirements. If this is not the casethen this offering circular and any copy of this offering circular must be treated as having been received forinformation purposes only and must not be copied or distributed to any other person.

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FORWARD-LOOKING STATEMENTS

This offering circular includes ‘‘forward-looking statements’’. All statements other than statements ofhistorical facts in this offering circular, including, without limitation, those regarding the future financialposition, business strategy, plans and objectives of management for future operations of the Company areforward-looking statements. In some cases, forward-looking statements can be identified by the use offorward-looking terminology such as ‘‘believes’’, ‘‘estimates’’, ‘‘projects’’, ‘‘expects’’, ‘‘may’’, ‘‘is expectedto’’, ‘‘will’’, ‘‘will continue’’, ‘‘should’’, ‘‘would be’’, ‘‘seeks’’, ‘‘anticipates’’ or similar expressions or thenegative thereof, or other variations thereof or comparable terminology, or by discussions of strategy,plans, objectives, goals, future events or intentions. Such forward-looking statements involve known andunknown risks, uncertainties and other factors, many of which are beyond the Company’s control, whichmay cause the Company’s actual results, performance or achievements of its results, or industry results, tobe materially different from any future results, performance or achievements expressed or implied by suchforward-looking statements. Such forward-looking statements are based on numerous assumptionsregarding the Company’s present and future business strategies and the environment in which theCompany will operate in the future. The important factors that could cause the Company’s actual results,performance or achievements to differ materially from those in the forward-looking statements include,among others:

• fluctuations in the Company’s financial results and financial condition resulting from the cyclicalnature of the Russian infrastructure construction industry;

• competition from local, national and international companies;

• changes in construction laws and regulations;

• long- or short-term interest rate volatility;

• fluctuations in equity markets;

• fluctuations in exchange rates used to translate other currencies into Roubles;

• the termination of or changes to relationships with the Company’s key clients;

• the Company’s dependence on third-party suppliers of raw materials;

• failures in the Company’s operating controls or the Company’s failure to prevent fraud;

• changes in political, social, legal or economic conditions in Russia;

• the economic climate, particularly in the performance of the Russian financial markets and otherinternational financial markets; and

• the Company’s ability to respond to changes within the competitive markets in which it operates.

Additional factors that could cause the Company’s actual results, performance or achievements to differmaterially include, but are not limited to, those discussed under ‘‘Risk Factors’’, ‘‘Management’s Discussionand Analysis of Financial Condition and Results of Operations’’ and ‘‘Business’’. These forward-lookingstatements speak only as at the date of this offering circular. The Company, the Selling Shareholder andeach Manager and their respective affiliates, expressly disclaim any obligation or undertaking to releasepublicly any updates or revisions to any forward-looking statements contained herein, to reflect any changein the Company’s expectations with regard thereto or any change in events, conditions or circumstances onwhich any such statement is based other than as required by law or regulation.

All forward-looking statements attributable to the Company, its management or persons acting on theirbehalf are expressly qualified in their entirety by the cautionary statements and risk factors containedthroughout this offering circular. These factors and other risk factors described in this offering circular arenot necessarily all of the important factors that could cause actual results to differ materially from thoseexpressed in any of the Company’s forward-looking statements. Other unknown or unpredictable factorscould also harm its future results.

Accordingly, potential investors should not rely on the forward-looking statements in this offering circularand investors are strongly advised to read this offering circular in its entirety. In particular, the sections‘‘Summary’’, ‘‘Risk Factors’’, ‘‘Use of Proceeds’’, ‘‘Management’s Discussion and Analysis of FinancialCondition and Results of Operations’’, ‘‘Regulation of Infrastructure Construction in Russia’’, ‘‘RussianInfrastructure Construction Industry Overview’’ and ‘‘Business’’ include more detailed descriptions of factorsthat might have an impact on the Group’s business and the industry in which it operates.

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ENFORCEABILITY OF JUDGEMENTS

The Company is an open joint-stock company incorporated in and has its principal place of business inRussia. All of the members of the Company’s board of directors (the Board of Directors) and all of itsexecutive officers reside in Russia. As a result, it may not be possible for investors to effect service ofprocess outside Russia upon the Company or such persons. Further, as all of the members of the Board ofDirectors, the Company’s executive officers and the substantial portion of the assets of these persons arelocated in Russia, it may not be possible for investors to enforce in Russia any judgements or arbitralawards rendered against the Company by a court or an arbitral tribunal in any jurisdiction outside ofRussia.

Foreign court judgements may be recognised and enforced by Russian courts only if (i) an internationaltreaty providing for the recognition and enforcement of such judgements exists between Russia and thejurisdiction where such judgement is rendered, and/or (ii) a Russian federal law specifically provides forthe recognition and enforcement of foreign court judgements.

The Company is not aware of any treaty or convention directly providing for the recognition andenforcement of judgements in civil and commercial matters between most Western jurisdictions andRussia. However, the Company is aware of one instance in which Russian courts have recognised andenforced an English court judgement on the basis of a combination of the principle of reciprocity and theexistence of a number of bilateral and multilateral treaties to which both the United Kingdom and Russiaare parties. The Russian courts determined that these treaties constituted grounds for the recognition andenforcement of the relevant English court judgement in Russia. In the absence of established courtpractice, however, it is difficult to predict whether a Russian court will be inclined in any particularinstance to recognise and enforce an English court judgement on these or other grounds.

In addition, Russian courts have limited experience in the enforcement of foreign court judgements. Thelimitations described above may significantly delay the enforcement of such judgement, or completelydeprive the plaintiff of effective legal recourse.

Russia is a party to the United Nations (New York) Convention on the Recognition and Enforcement ofForeign Arbitral Awards (the New York Convention). A foreign arbitral award obtained in a jurisdiction,which is party to that convention should be recognised and enforced by a Russian court, subject to thequalifications provided for in the New York Convention and compliance with Russian proceduralregulations and other procedures and requirements established by Russian legislation as discussed in moredetail below.

It may be difficult to enforce an arbitral award in Russia due to:

• the inexperience of the Russian courts in international commercial transactions;

• the official and unofficial political resistance to the enforcement of awards against Russian companiesin favour of foreign investors; and

• the inability of Russian courts to enforce such awards.

The Russian Arbitrazh Procedural Code dated 24 July 2002 (as amended) (the Arbitrazh Procedural Code)sets forth an exclusive list of grounds for Russian courts to refuse to recognise and enforce any sucharbitral award. However, the Arbitrazh Procedural Code and other Russian procedural legislation couldchange; therefore, among other things, other grounds for Russian courts to refuse the recognition andenforcement of foreign courts’ judgements and foreign arbitral awards could arise in the future. Inaddition, in certain cases, Russian courts have construed broadly such grounds for denial of recognitionand enforcement of foreign arbitral awards listed in the Convention. In practice, reliance uponinternational treaties may meet with resistance or a lack of understanding on the part of a Russian court orother officials, thereby introducing delay and unpredictability into the process of enforcing any foreignjudgement or any foreign arbitral award in Russia. See ‘‘Risk Factors—Risks relating to Russia—Legislativeand legal risks—Investors could have difficulty enforcing certain rights against the Company’’ for a moredetailed discussion of the risks associated with enforcing judgements in Russia.

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PRESENTATION OF FINANCIAL AND OTHER INFORMATION

Financial statements

The financial statements included in this offering circular in the section beginning on page F-3 (theFinancial Statements) have been prepared in accordance with International Financial Reporting Standards(IFRS), as issued by the International Accounting Standards Board, in effect at the time each set offinancial statements was prepared. The Financial Statements are prepared in Roubles and are rounded tothe nearest million.

The Financial Statements consist of:

• the consolidated financial statements of the Company as at and for the year ended 31 December 2009(the 2009 Mostotrest Annual Financial Statements) and the related independent auditors’ report;

• the unaudited consolidated interim condensed financial statements of the Company as at and for thesix months ended 30 June 2010 (the 2010 Unaudited Interim Mostotrest Financial Statements) and therelated independent auditors’ report;

• the preliminary IFRS financial statements of Limited Liability Company ‘‘Corporation Engtransstroy’’(ETS) as at and for the years ended 31 December 2009 (the 2009 Annual ETS Financial Statements)and the related independent auditors’ report;

• the unaudited condensed interim financial statements of ETS as at and for the six months ended30 June 2010 (the 2010 Unaudited Interim ETS Financial Statements) and the related independentauditors’ report;

• the consolidated preliminary IFRS financial statements of Limited Liability Company‘‘Transstroymekhanisatsiya’’ (TSM) as at and for the years ended 31 December 2009 (the 2009 AnnualTSM Financial Statements) and the related independent auditors’ report; and

• the unaudited condensed interim financial statements of TSM as at and for the six months ended30 June 2010 (the 2010 Unaudited Interim TSM Financial Statements) and the related independentauditors’ report.

As further described in ‘‘Business and Financial Condition of Recent Acquisitions’’, in the six months ended30 June 2010, the Company acquired a 51.0 percent equity interest in ETS, a 50.1 percent equity interest inTSM, and a 25.002 percent equity interest in JSC ‘‘Mostostroy-11’’ (MS-11). From the date of the relevantacquisition, ETS and TSM have been included into the consolidated financial statements of Mostotrest. Asat 30 June 2010, the Company’s interests in MS-11 are accounted for on an equity basis from the datewhen the Company acquired significant influence over the entity.

The 2009 Annual ETS Financial Statements and the 2009 Annual TSM Financial Statements have beenprepared in accordance with the requirements of IFRS 1 First-time Adoption of International FinancialReporting Standards in connection with ETS’s and TSM’s preparation to adopt IFRS. These financialstatements therefore do not contain comparative figures as at and for the year ended 31 December 2008.When ETS and TSM prepare their first complete set of financial statements under IFRS, as at and for theyear ended 31 December 2010, with comparative figures as at and for the year ended 31 December 2009,they will be prepared in accordance with the standards of, and interpretations under, IFRS in effect as at31 December 2010.

Accordingly, the 2009 Annual ETS Financial Statements and the 2009 Annual TSM Financial Statements,which are intended to form the comparative figures for ETS’s and TSM’s first complete sets of financialstatements under IFRS for the year ending 31 December 2010, were prepared by ETS and TSM on thebasis of the accounting policies that were expected to be applied in ETS’s and TSM’s first complete sets offinancial statements in accordance with IFRS. Any changes to such standards of, or interpretations under,IFRS or to ETS’s or TSM’s accounting policies may require adjustments to the 2009 Annual ETS FinancialStatements and the 2009 Annual TSM Financial Statements.

Each of the 2009 Mostotrest Annual Financial Statements, the 2009 Annual ETS Financial Statements andthe 2009 Annual TSM Financial Statements includes a qualification relating to the existence ofMostotrest’s, ETS’s and TSM’s inventories, respectively. ZAO KPMG did not observe the counting ofMostotrest’s inventory as at 31 December 2008 and as at 1 January 2008, and ETS’s and TSM’s inventoriesas at 1 January 2009, as those dates were prior to the respective dates of appointment of ZAO KPMG asMostotrest’s, ETS’s and TSM’s auditors. ZAO KPMG believed it to be impracticable to satisfy themselvesas to Mostotrest’s, ETS’s and TSM’s inventory quantities at those dates by other audit procedures.

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Inventory balances enter into the determination of the results of operations and cash flows. As a result ofthe above, ZAO KPMG have issued a qualified opinion on each of the 2009 Mostotrest Annual FinancialStatements, the 2009 Annual ETS Financial Statements and the 2009 Annual TSM Financial Statements.

This offering circular also presents the following pro forma financial information:

• certain unaudited interim pro forma financial information as at and for the six months ended 30 June2010, which is based on the 2010 Unaudited Interim Mostotrest Financial Statements, the 2010Unaudited Interim TSM Financial Statements and the 2010 Unaudited Interim ETS FinancialStatements, consolidated on a pro forma basis; and

• certain unaudited annual pro forma financial information as at and for the year ended 31 December2009, which is based on the 2009 Mostotrest Annual Financial Statements, the 2009 Annual TSMFinancial Statements and the 2009 Annual ETS Financial Statements, consolidated on a pro formabasis.

The pro forma financial information referred to above has been prepared for illustrative purposes only andis based on available information and certain assumptions that the Company believes are reasonable. Thepro forma financial information is not necessarily indicative of the consolidated financial position,consolidated financial performance and consolidated cash flows of the Company that would have beenachieved as at and for the year ended 31 December 2009 or as at and for the six months ended 30 June2010. See also ‘‘Pro Forma Financial Information’’.

Under Russian law, the Company, ETS and TSM also prepare stand-alone financial statements usingRussian Accounting Standards (RAS). The stand-alone financial statements for the Company as at and forthe nine months ended 30 September 2010, prepared in accordance with RAS, will be published on orabout 15 November 2010. RAS principles and procedures differ substantially from those under IFRS.Financial statements prepared in accordance with IFRS and RAS are therefore not directly comparableand no financial statements prepared under RAS have not been included in this offering circular.

Industry and market information

The market data and industry forecasts used in this offering circular have been obtained from internalsurveys, reports and studies, where appropriate, as well as market research, publicly available informationand industry publications.

All statistical and market information relating to the Russian infrastructure construction market has beenreproduced from a report dated 13 September 2010 prepared by PMR (the PMR Report). PMR has givenand not withdrawn its consent to the inclusion of information from the PMR Report in this offeringcircular. Information from the PMR Report has been included in this offering circular in the sectionsheaded ‘‘Summary’’, ‘‘Risk Factors’’, ‘‘Management’s Discussion and Analysis of Financial Condition andResults of Operations’’, ‘‘Russian Infrastructure Construction Industry Overview’’ and ‘‘Business’’.

The official data published by Russian federal, regional and local government authorities is substantiallyless complete, detailed and researched than those of the United States and western European countries.Official statistics may also be produced on different bases than those used in the United States and westernEuropean countries. Any discussion of matters relating to the Russian infrastructure construction marketin this offering circular must, therefore, be subject to uncertainty due to concerns about the completenessor reliability of available official and public information. In addition, the Company relies on and refers toits own internal estimates and information and statistics from various third party sources such as theRussian Federal State Statistics Service (Rosstat), the Central Bank of Russia (the CBR) and other publiclyavailable sources. To the extent that these sources or estimates are based on official data released byRussian federal, regional and local government authorities, they will be subject to the same uncertainty.

The Company confirms that the industry and market data contained in this offering circular has beenaccurately reproduced and so far as it is aware and has been able to ascertain from that publishedinformation, no facts have been omitted, which would render the reproduced information inaccurate ormisleading in a material respect. However, in the preparation of this offering circular, this third-partyinformation has not been independently verified nor has there been any investigation of the validity of themethodology of or the basis used by the third parties in producing such data or making estimates andforecasts. Further, industry publications generally state that the information they contain has beenobtained from sources believed to be reliable but the accuracy and completeness of that information is notguaranteed. Neither the Company, nor the Selling Shareholder nor the Managers can give any assurance

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that any such information is accurate or, in respect of projected data, that such projections have beenbased on correct information and assumptions or that they will prove to be accurate.

Unless otherwise stated, all data is presented in nominal terms and has not been restated to reflect theeffects of inflation.

Other information

Certain amounts and percentages that appear in this offering circular have been subject to roundingadjustments. Accordingly, figures shown as totals in certain tables may not be the mathematicalaggregation of the figures which precede them, and figures expressed as percentages in the text may nottotal 100 percent when aggregated.

viii

CERTAIN DEFINED TERMS

In this offering circular, unless the context requires otherwise:

• Business Day means a day (other than Saturdays, Sundays and public holidays) on which banks aregenerally open for normal banking business in London, Moscow, New York City and Nicosia;

• CAGR means compounded annual growth rate;

• CBR means the Central Bank of Russia;

• CIS means the countries that formerly comprised the Union of Soviet Socialist Republics and that arenow members or associate members of the Commonwealth of Independent States: Armenia,Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine andUzbekistan;

• Company means Open Joint Stock Company ‘‘Mostotrest’’, an open joint-stock company incorporatedin Russia;

• ETS means Limited Liability Company ‘‘Corporation Engtransstroy’’, a limited liability companyincorporated in Russia;

• Euro, EUR or F means the currency of the member states of the European Union participating in theEuropean Monetary Union;

• EU means the European Union and its member states; and

• FAS means the Russian Federal Antimonopoly Service;

• Federal District means one of Russia’s eight territorial divisions as follows:

• Central Federal District (with its centre of Moscow);

• North-Western Federal District (with its centre in St. Petersburg);

• Southern Federal District (with its centre in Rostov-on-Don);

• North-Caucasian Federal District (with its centre in Pyatigorsk);

• Privolzhsky Federal District (with its centre in Nizhny Novgorod);

• Ural Federal District (with its centre in Ekaterinburg);

• Siberian Federal District (with its centre in Novosibirsk); or

• Far Eastern Federal District (with its centre in Khabarovsk);

• FSFM means the Russian Federal Service for Financial Markets;

• FTS means the Russian Federal Tax Service;

• Group means, collectively, Mostotrest, ETS and TSM and their consolidated subsidiaries;

• MICEX means Closed Joint-Stock Company ‘‘MICEX Stock Exchange’’;

• MS-11 means JSC ‘‘Mostostroy-11’’, an open joint-stock company incorporated in Russia;

• Mostotrest means the Company and its consolidated subsidiaries excluding the entities described in‘‘Business and Financial Condition of Recent Acquisitions’’;

• Olympstroy means State Corporation on Construction of Olympic Venues and Development of Sochias a Mountain Climate Resort, a statutory company incorporated in Russia;

• Ordinary Shares means the Company’s ordinary shares;

• PMR means PMR Ltd. sp. z o.o.;

• RAS means Russian Accounting Standards;

• Rosavtodor means the Federal Highway Agency of the Russian Ministry of Transport;

• Rosstat means the Russian Federal State Statistics Service;

• Roubles or RUB means the currency of Russia;

• RTS means Open Joint-Stock Company ‘‘Russian Trading System’’ Stock Exchange;

ix

• Russian Government means the Russian federal government;

• Russian Highways means ‘‘Russian Highways’’ State Company, a statutory company incorporated inRussia;

• Russian Railways means Open Joint-Stock Company ‘‘Russian Railways’’, an open joint-stock companyincorporated in Russia;

• TSM means Limited Liability Company ‘‘Transstroymekhanisatsiya’’, a limited liability companyincorporated in Russia;

• UK or United Kingdom means the United Kingdom of Great Britain and Northern Ireland;

• US or United States means the United States of America; and

• US dollars or US$ means the currency of the United States.

For construction-related technical terms, see ‘‘Glossary’’.

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CURRENCY AND EXCHANGE RATE INFORMATION

The Company’s functional and reporting currency is the Rouble, as it reflects the economic substance ofthe Company’s underlying events and circumstances. The table below sets out detailed information aboutthe exchange rates between the Rouble and the US dollar for the periods and dates indicated based on theofficial exchange rate quoted by the CBR. Fluctuations in the exchange rates between the Rouble and theUS dollar in the past are not necessarily indicative of fluctuations that may occur in the future.

PeriodHigh Low average(1) Period end

RUB per US$1.00

Year ended 31 December2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26.58 24.26 25.49 24.552008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29.38 23.13 24.98 29.382009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36.43 28.67 31.93 30.24Month ended31 January 2010 . . . . . . . . . . . . . . . . . . . . . . . . 30.43 29.38 29.84 30.4328 February 2010 . . . . . . . . . . . . . . . . . . . . . . . 30.52 29.88 30.16 29.9531 March 2010 . . . . . . . . . . . . . . . . . . . . . . . . . 29.98 29.19 29.56 29.3630 April 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . 29.5 28.93 29.19 29.2931 May 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . 31.43 29.15 30.44 30.5030 June 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . 31.78 30.73 31.17 31.2031 July 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . 31.37 30.19 30.68 30.1931 August 2010 . . . . . . . . . . . . . . . . . . . . . . . . . 30.90 29.80 30.35 30.6630 September 2010 . . . . . . . . . . . . . . . . . . . . . . 31.08 30.40 30.81 30.4031 October 2010 . . . . . . . . . . . . . . . . . . . . . . . . 30.80 29.63 30.30 30.68

Source: CBR

(1) The period average in respect of a year is calculated as the average of the exchange rates on the last business day of each monthfor the relevant annual period. The period average in respect of a month is calculated as the average of the exchange rates foreach business day in the relevant month.

The CBR rate per US$1.00 for 3 November 2010 was RUB30.79.

No representation is made that the Rouble or the US dollar amounts in this offering circular could havebeen converted into US dollars or Roubles, as the case may be, at any particular rate or at all. A marketexists within Russia for the conversion of Roubles into other currencies, but the limited availability of othercurrencies may tend to distort their values relative to the Rouble. See ‘‘Risk Factors—Risks relating to theShares—Investors may be unable to repatriate their earnings from the Shares’’.

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TABLE OF CONTENTS

PAGE

IMPORTANT INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i

FORWARD-LOOKING STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv

ENFORCEABILITY OF JUDGEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v

PRESENTATION OF FINANCIAL AND OTHER INFORMATION . . . . . . . . . . . . . . . . . . . vi

CERTAIN DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix

CURRENCY AND EXCHANGE RATE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . xi

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

DESCRIPTION OF THE OFFERING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

DIVIDEND POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

CAPITALISATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

SELECTED CONSOLIDATED FINANCIAL AND OTHER INFORMATION . . . . . . . . . . . . 50

PRO FORMA FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

RUSSIAN INFRASTRUCTURE CONSTRUCTION INDUSTRY OVERVIEW . . . . . . . . . . . . 88

BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

BUSINESS AND FINANCIAL CONDITION OF RECENT ACQUISITIONS . . . . . . . . . . . . . 125

MANAGEMENT AND CORPORATE GOVERNANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153

REGULATION OF INFRASTRUCTURE CONSTRUCTION IN RUSSIA . . . . . . . . . . . . . . . 160

PRINCIPAL AND SELLING SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178

RELATED PARTY TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179

DESCRIPTION OF SHARE CAPITAL AND APPLICABLE RUSSIAN LAW . . . . . . . . . . . . 181

TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201

PLAN OF DISTRIBUTION, SELLING AND TRANSFER RESTRICTIONS . . . . . . . . . . . . . 206

SETTLEMENT AND DELIVERY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209

LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210

INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210

GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211

INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1

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SUMMARY

This section contains a summary of the detailed information and financial statements included elsewhere in thisoffering circular. This overview may not contain all of the information that may be material to prospectiveinvestors and, therefore, should be read in conjunction with this entire offering circular, including the moredetailed information regarding the Company’s business and the financial statements and related notes includedelsewhere in this offering circular. Prospective investors should also carefully consider the information set forthunder the heading ‘‘Risk Factors’’. Certain statements in this offering circular include forward-lookingstatements that also involve risks and uncertainties as described under ‘‘Forward-Looking Statements’’.

OVERVIEW

The Group is the leading diversified Russian transport infrastructure construction group, with a7.8 percent share of the Russian infrastructure construction market (excluding repair and maintenanceworks) by revenue in 2009 (including the market share of ETS and TSM) for works conducted in-house,according to PMR. The Group’s core operations, which include bridge and highway construction, areimplemented through its parent company and main operating entity, Mostotrest. It operates in many of themost economically prosperous regions in Russia, including in and around Moscow, St. Petersburg, Sochi,Nizhny Novgorod, Yaroslavl, Rostov-on-Don and elsewhere in the North-Western, Central and SouthernFederal Districts.

Mostotrest was the largest bridge engineering and construction company in Russia in 2009 by revenue forworks conducted in-house, with an estimated market share of 25 percent of Russian bridge constructionprojects, according to PMR estimates. It has constructed many landmark bridges and traffic interchanges,including the cable-stayed bridge over the Neva river in St. Petersburg (completed in 2007), the cable-stayed bridge in Serebrianyi Bor in Moscow (completed in 2007), the cable-stayed bridge over the Okariver in Murom (completed in 2009), the bridge over the Angara river in Irkutsk (completed in 2009) andthe Pulkovo traffic interchange in St. Petersburg (completed in 2007). See ‘‘Business—Mostotrestoperations—Principal completed projects’’.

While historically Mostotrest has been a specialist bridge contractor, in response to the recent trend in theRussian construction market for customers to tender whole transport infrastructure construction projects,Mostotrest has grown its operations organically to become an integrated diversified construction servicesprovider, acting as a general contractor on most of its projects.

In the six months ended 30 June 2010, Mostotrest acquired interests in the following companies with whomit has worked closely for some time, to enhance its organic growth:

• a 51.0 percent equity interest in Limited Liability Company ‘‘Corporation Engtransstroy’’ (ETS), atransport infrastructure engineering and construction management company specialising in highway,railway, airport, port, in-land waterway and bridge engineering and construction management withprojects in the Central, the North-Western, the Siberian, the Southern and the Far East FederalDistricts;

• a 50.1 percent equity interest in Limited Liability Company ‘‘Transstroymekhanisatsiya’’ (TSM), atransport infrastructure construction and overhaul company specialising in highway and airportinfrastructure construction with operations in the Central, the Southern and the Far East FederalDistricts; and

• a 25.002 percent equity interest in JSC ‘‘Mostostroy-11’’ (MS-11), a transport infrastructureconstruction company, with operations in the Siberian and the Southern Federal Districts.

Mostotrest’s business (excluding the businesses of ETS, TSM and MS-11) is described in more detailbelow. The businesses of ETS, TSM and MS-11 are described separately in ‘‘Business and FinancialCondition of Recent Acquisitions’’. Collectively, Mostotrest, ETS and TSM (and their consolidatedsubsidiaries) are referred to as the Group.

Mostotrest’s current projects include the construction of a section of the Fourth Ring Road between theEntuziastov highway and the Izmailovskoe highway in Moscow (the Moscow Fourth Ring Road),construction of the first stage of the Moscow-St. Petersburg tollway between the 15th kilometre and the58th kilometre (the Moscow-St. Petersburg tollway), extension of the Nizhny Novgorod subway system,construction of a combined rail and road highway between Adler and the Alpika-servis mountain resort inSochi, construction of a bridge over the Don river in Rostov-on-Don and construction of a secondary roadalong Kurortnyi avenue in Sochi. See ‘‘Business—Mostotrest operations—Principal projects under

1

construction’’. In addition, a number of significant projects are currently implemented by ETS and TSM,including the construction of a section of the St. Petersburg Ring Road, construction of a section of theNaryn-Lugokan railway in Zabaykalski krai, reconstruction of the Sochi airport runways and taxiways andreconstruction and development of the Vladivostok airport runways and taxiways. See ‘‘Business andFinancial Condition of Recent Acquisitions’’.

Pro forma for the acquisition of controlling interests in ETS and TSM, the Group’s consolidated revenuesin 2009 and in the six months ended 30 June 2010 were RUB78,971 million and RUB31,361 million, withEBITDA of RUB8,157 million and RUB5,540 million, respectively. Mostotrest’s consolidated revenues in2008, 2009 and the six months ended 30 June 2010 (including ETS and TSM consolidated from the dates oftheir acquisition) were RUB30,334 million, RUB32,392 million and RUB16,433 million and EBITDA wasRUB3,456 million, RUB5,708 million and RUB3,506 million, respectively.

The Group’s consolidated backlog and Mostotrest’s stand-alone backlog (excluding ETS and TSM) wasRUB201,395 million and RUB122,186 million, respectively, as at 30 June 2010 (in each case, excludingVAT). See ‘‘Business—Mostotrest operations—Backlog’’.

KEY STRENGTHS

Mostotrest believes that it has a number of key strengths, which have enabled it to increase its revenue,profits and market share in recent years and will continue to provide it with a competitive advantage in thefuture including those summarised below.

• Attractive fundamentals and strong growth potential in the Russian transport infrastructureconstruction market.

• Integrated transport infrastructure construction business model.

• Leadership in bridge engineering and construction in Russia.

• Well-positioned to win and deliver large, complex projects on time and profitably.

• Backlog of high-profile, important transport infrastructure construction projects from a strongcustomer base.

• Experienced senior management combining industry knowledge and modern management practices.

BUSINESS STRATEGY

The key elements of Mostotrest’s business strategy are set out below.

• Leveraging its industry-leading nationwide business platform to develop new business opportunities.

• Selectively expanding into segments and services complementary to Mostotrest’s existing operations.

RECENT DEVELOPMENTS

Trading update

For the three months ended 30 September 2010, the Group’s revenue and gross margin has continued toperform generally in line with management’s expectations and the trend in the six months ended 30 June2010, other than for ETS as further described in ‘‘Business and Financial Condition of Recent Acquisitions—Limited Liability Company ‘‘Corporation Engtransstroy’’—Recent developments—Trading update’’.

Share split and share issue

On 30 June 2010, the Company’s general shareholders’ meeting decided to split 1,241,200 ordinary sharesof the Company with par value of RUB28 each into 248,240,000 ordinary shares with par value ofRUB0.14 each at the ratio of 200 to 1. On 2 September 2010, the FSFM registered the report on theresults of the share split and, accordingly, the total number of the Company’s ordinary shares increasedfrom 1,241,200 to 248,240,000. The Company’s general shareholders’ meeting also authorised an additionalissue by the Company of up to 248,240,000 new ordinary shares with par value of RUB0.14 each. On8 September 2010, the Company’s board of directors approved the issue of up to 62,060,000 new ordinaryshares with par value of RUB0.14 each in the Open Subscription. The decision on the issue and the relatedstatutory Russian prospectus were registered by the FSFM under State registrationnumber 1-03-02472-A-001D on 5 October 2010.

2

Construction contracts

Mostotrest concluded the following significant construction contracts in the period from 30 June 2010 to31 October 2010:

• A contract with the State Enterprise Department for the Moscow—St. Petersburg HighwayManagement to overhaul the bridge over the Volga river in the Tver region with a contract value ofRUB2,638 million (excluding VAT). This project is expected to be completed in 2013.

• A contract with OAO Dormost to overhaul the bridge on the Leningradskiy highway over the Moscowchannel with a contract value of RUB460 million (excluding VAT). This project is expected to becompleted in 2011.

• A contract with the Municipal Enterprise Principal Directorate for Subway, Bridges and HighwayNetwork in Nizhny Novogorod to repair Kanavinskiy bridge in Nizhny Novgorod with a contract valueof RUB786 million (excluding VAT) concluded. This project is expected to be completed in 2011.

• A contract with the Federal State Enterprise Department for the Moscow—Nizhny NovgorodHighway Management of Rosavtodor to reconstruct the bridge overpass over the Alatyr river for theNizhny Novgorod—Saratov highway, lot number 2, in the Nizhny Novgorod region, with a contractvalue of RUB584 million (excluding VAT). This project is expected to be completed in 2011.

• A contract with the Federal State Enterprise Department for the Nizhny Novgorod—Ufa HighwayManagement to construct a bridge over the Sura river for the M-7 ‘‘Volga’’ highway, first stage, in theRepublic of Chuvashia, with a contract value of RUB806 million (excluding VAT). This project isexpected to be completed in 2011.

Further, on 28 October 2010, Federal State Company Directorate for Highway Construction and OverhaulChernomorye announced Mostotrest as the winner of the open tender to enter into a contract for theconstruction of the second and the third sections of a secondary road along Kurortnyi avenue between the172nd kilometre of the M-27 ‘‘Dzhubga-Sochi’’ highway and the PK0 Sochi bypass. This project is to includethe reconstruction of a section of the road between Zemlyanichnaya street and Kurortnyi avenue, Sochi,Krasnodarski krai. The relevant contract is expected to be entered into in November 2010. The project isexpected to have a contract value of approximately RUB50,305 million (excluding VAT) and to becompleted in 2013.

ETS concluded the following significant construction contracts in the period from 30 June 2010 to31 October 2010:

• A contract with the Federal State Enterprise Rosmorport to design and construct access points at seaand river harbours in the commercial seaport Ust-Luga in the Leningradski region with a contractvalue of RUB222 million (excluding VAT). This project is expected to be completed by the end of2010.

• A contract with Olympstroy to design and construct sections of a highway between the Alpika-servisresort and the Sulimovsky brook, between the Sulimovsky brook and the Bezimyanny brook, andbetween the Bezimyanny brook and the biathlon complex in the Krasnodar region (second stage) witha contract value of RUB1,503 million (excluding VAT). This project is expected to be completed in2011.

TSM concluded the following significant construction contracts in the period from 30 June 2010 to31 October 2010:

• A contract with Federal State Enterprise Centravtomagistral to renovate the traffic interchange at the21st kilometre of the M-5 ‘‘Ural’’ highway with a contract value of RUB4,493 million (excluding VAT).This project, for which TSM will act as the general contractor, is expected to be completed in 2013.While entered into after 30 June 2010, this contract is included in TSM’s backlog as at 30 June 2010.See note (5) under ‘‘Selected Financial and Other Information—Selected statement of comprehensiveincome data’’.

• A contract with ETS to construct the foundation for the Main Mediacenter in Sochi with a contractvalue of RUB253 million (excluding VAT). This project is expected to be completed in 2010.

• A contract with ZAO Stroyputinvest to construct a railway line between Losevo and Kamennogorsk,Leningrad region with a contract value of approximately RUB2,894 million (excluding VAT). Thisproject is expected to be completed in 2011.

3

Borrowings

Mostotrest, on a stand-alone basis, during the period from 30 June 2010 to 30 September 2010, concludeda number of loan agreements with banks in an aggregate principal amount of RUB2,950 million toreplenish working capital. The loans were obtained at a weighted-average effective fixed interest rate of7.6 percent per annum. The loans are unsecured and mature in 2011. During the same period, Mostotrestrepaid RUB1,620 million of its borrowings. In line with past practice, Mostotrest expects to redeem itsoutstanding short-term borrowings in the second half of 2010. See ‘‘Management’s Discussion and Analysisof Financial Condition and Results of Operation—Key factors affecting the Group’s results of operations andfinancial condition—Seasonality’’. In addition, in October 2010, Mostotrest entered into a credit facilityagreement with OAO Gazprombank for an aggregate principal amount of RUB3,000 million to finance theguarantee of its participation in tender and auction processes. The agreement provides for loans to bedrawn in tranches for periods of up to 90 days. The facility was obtained at a fixed interest rate of6.35 percent per annum, is unsecured and has been drawn in full. The credit facility agreement underwhich loans in tranches are drawn matures in 2013. Further, in October 2010, Mostotrest also entered intoa credit facility agreement with Sberbank of Russia for an aggregate principal amount of RUB1,000 millionto finance its working capital requirements. The agreement allows Mostotrest to draw the facility intranches. Mostotrest’s indebtedness under the agreement must be repaid in January 2011. The facility wasobtained at a fixed interest rate of 6.0 percent per annum and requires Mostotrest to grant the lenderdirect debit rights to its bank accounts. The loan has been drawn in full.

ETS, during the period from 30 June 2010 to 30 September 2010, concluded loan agreements with OAONomos-Bank in an aggregate principal amount of RUB1,200 million to fund working capital requirements.These loans, which were secured by revenue from construction contracts and mature by the end of 2010,were obtained at a weighted-average fixed interest rate of 8 percent per annum. During the same period,ETS also borrowed and fully repaid a loan from OAO Alfa-Bank in an aggregate principal amount ofRUB500 million. ETS did not enter into any additional loan agreements in October 2010.

TSM, during the period from 30 June 2010 to 30 September 2010, concluded loan agreements with banksin an aggregate principal amount of RUB1,074 million to fund working capital requirements. These loanswere obtained at a weighted-average fixed interest rate of 8.5 percent per annum and mature between thefourth quarters of 2010 and 2011. RUB300 million of the aggregate principal amount of such loans wassecured by property, plant and equipment. During the same period, TSM repaid RUB1,753 million of itsborrowings. In addition, in October 2010, TSM entered into five loan agreements with OAOTransCreditBank for an aggregate principal amount of approximately RUB467 million. TSM’sindebtedness under these agreements must be repaid between the fourth quarter of 2010 and the secondquarter of 2011. These loans are unsecured and were obtained at a weighted-average fixed interest rate of7.9 percent per annum. During the same period, TSM also repaid in full four loans from OAOTransCreditBank in an aggregate principal amount of approximately RUB468 million.

Partial resumption of funding for the Moscow Fourth Ring Road

As a result of the economic downturn in 2009 and the consequential effect that had on the City ofMoscow’s budget, funding for Mostotrest’s construction works on the Moscow Fourth Ring Road in 2010was reduced substantially in the second half of 2009. However, in the second half of 2010, funding for thisproject has been largely restored, with the allocated amount for 2010 being increased approximatelyfour-fold compared with the reduced amount allocated at the end of 2009, although the restored amountremains less than the amount Mostotrest had budgeted for prior to the reduction.

RISK FACTORS

Risks relating to the Group and its industry:

• dependence on the level of public spending in Russia on infrastructure construction;

• exposure to risks arising from having government agencies and other public bodies as customers;

• a high concentration of its customer base among government agencies and other public bodies;

• potential difficulties securing supplies of raw materials, skilled labour and qualified and experiencedsubcontractors;

• risks specific to the infrastructure construction industry, as well as risks related to the complex natureof the Group’s projects;

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• changes in costs in the construction process and potential cost-over runs on the Group’s projects;

• ability to manage its recently acquired companies, their further growth and their minorityshareholders;

• increasing competition from other construction companies;

• inflation;

• wage increases in Russia;

• compliance with a wide variety of laws, regulations and construction standards;

• ability to effectively manage the operations of its subcontractors;

• dependence on general contractors performing their functions, when acting as a subcontractor;

• potential insufficiency of insurance policies;

• dependence on expertise and experience of key managers and ability to attract, retain and motivatequalified personnel;

• limited experience of the Group in the preparation of IFRS financial statements;

• Russian corporate governance standards being less developed than corporate governance standards inwestern European countries or the United States and generally providing less protection for investors;and

• possible failures of the Group’s operating controls to detect or prevent fraud.

Other risks:

• political, economic, social and legal risks relating to the Group’s presence in Russia;

• risks relating to the Shares and the trading market; and

• risks relating to taxation.

See also ‘‘Risk Factors’’.

SUMMARY OF THE OFFERING

Offering

The Selling Shareholder is offering 62,060,000 Shares in the Offering. The Shares are being offered inRussia and to certain institutional investors outside of Russia and the United States in reliance onRegulation S under the Securities Act. See ‘‘Plan of Distribution, Selling and Transfer Restrictions’’.

Open Subscription

In connection with the Offering, the Company has authorised the issue of 62,060,000 Ordinary Shares (theNew Shares) to be placed by way of an open subscription under Russian law (the Open Subscription). TheCompany’s shareholders of record as at 8 September 2010, including the Selling Shareholder, havestatutory pre-emptive rights to subscribe for the New Shares pro rata to their existing shareholding, as atthat date. See ‘‘Description of the Offering—Open Subscription’’. The price per New Share in the OpenSubscription, including for shareholders exercising statutory pre-emptive rights, is expected to be equal tothe Offer Price. The Selling Shareholder will participate in the placement of the New Shares on the basisof its statutory pre-emptive rights as an existing shareholder and has agreed in an underwriting agreemententered into among the Company, the Selling Shareholder and the Joint Global Coordinators dated3 November 2010 (the Underwriting Agreement) to subscribe for a total of not less than 24,824,000 NewShares (the Committed Shares), which once completed, is expected to result in the Company receivingapproximately US$155.2 million. See ‘‘Use of Proceeds’’. Any New Shares that are not subscribed for by theCompany’s shareholders of record as at 8 September 2010 in the exercise of their statutory pre-emptiverights may potentially be offered by the Company in accordance with the terms of the Open Subscription.The New Shares to be subscribed for in the Open Subscription, as well as the statutory Russian prospectusrelating to the New Shares, were registered by the Russian Federal Service for Financial Markets (theFSFM) under State registration number 1-03-02472-A-001D on 5 October 2010.

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Put Option

The Selling Shareholder and TKB Capital (CJSC) have entered into an agreement dated 28 September2010 under which TKB Capital (CJSC) has the right to sell a certain number of Ordinary Shares to theSelling Shareholder and the Selling Shareholder is obliged to buy them upon satisfaction of certain termsand conditions (the Put Option). As far as each of the Company and the Selling Shareholder is aware, tofacilitate the sale, TKB Capital (CJSC) intends to buy the relevant number of Ordinary Shares fromClosed Joint-Stock Company ‘‘Transfingroup’’ Asset Management, an asset management company holdingOrdinary Shares for Non-commercial Organisation Non-State Pension Fund Blagosostoyanie (NPFBlagosostoyanie), a pension fund connected with Russian Railways. The conditions precedent to the PutOption include the receipt of the net proceeds of the Offering by the Selling Shareholder and receipt ofconsent from the Russian Federal Antimonopoly Service (the FAS) for the purchase of Ordinary Shares bythe Selling Shareholder under the Put Option (which was received in October 2010). The Put Optionexpires on the earlier of 31 December 2010 or three business days after notice of the satisfaction of allconditions precedent. The number of Ordinary Shares to which the Put Option applies is to be calculatedby reference to the numbers of Shares being sold in the Offering and the New Shares to be acquired byeach of the Selling Shareholder and NPF Blagosostoyanie in the Open Subscription and aims to preservethe proportion of Ordinary Shares held by each of them (as between themselves) before the Offering andthe Open Subscription. Before the Offering and the Open Subscription, the Selling Shareholder heldapproximately 50.3 percent and NPF Blagosostoyanie beneficially held approximately 36.4 percent of theOrdinary Shares. No asset management company holding Ordinary Shares on behalf ofNPF Blagosostoyanie has exercised pre-emptive rights to subscribe for any New Shares in the OpenSubscription. The sale price per Ordinary Share under the Put Option is to be calculated as the Offer Priceless a discount of up to four percent. The payment by the Selling Shareholder for the Ordinary Sharesunder the Put Option should be made in Roubles at the official exchange rate established by the CBR forthe date of this offering circular.

DIVIDEND POLICY

The Company may pay dividends out of its profits in accordance with the provisions of its charter, theRegulation on Dividend Policy approved by the Board of Directors on 30 September 2010 (the DividendPolicy Regulation) and applicable laws. In the past, the Company has paid dividends on the Ordinary Sharesfrom time to time and may consider making dividend payments in the future when and if commerciallyprudent, after taking into account its profits, cash flow and capital investment requirements, in accordancewith applicable laws and the Dividend Policy Regulation. Under the Dividend Policy Regulation, the Boardof Directors, when recommending dividend payments to the General Shareholders’ Meeting, should takeinto account the Group’s consolidated net profit attributable to the Company’s shareholders under IFRSfor the relevant financial period and should also follow the recommendations of the Company’s generaldirector as to the use of profit. If recommended to the General Shareholders’ Meeting by the Board ofDirectors, dividends should not be less than 30 percent of the Group’s net profit attributable to theCompany’s shareholders under IFRS adjusted for, among other things, certain non-cash items as furtherset out in the Dividend Policy Regulation. These include adjustments for items such as negative goodwill,share of profit in equity accounted subsidiaries, and various other items. If the amount of dividendsdetermined in accordance with the above is more than the Company’s current year net profit and retainedearnings under RAS, the Board of Directors must decrease the amount accordingly. The Company’sshareholders, including holders of the Shares, will be eligible to receive dividends declared (if any) inrespect of a financial year or a financial quarter and will receive those dividends in Roubles. See ‘‘DividendPolicy’’.

USE OF PROCEEDS

Gross proceeds from the Offering will be US$387.9 million. Net proceeds from the Offering will be not lessthan approximately US$372.5 million, and reflect the deduction of the maximum aggregate underwritingcommission, as described more fully in ‘‘Plan of Distribution, Selling and Transfer Restrictions’’, ofapproximately US$13.6 million (excluding VAT), and the estimated aggregate expenses of the Offering(excluding those underwriting commissions) which are expected to total approximately US$1.8 million(excluding VAT).

The Company will not receive any proceeds directly from the Offering. However, the Selling Shareholderhas agreed in the Underwriting Agreement to subscribe for the Committed Shares in the OpenSubscription, which once completed, is expected to result in the Company receiving approximately

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US$155.2 million. In addition, the Selling Shareholder intends to apply a part of the net proceeds to payfor the Ordinary Shares to be acquired by it if the Put Option is exercised. See ‘‘—Summary of theOffering—Put Option’’.

The Company intends to use the proceeds from the foregoing, as well as proceeds from the issue of anyother New Shares in the Open Subscription for general corporate purposes, including for the purchase ofplant and equipment.

SUMMARY FINANCIAL INFORMATION AND OTHER INFORMATION

Selected statement of comprehensive income data

Year ended 31 December Six months ended 30 June

2008 2009 2009 2010

(audited) (unaudited)(RUB millions)

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,334 32,392 13,357 16,433Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . (24,142) (24,211) (9,691) (11,987)

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,192 8,181 3,666 4,446Other income . . . . . . . . . . . . . . . . . . . . . . . . . . 163 194 65 70Administrative expenses . . . . . . . . . . . . . . . . . . (3,490) (3,827) (1,583) (1,680)Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . (736) (261) (53) (174)

Results from operating activities . . . . . . . . . . . . 2,129 4,287 2,095 2,662

Finance income . . . . . . . . . . . . . . . . . . . . . . . . 119 300 333 72Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . (1,007) (1,116) (599) (638)

Net finance costs . . . . . . . . . . . . . . . . . . . . . . . (888) (816) (266) (566)

Share of profit of equity accounted investees . . . — — — 25Profit before income tax . . . . . . . . . . . . . . . . . . 1,241 3,471 1,829 2,121Income tax expense . . . . . . . . . . . . . . . . . . . . . (522) (867) (408) (524)

Profit for the year/period . . . . . . . . . . . . . . . . . 719 2,604 1,421 1,597

Additional (non-IFRS) informationGross margin (percent) . . . . . . . . . . . . . . . . . . . 20.4 25.3 27.4 27.1EBITDA(1)(2) (RUB millions) . . . . . . . . . . . . . . . 3,456 5,708 2,824 3,506EBITDA margin (percent) . . . . . . . . . . . . . . . . . 11.4 17.6 21.1 21.3Backlog(3) (RUB millions) (as at 30 June 2010)

Mostotrest(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122,186ETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,064TSM(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,053Consolidated for the Group (after intra-group eliminations)(4)(5)(6) . . . . . . . . . . . . . . . . 201,395

(1) Mostotrest defines EBITDA as ‘‘profit for the year/period’’ plus ‘‘income tax expense’’, ‘‘net finance costs’’ and ‘‘depreciation’’shown as an adjustment in cash flows from operating activities in the cash flow statement.

EBITDA is presented as a supplemental measure of Mostotrest’s operating performance. Mostotrest believes this supplementalmeasure is frequently used by securities analysts, investors and other interested parties to evaluate companies in the transportinfrastructure construction industry.

EBITDA has limitations as an analytical tool, and investors should not consider it in isolation, or as a substitute for analysis ofMostotrest’s operating results as reported under IFRS. Some of these limitations are as follows:

• EBITDA does not reflect the impact of financing costs on Mostotrest’s operating performance. Such costs can besignificant and can increase if Mostotrest incurs additional debt.

• EBITDA does not reflect the impact of income taxes on Mostotrest’s operating performance.

• EBITDA does not reflect the impact of depreciation and amortisation on Mostotrest’s operating performance.Mostotrest’s depreciated, depleted or amortised assets will have to be replaced in the future and the depreciation andamortisation expense may not approximate the future replacement cost of these assets. By excluding this expense fromEBITDA, EBITDA does not reflect Mostotrest’s future cash requirements for these replacements.

• Other companies in the transport infrastructure construction industry may calculate EBITDA differently or may use it fordifferent purposes than Mostotrest, limiting its usefulness as a comparative measure.

7

EBITDA is not defined by, or presented in accordance with, IFRS. EBITDA is not a measurement of Mostotrest’s operatingperformance under IFRS and should not be considered as an alternative to profit for the year/period (as applicable), net cashfrom operating activities, a measure of Mostotrest’s liquidity or any other measure of performance under IFRS. In particular,EBITDA should not be considered as a measure of discretionary cash available to Mostotrest to invest in the growth of itsbusiness.

(2) Reconciliation of EBITDA to profit for the year/period, as applicable.

Year ended 31 December Six months ended 30 June

2008 2009 2009 2010

(audited) (unaudited)(RUB millions)

Profit for the year/period . . . . . . . . . . . . . . . . . . . 719 2,604 1,421 1,597(Plus)/MinusIncome tax expense . . . . . . . . . . . . . . . . . . . . . . (522) (867) (408) (524)Net finance costs . . . . . . . . . . . . . . . . . . . . . . . (888) (816) (266) (566)Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . (1,327) (1,421) (729) (819)

EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,456 5,708 2,824 3,506

(3) Backlog is not a measure defined by IFRS or RAS. The relevant entity’s backlog represents its estimate of the contract value ofits projects that remains to be completed as at a particular date, excluding VAT. Such value is calculated as the total contractvalue for each project less the amounts already recognised as revenue from the contracts for such projects. The total contractvalue of a particular project represents the total amount that the relevant entity expects to recognise as revenue from thecontract for such project, assuming the contract is performed in accordance with its terms. A project is included in the backlogof a relevant entity when a contract for the project is executed. Backlog may not be indicative of the relevant entity’s futureoperating results. See ‘‘Risk Factors—Risks relating to the Group and its industry—The anticipated revenue amounts shown in theGroup’s backlog may decline and may not result in actual revenue or translate into profits’’.

(4) Includes RUB2,524 million additional works for the contract to construct a combined rail and road highway between Adler andAlpika-servis mountain resort, Sochi, Krasnodarski krai, by Mostotrest, the material terms of which were agreed prior to30 June 2010 and the additional contract for which is expected to be entered into by the end of 2010.

(5) Includes a project for TSM for the construction of a traffic interchange at the 21st kilometre of the M-5 ‘‘Ural’’ highway,Moscow region, the material terms of which were agreed prior to 30 June 2010 and the contract for which was entered into inJuly 2010, and a total of RUB5,843 million additional works relating to two other projects, the material terms of which wereagreed prior to 30 June 2010 and the additional contracts for which are expected to be entered into by the end of 2010. Seenotes (2) and (3) under ‘‘Business and Financial Condition of Recent Acquisitions—Limited Liability Company‘‘Transstroymekhanisatsiya’’—Business—Principal projects under construction’’.

(6) The following table sets out the Group’s consolidated backlog (after intra-group eliminations) by key business part as at 30 June2010.

As at 30 June 2010

(RUB (%)millions,excludingVAT)(4)(5)

Bridges and highways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148,192 73.6Railway infrastructure facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,929 16.8Ports and in-land waterway infrastructure facilities . . . . . . . . . . . . . . . . . . . . . . . . . 3,046 1.5Airfields and airports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,327 4.1Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,901 3.9

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201,395 100.0

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Selected statement of financial position data

As at 31 December As at2008 2009 30 June 2010

(audited) (unaudited)(RUB millions)

Total non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,859 11,189 19,851Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,850 13,738 31,411

Including cash and cash equivalents . . . . . . . . . . . . . . . . . . . 5,211 4,861 3,381

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,709 24,927 51,262

Total equity attributable to equity holders of the Company . . . 6,968 9,252 10,845

Total long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,882 935 6,467Including secured bank loans . . . . . . . . . . . . . . . . . . . . . . . . — — 208Unsecured bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 833 208 3,501Finance lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219 65 219

Total short-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,859 14,740 33,950Including secured bank loans . . . . . . . . . . . . . . . . . . . . . . . . 5,815 5,040 3,861Unsecured bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,810 805 5,879Current portion of finance lease liabilities . . . . . . . . . . . . . . . 105 165 433

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,741 15,675 40,417

Total equity and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,709 24,927 51,262

Selected cash flow data

Year ended 31 December Six months ended 30 June

2008 2009 2009 2010

(audited) (unaudited)(RUB millions)

Cash and cash equivalents at 1 January . . . . . . 2,280 5,211 5,211 4,861Net cash from/(used in) operating activities . . . . 3,805 4,982 533 (5,046)Net cash (used in)/from investing activities . . . . . (1,810) (1,166) 140 (1,896)Net cash from/(used in) financing activities . . . . 936 (4,166) (4,014) 5,462

Net increase/(decrease) in cash and cashequivalents . . . . . . . . . . . . . . . . . . . . . . . . . . 2,931 (350) (3,341) (1,480)

Cash and cash equivalents at period end . . . . . . 5,211 4,861 1,870 3,381

9

RISK FACTORS

An investment in the Shares involves a high degree of risk. Prospective investors should carefully consider thefollowing information about these risks, as well as all the information contained elsewhere in this offeringcircular, before deciding to buy any Shares. If any of the following risks actually occur, the Group’s business,financial condition, results of operations and prospects may be materially adversely affected and the tradingprice of the Shares could decline, and investors could lose all or part of their investment.

The Group has described below the risks and uncertainties that its management believes are material, but theserisks and uncertainties may not be the only potential risks relating to the Group or an investment in theCompany. Additional risks and uncertainties, including those that the Group currently does not know about orcurrently considers immaterial, may also result in decreased revenues, increased expenses or other events thatcould result in a decline in the trading price of the Shares.

RISKS RELATING TO THE GROUP AND ITS INDUSTRY

The Group’s revenue is largely dependent on public spending on transport infrastructure

The Group’s largest customers include Russian federal, regional and municipal authorities, State agenciesand State-owned companies, private companies and consortia (including those constructing State-fundedprojects), and other construction contractors which, in turn, have such customers, and accordingly, theGroup’s revenue is largely dependent on the level of public spending. Public spending on transportinfrastructure in Russia has historically been, and will continue to be, cyclical in nature and vulnerable toRussia’s level of economic activity growth and related changes in government policy. Macroeconomicfactors negatively affecting government revenue, such as the effect of decreases in the price of oil or othercommodities on which a significant part of Russia’s economy depends, may ultimately lead to a reductionin government spending on large infrastructure projects as governments seek to curtail spending plans orredirect funding to other sectors of the economy. As the majority of the funding for transportinfrastructure construction projects in Russia comes from governmental budgets, the effect of this may beto reduce the number of available construction projects and thus reduce the market demand for theGroup’s business. See also ‘‘—Risks relating to Russia—Economic risks—Economic instability in Russiacould have an adverse effect on the Group’s business’’.

For projects already commenced, the effect of adverse changes in macroeconomic conditions ongovernment budgets may be to cause governments to change policies, delaying the completion of projectsor reducing the size of or making other changes to projects, or withholding or delaying payments tocontractors. For example, as a result of the economic downturn in 2009 and the consequential effect thathad on the City of Moscow’s budget, funding for Mostotrest’s work on the Moscow Fourth Ring Roadproject for 2010 was reduced substantially in the second half of 2009. Further, even if government revenuesremain relatively stable, some customers may decide to delay or attempt to renegotiate the payment termsor contract amounts, for example, if they decide to reprioritise payment obligations. If sums due for thoseprojects are not paid in full or on time, the Group may need to fund its ongoing working capitalrequirements through borrowings from other sources, and the associated funding costs may have asignificant adverse effect on the profitability of the relevant projects. As a result, the Group’s businesscould be significantly affected.

Accordingly, reductions in governmental budgets or other public spending on transport infrastructure inRussia could have a material adverse effect on the Group’s business, financial condition, results ofoperations or prospects and the trading price of the Shares.

The Group is exposed to certain risks associated with public-funded construction contracts

The Group is a provider of transport infrastructure construction and engineering services mainly toprojects ultimately originating from Russian federal, regional and municipal authorities, State agencies andState-owned companies, and is therefore exposed to particular risks associated with public-fundedconstruction contracts in addition to those arising primarily from changes in macroeconomic conditionsdiscussed above.

In particular, for administrative, political or other reasons, these bodies may delay formal acceptance ofconstruction works, thereby also delaying the payment for those works, or otherwise delay payments due todelays or changes in governmental budget allocation processes. Further, the Group’s constructioncontracts usually require an annual advance payment from its customers of up to 30 percent of theanticipated annual work amount and provide for periodic progress payments rather than a lump sum

10

Risk Factors

payment on completion. Due to Russian government budget processes, customers deriving funding fromState or municipal budgets of various levels tend to make payments under construction contracts in thesecond half of the year. These delays in payment while construction and other costs continue to beincurred may adversely impact the Group’s cash flows and result in significant accounts receivableaccruing. If the Group encounters delays or defaults in the payments of its accounts receivable or progresspayments by these customers, it may need to incur additional costs in funding its day-to-day operationsfrom other sources. In these circumstances, the Group typically borrows loans on a short-term basis toavoid working capital shortages. See ‘‘—The Group may face working capital shortages’’. However, there canbe no assurance that the Group will always be able to obtain those alternative sources of funding onacceptable terms. Even where that funding is available, the associated funding costs are likely to detractfrom the project’s profitability. While the Group may have rights to claim damages, penalties or othercompensation for these delays, claims are, in practice, difficult to pursue. See also ‘‘—Actual costs or risksassociated with the Group’s contracts may exceed its initial evaluation and lead to cost overruns’’. In addition,any significant difficulties in the provision of construction services to these projects could potentially leadto contract termination if unresolved or may be more difficult to resolve than those in projects where theultimate customer is unrelated to the State, and payments from these bodies may be delayed while thesedifficulties are being resolved.

Also, when acting as a general contractor for a project, each construction contract with these public bodiesis typically subject to the Group winning a competitive tender or auction process. This is a complicated anddemanding process in terms of cost constraints, timing and complexity of the work involved. The formalnature of this process also exposes the Group to the risk that its bids may be deemed deficient in atechnical or other respect and therefore, treated as non-qualifying, with the Group then being unable tocontinue to participate in the process. See also ‘‘Regulation of Infrastructure Construction in Russia’’.

All of the foregoing risks may impair the Group’s ability to execute projects and collect payments fromcustomers directly or indirectly related to or dependent upon public funding, which could have a materialadverse effect on the Group’s business, financial condition, results of operations or prospects and thetrading price of the Shares.

The Group’s ultimate customer base is relatively concentrated

The Group’s ultimate customer base is relatively concentrated, consisting to a significant extent of Russianfederal, regional and municipal authorities, State agencies and State-owned companies, private companiesand consortia constructing public-funded projects, and other construction contractors which, in turn, havesuch customers. See also ‘‘Business—Mostotrest operations—Customers’’. While the Group believes that itsrelationship with these ultimate customers is good, there can be no assurance that these relationships willcontinue to be favourable. For example, the Group may fail to complete projects on time or otherwiseperform poorly (or be perceived to perform poorly) on previous projects with a customer or on projects forother customers, the Group’s safety record may deteriorate, or the Group may receive negative publicity inthe media (whether with reason or otherwise). See also ‘‘—Many of the Group’s projects are large and highprofile and may attract public scrutiny’’. In these cases, the Group’s ability to bid successfully for newprojects (either directly as a general contractor, or together with another construction company, as asubcontractor) and its continued work on existing projects may be jeopardised. Further, if the Group wereto perform poorly and the public customer were to successfully bring a claim in court, in some cases, thiscould result in the Group being entered in a ‘‘black list’’ of contractors maintained by the FAS, preventingthe Group from participating in future public construction projects (depending on the terms of therelevant tender documentation). If any of the foregoing were to occur, it could have a material adverseeffect on the Group’s business, financial condition, results of operations or prospects and the trading priceof the Shares. In addition, while the Group might be able to continue to work on projects for these publiccustomers by working as a subcontractor for the relevant general contractor (although in many cases, theidentity of subcontractors is disclosed to the ultimate customer), its role could be significantly limited andit would forego the margins it might otherwise have received as a general contractor.

Many of the Group’s projects are large and high profile and may attract public scrutiny

Many of the Group’s projects are funded by, directly or indirectly, Russian federal, regional and municipalauthorities or other State agencies. These projects are frequently large, important transport infrastructureprojects, often with a high profile in the local area or of wider regional or national significance.

11

Risk Factors

Accordingly, from time to time, these projects attract scrutiny from the media, representatives ofgovernment or governmental bodies at various levels and others, including investigations into the processfor selection of contractors, the quality of the design and construction works and other matters. Forexample, starting in July 2010, significant public discussions and media coverage arose as a result of morethan one hundred hectares of the Khimki forest in Moscow and the Moscow region being cleared inconnection with the construction of the Moscow-St. Petersburg tollway. As a result, the construction workson the Moscow-St. Petersburg tollway have been delayed. See also ‘‘—The Group is dependent on itscustomers to adequately prepare construction sites in a timely manner’’. There can be no assurance that theGroup’s projects will not attract scrutiny or that such scrutiny will not be critical of the Group’sinvolvement in a project (whether based on factual evidence or otherwise), which could result in adversepublicity, damage to the Group’s reputation and lead to project delays. As the Group’s ability tosuccessfully bid for new government related construction projects is heavily dependent upon its reputationand its history of successfully completing similar projects, adverse publicity or damage to its reputationcould have a material adverse effect on the Group’s business, financial condition, results of operations orprospects and the trading price of the Shares.

The anticipated revenue amounts shown in the Group’s backlog may decline and may not result in actual revenue ortranslate into profits

The Group’s backlog may not be indicative of its future operating results. As a result, there can be noassurance that all of the estimated income from uncompleted contracts will translate into future revenue.The termination or modification of one or more sizeable contracts or the addition of other contracts mayhave a substantial and immediate effect on the value of the Group’s backlog and the revenue and profits itmay earn from those contracts, and could have a material adverse effect on its business, financialcondition, results of operations or prospects and the trading price of the Shares.

In addition, as at 30 June 2010, the Group’s two largest projects under construction, the construction of asection of the Moscow Fourth Ring Road and the Moscow-St. Petersburg tollway, accounted forapproximately half of the Group’s backlog. See ‘‘Business—Mostotrest operations—Principal projects underconstruction’’. If either of these projects is postponed, renegotiated, terminated or otherwise affected andthe Group is not able to successfully replenish its backlog, such occurrence could have a material adverseeffect on the Group’s business, financial condition, results of operations or prospects and the trading priceof the Shares. See also ‘‘—Many of the Group’s projects are large and high profile and may attract publicscrutiny’’. As a result, the Group’s backlog information presented in this offering circular should not berelied on as an indicator of its future earnings.

Actual costs or risks associated with the Group’s contracts may exceed its initial evaluation and lead to cost overruns

In preparing its bids for infrastructure construction projects the Group often relies on cost estimates thatare subject to numerous assumptions, including assumptions about future economic conditions, the costand availability of labour and materials, and subcontractors’ performance. It also bases its bids oninformation supplied by customers concerning the technical aspects of the projects, which may not alwaysbe complete, and as a result the Group may be required to make assumptions about some technical aspectsof the project. These assumptions may prove to be inaccurate. Further, the Group may not be able tocontrol its costs through its cost management processes and any deficiencies in internal cost control orprice increases for raw materials or other supplies could result in cost overruns.

The Group currently generates, and expects to continue to generate, almost all of its construction revenuesfrom fixed-price contracts. The terms of these contracts require the Group to complete a project for a fixedprice and therefore expose it to cost overruns. Cost overruns may result in lower profit or a loss on aproject. As a result, the Group will only realise profits on these contracts to the extent expected at the timeof entry into these contracts if it successfully estimates its project costs and avoids cost overruns. Othervariations and risks inherent in fixed price contracts such as delays caused by inclement weather, technicalissues, and any inability to obtain the requisite permits and approvals, may cause the Group’s actual overallrisks and costs to substantially differ from its original estimates despite any allowances it may have builtinto its bids for increases in labour and material costs.

In recent years, the level of inflation in Russia has been relatively high and was approximately 11.9 percentin 2007, 13.3 percent in 2008, 8.8 percent in 2009 and 5.8 percent in the first six months of 2010, according

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Risk Factors

to Rosstat. Some of the Group’s costs, such as salaries, raw materials and utilities costs, are sensitive torises in the general price level in Russia, and while the Group seeks to factor inflation estimates into itsbids, there can be no assurance that those estimates will turn out to be accurate. In particular, salaries inRussia have historically been significantly lower than salaries in the more economically developedcountries of North America and western Europe for similarly skilled employees, although they haveincreased significantly in recent years. While the Group’s employees have received only moderate salaryincreases during the recent economic crisis, if, as the Russian economy recovers, salaries in Russia begin toincrease as rapidly as they were increasing in the preceding years, the Group’s margins could be reduced if,due to competitive pressures, the Group is not able to increase its revenues sufficiently to preserve them.

Accordingly, there can be no assurance that the Group will not encounter cost overruns or delays on itscurrent and future construction projects. If cost overruns or delays occur, the Group could experience anincrease in costs exceeding its budget with a consequent reduction in, or elimination of, the profits on itscontracts, which could have a material adverse effect on its business, financial condition, results ofoperations or prospects and the trading price of the Shares.

Some of the Group’s construction contracts contain price adjustment clauses, which allow it to reclaimadditional costs incurred in limited cases in some contracts with public customers, such as for unforeseenphysical obstacles or extraordinary conditions, or additional requests from the customer not in the originaltender specifications that have caused Mostotrest to incur additional costs or otherwise make the originalfixed price less profitable. However, even if applicable, these are rarely exercised by the Group in practiceas they may be difficult to pursue and may damage the Group’s relationship with those customers. Fromtime to time, the Group may also be required to perform extra or ‘‘change order’’ work under its contractsdespite the absence of prior agreements with its customers on the scope or price of the extra work to beperformed. See ‘‘—The Group is exposed to certain risks associated with public-funded constructioncontracts’’. This process may result in uncertainty as to whether the work performed is beyond the scope ofthe work included in the original project and specifications, or over the price the customer is willing to payfor the extra work. Even when the customer agrees to pay for the extra work, the Group may be requiredto fund the cost of that work for a lengthy period of time until the change order is approved and funded bythe customer. In addition, any delay caused by the extra work may impact the progress of the Group’sprojects and its ability to meet specific contract milestone dates. The Group may also incur costs due tounapproved construction change orders or contract disputes. Therefore, as a practical matter, there can beno assurance that the Group will be able to invoice or recover the cost for the extra or change order workin full or at all, which may have a material adverse effect on the Group’s business, financial condition,results of operations or prospects and the trading price of the Shares.

The Group may be unable to continue to procure an adequate supply of subcontractors, raw materials and labour atacceptable prices and quality in a timely manner

The Group’s successful operations depend on its ability to source qualified and experiencedsubcontractors, obtain from its suppliers sufficient quantities of raw materials and secure skilled labour,each at acceptable prices and quality in a timely manner.

In some cases, the Group is dependent on subcontractors to complete some parts of its projects. Forexample, Mostotrest engages third-party subcontractors if the technical expertise for the type of workrequired is not held by Mostotrest or the required resources and production capacity are not available atthe necessary time or in the necessary place, as well as for some low-skilled and low-margin work. See‘‘Business—Mostotrest operations—Contract process and contract terms—Contract process—Use ofsubcontractors’’. Further, as ETS is an engineering and project management business, it does not have itsown construction capabilities and always hires subcontractors for the entirety of the construction works.See ‘‘Business and Financial Condition of Recent Acquisitions’’. Failure to source qualified and experiencedsubcontractors may significantly affect the Group’s ability to complete its projects on time and successfullywithout cost overruns, and to bid for and win new projects or increase or retain market share. See also‘‘—The Group relies on third parties to complete some parts of its construction projects, which may be adverselyaffected by the sub-standard performance or non-performance of those third parties’’.

For raw materials, the Group is exposed to the market risk of fluctuations in commodity prices for rawmaterials such as steel, rebar, cement, road surfacing materials and other construction materials. The priceand availability of these raw materials may vary significantly from year to year due to market factors such

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Risk Factors

as consumer demand, producer capacity and other market conditions. In particular, steel and cement,which are critical to the Group’s operations, as well as fuel necessary to operate machinery and equipment,are subject to substantial price fluctuations in Russia. The Group does not have hedging arrangements inplace for its materials, other than some term purchasing contracts for engineered steel structures used inbridge construction. See also ‘‘Business—Mostotrest operations—Raw materials and suppliers’’. The Groupalso does not have long-term contracts with its suppliers or guarantees of supply, although several supplycontracts entered into by the Group contain an automatic annual extension provision for a further period.Therefore, although the Group has not encountered significant difficulties with securing a supply of rawmaterials in the past, there can be no assurance that the Group will be able to continue to obtain sufficientamounts of raw materials of desirable quality from its existing suppliers or from alternative sources atprevailing or acceptable prices, in a timely manner, or at all.

For labour, the Group is dependent on its ability to employ, train and retain highly skilled personnel,including engineering and project management professionals. The ability to attract qualified employees isdependent on the labour resources available in individual geographic areas and the effect on the laboursupply caused by general economic conditions. There can be no assurance that the Group will be able tomaintain an adequate skilled labour force necessary for it to operate efficiently and according to projectschedules, nor can it guarantee that labour costs will not increase as a result of a shortage in the supply ofskilled personnel, which would ultimately adversely affect its profitability. Failure to attract and retainpersonnel with the required technical or marketing expertise may result in a significant deterioration in theGroup’s ability to complete its projects successfully, bid for and win new projects or increase or retainmarket share.

Any or all of these circumstances, if they were to eventuate, could have a material adverse effect on theGroup’s business, financial condition, results of operations or prospects and the trading price of theShares.

The Group relies on third parties to complete some parts of its construction projects, which may be adversely affectedby the sub-standard performance or non-performance of those third parties

As further described in ‘‘Business—Mostotrest operations—Contract process and contract terms—Contractprocess—Use of subcontractors’’ and ‘‘Business and Financial Condition of Recent Acquisitions’’, the Groupengages third-party subcontractors to perform some parts of its construction projects. However, the Groupmay not be able to monitor the performance of these subcontractors as efficiently as it could do if thatwork was performed by the Group itself. Although the Group has not previously encountered anysignificant difficulties hiring sufficiently qualified subcontractors, there can be no assurance that it willalways be able to hire them for all of its future projects. Inability to hire qualified subcontractors couldhinder the successful completion of a project. The Group may also suffer losses on contracts if the amountsit is required to pay for subcontractors exceeds its original estimates. Although the Group seeks to mitigatethe risks associated with subcontractors by imposing contractual obligations on its subcontractors thatmirror those it has to its customers, obtaining insurance cover for the entire project and (in some cases)requesting bank guarantees to cover non-performance by subcontractors of the relevant parts of theproject, the subcontracting of work exposes the Group to risks associated with non-performance, delayedperformance or sub-standard performance by subcontractors or other third parties. As a result, the Groupmay experience a deterioration in the quality or delivery of its construction projects, and if the abovemitigants prove to be inadequate, the Group could incur additional costs due to delays or sourcingsubstitute services, equipment or supplies at a higher price if a subcontractor does not perform as required,or be subject to liability under the relevant contract for the Group’s subcontractor’s performance. If any ofthese events were to occur, they could result in litigation or damages claims against the Group, negativelyaffect the Group’s reputation, or otherwise have a material adverse effect on the Group’s business,financial condition, results of operations or prospects and the trading price of the Shares.

The Group’s business involves risks specific to the infrastructure construction industry and the complex nature of itsprojects

The Group operates in the infrastructure construction industry, which involves risks specific to thisindustry as a whole, as well as further risks related to the complex nature of the projects the Groupundertakes, any of which could lead to unexpected difficulties for the Group when carrying out its projects.These difficulties may arise from persistently unfavourable weather conditions, natural disasters or other

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Risk Factors

acts of God, which may prevent the Group from performing its construction work. The Group may also beprevented from performing its construction work in a variety of other circumstances, including whenworking on difficult terrain or in harsh site conditions, busy urban centres where delivery of materials andavailability of labour may be affected and on sites which may previously have been exposed toenvironmental hazards. The Group also faces risks arising from the hazardous activities conducted by it,such as the use of heavy machinery and working with hazardous materials, which could result in equipmentfailures, fires or explosions and may result in severe damage to property and the environment. Further,circumstances beyond the Group’s control may also prevent it from performing its contracts. See also‘‘—The Group is dependent on its customers to adequately prepare construction sites in a timely manner’’.

The Group may also experience difficulties arising from the complex nature of its projects, such asinadequate design documentation provided by its customers, errors in design documentation, orinadequate or incorrect technical working documentation prepared by third parties. Further, over thecourse of construction, it may experience difficulties arising from the lack of technology necessary forconstruction of a particular aspect of a project, or mistakes in employing technology, machinery orengineering designs and instructions. In addition, for some projects, the Group designs and develops newtechnology and construction methods and while the Group typically extensively tests these itself andtogether with third-party research and development institutes (obtaining certifications where necessary),the use of these new technologies and construction methods could result in experimental failures and,ultimately, project delays and additional costs.

These risks and difficulties could result in damage to or destruction of property or production facilities,business interruption, delays in project completion, possible legal liability (including being named as adefendant in a lawsuit), and damage to the Group’s business reputation and corporate image, any of whichcould result in significant additional costs or contractual penalties (including liquidated damages, in thecase of delayed completion), adversely impact its qualifications for construction or its reputation in themarket, or otherwise have a material adverse effect on the Group’s business, financial condition, results ofoperations or prospects and the trading price of the Shares.

The Group is dependent on its customers to adequately prepare construction sites in a timely manner

Transport infrastructure projects are frequently to be constructed on land owned or leased by third parties,with existing residential, commercial or industrial premises located on it, or otherwise subject to physical orlegal restrictions applicable to the proposed construction, such as for environmental matters. The usualpractice in the industry in which the Group operates is for customers to provide contractors such as theGroup with sites prepared and ready, both in a physical and legal manner, for construction to commence.This may involve complex and time-consuming processes to clear the land physically and remove any legalimpediments or encumbrances such as third-party rights or the settlement of claims, sometimes involvingthe payment of compensation, or other restrictions. Further, customers must obtain a construction permitand related approvals for the relevant project, which may also involve significant effort. The timing tocomplete any of the above may vary greatly and could be complicated by unexpected events such asdifficulties in dealing with local authorities or public protests against the proposed construction. Forexample, starting in July 2010, significant public discussions and media coverage arose as a result of morethan one hundred hectares of the Khimki forest in Moscow and the Moscow region being cleared inconnection with the construction of the Moscow-St. Petersburg tollway, a project for which Mostotrest isthe general contractor. See ‘‘Business—Mostotrest operations—Principal projects under construction’’.Although the relevant federal, regional and municipal government authorities have recognised thatclearing this portion of the Khimki forest is necessary for the construction of the Moscow-St. Petersburgtollway and have thus agreed to it, the act of clearing the forest has resulted in a number of public protestsand has caused governmental bodies at various levels to consider the environmental impact of theconstruction works. The Russian Supreme Court, in its decision of 1 March 2010, supported a Decree ofthe Russian Government as well as other governmental decisions whereby the portion of the Khimki forestthat is the subject of dispute was reclassified such that it could be developed in connection with theconstruction of roads. However, in September 2010, following public discussions and media scrutiny, theRussian President, Mr. Dmitry Medvedev, requested that the clearing of the Khimki forest be halted, withthe result that the construction works on the Moscow-St. Petersburg tollway were delayed. Mostotrestbelieves that the works relating to preparing the land for the construction of the Moscow-St. Petersburgtollway have been performed in accordance with applicable town-planning requirements and that OOO

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Risk Factors

North-West Concession Company has obtained the permits necessary for such works. However, there canbe no assurance that relevant governmental bodies will not review or reschedule theMoscow-St. Petersburg tollway. If the construction is further delayed, it may have a significant impact onthe Group’s estimated backlog under the contract with OOO North-West Concession Company, andtherefore the Group’s future revenue.

Accordingly, despite the Group specifying particular timeframes in its construction contracts for thedelivery of site, there can be no assurance that the sites will be prepared and delivered to the Group asoriginally contemplated. While the customer is preparing the site, the Group typically also starts to preparefor construction, allocating personnel, arranging for the delivery of equipment to the site, placing ordersfor raw and other materials, and generally incurring expenses in anticipation of starting work on the date inthe contract. If a customer provides the site to the Group later than initially planned or not adequatelyprepared, the Group’s construction works may also be delayed and as a result, it may be forced to incuraddition costs to store materials or equipment, rearrange personnel or otherwise rearrange its plans.Further, as most of the Group’s contracts are fixed price contracts, these costs would typically be borne bythe Group, and the delays would also defer payments and the recognition of revenue under the contract.Any of these delays and additional costs, particularly if they were to occur at several of the Group’s largestconstruction projects, could have a material adverse effect on its business, financial condition, results ofoperations or prospects and the trading price of the Shares.

The Group’s business involves occupational hazards for its workforce

The Group’s operations rely on its workforce which is exposed to a range of operational hazards typical forthe construction industry. These hazards arise from working on construction sites, operating large-scalemachinery and performing other hazardous activities. Although the Group provides its workforce withoccupational health and safety training and believes that its safety standards and procedures are adequate,accidents at its construction sites or facilities have occurred in the past and may occur in the future as aresult of unexpected circumstances, failure of employees to follow proper safety procedures, human erroror otherwise. If any of these circumstances were to occur, they could result in personal injury, businessinterruption, possible legal liability, damage to the Group’s business reputation and corporate image and,in severe cases, fatalities, any of which could have a material adverse effect on the Group’s business,financial condition, results of operations or prospects and the trading price of the Shares.

Mostotrest faces risks arising from acting as a subcontractor for some projects

Although Mostotrest’s strategy includes focussing on acting as the general contractor for large transportinfrastructure projects (see ‘‘Business—Business strategy’’), in some cases, it may continue to work as asubcontractor for third-party general contractors, such as on bridge construction projects or othertransport infrastructure works forming part of a larger project. In these cases, Mostotrest is dependentupon the general contractor to efficiently manage the project as a whole, coordinating other aspects thatinteract with the parts to be constructed by Mostotrest. This includes receiving timely access to projectsites, complete design specifications, access to the project’s designers and engineers, adequate assemblyand construction areas in proximity to the project sites, access to utilities and other services, and variousother operational matters needed to complete the project, without which Mostotrest’s ability to completeits projects on time and within budget could be adversely affected. In addition, Mostotrest is exposed to thecredit risk of its general contractors and, even when the ultimate customer for the project has paid thegeneral contractor for completed works, there can be no assurance that the general contractor will alwayspromptly pay Mostotrest for its works. In particular, these payments may be delayed if the generalcontractor suffers a working capital shortage relating to the relevant project or other parts of its business,and ultimately, Mostotrest faces the risk that the general contractor could become insolvent, resulting inMostotrest having an unsecured claim in insolvency for its completed works. For example, in the past ageneral contractor on a project that engaged the Company as a subcontractor was declared bankrupt and,as a result, the Company did not receive the amounts due to it under the relevant contract.

A failure by any of Mostotrest’s general contractors to pay Mostotrest in a timely manner or at all forcompleted construction works or to perform its role efficiently could have a material adverse effect onMostotrest’s business, financial condition, results of operations or prospects and the trading price ofthe Shares.

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Risk Factors

The Group is exposed to potential liability under post-completion guarantees

After a project is completed and accepted by the customer, the Group typically remains liable to correctdefects subsequently discovered in the project under the terms of a post-completion guarantee at its owncost, typically for periods of up to 15 years. See also ‘‘Business—Mostotrest operations—Contract processand contract terms—Contract terms—Post-completion guarantee’’. The Group normally seeks to limitexposure to claims under post-completion guarantees through contractual limitations of liability, passingclaims through to subcontractors in the cases where the subcontractor is responsible for the defects, and,where possible, obtaining insurance. See also ‘‘—The Group does not carry all of the types of insurancecoverage customary in other countries for a business of its size and nature, and it may be unable to obtainadequate insurance cover’’ and ‘‘Business—Insurance and performance guarantees’’. However, thesemeasures may not offer the Group sufficient protection and may be limited by various factors outside itscontrol, including subcontractors not having adequate financial resources to satisfy their obligations to theGroup and the Group’s insurance coverage not being sufficient because, for example, it may not bepossible to obtain adequate insurance against all claims on commercially reasonable terms. Failure toeffectively cover against these risks for any of the above reasons could expose the Group to substantialcosts and potentially lead to significant losses, as well as adversely affect the Group’s reputation, any ofwhich could have a material adverse effect on the Group’s business, financial condition, results ofoperations or prospects and the trading price of the Shares.

The Group may face working capital shortages

The Group’s construction projects require varying levels of working capital which must be met from theGroup’s internal or external funding sources. For many projects, these requirements are met to someextent by customers making an annual advance payment of up to 30 percent of the anticipated annual workamount. See also ‘‘Business—Mostotrest operations—Contract process and contract terms—Payment terms’’.However, this may be insufficient to meet all of the Group’s working capital needs and the Group may bedependent upon the availability of other funding sources to make up for any shortfalls prior to receivingscheduled progress payments under the relevant construction contracts. Further, in certain circumstancesthe Group may experience delays in payment from publicly-funded customers. See also ‘‘—The Group isexposed to certain risks associated with public-funded construction contracts’’. On occasions, as each projectprogresses, the Group may decide to accelerate construction works ahead of the anticipated completionschedule contained in the relevant contract, for operational efficiency reasons. The Group is not typicallyentitled to accelerate the contract’s payment schedule and so must also fund the costs of that acceleratedconstruction from other sources.

In each of these cases, there can be no assurance that cash generated from the Group’s operations will besufficient to cover the required working capital or that it will be able to source external funding in a timelymanner and on commercially acceptable terms, or at all. In particular, the availability of external funding issubject to various factors beyond the Group’s control, including prevailing bank lending practices andcapital market conditions, other credit availability and interest rates. The Group may also need to rely onexternal funding to cover any cash flow shortages caused by customer delays in making progress paymentsand other payments due under constructions contracts. See also ‘‘—The Group is exposed to certain risksassociated with public-funded construction contracts’’.

If the Group is unable to generate sufficient funds from its other operations or to secure sufficient externalfunding when required, the resulting working capital shortage could require it to suspend, in whole or inpart, construction works until such funds are obtained, which would cause delays in project completion andcould give rise to liquidated damages or other claims, adversely affecting the profitability of the Group’sprojects, its reputation and otherwise having a material adverse effect on the Group’s business, financialcondition, results of operations or prospects and the trading price of the Shares.

The Group’s indebtedness or the enforcement of certain provisions of its financing arrangements could affectits business

The Group has significant indebtedness owing to banks and other financial institutions. See ‘‘Management’sDiscussion and Analysis of Financial Condition and Results of Operations—Liquidity and capital resources—Capital resources and capital requirements’’ and ‘‘Management’s Discussion and Analysis of FinancialCondition and Results of Operations—Recent Developments—Borrowings’’. To secure some of these

17

Risk Factors

financings, the Group has pledged machinery, equipment and rights to revenue under certain constructioncontracts. In addition, some of the Group’s loan agreements, including credit agreements with Sberbank ofRussia, contain financial covenants that limit its ability to incur debt based on the ratio of Mostotrest’s debtto EBITDA (calculated under RAS) and impose maximum thresholds for Mostotrest’s total indebtedness,which may limit the Group’s operational flexibility while these loans remain outstanding. These loanagreements also impose a number of other obligations or restrictions on the relevant borrower, such asnotification obligations concerning changes in its management bodies, lenders’ prior consent rights tocertain transactions, informational and other financial covenants and certain other obligations. Failure tocomply with these or other covenants and obligations or failure to obtain requisite consents could result ina default, making the loans immediately due and payable.

In addition, some of the Group’s loan agreements provide the relevant bank with a general right todemand early repayment of the loans where any of the acceleration events listed in the relevant loanagreements arise. These events include circumstances which, in the reasonable opinion of the bank, mayprevent the relevant borrower from meeting its payment obligations in full or in a timely manner. Also, anydefault or cross-default which constitutes an acceleration event under some of the Group’s loanagreements may make it substantially more difficult for the Group to obtain financing in the future, whichmay prevent it from continuing to develop its projects as currently planned. Further, any such defaultaccompanied by an acceleration of the relevant debt and enforcement of collateral (if any) would have amaterial adverse effect on the Group’s business, results of operations, financial condition or prospects andthe trading price of the Shares.

The Group’s ability to make payments on its debt depends upon its ability to maintain its operatingperformance at a certain level, which is subject to general economic and market conditions and tofinancial, business and other factors, many of which it cannot control. If the Group’s cash flow fromoperating activities is insufficient to service its debt, it could be forced to take certain actions, includingdelaying or reducing capital or other expenditures in an attempt to restructure or refinance its debt, sellingits assets or operations, or seeking additional equity capital. The Group might be unable to take any ofthese actions on favourable terms, in a timely manner or at all. Further, these actions might not besufficient to allow the Group to service its debt obligations in full and any of the foregoing, could have amaterial adverse effect on its business, results of operations, financial condition or prospects and thetrading price of the Shares.

The Group must obtain licences, permits and other approvals and comply with applicable laws, regulations andtechnical standards to construct its projects

The Group’s operations are subject to regulation by various governmental entities and agencies andrequire it to obtain and renew various licences, permits and other approvals. Its operations andconstruction projects are also required to comply with applicable laws, regulations and technical standards.See also ‘‘Regulation of Infrastructure Construction in Russia’’. Obtaining the licences, permits and otherapprovals and ensuring that all applicable laws, regulations and technical standards are complied with is acomplex and time-consuming process involving a number of State agencies and other bodies. A failure bythe Group to obtain or, where relevant, extend the term of the existing licences, permits or other approvalsor a failure to comply with applicable laws, regulations or technical standards could result, in some cases,in the imposition of sanctions, including civil and administrative penalties, upon the Group or its affiliatesor criminal and administrative penalties applicable to its officers. Further, applicable laws, regulations ortechnical standards may change from time to time, requiring the Group to change its constructionprocesses or project specifications, which could result in delays in completion or require additionalexpense, and failure to do so could result in sanctions imposed by relevant State agencies or bodiesinspecting the Group’s projects or orders to rectify any technical deficiencies. Any of these circumstances,if they were to occur, could have a material adverse effect on the Group’s business, financial condition,results of operations or prospects and the trading price of the Shares.

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Risk Factors

Russian design institutes could be unable to prepare the volume of design documentation for Russian transportinfrastructure investment programmes, restricting market growth

The transport infrastructure investment programmes expected to be implemented by Russiangovernmental customers in the coming years is significant, and much larger than the infrastructureinvestment programme that has been implemented in recent years. See ‘‘Russian InfrastructureConstruction Industry Overview’’. The implementation of these programmes, and therefore the anticipatedgrowth in the transport infrastructure construction market, is dependent upon a range of factors. See‘‘—The Group’s revenue is largely dependent on public spending on transport infrastructure’’. Even afterfunding for the investment programme is allocated, there could be significant delays before projects aretendered and contracts entered into as design institutes develop the large quantity of project designdocumentation required.

The development of project design documentation is complex and time-consuming (taking several years ofdevelopment on some occasions in the past), and depends on the speed at which specialist design institutescan operate and the general availability of such specialist expertise. The Group believes that capacityconstraints at design institutes, due in part to long-term under-investment in this technical expertisegenerally in the Russian industry, have in the past and may in the future be a significant factor limiting thespeed at which investment programmes are implemented, and ultimately the growth in the size of thetransport infrastructure construction industry. This may also be exacerbated by the increased complexity ofprojects in the current investment programmes as well as the increased size of current and futureprogrammes generally. There can be no assurance that Russian design institutes will be able to develop thedocumentation required in time or to the necessary standard due to capacity constraints. If delays were tooccur, or extra work was required to rectify any deficiencies in the documentation, it would have a directnegative impact on the implementation of these investment programmes, delaying tender processes andthe awarding of contracts, and ultimately, the anticipated growth in the Russian transport infrastructureconstruction market. This would also have a consequential negative effect on market participants, and inparticular, could have a material adverse effect on the Group’s business, financial condition, results ofoperations or prospects and the trading price of the Shares.

Intense competition in the transport infrastructure construction market from Russian or foreign constructioncompanies could reduce the Group’s market share and profits

While Mostotrest currently has a strong market position in the Russian transport infrastructureconstruction market, its continued success depends on its ability to compete with current and futurecompetitors. According to PMR, the Russian transport infrastructure construction market is fragmentedinto various tiers, ranging from companies with a wide geographic presence that are capable ofimplementing large-scale projects of regional and national importance to companies providing relativelyunsophisticated small-scale construction, repair and maintenance services. See ‘‘Russian InfrastructureConstruction Industry Overview—Competitive landscape’’. The top tier, in which Mostotrest is classified byPMR, is characterised by a relatively low level of competition and a high level of concentration andregional dominance. Different geographic areas and parts of the market are dominated by differentcompanies and only a small number of companies has broad nation-wide operations. Even so, there can beno assurance that the Group’s competitors will not develop the geographic presence, expertise, experienceand resources necessary to provide services that are superior in quality or price or both to its services, orthat potential changes in the relevant governmental regulations, market trends or conditions will not alterthe competitive landscape for the Group’s services in a manner that is not anticipated. See also ‘‘RussianInfrastructure Construction Industry Overview’’. Further, while the Russian infrastructure constructionmarket is currently dominated by Russian construction companies, in the future, the Group may facesignificant competition from foreign construction companies entering the Russian and CIS market. Foreignconstruction companies may compete intensely at the expense of profitability to grow market share, as hasoccurred in some eastern European countries in the past as the local construction industry has becomemore international. Foreign construction companies may also have access to greater or cheaper sources offunding than the Group, further aiding their competitive position.

In addition, possible future economic downturns could result in decreased government funding forinfrastructure construction projects or periods in which there is low market demand but a simultaneousincrease in the number of market participants. In these circumstances, competition for available projectsmay intensify and impair the Group’s ability to compete at acceptable profit margins. In these periods, an

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Risk Factors

over-reliance by the Group on completing its backlog of existing construction projects while not activelypursuing new projects could also result in a loss of market share as economic conditions improve.

Failure to maintain or enhance the Group’s competitive position in the Russian transport infrastructureconstruction market or to maintain a substantial number of projects may result in pressure to reduce pricesfor its services, decreasing profit margins and potentially losing market share, which could have a materialadverse effect on the Group’s business, financial condition, results of operations or prospects and thetrading price of the Shares.

The Group does not carry all of the types of insurance coverage customary in other countries for a business of its sizeand nature, and it may be unable to obtain adequate insurance cover

Although the Group considers its insurance coverage to be sufficiently extensive for the Russian market,the Group does not carry all types of insurance customary in certain other countries for a business of itssize and nature, such as coverage for business interruption or environmental liability. In the event that amajor event were to affect the Group’s project sites or its production facilities, it could experiencesubstantial property loss and significant disruptions in its construction activities, for which it may not beadequately compensated. For example, if substantial plant or equipment were lost at one of the Group’smajor projects currently under construction, the Group may not be able to adequately replace this plant orequipment, potentially resulting in significant delays, which could cause significant harm to the Group’soperations and profitability. Depending on the severity of the property damage, the Group may also not beable to repair or replace the damaged property in a timely manner or at all. In addition, the insurancepolicies the Group does maintain are subject to varying levels of deductibles and liability limits. The lack ofinsurance or occurrence of claims or costs up to the applicable deductibles or above the applicable liabilitylimits could have a material adverse effect on the Group’s business, financial condition, results ofoperations or prospects and the trading price of the Shares.

Further, the insurance market in Russia remains relatively underdeveloped and the Group may find itdifficult or impossible to obtain adequate insurance cover for certain types of risks at rates which arecommercially viable. For example, while insurance for environmental liabilities the Group may incur isavailable in Russia, its pricing is typically economically unattractive. Further, the Group does not maintainseparate funds or otherwise set aside reserves for these types of events. Any such loss or third-party claimfor damages could have a material adverse effect on its business, financial condition, results of operationsor prospects and the trading price of the Shares.

The Group may incur environmental liabilities

Russian environmental laws and regulations govern the Group’s operations. These may impose liability onthe Group for the release of certain materials at a construction site, including various types of waste, orinto the surrounding air or water and such a release may also make the Group liable to third persons forpersonal injury or other damages. Other laws and regulations can delay or limit access to or work atconstruction sites near wetlands, forests or other habitats of threatened or endangered species whileenvironmental assessments are made and mitigating measures are put in place, adding extra costs to theGroup, sometimes unexpectedly where these matters are only discovered after construction has begun.While the Group believes that its current activities are in compliance with relevant laws and regulations inall material respects, future changes to legislation may also result in environmental liability. Further, thehigh cost of environmental insurance makes it economically unattractive for the Group to obtain.Accordingly, any breach of environmental laws or regulations or delays or restrictions on its operationssuffered by the Group resulting from environmental matters at its project sites could have a materialadverse effect on the Group’s business, financial condition, results of operations or prospects and thetrading price of the Shares.

Mostotrest may face risks from its recent and any future acquisitions

In the six months ended 30 June 2010, Mostotrest acquired equity interests in three large Russiancompanies operating businesses in the transport infrastructure construction industry. See ‘‘Business—Overview’’. Although Mostotrest believes that these acquisitions have helped to strengthen its coreoperations and its position in complementary industry segments in which it had a limited presence,providing it with further technical skills, a greater geographic presence, a larger backlog of projects and

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Risk Factors

decreasing its reliance on unaffiliated subcontractors for transport infrastructure construction projects, thesuccess of these acquisitions will depend on Mostotrest’s ability to manage the integration of the acquiredcompanies and their operations into its existing operations. Potential risks relating to that integration mayinclude potential cultural differences, redundancies of personnel, incompatibility of equipment andinformation technology, production facility failures or delays, loss of significant customers, disagreementswith minority shareholders in acquired companies and any material subsidiaries, potential disruption ofMostotrest’s own business, assumption of liabilities relating to the acquired companies or their assets,impairment of relationships with employees and counterparties, poor records or internal controls at theacquired entities, and difficulty in establishing immediate control over their cash flows. Also, there can beno assurance that the Group will be able to achieve the anticipated benefits in its operations from itsacquisitions.

Further, Mostotrest may in the future consider acquisitions of companies or assets that may enable it toexpand its geographic presence and enhance its position as a diversified transport infrastructureconstruction group. See also ‘‘Business—Business strategy’’. However, there can be no assurance thatMostotrest will be able to identify suitable acquisition targets, or that future acquisitions will be availableto Mostotrest on terms as favourable as in the past, particularly if Mostotrest faces significant competitionfor potential acquisitions. When making acquisitions it may not be possible for Mostotrest to conduct adetailed investigation of the nature of the assets being acquired due to, for example, time constraints inmaking the acquisition decision, lack of available information (causing Mostotrest to rely on its ownassessment of the relevant assets, based on its own expertise) and other factors. Mostotrest may alsobecome responsible for additional liabilities or obligations not known to Mostotrest at the time of anacquisition, including any financial liabilities entered into by management of the acquired entities beforethe relevant company is acquired by Mostotrest.

Any or all of these risks, if they materialise, could have a material adverse effect on Mostotrest’s business,financial condition, results of operations or prospects and the trading price of the Shares.

Two of Mostotrest’s key operating subsidiaries are not wholly-owned

Mostotrest owns a 51.0 percent equity interest in ETS and a 50.1 percent equity interest in TSM. Thesetwo companies form a significant part of the Group’s operations and will play an important role in theGroup’s future development and strategy. See ‘‘Business—Business strategy’’. However, while Mostotrestholds a simple majority of the equity interests in these companies, is able to, among other matters, pass adecision to allocate net profit among the participants, approve annual reports and internal documents andpass a decision to issue bonds and other securities and to control the outcome of ordinary resolutions ateach company’s general participants’ meetings, it does not have complete control. For example, the otherparticipants have equity interests that would enable them to block resolutions at a general participants’meeting that require a unanimous or two-thirds majority vote. There can be no assurance that theinterests, views or strategy of Mostotrest and the other participants in each of these entities will alwayscoincide and that disagreements between them will not arise. If disagreements were to arise, thedevelopment of these businesses, and therefore the successful implementation of the Group’s strategycould be adversely affected, particularly as the other participatory interests are beneficially owned by someof the company’s management, who if sufficiently disenfranchised by a disagreement may choose to resign,further negatively affecting the relevant company’s operations. These circumstances could prevent ETS orTSM from completing certain transactions, causing delays in construction works, the cancellation of jointbids with Mostotrest in tenders for new projects, and associated legal proceedings and significant relatedcosts to resolve disagreements, any of which could have a material adverse effect on the Group’s business,financial condition, results of operations or prospects and the trading price of the Shares.

The departure of key members of the Group’s management team and senior technicians may impact its business,and its inability to attract and retain qualified personnel may limit its development

The growth of the Group’s business is dependent upon the continued service of its senior managementteam. The industry experience, extensive expertise and contributions of the Group’s executive directorsand other members of senior management whose names are set out in ‘‘Management and CorporateGovernance’’ are essential to the Group’s continuing success. The Group will require experienced andcompetent executives in the future to implement its strategy. If the Group were to lose the services of anyof its key management members disclosed in this offering circular and were unable to recruit and retain

21

Risk Factors

personnel with equivalent qualifications at any time, the management and growth of its business could beaffected, which could have a material adverse effect on the Group’s business, financial condition, results ofoperations or prospects and the trading price of the Shares.

The Group may be unable to adequately protect its intellectual property rights

The Group has developed a number of technologies and construction methods, including those containedin more than 60 patents registered in Russia, which have enabled it to improve its production efficiencyand solve complex technical problems. Russia’s intellectual property laws are still evolving and the level ofprotection and means of enforcement of intellectual property rights in Russia differ from those in othercountries. Enforcement of the Group’s intellectual property rights could be costly, and the Group may notbe able to immediately detect unauthorised use of its intellectual property and take the necessary steps toenforce its rights in that property. If the measures taken by the Group or the protection afforded by law donot adequately safeguard its technologies and other intellectual property rights, it could suffer losses inrevenues and profits due to competitors exploiting that intellectual property. Further, there can be noassurance that any of the Group’s intellectual property rights will not be challenged by third parties.Adverse rulings in any litigation or proceeding or a failure by the Group to successfully enforce rulings inits favour could result in the loss of the Group’s proprietary rights and subject it to substantial liabilities, oreven disrupt its business, any of which could have a material adverse effect on the Group’s business,financial condition, results of operations or prospects and the trading price of the Shares.

The Group may have weaknesses in its accounting and reporting systems and the internal controls relating to thepreparation of IFRS financial statements

The Group’s accounting and reporting systems are not as sophisticated or robust as those of companieswith a longer history of reporting under IFRS, and do not include a fully integrated or automatedinformation system for the preparation of IFRS financial statements. As Mostotrest has adopted IFRS forthe first time with effect only from 1 January 2008, and ETS and TSM have adopted IFRS for the first timewith effect only from 1 January 2009, there have been no established accounting and reporting systems inoperation. Further, ETS and TSM only prepare statutory financial accounts on a quarterly basis and nosimilar information is available more frequently. This, together with the lack of experience in preparingregular management accounts on a basis consistent with IFRS, creates a risk of potential delays inproducing IFRS financial statements in the future, which could negatively impact the quality of decisionmaking by the Group’s senior management. The lack of longer-term historical audited financial data forthese entities may also provide prospective investors with less information on which to evaluate theOffering than is available in offerings of securities of companies in other markets such as in North Americaor western Europe.

Each of the Company’s subsidiaries prepares financial statements under Russian accounting standards.The preparation of consolidated IFRS financial statements for the Group involves, first, thetransformation of the statutory financial statements of these companies into IFRS financial statementsthrough accounting adjustments and, second, the consolidation of all such financial statements. Thisprocess is complicated and time-consuming, and requires significant attention from the Group’s senioraccounting personnel. Particularly in light of the Group’s past and planned growth, the preparation ofannual or interim IFRS financial statements may require more time than it does for other companies andsuch financial statements may be subject to a greater likelihood of misstatements. Accordingly, the Groupmay be required to recruit additional qualified personnel with IFRS accounting expertise. Because there isa limited pool of such personnel in Russia, it may be difficult for the Group to hire and retain suchpersonnel. Thus, there is a risk that an inability to retain qualified accounting staff could have a materialadverse effect on the Group’s ability to prepare accurate financial information in a timely manner andconsequently could have a material adverse effect on its business, results of operations, financial conditionor prospects and the trading price of the Shares.

Two companies recently acquired by the Company have limited experience in financial reporting as a listed company

ETS and TSM have implemented IFRS with effect from 1 January 2009, as they have always been privatelyowned and have not previously been required to comply with listed company reporting practices or toadhere to a listed company’s financial reporting timetable. This may result in substantial delays inconsolidating the results of ETS and TSM into the Group’s consolidated financial statements and may

22

Risk Factors

require significant attention from the Group’s senior accounting personnel. If the Group is unable toprepare accurate financial information for ETS and TSM in a timely manner, this could have a materialadverse effect on the Group’s business, results of operations, financial condition and prospects and thetrading price of the Shares.

Each of the 2009 Mostotrest Annual Financial Statements, the 2009 Annual ETS Financial Statements and the2009 Annual TSM Financial Statements includes a qualification relating to the existence of inventory

Each of the 2009 Mostotrest Annual Financial Statements, the 2009 Annual ETS Financial Statements andthe 2009 Annual TSM Financial Statements includes a qualification relating to the existence ofMostotrest’s, ETS’s and TSM’s inventories, respectively. In 2009, Mostotrest appointed ZAO KPMG, anindependent audit firm, to perform an audit of Mostotrest’s consolidated financial statements as at and forthe years ended 31 December 2009 and 2008. In 2010, ETS and TSM also appointed ZAO KPMG, toperform an audit of their respective preliminary financial statements as at and for the year ended31 December 2009. The date on which ZAO KPMG were appointed as auditors of Mostotrest, ETS andTSM was subsequent to the respective balance sheet dates of 31 December 2008 and 1 January 2008. ZAOKPMG believed it to be impracticable to satisfy itself as to the quantities of Mostotrest’s inventory as at31 December 2008 and as at 1 January 2008 and ETS’s and TSM’s inventories as at 1 January 2009 byother audit procedures. Consequently, ZAO KPMG have qualified its audit opinions accordingly withrespect to the Financial Statements referred to above. Had ZAO KPMG been able to satisfy itself as to thequantities of Mostotrest’s, ETS’s and TSM’s inventories and if these quantities were materially differentfrom the amounts recorded as at 31 December 2008 and 1 January 2008 for Mostotrest and 1 January 2009for ETS and TSM, then each of Mostotrest, ETS and TSM could be required to restate the relevantamounts in their respective Financial Statements. Such restatement, if any, would impact (i) the‘‘inventories’’, ‘‘income tax payable’’ and ‘‘retained earnings’’ line items in Mostotrest’s consolidatedstatements of financial position as at 1 January 2008 and 31 December 2008, (ii) the ‘‘cost of sales’’,‘‘taxation expense’’ and ‘‘net profit’’ line items in Mostotrest’s consolidated statement of comprehensiveincome for the years ended 31 December 2009 and 31 December 2008, (iii) the ‘‘inventories’’, ‘‘income taxpayable’’ and ‘‘net assets attributable to participants’’ line items in ETS’s and TSM’s statements of financialposition as at 1 January 2000, and (iv) the ‘‘cost of sales’’, ‘‘taxation expense’’ and ‘‘net profit’’ line items ineach of ETS’s and TSM’s consolidated statements of comprehensive income for the year ended31 December 2009. Such restatements, if any, could have a material adverse effect on the Group’sbusiness, results of operations and financial position as originally stated as at and for the years ended31 December 2009, and with respect to Mostotrest only, 31 December 2008.

RISKS RELATING TO THE SHARES

An investment in the Shares carries a high degree of risk and many factors could have a material adverse effect onthe value of the Shares

An investment in the Shares is speculative and carries a high degree of risk. Potential investors must beprepared to bear the risk of a total loss of their investment. A material adverse effect on the value of theShares could arise from many factors, such as the liquidity in the market for the Shares, changes insecurities analysts’ financial estimates and projections, the operating and price performance of the Group’scompetitors and other comparable companies, announcements by the Group’s competitors of significantacquisitions, strategic partnerships, joint ventures or capital commitments, regulatory actions that affectthe Group’s business, general conditions in the transport infrastructure construction industry andeconomic conditions in Russia. The market value of a Share may also vary considerably from its underlyingnet asset value, and could decline below the offer price per Share, which will be determined based on theresults of the bookbuilding exercise conducted by the Managers. In addition, Russian stock markets havefrom time to time experienced extreme price and volume volatility, such as during the recent economic andfinancial crisis which in the second half of 2008 resulted in trading on some Russian stock exchanges beinghalted, at times for several days. Such conditions, if they were to reoccur, in addition to the effect of thegeneral economic and political conditions on markets, could significantly adversely affect the liquidity andmarket price for the Shares.

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Risk Factors

Shareholders may not be able to exercise their pre-emptive rights

Generally, existing holders of shares of Russian open joint-stock companies are in certain circumstancesentitled to statutory pre-emptive rights for newly issued shares, under Russian law and the Company’scharter, as described in ‘‘Description of Share Capital and Applicable Russian Law—Description of sharecapital—Rights of shareholders’’. However, holders of the Shares in certain jurisdictions may facerestrictions under relevant local law on their ability to exercise statutory pre-emptive rights for any newequity issuances by the Company. No assurance can be given that the exercise of pre-exemption rights bysuch shareholders will be permitted under applicable securities laws and/or that a future transaction will bestructured to allow existing shareholders to exercise their pre-emptive rights.

The liquidity and price of the Ordinary Shares depends on an active trading market for those shares developing afterthe Offering

Prior to the Offering, while the Ordinary Shares have been listed on the ‘‘B’’ list of the RTS, there has notbeen significant active trading in those shares and the price of trades has fluctuated significantly. Forexample, in the first six months of 2010, the average monthly trading volume for the Company’s ordinaryshares was 25 ordinary shares and the average price for that period was RUB26,827 with a trading low ofRUB20,417 and a trading high of RUB31,990 (or the equivalent of an average price of RUB134.14, tradinglow of RUB102.09 and a trading high of RUB159.95 after the split of the Company’s ordinary sharescompleted in September 2010, which reduced the nominal value per ordinary share from RUB28 toRUB0.14). After the Offering, while the number of shareholders is expected to increase, there can be noassurance that a more active trading market will develop. Further, the historical trading price may not beindicative of the Offer Price for the Shares in the Offering or the trading price of the Ordinary Shares inthe future. In addition, a significant portion of the Shares being offered in the Offering may be offered andsold to a limited number of investors. If an active trading market for the Ordinary Shares does not develop,investors may not be able to sell the Ordinary Shares they purchased in the Offering at or above the OfferPrice or at all. As a result, investors who purchase Shares in the Offering could lose all or part of theirinvestment.

Sales of Ordinary Shares following the Offering may result in a decline in the price of the Ordinary Shares

Each of the Company and the Selling Shareholder has agreed that, until the expiry of a period of 180 daysfrom the Closing Date, neither it nor any person acting on its behalf will, without the prior written consentof the Joint Global Coordinators, offer, sell, lend, mortgage, assign, contract to sell, pledge, charge orotherwise deal, directly or indirectly, with the Ordinary Shares or, in the case of the Company, issue newshares, subject to certain exceptions. See ‘‘Description of the Offering—Lock-up’’. In addition, as at20 August 2010, 36.4 percent of the Ordinary Shares were beneficially owned by NPF Blagosostoyanie, apension fund connected with Russian Railways, which has its shares held by several asset managementcompanies on its behalf. See ‘‘Principal and Selling Shareholders’’. These companies are not selling shares inthe Offering but have agreed to restrictions on conducting transactions with their Ordinary Shares similarto the arrangements applicable to the Company and the Selling Shareholder described above, but to applyuntil 31 May 2011 (inclusive), with certain exceptions including in relation to the exercise of the Put Option(such restrictions together with the restrictions on the Company and the Selling Shareholder set out above,the Lock-up Arrangements). However, while these asset management companies will be contractuallyrestricted under the Lock-up Arrangements from conducting transactions with the relevant OrdinaryShares, NPF Blagosostoyanie may, in certain circumstances, be permitted under applicable Russian law toterminate its relationship with these asset management companies and withdraw funds from the relevantasset management company, which would cause the asset management company to sell the OrdinaryShares, or order the transfer of the relevant Ordinary Shares to other asset management companies whichmay fail to enter into arrangements similar to the Lock-Up Arrangements described above. If suchcircumstances were to arise, NPF Blagosostoyanie, acting through asset management companies, couldconduct transactions with the relevant Ordinary Shares that would otherwise be contractually restrictedunder the Lock-up Arrangements.

Upon the expiry of the Lock-up Arrangements or if NPF Blagosostoyanie or its asset managementcompanies were to act as described above, the sale of a substantial number of Ordinary Shares followingthe Offering, in particular by the Selling Shareholder or NPF Blagosostoyanie, or the issue of new sharesby the Company, or the possibility that these sales or issues may occur, may result in a decline in the price

24

Risk Factors

of the Ordinary Shares, and investors may not be able to sell the Shares they purchased in the Offering ator above the Offer Price or at all. As a result, investors who purchase Shares in the Offering could lose allor part of their investment. Further, such sales or issuances could affect the Company’s ability to obtainfurther capital through an offering of equity securities, while subsequent equity offerings may reduce thepercentage ownership of the Company’s existing shareholders. In addition, newly issued shares may haverights, preferences or privileges senior to those of the Shares.

However, the remaining holders of Ordinary Shares, which before the issue of the New Shares in the OpenSubscription, account for approximately 13.3 percent, will not enter into similar lock-up arrangements. Asa result, these shareholders are not prevented from selling or otherwise dealing with their Ordinary Sharesor the New Shares they may receive in the Open Subscription. The sale or other dealing by any other ofthose holders of Ordinary Shares with a substantial number of Ordinary Shares following the Offering, orthe possibility that a sale or other dealing may occur, may also result in a decline in the price of theOrdinary Shares, and investors may not be able to sell the Shares they purchased in the Offering at orabove the Offer Price or at all. As a result, investors who purchase Shares in the Offering could lose all orpart of their investment.

If the share capital increase and the related Open Subscription are invalidated, the Company may not receive andretain a significant portion of the proceeds from the Offering and the Company’s shareholding structure may differsubstantially from that which is currently contemplated

As more fully described in ‘‘Description of the Offering’’ and in ‘‘Principal and Selling Shareholders’’, as partof the Offering, the Selling Shareholder will sell 62,060,000 Shares. As part of the Open Subscription, theSelling Shareholder will subscribe for not less than 24,824,000 New Shares by exercising its pre-emptiverights. However, there can be no assurance that the Open Subscription will be completed on the termscurrently contemplated, as the FSFM or a court of law could invalidate the share capital increase and/orthe issue of New Shares to the Company’s existing shareholders in certain circumstances, including if theCompany violates any requirement of Russian law during the process of the issue. If an invalidation of theNew Shares were to occur, the Company and, to the extent it is able to using reasonable efforts, the SellingShareholder are contractually obliged in the Underwriting Agreement to procure that the Companyconduct a new share issue allowing the Selling Shareholder to apply the relevant aggregate amount thatwould have been used to subscribe for the Committed Shares to subscribe for new Ordinary Shares in amanner having an economic effect as similar as reasonably possible to that of the subscription that were tooccur under the Open Subscription. However, if the Company and the Selling Shareholder fail to do so,the Company will not receive and retain a portion of proceeds from the Offering and the shareholdingstructure will differ materially from the shareholding structure currently contemplated.

The Company’s shares may be delisted from RTS or MICEX

The Company’s shares are listed on the RTS and are admitted to trading on the MICEX. As at the date ofthis offering circular, the Company believes that it is in compliance with all applicable listing requirements.However, in accordance with the current listing rules enacted by the Decree of FSFM No. 04-1245/pz-ndated 15 December 2004 (as amended), the Company’s shares may be delisted from a stock exchange if,among other matters, the Company’s shares do not comply with applicable listing requirements, theCompany is not in compliance with the securities laws, or the Company has suffered losses in threeconsecutive years. If the Company’s shares are delisted from the RTS or the MICEX, the liquidity and/ortrading price of the Shares may be materially adversely affected.

The Company has two significant shareholders whose interests could conflict

Immediately following the completion of the Offering and the Open Subscription, approximately32.1 percent of the Ordinary Shares will be owned by the Selling Shareholder and 33.1 percent of theOrdinary Shares will be owned beneficially by NPF Blagosostoyanie, which has its shares held by severalasset management companies on its behalf (the Significant Shareholders), assuming that only the SellingShareholder exercises its pre-emptive rights in the Open Subscription to acquire 24,824,000 New Shares,the minimum it is contractually obliged to subscribe for under the Underwriting Agreement. See ‘‘Principaland Selling Shareholders’’. The Group believes that the Significant Shareholders’ involvement in theGroup’s operations has been, and will continue to be, important in the pursuit and implementation of theGroup’s strategy. However, there can be no assurance that the interests, views or strategy of each of the

25

Risk Factors

Significant Shareholders and their controlling shareholders in relation to the Company and the Group willalways coincide and that disagreements between them will not arise. If this were to arise, at a generalshareholders’ meeting of the Company, one Significant Shareholder would possess sufficient votes toprevent the passing of resolutions requiring at least 75 percent of votes cast. Resolutions of this kind arerequired for matters such as share capital increases, amendments to the Company’s charter and approvalof ‘‘major transactions’’. See also ‘‘Description of Share Capital and Applicable Russian Law—Generalshareholders’ meeting’’. Further, similar situations may arise with decisions of the Company’s board ofdirectors as the Significant Shareholders will also be entitled to appoint a proportionate number ofdirectors. As a result, in either case, the Company may be prevented from completing certain transactions,which could have a material adverse effect on the Group’s business, financial condition, results ofoperations or prospects and the trading price of the Shares.

The lack of a central and rigorously regulated share registration system in Russia may result in an improper recordof ownership of the Company’s shares

Ownership of shares in Russian joint-stock companies (or, if the shares are held through a nominee orcustodian, then the holding of such nominee or custodian) is determined by entries in a share register andis evidenced by extracts from that register. Currently, there is no central registration system in Russia.Share registers are maintained by the companies themselves or, if a company has more than 50shareholders or so elects, by licensed registrars located in Russia. Regulations have been issued regardingthe licensing conditions for such registrars, as well as the procedures to be followed by both companiesmaintaining their own registers and licensed registrars when performing the functions of registrar. Inpractice, however, these regulations have not been strictly enforced, and registrars generally have relativelylow levels of capitalisation and inadequate insurance coverage. Further, registrars are not necessarilysubject to effective governmental supervision. Due to the lack of a central and rigorously regulated shareregistration system in Russia, transactions in respect of a company’s shares could be improperly orinaccurately recorded, and share registration could be lost through fraud, negligence or oversight byregistrars incapable of compensating shareholders for their misconduct. In addition, the Russian media hasreported several examples of duplicate share registries being created in connection with hostile takeovers,as well as seizures of share registries by government officials for extended periods of time. These activitiesmay adversely affect the Company’s ability to record the ownership of its shares properly.

Investors may be unable to repatriate their earnings from the Shares

Russian currency control legislation pertaining to the payment of dividends currently permits the paymentof dividends in Roubles, US dollars or other convertible currencies on shares to non-Russian residents.The ability of non-Russian shareholders to convert Roubles into other currencies is subject to theavailability of those other currencies in Russia’s currency markets. Although there is an existing market inRussia for the conversion of Roubles into other currencies, including the interbank currency exchange andover-the-counter and currency futures markets, the further development of this market is uncertain. Atpresent, there is no active market for the conversion of Roubles into foreign currencies outside Russia andcertain CIS countries and only a limited market in which to hedge Rouble-denominated investments.Further, there can be no assurance that future changes to the Russian exchange control regime will notrestrict an investor’s ability to repatriate its earnings on the Shares.

The Group’s structure may impose restrictions on dividends payable to investors

Until recently, the Company has not had a formal dividend policy, although in the past it has paiddividends on its Ordinary Shares from time to time. See ‘‘Dividend Policy’’. While the Board of Directorsapproved the Dividend Policy Regulation on 30 September 2010, there can be no assurance that this willalways be followed, or that there will be sufficient net profit and free cash available to pay dividends.Accordingly, in the absence of any future dividends, returns on an investor’s investment will be limited tocapital appreciation, if any, and the investor’s ability to realise those returns may be limited by illiquidity inthe trading market of the Shares. However, if the Company decides to pay dividends, its ability to do somay depend, at least in part, on the level of distributions (if any) received from its subsidiaries if fundsfrom its own operations are insufficient. The Company’s subsidiaries may from time to time be subject torestrictions on their ability to make distributions to the Company as a result of regulatory, fiscal and other

26

Risk Factors

restrictions. There can be no assurance that, where funds from the Company’s own operations areinsufficient, such restrictions will not have a material adverse effect on the Group’s ability to pay dividends.

Investors in the Offering will suffer immediate and substantial dilution in net tangible book value per Share

The price at which the Shares are being sold in the Offering is substantially higher than the value of theGroup’s net tangible book value per Share. Therefore, purchasers of the Shares will incur immediate andsubstantial dilution in net tangible book value per Share. Further, the issue of the New Shares offered inthe Open Subscription will also dilute the Group’s net tangible book value per Share.

RISKS RELATING TO RUSSIA

The Group’s business and all of its assets are located in Russia. There are risks associated with investmentsin an emerging market and, specifically, Russia, as set out below.

Political risks

Changes in government policy or other government actions could adversely affect the value of investments in Russia

Since 1991, Russia has sought to transform itself from a one-party state with a centrally planned economyto a democracy with a market-oriented economy. As a result of the sweeping nature of the reforms, andthe limited success of some of them, the Russian political system remains vulnerable to populardissatisfaction, as well as to unrest by some social and ethnic groups.

Political conditions in Russia were highly volatile in the 1990s, as evidenced by frequent conflicts amongexecutive, legislative and judicial authorities, which negatively affected Russia’s business and investmentclimate. Vladimir Putin, a former Russian President who is currently Russia’s Prime Minister, generallyincreased governmental stability and continued the economic reform process, which made the political andeconomic situation in Russia more conducive to investment. On 2 December 2007, the State Dumaelections were held and, on 2 March 2008, presidential elections were held in Russia. Although theprevious structure of political forces in the State Duma did not change substantially, a new President,Dmitry Medvedev, assumed power from President Putin following his inauguration on 7 May 2008.Although a significant degree of continuity has been maintained between the two administrations due, inlarge part, to the appointment of Vladimir Putin as Russia’s Prime Minister, President Medvedev may takea different approach to reforms and to the state’s foreign and domestic policies in the future, and hasrecently stressed the need for further diversification of the Russian economy away from its longstandingfocus on the extraction of raw materials. Moreover, shifts in governmental policy and regulation in Russiamay be less predictable than in many Western democracies and could disrupt or reverse political, economicand regulatory reforms. Current and future changes in the government, major policy shifts or lack ofconsensus between the President, the government, the parliament and powerful economic groups couldlead to political instability, which could have a material adverse effect on the value of investments relatingto Russia, including the value of the Shares.

The implementation of government policies targeted at specific individuals or companies could have an adverseeffect on investments in Russia and the Group’s business

During the presidency of Vladimir Putin and the current presidency of Dmitry Medvedev, the political andeconomic situation in Russia has generally become more stable and conducive to investment. However, inthe recent past, Russian authorities have prosecuted some Russian companies, their senior managers andtheir shareholders for tax evasion and related charges. In some cases, the result of such prosecutions hasbeen the imposition of prison sentences for individuals and/or significant claims for unpaid taxes withrespect to companies such as Yukos. Some analysts contend that such prosecutions demonstrate awillingness to reverse key political and economic reforms of the 1990s. Other analysts, however, believethat these prosecutions are isolated events that relate to the specific individuals and companies involvedand do not signal any deviation from broader political and economic reforms or a wider program of assetredistribution. The occurrence of similar events in the future or any significant differences of opinion withthe government over the direction of future reforms or the reversal of the reform process could result in adeterioration in Russia’s investment climate that might constrain the Group’s ability to obtain financing ininternational capital markets, limit its operations in Russia or otherwise have a material adverse effect onits business, results of operations, financial condition or prospects and the trading price of the Shares. Seealso ‘‘—Legislative and legal risks—The Group could be subject to arbitrary government action’’.

27

Risk Factors

Political and governmental instability could create an uncertain operating environment

Russia is a federation of various sub-federal political units, consisting of republics, regions (oblasts),territories (krais), cities of federal importance, an autonomous region and autonomous districts (okrugs),some of which exercise considerable autonomy in their internal affairs pursuant to arrangements with theRussian government. The delineation of authority and jurisdiction between federal, regional and localauthorities is, in many instances, unclear and contested, particularly with respect to the division ofauthority over regulatory matters. Lack of consensus between the federal, regional and local authoritiesoften results in the enactment of conflicting legislation at various levels and may lead to further politicalinstability. In particular, conflicting laws have been enacted in areas of privatisation, securities, corporatelegislation and licensing. Some of these laws and governmental and administrative decisions implementingthem, as well as some transactions consummated pursuant to them, have in the past been challenged in theRussian courts, and such challenges may occur in the future. The Russian political system is vulnerable totension and conflict between federal, regional and local authorities. This lack of consensus createsuncertainties in the operating environment in Russia, which could hinder the Group’s long-term planningefforts and may prevent the Group from effectively and efficiently carrying out its business strategy.

Emerging markets such as Russia are also subject to heightened volatility based on economic, military andpolitical conflicts. For example, a military conflict in August 2008 between Russia and Georgia involvingSouth Ossetia and Abkhazia resulted in significant overall price declines on the Russian stock exchanges.In addition, ethnic, religious, historical and other divisions have, on occasions, given rise to tensions and, insome cases, military conflicts and terrorist attacks. Thus, the conflict in the Russian region of Chechnya inthe late 1990s and into the 2000s brought normal economic activity within Chechnya to a halt for a periodof time as well as negatively affecting the economic and political situation in neighbouring regions.Violence and attacks relating to conflicts in the North Caucasus also spread to other parts of Russia andresulted in terrorist attacks in Moscow, most recently in March 2010, and in various places in southernRussia. In the future, the emergence of any new or escalation of existing tensions, military conflicts orterrorist activities could have significant political consequences, including the imposition of a state ofemergency in some or all regions of Russia. Moreover, any military conflicts and/or terrorist attacks andthe resulting heightened security measures may cause disruptions to domestic commerce of Russia, lead toreduced liquidity, trading volatility and significant reductions in the price of listed Russian securities orsecurities relating to Russian business, which could have a material adverse effect on the Group’s business,results of operations, financial condition or prospects and the trading price of the Shares.

Economic risks

Emerging markets such as Russia are generally subject to greater risks than more developed markets, and globalfinancial or economic crises or even turmoil in any large emerging market country, could have an adverse effect onthe Group’s business and the value of the Shares

Russia’s economy is vulnerable to market downturns and economic slowdowns elsewhere in the world and,generally, investing in emerging markets such as Russia is only suitable for sophisticated investors who fullyappreciate that these markets are subject to greater risk than more developed markets, including in somecases significant legal, economic and political risks. Investors should also note that emerging markets suchas Russia are subject to rapid change and that the information set out in this offering circular may becomeoutdated relatively quickly.

Global financial or economic crises or even financial turmoil in any large emerging market country tend toadversely affect prices of equity securities relating to emerging market country business and prices inequity markets generally of most or all emerging market countries as investors move their money to lessvolatile securities and more stable, developed markets. The emerging capital markets including Russianrelated securities and markets have been highly volatile beginning in 2008, principally due to the impact ofthe recent global financial and economic crisis on the Russian economy. As has happened in the past,financial problems or an increase in the perceived risks associated with investing in emerging economiescould dampen foreign investment in Russia and adversely affect the Russian economy. In addition, duringsuch times, businesses that operate in emerging markets can face severe liquidity constraints as foreignfunding sources are withdrawn. Accordingly, investors should exercise particular care in evaluating therisks involved and must decide for themselves whether, in light of those risks, their investment is

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Risk Factors

appropriate. Potential investors are urged to consult with their own legal and financial advisers beforemaking an investment in the Shares.

Economic instability in Russia could have an adverse effect on the Group’s business

From 2000 until the first half of 2008, Russia experienced rapid growth in its gross domestic product(GDP), higher tax collections and increased stability of the Rouble, providing some degree of economicsoundness. However, the Russian economy has been adversely affected by the recent global financial andeconomic crisis that began in the second half of 2008, which manifested itself through extreme volatility indebt and equity markets, reductions in foreign investment and sharp decreases in GDP around the world.While the situation globally has more recently stabilised, a further deterioration in the global economicsituation may lead to a further worsening of the impact of the economic crisis in Russia, and, as a result,would be likely to impact the Group’s profitability. Any of the following risks, which the Russian economyhas experienced at various times in the past and some of which occurred during the recent crisis, may havea significant adverse effect on the investment climate in Russia and, in turn, may be a significant burden onthe Group’s operations:

• significant declines in its GDP;

• high levels of inflation;

• increases in, or high, interest rates;

• sudden price declines in the natural resource sector;

• instability in the local currency market;

• lack of reform in the banking sector and a weak banking system providing limited liquidity to Russianenterprises;

• the continued operation of unprofitable enterprises due to deficiencies in the existing bankruptcyprocedure;

• widespread tax evasion;

• growth of a black and grey-market economy;

• wide use of barter and non-liquid bills in settlements for commercial transactions;

• pervasive capital flight;

• corruption and the penetration of organised crime into the economy;

• significant increases in unemployment and underemployment; and

• the impoverishment of a large portion of the Russian population.

The Russian economy has been subject to abrupt downturns in the past. For example, on 17 August 1998,in the face of a rapidly deteriorating economic situation, the Russian government defaulted on its Rouble-denominated securities, the CBR stopped its support of the Rouble and a temporary moratorium wasimposed on some hard currency payments. These actions resulted in an immediate and severe devaluationof the Rouble and a sharp increase in the rate of inflation, a dramatic decline in the prices of Russian debtand equity securities and an inability of Russian issuers to raise funds in international capital markets.These problems were aggravated by the near collapse of the Russian banking sector in connection with thesame events. This further impaired the ability of the banking sector to act as a reliable source of liquidity toRussian companies and resulted in the widespread loss of bank deposits.

In December 2008, in the context of a global economic and financial recession, the international creditrating agency Standard & Poor’s Financial Services downgraded Russia’s foreign currency sovereign creditrating, which reflects an assessment by such agency that there is an increased credit risk that the Russiangovernment may default on its obligations, from BBB+/A-2 to BBB/A-3, in large part due to the impact ofthe recent financial and economic crisis that began in the second half of 2008. Moody’s Investors Service,another international credit rating agency, changed its outlook to stable from positive on Russia’s keyratings in December 2008. In February 2009, Fitch Ratings Ltd (Fitch) downgraded its long-term sovereignrating for Russia from BBB+/A-2 to BBB/A-3, stating that the lowering of the ratings on Russia reflects

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risks associated with the sharp reversal in external portfolio and other investment flows, which hasincreased the cost and difficulty of meeting the country’s external financing needs at that time. InSeptember 2010, Fitch revised Russia’s sovereign credit rating outlook from stable to positive, with thecountry’s issuer default ratings in foreign and national currencies affirmed at BBB. According to Fitch’sstatement, the outlook revision reflects progress in lowering the inflation rate and in transitioning to amore flexible exchange rate as well as growth in foreign exchange reserves, which should potentially lowerthe financial vulnerability of Russia’s economy. Although the situation has now stabilised, should any ofthe international credit rating agencies issue negative credit assessments in the future, a reduction inforeign investment and an increased cost of borrowing for the Russian government may occur.

In addition, since Russia produces and exports large quantities of crude oil, natural gas and othercommodities, its economy is particularly vulnerable to fluctuations in the prices of crude oil, natural gasand other commodities on the world market, which reached record high levels in mid-2008 andsubsequently fell dramatically by the end of 2008 and in early 2009 as a result of the recent financial crisis.Oil prices have since rebounded to US$75-85 per barrel but remain extremely volatile. Further pricevolatility may continue to negatively influence the Russian economy.

Any deterioration in the general economic conditions in Russia could adversely influence the level ofconsumer demand for various products, including those sold by the Group, and therefore could have amaterial adverse effect on the Group’s business, results of operations, financial condition or prospects andthe trading price of the Shares.

The physical infrastructure in Russia is in poor condition, which may lead to interruptions in financial andeconomic activity

The physical infrastructure in Russia is largely outdated and has not been adequately funded andmaintained over the past two decades. Russia’s poor physical infrastructure disrupts the transportation ofgoods and supplies as well as communications and adds costs to doing business in Russia. Particularlyaffected are the rail and road networks, power-generation and transmission networks, communicationsystems and building stock. Road conditions throughout Russian are poor, with many roads not meetingminimum requirements for use and safety. Power disruptions also occur: in May 2005, an electricityblackout affected much of Moscow and some other regions in the central part of Russia for one day,disrupting normal business activity. Other parts of the country face similar problems. For example, inAugust 2009, an accident occurred at the Sayano-Shushenskaya Hydroelectric Power Plant in southernSiberia, the largest hydro power plant in Russia in terms of installed capacity, when water from the YeniseiRiver flooded the turbine and transformer rooms at the power plant’s dam, killing more than 70 peopleand causing billions of Roubles in damage. As a result of the accident, the plant halted power production,leading to severe power shortages for both residential and industrial consumers.

The Russian Government is actively seeking to reorganise the nation’s rail, electricity and telephonesystems. Any such reorganisation may result in increased charges and tariffs while failing to generate theanticipated capital investment needed to repair, maintain and improve these systems.

The poor condition or further deterioration of Russia’s physical infrastructure may harm the nationaleconomy, disrupt the transportation of goods and supplies, add costs to doing business in Russia andinterrupt the Group’s business operations, including, among others, its ability to deliver building materialsor other supplies to its project sites and ultimately, its ability to complete its projects on time and withoutcost overruns, each of which could have a material adverse effect on the its business, results of operations,financial condition or prospects and the trading price of the Shares.

The Russian banking system remains under-developed

Russia’s banking and other financial systems are not well developed or well regulated and Russianlegislation relating to banks and bank accounts is subject to varying interpretations and inconsistentapplication. The 1998 financial crisis resulted in the bankruptcy and liquidation of many Russian banks andalmost entirely eliminated the developing market for commercial bank loans at that time. From April toJuly 2004, the Russian banking sector experienced further serious turmoil. As a result of various marketrumours and, in some cases, regulatory and liquidity problems, several privately owned Russian banksexperienced liquidity problems and were unable to attract funds on the interbank market or from their

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Risk Factors

client base. Simultaneously, they faced large withdrawals of deposits by both retail and corporatecustomers. Several of these privately-owned Russian banks collapsed or ceased or severely limited theiroperations. Russian banks owned or controlled by the Russian Government or the CBR and foreign-ownedbanks generally were not adversely affected by the turmoil.

Many Russian banks also do not meet international banking standards, and the transparency of theRussian banking sector still lags behind internationally accepted norms in some respects. Bankingsupervision is also often inadequate, and, as a result, many Russian banks do not follow existing CBRregulations with respect to lending criteria, credit quality, loan loss reserves, exposure diversification orother requirements. The imposition of more stringent regulations or interpretations could lead todeterminations of inadequate capital and the insolvency of some banks.

Prior to the recent global financial crisis, there was a rapid increase in lending by Russian banks, whichmany believe had been accompanied by a deterioration in the credit quality of their borrowers. In addition,a robust domestic corporate debt market was leading to Russian banks increasingly holding large amountsof Russian corporate Rouble-denominated bonds in their portfolios, which further deteriorated the riskprofile of their assets.

The recent global financial crisis has resulted in the collapse or bailout of some Russian banks and insignificant liquidity constraints for others. Profitability levels of most Russian banks have been adverselyaffected. Indeed, the global crisis has prompted the government to inject substantial funds into the bankingsystem amid reports of difficulties among Russian banks and other financial institutions. The Groupgenerally conducts its banking relationships with, and maintains accounts in, a small number of Russianbanks, including Sberbank of Russia, OAO Alfa-Bank, OAO Gazprombank and ZAO Raiffeisenbank. Thebankruptcy or insolvency of one or more of these banks could adversely affect the Group’s business. Whilethe latest banking crisis appears to have been moderated, any future bankruptcy or insolvency of the banksin which the Group holds its funds could prevent it from accessing its funds for several days or affect itsability to complete banking transactions in Russia, or may result in the loss of its deposits altogether, whichcould have a material adverse effect on its business, results of operations, financial condition or prospectsand the trading price of the Shares.

Social risks

Social instability, particularly that caused by worsening economic conditions and turmoil in the Russian financialmarkets, could lead to labour and social unrest, increased support for renewed centralised authority, nationalism orviolence

Failure of the Russian Government to adequately address social problems has led in the past, and couldlead in the future, to labour and social unrest. Further, worsening economic conditions and turmoil inRussian financial markets may result in high unemployment, the failure of state and private enterprises topay full salaries on time and the failure of salaries and benefits generally to keep pace with the increasingcost of living. These conditions have led in the past to some labour and social unrest that may be renewedor escalate in the future. Such labour and social unrest could have political, social and economicconsequences, such as increased support for a renewal of centralised authority, increased nationalism,including support for re-nationalisation of property, or expropriation of, or restrictions on, foreigninvolvement in the Russian economy as well as increased violence. Any of these consequences could havean adverse effect on confidence in Russia’s political and social environment and the value of investments inRussia, restrict the Group’s operations and lead to a loss of revenue, or otherwise have a material adverseeffect on the Group’s business, results of operations, financial condition or prospects and the trading priceof the Shares.

Crime and corruption could create a difficult business climate in Russia

The political and economic changes in Russia in the 1990s have resulted in significant dislocations ofauthority. The local and international press has reported that significant organised criminal activity hasarisen, particularly in large metropolitan centres, and that high levels of corruption exist in Russia,including the bribing of government officials for the purpose of initiating investigations by governmentagencies. Press reports have also described instances in which government officials engage in selectiveinvestigations and prosecutions to further their commercial interests or those of some individuals.

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Risk Factors

Additionally, published reports indicate that a significant number of Russian media regularly publishslanted articles in return for payment. The reported presence of organised or other crime or corruption orpotential future claims (however unfounded) that the Group has been involved in official corruption couldresult in negative publicity or disrupt its ability to conduct its business effectively, which could have amaterial adverse effect on the Group’s business, results of operations, financial condition or prospects andthe trading price of the Shares.

Incomplete, unreliable or inaccurate official data and statistics could create uncertainty

The official data published by the Russian federal, regional and local government agencies are substantiallyless complete or reliable than those of some of the more economically developed countries of NorthAmerica and Europe. Official statistics may also be produced on different bases than those used in moreeconomically developed countries. Additionally, the Group relies on and refers to information fromvarious third-party sources and its own internal estimates. For example, substantially all the informationcontained in this offering circular concerning the Group’s competitors has been derived from publiclyavailable information, including press releases. The Group believes that these sources and estimates arereliable, but it has not independently verified them. However, to the extent that such sources or estimatesare based on official data released by Russian federal, regional and local government agencies, they will besubject to the same uncertainty. Any discussion of matters relating to Russia in this offering circular is,therefore, subject to uncertainty due to concerns about the completeness or reliability of available officialand public information.

Legislative and legal risks

Weaknesses relating to the Russian legal system and Russian laws create an uncertain environment for investmentand business activity in Russia

Risks associated with the Russian legal system include, to varying degrees, the following:

• inconsistencies between: (i) federal laws; (ii) decrees, orders and regulations issued by the President,the government and federal ministers; and (iii) regional and local laws, rules and regulations;

• a lack of judicial and administrative guidance on interpreting legislation as well as a lack of sufficientcommentaries on judicial rulings and legislation;

• the relative unavailability of Russian legislation and court decisions in an organised manner thatfacilitates understanding of such legislation and court decisions;

• the relative inexperience of jurists, judges and courts in interpreting newly adopted legislation andcomplex commercial arrangements;

• substantial gaps in the legal framework due to the delay or absence of implementing regulations forcertain legislation;

• a lack of judicial independence from political, social and commercial forces;

• alleged corruption within the judiciary and the governmental authorities;

• problematic and time-consuming enforcement of both Russian and non-Russian judicial orders andinternational arbitration awards;

• a high degree of discretion on the part of governmental authorities, leaving significant opportunitiesfor arbitrary and capricious government action; and

• bankruptcy procedures that are not well developed and are subject to abuse.

Legislation relating to disclosure and reporting requirements and anti-money laundering legislation haveonly recently been enacted in Russia. The concept of fiduciary duties being owed by management ordirectors to their companies or shareholders is new to Russian law. Violations of disclosure and reportingrequirements or breaches of fiduciary duties could have a material adverse effect on the Group’s business,results of operations, financial condition or prospects and the trading price of the Shares.

Additionally, the relatively recent enactment of many laws and the lack of consensus about the aims, scope,content and pace of economic and political reforms have resulted in ambiguities, inconsistencies and

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anomalies in the Russian legal system. The enforceability and underlying constitutionality of more recentlyenacted laws are in doubt and many new laws remain untested. Any or all of these weaknesses could affectthe Group’s ability to enforce its legal rights in Russia, including rights under its contracts or to defenditself against claims by others.

Lack of independence and inexperience of the judiciary, the difficulty of enforcing court decisions and governmentaldiscretion in enforcing claims could prevent the Group or investors from obtaining effective redress in a courtproceeding

The independence of the judicial system and the prosecutor general’s office and their immunity fromeconomic and political influences in Russia is less than complete. The court system is often understaffedand underfunded. Judges are generally inexperienced in the area of business and corporate law. Judicialprecedents generally have no binding effect on subsequent decisions. Not all Russian legislation and courtdecisions are readily available to the public or organised in a manner that facilitates understanding. TheRussian judicial system can be slow and court orders are not always enforced or followed by lawenforcement agencies. Additionally, the press has often reported that court claims and governmentalprosecutions are sometimes influenced by or used in furtherance of political aims or private interests. TheGroup may be subject to such claims and may not be able to receive a fair hearing. All of these factorsmake judicial decisions in Russia difficult to predict and effective redress uncertain and could have amaterial adverse effect on the Group’s business, results of operations, financial condition or prospects andthe trading price of the Shares.

The law relating to Russian corporate governance and control is subject to inconsistent application and may bedifficult to enforce

The Company and its subsidiaries are Russian and hold their assets in Russia. Accordingly, corporateactions by such companies, and the rights of the Company as their controlling shareholder, are subject tomandatory rules of Russian corporate law. Corporate governance standards in Russia are not as developedas corporate governance standards in western European countries or the United States and generallyprovide less protection for investors. In particular, corporate governance practices in Russia have sufferedfrom a lack of transparency and informational disclosure (both to the public and to shareholders), a lack ofindependence of directors and insufficient regulatory oversight and protection of shareholders’ rights.Despite recent amendments to the Federal Law No. 208-FZ ‘‘On Joint Stock Companies’’ dated26 December 1995, as amended (the Joint Stock Companies Law), minority shareholders possess only alimited ability under Russian law to protect their rights against majority shareholders.

Minority shareholder protection under Russian law principally derives from supermajority shareholderapproval requirements for some corporate actions, as well as from the ability of a shareholder to demandthat the company purchase the shares held by that shareholder if that shareholder voted against or did notparticipate in voting on some types of actions. Companies are also required by Russian law to obtain theapproval of disinterested shareholders for some transactions with interested parties. See also ‘‘Descriptionof Share Capital and Applicable Russian Law’’. In practice, enforcement of these protections has been poor.The supermajority shareholder approval requirement is met by a vote of 75 percent of all voting shares thatare present at a shareholders’ meeting. Thus, controlling shareholders owning slightly less than 75 percentof a company’s outstanding shares may have 75 percent or more voting power if some minorityshareholders are not present at the meeting, and would be in a position to approve amendments to thecompany’s charter or significant transactions, including asset transfers, which could be prejudicial to theinterests of minority shareholders. Further, while the Joint Stock Companies Law provides thatshareholders owning not less than one percent of the company’s shares may bring an action for damages onbehalf of the company, Russian courts to date have not had extensive experience with these lawsuits.Russian law also does not contemplate class action litigation. Accordingly, an investor’s ability to pursuelegal redress against the Company may be limited, reducing the protections available to investors as aholder of the Shares.

In addition, as with other areas of Russian law, the Russian courts’ interpretation of corporate lawconcepts are at times inconsistent. See ‘‘—Weaknesses relating to the Russian legal system and Russian lawscreate an uncertain environment for investment and business activity in Russia’’ and ‘‘—Lack of independenceand inexperience of the judiciary, the difficulty of enforcing court decisions and governmental discretion in

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Risk Factors

enforcing claims could prevent the Group or investors from obtaining effective redress in a court proceeding’’.For example, there are conflicting interpretations as to when shareholder approval of a transaction isrequired as a ‘‘major transaction’’ or, alternatively, when the transaction may be validly authorised by thecompany’s officers. Accordingly, the Group may be subject to an increased burden in seeking to complywith all reasonably possible interpretations of such requirements or may find itself in formalnon-compliance with such requirements. In addition, judgements rendered by a court in any jurisdictionoutside Russia will be recognised by courts in Russia only if (i) an international treaty exists betweenRussia and the country where the judgement was rendered providing for the recognition of judgements incivil cases or (ii) a federal law of Russia providing for the recognition and enforcement of foreign courtjudgements is adopted. No such federal law has been passed, and no such treaty exists between Russia andthe United States or the United Kingdom. As such, the Company may not be able to enforce foreignjudgements against its Russian subsidiaries. These uncertainties could have a material adverse effect on theGroup’s business, results of operations, financial condition or prospects and the trading price ofthe Shares.

Investors could have difficulty enforcing certain rights against the Company

The Company’s place of registration and principal place of business are in Russia, and all the executiveofficers and all the directors of the Company reside in Russia. All of the Group’s assets and a substantialportion of the directors’ and executive officers’ assets are located in Russia. As a result, investors may notbe able to effect service of process within the investors’ jurisdiction on any of these persons. Further, it maynot be possible for investors (for reasons described below) to enforce in Russia a judgment of state courtsor arbitral awards obtained against the Company or those other persons in Russian courts.

Judgments rendered by a court in any jurisdiction outside of Russia will be recognised by courts and stateauthorities in Russia only if (i) an international treaty providing for the recognition and enforcement ofjudgments in civil cases exists between the Russian Federation and the country where the judgment isrendered, and (ii) a Russian federal law provides for the recognition and enforcement of foreign courtjudgments on the basis of an international treaty or reciprocity.

The Russian Federation is not party to multilateral or bilateral treaties with most Western jurisdictions forthe mutual recognition or enforcement of foreign court judgments. In particular, there is no treaty thatdirectly provides for the reciprocal enforcement of foreign court judgments in civil and commercial casesexists between most Western jurisdictions, including the United Kingdom, on one hand, and Russia, on theother. Even if such a treaty were in place, Russian courts might nonetheless refuse to recognise or enforcea foreign court judgment on the grounds set forth in such treaty and in Russian law in effect on the date onwhich such recognition or enforcement was sought. Consequently, should a judgment be obtained from acourt in any such jurisdiction, it is highly unlikely to be given direct effect in Russian courts.

Shareholder liability under Russian corporate law could cause the Company to become liable for the obligations ofits subsidiaries

Russian law generally provides that shareholders in a Russian joint-stock company or participants in alimited liability company are not liable for that company’s obligations and risk only the loss of theirinvestment. This may not be the case, however, when one legal entity is capable of determining decisionsmade by another entity. The legal entity capable of determining such decisions is called the effective parententity (osnovnoye obshchestvo in Russian). The legal entity whose decisions are capable of being sodetermined is called the effective subsidiary entity (docherneye obshchestvo in Russian). The effectiveparent bears joint and several liability for transactions concluded by the effective subsidiary in carrying outbusiness decisions if:

• the effective parent gives binding directions to the effective subsidiary; and

• the right of the effective parent to give binding instructions is set out in the charter of the effectivesubsidiary or in a contract between such entities.

In addition, under Russian law, an effective parent is secondarily liable for an effective subsidiary’s debts ifan effective subsidiary becomes insolvent or bankrupt as a result of the action of an effective parent. Inthese instances, the other shareholders of the effective subsidiary may claim compensation for the effectivesubsidiary’s losses from the effective parent that causes the effective subsidiary to take action or fail to take

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Risk Factors

action knowing that such action or failure to take action would result in losses. The Company could befound to be the effective parent of its subsidiaries, in which case it would become liable for their debts,which could have a material adverse effect on its business, results of operations, financial condition orprospects and the trading price of the Shares.

Shareholder rights provisions under Russian law could impose significant additional obligations on the Company

Russian law provides that shareholders that vote against or abstain from voting on certain matters at ageneral meeting of shareholders have the right to sell their shares to the company. The decisions thattrigger this right to sell shares include decisions with respect to a reorganisation, the approval byshareholders of a ‘‘major transactions’’, which, in general terms, is a transaction involving property disposalworth more than 50 percent of the gross book value of a company’s assets calculated under RAS,regardless of whether the transaction is actually consummated, and an amendment to the company’scharter in a manner that limits shareholders’ rights. The Company’s obligation to purchase shares in thesecircumstances, which is limited to 10 percent of the company’s net assets under RAS at the time the matterat issue is voted upon, could have an adverse effect on its results or operations and financial conditions.

In particular, on 28 September 2010, shareholders of the Company at an extraordinary generalshareholders’ meeting approved the Underwriting Agreement with the Joint Global Coordinators inrelation to the Offering as an interested party and a major transaction involving the potential disposal ofproperty worth more than 50 percent of the Company’s gross book value calculated under RAS. Certainminority shareholders (holding approximately 10.5 percent of the Company’s share capital) did notparticipate in the meeting, abstained from the relevant voting or voted against the resolution, andtherefore have received a right to sell their Ordinary Shares to the Company. In accordance with relatingprovisions of the Joint Stock Companies Law and applicable legal formalities a price of RUB140 perOrdinary Share for this share buy-back was approved by the Board of Directors on 20 August 2010, forwhich purpose the Board of Directors also took into consideration the appraisal report in respect of themarket value of the Ordinary Shares that was obtained from CJSC BDO dated 12 August 2010. Suchminority shareholders may exercise their right to sell the Ordinary Shares back to the Company by sendinga request to it by 12 November 2010 and the Company will be obliged to purchase those Ordinary Shareswithin 30 days from that date. However, under the Joint Stock Companies Law its obligation to purchasethe shares following this buy-back procedure is capped at 10 percent of the Company’s net assetscalculated under RAS at the time of the extraordinary general shareholders’ meeting and where theaggregate amount to be paid for such buy-back would exceed that cap, the number of Ordinary Shares tobe bought-back will be reduced on a pro rata basis.

A Russian legal entity may be liquidated on the basis of formal non-compliance with particular requirements ofRussian law

Russian law provides for particular requirements that should be complied with in the course of establishingand reorganising a Russian company, or during its operation. Russian law allows a court to order theliquidation of a Russian legal entity on the basis of its formal non-compliance with particular requirementsduring its formation or its operation; for example, if it has or has had net assets lower than its share capital.See ‘‘—One of the Company’s subsidiaries had in the past negative net assets and may be subject to an order tobe liquidated’’. In some cases the state registration authorities, even without a court decision, may liquidatea Russian legal entity. Some Russian courts, in deciding whether or not to order the liquidation of acompany, have looked beyond the fact that the company failed to comply fully with all applicable legalrequirements and have taken into account other factors, such as the financial standing of the company andits ability to meet its tax obligations, as well as the economic and social consequences of its liquidation.This judicial approach is supported by a decision of the Russian Constitutional Court that held that evenrepeated violations of law may not serve as a basis for the involuntary liquidation of a company and insteadconsideration should be given to whether the liquidation would be an appropriate sanction for suchviolations. Although some of the Company’s subsidiaries may have failed to comply fully with all theapplicable legal requirements (for example, with respect to one of the Company’s subsidiaries which hadnegative net assets in the past), the Group believes that none of its members should be subject toliquidation on such grounds because none of those violations were significant, caused any damage to anyperson, or have had any other negative consequences. In addition, the Group believes that the Companyand its subsidiaries have been capable at all material times of meeting all of their respective tax and other

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Risk Factors

third party obligations in a timely fashion. However, weaknesses in the Russian legal system create anuncertain legal environment, which makes the decisions of a Russian court or a governmental authoritydifficult, if not impossible, to predict. Therefore, investors should not rely on the Group’s interpretation ofRussian law. If a Russian court or a governmental authority takes a position unfavourable to the Group, itmay need to restructure its operations, which could have a material adverse effect on the Group’s business,results of operations, financial condition or prospects and the trading price of the Shares.

One of the Company’s subsidiaries had in the past negative net assets and may be subject to an order to be liquidated

Russian law requires that a limited liability company or a joint-stock company be liquidated if the value ofits net assets (determined under Russian Accounting Standards (RAS)) is lower than the minimum amountof its charter capital specified by Russian law as at the end of the second year following its incorporation. Ifsuch a company fails to comply with this requirement within a reasonable period of time, a court may orderits liquidation. As at 31 December 2007 and 2008, OOO Taganka Most, a wholly-owned subsidiary of theCompany, had negative net assets and therefore breached this requirement. OOO Taganka Most remediedthe situation in 2009, but the three-year statute of limitations for any actions by the tax authorities has notyet expired. However, it is possible that the Russian tax or other authorities, or third parties, could apply toorder OOO Taganka Most to be put into liquidation, although there is some judicial support for the viewthat, in considering such an application, the courts should look beyond the fact of formal non-complianceand take into account if the liquidation would be an appropriate sanction. See ‘‘—A Russian legal entity maybe liquidated on the basis of formal non-compliance with particular requirements of Russian law’’. There canbe no assurance that an order for the liquidation of OOO Taganka Most will not be made, which couldlead to the loss of rights to property held by the relevant company and have a material adverse effect onthe Group’s business, results of operations, financial condition or prospects and the trading price ofthe Shares.

The Group could be subject to arbitrary government action

Government authorities in Russia have a high degree of discretion and at times appear to act selectively orarbitrarily, without hearing or prior notice, and sometimes in a manner that may not be in full accordancewith the law or that may be influenced by political or commercial considerations. Moreover, thegovernment also has the power in some circumstances, by regulation or government act, to interfere withthe performance of, nullify or terminate contracts. Unlawful, selective or arbitrary governmental actionshave reportedly included denial or withdrawal of licences, sudden and unexpected tax audits, criminalprosecutions and civil actions. Federal and local government entities also appear to have used commondefects in matters surrounding share issuances and registration as pretexts for court claims and otherdemands to invalidate such issuances or registrations or to void transactions, seemingly for politicalpurposes. Standard & Poor’s has expressed concerns that ‘‘Russian companies and their investors can besubjected to government pressure through selective implementation of regulations and legislation that iseither politically motivated or triggered by competing business groups’’. In this environment, the Group’scompetitors may receive preferential treatment from the government, potentially giving them acompetitive advantage. Unlawful, selective or arbitrary government action, if directed at the Group’soperations, could lead to the loss of key licences, termination of contracts, invalidation of share issuances,civil litigation, criminal proceedings and imprisonment of key personnel, any of which could have amaterial adverse effect on the Group’s business and results of operations, financial condition or prospectsand the trading price of the Shares.

Russian legislation may not adequately protect against expropriation and nationalisation

The Russian government has enacted legislation to protect foreign investment and other property againstexpropriation and nationalisation. If such property is expropriated or nationalised, legislation provides forfair compensation. However, there is no assurance that such protections would be enforced. Expropriationor nationalisation of the Group’s business could have a material adverse effect on its business, results ofoperations, financial condition or prospects and the trading price of the Shares.

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Risk Factors

It may be difficult to ascertain the validity and enforceability of title to land in Russia and the extent to which it isencumbered or to obtain some approvals, consents or registrations and to comply with the requirements contained inthose approvals, consents, registrations and other regulations

Following the dissolution of the Soviet Union, land reforms commenced in Russia and real estatelegislation changed continuously. Over the following years, more than 100 federal laws, presidentialdecrees and governmental resolutions were enacted or issued. Almost all Russian regions passed their ownreal estate legislation. In many instances, there was no certainty regarding which local, regional or federalgovernment body had power to sell, lease or otherwise dispose of land.

In 2001, the Russian Civil Code was amended, and the new Russian Land Code as well as a number ofother federal laws regulating land use and ownership was enacted. Nevertheless, the legal frameworkrelating to the ownership and use of land and other real property in Russia is not yet sufficiently developedto support private ownership of land and other real property to the same extent as is common in countrieswith more developed market economies. Because of Russia’s vast territory and difficulties of being in atransitional phase, the process of surveying and title registration may last for many years. Thus, it is oftendifficult to ascertain the validity and enforceability of titles to land in Russia and the extent to which titlesare encumbered. Moreover, in order to use and develop land and other real estate in Russia, approvals orconsents of or registrations with various federal, regional and local governmental authorities are required.Further, it is not always clear which governmental body has the right to lease land in relation to particularland plots; construction approval procedures are intricate and such approvals may be contested or totallycancelled; and building and environmental regulations often contain requirements that are difficult to fullycomply with in practice. Failure to obtain the required approvals, consents or registrations and to complywith the requirements contained in such approvals, consents, registrations and other regulations may leadto severe consequences for landowners and other real estate owners and lessees, including with respect toany current construction activities. These failures and other uncertainties mentioned above may have amaterial adverse effect on the Group’s business, results of operations, financial condition or prospects andthe trading price of the Shares.

Russian currency regulation has only recently been liberalised and may remain subject to change

Despite significant recent liberalisation of the Russian currency control regime and the abolition of somerestrictions from 1 January 2007, the Federal Law dated 10 December 2003 No. 173-FZ ‘‘On CurrencyRegulation and Currency Control’’, as amended (the Currency Law), and current regulations still contain anumber of limitations on foreign currency operations. In particular, Russian companies must notifyRussian tax authorities on opening, closing or changes of details of bank accounts denominated in anycurrency with banks located outside of Russia. That notification must be filed within one month of openingor losing an account or changing its details. Moreover, some currency control restrictions were notrepealed from 1 January 2007, and these include a general prohibition of foreign currency operationsbetween Russian companies (except for the operations specifically listed in the Currency Law and theoperations between the authorised banks specifically listed in the CBR regulations) and the requirement torepatriate, subject to some exemptions, export-related earnings to Russia. Restrictions on the Group’sability to conduct some of these transactions could increase its costs, or prevent it from continuingnecessary business operations, or from successfully implementing its business strategy, which could have amaterial adverse effect on its business, results of operations, financial condition or prospects and thetrading price of the Shares.

As a result of the current state of the banking sector, transfers of funds within it into and out of Russia canbe delayed considerably. These delays or other related difficulties could limit the Group’s ability to meetpayment and debt obligations as they become due, which could result in the acceleration of debtobligations and cross-defaults and, in turn, have a material adverse effect on its business, revenues,financial condition, results of operations or prospects and the trading price of the Shares.

RISKS RELATING TO TAXATION

The Russian taxation system is relatively underdeveloped

The Russian Government is constantly reforming the tax system by redrafting parts of the Tax Code of theRussian Federation (the Russian Tax Code). These changes have resulted in some improvements in the tax

37

Risk Factors

climate. As 1 January 2009, the corporate profits tax rate was reduced to 20 percent. For individuals whoare tax residents in Russia, the current personal income tax rate is 13 percent. The general rate of VAT is18 percent.

Russian tax laws, regulations and court practice are subject to frequent change, differing interpretationsand inconsistent and selective enforcement. Under the Russian Constitution, laws that introduce new taxesor worsen a taxpayer’s position cannot be applied retroactively. Nonetheless, there have been severalinstances when such laws have been introduced and applied retroactively.

Despite the Russian Government taking steps to reduce the overall tax burden in recent years in line withits objectives, there is a likelihood that Russia will impose arbitrary or onerous taxes and penalties in thefuture, which could have a material adverse effect on the Group’s business, results of operations, financialcondition or prospects and the trading price of the Shares. In addition, taxes have been utilised as a toolfor significant State intervention in some key industries.

In addition to the usual tax burden imposed on Russian taxpayers, these conditions complicate taxplanning and related business decisions. These uncertainties could possibly expose the members of theGroup to significant fines and penalties and potentially severe enforcement measures despite their bestefforts at compliance, and could result in a greater than expected tax burden, and could have a materialadverse effect on the Group’s business, results of operations, financial condition or prospects and thetrading price of the Shares.

Generally, taxpayers are subject to tax audits for a period of three calendar years immediately precedingthe year in which the audit commences. Under the Tax Code, the tax authorities are prohibited fromcarrying out repeat on-site tax audits in respect of the same taxes for a tax period which has already beenaudited (with some exceptions, such as where an audit is carried out in connection with the restructuring orliquidation of a taxpayer, or as a result of the filing by the taxpayer of an amended tax return decreasingthe tax payable, or by a higher-level tax authority for the purpose of checking the activities of lower-leveltax authorities). The statute of limitations for the commission of an administrative tax offence is alsolimited to three years from the date on which it was committed or from the date following the end of thetax period during which the tax offence was committed (depending on the nature of the tax offence).Nevertheless, based on current judicial interpretation, there may be cases where the statute of limitationsmay be extended beyond three years (for example, the statute of limitation for a criminal tax offence is upto ten years).

Tax audits or inspections may result in additional costs to members of the Group, in particular if therelevant tax authorities conclude that a member of the Group did not satisfy its tax obligations in any givenyear. These audits or inspections may also impose additional burdens on the relevant Group member bydiverting the attention of management resources. The outcome of these audits or inspections could have amaterial adverse effect on the Group’s business, results of operations, financial condition or prospects andthe trading price of the Shares.

In October 2006, the Plenum of the Supreme Arbitration Court of the Russian Federation issued a rulingconcerning judicial practice with respect to unjustified tax benefits. In this context, a tax benefit means areduction in the amount of a tax liability resulting, in particular, from a reduction of the tax base, thereceipt of a tax deduction or tax concession or the application of a lower tax rate, and the receipt of a rightto a refund (or offset) or reimbursement of tax. The ruling provides that where the true economic intent ofoperations is inconsistent with the manner in which they have been taken into account for tax purposes, atax benefit may be deemed to be unjustified. The same conclusion may apply when an operation lacks areasonable economic or business rationale. As a result, obtaining a tax benefit cannot be regarded as abusiness objective in its own right. On the other hand, the fact that the same economic result might havebeen obtained with a lesser tax benefit accruing to the taxpayer does not constitute grounds for declaring atax benefit to be unjustified. Further, there are no rules and little practice for distinguishing between lawfultax optimisation and tax avoidance. The tax authorities have actively sought to apply this concept whenchallenging tax positions taken by taxpayers in court, and are anticipated to expand this trend in the future.Although the intention of this ruling was to combat tax law abuses, in practice there can be no assurancethat the tax authorities will not seek to apply this concept in a broader sense than may have been intendedby the Supreme Arbitration Court.

38

Risk Factors

Recently the Russian Government approved a new Model Treaty between the Russian Federation andforeign countries for the avoidance of double taxation and the prevention of tax evasion on income andproperty (Russian Model Treaty). The Russian Model Treaty was adopted as the basis for negotiating newtreaties with the competent authorities of foreign countries.

In particular, based on the Russian Model Treaty, a competent authority may refuse to grant concessionsestablished by a treaty, among other matters, if:

(a) more than 50 percent of the equity interests in the foreign company belong, directly or indirectly, toparties that are not resident in the state in which the company operates (however, this provision doesnot apply if the owner of the equity interests engages in significant business activity in the country inwhich the foreign company is located, except where such business consists solely of the mereownership of assets and/or the performance of auxiliary operations); or

(b) if the receipt of a concession applicable to the payment of dividends, interest or royalties is one of themain reasons for seeking to apply the treaty.

The above conditions create tax risks in Russia that are more significant than the tax risks typically foundin countries with more developed taxation, legislative and judicial systems. These tax risks may imposeadditional burdens and costs on the Group’s operations, including management resources. Further, theserisks and uncertainties complicate the Group’s tax planning and related business decisions, potentiallyexposing it to significant fines, penalties and enforcement measures, and could materially adversely affectthe Group’s business, results of operations, financial condition or prospects and the trading price ofthe Shares.

Further, Russian tax legislation is consistently becoming more sophisticated. It is possible that new revenueraising measures could be introduced. Although it is unclear how any new measures would operate, theintroduction of such measures may affect the Group’s overall tax efficiency and may result in significantadditional taxes becoming payable. There can be no assurance that additional tax exposures will not arise.Additional tax exposures could have a material adverse effect on the Group’s business, results ofoperations, financial condition or prospects and the trading price of the Shares.

Vaguely drafted Russian transfer pricing rules and lack of reliable pricing information may subject the Group’stransfer prices to challenge by the Russian tax authorities

Transfer pricing legislation became effective in Russia on 1 January 1999. This legislation allows the taxauthorities to make transfer pricing adjustments and impose additional tax liabilities in respect of allcontrolled transactions if the transaction price differs from the market price by more than 20 percent.Controlled transactions include transactions with related parties, barter transactions, foreign tradetransactions and transactions with unrelated parties with significant price fluctuations (that is, if the priceof the transactions differs from the prices of similar transactions by more than 20 percent within a shortperiod of time). Transfer pricing adjustments are also applicable to the trading of securities and derivatives.There has been no formal guidance (although some court practice is already available) as to how theserules should be applied. Further, the State Duma of the Russian Federation is in the process of consideringand adopting proposed amendments to the transfer pricing legislation, which may come into force in 2011.These amendments, if adopted, are expected to result in stricter transfer pricing rules. If the tax authoritieswere to impose significant additional tax liabilities as a result of transfer pricing adjustments, it could havea material adverse impact on the Group’s business, results of operations, financial condition or prospectsand the trading price of the Shares.

Currently, Russian companies cannot be consolidated for tax purposes

Russian tax legislation as in effect on the date of this offering circular does not provide for the possibility ofgroup tax relief or fiscal unity. Consequently, tax losses of the Company or its Russian subsidiaries may notbe applied to reduce the aggregate tax liability of the Group. However, the Russian government in its MainDirections of Russian Tax Policy for 2008 to 2010 has proposed the introduction of the consolidated taxreporting concept that may enable the consolidation of the financial results of taxpayers which are part ofone group for corporate tax purposes. At this time, it is impossible to predict whether, when and how suchconsolidated tax reporting will be enacted and if enacted, how it would be interpreted by the tax authoritiesin practice.

39

Risk Factors

Dividends paid by ETS and TSM to the Company may be subject to tax until mid-2011

With effect from 1 January 2008, a participation exemption exists for Russian profits tax purposes pursuantto which dividends received by one Russian legal entity from another Russian legal entity are taxed at azero rate if the following conditions are satisfied at the time the decision to distribute the dividendsis made:

(a) the Russian legal entity recipient has owned for an uninterrupted period of at least 365 days not lessthan 50 percent of the charter capital of the payor company; and

(b) the Russian legal entity recipient’s contribution to the charter capital of the payor company exceedsRUB500 million. This condition will be abolished from 1 January 2011 and will not apply to dividendsto be paid for the year 2010 (if the dividends are in fact paid on or after 1 January 2011).See ‘‘Taxation’’.

As the Company only acquired more than 50 percent of the equity interests in ETS and TSM on 28 June2010 and 13 May 2010, respectively, the above participation exemption will not apply to dividends declaredby ETS or TSM to the Company until the 365 day requirement in paragraph (a) above is satisfied, inmid-2011. If dividends are declared by ETS or TSM to the Company in 2010 or before that requirement issatisfied in 2011, the Company will be subject to tax on those dividends, which would significantly reducethe net amount of cash received for those dividends by the Company.

Capital gains from the sale of the Shares may be subject to Russian income tax

If a non-resident investor which is a legal entity or an organisation disposes of the Shares (other thanthrough a permanent establishment in Russia) and the proceeds from that disposal are deemed to bereceived from a Russian source, the gross proceeds from that disposal may be subject to withholding tax inRussia at a rate of 20 percent. Alternatively, the capital gain from the sale may be subject to a 20 percentwithholding tax. This gain is generally determined as the gross proceeds from the disposal of the Sharesless the cost of acquisition of those Shares and less expenses incurred by that non-resident investor inrelation to acquisition, holding and sale of the Shares (provided that the cost of the acquisition of theShares and the other expenses can be confirmed by appropriate documentation). Russian withholding taxwould apply to the gross proceeds or, alternatively, capital gains received by the non-resident investor ifmore than 50 percent of the Company’s assets consist of immovable property located in Russia.

Where the proceeds from a disposal of the Shares are received from a source within Russia by anon-resident investor that is an individual, there is a risk that Russian withholding tax would be charged ata rate of 30 percent on the gross proceeds from that disposal less any available cost deduction. Theimposition or risk of imposition of this withholding tax could adversely affect the value of the Shares.

A resident investor which is a legal entity or an organisation should generally be subject to Russian profitstax at a rate of 20 percent of the capital gain. An investor that is a legal entity or organisation not organisedunder Russian law that holds the Shares through a permanent establishment in Russia is entitled to paythis tax to the Russian budget on its own behalf (that is, without the withholding of tax) if that investorprovides the Russian entity acquiring the Shares (being a Russian tax agent) with documentary evidenceconfirming the fact that the income from disposal of Shares is attributable to a permanent establishment ofthe investor in Russia. This evidence includes a notarised copy of the form confirming registration of theinvestor with the Russian tax authorities. Notification must also be issued by the local tax authorities at theinvestor’s place of tax registration confirming the fact that this income from the disposal of Shares isattributable to the permanent establishment of the investor in Russia. The gain is generally determined asthe gross proceeds from the disposal of the Shares less the cost of the acquisition of those Shares and lessexpenses incurred by the resident investor in relation to acquisition, holding and sale of the Shares(provided that the cost of the acquisition of the Shares and the other expenses can be confirmed byappropriate documentation). The imposition or risk of imposition of this withholding tax could adverselyaffect the value of the Shares.

A resident investor who is an individual should generally be subject to income tax at a rate of 13 percent onthe gross proceeds from a disposal of the Shares less any available cost deduction (including, among otherthings, the cost of the acquisition of the Shares). In certain circumstances if the disposal proceeds arepayable by a Russian legal entity, individual entrepreneur or a Russian permanent establishment of a

40

Risk Factors

foreign organisation, the payer may be required to withhold this income tax. Unless the tax is withheld bythe payer, the resident individual investor would be liable to pay the tax to the Russian budget. Theimposition or risk of imposition of this withholding tax could adversely affect the value of the Shares.See ‘‘Taxation’’.

Payments of dividends on the Shares (if any) may be subject to Russian withholding tax

In general, dividend payments by a Russian entity to non-resident legal persons and non-residentindividuals are subject to Russian withholding tax at a rate of 15 percent. Such Russian withholding taxmay generally be subject to reduction pursuant to the terms of an applicable double tax treaty betweenRussia and the country of tax residence of non-resident investors to the extent such non-resident investorsare entitled to benefit from that double tax treaty and the corresponding tax treaty relief provided by thattreaty. Payments of dividends on the Shares made by the Company to non-resident investors may besubject to withholding tax at a reduced rate if a double tax treaty with Russia applies and if the applicabledocumentation requirements are satisfied. For a non-resident legal entity or organisation, thesedocumentation requirements include an annual advance confirmation of the investor’s tax residency.

However, procedures for advance treaty clearance for non-resident individual investors are not providedfor by current Russian legislation. Instead, income tax will be withheld by the company when it paysdividends to non-resident individual investors and those investors may be able to apply for a refund withinone year from the end of the tax period in which the tax was withheld. The documentation requirements toobtain this refund include a confirmation of the income received and the taxes paid in the investor’scountry of tax residence as confirmed by the relevant tax authorities of that country.

Payments of dividends by a Russian entity to an investor which is a legal entity or organisation notorganised under Russian law that holds the Shares through a permanent establishment in Russia aregenerally subject to Russian withholding tax at a rate of 15 percent. An investor that is a legal entity ororganisation not organised under Russian law that holds the Shares through a permanent establishment inRussia is entitled to pay this tax to the Russian budget on its own behalf (that is, without withholding of thetax by a Russian entity distributing the dividends to such investor) if that investor provides the Russianentity distributing the dividends and acting as the Russian tax agent with documentary evidence confirmingthe fact that this dividend income is attributable to a permanent establishment of the investor in Russia.This evidence includes a notarised copy of the form confirming registration of the investor with theRussian tax authorities. Notification must also be issued by the local tax authorities at the investor’s placeof tax registration confirming the fact that this dividend income is attributable to the permanentestablishment of the investor in Russia.

Alternatively, payments of dividends on the Shares made by the Company to an investor which is a legalentity or organisation not organised under Russian law that holds the Shares through a permanentestablishment in Russia may be subject to Russian taxation at a rate not exceeding 9 percent. This lowerrate could apply to each such investor that holds the Shares through a permanent establishment in Russiaif the applicable double tax treaty between Russia and the country of the tax residence of such investorprovides for the non-discrimination of tax residents of such country as compared to Russian tax residents.In that case, a tax rate not exceeding 9 percent, (that is, the rate applicable to Russian legal entities) shouldbe applied with respect to the gross dividend amount payable to such investor to the extent such investor isentitled to benefit under such double tax treaty and provided further that such investor satisfies theRussian tax documentation requirements, including the requirement that an investor should provide anannual advance tax residency confirmation. However, there can be no assurance that such double tax treatyrelief will be available to an investor which is a legal entity or organisation in each case not organised underRussian law that holds the Shares through a permanent establishment in Russia. See ‘‘Taxation’’.

Payments of dividends by a Russian entity to a resident investor who is an individual or legal entity residentin Russia for tax purposes (except legal entities or organisations in each case not organised under Russianlaw that hold the Shares through a permanent establishment in Russia) should generally be subject toRussian withholding tax and such tax should not exceed 9 percent of the gross dividend amount payable toeach Russian resident investor. See ‘‘Taxation’’.

41

DESCRIPTION OF THE OFFERING

The following summary contains selected information about the Shares and the Offering. It does not contain allof the information that may be important to potential investors. Potential investors should read this entireoffering circular, including the ‘‘Risk Factors’’ section and consolidated financial statements, financialinformation and related notes before making any investment decision.

Company Open Joint Stock Company ‘‘Mostotrest’’, an open joint-stockcompany incorporated in Russia, having its registered office at 101990Moscow, 24/7 Myasnitskaya Street, Building 3, Russia. The Companyis registered in the Unified State Register of Legal Entities of the FTSunder number 1027739167246.

Selling Shareholder Marc O’Polo Investments Ltd., a company incorporated in Cyprus.See ‘‘Principal and Selling Shareholders’’.

Offering The Selling Shareholder is offering 62,060,000 Shares in the Offering.The Shares are being offered in Russia and to certain institutionalinvestors outside of Russia and the United States in reliance onRegulation S under the Securities Act.

Open Subscription In connection with the Offering, the Company has authorised theissue of 62,060,000 Ordinary Shares (the New Shares) to be placed byway of an open subscription under Russian law (the OpenSubscription). The Company’s shareholders of record as at8 September 2010, including the Selling Shareholder, have statutorypre-emptive rights to subscribe for the New Shares pro rata to theirexisting shareholding, as at that date. The price per New Share in theOpen Subscription, including for shareholders exercising statutorypre-emptive rights, is expected to be equal to the Offer Price. Underthe terms of the Open Subscription, shareholders who exercisepre-emptive rights to subscribe and pay for New Shares in the OpenSubscription are expected to receive those shares no later than thetwenty-fourth business day after the date of the commencement of theplacement of the New Shares (which is expected to occur on or aboutthe date of this offering circular). The Selling Shareholder willparticipate in the placement of the New Shares on the basis of itsstatutory pre-emptive rights as an existing shareholder and has agreedin the Underwriting Agreement to subscribe for a total of not lessthan 24,824,000 New Shares (the Committed Shares), which, oncecompleted, is expected to result in the Company receivingapproximately US$155.2 million. See ‘‘Use of Proceeds’’. Any NewShares that are not subscribed for by the Company’s shareholders ofrecord as at 8 September 2010 in the exercise of their statutorypre-emptive rights may potentially be offered by the Company inaccordance with the terms of the Open Subscription. The New Sharesto be subscribed for in the Open Subscription, as well as the statutoryRussian prospectus relating to the New Shares, were registered by theFSFM under State registration number 1-03-02472-A-001D on5 October 2010. The New Shares are expected to be admitted totrading on the RTS and the MICEX once the notification on theresults of the Open Subscription is submitted to the FSFM.

Put Option The Selling Shareholder and TKB Capital (CJSC) have entered intoan agreement dated 28 September 2010 under which TKB Capital(CJSC) has the right to sell a certain number of Ordinary Shares tothe Selling Shareholder and the Selling Shareholder is obliged to buythem upon satisfaction of certain terms and conditions (the PutOption). As far as each of the Company and the Selling Shareholder isaware, to facilitate the sale, TKB Capital (CJSC) intends to buy therelevant number of Ordinary Shares from Closed Joint-Stock

42

Description of the Offering

Company ‘‘Transfingroup’’ Asset Management, an asset managementcompany holding Ordinary Shares for NPF Blagosostoyanie, apension fund connected with Russian Railways. The conditionsprecedent to the Put Option include the receipt of the net proceeds ofthe Offering by the Selling Shareholder and receipt of consent fromthe FAS for the purchase of Ordinary Shares by the SellingShareholder under the Put Option (which was received inOctober 2010). The Put Option expires on the earlier of 31 December2010 or three business days after notice of the satisfaction of allconditions precedent. The number of Ordinary Shares to which thePut Option applies is to be calculated by reference to the numbers ofShares being sold in the Offering and the New Shares to be acquiredby each of the Selling Shareholder and NPF Blagosostoyanie in theOpen Subscription and aims to preserve the proportion of OrdinaryShares held by each of them (as between themselves) before theOffering and the Open Subscription. Before the Offering and theOpen Subscription, the Selling Shareholder held approximately50.3 percent and NPF Blagosostoyanie beneficially heldapproximately 36.4 percent of the Ordinary Shares. No assetmanagement company holding Ordinary Shares on behalf of NPFBlagosostoyanie has exercised pre-emptive rights to subscribe for anyNew Shares in the Open Subscription. The sale price per OrdinaryShare under the Put Option is to be calculated as the Offer Price lessa discount of up to four percent. The payment by the SellingShareholder for the Ordinary Shares under the Put Option should bemade in Roubles at the official exchange rate established by the CBRfor the date of this offering circular.

Offer price US$6.25 per Share.

Settlement and delivery of Each purchaser of Shares in the Offering is required to pay for itsShares Shares in US dollars or Roubles, at its election as notified to the Joint

Global Coordinators in accordance with customary practice. Thesettlement price of those shares in Roubles will be the Offer Price perShare, in US dollars, converted into Roubles using the officialexchange rate established by the CBR for the exchange of US dollarsinto Roubles for the day preceding the payment date.

To take delivery of Shares, each purchaser must either have a directsecurities account at the registrar, CJSC ‘‘Registratsionno—depositarnyi Centre Paritet’’ (the Registrar), or a deposit account withClosed Joint Stock Company Depositary Clearing Company (DCC) orNot-for-Profit Partnership The National Depositary Centre (NDC) orany other depositary that has an account with DCC or NDC, or adirect account with the Registrar. See ‘‘Settlement and Delivery’’.

Share capital As at the date of this offering circular, the Company’s share capitalconsisted of 248,240,000 issued and outstanding ordinary shares, eachwith a nominal value of RUB0.14. The issuance of the Shares beingoffered in this Offering and the mandatory Russian prospectus forthose Shares were registered by the FSFM under State registrationnumber 1-03-02472-A on 10 August 2010.

In addition, the Company is authorised by its charter to issue up to248,240,000 additional ordinary shares and, of this amount, the issueof up to 62,060,000 New Shares has been approved by the Board ofDirectors and registered with the FSFM. Following the Offering andthe Open Subscription, and assuming that only the Selling

43

Description of the Offering

Shareholder participates in the Open Subscription to the extent of24,824,000 New Shares, the minimum it is contractually obliged tosubscribe for under the Underwriting Agreement, the Company’sshare capital will consist of 273,064,000 issued and outstandingOrdinary Shares. As at the date of this offering circular, shareholders(other than the Selling Shareholder) have exercised pre-emptive rightsfor 3,439,037 New Shares and, accordingly, assuming that these sharesare paid for and the Selling Shareholder pays for 24,824,000 NewShares (the minimum it is contractually obliged to acquire under theUnderwriting Agreement), upon completion of the OpenSubscription, the Company’s share capital will consist of 276,503,037issued and outstanding Ordinary Shares.

The Ordinary shares are subject to applicable provisions of Russiancorporate law and the Company’s charter and have the rightsdescribed under ‘‘Description of Share Capital and Applicable RussianLaw’’.

Lock-up The Company and the Selling Shareholder have agreed that none ofthe Company, the Selling Shareholder or any person acting on behalfof the Company or the Selling Shareholder will, for a period of180 days after the Closing Date, without the prior written consent ofthe Joint Global Coordinators, (a) (in the case of the Company only)issue, offer, sell, lend, mortgage, assign, contract to sell, pledge,charge, contract to sell or issue, sell any option or contract topurchase, purchase any option or contract to sell or issue, grant anyoption, right or warrant to purchase, lend, or otherwise transfer ordispose of (or publicly announce any such action), directly orindirectly, any Ordinary Shares or any securities convertible orexchangeable into or exercisable for, or substantially similar to, anyOrdinary Shares or any security or financial product whose value isdetermined directly or indirectly by reference to the price of theunderlying securities, including equity swaps, forward sales andoptions or global depositary receipts representing the right to receiveany such securities; or (b) enter into any swap or other agreement thattransfers, in whole or in part, any of the economic consequences ofownership of Ordinary Shares; or (c) enter into any transaction withthe same economic effect as, or agree to, or publicly announce anyintention to enter into any transaction described above, other than ineach case, (i) the offer/subscription and sale of the Shares and theNew Shares contemplated in connection with the Offering, (ii) theoffer and sale of Shares (including New Shares) held by the SellingShareholder to a subsidiary or affiliate of the Selling Shareholder ifthat entity enters into an agreement on substantially similar terms tothe restrictions applicable to the Selling Shareholder above, (iii) theoffer, sale or transfer of any Shares (including New Shares) held bythe Selling Shareholder to any ultimate beneficial owner (or owners)of the Selling Shareholder or any entity controlled by (or jointlycontrolled together with another ultimate beneficial owner (orowners) (or entities controlled by it or them) of the SellingShareholder) or related to that ultimate beneficial owner (or owners),in each case if the transferee or transferees (as applicable) enter intoan agreement on substantially similar terms to the restrictionsapplicable to the Selling Shareholder above, or (iv) the purchase ofShares by the Selling Shareholder pursuant to the Put Option,provided in respect of items (ii) and (iii) above that the person thenholding the Shares shall deliver a written notice to the Joint Global

44

Description of the Offering

Coordinators not later than five business days before the date of suchevent. In addition, asset management companies holding 36.4 percentof the Ordinary Shares on behalf of NPF Blagosostoyanie have agreedto restrictions on conducting transactions with those Ordinary Sharessimilar to the arrangements applicable to the Company and theSelling Shareholder described above, but to apply until 31 May 2011(inclusive), with certain exceptions including in relation to the exerciseof the Put Option. See ‘‘—Put Option’’ and ‘‘Risk Factors—Risksrelating to the Shares—Sale of Ordinary Shares following the Offeringmay result in a decline in the price of the Ordinary Shares’’.

Dividends The Company may pay dividends out of its profits in accordance withthe provisions of its charter, the Regulation on Dividend Policyapproved by the Board of Directors on 30 September 2010 (theDividend Policy Regulation) and applicable laws. In the past, theCompany has paid dividends on the Ordinary Shares from time totime and may consider making dividend payments in the future whenand if commercially prudent, after taking into account its profits, cashflow and capital investment requirements, in accordance withapplicable laws and the Dividend Policy Regulation. Under theDividend Policy Regulation, the Board of Directors, whenrecommending dividend payments to the General Shareholders’Meeting, should take into account the Group’s consolidated net profitattributable to the Company’s shareholders under IFRS for therelevant financial period and should also follow the recommendationsof the Company’s general director as to the use of profit. Ifrecommended to the General Shareholders’ Meeting by the Board ofDirectors, dividends should not be less than 30 percent of the Group’snet profit attributable to the Company’s shareholders under IFRSadjusted for, among other things, certain non-cash items as further setout in the Dividend Policy Regulation. These include adjustments foritems such as negative goodwill, share of profit in equity accountedsubsidiaries, and various other items. If the amount of dividendsdetermined in accordance with the above is more than the Company’scurrent year net profit and retained earnings under RAS, the Board ofDirectors must decrease the amount accordingly. The Company’sshareholders, including holders of the Shares, will be eligible toreceive dividends declared (if any) in respect of a financial year or afinancial quarter and will receive those dividends in Roubles. See‘‘Dividend Policy’’.

Listing and market for the The Ordinary Shares are listed on the ‘‘B’’ list of the RTS and areShares admitted to trading on the MICEX, in each case under the symbol

‘‘MSTT’’. Trading in the Ordinary Shares on the MICEX is expectedto commence on the date of this offering circular. The ISIN(International Security Identification Number) of the Ordinary Sharesis RU0009177331.

The ISIN of the New Shares is RU000A0JR2P3. The New Shares areexpected to be listed on the ‘‘B’’ list of the RTS under the same tickeras the existing Ordinary Shares and admitted to trading on MICEXunder a different ticker for the first three months after their issue,after which the New Shares will be combined with the existingOrdinary Shares under the ticker for those existing Ordinary Shares.The New Shares will become tradeable on the RTS, MICEX andelsewhere only upon the filing of a notification on the results of theOpen Subscription with the FSFM. Such notification is expected to be

45

Description of the Offering

filed upon the completion of the placement of the New Shares and, inany event, within 30 days of the completion of such placement.

Form of Shares Ordinary registered shares in book-entry (non-documentary) form.

Voting rights Each Ordinary Share is entitled to one vote. See ‘‘Description of ShareCapital and Applicable Russian Law’’.

Use of proceeds The Selling Shareholder will receive all of the net proceeds of theOffering. The Company will indirectly receive a portion of theproceeds of the Offering through the participation by the SellingShareholder in the Open Subscription to subscribe for the CommittedShares, as it is contractually obliged to do so under the UnderwritingAgreement. Once completed, this is expected to result in theCompany receiving approximately US$155.2 million. In addition, theSelling Shareholder intends to apply a part of the net proceeds to payfor the Ordinary Shares to be acquired by it if the Put Option isexercised.

The Company intends to use the proceeds from the foregoingtransactions, as well as proceeds from the issue of any other NewShares in the Open Subscription, for general corporate purposes,including for the purchase of plant and equipment. See ‘‘—OpenSubscription’’ and ‘‘Use of Proceeds’’.

Taxation Potential investors may be subject to the Russian withholding tax ondisposal of Shares as well as on dividend income. See ‘‘Risk Factors—Risks relating to Taxation’’ and ‘‘Taxation’’. Payment of dividends by aRussian entity to a Russian resident investor is generally subject toRussian withholding income tax that should not exceed 9 percent ofthe gross dividend amount. Payment of dividends by a Russian entityto a non-resident investor is generally subject to Russian withholdingtax at a rate of 15 percent. A Russian resident investor that is a legalentity or an organisation should generally be subject to Russian profitstax at a rate of 20 percent of capital gains realised on the disposal ofShares by an investor. If a non-resident investor which is a legal entityor an organisation disposes of Shares (other than through apermanent establishment in Russia) and the proceeds from thatdisposal are treated as received from a Russian source, the grossproceeds (or the gain if expenses for the acquisition of the Shares canbe confirmed by appropriate documentation) may be subject toRussian withholding tax at a rate of 20 percent. With respect to anon-resident investor, Russian withholding income tax may generallybe reduced under the terms of an applicable double tax treatybetween Russia and the country of tax residence of such non-residentinvestor to the extent such non-resident investor is entitled to benefitfrom tax treaty relief under an applicable treaty.

For further information, see ‘‘Risk Factors—Risks relating toTaxation—Payments of dividends on the Shares (if any) may be subjectto Russian withholding tax’’ and ‘‘Taxation’’.

Risk factors Prospective investors should consider carefully the risks discussedunder ‘‘Risk Factors’’.

46

USE OF PROCEEDS

Gross proceeds from the Offering will be US$387.9 million. Net proceeds from the Offering will be not lessthan approximately US$372.5 million and reflect the deduction of the maximum aggregate underwritingcommission, as described more fully in ‘‘Plan of Distribution, Selling and Transfer Restrictions’’, ofapproximately US$13.6 million (excluding VAT), and the estimated aggregate expenses of the Offering(excluding those underwriting commissions) which are expected to be approximately US$1.8 million(excluding VAT).

The Company will not receive any proceeds directly from the Offering. However, the Selling Shareholderhas agreed in the Underwriting Agreement to subscribe for the Committed Shares in the OpenSubscription, which once completed, is expected to result in the Company receiving approximatelyUS$155.2 million. In addition, the Selling Shareholder intends to apply a part of the net proceeds to payfor the Ordinary Shares to be acquired by it if the Put Option is exercised.

The Company intends to use the proceeds from the foregoing transactions, as well as proceeds from theissue of any other New Shares in the Open Subscription, for general corporate purposes, including for thepurchase of plant and equipment.

However, under certain circumstances, the FSFM or a court of law could invalidate the proposed issuanceof the New Shares in the Open Subscription. In addition, under Russian law, the placement of the NewShares in the Open Subscription is subject to the filing of a placement notification by the Company withthe FSFM within 30 days following the completion of the Open Subscription, which the Company hasundertaken in the Underwriting Agreement to complete. If the placement notification is not filed with theFSFM for any reason, the Company will be required to return to the Selling Shareholder and any othersubscribers of New Shares the subscription monies received by the Company for the New Shares. Were thisto occur, the Company would not receive the net proceeds from the Offering, and its shareholdingstructure would differ from what is currently contemplated. For more information regarding theCompany’s shareholding structure, see ‘‘Principal and Selling Shareholders’’. See also ‘‘Risk Factors—Risksrelating to the Shares—If the share capital increase and the related Open Subscription are invalidated, theCompany may not receive and retain a significant portion of the proceeds from the Offering and the Company’sshareholding structure may differ substantially from that which is currently contemplated’’.

47

DIVIDEND POLICY

The Company may pay dividends out of its profits in accordance with the provisions of its charter, theRegulation on Dividend Policy approved by the Board of Directors on 30 September 2010 (the DividendPolicy Regulation) and applicable laws. In the past, the Company has paid dividends on the Ordinary Sharesfrom time to time and may consider making dividend payments in the future when and if commerciallyprudent, after taking into account its profits, cash flow and capital investment requirements, in accordancewith applicable laws and the Dividend Policy Regulation.

Under the Dividend Policy Regulation, the Board of Directors, when recommending dividend payments tothe General Shareholders’ Meeting, should take into account the Group’s consolidated net profitattributable to the Company’s shareholders under IFRS for the relevant financial period and should alsofollow the recommendations of the Company’s general director as to the use of profit. If recommended tothe General Shareholders’ Meeting by the Board of Directors, dividends should not be less than 30 percentof the Group’s net profit attributable to the Company’s shareholders under IFRS adjusted for, amongother things, certain non-cash items as further set out in the Dividend Policy Regulation. These includeadjustments for items such as negative goodwill, share of profit in equity accounted subsidiaries, andvarious other items. If the amount of dividends determined in accordance with the above is more than theCompany’s current year net profit and retained earnings under RAS, the Board of Directors must decreasethe amount accordingly.

The Company’s shareholders, including holders of the Shares, will be eligible to receive dividends declared(if any) in respect of a financial year or a financial quarter and will receive those dividends in Roubles.Where the Company declares and pays dividends, shareholders on the relevant record date will be entitledto receive dividends payable in respect of the Ordinary Shares held on that date.

The Company is an operating entity as well as a holding company and therefore, its ability to pay dividendsmay depend in part on the ability of its subsidiaries to pay dividends to the Company under applicablecorporate law and any contractual restrictions on those subsidiaries from doing so. As all of the Company’ssubsidiaries are Russian entities, the payment of dividends by them is contingent upon the sufficiency oftheir earnings, cash flows and distributable reserves. See also ‘‘Risk Factors—Risks relating to the Shares—The Group’s structure may impose restrictions on dividends payable to investors’’. Under Russian law, themaximum dividend payable by those subsidiaries is restricted to the total accumulated retained earnings ofthe relevant subsidiary. See ‘‘Risk Factors—Risks relating to the Shares—Investors may be unable to repatriatetheir earnings from the Shares’’ and ‘‘Description of Share Capital and Applicable Russian Law—Dividends’’.

48

CAPITALISATION

The following table sets out the Group’s cash and cash equivalents, current loans and borrowings and totalcapitalisation as at 30 June 2010 on a historical basis and on an adjusted basis to give effect to (i) theexercise by only the Selling Shareholder of pre-emptive rights to acquire 24,824,000 New Shares in theOpen Subscription, the minimum it is contractually obliged to acquire under the Underwriting Agreement,and (ii) the crediting of the net proceeds received by the Company from the subscription by the SellingShareholder for those New Shares to cash, pending use as described under ‘‘Use of Proceeds’’. No accounthas been taken of any trading activity or other transactions since 30 June 2010. Prospective investorsshould read this table in conjunction with ‘‘Selected Consolidated Financial and Other Information’’,‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ and the FinancialStatements.

As at 30 June 2010

Historical Adjustments(4) As Adjusted(4)

(RUB (US$ (RUB (US$ (RUB (US$millions) millions) millions) millions)(5) millions) millions)(5)

Cash and cash equivalents . . . . . . . . 3,381 110 4,777 155 8,158 265

Short-term loans and borrowings(1) . 10,173 330 — — 10,173 330

Long-term loans and borrowings(2) . . 3,928 128 — — 3,928 128

Equity:Share capital . . . . . . . . . . . . . . . . 131 4 3 0 134 4Share premium . . . . . . . . . . . . . . — — 4,774 155 4,774 155Reserve for available-for-sale

financial assets . . . . . . . . . . . . . 106 3 — — 106 3Retained earnings . . . . . . . . . . . . 10,608 345 — — 10,608 345

Total equity attributable toshareholders of the Company . . 10,845 352 4,777 155 15,622 507

Total equity . . . . . . . . . . . . . . . . . . . 10,845 352 4,777 155 15,622 507

Total capitalisation(3) . . . . . . . . . . . . 14,773 480 4,777 155 19,550 635

(1) Short-term loans and borrowings include the current portion of long-term loans, borrowings and finance leases.

(2) Long-term loans and borrowings excludes the current portion of long-term loans, borrowings and finance leases.

(3) Total capitalisation is the sum of long-term loans and borrowings and total equity.

(4) Assumes that only the Selling Shareholder exercises its pre-emptive rights to acquire 24,824,000 New Shares, the minimum it iscontractually obliged to acquire under the Underwriting Agreement, and no other existing shareholder subscribes for NewShares.

(5) The net proceeds of the Open Subscription have been converted into US dollars using an exchange rate of RUB30.79 =US$1.00, being the Rouble/US dollar exchange rate as quoted by the CBR for 3 November 2010.

49

SELECTED CONSOLIDATED FINANCIAL AND OTHER INFORMATION

The following selected financial and operating information should be read in conjunction with ‘‘Management’sDiscussion and Analysis of Financial Condition and Results of Operations’’ and the financial statementsincluded in this offering circular beginning on page F-3. For a description of the financial statements, see‘‘Presentation of Financial and Other Information—Financial statements’’.

The selected financial information set out below shows some of Mostotrest’s historical consolidatedfinancial and other information as at and for the years ended 31 December 2009 and 2008, Mostotrest’shistorical consolidated financial information as at and for the six months ended 30 June 2009 and thehistorical consolidated financial information of Mostotrest, ETS, TSM, and their consolidated subsidiaries(referred to together as the Group) as at and for the six months ended 30 June 2010. ETS and TSM havebeen included into the consolidated financial statements of Mostotrest from 28 June 2010 and 13 May2010, respectively, being the dates of acquisition of controlling interests in those entities by Mostotrest asfurther described in ‘‘Business and Financial Condition of Recent Acquisitions’’. As at 30 June 2010, theCompany owned a 51.0 percent equity interest in ETS and a 50.1 percent equity interest in TSM.

The information set out below has been derived from, and should be read in conjunction with, the 2009Mostotrest Annual Financial Statements and the 2010 Unaudited Interim Mostotrest FinancialStatements. The information set out below and elsewhere in this offering circular includes certainmeasures that are not defined by IFRS. These include ‘‘EBITDA’’ and ‘‘backlog’’. These measures areincluded for the reasons explained below. However, these measures should not be used instead of, orconsidered as alternatives to, the historical financial results based on IFRS.

For financial information on ETS and TSM, see ‘‘Business and Financial Condition of Recent Acquisitions’’.

SELECTED STATEMENT OF COMPREHENSIVE INCOME DATA

Year ended 31 December Six months ended 30 June

2008 2009 2009 2010

(audited) (unaudited)(RUB millions)

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,334 32,392 13,357 16,433Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . (24,142) (24,211) (9,691) (11,987)

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,192 8,181 3,666 4,446Other income . . . . . . . . . . . . . . . . . . . . . . . . . . 163 194 65 70Administrative expenses . . . . . . . . . . . . . . . . . . (3,490) (3,827) (1,583) (1,680)Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . (736) (261) (53) (174)

Results from operating activities . . . . . . . . . . . . 2,129 4,287 2,095 2,662

Finance income . . . . . . . . . . . . . . . . . . . . . . . . 119 300 333 72Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . (1,007) (1,116) (599) (638)

Net finance costs . . . . . . . . . . . . . . . . . . . . . . . (888) (816) (266) (566)

Share of profit of equity accounted investees . . . — — — 25Profit before income tax . . . . . . . . . . . . . . . . . . 1,241 3,471 1,829 2,121Income tax expense . . . . . . . . . . . . . . . . . . . . . (522) (867) (408) (524)

Profit for the year/period . . . . . . . . . . . . . . . . . 719 2,604 1,421 1,597

Additional (non-IFRS) informationGross margin (percent) . . . . . . . . . . . . . . . . . . . 20.4 25.3 27.4 27.1EBITDA(1)(2) (RUB millions) . . . . . . . . . . . . . . . 3,456 5,708 2,824 3,506EBITDA margin (percent) . . . . . . . . . . . . . . . . . 11.4 17.6 21.1 21.3Backlog(3) (RUB millions) (as at 30 June 2010)

Mostotrest(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122,186ETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,064TSM(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,053Consolidated for the Group (after intra-group eliminations)(4)(5)(6) . . . . . . . . . . . . . . . . 201,395

(1) Mostotrest defines EBITDA as ‘‘profit for the year/period’’ plus ‘‘income tax expense’’, ‘‘net finance costs’’ and ‘‘depreciation’’shown as an adjustment in cash flows from operating activities in the cash flow statement.

50

Selected Consolidated Financial and Other Information

EBITDA is presented as a supplemental measure of Mostotrest’s operating performance. Mostotrest believes this supplementalmeasure is frequently used by securities analysts, investors and other interested parties to evaluate companies in the transportinfrastructure construction industry.

EBITDA has limitations as an analytical tool, and investors should not consider it in isolation, or as a substitute for analysis ofMostotrest’s operating results as reported under IFRS. Some of these limitations are as follows:

• EBITDA does not reflect the impact of financing costs on Mostotrest’s operating performance. Such costs can besignificant and can increase if Mostotrest incurs additional debt.

• EBITDA does not reflect the impact of income taxes on Mostotrest’s operating performance.

• EBITDA does not reflect the impact of depreciation and amortisation on Mostotrest’s operating performance.Mostotrest’s depreciated, depleted or amortised assets will have to be replaced in the future and the depreciation andamortisation expense may not approximate the future replacement cost of these assets. By excluding this expense fromEBITDA, EBITDA does not reflect Mostotrest’s future cash requirements for these replacements.

• Other companies in the transport infrastructure construction industry may calculate EBITDA differently or may use it fordifferent purposes than Mostotrest, limiting its usefulness as a comparative measure.

EBITDA is not defined by, or presented in accordance with, IFRS. EBITDA is not a measurement of Mostotrest’s operatingperformance under IFRS and should not be considered as an alternative to profit for the year/period (as applicable), net cashfrom operating activities, a measure of Mostotrest’s liquidity or any other measure of performance under IFRS. In particular,EBITDA should not be considered as a measure of discretionary cash available to Mostotrest to invest in the growth of itsbusiness.

(2) Reconciliation of EBITDA to profit for the year/period, as applicable.

Year ended 31 December Six months ended 30 June

2008 2009 2009 2010

(audited) (unaudited)(RUB millions)

Profit for the year/period . . . . . . . . . . . . . . . . . . . 719 2,604 1,421 1,597(Plus)/MinusIncome tax expense . . . . . . . . . . . . . . . . . . . . . . (522) (867) (408) (524)Net finance costs . . . . . . . . . . . . . . . . . . . . . . . (888) (816) (266) (566)Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . (1,327) (1,421) (729) (819)

EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,456 5,708 2,824 3,506

(3) Backlog is not a measure defined by IFRS or RAS. The relevant entity’s backlog represents its estimate of the contract value ofits projects that remains to be completed as at a particular date, excluding VAT. Such value is calculated as the total contractvalue for each project less the amounts already recognised as revenue from the contracts for such projects. The total contractvalue of a particular project represents the total amount that the relevant entity expects to recognise as revenue from thecontract for such project, assuming the contract is performed in accordance with its terms. A project is included in the backlogof a relevant entity when a contract for the project is executed. Backlog may not be indicative of the relevant entity’s futureoperating results. See ‘‘Risk Factors—Risks relating to the Group and its industry—The anticipated revenue amounts shown in theGroup’s backlog may decline and may not result in actual revenue or translate into profits’’.

(4) Includes RUB2,524 million additional works for the contract to construct a combined rail and road highway between Adler andAlpika-servis mountain resort, Sochi, Krasnodarski krai, by Mostotrest, the material terms of which were agreed prior to30 June 2010 and the additional contract for which is expected to be entered into by the end of 2010.

(5) Includes a project for TSM for the construction of a traffic interchange at the 21st kilometre of the M-5 ‘‘Ural’’ highway,Moscow region, the material terms of which were agreed prior to 30 June 2010 and the contract for which was entered into inJuly 2010, and a total of RUB5,843 million additional works relating to two other projects, the material terms of which wereagreed prior to 30 June 2010 and the additional contracts for which are expected to be entered into by the end of 2010. Seenotes (2) and (3) under ‘‘Business and Financial Condition of Recent Acquisitions—Limited Liability Company‘‘Transstroymekhanisatsiya’’—Business—Principal projects under construction’’.

51

Selected Consolidated Financial and Other Information

(6) The following table sets out the Group’s consolidated backlog (after intra-group eliminations) by key business part as at 30 June2010.

As at 30 June 2010

(RUB (%)millions,excludingVAT)(4)(5)

Bridges and highways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148,192 73.6Railway infrastructure facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,929 16.8Ports and in-land waterway infrastructure facilities . . . . . . . . . . . . . . . . . . . . . . . . . 3,046 1.5Airfields and airports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,327 4.1Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,901 3.9

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201,395 100.0

SELECTED STATEMENT OF FINANCIAL POSITION DATA

As at 31 December As at2008 2009 30 June 2010

(audited) (unaudited)(RUB millions)

Total non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,859 11,189 19,851Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,850 13,738 31,411

Including cash and cash equivalents . . . . . . . . . . . . . . . . . . . 5,211 4,861 3,381

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,709 24,927 51,262

Total equity attributable to equity holders of the Company . . . 6,968 9,252 10,845

Total long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,882 935 6,467Including secured bank loans . . . . . . . . . . . . . . . . . . . . . . . . — — 208Unsecured bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 833 208 3,501Finance lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219 65 219

Total short-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,859 14,740 33,950Including secured bank loans . . . . . . . . . . . . . . . . . . . . . . . . 5,815 5,040 3,861Unsecured bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,810 805 5,879Current portion of finance lease liabilities . . . . . . . . . . . . . . . 105 165 433

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,741 15,675 40,417

Total equity and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,709 24,927 51,262

SELECTED CASH FLOW DATA

Year ended 31 December Six months ended 30 June

2008 2009 2009 2010

(audited) (unaudited)(RUB millions)

Cash and cash equivalents at 1 January . . . . . . 2,280 5,211 5,211 4,861Net cash from/(used in) operating activities . . . . 3,805 4,982 533 (5,046)Net cash (used in)/from investing activities . . . . . (1,810) (1,166) 140 (1,896)Net cash from/(used in) financing activities . . . . 936 (4,166) (4,014) 5,462

Net increase/(decrease) in cash and cashequivalents . . . . . . . . . . . . . . . . . . . . . . . . . . 2,931 (350) (3,341) (1,480)

Cash and cash equivalents at period end . . . . . . 5,211 4,861 1,870 3,381

52

PRO FORMA FINANCIAL INFORMATION

The unaudited pro forma financial information (the Unaudited Pro Forma Financial Information) below hasbeen prepared to illustrate the effect that the acquisition by the Company of a 51.0 percent equity interestin ETS, completed on 28 June 2010, (the ETS Acquisition) and a 50.1 percent equity interest in TSM,completed on 13 May 2010, (the TSM Acquisition) would have had on the Company’s consolidatedstatements of comprehensive income for the six months ended 30 June 2010 and the year ended31 December 2009 and on the Company’s consolidated statement of financial position as at 31 December2009 if those acquisitions had taken place on 1 January 2009.

TSM maintains its own construction operations and executes construction projects with its own employeesand equipment, which makes its business model broadly comparable to Mostotrest. In comparison, ETSprimarily acts as a general contractor and, as such, relies primarily on subcontractors to execute the actualconstruction works. ETS recognises as revenue the total contract value of projects and amounts incurredfor subcontractors as cost of sales, which results in its revenue being comparable or even larger than that ofMostotrest on a stand-alone basis, while having a relatively small gross margin compared to Mostotrest andTSM. Historically, in many cases, TSM has operated as a subcontractor for ETS, which has resulted insignificant inter-company eliminations in the pro forma financial statements for the year ended31 December 2009 and six months ended 30 June 2010.

In addition, as ETS and TSM are limited liability companies under Russian law, each participant is entitledto withdraw from the company and receive the actual value of its participatory share in the company, if thecompany’s charter so provides. IFRS require such rights to be recognised as a debt instrument andaccordingly, the dividends declared by them on the participation interests are recognised as part of netfinance costs. For further information about these acquisitions, see ‘‘Business and Financial Condition ofRecent Acquisitions’’.

The Unaudited Pro Forma Financial Information has been prepared by making various adjustments to thestand-alone financial statements for Mostotrest, ETS and TSM, as further set out under ‘‘—Notes to the proforma financial information’’ below. These adjustments deal, among other things, with matters such as thegoodwill on Mostotrest’s investment in ETS and TSM, financing arrangements relating to the acquisitions,and depreciation and amortisation.

The Unaudited Pro Forma Financial Information below is provided for illustrative purposes only and doesnot purport to represent what the actual consolidated results of operations or the financial position of theCompany would have been had the acquisitions referred to above occurred on 1 January 2009, nor is itnecessarily indicative of the consolidated results of operations or financial position of the Company for anyfuture periods. The Unaudited Pro Forma Financial Information reflects the Company’s best estimatesand has been prepared on the basis of available information and certain assumptions, which the Companybelieves to be reasonable. The actual consolidated results of operations and financial position of theCompany may differ significantly from the pro forma amounts reflected below because of various factors.

The Unaudited Pro Forma Financial Information below has been based on (with applicable adjustments),and should be read in conjunction with the 2009 Mostotrest Annual Financial Statements, the 2010Unaudited Interim Mostotrest Financial Statements, the 2009 Annual ETS Financial Statements, the 2010Unaudited Interim ETS Financial Statements, the 2009 Annual TSM Financial Statements and the 2010Unaudited Interim TSM Financial Statements included in the section beginning on page F-3 of thisoffering circular.

The Unaudited Pro Forma Financial Information does not reflect any transactions after 30 June 2010.

53

Pro Forma Financial Information

UNAUDITED PRO FORMA STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED

30 JUNE 2010

Total Pro formaMostotrest ETS TSM adjustments(1) Group

(unaudited)(RUB millions)

Revenue . . . . . . . . . . . . . . . . . . . 16,433 14,510 6,187 (5,769) 31,361Cost of sales . . . . . . . . . . . . . . . . (11,987) (12,923) (5,123) 4,807 (25,226)

Gross profit . . . . . . . . . . . . . . . . 4,446 1,587 1,064 (962) 6,135Other income . . . . . . . . . . . . . . . 70 16 139 (50) 175Administrative expenses . . . . . . . (1,680) (417) (246) 83 (2,260)Other operating expenses . . . . . . (174) (80) (34) 6 (282)

Profit from operations . . . . . . . . 2,662 1,106 923 (923) 3,768

Finance income . . . . . . . . . . . . . 72 60 3 (14) 121Finance costs . . . . . . . . . . . . . . . (638) (1,213) (269) (215) (2,335)

Net finance costs . . . . . . . . . . . . (566) (1,153) (266) (229) (2,214)Share of the profit of associates

accounted for using the equitymethod . . . . . . . . . . . . . . . . . . 25 — — — 25

Profit before tax . . . . . . . . . . . . . 2,121 (47) 657 (1,151) 1,580Income tax expense . . . . . . . . . . (524) (230) (209) 248 (715)

Net Profit/(Loss) . . . . . . . . . . . . 1,597 (277) 448 (904) 864

Additional (non-IFRS)information

Gross margin (percent) . . . . . . . . 27.1 10.9 17.2 N/A 19.6EBITDA(2)(3) (RUB millions) . . . . 3,506 1,169 1,191 (326) 5,540EBITDA margin (percent) . . . . . . 21.3 8.1 19.3 N/A 17.7Adjusted net income(4)

(RUB millions) . . . . . . . . . . . . 1,718 923 648 N/A 3,105

(1) The following table sets out a breakdown of total adjustments.

Adjustment Adjustmentfor Adjustment for

elimination for eliminationof Adjustment depreciation of results of

intercompany for financing and operations of Totaltransactions arrangements amortisation TSM adjustments

(unaudited)(RUB millions)

Revenue . . . . . . . . . . . . . . . . . . . (3,647) — — (2,122) (5,769)Cost of sales . . . . . . . . . . . . . . . . 3,756 — (720) 1,771 4,807

Gross profit . . . . . . . . . . . . . . . . . 109 — (720) (351) (962)Other income . . . . . . . . . . . . . . . . (39) — — (11) (50)Administrative expenses . . . . . . . . . 39 — — 44 83Other operating expenses . . . . . . . . — — — 6 6

Profit from operations . . . . . . . . . . 109 — (720) (312) (923)

Finance income . . . . . . . . . . . . . . . (14) — — — (14)Finance costs . . . . . . . . . . . . . . . . 14 (254) — 25 (215)

Net financing costs . . . . . . . . . . . . — (254) — 25 (229)Share of the profit of associates

accounted for using the equitymethod . . . . . . . . . . . . . . . . . . — — — — —

Profit before tax . . . . . . . . . . . . . . 109 (254) (720) (287) (1,151)Income tax expense . . . . . . . . . . . . 22 51 144 75 248

Net Profit/(Loss) . . . . . . . . . . . . . . (87) (203) (576) (212) (904)

54

Pro Forma Financial Information

(2) EBITDA is defined as ‘‘net profit/(loss)’’ plus ‘‘income tax expense’’, ‘‘net finance costs’’ and ‘‘depreciation and amortisation’’.For other considerations relating to EBITDA, see note (1) under ‘‘Selected Consolidated Financial and Other Information—Selected statement of comprehensive income data’’.

(3) Reconciliation of EBITDA to net profit/(loss).

Total Pro formaMostotrest ETS TSM adjustments Group

(unaudited)(RUB millions)

Net Profit/(Loss) . . . . . . . . . . . . . . 1,597 (277) 448 (904) 864(Plus)/MinusIncome tax expense . . . . . . . . . . . (524) (230) (209) 248 (715)Net finance costs . . . . . . . . . . . . (566) (1,153) (266) (229) (2,214)Depreciation . . . . . . . . . . . . . . . (819) (63) (268) (597) (1,747)

EBITDA . . . . . . . . . . . . . . . . . . . 3,506 1,169 1,191 (326) 5,540

(4) Adjusted net income is defined as ‘‘net profit/(loss)’’ plus (as applicable) ‘‘dividends’’ shown in ETS’s and TSM’s statements ofcomprehensive income, ‘‘non controlling interest’’ shown in finance costs in the 2010 Unaudited Interim Mostotrest FinancialStatements, and the adjustment for depreciation and amortisation shown in note (1) above.

55

Pro Forma Financial Information

UNAUDITED PRO FORMA STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED

31 DECEMBER 2009

Total Pro formaMostotrest ETS TSM adjustments(1) Group

(audited) (unaudited)(RUB millions)

Revenue . . . . . . . . . . . . . . . . . . . 32,392 46,805 12,790 (13,016) 78,971Cost of sales . . . . . . . . . . . . . . . . (24,211) (44,067) (11,555) 11,474 (68,359)

Gross profit . . . . . . . . . . . . . . . . 8,181 2,738 1,235 (1,542) 10,612Other income . . . . . . . . . . . . . . . 194 57 170 — 421Administrative expenses . . . . . . . (3,827) (1,049) (513) — (5,389)Other operating expenses . . . . . . (261) (618) — — (879)

Profit from operations . . . . . . . . 4,287 1,128 892 (1,542) 4,765

Finance income . . . . . . . . . . . . . 300 98 5 (45) 358Finance costs . . . . . . . . . . . . . . . (1,116) (375) (911) (463) (2,865)

Net finance costs . . . . . . . . . . . . (816) (277) (906) (508) (2,507)

Profit before income tax . . . . . . . 3,471 851 (14) (2,049) 2,259Income tax expense . . . . . . . . . . (867) (282) (158) 410 (897)

Net Profit/(Loss) from continuingoperations . . . . . . . . . . . . . . . . 2,604 569 (172) (1,640) 1,361

Discontinued operationsProfit from discontinued

operations . . . . . . . . . . . . . . . . — — 274 — 274Net Profit/(Loss) . . . . . . . . . . . . 2,604 569 102 (1,640) 1,635

Additional (non-IFRS)information

Gross margin (percent) . . . . . . . . 25.3 5.8 9.7 N/A 13.4EBITDA(2)(3) (RUB millions) . . . . 5,708 1,227 1,324 (102) 8,157EBITDA margin (percent) . . . . . . 17.6 2.6 10.4 N/A 10.3Adjusted net income(4)

(RUB millions) . . . . . . . . . . . . 2,604 872 498 N/A 3,774

(1) The following table sets out a breakdown of total adjustments.

Adjustmentfor Adjustment

elimination forof Adjustment depreciation

intercompany for financing and Totaltransactions arrangements amortisation adjustments

(unaudited)(RUB millions)

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,016) — — (13,016)Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,914 — (1,440) 11,474

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . (102) — (1,440) (1,542)Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — —Administrative expenses . . . . . . . . . . . . . . . . . . . . — — — —Other operating expenses . . . . . . . . . . . . . . . . . . . — — — —

Profit from operations . . . . . . . . . . . . . . . . . . . . . (102) — (1,440) (1,542)

Finance income . . . . . . . . . . . . . . . . . . . . . . . . . (45) — — (45)Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 (508) — (463)

Net finance costs . . . . . . . . . . . . . . . . . . . . . . . . . — (508) — (508)

Profit before tax . . . . . . . . . . . . . . . . . . . . . . . . . (102) (508) (1,440) (2,049)Income tax expense . . . . . . . . . . . . . . . . . . . . . . . 20 102 288 (410)

Net Profit/(Loss) from continuing operations . . . . . . . (82) (406) (1,152) (1,640)

Discontinued operationsProfit from discontinued operations . . . . . . . . . . . . . — — — —

Net Profit/(Loss) . . . . . . . . . . . . . . . . . . . . . . . . . (82) (406) (1,152) (1,640)

56

Pro Forma Financial Information

(2) EBITDA is defined as ‘‘net profit/(loss) from continuing operations’’ plus ‘‘income tax expense’’, ‘‘net finance costs’’ and‘‘depreciation and amortisation’’. For other considerations relating to EBITDA, see note (1) under ‘‘Selected ConsolidatedFinancial and Other Information—Selected statement of comprehensive income data’’.

(3) Reconciliation of EBITDA to net profit/(loss) from continuing operations.

Total Pro formaMostotrest ETS TSM adjustments Group

(unaudited)(RUB millions)

Net Profit/(Loss) from continuingoperations . . . . . . . . . . . . . . . . 2,604 569 (172) (1,640) 1,361(Plus)/MinusIncome tax expense . . . . . . . . . . . (867) (282) (158) 410 (897)Net finance costs . . . . . . . . . . . . (816) (277) (906) (508) (2,507)Depreciation . . . . . . . . . . . . . . . (1,421) (99) (432) (1,440) (3,392)

EBITDA . . . . . . . . . . . . . . . . . . . 5,708 1,227 1,324 (102) 8,157

(4) Adjusted net income is defined as ‘‘net profit/(loss) from continuing operations’’ plus ‘‘dividends’’ shown in ETS’s and TSM’sstatements of comprehensive income, as applicable, and the adjustment for depreciation and amortisation shown in note (1)above.

UNAUDITED PRO FORMA STATEMENT OF FINANCIAL POSITION FOR THE YEAR ENDED 31 DECEMBER 2009

Total Pro formaMostotrest ETS(1)(2) TSM(1)(2) adjustments(3) Group

(audited) (unaudited)(RUB millions)

Total non-current assets . . . . . . . 11,189 923 2,077 4,444 18,633Total current assets . . . . . . . . . . . 13,738 16,016 2,799 (1,534) 31,019

Including cash and cashequivalents . . . . . . . . . . . . . . 4,861 7,718 213 — 12,792

Total assets . . . . . . . . . . . . . . . . 24,927 16,939 4,876 2,910 49,652

Total equity attributable to equityholders of the Company . . . . . . (9,252) — — 2,169 (7,083)

Total long-term liabilities . . . . . . . (935) (164) 1,071 (6,811) (6,839)Including loans and borrowings . (273) (1) (109) (3,992) (4,375)Non-controlling interest . . . . . . . — (163) 1,180 (2,435) (1,418)

Total short-term liabilities . . . . . . (14,740) (16,775) (5,947) 1,732 (35,730)Including loans and borrowings . (6,010) (38) (475) 444 (6,079)

Total equity and liabilities . . . . . . (24,927) (16,939) 4,876 (2,910) (49,652)

57

Pro Forma Financial Information

NOTES TO THE PRO FORMA FINANCIAL INFORMATION

(1) ETS’s and TSM’s planned capital expenditures (excluding VAT) for the year ending 31 December2010 are approximately RUB98 million and approximately RUB708 million, respectively, primarilyrelated to investments in plant and equipment.

(2) For details, see ‘‘Management’s Discussion and Analysis of Financial Condition and Results ofOperations—Key factors affecting the Group’s results of operations and financial condition—Recentacquisitions’’.

(3) The following table sets out a breakdown of total adjustments.

Adjustmentfor

elimination Adjustment Adjustmentof Adjustment for for

intercompany for financing acquisition of acquisition of Totaltransactions arrangements ETS TSM adjustments

(unaudited)(RUB millions)

Total non-current assets . . . . . (26) 3,586 (59) 944 4,444Total current assets . . . . . . . . (1,534) — — — (1,534)

Including cash and cashequivalents . . . . . . . . . . . . — — — — —

Total assets . . . . . . . . . . . . . . (1,560) 3,586 (59) 944 2,910

Total equity attributable toequity holders of theCompany . . . . . . . . . . . . . . (259) 406 1,144 878 2,169

Total long-term liabilities . . . . 88 (3,992) (1,085) (1,822) (6,811)Including loans and

borrowings . . . . . . . . . . . . — (3,992) — — (3,992)Non-controlling interest . . . . — — (871) (1,564) (2,435)

Total short-term liabilities . . . . 1,732 — — — 1,732Including loans and

borrowings . . . . . . . . . . . . 444 — — — 444

Total equity and liabilities . . . 1,560 (3,586) 59 (944) (2,910)

(4) The following significant assumptions were used in preparing the Unaudited Pro Forma FinancialInformation set out above.

(a) The acquisition date. The ETS Acquisition and the TSM Acquisition occurred on 1 January2009.

(b) The cost of the business combination. The cost that would have been incurred for the shares inETS and TSM had the acquisition taken place on 1 January 2009, would have been equal to theactual consideration paid in April 2010 and amounted to RUB1,264 million andRUB2,220 million, respectively.

(c) Fair values. The estimated fair values of tangible assets, identifiable intangible assets, includingconstruction contracts, liabilities and contingent liabilities of ETS and TSM on 1 January 2009were the same as their fair values on 13 May 2010 for TSM and on 28 June 2010 for ETS,adjusted for the amount of recognised gains and losses and other changes in shareholders’ equityof ETS and TSM from 1 January 2009 to the respective dates of acquisitions.

(d) The financing of the transaction. The transactions to acquire the interests in ETS and TSM werefinanced with Rouble-denominated loans obtained on 1 January 2009. The Unaudited Pro FormaFinancial Information assumes no cash settlements of interest and principal amounts of the loansfrom 1 January 2009 to 30 June 2010.

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Pro Forma Financial Information

(5) The following adjustments have been reflected in the Unaudited Pro Forma Financial Information setout above. These adjustments are expected to have a continuing impact on Mostotrest.

(a) Adjustment for acquisition of TSM. The adjustment corresponds to the pro forma goodwill onMostotrest’s investment in TSM assuming that the acquisition was made on 1 January 2009. Theacquisition of TSM is assumed to involve pro forma goodwill on consolidation as shown below:

(RUBmillions)

Pro forma cost of business combination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,264Pro forma fair value of the net identifiable assets acquired . . . . . . . . . . . . . . . . (346)

The excess of the consideration paid over the fair value of the net identifiableassets, liabilities and contingent liabilities (pro forma goodwill) . . . . . . . . . . . . 918

The pro forma goodwill of RUB918 million differs from the actual goodwill on the acquisition ofTSM amounting to RUB1,113 million by the amount of recognised gains and losses and otherchanges in shareholders’ equity of TSM from 1 January 2009 to 13 May 2010. See notes (4)(b)and (4)(c) above for assumptions applied to the cost of the business combination and the fairvalues of the net identifiable assets.

(b) Adjustment for acquisition of ETS. The adjustment corresponds to the pro forma goodwill onMostotrest’s investment in ETS assuming that the acquisition was made on 1 January 2009. Theacquisition of ETS is assumed to involve pro forma goodwill on consolidation as shown below:

(RUBmillions)

Pro forma cost of business combination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,220Pro forma fair value of the net identifiable assets acquired . . . . . . . . . . . . . . . . (1,129)

The excess of the consideration paid over the fair value of the net identifiableassets, liabilities and contingent liabilities (pro forma goodwill) . . . . . . . . . . . . 1,091

The pro forma goodwill of RUB1,091 million differs from the actual goodwill on the acquisitionof ETS amounting to RUB1,291 million by the amount of recognised gains and losses and otherchanges in shareholders’ equity of ETS from 1 January 2009 to 28 June 2010. See notes (4)(b)and (4)(c) above for assumptions applied to the cost of the business combination and the fairvalues of the net identifiable assets.

(c) Adjustment for financing arrangements. Interest that would have been payable for the year 2009and for the six months ended 30 June 2010 based on an assumed interest rate of 14.57 per centper annum. The related tax effect of 20 percent would have been applied to additional interestexpense.

(d) Adjustment for depreciation and amortisation. The adjustment represents amortisation of theconstruction contract asset which has been identified as part of purchase price allocation at thedate of acquisition. The amortisation period was set up at 24 months since this period representsthe average duration of the projects.

(e) Adjustment for elimination of intercompany transactions. The adjustment represents eliminationof transactions and balances between Mostotrest and each of ETS and TSM.

(f) Adjustment for elimination of the results of operations of TSM. The adjustment representselimination of the results of operations of TSM for the period from 13 May to 30 June 2010.These results are included in the 2010 Unaudited Interim Mostotrest Financial Statements.

59

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the Financial Statements includedelsewhere in this offering circular, ‘‘Presentation of Financial and Other Information’’, ‘‘Selected ConsolidatedFinancial and Other Information’’ and ‘‘Pro Forma Financial Information’’.

In addition, the following discussion contains forward-looking statements that reflect the Group’s plans,estimates and beliefs. The Group’s actual results may differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those discussed belowand elsewhere in this offering circular, including in ‘‘Risk Factors’’.

OVERVIEW

The Group is the leading diversified Russian transport infrastructure construction group, with a7.8 percent share of the Russian infrastructure construction market (excluding repair and maintenanceworks) by revenue in 2009 (including the market share of ETS and TSM) for works conducted in-house,according to PMR. The Group’s core operations, which include bridge and highway construction, areimplemented through its parent company and main operating entity, Mostotrest. It operates in many of themost economically prosperous regions in Russia, including in and around Moscow, St. Petersburg, Sochi,Nizhny Novgorod, Yaroslavl, Rostov-on-Don and elsewhere in the North-Western, Central and SouthernFederal Districts.

Mostotrest was the largest bridge engineering and construction company in Russia in 2009 by revenue forworks conducted in-house, with an estimated market share of 25 percent of Russian bridge constructionprojects, according to PMR estimates. It has constructed many landmark bridges and traffic interchanges,including the cable-stayed bridge over the Neva river in St. Petersburg (completed in 2007), the cable-stayed bridge in Serebrianyi Bor in Moscow (completed in 2007), the cable-stayed bridge over the Okariver in Murom (completed in 2009), the bridge over the Angara river in Irkutsk (completed in 2009) andthe Pulkovo traffic interchange in St. Petersburg (completed in 2007). See ‘‘Business—Mostotrestoperations—Principal completed projects’’.

While historically Mostotrest has been a specialist bridge contractor, in response to the recent trend in theRussian construction market for customers to tender whole transport infrastructure construction projects,Mostotrest has grown its operations organically to become an integrated diversified construction servicesprovider, acting as a general contractor on most of its projects.

In the six months ended 30 June 2010, Mostotrest acquired interests in the following companies with whomit has worked closely for some time, to enhance its organic growth:

• a 51.0 percent equity interest in Limited Liability Company ‘‘Corporation Engtransstroy’’ (ETS), atransport infrastructure engineering and construction management company specialising in highway,railway, airport, port, in-land waterways and bridge engineering and construction management withprojects in the Central, the North-Western, the Siberian, the Southern and the Far East FederalDistricts;

• a 50.1 percent equity interest in Limited Liability Company ‘‘Transstroymekhanisatsiya’’ (TSM), atransport infrastructure construction and overhaul company specialising in highway and airportinfrastructure construction with operations in the Central, the Southern and the Far East FederalDistricts; and

• a 25.002 percent equity interest in JSC ‘‘Mostostroy-11’’ (MS-11), a transport infrastructureconstruction company, with operations in the Siberian and the Southern Federal Districts.

Mostotrest’s business (excluding the businesses of ETS, TSM and MS-11) is described in more detail in‘‘Business’’. The businesses of ETS, TSM and MS-11 are described separately in ‘‘Business and FinancialCondition of Recent Acquisitions’’. Collectively, Mostotrest, ETS and TSM (and their consolidatedsubsidiaries) are referred to as the Group.

Mostotrest’s current projects include the construction of a section of the Fourth Ring Road between theEntuziastov highway and the Izmailovskoe highway in Moscow (the Moscow Fourth Ring Road),construction of the first stage of the Moscow-St. Petersburg tollway between the 15th kilometre and the58th kilometre (the Moscow-St. Petersburg tollway), extension of the Nizhny Novgorod subway system,construction of a combined rail and road highway between Adler and the Alpika-servis mountain resort in

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

Sochi, construction of a bridge over the Don river in Rostov-on-Don and construction of a secondary roadalong Kurortnyi avenue in Sochi. See ‘‘Business—Mostotrest operations—Principal projects underconstruction’’. In addition, a number of significant projects are currently implemented by ETS and TSM,including the construction of a section of the St. Petersburg Ring Road, construction of a section of theNaryn-Lugokan railway in Zabaykalski krai, reconstruction of the Sochi airport runways and taxiways andreconstruction and development of the Vladivostok airport runways and taxiways. See ‘‘Business andFinancial Condition of Recent Acquisitions’’.

Pro forma for the acquisition of controlling interests in ETS and TSM, the Group’s consolidated revenuesin 2009 and in the six months ended 30 June 2010 were RUB78,971 million and RUB31,361 million, withEBITDA of RUB8,157 million and RUB5,540 million, respectively. Mostotrest’s consolidated revenues in2008, 2009 and the six months ended 30 June 2010 (including ETS and TSM consolidated from the dates oftheir acquisition) were RUB30,334 million, RUB32,392 million and RUB16,433 million and EBITDA wasRUB3,456 million, RUB5,708 million and RUB3,506 million, respectively.

The Group’s consolidated backlog and Mostotrest’s stand-alone backlog (excluding ETS and TSM) wasRUB201,395 million and RUB122,186 million, respectively, as at 30 June 2010 (in each case, excludingVAT). See ‘‘Business—Mostotrest operations—Backlog’’.

BASIS OF PRESENTATION AND CONSOLIDATION

The 2009 Mostotrest Annual Financial Statements are the consolidated financial statements of Mostotrest,which comprises the Company, two wholly-owned subsidiaries, OOO Taganka Most and OOO MostotrestSPB, and a 51 percent owned subsidiary, OOO Sledyashie Test-Systemy. These financial statements areMostotrest’s first consolidated financial statements prepared in accordance with IFRS, and IFRS 1First-time Adoption of International Financial Reporting Standards has been applied.

The 2009 Annual ETS Financial Statements and the 2009 Annual TSM Financial Statements have beenprepared in accordance with the requirements of IFRS 1 First-time Adoption of International FinancialReporting Standards in connection with ETS’s and TSM’s preparation to adopt IFRS. These financialstatements therefore do not contain comparative figures as at and for the year ended 31 December 2008.When ETS and TSM prepare their first complete set of financial statements under IFRS, as at and for theyear ended 31 December 2010, with comparative figures as at and for the year ended 31 December 2009,they will be prepared in accordance with the standards of, and interpretations under, IFRS in effect as at31 December 2010.

Subsidiaries are entities controlled by the Company. The financial statements of subsidiaries are includedin the consolidated financial statements from the date that control commences until the date that controlceases. The accounting policies of subsidiaries have been changed, when necessary, to align them with thepolicies adopted by Mostotrest. Investments in associates are accounted for using the equity method andare recognised initially at cost. Mostotrest recognises as associates entities in which it has significantinfluence, but not control, over their respective financial and operating policies. Significant influence ispresumed when Mostotrest holds between 20 percent and 50 percent of the voting power of an entity.

In the six months ended 30 June 2010, Mostotrest acquired a 51.0 percent equity interest in ETS(completed on 28 June 2010), a 50.1 percent equity interest in TSM (completed on 13 May 2010) and a25.002 percent equity interest in MS-11 (completed on 16 February 2010). See also ‘‘—Overview’’ and‘‘Business and Financial Condition of Recent Acquisitions’’. ETS, TSM and their respective subsidiaries havebeen consolidated from the date of acquisition by Mostotrest. MS-11 is accounted on an equity basis, as aninvestment in associate.

Accordingly, the 2010 Unaudited Interim Mostotrest Financial Statements consist of the consolidatedfinancial statements of the Group. These Financial Statements, as well as the 2010 Unaudited InterimETS Financial Statements and the 2010 Unaudited Interim TSM Financial Statements, have beenprepared in accordance with IAS 34 ‘‘Interim Financial Reporting’’.

QUALIFIED AUDIT OPINION AS TO THE EXISTENCE OF INVENTORY

In 2009, Mostotrest appointed ZAO KPMG, an independent audit firm, to perform an audit ofMostotrest’s consolidated financial statements as at and for the years ended 31 December 2009 and 2008.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

In 2010, ETS and TSM also appointed ZAO KPMG to perform an audit of their respective preliminaryfinancial statements as at and for the year ended 31 December 2009. The date on which ZAO KPMG wasappointed as auditors of Mostotrest, ETS and TSM was subsequent to the respective balance sheet datesof 31 December 2008 and 1 January 2008. ZAO KPMG believed it to be impracticable to satisfy itself as tothe quantities of Mostotrest’s, ETS’s and TSM’s inventories at those respective dates. Consequently,ZAO KPMG have qualified its audit opinions with respect to the 2009 Mostotrest Annual FinancialStatements, the 2009 Annual ETS Financial Statements and the 2009 TSM Financial Statementsaccordingly.

KEY FACTORS AFFECTING THE GROUP’S RESULTS OF OPERATIONS AND FINANCIAL CONDITION

The Group’s financial results have been affected, and may be affected in the future, by a variety of factors,including those set out below.

Recent acquisitions

In the six months ended 30 June 2010, Mostotrest acquired a 51.0 percent equity interest in ETS(completed on 28 June 2010), a 50.1 percent equity interest in TSM (completed on 13 May 2010) and a25.002 percent equity interest in MS-11 (completed on 16 February 2010). See ‘‘Business and FinancialCondition of Recent Acquisitions’’. The Group’s results of operations for the six months ended 30 June 2010have included the results of operations of ETS and TSM (and each entity’s consolidated subsidiaries) fromthe 28 June 2010 and 13 May 2010, respectively. Accordingly, the Group’s results of operations for the sixmonths ended 30 June 2010 have been affected to some extent, and the Group’s financial position as at30 June 2010 has been significantly affected by these acquisitions, compared with Mostotrest’s results ofoperations for the six months ended 30 June 2009 and Mostotrest’s financial position as at 31 December2009. Therefore, the comparability of the Group’s financial information for the six months ended 30 June2009 and the six months ended 30 June 2010 in the 2010 Unaudited Interim Mostotrest FinancialStatements is limited. See also ‘‘Pro Forma Financial Information’’.

These acquisitions were made to enhance, among other things, Mostotrest’s general contractorcapabilities, technical expertise and geographical presence, in accordance with its strategy. See ‘‘Business—Key strengths—Integrated transport infrastructure construction business model’’ and ‘‘Business—Businessstrategy’’. In future periods, as a result of ETS’s and TSM’s results of operations being consolidated for anentire year/period (as applicable), these acquisitions (in particular the acquisition of ETS) will significantlyaffect the Group’s revenues and cost of sales.

TSM maintains its own construction operations and executes construction projects with its own employeesand equipment, which makes its business model broadly comparable to Mostotrest. In comparison, ETSprimarily acts as a general contractor and, as such, relies primarily on subcontractors to execute the actualconstruction works. ETS recognises as revenue the total contract value of projects and amounts incurredfor subcontractors as cost of sales, which results in its revenue being comparable or even larger than that ofMostotrest on a stand-alone basis, while having a relatively small gross margin compared to Mostotrest andTSM. Historically, in many cases, TSM has operated as a subcontractor for ETS, which has resulted insignificant inter-company eliminations in the pro forma financial statements for the year ended31 December 2009 and six months ended 30 June 2010.

In addition, as ETS and TSM are limited liability companies under Russian law, each participant is entitledto withdraw from the company and receive the actual value of its participatory share in the company, if thecompany’s charter so provides. IFRS require such rights to be recognised as a debt instrument, andaccordingly, the dividends declared by them on the participation interests are recognised as part of netfinance costs. For further information about these acquisitions, see ‘‘Business and Financial Condition ofRecent Acquisitions’’.

Mostotrest’s role in projects

Mostotrest has recently evolved from a specialised bridge constructor to become an integrated transportinfrastructure construction business. The Group plans to continue to focus on winning tenders as thegeneral contractor while minimising its use of subcontractors. The Group expects that the acquisition ofcontrolling interests in ETS and TSM will assist it to realise these aims. See ‘‘Business—Key strengths—

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

Integrated transport infrastructure construction business model’’ and ‘‘Business—Business strategy’’. As theGroup develops and particularly after its acquisition of a controlling interest in ETS, if its business includesprojects where it acts in a general contractor role with a significant part or all of the construction worksbeing subcontracted to third-parties, its revenue and cost of sales is likely to be relatively higher, while itsgross margins may be relatively lower.

Ability to replenish and speed of conversion of backlog

The Group’s future revenue depends on its ability to win competitive tenders and auctions and to enterinto new construction contracts for infrastructure projects, thereby replenishing its backlog. This could beaffected by many factors beyond the control of the Group, such as the speed at which governmentsannounce and tender new projects, as well as the level of competition in the construction market at therelevant time. Project evaluation and selection is an important part of Mostotrest’s business and it uses anintegrated project selection and management system to evaluate, prepare and bid for potential projects.See ‘‘Business—Mostotrest operations—Contract process and contract terms—Contract process’’.

As at 30 June 2010, the Group’s consolidated backlog and Mostotrest’s backlog were RUB201,395 millionand RUB122,186 million, respectively (excluding VAT). The speed at which this backlog is converted intorevenue, which in turn is driven primarily by the rate at which project stages or projects themselvescomplete (see ‘‘—Significant accounting policies, critical accounting estimates and judgments—Significantaccounting policies—Revenue’’) has affected and will continue to affect the Group’s results of operations.See also ‘‘Risk Factors—Risks relating to the Group and its industry—The anticipated revenue amounts shownin the Group’s backlog may decline and may not result in actual revenue or translate into profits’’.

Macroeconomic climate in Russia and Russian Government infrastructure spending

The Group’s results have been, and future results are likely to be, affected by the macroeconomic climatein Russia and Russian Government spending on infrastructure projects. The following table sets outselected information relating to the Russian economy for the periods indicated.

Six monthsendedYears ended 31 December 30 June

2008 2009 2010

Nominal Russian GDP(1) (RUB billion) . . . . . . . . . . . . . . . . . 41,429 39,101 20,733Real GDP growth (percent change, period-on-period) . . . . . . . 5.2 (7.9) 4.2Inflation (percent) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.3 8.8 4.4

Source: Rosstat data revised as at 5 October 2010.

Note:

(1) Gross domestic product at market prices.

The Group’s largest customers include Russian federal, regional and municipal authorities, State agenciesand State-owned companies, private companies and consortia (including those constructing State-fundedprojects). Accordingly, changes in the level of economic activity or general prosperity in Russia may affectgovernment spending on transport infrastructure construction, which directly affects the sources of fundingand spending priorities for these customers and, in turn, the Group’s revenues earned from projects withthese customers, as well as the supply of future transport infrastructure construction projects. However, inthe most recent economic downturn, the decline in nominal and real Russian GDP did not result in asignificant negative impact on the Group’s revenue, which continued to grow in absolute terms. See also‘‘Risk Factors—Risks relating to the Group and its industry—The Group’s revenue is largely dependent onpublic spending on transport infrastructure’’.

Revenue recognition

The Group’s results of operations are affected by the accounting principles applied to recognised revenueand profits from its construction contracts. See also ‘‘—Significant accounting policies, critical accountingestimates and judgments—Significant accounting policies—Revenue’’.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

As at 30 June 2010, all of the Group’s construction contracts were fixed price construction contracts. Whenan outcome of these construction contracts can be estimated reliably, contract revenue and contract costsare recognised as revenue and expenses, respectively, by applying the percentage-of-completion method inaccordance with IAS 11. Accordingly, contract revenue is recognised in proportion to the stage ofcompletion of the contract, while contract costs are recognised as incurred. For Mostotrest, contractsrepresenting 86 percent of its consolidated revenue for the six months ended 30 June 2010 used thismethod, compared with 86 percent of its consolidated revenue for the year ended 31 December 2009 and82 percent of its consolidated revenue for the year ended 31 December 2008.

When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognisedonly to the extent of contract costs incurred that are likely to be recoverable until the time when either areliable estimate can be made or the construction work is completed. As a result, profits from theseprojects are, in effect, typically recognised in the year of completion rather than over the course of aproject’s life. For Mostotrest, contracts representing 13 percent of its consolidated revenue for the sixmonths ended 30 June 2010 used this method, compared with 12 percent in 2009 and 10 percent in 2008(the portion of revenue not covered by this method or the percentage-of-completion method referred to inthe previous paragraph was not determined under IAS 11).

Accordingly, depending on the ability of the Group to reliably estimate the outcome of the constructioncontract, which, in turn, determines whether the percentage-of-completion method will be used to accountfor revenue and expenses related to the contract or whether contract revenue will be recognised to theextent of contract costs incurred, the Group’s results of operations may vary significantly.

The Group’s ability to estimate accurately its construction costs

As the Group’s construction contracts are typically fixed price contracts, its profitability depends on itsability to estimate accurately its construction costs prior to submitting a bid and during the term of eachproject. To do so, it relies on its expertise and experience and uses its management systems and accountingcontrols. Large unanticipated changes in costs during a contract term can therefore affect the revenue andexpense recognition, and the Group’s overall profitability from one financial reporting period to another.See also ‘‘Business—Mostotrest operations—Contract process and contract terms—Contract process’’ and‘‘Risk Factors—Risks relating to the Group and its industry—Actual costs or risks associated with the Group’scontracts may exceed its initial evaluation and lead to cost overruns’’.

In particular, the Group’s ability to estimate the cost of raw materials in the future can have a significantaffect on the profitability of its projects, especially as it does not hedge against price changes for most of itsraw material purchases. The Group’s construction cost estimates take into account anticipated changes inraw material prices, but unexpected raw material price changes during a project term can significantlyaffect the profitability of the project as its ability to pass these increases on to customers is limited. Forexample, in the period prior to the recent economic downturn, rising prices (such as for steel, leading to anincrease in prices for rebar and engineered metal structures) increased Mostotrest’s materials expense,while during the economic downturn in 2009, falls in prices (such as for steel, engineered metal structures,cement and crushed stone) contributed to the decrease in the materials expense in that year.

Seasonality

The Group’s construction and overhaul of highways is, to some extent, affected by seasonality. During theperiod from November to April each year, construction of these projects in some regions of Russia issignificantly impaired by snow cover and low temperatures, reducing the speed of construction or stoppingconstruction completely. Most of the works on these projects are performed during the period from May toOctober each year and therefore, revenue from these projects is biased towards the second half of the year.Further, as customers for these projects are typically invoiced in arrears, cash flows from these projects alsotend to be biased towards the second half of the year. This is currently primarily applicable to the highwayconstruction and overhaul projects of ETS and TSM. For example, in 2009, ETS’s revenue by constructioncontract for bridges and highways was approximately 263 percent higher in the second half of the yearcompared to the first half of the year (with the revenue in the second half of the year being calculated asthe applicable revenue in the 2009 Annual ETS Financial Statements reduced by the applicable revenuefor the first half of 2009 in the 2010 Unaudited Interim ETS Financial Statements), due in part to theeffect of seasonality.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

In addition, the Group’s operating cash flows and working capital are subject to some seasonality due inpart to the fact that customers deriving financing from Russian State and municipal budgets of variouslevels tend to make payments under construction contracts in the second half of the year due to the timingof Russian government budget processes. As a result, the Group’s trade and other receivables decrease inthe second half of the year, with the balance mid-year being greater than at year-end and operating cashflows increase in the second half of the year. Due to constraints on operating cash flows in the first half ofthe year, the Group relies on short-term borrowings from banks to finance its working capital needs andrepays such short-term borrowings in the second half of the year once its operating cash flows begin toincrease.

Exposure to foreign exchange gains and losses

The Group’s exposure to exchange rate fluctuations is limited as all of its operations are based in Russiawith revenue generated in Roubles, and the vast majority of operating expenses also incurred in Roubles.Further, the Group’s borrowings are also denominated primarily in Roubles, which matches the cash flowsgenerated by the Group’s underlying operations and provides a natural hedge against currency risk. Seealso ‘‘—Quantitative and qualitative disclosure on market and other risks—Currency risk’’. The Group has arelatively small amount of finance lease liabilities, trade and other payables and cash and cash equivalentsdenominated in Euros in the periods under review, most of which relate to the purchase or lease of plantand equipment by Mostotrest, which, with the appreciation of the Rouble against the Euro in 2009, didresult in a foreign exchange gain in that year. However, the Group’s overall exposure to exchange ratefluctuations is not likely to significantly affect the Group’s results of operations in the immediate future.

RECENT DEVELOPMENTS

Trading update

For the three months ended 30 September 2010, the Group’s revenue and gross margin has continued toperform generally in line with management’s expectations and the trend in the six months ended 30 June2010, other than for ETS as further described in ‘‘Business and Financial Condition of Recent Acquisitions—Limited Liability Company ‘‘Corporation Engtransstroy’’—Recent developments—Trading update’’.

Share split and share issue

On 30 June 2010, the Company’s general shareholders’ meeting decided to split 1,241,200 ordinary sharesof the Company with par value of RUB28 each into 248,240,000 ordinary shares with par value ofRUB0.14 each at the ratio of 200 to 1. On 2 September 2010, the FSFM registered the report on theresults of the share split and, accordingly, the total number of the Company’s ordinary shares increasedfrom 1,241,200 to 248,240,000. The Company’s general shareholders’ meeting also authorised an additionalissue by the Company of up to 248,240,000 new ordinary shares with par value of RUB0.14 each. On8 September 2010, the Company’s board of directors approved the issue of up to 62,060,000 new ordinaryshares with par value of RUB0.14 each in the Open Subscription. The decision on the issue and the relatedstatutory Russian prospectus were registered by the FSFM under State registrationnumber 1-03-02472-A-001D on 5 October 2010.

Construction contracts

The following significant construction contracts were concluded by Mostotrest in the period from 30 June2010 to 31 October 2010:

• A contract with the State Enterprise Department for the Moscow—St. Petersburg HighwayManagement to overhaul the bridge over the Volga river in the Tver region with a contract value ofRUB2,638 million (excluding VAT). This project is expected to be completed in 2013.

• A contract with OAO Dormost to overhaul the bridge on the Leningradskiy highway over the Moscowchannel with a contract value of RUB460 million (excluding VAT). This project is expected to becompleted in 2011.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

• A contract with the Municipal Enterprise Principal Directorate for Subway, Bridges and HighwayNetwork in Nizhny Novgorod to repair Kanavinskiy bridge in Nizhny Novgorod with a contract valueof RUB786 million (excluding VAT) concluded. This project is expected to be completed in 2011.

• A contract with the Federal State Enterprise Department for the Moscow—Nizhny NovgorodHighway Management of Rosavtodor to reconstruct the bridge overpass over the Alatyr river for theNizhny Novgorod—Saratov highway, lot number 2, in the Nizhny Novgorod region, with a contractvalue of RUB584 million (excluding VAT). This project is expected to be completed in 2011.

• A contract with the Federal State Enterprise Department for the Nizhny Novgorod—Ufa HighwayManagement to construct a bridge over the Sura river for the M-7 ‘‘Volga’’ highway, first stage, in theRepublic of Chuvashia, with a contract value of RUB806 million (excluding VAT). This project isexpected to be completed in 2011.

Further, on 28 October 2010, Federal State Company Directorate for Highway Construction and OverhaulChernomorye announced Mostotrest as the winner of the open tender to enter into a contract for theconstruction of the second and the third sections of a secondary road along Kurortnyi avenue between the172nd kilometre of the M-27 ‘‘Dzhubga-Sochi’’ highway and the PK0 Sochi bypass. This project is to includethe reconstruction of a section of the road between Zemlyanichnaya street and Kurortnyi avenue, Sochi,Krasnodarski krai. The relevant contract is expected to be entered into in November 2010. The project isexpected to have a contract value of approximately RUB50,305 million (excluding VAT) and to becompleted in 2013.

ETS concluded the following significant construction contracts in the period from 30 June 2010 to31 October 2010:

• A contract with the Federal State Enterprise Rosmorport to design and construct access points at seaand river harbours in the commercial seaport Ust-Luga in the Leningradski region with a contractvalue of RUB222 million (excluding VAT). This project is expected to be completed by the end of2010.

• A contract with Olympstroy to design and construct sections of a highway between the Alpika-servisresort and the Sulimovsky brook, between the Sulimovsky brook and the Bezimyanny brook, andbetween the Bezimyanny brook and the biathlon complex in the Krasnodar region (second stage) witha contract value of RUB1,503 million (excluding VAT). This project is expected to be completed in2011.

TSM concluded the following significant construction contracts in the period from 30 June 2010 to31 October 2010:

• A contract with Federal State Enterprise Centravtomagistral to renovate the traffic interchange at the21st kilometre of the M-5 ‘‘Ural’’ highway with a contract value of RUB4,493 million (excluding VAT).This project, for which TSM will act as the general contractor, is expected to be completed in 2013.While entered into after 30 June 2010, this contract is included in TSM’s backlog as at 30 June 2010.See note (5) under ‘‘Selected Financial and Other Information—Selected statement of comprehensiveincome data’’.

• A contract with ETS to construct the foundation for the Main Mediacenter in Sochi with a contractvalue of RUB253 million (excluding VAT). This project is expected to be completed in 2010.

• A contract with ZAO Stroyputinvest to construct a railway line between Losevo and Kamennogorsk,Leningrad region with a contract value of approximately RUB2,894 million (excluding VAT). Thisproject is expected to be completed in 2011.

Borrowings

During the period from 30 June 2010 to 30 September 2010, Mostotrest, on a stand-alone basis, concludeda number of loan agreements with banks in an aggregate principal amount of RUB2,950 million toreplenish working capital. The loans were obtained at a weighted-average effective fixed interest rate of7.6 percent per annum. The loans are unsecured and mature in 2011. During the same period, Mostotrestrepaid RUB1,620 million of its borrowings. In line with past practice, Mostotrest expects to redeem itsoutstanding short-term borrowings in the second half of 2010 (see ‘‘—Seasonality’’). In addition, in October

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2010, Mostotrest entered into a credit facility agreement with OAO Gazprombank for an aggregateprincipal amount of RUB3,000 million to finance the guarantee of its participation in tender and auctionprocesses. The agreement provides for loans to be drawn in tranches for periods of up to 90 days. Thefacility was obtained at a fixed interest rate of 6.35 percent per annum, is unsecured and has been drawn infull. The credit facility agreement under which loans in tranches are drawn matures in 2013. Further, inOctober 2010, Mostotrest also entered into a credit facility agreement with Sberbank of Russia for anaggregate principal amount of RUB1,000 million to finance its working capital requirements. Theagreement allows Mostotrest to draw the facility in tranches. Mostotrest’s indebtedness under theagreement must be repaid in January 2011. The facility was obtained at a fixed interest rate of 6.0 percentper annum and requires Mostotrest to grant the lender direct debit rights to its bank accounts. The loanhas been drawn in full.

ETS, during the period from 30 June 2010 to 30 September 2010, concluded loan agreements with OAONomos-Bank in an aggregate principal amount of RUB1,200 million to fund working capital requirements.These loans, which were secured by revenue from construction contracts and mature by the end of 2010,were obtained at a weighted-average fixed interest rate of 8 percent per annum. During the same period,ETS also borrowed and fully repaid a loan from OAO Alfa-Bank in an aggregate principal amount ofRUB500 million. ETS did not enter into any additional loan agreements in October 2010.

TSM, during the period from 30 June 2010 to 30 September 2010, concluded loan agreements with banksin an aggregate principal amount of RUB1,074 million to fund working capital requirements. These loanswere obtained at a weighted-average fixed interest rate of 8.5 percent per annum and mature between thefourth quarters of 2010 and 2011. RUB300 million of the aggregate principal amount of such loans wassecured by property, plant and equipment. During the same period, TSM repaid RUB1,753 million of itsborrowings. In addition, in October 2010, TSM entered into five loan agreements with OAOTransCreditBank for an aggregate principal amount of approximately RUB467 million. TSM’sindebtedness under these agreements must be repaid between the fourth quarter of 2010 and the secondquarter of 2011. These loans are unsecured and were obtained at a weighted-average fixed interest rate of7.9 percent per annum. During the same period, TSM also repaid in full four loans from OAOTransCreditBank in an aggregate principal amount of approximately RUB468 million.

Partial resumption of funding for the Moscow Fourth Ring Road

As a result of the economic downturn in 2009 and the consequential effect that had on the City ofMoscow’s budget, funding for Mostotrest’s construction works on the Moscow Fourth Ring Road in 2010was reduced substantially in the second half of 2009. However, in the second half of 2010, funding for thisproject has been largely restored, with the allocated amount for 2010 being increased approximatelyfour-fold compared with the reduced amount allocated at the end of 2009, although the restored amountremains less than the amount indicated in the original construction contract.

RESULTS OF OPERATIONS

Description of income statement line items

Revenue

The majority of the Group’s revenue is derived from engineering and construction work. The Grouprecognises revenue from construction projects according to IAS 11. See ‘‘—Key factors affecting the Group’sresults of operations and financial condition—Revenue recognition’’. Accordingly, revenue from aconstruction contract is recognised gradually over the term of the underlying contract. The Group alsoderives revenue from sales of construction materials and the rendering of construction machinery services,such as drilling, pole-driving and installation of retaining walls.

Cost of sales

The majority of the costs of sales are attributed to services of subcontractors, materials, personnelexpenses, other costs (which include costs for installation and construction works required to be performedon the Group’s projects, as well as insurance costs, operational leases, communication costs, security costsand other), as well as depreciation. Labour services, machinery, equipment and vehicles services, designand technological work, maintenance and repair services and fuel are also items included in cost of sales.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

Gross profit and gross margin

Gross profit is calculated by subtracting cost of sales from revenue. Gross margin is gross profit divided byrevenue.

Other income

Other income consists of all income not arising directly from the Group’s ordinary business operations,such as income from sale of Mostotrest’s participation interests in other entities, trading bills of exchange,sale of inventories, gains on disposal of property, plant and equipment, write-offs of accounts payable andbad debt provisioning.

Administrative expenses

Administrative expenses are mainly attributable to personnel expenses, other administrative expenses(which include expenses for insurance, IT services, security services, banks services, operational leases,taxes other than income tax, communication costs, and others) and consultant fees. Administrativeexpenses also include social expenses, expenses for materials and charity contributions.

Other expenses

Other expenses consist of bad debt provisions and losses from the disposal of property, plant andequipment.

Results from operating activities

Results from operating activities is gross profit less distribution expenses, administrative expenses andother expenses, plus other income.

Finance income

Finance income mainly comprises foreign exchange gains. Finance income also includes interest income onloans given and on bank deposits, as well as a share of profit of associates.

Finance costs

Finance costs primarily consist of interest expense incurred on the Group’s borrowings. Finance costs alsoinclude interest expense on finance leases and foreign exchange loss.

Net finance costs

Net finance costs are calculated by subtracting finance costs from finance income.

Profit before income tax

Profit before income tax is calculated by adding finance income to, and subtracting finance costs from,results from operating activities.

Income tax expense

Income tax expenses include current income taxes and deferred income tax expense. Current income taxesinclude all taxes on the taxable income or loss for the year, calculated under Russian law, and anyadjustments of prior years’ taxes. The Group companies pay income tax at the applicable Russian statutoryincome tax rate. In 2008, this rate was 24 percent, but was reduced to 20 percent starting from 1 January2009. Deferred income tax expense reflects the temporary differences between the carrying amounts ofassets and liabilities and their respective tax bases. A deferred tax asset is recognised for unused tax losses,tax credits and deductible temporary differences, to the extent that it is probable that future taxable profitswill be available against which those assets can be utilised.

Profit for the year

Profit for the year is calculated by subtracting income tax expense from profit before income tax.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of operations for the years ended 31 December 2008 and 2009

The following table sets out the principle components of Mostotrest’s statement of comprehensive incomefor the years ended 31 December 2008 and 2009.

Years ended 31 December Change from2008 2009 prior year

(RUB millions) (%)

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,334 32,392 6.8Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24,142) (24,211) (0.3)

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,192 8,181 32.1Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 194 19.0Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,490) (3,827) (9.7)Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (736) (261) (64.5)

Results from operating activities . . . . . . . . . . . . . . . . . . . . . . 2,129 4,287 101.4

Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 300 152.1Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,007) (1,116) (10.8)

Net finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (888) (816) (8.1)

Profit before income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,241 3,471 179.7Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (522) (867) (66.1)

Profit for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 719 2,604 262.2

See also ‘‘—Key factors affecting the Group’s results of operations and financial condition’’.

Revenue

The following table sets out a breakdown of Mostotrest’s revenue for the years ended 31 December 2008and 2009 as presented in the 2009 Mostotrest Annual Financial Statements.

Years ended 31 December Change from2008 2009 prior year

(RUB millions) (%)

Revenue from construction contracts:bridges and highways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,965 23,678 3.1railway infrastructure facilities . . . . . . . . . . . . . . . . . . . . . . 11 2,984 27,027.3other infrastructure facilities . . . . . . . . . . . . . . . . . . . . . . . 3,249 3,026 (6.9)other facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,263 2,286 (29.9)

Total revenue from construction contracts . . . . . . . . . . . . . . . 29,488 31,974 8.4Other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 846 418 (50.6)

Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,334 32,392 6.8

Revenue increased by RUB2,058 million, or 6.8 percent, from RUB30,334 million in the year ended31 December 2008 to RUB32,392 million in the year ended 31 December 2009. This increase resultedprimarily from the increase in construction of railway infrastructure facilities of RUB2,973 million, fromRUB11 million in 2008 to RUB2,984 million in 2009, primarily due to the revenue recognised from thecontract for the construction of a combined rail and road highway between Adler and the Alpika-servismountain resort near Sochi entered into in 2009. Another factor driving the increase in revenue was theincrease in the construction of bridges and highways revenue, which increased by RUB713 million, or3.1 percent, from RUB22,965 million in 2008 to RUB23,678 million in 2009, primarily as a result ofsignificant growth in Mostotrest’s construction projects portfolio and increased revenue recognised underthe contract for the construction of the Moscow Fourth Ring Road entered into in 2008.

These increases were partially offset by a decrease in construction of other facilities revenue ofRUB977 million, or 29.9 percent, from RUB3,263 million in 2008 to RUB2,286 million in 2009, primarilydue to a decrease in the amount of works performed for improvement of an embankment in Yaroslavl andof an observation platform as part of the cable-stayed bridge in Serebrianyi Bor in Moscow as these

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

projects were being completed. In addition, other revenue decreased by RUB428 million, or 50.6 percent,from RUB846 million in 2008 to RUB418 million 2009, resulting from a decrease in construction materialsales and other construction services due to the economic downturn, and construction of otherinfrastructure facilities revenue decreased by RUB223 million, or 6.9 percent, from RUB3,249 million in2008 to RUB3,026 million in 2009, primarily due to a decrease in revenue from the construction of asubway line in Nizhny Novgorod caused by an unanticipated reduction in project funding also due to theeconomic downturn.

Cost of sales

The following table sets out a breakdown of Mostotrest’s cost of sales for the years ended 31 December2008 and 2009.

Years ended 31 December Change from2008 2009 prior year

(RUB millions) (%)

Services of subcontractors . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,286 6,799 8.2Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,230 6,277 (13.2)Personnel expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,583 4,784 4.4Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,312 1,409 7.4Labour services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 998 756 (24.2)Machinery, equipment and vehicles services . . . . . . . . . . . . . . 557 733 31.6Design and technological works . . . . . . . . . . . . . . . . . . . . . . . 390 451 15.6Maintenance and repair services . . . . . . . . . . . . . . . . . . . . . . 238 444 86.6Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420 405 (3.6)Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,128 2,153 1.2

Total costs of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,142 24,211 0.3

Cost of sales increased by RUB69 million, or 0.3 percent, from RUB24,142 million in the year ended31 December 2008 to RUB24,211 million in the year ended 31 December 2009. This was primarily due toan increase in expenses for services of subcontractors, maintenance and repair services and personnelexpenses, reduced by a decrease in expenses for materials and labour services.

In particular, the increase in expenses for services of subcontractors of RUB513 million, or 8.2 percent,from RUB6,286 million in 2008 to RUB6,799 million in 2009 was primarily due to significant growth inMostotrest’s construction projects portfolio broadly in line with the increase in total revenue, whichinvolved an increase in the use of subcontractors’ services for the construction of the Moscow Fourth RingRoad, a subway line in Nizhny Novgorod and a number of projects in Yaroslavl, including a by-passhighway with overpasses and a bridge over the Kotorosl river. Also contributing to the overall increase incosts of sales was an increase in personnel expenses of RUB201 million, or 4.4 percent, fromRUB4,583 million in 2008 to RUB4,784 million in 2009 due to moderate increases in headcount andaverage monthly wages paid to Mostotrest’s employees in 2009 compared to 2008, as a result of an overallincrease in the volume of work and a desire to maintain increased headcount levels such that the increasedvolume of work could be completed without undue delay. In 2008, Mostotrest expanded its plant andequipment and acquired new machinery as part of a fixed assets renewal programme in anticipation of alarge volume of work under new projects, which resulted in an increase in expenses for maintenance andrepair services of RUB206 million, or 86.6 percent, from RUB238 million in 2008 to RUB444 million in2009, and an increase in expenses for machinery, equipment and vehicles services of RUB176 million, or31.6 percent, from RUB557 million in 2008 to RUB773 million in 2009. These increases contributed to thesmall overall increase in cost of sales in 2009 compared to 2008.

These increases were offset to a significant extent by a decrease in expenses for materials ofRUB953 million, or 13.2 percent, from RUB7,230 million in 2008 to RUB6,277 million in 2009 primarilyas a result of a decrease in prices for materials such as steel, engineered metal structures, cement andcrushed stone as the prices for materials decreased from their levels in 2008 prior to the recent economicdownturn. Other factors offsetting the overall increase in costs of sales included a decrease in expenses forlabour services of RUB242 million, or 24.2 percent, from RUB998 million in 2008 to RUB756 million in2009, reflecting a decrease in the use of unskilled third-party labour services as Mostotrest optimised its

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

labour usage by using its own labour resources more efficiently, as reflected in the increase in personnelexpenses discussed above.

Gross profit and gross margin

Gross profit increased by RUB1,989 million, or 32.1 percent, from RUB6,192 million in the year ended31 December 2008 to RUB8,181 million in the year ended 31 December 2009. Gross margin increasedfrom 20.4 percent in the year ended 31 December 2008 to 25.3 percent in the year ended 31 December2009. The increases in gross profit and gross margin were primarily due to significant growth inMostotrest’s revenue, arising primarily from revenue recognised from the contracts for the construction ofthe Moscow Fourth Ring Road and a combined rail and road highway between Adler and the Alpika-servismountain resort near Sochi, without a significant increase in cost of sales, as discussed above.

Other income

Other income increased by RUB31 million, or 19.0 percent, from RUB163 million in the year ended31 December 2008 to RUB194 million in the year ended 31 December 2009. This increase was primarilydue to revenue recognised from trading bills of exchange received from customers and subcontractorstowards parts of the due payments at below face value, which reflects such instruments being less liquidthan cash, and the disposal of Mostotrest’s small participation interest in limited liability company‘‘Souzdorproject’’, a highway design and research institute, that Mostotrest held for a few months.

Administrative expenses

The following table sets out Mostotrest’s administrative expenses broken down by category for the yearsended 31 December 2008 and 2009.

Years ended 31 December Change from2008 2009 prior year

(RUB millions) (%)

Personnel expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,908 2,098 10.0Consulting services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 518 2,490.0Social expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 439 173 (60.6)Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 136 (7.5)Charity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 103 39.2Other administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . 902 799 (11.4)

Total administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . 3,490 3,827 9.7

Administrative expenses increased by RUB337 million, or 9.7 percent, from RUB3,490 million in the yearended 31 December 2008 to RUB3,827 million in the year ended 31 December 2009. The main factordriving the overall increase in administrative expenses was an increase in consulting services ofRUB498 million, from RUB20 million in 2008 to RUB518 million in 2009, which was due to consultantfees connected with an analysis of internal processes and the installation, maintenance and support of ITsystems and computer software to better manage its construction projects.

Also contributing to the overall increase in administrative expenses was an increase in personnel expensesof RUB190 million, or 10.0 percent, from RUB1,908 million in 2008 to RUB2,098 million in 2009, due toan increase in average monthly wages of Mostotrest’s employees and a small increase in headcount in 2009compared to 2008.

These increases were partially offset by a decrease in social expenses of RUB266 million, or 60.6 percent,from RUB439 million in 2008 to RUB173 million in 2009, primarily due to a reduction in social and otheremployee benefits in response to the recent economic downturn, and a decrease in other administrativeexpenses of RUB103 million, or 11.4 percent, from RUB902 million in 2008 to RUB799 million in 2009,primarily due to cost-saving measures implemented by Mostotrest also in response to the recent economicdownturn.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

Other expenses

Other expenses decreased by RUB475 million, or 64.5 percent, from RUB736 million in the year ended31 December 2008 to RUB261 million in the year ended 31 December 2009. This was primarily due to thewriting-off of bad debts in respect of accounts receivable arising in previous years and a transfer in 2008 offixed assets to the city of Moscow in connection with the liquidation of Mostotrest’s service andmaintenance branch.

Results from operating activities

Results from operating activities increased by RUB2,158 million, from RUB2,129 million in the year ended31 December 2008 to RUB4,287 million in the year ended 31 December 2009. This increase was primarilydue to the higher growth in gross profit compared to the lower growth in administrative expenses, as wellas a decrease in other expenses.

Finance income

The following table sets out a breakdown of Mostotrest’s finance income for the years ended 31 December2008 and 2009.

Years ended 31 December Change from2008 2009 prior year

(RUB millions) (%)

Foreign exchange gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 150 —Interest income on loans given . . . . . . . . . . . . . . . . . . . . . . . 75 92 22.7Interest income on bank deposits . . . . . . . . . . . . . . . . . . . . . . 34 56 64.7Share of profit of associates . . . . . . . . . . . . . . . . . . . . . . . . . 10 2 (80.0)

Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 300 152.1

Finance income increased by RUB181 million, from RUB119 million in the year ended 31 December 2008to RUB300 million in the year ended 31 December 2009. This increase was primarily due to a foreignexchange gain of RUB150 million recognised in 2009 (which did not occur in 2008) resulting frompayments under existing Euro-denominated finance leases made in Roubles in 2009 as the Roublestrengthened against the Euro in that period.

Finance costs

The following table sets out a breakdown of Mostotrest’s finance costs for the years ended 31 December2008 and 2009.

Years ended 31 December Change from2008 2009 prior year

(RUB millions) (%)

Interest expense on borrowings . . . . . . . . . . . . . . . . . . . . . . . (941) (1,045) (11.1)Foreign exchange loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8) — —Interest expense on finance leases . . . . . . . . . . . . . . . . . . . . . (58) (71) (22.4)

Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,007) (1,116) (10.8)

Finance costs increased by RUB109 million, or 10.8 percent, from RUB1,007 million in the year ended31 December 2008 to RUB1,116 million in the year ended 31 December 2009. This increase was primarilydue to an increase in the interest expense on borrowings of RUB104 million, from RUB941 million in 2008to RUB1,045 million in 2009, which was due to an increase in the weighted-average effective interest rateon bank loans from 11.9 percent in 2008 to 13.6 percent in 2009 as a result of higher market interest ratesduring the recent economic crisis.

Net finance costs

The increase in finance costs in the year ended 31 December 2009 compared to the year ended31 December 2008 was more than offset by the increase in finance income in the same period. As a result,

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

Mostotrest’s net finance costs decreased by RUB72 million, or 8.1 percent, from RUB888 million in 2008to RUB816 million in 2009.

Profit before income tax

Profit before income tax increased by RUB2,230 million, from RUB1,241 million in the year ended31 December 2008 to RUB3,471 million in the year ended 31 December 2009. This increase was primarilydue to the factors discussed above, including increased revenue.

Income tax expense

Income tax expense increased by RUB345 million, or 66.1 percent, from RUB522 million in the year ended31 December 2008 to RUB867 million in the year ended 31 December 2009. This increase was primarilydue to an increase in profit before income tax of RUB2,230 million in 2009 compared to 2008 as discussedabove, which was partially offset by the decrease in the effective income tax rate (calculated as income taxexpense divided by profit before income tax) from 42.1 percent in 2008 to 25.0 percent in 2009. Thedecrease in the effective income tax rate in 2009 was primarily attributable to the effect of the decrease instatutory income tax rate from 24 percent to 20 percent and was due to a decrease in non tax-deductibleexpenses in 2009 compared to 2008 due to a decrease in social expenses in 2009 compared to 2008.

Profit for the year

Profit for the year increased by RUB1,885 million, from RUB719 million in the year ended 31 December2008 to RUB2,604 million in the year ended 31 December 2009. This increase was primarily due to thefactors discussed above, including increased revenue.

Results of operations for the six months ended 30 June 2009 and the six months ended 30 June 2010

The following table sets out the principle components of Mostotrest’s statement of comprehensive incomefor the six months ended 30 June 2009 and the Group’s statement of comprehensive income for the sixmonths ended 30 June 2010.

Six months ended 30 June Change from2009 2010 prior period

(unaudited)(RUB millions) (%)

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,357 16,433 23.0Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,691) (11,987) (23.7)

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,666 4,446 21.3Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 70 7.7Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,583) (1,680) (6.1)Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (53) (174) (228.3)

Results from operating activities . . . . . . . . . . . . . . . . . . . . . . 2,095 2,662 27.1

Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333 72 (78.4)Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (599) (638) (6.5)

Net finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (266) (566) (112.8)Share of profit of equity accounted investees . . . . . . . . . . . . . — 25 —

Profit before income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,829 2,121 16.0Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (408) (524) (28.4)

Profit for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,421 1,597 12.4

See also ‘‘—Key factors affecting the Group’s results of operations and financial condition’’.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

Revenue

The following table sets out a breakdown of Mostotrest’s revenue for the six months ended 30 June 2009and a breakdown of the Group’s revenue for the six months ended 30 June 2010, as presented in the 2010Unaudited Interim Mostotrest Financial Statements.

Six months ended 30 June Change from2009 2010 prior period

(unaudited)(RUB millions) (%)

Revenue from construction contracts:bridges and highways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,790 8,794 (18.5)railway infrastructure facilities . . . . . . . . . . . . . . . . . . . . . . 351 5,371 1,430.2airfields and airports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 837 —other infrastructure facilities . . . . . . . . . . . . . . . . . . . . . . . 1,645 692 (57.9)other facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 492 134 (72.8)

Total revenue from construction contracts . . . . . . . . . . . . . . . 13,278 15,828 19.2Other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 605 665.8

Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,357 16,433 23.0

Revenue increased by RUB3,076 million, or 23.0 percent, from RUB13,357 million in the six monthsended 30 June 2009 to RUB16,433 million in the six months ended 30 June 2010. This increase wasprimarily due to the increase in revenue attributable to the construction of railway infrastructure facilitiesof RUB5,020 million, from RUB351 million in the six months ended 30 June 2009 to RUB5,371 million inthe six months ended 30 June 2010, primarily as a result of the increased revenue recognised from thecontract for the construction of a combined rail and road highway between Adler and the Alpika-servismountain resort near Sochi entered into in 2009 caused by an increase in construction works performed inthe six months ended 30 June 2010 as contemplated by the contract’s schedule of completion. Alsocontributing to the increase in revenue was the increase in revenue attributable to the construction ofairport infrastructure, from nil in the six months ended 30 June 2009 to RUB837 million in the six monthsended 30 June 2010, due to the revenue recognised from TSM’s airport infrastructure constructioncontracts since TSM’s acquisition by the Company on 13 May 2010, primarily from the contract for thereconstruction of the Sochi airport runways and taxiways entered into in December 2009 and the contractsfor the reconstruction of the Vladivostok airport runways and taxiways entered into in the first half of 2009and the second half of 2009, and the increase in other revenue of RUB526 million, from RUB79 million inthe six months ended 30 June 2009 to RUB605 million in the six months ended 30 June 2010, as a result ofan increase in highway-building and other construction material sales by TSM primarily to itssubcontractors.

These increases were partially offset by the decrease in revenue attributable to the construction of bridgesand highways of RUB1,996 million, or 18.5 percent, from RUB10,790 million in the six months ended30 June 2009 to RUB8,794 million in the six months ended 30 June 2010, primarily as a result of areduction in the amount of work carried out on construction of the Moscow Fourth Ring Road caused byan unanticipated reduction in project funding by the customer. See ‘‘—Recent developments—Partialresumption of funding for the Moscow Fourth Ring Road’’. Also offsetting the increases described abovewere (i) the decrease in revenue attributable to the construction of other infrastructure facilities ofRUB953 million, or 57.9 percent, from RUB1,645 million in the six months ended 30 June 2009 toRUB692 million in the six months ended 30 June 2010, as a result of a decrease in works performed for theconstruction of a subway bridge in Mitino, Moscow as this project was being completed, and a decrease inworks performed for the construction of a subway line in Nizhny Novgorod caused by an unanticipatedreduction in project funding in 2009 during the economic downturn, and (ii) the decrease in revenueattributable to the construction of other facilities of RUB358 million, or 72.8 percent, fromRUB492 million in the six months ended 30 June 2009 to RUB134 million in the six months ended 30 June2010, primarily as a result of a decrease in works performed for a project involving the protection of theVolga river banks in Yaroslavl as this project was being completed.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cost of sales

The following table sets out a breakdown of Mostotrest’s cost of sales for the six months ended 30 June2009 and a breakdown of the Group’s cost of sales for the six months ended 30 June 2010.

Six months ended 30 June Change from2009 2010 prior period

(unaudited)(RUB millions) (%)

Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,542 3,693 45.3Personnel expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,077 2,723 31.1Services of subcontractors . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,602 2,005 (22.9)Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 720 756 5.0Machinery, equipment and vehicles services . . . . . . . . . . . . . . 385 501 30.1Labour services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 259 121.4Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220 255 15.9Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,028 1,795 74.6

Total costs of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,691 11,987 23.7

Cost of sales increased by RUB2,296 million, or 23.7 percent, from RUB9,691 million in the six monthsended 30 June 2009 to RUB11,987 million in the six months ended 30 June 2010. The increase in cost ofsales in the six months ended 30 June 2010 compared to the six months ended 30 June 2009 was primarilydue to (i) the increase in expenses for materials of RUB1,151 million, or 45.3 percent, fromRUB2,542 million in the six months ended 30 June 2009 to RUB3,693 million in the six months ended30 June 2010, as a result of an increase in the use of construction materials caused by an increase in thevolume of construction and installation works performed by Mostotrest itself, and an overall increase inprices for materials such as rebar, engineered metal structures and diesel fuel from their relatively lowlevels in the previous period due to the effect of the recent economic downturn, (ii) the increase in otherexpenses of RUB767 million, or 74.6 percent, from RUB1,028 million in the six months ended 30 June2009 to RUB1,795 million in the six months ended 30 June 2010, as a result of an increase in the amount ofconstruction works, which resulted in an increase in expenses such as security costs, insurance costs,operational leases, communication costs and other similar costs, and (iii) the increase in personnelexpenses of RUB646 million, or 31.1 percent, from RUB2,077 million in the six months ended 30 June2009 to RUB2,723 million in the six months ended 30 June 2010, primarily as a result of a small increase inheadcount and a moderate increase in average monthly wages paid to the employees in the six monthsended 30 June 2010 compared to the level of wages in the six months ended 30 June 2009 caused by therecent economic crisis, as a result of an overall increase in the volume of work and a desire to maintainincreased headcount levels such that the increased volume of work could be completed without unduedelay.

These increases were offset by a decrease in expenses for services of subcontractors of RUB597 million, or22.9 percent, from RUB2,602 million in the six months ended 30 June 2009 to RUB2,005 million in the sixmonths ended 30 June 2010, primarily as a result of a decrease in the use of subcontractors’ services causedby a reduction in the amount of work carried out for the construction of the Moscow Fourth Ring Road,where Mostotrest acts as the general contractor, caused by an unanticipated temporary reduction inproject funding by the customer. See ‘‘—Recent developments—Partial resumption of funding for the MoscowFourth Ring Road’’. In addition, the decrease in expenses for services of subcontractors was due in part toan increase in the amount of work Mostotrest performed itself, reflected also in part by the increase inexpenses for materials.

Gross profit and gross margin

As a result of the factors discussed above, gross profit increased by RUB780 million, or 21.3 percent, fromRUB3,666 million in the six months ended 30 June 2009 to RUB4,446 million in the six months ended30 June 2010. Gross margin remains relatively stable, decreasing from 27.4 percent in the six months ended30 June 2009 to 27.1 percent in the six months ended 30 June 2010.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

Other income

Other income remained relatively stable, increasing by RUB5 million, or 7.7 percent, from RUB65 millionin the six months ended 30 June 2009 to RUB70 million in the six months ended 30 June 2010.

Administrative expenses

The following table sets out a breakdown of Mostotrest’s administrative expenses by category for the sixmonths ended 30 June 2009 and a breakdown of the Group’s administrative expenses by category for thesix months ended 30 June 2010.

Six months ended 30 June Change from2009 2010 prior period

(unaudited)(RUB millions) (%)

Personnel expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,006 654 (35.0)Social expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 101 94.2Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 57 (9.5)Consulting services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 54 116.0Charity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 28 (48.1)Other administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . 383 786 105.2

Total administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . 1,583 1,680 6.1

Administrative expenses increased by RUB97 million, or 6.1 percent, from RUB1,583 million in the sixmonths ended 30 June 2009 to RUB1,680 million in the six months ended 30 June 2010. This increase wasprimarily due to the increase in other administrative expenses of RUB403 million, from RUB383 million inthe six months ended 30 June 2009 to RUB786 million in the six months ended 30 June 2010, as a result ofthe expenses related to the ongoing installation, maintenance and support of IT systems and computersoftware to better manage the Group’s construction projects. This increase was partially offset by adecrease in personnel expenses of RUB352 million, or 35.0 percent, from RUB1,006 million in the sixmonths ended 30 June 2009 to RUB654 million in the six months ended 30 June 2010, as a result ofbonuses paid to the Company’s management in the six months ended 30 June 2009, which did not recur inthe six months ended 30 June 2010.

Other expenses

Other expenses increased by RUB121 million, from RUB53 million in the six months ended 30 June 2009to RUB174 million in the six months ended 30 June 2010. This increase was primarily due to the recoveryin the six months ended 30 June 2009 of some of the bad debt provision recognised in prior periods due torepayment of some of these bad debts, the discounting of the long-term accounts receivable due to agreater discount being applied to the value of the long-term accounts receivable compared to their currentvalue, and early repayment of some of the long-term accounts payable discounted in the six months ended30 June 2009. These increases were partially offset by a decrease in loss attributable to the disposal ofinventories resulting from the disposal of inventories at higher prices in the six months ended 30 June 2010compared to their lower levels in the six months ended 30 June 2009 during the recent economic downturn.

Results from operating activities

Results from operating activities increased by RUB567 million, or 27.1 percent, from RUB2,095 million inthe six months ended 30 June 2009 to RUB2,662 million in the six months ended 30 June 2010. Thisincrease was primarily due to the higher growth in gross profit compared to the growth in administrativeexpenses and other expenses.

Net finance costs

Net finance costs in increased by RUB300 million, from RUB266 million in the six months ended 30 June2009 to RUB566 million in the six months ended 30 June 2010. Such increase was primarily due to thefactors set out below.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

Finance income

The following table sets out a breakdown of Mostotrest’s finance income for the six months ended 30 June2009 and a breakdown of the Group’s finance income for the six months ended 30 June 2010.

Six months ended 30 June Change from2009 2010 prior period

(unaudited)(RUB millions) (%)

Foreign exchange gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218 26 (88.1)Interest income on loans given . . . . . . . . . . . . . . . . . . . . . . . 115 46 (60.0)

Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333 72 (78.4)

Finance income decreased by RUB261 million, or 78.4 percent, from RUB333 million in the six monthsended 30 June 2009 to RUB72 million in the six months ended 30 June 2010. This decrease was primarilydue to (i) the decrease in foreign exchange gain of RUB192 million, or 88.1 percent, from RUB218 millionin the six months ended 30 June 2009 to RUB26 million in the six months ended 30 June 2010, resultingfrom payments under existing Euro-denominated finance leases made in Roubles in the six months ended30 June 2009 as the Rouble strengthened against the Euro in that period and the absence of a similarchange in the six months ended 30 June 2010 and (ii) the decrease in interest income on loans given ofRUB69 million, or 60.0 percent, from RUB115 million in the six months ended 30 June 2009 toRUB46 million in the six months ended 30 June 2010, as a result of a decrease in interest income on loansgiven to ETS and TSM due to the elimination on consolidation from the dates of acquisition by theCompany of the controlling interests in ETS and TSM in the six months ended 30 June 2010, partiallyoffset by interest income on TSM’s loans given included on consolidation from the date of TSM’sacquisition.

Finance costs

The following table sets out a breakdown of Mostotrest’s finance costs for the six months ended 30 June2009 and a breakdown of the Group’s finance costs for the six months ended 30 June 2010.

Six months ended 30 June Change from2009 2010 prior period

(unaudited)(RUB millions) (%)

Interest expense on loans and borrowings . . . . . . . . . . . . . . . . (560) (470) 16.1Interest expense on finance leases . . . . . . . . . . . . . . . . . . . . . (39) (47) (20.5)Non controlling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (121) —

Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (599) (638) (6.5)

Finance costs increased by RUB39 million, or 6.5 percent, from RUB599 million in the six months ended30 June 2009 to RUB638 million in the six months ended 30 June 2010. This increase was primarily due tothe increase in non-controlling interest of RUB121 million in the six months ended 30 June 2010, as aresult of the acquisition of ETS and TSM by the Company giving rise to the recognition of non controllinginterest in net income of those entities from the dated of their respective acquisitions. See ‘‘Business andFinancial Condition of Recent Acquisitions—Limited Liability Company ‘‘Corporation Engtransstroy’’—Keyfactors affecting ETS’s results of operations and financial condition—Recognition of dividends as part of netfinance costs’’ and ‘‘Business and Financial Condition of Recent Acquisitions—Limited Liability Company‘‘Transstroymekhanisatsiya’’—Key factors affecting TSM’s results of operations and financial condition—Recognition of dividends as part of net finance costs’’. This increase was partially offset by the decrease ininterest expense on loans and borrowings of RUB90 million, or 16.1 percent, from RUB560 million in thesix months ended 30 June 2009 to RUB470 million in the six months ended 30 June 2010, as a result of adecrease in the weighted-average interest rate on bank loans in the six months ended 30 June 2010compared to the six months ended 30 June 2009 partially offset by the increase in total loans outstandingas a result of the acquisition by the Company of the controlling interest in TSM.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

Share of profit of equity accounted investees

In the six months ended 30 June 2010, the Group recognised a share of RUB25 million in the profit ofMS-11 arising from the Company’s acquisition of a 25.002 percent equity interest in that entity on16 February 2010 and which is accounted for on an equity basis, as an investment in equity accountedinvestee. See also ‘‘—Overview’’ and ‘‘Business and Financial Condition of Recent Acquisitions’’.

Profit before income tax

Profit before income tax increased by RUB292 million, or 16.0 percent, from RUB1,829 million in the sixmonths ended 30 June 2009 to RUB2,121 million in the six months ended 30 June 2010. This increase wasprimarily due to the factors discussed above.

Income tax expense

Income tax expense increased by RUB116 million, or 28.4 percent, from RUB408 million in the six monthsended 30 June 2009 to RUB524 million in the six months ended 30 June 2010. This increase was primarilydue to an increase in taxable income broadly in line with the increase in profit before income tax ofRUB292 million in the six months ended 30 June 2010 compared to the six months ended 30 June 2009 asdiscussed above. The effective income tax rate (calculated as income tax expense divided by profit beforeincome tax) increased from 22.3 percent in the six months ended 30 June 2009 to 24.7 percent in the sixmonths ended 30 June 2010, primarily as a result of the increase in non-deductible expenses, including noncontrolling interest in net income of ETS and TSM, certain interest expenses and social expenses.

Profit for the period

Profit for the period increased by RUB176 million, or 12.4 percent, from RUB1,421 million in the sixmonths ended 30 June 2009 to RUB1,597 million in the six months ended 30 June 2010 due to the factorsdiscussed above.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

The Group’s liquidity needs arise primarily in connection with financing its construction projects, includingpayments to subcontractors, procurement of materials and other operating expenses, as well as generalworking capital requirements and capital expenditures consisting primarily of cash outlays for capitalinvestments in plant and equipment. In the period under review, the Group’s liquidity needs were metprimarily by cash generated from operating activities, advances from customers, as well as throughborrowings. The Group expects to continue to fund its liquidity requirements in both the short- andmedium-term with cash generated from operating activities and, to the extent required, throughborrowings.

The cash flow statement is prepared in accordance with IAS 7 using the indirect method, whereby theGroup’s statement of comprehensive income is adjusted for non-cash transactions. As at 30 June 2010, theGroup had RUB3,381 million in cash and cash equivalents. Cash and cash equivalents comprise cashbalances and call deposits with original maturities of three months or less. Bank overdrafts that arerepayable on demand and form an integral part of the Group’s cash management are also included as acomponent of cash and cash equivalents.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cash flows for the years ended 31 December 2008 and 2009

The following table sets out the principal components of Mostotrest’s consolidated cash flow statement forthe years ended 31 December 2008 and 2009.

Years ended 31 December Change from2008 2009 prior year

(RUB millions) (%)

Cash and cash equivalents at 1 January . . . . . . . . . . . . . . . . 2,280 5,211 128.6Net cash from operating activities . . . . . . . . . . . . . . . . . . . . . 3,805 4,982 30.9Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . (1,810) (1,166) (35.6)Net cash from/(used in) financing activities . . . . . . . . . . . . . . 936 (4,166) (545.1)

Net increase/(decrease) in cash and cash equivalents . . . . . . . . 2,931 (350) (111.9)

Cash and cash equivalents at 31 December . . . . . . . . . . . . . . 5,211 4,861 (6.7)

Net cash from operating activities

Net cash from operating activities increased by RUB1,177 million, or 30.9 percent, from RUB3,805 millionin the year ended 31 December 2008 to RUB4,982 million in the year ended 31 December 2009. Theincrease in net cash from operating activities was primarily due to a RUB2,182 million increase in cashfrom operating activities before changes in working capital and provisions primarily as a result of theincrease in profit for the year in 2009 discussed above. Partially offsetting this effect were changes inworking capital and provisions.

In 2009, changes in working capital and provisions contributed RUB304 million to net cash flows fromoperating activities, as compared to RUB1,014 million in 2008. Changes in working capital and provisionspositively affected net cash flows from operating activities to a lesser extent in 2009 than in 2008 for thefollowing reasons. In 2009, trade and other payables decreased by RUB271 million, compared to anincrease of RUB1,632 million in 2008. In 2009, prepayments for current assets increased byRUB102 million, compared to a decrease of RUB1,227 million in 2008. Partially offsetting these effectswere the following. In 2009, amounts due from customers for construction contracts increased byRUB331 million, compared to an increase of RUB1,014 million in 2008. In 2009, amounts due tocustomers for construction contracts increased by RUB853 million, compared to a decrease ofRUB149 million in 2009, as a result of an increase in amounts received from customers in advance of thestage of completion of the relevant projects, reflecting growth in Mostotrest’s projects portfolio and relatedadvances received. In 2009, trade and other receivables decreased by RUB214 million, compared to anincrease of RUB287 million in 2008. For further details concerning working capital, see ‘‘—Capitalresources and capital requirements—Working capital’’.

Net cash used in investing activities

Net cash used in investing activities decreased by RUB644 million, or 35.6 percent, from a cash outflow ofRUB1,810 million in the year ended 31 December 2008 to a cash outflow of RUB1,166 million in the yearended 31 December 2009. This decrease was primarily due to (i) a decrease in loans given ofRUB1,323 million, or 91.2 percent, from a cash outflow of RUB1,451 million in 2008 to a cash outflow ofRUB128 million in 2009, primarily as a result of the loans given in 2008 to TSM, TSM’s wholly-ownedsubsidiary OOO Dorstroyproekt, which was declared bankrupt in November 2009 (see ‘‘Business andFinancial Condition of Recent Acquisitions—Limited Liability Company ‘‘Transstroymekhanisatsiya’’—Resultsof operations for the six months ended 30 June 2009 and 2010—Discontinued operations of OOODorstroyproekt’’), and OOO Ekolesprom, all of which were provided on arms’ length terms to financeshort-term working capital requirements and other corporate needs of these borrowers and were dulyrepaid, and (ii) a decrease in cash used for the acquisition of property, plant and equipment ofRUB1,243 million, or 83.5 percent, from a cash outflow of RUB1,488 million in 2008 to a cash outflow ofRUB245 million in 2009, primarily as a result of an expansion of plant and equipment in 2008 as part of afixed assets renewal programme in anticipation of an increase in Mostotrest’s construction projectsportfolio, which did not recur in 2009.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

These effects were partially offset by an increase in cash used for the acquisition of equity accountinginvestments, from nil in 2008 to a cash outflow of RUB 1,556 million in 2009, primarily as a result of theadvance payment of RUB1,512 million in 2009 for the acquisition of a 25.002 percent equity interest inMS-11 completed in 2010. See also ‘‘—Overview’’ and ‘‘Business and Financial Condition of RecentAcquisitions’’. Another factor partially offsetting the effects described above was a decrease in cashreceived from repayments of loans given of RUB243 million, or 27.3 percent, from a cash inflow ofRUB889 million in 2008 to a cash inflow of RUB646 million in 2009.

Net cash from/(used in) financing activities

Net cash from/(used in) financing activities changed by RUB5,102 million, from net cash from financingactivities of RUB936 million in the year ended 31 December 2008 to net cash used in financing activities ofRUB4,166 million in the year ended 31 December 2009. In 2009, Mostotrest refinanced some of its loanportfolio to reduce average interest rates, as well as paid down some of its debt with surplus cash fromoperating activities. Proceeds from borrowings decreased by RUB5,452 million, or 35.6 percent, fromRUB15,335 million in 2008 to RUB9,883 million in 2009, and net cash used in repayments of borrowingsdecreased by RUB826 million, or 6.2 percent, from a cash outflow of RUB13,229 million in 2008 to a cashoutflow of RUB12,403 million in 2009. A cash outflow of RUB400 million from dividends paid in 2009 alsocontributed to the change from net cash from financing activities to net cash used in financing activities.

Cash flows for the six months ended 30 June 2009 and the six months ended 30 June 2010

The following table sets out the principal components of Mostotrest’s consolidated cash flow statement forthe six months ended 30 June 2009 and the principal components of the Group’s consolidated cash flowstatement for the six months ended 30 June 2010.

Six months ended 30 June Change from2009 2010 prior period

(unaudited)(RUB millions) (%)

Cash and cash equivalents at 1 January . . . . . . . . . . . . . . . . 5,211 4,861 (6.7)Net cash from/(used in) operating activities . . . . . . . . . . . . . . 533 (5,046) (1,046.7)Net cash from/(used) in investing activities . . . . . . . . . . . . . . . 140 (1,896) (1,454.3)Net cash (used in)/from financing activities . . . . . . . . . . . . . . (4,014) 5,462 236.1

Net (decrease) in cash and cash equivalents . . . . . . . . . . . . . . (3,341) (1,480) 55.7

Cash and cash equivalents at 30 June . . . . . . . . . . . . . . . . . . 1,870 3,381 80.8

The information in the Group’s consolidated cash flow statement for the six months ended 30 June 2010 issignificantly influenced by the Company’s acquisition of the controlling interests in ETS and TSM in the sixmonths ended 30 June 2010, primarily in respect of net cash from/(used in) operating activities. This is dueto the effect those acquisitions have had on the consolidated statement of financial position as at 30 June2010, reflected in changes in working capital and provisions in the cash flow statement. As a result, thecomparability of the cash flow information presented below for the Group for the six months ended30 June 2010 and for Mostotrest for the six months ended 30 June 2009 is limited.

Net cash from/(used in) operating activities

Net cash from/(used in) operating activities changed by RUB5,579 million, from net cash from operatingactivities of RUB533 million in the six months ended 30 June 2009 to net cash used in operating activitiesof RUB5,046 million in the six months ended 30 June 2010. This change was primarily due to the followingchanges in working capital. Amounts due from customers on construction contracts increased byRUB5,250 million in the six months ended 30 June 2010, compared to a decrease of RUB123 million in thesix months ended 30 June 2009. Trade and other payables decreased by RUB3,493 million in the sixmonths ended 30 June 2010, compared to a decrease of RUB438 million in the six months ended 30 June2009. Amounts due to customers on construction contracts decreased by RUB2,408 million in the sixmonths ended 30 June 2010 compared to an increase of RUB400 million in the six months ended 30 June2009. Partially offsetting these effects were (i) a decrease in trade and other receivables ofRUB1,023 million in the six months ended 30 June 2010, compared to an increase of RUB1,692 million in

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

the six months ended 30 June 2009, and (ii) a decrease in prepayments for current assets ofRUB2,452 million in the six months ended 30 June 2010, compared to an increase of RUB133 million inthe six months ended 30 June 2009.

Net cash from/(used in) investing activities

Net cash from/(used in) investing activities changed by RUB2,036 million, from net cash from investingactivities of RUB140 million in the six months ended 30 June 2009 to net cash used in investing activities ofRUB1,896 million in the six months ended 30 June 2010. This change was primarily due to a cash outflowof RUB1,142 million in the six months ended 30 June 2010 arising in connection with the acquisition by theCompany of interests in ETS and TSM in the six months ended 30 June 2010 partially offset by the cashbalances of these entities.

Net cash (used in)/from financing activities

Net (used in)/from financing activities changed by RUB9,476 million, from net cash used in financingactivities of RUB4,014 million in the six months ended 30 June 2009 to net cash from financing activities ofRUB5,462 million in the six months ended 30 June 2010. This change was primarily due to an increase inproceeds of borrowings from a cash inflow of RUB1,818 million in the six months ended 30 June 2009 to acash inflow of RUB15,140 million in the six months ended 30 June 2010, primarily as a result of thelong-term borrowings made by Mostotrest to finance the acquisition of interests in ETS and TSM, whichwas partially offset by an increase in repayment of borrowings of RUB3,892 million, fromRUB5,180 million in the six months ended 30 June 2009 to RUB9,072 million in the six months ended30 June 2010, as a result of refinancing of some of the Group’s loan portfolio to reduce the averageinterest rates.

Capital resources and capital requirements

Loans and borrowings

Mostotrest’s and the Group’s financial indebtedness consists of bank loans and finance leases. Thefollowing table sets out the carrying amounts of Mostotrest’s indebtedness as at 31 December 2008 and2009 and the carrying amounts of the Group’s indebtedness as at 30 June 2010.

As atAs at 31 December 30 June2008 2009 2010

(unaudited)(RUB millions)

Selected short-term liabilitiesSecured bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,815 5,040 3,861Unsecured bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,810 805 5,879

Current portion of finance lease liabilities . . . . . . . . . . . . . . . 105 165 433

Total selected short-term liabilities . . . . . . . . . . . . . . . . . . . . 7,730 6,010 10,173

Selected long-term liabilitiesSecured bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 208Unsecured bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 833 208 3,501Finance lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219 65 219

Total selected long-term liabilities . . . . . . . . . . . . . . . . . . . . . 1,052 273 3,928

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,782 6,283 14,101

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following table sets out the face value, the carrying amount and the year of maturity of the Group’sloans and borrowings as at 30 June 2010.

CarryingFace value amount Year of maturity

(unaudited)(RUB millions)

Balance at 1 January 2010 . . . . . . . . . . . . . . . . . . . . . . . . . 6,333 6,283New issuesSecured bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,340 2,340 2010-2013Unsecured bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,800 12,800 2010-2013Finance lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 160 194 2010-2013Bank loans and finance lease liabilities acquired through

business combinations . . . . . . . . . . . . . . . . . . . . . . . . . . 2,201 2,146 2010-2012

Repayments, including interestSecured bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (44) (44) 2010-2013Unsecured bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,519) (9,519) 2010-2013Finance lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . (154) (116) 2010-2013Intercompany loan elimination . . . . . . . . . . . . . . . . . . . . . (500) (500)Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 517 517

Balance at 30 June 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . 14,134 14,101

Bank loans

During the periods under review, the Group entered into a number of Rouble-denominated bank loanagreements, with banks including with Sberbank of Russia, OAO Nomos-Bank, OAO TransCreditBank,OAO Gazprombank, OAO KreditEvropaBank, OAO Transkapitalbank and OAO Alfa-Bank, which had anaggregate principal amount outstanding of RUB13,449 million as at 30 June 2010, with a weighted-averageeffective fixed interest rate of 9.3 percent per annum (13.6 percent as at 31 December 2009 forMostotrest’s bank loans). These loans mature between 2011 and 2013. As at 30 June 2010,RUB4,968 million (RUB3,133 million as at 31 December 2009 for Mostotrest) of the aggregate principalamount outstanding of the Group’s outstanding bank loans were secured by property, plant and equipmentwith a total carrying amount of RUB604 million (RUB389 million as at 31 December 2009 for Mostotrest),inventories with a carrying amount of RUB748 million (RUB919 million as at 31 December 2009 forMostotrest), and revenue on construction contracts of RUB3,250 million (RUB250 million as at31 December 2009 for Mostotrest).

The following table sets out the maturity profile and other characteristics of Mostotrest’s non-current bankloans (excluding finance leases) as at 31 December 2008 and 2009.

As at 31 December

2008 2009

(RUB millions)

Between 1 and 2 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 208Between 2 and 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 683 —

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 833 208

The carrying amounts of Mostotrest’s borrowings as at 31 December 2009 were denominated in thefollowing currencies.

As at 31 December

2008 2009

(RUB millions)

Roubles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,670 6,226US dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2Euros . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 55

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,782 6,283

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

Finance leases

The Group has entered into a number of finance lease agreements for leasing construction equipment,such as hoisting cranes, drilling devices, excavators, piledrivers, buses and loading machines, primarily withOOO KreditEvropaLeasing, OOO FinansBusinesGroup, OOO Obyedinyennaya Lisingovaya Kompaniya,ZAO Zavod Redkih Metallov, ZAO Russkaya Lizingovaya Kompaniya, for an aggregate principal amountoutstanding of RUB680.5 million as at 30 June 2010. The weighted-average effective interest rate for theGroup’s finance lease liabilities as at 30 June 2010 was 27.3 percent per annum (14.2 percent as at31 December 2009 for Mostotrest’s finance lease liabilities). As at 30 June 2010, all of the Group’s financeleases are secured by the relevant leased assets.

The following table summarises the contractual principal maturities of the finance lease obligations andinterest payments required under the leases of Mostotrest as at 31 December 2008 and 2009.

As at 31 December

2008 2009

(RUB millions)

Less than one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 165Between 1 and 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219 65

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324 230

For further details, see note 20 of the 2009 Mostotrest Annual Financial Statements.

Working capital

The table below sets out the components of Mostotrest’s working capital as at 31 December 2008 and 2009and the Group’s working capital as at 30 June 2010.

Six monthsendedYear ended 31 December 30 June

2008 2009 2010

(unaudited)(RUB millions)

Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,406 2,473 4,084Trade and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . 828 810 3,929Amounts due from customers under construction contracts . . . 2,764 3,095 9,100Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,001 1,103 10,160

Total working capital assets . . . . . . . . . . . . . . . . . . . . . . . . . 6,999 7,481 27,273

Trade and other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,657) (4,565) (13,601)Amounts due to customers under construction contracts . . . . . (2,341) (3,194) (9,676)

Total working capital liabilities . . . . . . . . . . . . . . . . . . . . . . . (5,998) (7,759) (23,277)

Net working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,001 (278) 3,996

For considerations relating to the effect of the consolidation of ETS and TSM, see ‘‘—Liquidity—Cashflows for the six months ended 30 June 2009 and the six months ended 30 June 2010’’.

Mostotrest and the Group define working capital as the difference between current operating assets (net ofcash and cash equivalents) and current operating non-interest bearing liabilities, as shown in the tableabove. As at 30 June 2010, the Group’s net working capital, which includes ETS and TSM, wasRUB3,996 million compared to Mostotrest’s negative net working capital of RUB278 million as at31 December 2009.

During the periods under review, Mostotrest has been able to finance its working capital requirementsprimarily with cash flow from operations, derived largely from annual advance payments from customers ofup to 30 percent of the anticipated annual work amount under its construction contracts and periodicprogress payments under those contracts, supplemented where necessary by short-term loans andborrowings. See ‘‘Business—Contract process and contract terms—Contract terms—Payment terms’’.Typically, Mostotrest’s net working capital decreases towards the end of each year primarily due to thetendency of outstanding amounts relating to projects funded from Russian State and municipal budgets ofvarious levels to be paid in the second half of the year, rather than the first due to Russian government

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

budget processes. See ‘‘—Key factors affecting the Group’s results of operations and financial condition—Seasonality’’. During the first half of 2010, the Group entered into a number of loan agreements with banksfor a total amount of RUB10,922.5 million to fund its working capital requirements and finance theCompany’s acquisitions of the controlling interests in ETS and TSM.

Capital expenditure

Mostotrest’s capital expenditures in the periods under review have principally been made to fund capitalinvestments in construction equipment as part of a fixed assets renewal programme, as well as to acquire a51.0 percent equity interest in ETS, a 50.1 percent equity interest in TSM and a 25.002 percent equityinterest in MS-11. Mostotrest’s total capital expenditure, excluding VAT, amounted to RUB1,017 million inthe year ended 31 December 2008, RUB1,864 million in the year ended 31 December 2009, including aprepayment of RUB1,575 million in connection with the acquisition of the 25.002 percent equity interest inMS-11 in 2010, and RUB3,475 million in the six months ended 30 June 2010, including a total ofRUB3,300 million to acquire a 51.0 percent equity interest in ETS and a 50.1 percent equity interest inTSM. See also ‘‘—Overview’’ and ‘‘Business and Financial Condition of Recent Acquisitions’’. In accordancewith its business plan, Mostotrest plans capital expenditure (excluding planned capital expenditure for ETSand TSM) for the year ending 31 December 2010 of approximately RUB1,695 million. This is expected tobe primarily used to acquire new construction machinery and equipment, and to further increase the sizeof its fleet of vehicles. Planned capital expenditure, excluding VAT, for ETS and TSM for the year ending31 December 2010 is approximately RUB98 million and approximately RUB708 million, respectively,which is expected to be used primarily for investments in plant and equipment.

Contractual obligations

As at 30 June 2010, Mostotrest had no significant contractual obligations to purchase property, plant andequipment.

Post-completion guarantee contingent liabilities

As is customary in the Russian construction industry, Mostotrest provides post-completion guarantees toits customers against defects in construction. See also ‘‘Business—Contract process and contract terms—Contract terms—Post-completion guarantee’’. Mostotrest has analysed historical data on actualcompensation paid under these guarantees for the past seven years and concluded that the probability thatconstruction works do not satisfy the quality conditions in Mostotrest’s contracts and the risk that thecompensation could be payable is low. Mostotrest did not recognise a guarantee liability for constructioncontracts in the periods under review.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ON MARKET AND OTHER RISKS

Management of risk is an essential element of Mostotrest’s operations. Mostotrest’s activities expose it tocredit risk, liquidity risk and market risks, such as currency risk, interest rate risk and other market pricerisk. Set out below is a summary of Mostotrest’s risk management policies for these risks.

Credit risk

Financial assets, which potentially subject Mostotrest to credit risk, consist principally of trade and otherreceivables, loans issued and investment securities. The maximum exposure to credit risk is represented bythe carrying amount of each financial asset in the balance sheet. Mostotrest has developed policies andprocedures for the management of credit exposures. In particular, to manage customer credit risk,Mostotrest analyses each new customer individually for creditworthiness and establishes purchase limits,which are reviewed quarterly. As at 31 December 2009 and 30 June 2010, there was no significantconcentration of credit risk for trade and other receivables geographically or with respect to salestransactions with a single customer. However, a significant proportion Mostotrest’s projects originate fromthe Russian Government or other governments and governmental agencies and authorities, and arefunded, directly or indirectly, by the Russian federal government’s budget. See ‘‘Business—Key strengths—Backlog of high-profile, important transport infrastructure construction projects from a strong customer base’’and ‘‘Business—Mostotrest operations—Customers’’.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

Liquidity risk

Liquidity risk is the risk that Mostotrest will encounter difficulty in meeting the obligations under itsfinancial liabilities that are settled by delivering cash or another financial asset. Mostotrest managesliquidity risk by ensuring that it has sufficient liquidity to meet its liabilities when they become due, eitherthrough operating cash flow or through available lines of credit or other financing with Russian banks.

Currency risk

Currency risk arises for Mostotrest when its finance leases, purchases of machinery and equipment, andshort-term deposits with banks (with maturities of less than 3 months) are denominated in a currency otherthan Roubles. Mostotrest’s borrowings are denominated primarily in Roubles, which matches the cashflows generated by Mostotrest’s underlying operations and provides a natural hedge against currency risk.Mostotrest does not enter into derivative transactions to hedge its currency risk. As at 30 June 2010, exceptfor cash and cash equivalents and finance lease liabilities, materially all of Mostotrest’s borrowings andtrading activities were denominated in Roubles. See also ‘‘—Key factors affecting the Group’s results ofoperations and financial condition—Exposure to foreign exchange gains and losses’’.

Interest rate risk

Changes in interest rates impact primarily loans and borrowings either by changing their fair value, as withfixed rate loans and borrowings, or their future cash flows, as with variable rate loans and borrowings.Mostotrest does not have a formal policy of determining how much of its exposure should be fixed orvariable rate. At the time of raising new loans or borrowings, Mostotrest uses its judgment to decidewhether a fixed or variable rate would be more favourable over the expected period to maturity. As at30 June 2010, interest rates on Mostotrest’s interest-bearing financial instruments were fixed and floatingprimarily based on MosPrime rates.

Other market price risk

Mostotrest has a small holding of equity securities mainly of financial institutions and is not materiallyexposed to any other market price risk.

SIGNIFICANT ACCOUNTING POLICIES, CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Mostotrest believes its most significant accounting policies and its critical accounting estimates andjudgements are those described below.

Significant accounting policies

A description of selected critical accounting policies used in preparing the Financial Statements is set outbelow. For further information on Mostotrest’s accounting policies see note 3 of the 2009 MostotrestAnnual Financial Statements.

Revenue

Construction contracts

Contract revenue includes the initial amount agreed in the contract plus any variations in contract work,claims and incentive payments, to the extent that it is probable that they will result in an inflow ofeconomic benefits and can be measured reliably. As soon as the outcome of a construction contract can beestimated reliably, contract revenue is recognised in profit or loss in proportion to the stage of completionof the contract. Contract expenses are recognised as incurred unless they create an asset related to futurecontract activity.

The stage of completion is assessed by reference to the share of the costs incurred to date in the totalestimated contract costs. The contract costs that relate to future activity on the contract are excluded fromcosts incurred to date in determining the stage of completion (deferred recognition) and recognised asinventories.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognisedonly to the extent of contract costs incurred that are likely to be recoverable. An expected loss on acontract is recognised immediately in profit or loss.

See also ‘‘—Key factors affecting the Group’s results of operations and financial condition—Revenuerecognition’’.

Commissions

When Mostotrest acts in the capacity of an agent rather than as the principal in a transaction, the revenuerecognised is the net amount of commission made by Mostotrest.

Other revenue

Revenue from other activities is recognised when significant risks and rewards of ownership have beentransferred to the buyer, recovery of the consideration is probable, the associated costs and possible returnof goods can be estimated reliably, and there is no continuing management involvement with the goods,and the amount of revenue can be measured reliably.

Amounts due from/to customers for construction contracts

Amounts due from customers for construction contracts represent the amount of construction contracts inprogress less consideration received by Mostotrest for works already performed.

Amounts due from customers are presented separately in the statement of financial position for allcontracts in which costs incurred plus recognised profits and losses exceeds consideration received. If theconsideration received for works performed to date exceeds costs incurred plus recognised profits andlosses, then the difference is presented as ‘‘due to customers for construction contracts’’ in the statement offinancial position.

Construction contracts in progress represent the gross amount expected to be collected from customers forcontract work performed to date. It is measured at cost plus profit recognised to date less recognisedlosses. Cost includes all expenditure related directly to specific projects and an allocation of fixed andvariable overheads incurred in Mostotrest’s contract activities based on normal operating capacity.

Principles of consolidation

See ‘‘—Basis of presentation and consolidation’’.

Property, plant and equipment

Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation andaccumulated impairment losses. As oat 1 January 2008, the date of the first-time adoption of IFRS byMostotrest, the fair value of the property, plant and equipment was determined and accepted as thedeemed cost of these assets.

Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost ofself-constructed assets includes the cost of materials and direct labour, any other costs directly attributableto bringing the asset to a working condition for their intended use, the costs of dismantling and removingthe items and restoring the site on which they are located. Purchased software that is integral to thefunctionality of the related equipment is capitalised as part of that equipment.

When parts of an item of property, plant and equipment have different useful lives, they are accounted foras separate items (major components) of property, plant and equipment.

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing theproceeds from disposal with the carrying amount of property, plant and equipment, and are recognised netwithin ‘‘other income’’ in profit or loss.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

Subsequent costs

The cost of replacing part of an item of property, plant and equipment is recognised in the carryingamount of the item if it is probable that the future economic benefits embodied within the part will flow toMostotrest and its cost can be measured reliably. The carrying amount of the replaced part isderecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised inprofit or loss as incurred.

Depreciation

Depreciation is calculated over the depreciable amount, which is the cost of an asset, or other amountsubstituted for cost, less its residual value.

Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of eachpart of an item of property, plant and equipment, since this most closely reflects the expected pattern ofconsumption of the future economic benefits embodied in the asset. Leased assets are depreciated over theshorter of the lease term and their useful lives unless it is reasonably certain that Mostotrest will obtainownership by the end of the lease term. Land is not depreciated.

The estimated useful lives for the current and comparative periods are as follows:Number ofyears as at

30 June 2010

Buildings and structures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Other property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Depreciation methods, useful lives and residual values are reviewed at each financial year end andadjusted if necessary.

Inventories

Mostotrest’s inventories include construction materials, other inventories and work-in-progress. Thework-in-progress includes the cost of inventories, production labour costs and production overhead costs(including depreciation).

Inventories are measured at the lower of cost and net realisable value. The cost of inventories isdetermined based on the weighted-average method, and includes expenditure incurred in acquiring theinventories, production or conversion costs and other costs incurred in bringing them to their existinglocation and condition. In the case of manufactured inventories and work-in-progress, the cost includes anappropriate share of production overheads based on normal operating capacity.

Net realisable value is the estimated selling price in the ordinary course of business, less the estimatedcosts of completion and selling expenses.

Critical accounting estimates and judgements

Critical accounting estimates and judgements are those that require the application of management’s mostchallenging, subjective or complex judgements, often as a result of the need to make estimates about theeffect of matters that are inherently uncertain and may change in subsequent periods. Critical accountingpolicies involve judgements and uncertainties that are sufficiently sensitive to result in materially differentresults under different assumptions and conditions.

A detailed description of certain of the critical accounting estimates and judgements used in preparing theFinancial Statements is set out in those statements. Mostotrest believes its most critical accountingestimates and judgements are those described below.

Revenue recognition

See ‘‘—Significant accounting policies—Revenue’’ and ‘‘—Key factors affecting the Group’s results ofoperations and financial condition—Revenue recognition’’.

Construction contracts in progress

See ‘‘—Significant accounting policies—Amounts due from/to customers for construction contracts’’ and‘‘—Key factors affecting the Group’s results of operations and financial condition—Revenue recognition’’.

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RUSSIAN INFRASTRUCTURE CONSTRUCTION INDUSTRY OVERVIEW

All data referred to below has been sourced from the PMR Report and where information is expressed to besourced from another source, this is to be read as sourced from PMR, which in turn has sourced theinformation from that other source. While the Company has accurately extracted this data, it has not beenindependently verified by the Company, the Selling Shareholder or the Managers. PMR is an independentindustry consultant that provides market information advisory services in respect of central and easternEuropean countries and other emerging markets.

RUSSIAN CONSTRUCTION INDUSTRY OVERVIEW

Russian macroeconomic drivers

The Russian economy is principally driven by the export of commodities and, in recent years, a significantpart of the Russian Government’s federal budget revenue has come from the fuel and energy sector.However, domestic consumption has also become an important driver of overall economic growth.According to PMR, during the past decade disposable income has been growing, the middle class hascontinued to expand and unemployment rates have declined steadily.

Set out below is an overview of the key macroeconomic drivers of the overall Russian constructionindustry.

Gross domestic product

Between 2000 and 2008, Russian GDP grew at an average real rate of approximately 6.9 percent, largelydue to favourable prices for oil and other commodities, growth in productivity and a substantial inflow offoreign direct investment, according to PMR estimates. Rosstat estimates that in 2009, Russia’s GDPcontracted by 7.9 percent. According to Rosstat, the decline moderated in the second half of 2009 with theeconomy returning to moderate growth towards the end of 2009 and in early 2010. In 2010, Russia’s GDPis expected to grow by approximately 4.2 to 4.5 percent, according to international financial institutionssuch as the International Monetary Fund, the World Bank and the European Bank for Reconstruction andDevelopment. For 2011, the World Bank has recently revised its forecast for GDP growth rate to4.8 percent, up from the 3.5 percent growth rate predicted in March 2010, as a result of recent positivedevelopments in Russia, including an improvement in consumer lending, and increasing consumption andinvestment activity.

Inflation

Historically, inflation in Russia has been relatively high but, according to Rosstat, it dropped in 2009 to8.8 percent, due to weakening consumer demand. Rosstat estimates that, in the six months ended 30 June2010, inflation remained lower than historical averages with year-on-year growth in the consumer priceindex of 5.8 percent.

Fixed capital investment

Between 2000 and 2008, Russian fixed capital investments grew at an average real rate of approximately12.9 percent, according to Rosstat. Following the onset of the economic crisis, fixed capital investmentssuffered a significant decline in the last quarter of 2008 and into 2009. According to the Russian Ministryof Economic Development’s estimates, capital investments are expected to grow by 2.9 percent in 2010,8.8 percent in 2011, 6.3 percent in 2012 and 8.1 percent in 2013.

Infrastructure and non-residential construction and investments in machinery and equipment are keycomponents of fixed capital investments. According to Rosstat, in 2009 the proportion of fixed capitalinvestments attributable to infrastructure and non-residential construction increased to 45.5 percent, ascompared to 42.6 percent in 2008, while the proportion of fixed capital investments attributable toinvestments in machinery and equipment dropped to 33.1 percent in 2009, as compared to 37.7 percent in2008. This change illustrates the relative resilience of infrastructure construction to economic downturns.In 2009, infrastructure construction grew by approximately 4.9 percent, while residential constructiondecreased by 11 percent, according to PMR.

On the back of strong GDP growth and increases in capital investments and real disposable income,Russia’s construction industry grew at an average real rate of 12.4 percent per year between in 2000 and

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2008, according to PMR. Rosstat data for construction output in Russia shows a 12.8 percent contractionin 2009. However, PMR believes that the industry resumed growth in the first half of 2010.

Construction industry breakdown

According to PMR, the Russian construction market may be divided into the following segments:

• residential construction, being buildings, the larger part of which (that is, more than half of its gross floorarea) is used for dwelling purposes. This comprises both houses (such as detached, semi-detached androw houses), with each dwelling having its own entrance directly from the ground surface and otherresidential buildings (for example, multi-dwelling buildings);

• non-residential construction, being buildings, the lesser part of which (that is, less than half of its grossfloor area) is used for dwelling purposes (for example, industrial buildings including warehouses;commercial buildings; educational buildings; medical facilities and hotels);

• civil engineering, being transport infrastructure (that is, roads; railways; airports (runways, taxiways),ports and in-land waterways, bridges and overpasses and tunnels) and other infrastructure (that is,energy and power engineering structures; IT and telecommunication infrastructure; and othercategories not included in transport infrastructure).

PMR estimates that the total value of the Russian construction market in 2009 was approximatelyRUB3,869 billion. According to PMR, the majority of this market was attributable to civil engineeringconstruction which, in 2009, had a total value of approximately RUB1,977 billion, accounting for51.1 percent of the total construction market. Civil engineering construction comprises transportinfrastructure construction with the total value of approximately RUB594 billion and other infrastructureconstruction with the total value of approximately RUB1,384 billion. The remaining construction market in2009 was attributable to residential and non-residential segments, accounting for 25.2 percent(approximately RUB975 billion) and 23.7 percent (approximately RUB916 billion) of the totalconstruction market, respectively.

TRANSPORT INFRASTRUCTURE CONSTRUCTION INDUSTRY OVERVIEW

Introduction

Transport infrastructure market, defined as expenditure on roads, bridges, tunnels, railways, airports, portsand in-land waterways, accounted for 15 percent of the RUB3,869 billion total construction output inRussia in 2009, according to Rosstat.

Although Russia is an industrially developed country with the third largest railway network in the world, aperiod of underinvestments during the 1990s has resulted in a poor condition of the overall infrastructurewhich, according to the Research and Design Institute of Regional Development and Transportation, coststhe Russian economy over RUB1.3 trillion per year, or 3 percent of the annual Russia’s GDP. The Ministryof Transport estimates that traffic delays in and around Moscow cost the economy another RUB400 billionper year.

According to The Global Enabling Trade Report 2010, prepared by World Bank, Russia ranks 52nd out of125 countries by availability and quality of its transport infrastructure and 111th of 125 countries by thequality of its highway infrastructure. According to PMR, approximately 59 percent of railways, 35 percentof highways and 19 percent of bridges required refurbishment in 2009. In addition to the overall poorquality of the transport infrastructure, the density of Russian highways is not sufficient to meet theeconomy’s needs. In 2009, Russia had just 6.6 kilometres of highways for 1,000 people, as compared to26.1 kilometres in Canada, 21.0 kilometre in the United States, 9.9 kilometres in Poland and 9.6 kilometresin Brazil.

Historical development of Russian transport infrastructure

In 2001, after years of underinvestment in infrastructure, the Russian Government introduced the TargetedProgramme ‘‘Modernisation of the Transport System in Russia between 2002 and 2009’’ (the FTP2002-2009) with a view to launching a massive overhaul of the existing transport infrastructure. Theobjective of the FTP 2002-2009 was to balance development of the transport system with a focus on

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efficiency, safety and the protection of Russia’s national interests. The FTP 2002-2009 sets out objectivesand initiatives for the upgrade of various transport segments (including highways, railways, civil airportsand aviation, and sea and in-land water transport). Following the completion of the FTP 2002-2009, theRussian Government introduced a programme for the development of Russia’s transport system between2010 and 2015 (the FTP 2010-2015), being a part of the Transport Strategy of the Russian Federation forthe period up to 2030, approved by the Russian Government in November 2008.

Historical transport infrastructure construction market value and breakdown

According to the Russian Ministry of Transport, between 2005 and 2009, total spending on Russiantransport infrastructure almost doubled reaching RUB 594 billion (excluding VAT) in 2009. The sectorgrew substantially in 2007 and 2008 by 25.8 percent and 26.7 percent, respectively, and showed resilienceeven during the financial crisis with a moderate growth of 4.9 percent in 2009.

The following table shows the total market value of the Russian infrastructure construction for the periodsindicated.

Year

2005 2006 2007 2008 2009

(RUB billion, excluding VAT)

Market value . . . . . . . . . . . . . . . . 317 355 447 567 594

Source: PMR estimates, Ministry of Transport, FTP

Highways and bridges are the key elements of the Russian transport infrastructure construction marketthat, according to PMR estimates, consistently account for approximately 70 percent of this market.According to the Russian Ministry of Transport, between 2005 and 2009, total spending on Russia’s roadsmore than doubled. At the same time, the share of highway construction as a proportion of the totaltransport infrastructure market increased from 50.4 percent to 54.7 percent. Highways were the onlysegment of the transport infrastructure construction market that showed a systematic increase in its shareof the market since 2005. Ports and in-land waterways have also increased their share in the total transportinfrastructure market over the past five years; however, this segment has shown significant volatility, as it isdriven by a few large projects. Construction of bridges grew steadily at an annual rate exceeding 20 percentover the past four years. As a result, the share of this segment as a proportion of the total transportinfrastructure market grew on average by approximately 2 percent annually between 2005 and 2009. In2009, the share of airports as a proportion of the total transport infrastructure market was below 2005levels, primarily due to a 30 percent decrease in airport investments in 2009. The share of tunnelconstruction as a proportion of the total transport infrastructure market has been decreasing since 2007,falling from 10.7 percent in 2007 to 6.1 percent in 2009. Over the last five years, spending on railwayinfrastructure development remained relatively flat and its share of the total market decreased from16.3 percent in 2005 to 10.4 percent in 2009.

The following table shows a breakdown of the Russian transport infrastructure construction market for theperiods indicated.

Year

Segment 2005 2006 2007 2008 2009

(percent)

Highways . . . . . . . . . . . . . . . . . . . 50.4 53.2 51.9 55.4 54.7Railways . . . . . . . . . . . . . . . . . . . 16.3 9.9 14.2 10.6 10.4Airports . . . . . . . . . . . . . . . . . . . . 3.7 4.6 5.4 4.7 3.1Ports and in-land waterways . . . . . 6.2 9.9 5.8 8.8 8.8Bridges . . . . . . . . . . . . . . . . . . . . 15.0 11.4 12.0 13.5 16.8Tunnels . . . . . . . . . . . . . . . . . . . . 8.5 11.0 10.7 7.1 6.1

Total . . . . . . . . . . . . . . . . . . . . . . 100 100 100 100 100

Source: PMR estimates, Ministry of Transport, Federal Targeted Programme ‘‘Modernization of the Transport System 2002-2009’’

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Between 2002 and 2009, a number of significant projects have been implemented in the Russianinfrastructure construction market, as described in more details below:

• Highways. Between 2005 and 2009, over RUB1.4 trillion (excluding VAT) was spent on theconstruction and reconstruction of federal and regional highways, including the construction ofhighway bridges and tunnels. The focus was on strategically important projects aimed at improvingconnectivity with international transport corridors. The major projects that started during that periodand are currently continuing as part of the FTP 2010-2015 include the St. Petersburg Ring Road, theAmur-Chita-Khabarovsk highway, the M-7 ‘‘Volga’’ highway, the M-1 ‘‘Belarus’’ highway, and the M-4‘‘Don’’, the M-5 ‘‘Ural’’, the M-3 ‘‘Ukraine’’, the M-27 ‘‘Dzhubga—Sochi’’ and the M-60 ‘‘Ussur’’highways.

• Railways. Between 2005 and 2009, almost RUB487 billion (excluding VAT) was allocated to arailway development sub-programme, which included the construction of railway bridges and tunnels.Projects receiving funding during that period include the Moscow-Nahodka railway, theSt. Petersburg-Losta-Tayshet railway and construction of the bridge over the Lena river in Yakutsk.

• Airports. Between 2005 and 2009, RUB97 billion (excluding VAT) was allocated to improve airportinfrastructure and the aviation industry in general. The Pulkovo airport in St. Petersburg; theDomodedovo, Vnukovo and Sheremetyevo airports in Moscow; and the Rostov-on-Don airport haveall been improved. Also, many other airports in a variety of regions from the Southern to the SiberianFederal Districts were improved as parts of the reconstruction programme.

• Ports and in-land waterways. Between 2005 and 2009, almost RUB183 billion (excluding VAT) wasspent on the implementation of a ports sub-programme. This included the construction andreconstruction of strategically located ports such as Ust-Luga and Port Olya in Astrakhan. Out of theRUB183 billion, approximately RUB16 billion was spent on the in-land waterways sub-programme,which included a number of targeted projects such as the reconstruction of the Moscow canal.

CURRENT STATE OF TRANSPORT INFRASTRUCTURE

Set out below is a description of the current state of transport infrastructure in Russia by segment,highlighting its importance for the country and economy, and discussing the losses to the economy causedby the poor state and inefficiency of the existing infrastructure.

Highways

The availability of the highway network in Russia is significantly lower than in most Western countries.According to Rosstat, Russia has only approximately 44 kilometres of paved roads per 1,000square kilometres, compared with 1,805 kilometres in Germany, 836 kilometres in Poland, 478 kilometresin India, 442 kilometres in the United States and 80 kilometres in China. The number of passenger cars inRussian has seen a significant increase of 125 percent during the period between 1995 and in 2008, whilstthe length of Russia’s road network increased by 1 percent, according to PMR.

Years of under-investment have caused the quality of the Russian road network to lag significantly behindthat of most developed countries. The quality of highways in Russia is ranked significantly lower than inmost European counties. See ‘‘—Transport infrastructure construction industry overview—Introduction’’.According to PMR, almost 60 percent of roads in Russia fail to meet minimum riding quality requirementsand almost 52 percent fail to meet minimum strength requirements. Taking into account the trafficintensity and capacity utilisation levels, more than a third of the roads in Russia require reconstruction andmodernisation. Further, there are significant disparities in the quality of transport infrastructure betweenthe regions, especially between the European part of Russia, on the one hand, and Siberia and the FarEast, on the other.

Railways

Historically, the railway network has played a very important role in the Russian transportation system forboth passenger and cargo transportation. According to PMR, in 2010, the total length of the Russianrailway network was 85,281 kilometres, making the Russian railway network the third largest in the world,after the United States (240,000 kilometres) and China (86,000 kilometres), and ahead of India

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(63,465 kilometres) and Canada (48,000 kilometres). In 2009, railways accounted for 14.8 percent of thetotal transportation volume in Russia, according to PMR estimates.

Both the inability of the highway network to support the transportation of goods and the consequentincrease in the demand for rail networks have led to significant investments in the rail network. Accordingto PMR, Russian Railways invested approximately RUB65 billion in track development in 2009.

As a result of many years of under-investment in the improvement of the existing lines, increasing thecapacity of the existing railway network is currently more important than developing the network itself.Currently, asset deterioration levels of railway fixed assets are estimated by PMR at 58.6 percent,indicating that in future years the tendency to allocate the majority of the resources into the reconstructionand development of the existing lines should be maintained.

Bridges

According to PMR, there were over 40,000 road bridges in Russia as at 1 January 2009, of which15 percent were located on federal highways. PMR estimates that, as at that date, 19 percent of thesebridges (being more than 1,100) required reconstruction. Between 2000 and 2010, more than270 kilometres of bridges were put into operation.

Construction and reconstruction of bridges, overpasses and multi-level intersections is critical for thedevelopment of road infrastructure and the elimination of traffic congestion. In particular, improvementsin capacity and traffic flow on the 24 major federal highways, which are the backbone of the Russian roadnetwork, to a large extent rely on the construction and reconstruction of bridges and overpasses. With60 percent of federal roads not compliant with the official road quality standards, according to PMR, thereis a need for significant near-term investments in the road infrastructure and construction of bridges andoverpasses.

Airports

Russia’s airport infrastructure is inadequate both in terms of airport size and infrastructure (terminal andrunway capacity) as well as the total number of airports. Airports play a critical role in Russia’s overalltransportation system given the size of the country. According to PMR, the number of airports in Russiahas been in decline since the early 1990s from more than 1,300 to 329 airports in 2009, of which only62 percent have a paved runway. PMR estimates that practically all paved runways were built more than20 years ago, and half of all airstrips need urgent reconstruction. PMR also estimates that, in reality, of the329 airports operating in Russia in 2009, only 65 are being actively used for scheduled passenger or cargoservice.

According to PMR, demand for airport facilities is mainly driven by passenger volumes. PMR estimatesthat between 1990 and 2000 air passenger traffic declined; however, since 2000 passenger traffic has beenrecovering strongly. Annual passenger turnover has increased from 25.3 million in 2001 to 49.8 million in2008, according to PMR estimates.

According to PMR, air traffic is concentrated around 10 major international hubs, including three largeairports in Moscow and one in St. Petersburg.

Addressing Russia’s inadequate airport infrastructure requires an increase in terminal capacity as well asairside facilities such as runways, aprons, taxiways and lighting. Recently there has been very littlemaintenance, repair or expansion of runways, which has led to airside capacity constraints, limitations onaircraft movements and creating safety concerns. Going forward, given the projected increase in passengerdemand, increased spending will be required on airside facilities.

Ports and in-land waterways infrastructure

Ports

Russia’s coastline extends along the Arctic and Pacific Oceans, the Baltic Sea, the Sea of Azov, and theBlack and Caspian seas. Congestion is also a problem at many port facilities. For example it is aconstraining factor in St. Petersburg. Also, the lack of certain facilities (such as deepwater harbours) atmost ports further hamper the growth of port infrastructure. According to PMR, large investments have

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been made into freight ports and harbours over the past 10 years, with the number of offloading complexeshaving increased from 322 cargo points in 2000 to 705 in 2008.

In-land waterways

The development of ports in context of in-land waterways is to play a crucial role in the transportation ofpassenger and freight transport in the future, forming landmark transport routes and assisting intransportation from Asia to Europe. According to PMR, in-land waterways have remained unchanged overthe past several years, with the total length remaining at 101,613 kilometres since 2006, and the density(estimated as kilometres per square kilometre) remaining at 6.0 since 2005. According to Rosmorrechflot,there are a total of 240 ports and 1,500 separate-standing berths in Russia. PMR estimates that the shareof in-land waterways in Russia that ultimately lead to the single deep water system in the European part ofRussia currently stands at 4,900 kilometres, or 70 percent of ports and in-land waterways. According toPMR, the share of hydrotechnical structures that are in an unsatisfactory condition stands at 14.1 percentof the total hydrotechnical structures and the endangered structures at 4.1 percent.

FORECASTED DEVELOPMENT OF THE TRANSPORT INFRASTRUCTURE CONSTRUCTION MARKET

Introduction

The Russian Government adopted an ambitious plan to modernise the entire Russian transportinfrastructure sector, approving the Transport Strategy of the Russian Federation for the period up to 2030(the Transport Strategy) in November 2008.

The main objectives of the Transport Strategy include:

• forming a single transport system based on balancing infrastructure in the various regions;

• integrating the Russian transport system into the global transport system to realise Russia’s transitpotential;

• increasing the safety of Russia’s highways; and

• limiting the extent to which the transport infrastructure negatively affects economic growth.

The Transport Strategy is expected to be implemented in two stages. The first stage, being the FTP2010-2015, which is currently being implemented, is a continuation of the FTP 2002-2009, contemplatessignificant investments in the construction and reconstruction of the transport infrastructure across fivedifferent transport segments. Total investments planned within the first stage of the Transport Strategyamount to RUB15,504 billion (excluding VAT). The second stage, to be implemented between 2016 and2030, focuses on innovation and the development of the transport system. The second stage is divided intotwo sub-stages, to be implemented between 2016 and 2020 and between 2021 and 2030. The first sub-stageinvolves a total investment of RUB25,825 billion, and the second sub-stage a total investment ofRUB103,231 billion (in each case, excluding VAT).

In addition to the Transport Strategy, the Russian Government has approved several other targetedprogrammes, including the Federal Targeted Programme for the construction of Olympic Venues and thedevelopment of Sochi as a mountain resort (the Sochi Programme), the programme for the development ofthe Far East and Zabaykalie (the Far East and Zabaykalie Programme) and the programme for thepreparation of the Kazan Universiade (the Kazan Programme). Further, twelve PPP projects were includedin the list of investment projects of national importance and, accordingly, are entitled to state support outof the Investment Fund’s resources, as approved by the Russian Government’s Order No. 1708-r dated30 November 2006.

Market forecasts

The Russian transport infrastructure construction market has three major funding sources: governmentfinancing, ‘‘public-private partnerships’’ and external financing. The forecasted development of this marketdepends on adequate funding coming from these sources. See also ‘‘—Infrastructure investment funding’’.

In connection with the Offering, the Company engaged PMR to prepare a report on the current state ofthe Russian infrastructure construction industry (the PMR Report). The PMR Report includes, among

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other matters, PMR’s forecasted development of the transport infrastructure construction market. Toprepare such forecast, PMR reviewed a number of programmes approved by the Russian Government witha view to generally improve the Russian transport infrastructure, such as the FTP 2010-2015, the SochiProgramme, the Far East and Zabaykalie Programme and the Kazan Programme. To prepare its forecasts,PMR took into consideration the total planned level of spending, project implementation levels and anumber of other factors.

On the basis of its review, PMR has projected particular rates of implementation that are generally moreconservative than that forecasted by the Russian Government.

The following table shows the forecasted value of the Russian infrastructure construction market bysegment, for the periods indicated.

Compoundedannual growth

2010 2011 2012 2013 2014 2015 rate 2010-2015

(RUB billion, excluding VAT)

Highways . . . . . . . . . . . . . . . . . . . 327 398 499 600 645 680 16%Railways . . . . . . . . . . . . . . . . . . . . 53 67 84 86 93 99 13%Bridges . . . . . . . . . . . . . . . . . . . . . 116 146 171 197 189 201 12%Tunnels . . . . . . . . . . . . . . . . . . . . . 47 61 82 94 84 80 11%Airports . . . . . . . . . . . . . . . . . . . . 33 41 46 61 80 89 22%Ports and in-land waterway

infrastructure . . . . . . . . . . . . . . . 44 46 52 59 86 104 19%

Total . . . . . . . . . . . . . . . . . . . . . . 620 758 933 1,096 1,177 1,252 15%

Source: PMR

Highways

Project implementation

The FTP 2010-2015 is the principal way of financing the Russian highway construction market withapproximately RUB482 billion to be spent in 2010. However, PMR estimates that implementation of thefunding attributed to the FTP 2010-2015 in 2010 will not exceed RUB238 billion.

According to PMR, other elements contributing to the financing of the Russian highway constructionmarket include the highway construction projects contemplated by the Sochi Programme, the Far East andZabaykalie Programme and the Kazan Programmes, and a number of PPP projects. PMR estimates that,excluding the value of bridge and tunnel construction from the total value of these projects, the spendingon these projects in 2010 will be RUB58 billion.

Since the FTP 2002-2009 included repair and maintenance spending while the FTP 2010-2015 does not,PMR made certain adjustments to obtain comparable figures. PMR expects a 20 percent decrease inspending on road repair and maintenance in 2010 due to challenging market conditions, thereby bringingcapital repair and maintenance investment to RUB150 billion for 2010. Further, PMR believes that agradual increase in the fuel tax will result in a substantial growth in funding available for road constructionand reconstruction over the period from 2011 to 2013. See ‘‘—Infrastructure investment funding—Increasein fuel tax’’.

Taking into account the above, PMR expects the total amount to spend on highway construction, includingthe maintenance and repair) will be RUB327 billion in 2010, RUB398 billion in 2011, RUB498 billion in2012, RUB600 billion in 2013, RUB645 billion in 2014 and RUB680 billion in 2015, in each case excludingVAT.

Private sector investment highway construction projects

Construction of the Western High Speed Diameter in St. Peteresburg is an example of a PPP highwayconstruction project. This project is implemented by OOO ZSD Nevsky Meridian, a consortia comprisingStrabag AG, Bouygues Travaux Publics, Hotchief PPP Solutions, Egis Projects and Mostootryad-19.According to PMR, this project has a total value of approximately RUB148 billion, excluding VAT.

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Other examples of PPP-driven highway construction projects include the construction of the first section ofthe Moscow-St. Petersburg tollway between the 15th and 58th kilometres by OOO North-West ConcessionCompany, comprising Vinci, Eurovia and N-Trans, and construction of a new connection between theMoscow Ring Road and M-1 ‘‘Belarus’’ highway by OJSC Main Road, comprising Leader, Gazprombank,Stroygazconsulting, Alpine Bau, FCC and Brisa. These projects have a contract value of approximatelyRUB49 billion and RUB18 billion respectively, in each case excluding VAT, according to PMR.

Railways

Railways are an important component of the national transport infrastructure, both for passenger andcargo transportation. See ‘‘—Current state of transport infrastructure—Railways’’. Both the FTP 2010-2015and the Sochi Programme focus on a number of strategically important railway construction projects thatwill serve as a link between the European part of Russia, on the one hand, and Siberia and the Far East, onthe other hand.

The following table shows the largest railway construction projects contemplated by the FTP 2010-2015and the total value of the investments in these projects.

Timing Investments

(RUB billion,excluding VAT)

Construction of the line Prokhorovka—Zhuravka—Chertkovo—Bataisk . . . 2010-2013 474Development of the Moscow transport hub . . . . . . . . . . . . . . . . . . . . . . . 2010-2015 334Construction of the Omsk railway hub bypass . . . . . . . . . . . . . . . . . . . . . . 2012-2015 144Construction of the Polunochnoye—Obskaya—Salekhard line . . . . . . . . . . 2012-2015 126Complete overhaul of bypass segment of the Krasnodar railway junction . . 2013-2015 59

Source: PMR, Russian Transport Ministry

FTP 2010-2015 railway projects

The most important projects within the FTP 2010-2015 are the construction of the Prokhorovka-Zhuravka-Chertkovo-Bataisk railway with a total value of RUB559 billion, the development of the Moscow transporthub with a total value of RUB394 billion and the construction of the Omsk railway hub with a total valueof RUB170 billion. The total value of the railway projects envisaged by the FTP 2010-2015 is RUB1.4trillion. However, the assumed level of implementation each year differs. In 2010, PMR expects the level ofimplementation to be 25 percent, leading to an actual realisation of RUB47 billion in that year and to be40 percent in 2015, leading to an actual realisation of RUB97 billion in that year. The assumed level ofimplementation is subject to change, according to PMR, depending on the general economic conditionsand subsequent changes in the Russian federal budget.

Sochi Programme railway projects

The Sochi Programme envisages three major railway projects between 2010 and 2012, with a total value ofRUB51 billion. These projects include the construction of the combined rail and road highway betweenAdler and Alpika-Servis. Although the total value of this project is RUB227 billion, PMR expects theactual spending on this project for the next three years to be only RUB22 billion. Two other projects in theprogramme include the Sochi-Adler airport railway line, with a total value of RUB8 billion, and thereinforcement of railroad infrastructure between Tuapse and Adler, with a total value of RUB20.5 billion.

Private sector investment railway construction projects

Construction of the 315 kilometre long Ulak-Elga railway line by OAO Mechel, one of the Russia’s leadingmining and metallurgical companies, is an example of a PPP railway construction project. This line is toconnect the Elga deposit with the Baikal-Amur trunk railway. PMR estimates that total investments in thisproject will be approximately RUB23 billion, excluding VAT.

Another example of a PPP railway construction project is the construction of the 425 kilometre longNaryn-Lugokan railway line by OAO Norilsk Nickel. Approximately 69 percent of the financing for thisproject will be provided by the Russian Investment Fund, with the remainder to be provided by

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OAO Norilsk Nickel. PMR estimates that total investments in this project will be approximatelyRUB44 billion, excluding VAT.

PMR estimates that the total railway construction value for 2010 will be approximately RUB53 billion,excluding VAT. According to PMR estimates, the value of resulting total railway construction will steadilyincrease, representing RUB67 billion in 2011, RUB84 billion in 2012, RUB86 billion in 2013,RUB93 billion in 2014 and RUB99 billion in 2015, in each case excluding VAT.

Bridges

PMR estimates that the total value of the bridge construction market is composed of the following:(i) construction and reconstruction of bridges unsuitable for repair and other highway and railway bridgescontemplated by the FTP 2010-2015, (ii) bridges contemplated by the Sochi Programme, (iii) bridgescontemplated by the Vladivostok and Zabaykalie Programme, (iv) PPP highway and railway bridges and(v) other bridges.

FTP 2010-2015 bridge projects

There are a few railway bridges that have been singled out within the FTP 2010-2015 as separate projects.These projects include the railway bridge over the river Ob in Salekhard and the construction of a railwaybridge over the Lena river near Yakutsk.

Far East and Zabaykalie Programme bridge projects

There are several large bridge construction projects that are to be implemented in Vladivostok under theFar East and Zabaykalie Programme. These projects include the cable-stayed bridge on Russky Island witha value of RUB32 billion and the Golden Horn Bay bridge with a value of RUB20 billion.

PMR expects that the total value of bridge construction projects in Russia will be approximatelyRUB116 billion in 2010, approximately RUB146 billion in 2011, approximately RUB171 billion in 2012,approximately RUB197 billion in 2013, approximately RUB189 billion in 2014 and approximatelyRUB201 billion in 2015, in each case excluding VAT. This represents a CAGR of 12 percent in 2010-2015.The expected decrease in 2014 anticipates the completion of the Vladivostok and Sochi projects in 2011and 2013, respectively. The expected increase of 6.4 percent in 2015 anticipates the FTP 2010-2015highway and railway bridges construction projects.

Airports

The civil airports sub-programme of the FTP 2010-2015 envisages the construction of 103 airport runways,including runways at 10 large international airports, and increasing annual traffic by more than a factor of20 by 2015. These projects include the construction and reconstruction of major airport hubs, with a specialfocus on three airports within the Moscow region—Domodedovo airport, with a project value ofRUB37 billion, Sheremetyevo airport with a project value of RUB35 billion and the Vnukovo airport witha project value of RUB28 billion.

The FTP 2010-2015 envisages a total of RUB387 billion allocated to the construction and reconstruction ofover 30 civil airports throughout the country. For 2010, RUB39 billion is to be allocated, 60 percent ofwhich will be utilised, as indicated by the Russian Ministry of Transport. Thus, PMR expects that the actualamount that will be utilised in connection with the projects in 2010 will be RUB29 billion. PMR expectsthe percentage of utilisation to increase over the next five years, such that it reaches 70 percent in 2012 and100 percent by 2015.

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The following table shows the largest airport construction projects within the FTP 2010-2015 and the totalvalue of investments for these projects.

Timing Investments

(RUB billion,excluding VAT)

Reconstruction of Domodedovo airport . . . . . . . . . . . . . . . . . . . . . . . . . . 2010-2015 31Reconstruction of Sheremetievo airport . . . . . . . . . . . . . . . . . . . . . . . . . . 2010-2014 30Reconstruction and development of Vnukovo airport . . . . . . . . . . . . . . . . 2010-2014 23Reconstruction of Sochi airport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2010-2012 22Reconstruction of the Yuzhny airport (Rostov-on-Don) . . . . . . . . . . . . . . . 2011-2015 21

Source: PMR

Ports and in-land waterway infrastructure

Ports

The most important port projects include the construction of the deepwater port in Kaliningrad Bay, with atotal value of RUB99 billion, between 2010 and 2015. The second most important project is theRUB56 billion formation of water areas in Ust-Luga. The total value of the nine largest port projectsbetween 2010 and 2015 amounts to RUB289 billion, according to PMR. Effectively all port projects are tobe implemented according to the Russian Ministry of Transport between 2010 and 2015, confirming thecontinued prioritisation of the development of ports in Russia. Implementation of the port projects in 2010is projected by PMR to be at 93 percent, increasing to 105 percent and 106 percent in 2014 and 2015,respectively.

The following table shows the largest airport construction projects within the FTP 2010-2015 and the totalvolume of investments to these projects.

Timing Investments

(RUB billion,excluding VAT)

Construction of deepwater port in the Kaliningradsky bay . . . . . . . . . . . . . 2010-2015 84Development of water areas for Ust-Luga commercial sea port . . . . . . . . . 2010-2015 47Construction and overhaul of infrastructure facilities at the Vanino

sea port . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2013-2015 24Reconstruction of St. Petersburg sea channel and port infrastructure . . . . . 2010-2015 20Reconstruction of the St. Petersburg sea port infrastructure . . . . . . . . . . . . 2010-2015 17

Source: PMR

In-land waterways

The largest project within the in-land waterways sub-programme of the FTP 2010-2015 is thereconstruction of the waterworks system that ultimately leads into the single deep-water system of theEuropean part of Russia, a project worth RUB52 billion, envisaged to be implemented between 2010 and2015. Compared to the port projects, the likelihood of the implementation of the in-land waterwaysprojects is much lower. For 2010, the implementation of in-land waterways is estimated by PMR to be at33 percent, increasing to 40 percent in 2012, and to 55 percent in 2015. Thus, the development of thein-land waterways is set to stay incomplete, at least in the medium-term. However, the situation couldchange in line with the government’s financial resources.

INFRASTRUCTURE INVESTMENT FUNDING

Infrastructure investment funding has three major sources: government financing, ‘‘public-privatepartnerships’’ (PPP) and external financing.

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Government financing

Government financing for infrastructure investment is channelled through the following sources:

• Federal State agencies, being Rosavtodor (highways), Roszheldor (railways), Rosaviatsiya (airports)and Rosmorrechflot (ports, rivers and marine);

• Regional budgets, being the funds additional to Federal funds, which may contribute an additional15-25 percent to the Federal funds. This figure, however, differs depending on region and the need forinfrastructure investment;

• Special organisational committees, including specific organisations such as Olympstroy;

• Ministry of regional development, being the ministry responsible for overseeing the Federal TargetedProgrammes such as the programme for the development of the South of Russia. The RussianMinistry of Regional Development has also founded the Investment Fund of Russia (the InvestmentFund), being the fund responsible for strategically important projects; and

• Infrastructure bonds, being the obligations of the Russian Government to provide a guarantee for theissue of project specific bonds.

Public-Private Partnerships

PPP are a project execution system widely used by governments seeking to share the upfront funding costsassociated with the construction or maintenance of an infrastructure asset. The reasons for theparticipation of private partners are specific to each project. However, certain reasons frequently occur,including in particular:

• the public sector’s lack of financial and human resources necessary to execute the project and thepublic sector’s lack of the relevant know-how and experience;

• the ability to take advantage of a typically more effective project management process; and

• private partners’ motivation to earn a profit.

PPP projects are frequently organised on a ‘‘BOT’’ (build-operate-transfer) basis, whereby the private-sector party obtains a concession to carry out a public investment project, executes the construction of aproject and earns a revenue stream from the project for a specified period. The key element of a PPPproject is the ability to share risk between partners in a manner corresponding to their capacity to incursuch risk.

PPP are becoming a more accepted method of financing transport infrastructure projects. The RussianGovernment has awarded a number of concession projects including the construction of the WesternHigh-Speed Diameter in St. Petersburg and, more recently, the construction of the first section of theMoscow-St. Petersburg tollroad, the development of the Pulkovo Airport and the development of theOdintsovo Bypass. The three latter projects reportedly reached financial close at the end of April 2010. Inaddition to the highway construction projects, a number of PPP-driven railway construction projects arecurrently being implemented. See ‘‘—Forecasted development of the transport infrastructure constructionmarket—Railways—Private sector investment railway construction projects’’.

External financing

External financing of infrastructure investment comes either from loans or from the capital contributionsfrom private investors. The main sources of loan financing in Russia are development finance institutions(such as the EBRD, the World Bank through IFC, the European Investment Bank and the NordicInvestment Bank) and commercial banks (typically State-owned or controlled banks such asVnesheconombank, Sberbank of Russia, Gazprombank and VTB). Loans provided by public financeinstitutions (including the Russian development bank Vnesheconombank) are a good source of funding asthey provide long-term financing. However, they typically have stringent requirements and take a long timeto structure. Development finance institutions typically invest in specific projects before commercial banks.Capital contributions from private investors are typically directed at specific projects, such as variousprojects for the 2014 Olympics Games in Sochi.

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Increase in fuel tax

Taxation on motor fuels is generally considered to be the most efficient way to charge road users as it iseasy to collect and administer and is relatively equitable.

Internationally, it is typical for the revenues generated from fuel tax to be accumulated in specialisedhighway funds. For example, in the United States, where the fuel tax varies from state to state but, onaverage, is about 12 cents per litre of gasoline and 13 cents per litre for diesel, the fuel tax revenues go tothe Highway Trust Fund and are mainly used to cover direct expenditure for roads and highways. Inwestern Europe, fuel taxes are significantly higher than in the United States. For example, in UnitedKingdom, the fuel tax is 50.35 pence per litre, accounting for over 60 percent of the pump price. In manywestern European countries, fuel taxes are also used curb demand, with a view to reducing dependence onfossil fuels, traffic and pollution.

In July 2010, President Dmitry Medvedev approved the Russian Government’s proposal to increase thefuel tax by RUB1 per litre annually over the coming three years. The Russian Government expects thatafter the tax is increased, the federal budget will receive an additional RUB536 billion in the periodbetween 2011 and 2013. This revenue is expected to flow into the Federal Highway Fund to finance roadconstructions and repair.

COMPETITIVE LANDSCAPE

The Russian construction industry is highly fragmented, which is characteristic of the industry worldwide.The vast majority of construction companies are small and specialise in general construction works. PMRestimates that, at the beginning of 2009, approximately 155,000 construction companies were registered inRussia, of which 140,000 were classified as small enterprises, with three-quarters of them employing 15workers or fewer.

The competitive landscape for the portion of the Russian construction industry focused on transportinfrastructure projects can be split into three distinct groups. The first group comprises companies having asignificant geographical presence and an established track-record. These companies have sufficientresources to successfully implement large-scale projects of regional or national scale and face relatively lowlevels of competition and high level of concentration, especially in the main regions where they are present.These companies accounted for 15.9 percent of the total infrastructure construction market in 2009, byrevenue for works conducted in-house, according to PMR estimates.

The second group comprises medium-sized regional companies capable of implementing reasonablycomplex infrastructure projects. These companies specialise in a smaller range of infrastructure projects, asthey typically have limited engineering capabilities as compared to the market leaders. The companiescomprising the second group collectively accounted for 16.9 percent of the total infrastructure constructionmarket in 2009, by revenue for works conducted in-house, according to PMR estimates.

The third group comprises small regional and local companies providing unsophisticated small-scaleconstruction, repair and maintenance services. This specific market is fragmented, though once combined,these contractors account for a 67.2 percent of the total transport infrastructure market in 2009, byrevenue for works conducted in-house, according to PMR estimates.

The Russian transport infrastructure market, excluding maintenance and repair works, was valued by PMRat RUB436.3 billion in 2009, such figure being used by PMR as the basis for its calculation of marketshares. There are only a few transport infrastructure construction companies with countrywide operations,among which are Mostotrest, PSK Transstroy Holding, DSK Avtoban, and Mostovik. Other transportinfrastructure construction companies, such as Volgomost, have a clear focus on specific regions, and havedeveloped the expertise and the relationships necessary to win and successfully implement projects in thoseregions.

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The following table shows the market share of Russian transport infrastructure construction companies byrevenue for works conducted in-house in 2009.

Company Market share

Mostotrest(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8%PSK Transstroy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4%RZDStroy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3%USK Most . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3%DSK Avtoban . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3%Mostovik . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3%VAD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2%TSM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2%Bamstroymekhanisatsiya . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2%Volgomost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2%Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69%

Source: PMR estimates, 2010

(1) Consolidated share of Mostotrest, ETS and TSM.

The ten largest companies cumulatively account for 31 percent share of the market. Mostotrest (includingETS and TSM) and PSK Transstroy lead the market by holding 8 percent and 4 percent shares of the entiretransport infrastructure market, respectively. The other 69 percent of the total market comprises two typesof companies—those companies that act as sub-contractors to large, general contractors such as PSKTransstroy, and, those that are small-scale general contractors and sub-contractors in the specific regions.

It is important to note that there are two key types of companies operating in the transport infrastructureconstruction market, specialised providers of general contractor and engineering services and constructioncompanies carrying out most of the works in-house. For example, according to PMR, ETS, being thelargest player in the general contractor services market with revenue of over RUB40 billion in 2009,subcontracts most of its construction works to third-party companies such as TSM. By comparison, othersignificant general contractors such as Engeokom and PSK Transstroy, carry out only 40 percent and65 percent of the works themselves, respectively, according to PMR. In implementing large complexprojects, general contractors tend to subcontract other companies based on the specific segment expertiseof each subcontractor.

Bridges

Bridge engineering and construction is one of the most technically challenging areas of transportinfrastructure construction, requiring strong technical expertise and significant experience and skills. Thetotal value of the bridge construction market in 2009 was approximately RUB100 billion, according toPMR. According to official statistics, in 2009, 1,990 companies engaged in the construction of bridges,tunnels, underpasses and overpasses were registered in Russia.

Bridge construction works have a high level of concentration and are dominated by several large players.PMR estimates that, when accounted for revenue for works conducted in-house, the cumulative share ofthe top seven players accounted for 63 percent of the market in 2009, according to PMR.

According to PMR, Mostotrest led the bridge construction market with a market share in 2009 (by revenueof works conducted in-house) of 25 percent. USK Most and Sibmost, each accounting for 9 percent of themarket by revenue for works conducted in-house in 2009, are the second largest players in the market,according to PMR. According to PMR, Mostotrest is perceived to be the leader in construction oftechnologically-advanced, complex structures and has a strong reputation built over many years. USKMost, on the other hand, specialises in construction of railway bridges, being the largest contractor in thissector for Russian Railways. The company has recently been hired to build a technically challenging bridgeto Russkyi Island, according to PMR.

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The following table shows the market share of the seven largest bridge construction companies by revenuefor works conducted in-house in 2009.

Company Market share

Mostotrest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25%USK Most . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9%Sibmost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9%Volgomost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6%Mostootryad-19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5%Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46%

Source: PMR estimates, 2010

Highways

The most important characteristic of the road construction market in Russia is that a large proportion ofthe market is attributed to repair and maintenance works. According to PMR, in 2009, the amount ofspending on road repair and maintenance stood at 39 percent of the total RUB325 billion market for roadconstruction. These are mainly small-scale projects carried out by relatively small regional and localcompanies.

According to PMR, the highway construction sector in Russia can be characterised as highly concentratedand dominated by a small number of players as it relates to the construction of federal road segments, andas a fragmented market as it relates to the construction of regional and local roads. Fragmentation is alsotypical in the maintenance and repair works market, as these projects typically have small contract sizesand the large players rarely compete for these projects. According to PMR, these are typically companieswith annual revenue ranging from RUB2 billion to RUB3 billion and lower.

According to PMR, the leaders in the highway construction sector by revenue for works conducted in-house in 2009 were DSK Avtoban with a market share of 4 percent and VAD with a market share of3 percent.

Most of the companies specialising in highway construction subcontract construction of bridges,underpasses and overpasses to specialist bridge-building and tunnel-building companies. Hence, often thelarge contractors for roads are partners with bridge-building and tunnel-building companies, and together,the road and bridge builders carry out the majority of the construction works.

The following table shows the market share of the five largest highway construction companies by revenuefor works conducted in-house in 2009.

Company Market share

DSK Avtoban . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4%VAD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3%Corporation Transstroy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2%TSM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1%Trud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1%Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89%

Source: PMR estimates, 2010

Profiles of the leading infrastructure construction companies

Set out below is an overview of some of the Company’s key competitors operating on the Russianinfrastructure construction market, based on information from the PMR report.

PSK Transstroy. PSK Transstroy is estimated to be the second largest company in the Russian transportinfrastructure market. It comprises over 30 companies, including major players such as OAO CorporationTransstroy and ZAO Engineering Corporation Transstroy. OAO Corporation Transstroy is the successor ofa part of the Ministry for Transport Construction of the USSR, specialising in construction of complex

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infrastructure design and engineering. ZAO Engineering Corporation Transstroy specialises in theconstruction of airport runways and taxiways. It also has strong in-house design capabilities.

RZDStroy. RZDStroy is one of the leading railway infrastructure construction companies in Russia. Thecompany has a national coverage via 18 construction subsidiaries located all over the Russian Railwaysnetwork, and in-house production facilities. RZDStroy is a wholly-owned subsidiary of Russian Railwaysand Russian Railways is its major customer.

USK Most. USK Most is an infrastructure construction group specialising in highway construction,construction of bridges and overpasses, traffic interchanges, tunnels, hydraulic structures and airportrunways and taxiways. It also has a strong in-house production base. USK Most primarily operates in theCentral Federal District, the North-Western Federal District, the South Federal District, the Volga FederalDistrict, the Urals Federal District, the Siberian Federal District and the Far East Federal District. One ofthe members of USK Most’s Group, OAO Bamtonnelstroy, is a leading constructor of railway, traffic andmetro tunnels, operating across the country and having strong technical expertise in building complexstructures throughout Russia, from Sochi to Vladivostok. USK Most typically acts as a general contractorin projects for Russian Railways and holds a strong position in the construction of railway bridges andoverpasses.

DSK Avtoban. DSK Avtoban is a construction company specialising in the construction of highways andbridges, as well as other transport infrastructure. It is based in the Krasnodarski krai. It operates primarilyin the Central Federal District, the Volga Federal District, the Urals Federal District, the South FederalDistrict and the Siberian Federal District. It comprises Avtoban, covering operations of DSK Avtoban inthe European part of Russia, and OAO Khanty-Mansiyskdorstroy covering the western Siberia and Uralsregions.

NPO Mostovik. NPO Mostovik is one of the leading transport infrastructure construction companies inRussia. With a strong presence in the European part of Russia as well as in Siberia and the Urals region, itspecialises in design and construction of railroads, roads and highways, underpasses, metropolitan linesand microtunnels. It operates primarily in the Central Federal District, the Far East Federal District, theSouth Federal District, the Urals Federal District and in the south-west of Siberia. It also has a presence inKazakhstan. It also has strong in-house design capabilities.

Engeokom. Engeokom is currently one of the leading investment and construction companies in Russia.It also has a strong presence outside engineering. Engeokom constructs highways and tunnels, residentialand commercial buildings, traffic interchanges, water transportation related infrastructure and municipaltransportation facilities. It operates primarily in the Central Federal District, the Southern FederalDistrict, the Siberian Federal District and the Far East Federal District. In addition to projects in Russia,Engeokom has completed a number of projects in Poland, Vatican, Hungary and Senegal.

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OVERVIEW

The Group is the leading diversified Russian transport infrastructure construction group, with a7.8 percent share of the Russian infrastructure construction market (excluding repair and maintenanceworks) by revenue in 2009 (including the market share of ETS and TSM) for works conducted in-house,according to PMR. The Group’s core operations, which include bridge and highway construction, areimplemented through its parent company and main operating entity, Mostotrest. It operates in many of themost economically prosperous regions in Russia, including in and around Moscow, St. Petersburg, Sochi,Nizhny Novgorod, Yaroslavl, Rostov-on-Don and elsewhere in the North-Western, Central and SouthernFederal Districts.

Mostotrest was the largest bridge engineering and construction company in Russia in 2009 by revenue forworks conducted in-house, with an estimated market share of 25 percent of Russian bridge constructionprojects, according to PMR estimates. It has constructed many landmark bridges and traffic interchanges,including the cable-stayed bridge over the Neva river in St. Petersburg (completed in 2007), the cable-stayed bridge in Serebrianyi Bor in Moscow (completed in 2007), the cable-stayed bridge over the Okariver in Murom (completed in 2009), the bridge over the Angara river in Irkutsk (completed in 2009) andthe Pulkovo traffic interchange in St. Petersburg (completed in 2007). See ‘‘—Mostotrest operations—Principal completed projects’’.

While historically Mostotrest has been a specialist bridge contractor, in response to the recent trend in theRussian construction market for customers to tender whole transport infrastructure construction projects,Mostotrest has grown its operations organically to become an integrated diversified construction servicesprovider, acting as a general contractor on most of its projects.

In the six months ended 30 June 2010, Mostotrest acquired interests in the following companies with whomit has worked closely for some time, to enhance its organic growth:

• a 51.0 percent equity interest in Limited Liability Company ‘‘Corporation Engtransstroy’’ (ETS), atransport infrastructure engineering and construction management company specialising in highway,railway, airport, port and in-land waterway and bridge engineering and construction management withprojects in the Central, the North-Western, the Siberian, the Southern and the Far East FederalDistricts;

• a 50.1 percent equity interest in Limited Liability Company ‘‘Transstroymekhanisatsiya’’ (TSM), atransport infrastructure construction and overhaul company specialising in highway and airportinfrastructure construction with operations in the Central, the Southern and the Far East FederalDistricts; and

• a 25.002 percent equity interest in JSC ‘‘Mostostroy-11’’ (MS-11), a transport infrastructureconstruction company, with operations in the Siberian and the Southern Federal Districts.

Mostotrest’s business (excluding the businesses of ETS, TSM and MS-11) is described in more detailbelow. The businesses of ETS, TSM and MS-11 are described separately in ‘‘Business and FinancialCondition of Recent Acquisitions’’. Collectively, Mostotrest, ETS and TSM (and their consolidatedsubsidiaries) are referred to as the Group.

Mostotrest’s current projects include the construction of a section of the Fourth Ring Road between theEntuziastov highway and the Izmailovskoe highway in Moscow (the Moscow Fourth Ring Road),construction of the first stage of the Moscow-St. Petersburg tollway between the 15th kilometre and the58th kilometre (the Moscow-St. Petersburg tollway), extension of the Nizhny Novgorod subway system,construction of a combined rail and road highway between Adler and the Alpika-servis mountain resort inSochi, construction of a bridge over the Don river in Rostov-on-Don and construction of a secondary roadalong Kurortnyi avenue in Sochi. See ‘‘—Mostotrest operations—Principal projects under construction’’. Inaddition, a number of significant projects are currently implemented by ETS and TSM, including theconstruction of a section of the St. Petersburg Ring Road, construction of a section of the Naryn-Lugokanrailway in Zabaykalski krai, reconstruction of the Sochi airport runways and taxiways and reconstructionand development of the Vladivostok airport runways and taxiways. See ‘‘Business and Financial Conditionof Recent Acquisitions’’.

Pro forma for the acquisition of controlling interests in ETS and TSM, the Group’s consolidated revenuesin 2009 and in the six months ended 30 June 2010 were RUB78,971 million and RUB31,361 million, with

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EBITDA of RUB8,157 million and RUB5,540 million, respectively. Mostotrest’s consolidated revenues in2008, 2009 and the six months ended 30 June 2010 (including ETS and TSM consolidated from the dates oftheir acquisition) were RUB30,334 million, RUB32,392 million and RUB16,433 million and EBITDA wasRUB3,456 million, RUB5,708 million and RUB3,506 million, respectively.

The Group’s consolidated backlog and Mostotrest’s stand-alone backlog (excluding ETS and TSM) wasRUB201,395 million and RUB122,186 million, respectively, as at 30 June 2010 (in each case, excludingVAT). See ‘‘—Backlog’’.

KEY STRENGTHS

Mostotrest believes that it has a number of key strengths, which have enabled it to increase its revenue,profits and market share in recent years and will continue to provide it with competitive advantages in thefuture. These strengths include those set out below.

Attractive fundamentals and strong growth potential in the Russian transport infrastructure construction market

Total spending on Russian transport infrastructure construction almost doubled over the period from 2005to 2009, reaching RUB594.4 billion in 2009, according to PMR estimates. The market has demonstratedsubstantial growth in 2007 and 2008, at 26 and 27 percent per annum respectively, and showed resilienceeven during the recent financial crisis with growth of 5 percent in 2009, according to PMR.

Despite significant investment in recent years, Russia’s transport infrastructure is relativelyunderdeveloped for the size of its population. While the total fleet of passenger cars increased by125 percent over the period from 1995 to 2008, the highway network length increased by only 1 percentover the same period, according to PMR. As a result Russia had only approximately 6.6 kilometres of roadper 1,000 people in 2009, compared with 26.1 kilometres in Canada, and 21.0 kilometres in the UnitedStates, according to PMR. In addition, Russia’s transport infrastructure is largely outdated and requiressignificant investment. Russia was ranked 111th of 125 countries with respect to the quality of its roadinfrastructure by the World’s Economic Forum’s Global Enabling Trade Report 2010. Approximately59 percent of railways, 35 percent of highways and 19 percent of bridges in Russia required refurbishmentor reconstruction in 2009, according to PMR.

Low density and the poor condition of Russia’s transport infrastructure have a negative impact on theeconomy overall. Key sectors of the Russian economy, such as natural resources and manufacturing, relyon Russia’s aging transport infrastructure. PMR estimates that undeveloped highways generally cost theeconomy more than RUB1.3 trillion per year or approximately three percent of annual Russian GDPannually.

The Russian Government has recognised that economic growth is heavily dependent on efficient transportinfrastructure, which, in turn, requires significant new investment. To improve transport infrastructure, theRussian Government has announced several significant programmes, most of which are to be implementedbetween 2010 and 2015, including investments using a PPP model. See also ‘‘Russian InfrastructureConstruction Industry Overview’’. As a result of these planned investments, the Russian transportinfrastructure construction market is expected to experience strong growth with an estimated compoundedannual growth rate over the period from 2010 to 2015 of approximately 15 percent, according to PMR.

As a leading participant in the Russian transport infrastructure market, Mostotrest believes that it is wellplaced to benefit from the anticipated strong growth of this market.

Integrated transport infrastructure construction business model

In recent years, transport infrastructure construction projects have become larger, more complex and moretechnologically sophisticated. As a result, customers tend to seek general contractors with the ability toprovide integrated construction services. This trend has also been shown by the average size of tendersannounced by Rosavtodor, which has almost tripled over the period from 2007 to 2009. To capitalise onthis trend, Mostotrest has evolved by developing its own expertise as a general contractor and expanding itsexpertise to cover complementary segments, such as highways, railways, airports and ports. To develop itsconstruction capabilities and service offering further, Mostotrest recently acquired controlling interests in(i) ETS, a transport infrastructure engineering and construction management company, and (ii) TSM, a

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transport infrastructure construction company with strong capabilities in highway and airportinfrastructure construction.

As a result of the organic development of its business and its recent acquisitions, Mostotrest has becomethe leading transport infrastructure company in Russia in 2009 by revenue for works conducted in-housewith a 7.8 percent share (including the market share of ETS and TSM) of the Russian transportinfrastructure construction market (excluding repair and maintenance works), according to PMR. Theevolution of Mostotrest’s business model into an integrated and diversified transport infrastructureconstruction business allowed it to win some of the largest tenders in various transport infrastructureconstruction segments throughout Russia. For example, Mostotrest currently acts as the general contractoron projects such as a section of the Fourth Transport Ring Road in Moscow and the first stage of theMoscow-St. Petersburg tollway, with ETS acting as the general contractor on projects such as a section ofthe Naryn-Lugokan railway in Zabaykalski krai and the reconstruction and development of theVladivostok airport runways and taxiways.

Leadership in bridge engineering and construction in Russia

Mostotrest was the largest bridge engineering and construction company in Russia in 2009 by revenue forworks conducted in-house, with an estimated market share of 25 percent of the Russian bridgeconstruction market, according to PMR. Its closest competitor, USK Most, had a market share of9 percent in 2009, according to PMR estimates. Mostotrest’s leading position in the bridge constructionsegment is supported by its strong engineering and construction capabilities, significant number ofproprietary technologies and the availability of its own production facilities. Over the course of its history,Mostotrest (together with its predecessor) has constructed more than 6,000 bridges and overpasses with atotal length of approximately 600 kilometres, including more than 1,500 pedestrian bridges. Over the lastfive years, Mostotrest has constructed a total of 259 bridges, traffic interchanges and similar facilities with atotal length of 54.8 kilometres.

Expertise in bridge engineering and construction is central to virtually all transport infrastructureconstruction projects. Such works tend to be technologically complex and assist Mostotrest in winningmore technologically demanding transport infrastructure construction projects in Russia. The technologyand know-how required in the bridge construction industry also create a barrier to entry for potentialcompetitors and have historically limited competition in the Russian bridge construction market.

Well-positioned to win and deliver large, complex projects on time and profitably

Mostotrest believes that it is well-positioned to win and deliver large, complex projects on time andprofitably while maintaining high quality standards. This ability stems from its technical expertise, carefulproject selection and project management skills, own production base and centralised procurementfunction as well as its established presence in key geographic regions. Mostotrest’s technical expertise anddepth of experience provide it with a significant competitive advantage across all stages of a project—frominitial selection and bidding to construction and delivery. This also enables Mostotrest to compete for agreater share of large and complex transport infrastructure projects. Over the period from 2007 to 2009,Mostotrest, together with ETS and TSM participated in the five largest infrastructure construction projectsin Russia by tender value calculated by PMR on the basis of financing provided over the period from 2007to 2009.

In selecting and bidding for new projects most of which are fixed price contracts, Mostotrest’s depth ofexperience and technical knowledge is critical, enabling it to evaluate the key aspects of a project,associated risks and likely implementation costs and to tailor its bid accordingly. Once a project is won,Mostotrest’s experience, comprehensive project management systems, in-house production facilities andcentralised procurement function allow it to effectively manage the construction process, to efficientlyallocate funds, and to optimise production and procurement processes, ultimately assisting Mostotrest incompleting high quality projects in a timely manner and within budget. See ‘‘—Mostotrest operations—Contract process and contract terms’’ and ‘‘—Information technology’’. Mostotrest’s proprietarytechnologies, which include more than 60 patents registered in Russia, provide it with engineeringsolutions to further improve the speed and efficiency of its construction works, particularly for bridgeconstruction.

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Mostotrest has an established presence in geographic areas in Russia expected to have a significantpipeline of future projects, such as in Moscow, St. Petersburg, Sochi and elsewhere in the Central, North-Western and Southern Federal Districts. This local presence provides Mostotrest with access to keycustomers. Its completed projects in these areas have also built its reputation as a reliable contractor,which Mostotrest believes is important when bidding for new projects. In addition, its local presence allowsit to access local labour resources and raw material supplies, and, in general, operate more efficiently.Moreover, the acquisitions of ETS and TSM, together with the acquisition of a non-controlling equityinterest in MS-11, a bridge and highway construction company, have expanded Mostotrest’s geographicpresence to include the Siberian and Far East Federal Districts. See also ‘‘—Overview’’.

Backlog of high-profile, important transport infrastructure construction projects from a strong customer base

As at 30 June 2010, Mostotrest, ETS and TSM had a consolidated backlog of approximatelyRUB201,395 million (excluding VAT), representing an estimate of the contract value of works that remainsto be completed as at that date, excluding VAT. See ‘‘—Backlog’’. Of this, directly or indirectly via a generalcontractor, approximately 40 percent is attributable to Russian federal government customers,approximately 28 percent is attributable to Russian regional authorities, approximately 6 percent isattributable to State, State-owned and State-funded companies and approximately 5 percent to municipalauthorities, with the remaining 21 percent attributable to private customers, including concessionaires for‘‘public-private partnerships’’.

Reflecting Mostotrest’s focus on large, complex transport infrastructure projects, a significant portion of itsbacklog relates to high-profile landmark projects such as the first stage of the Moscow-St. Petersburgtollroad, a section of the M-4 ‘‘Don’’ highway, a section of the M-7 ‘‘Volga’’ highway and a section of theFourth Transport Ring Road in Moscow, as well as several projects in and around Sochi being built for the2014 Olympic Games.

Mostotrest believes that the underlying government funding (in many cases ultimately derived from thefederal government) for, and the national or regional importance of, many of its projects are likely tominimise the risk of delays in financing. This is particularly relevant to the projects being built for the 2014Olympic Games and the 2012 APEC Summit in Vladivostok. Further, several of Mostotrest’s currentprojects are strategic priorities for the relevant authorities, such as a section of the Fourth Transport RingRoad in Moscow, forming a critical part of plans to reduce traffic congestion in the city.

Experienced senior management combining industry knowledge and modern management practices

Mostotrest’s senior management team combines the depth of technical expertise in the Russianinfrastructure construction industry with strong modern project management practices and commercialexperience. Mostotrest’s senior management brings together a range of commercial and managementexperience from the broader construction industry and transport industry, with several senior managershaving joined Mostotrest in the last four years, such as the Chief Executive Officer, Mr. Vladimir Vlasov.See ‘‘Management and Corporate Governance—General Director’’. This is supplemented by the depth oftechnical knowledge retained by Mostotrest’s engineering personnel, numbering 1,368 as at 30 June 2010,many of whom have worked for Mostotrest for more than 10 years. The Company’s senior managementteam has led Mostotrest’s evolution from a specialist bridge constructor to a diversified transportinfrastructure construction company operating in a range of segments in the construction industry acrossseveral regions in Russia, both through organic growth and its recent acquisitions. See ‘‘—Integratedtransport infrastructure construction business model’’. They have also overseen growth in revenue andprofitability in 2008 and 2009, despite the recent economic crisis.

BUSINESS STRATEGY

Over the past several years Mostotrest has evolved from a regional specialised bridge constructioncompany into a diversified transport infrastructure construction company operating on a national scale. Ithas achieved this by leveraging its leading position in the engineering and construction of bridges, anddiversifying its operations both organically and through acquisitions. See ‘‘—Overview’’.

The Group has a scalable and integrated business platform with expertise across essentially allsub-segments of the transport infrastructure construction industry. See ‘‘—Key strengths—Integrated

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transport infrastructure construction business model’’. Mostotrest intends to build on this platform andexpertise, increasing revenues and profitability, and enhancing its leading market position by:

Leveraging its industry-leading nationwide business platform to develop new business opportunities

Mostotrest plans to leverage its existing industry-leading nationwide business platform to develop newbusiness opportunities in response to the needs of customers, which have in recent years increasinglysought integrated construction services for complex and technologically sophisticated projects. Since bridgeinfrastructure remains at the core of many projects in transport infrastructure construction, Mostotrestplans to continue to leverage its bridge engineering and construction expertise to win large complextenders for broad range of infrastructure projects, such as highways, railways, airports and ports.

Mostotrest closely monitors market developments and will leverage its national scale and proven trackrecord of executing large complex projects, to expand into regions where it anticipates significant transportinfrastructure construction spending in the future. Mostotrest evaluates new growth opportunitiesaccording to criteria such as potential market size, anticipated market growth, sustainability of margins,and expected return on investment, as well as considering key operational matters such as the availabilityof personnel and equipment locally at reasonable prices (or the cost of relocating) and the ability toroll-out production facilities. Mostotrest believes that its business platform and approach to evaluating newgrowth opportunities will allow it to continue to compete successfully for new large and complex projects.

Selectively expanding into segments and services complementary to Mostotrest’s existing operations

Mostotrest expects the Russian infrastructure construction market to gradually evolve into a model similarto more developed Western markets, where construction companies operate in businesses beyond pureconstruction, such as operating concessions, engineering and design and ancillary services (such as wastecollection, road maintenance and management).

As the Russian market evolves, Mostotrest will assess, on a selective basis, opportunities to expand intothese complementary businesses via organic growth, in partnership with other market participants, orthrough acquisitions. In each case, Mostotrest will focus on opportunities that provide entry into sizeablenew markets with sustainable revenue growth and profit margins, and recurring cash flows. Mostotrest’sacquisition strategy will remain disciplined. Mostotrest will evaluate potential acquisitions relative to(i) the Group’s existing operations and strategic position, (ii) further organic growth opportunities,(iii) anticipated returns on investment for the acquisitions, and (iv) its ability to assume operational controlof targets. Currently, Mostotrest does not have any plans to make further acquisitions.

RECENT DEVELOPMENTS

Trading update

For the three months ended 30 September 2010, the Group’s revenue and gross margin has continued toperform generally in line with management’s expectations and the trend in the six months ended 30 June2010, other than for ETS as further described in ‘‘Business and Financial Condition of Recent Acquisitions—Limited Liability Company ‘‘Corporation Engtransstroy’’—Recent developments—Trading update’’.

Share split and share issue

On 30 June 2010, the Company’s general shareholders’ meeting decided to split 1,241,200 ordinary sharesof the Company with par value of RUB28 each into 248,240,000 ordinary shares with par value ofRUB0.14 each at the ratio of 200 to 1. On 2 September 2010, the FSFM registered the report on theresults of the share split and, accordingly, the total number of the Company’s ordinary shares increasedfrom 1,241,200 to 248,240,000. The Company’s general shareholders’ meeting also authorised an additionalissue by the Company of up to 248,240,000 new ordinary shares with par value of RUB0.14 each. On8 September 2010, the Company’s board of directors approved the issue of up to 62,060,000 new ordinaryshares with par value of RUB0.14 each in the Open Subscription. The decision on the issue and the relatedstatutory Russian prospectus were registered by the FSFM under State registrationnumber 1-03-02472-A-001D on 5 October 2010.

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Construction contracts

Mostotrest concluded the following significant construction contracts in the period from 30 June 2010 to31 October 2010:

• A contract with the State Enterprise Department for the Moscow—St. Petersburg HighwayManagement to overhaul the bridge over the Volga river in the Tver region with a contract value ofRUB2,638 million (excluding VAT). This project is expected to be completed in 2013.

• A contract with OAO Dormost to overhaul the bridge on the Leningradskiy highway over the Moscowchannel with a contract value of RUB460 million (excluding VAT). This project is expected to becompleted in 2011.

• A contract with the Municipal Enterprise Principal Directorate for Subway, Bridges and HighwayNetwork in Nizhny Novogorod to repair Kanavinskiy bridge in Nizhny Novgorod with a contract valueof RUB786 million (excluding VAT) concluded. This project is expected to be completed in 2011.

• A contract with the Federal State Enterprise Department for the Moscow—Nizhny NovgorodHighway Management of Rosavtodor to reconstruct the bridge overpass over the Alatyr river for theNizhny Novgorod—Saratov highway, lot number 2, in the Nizhny Novgorod region, with a contractvalue of RUB584 million (excluding VAT). This project is expected to be completed in 2011.

• A contract with the Federal State Enterprise Department for the Nizhny Novgorod—Ufa HighwayManagement to construct a bridge over the Sura river for the M-7 ‘‘Volga’’ highway, first stage, in theRepublic of Chuvashia, with a contract value of RUB806 million (excluding VAT). This project isexpected to be completed in 2011.

Further, on 28 October 2010, Federal State Company Directorate for Highway Construction and OverhaulChernomorye announced Mostotrest as the winner of the open tender to enter into a contract for theconstruction of the second and the third sections of a secondary road along Kurortnyi avenue between the172nd kilometre of the M-27 ‘‘Dzhubga-Sochi’’ highway and the PK0 Sochi bypass. This project is to includethe reconstruction of a section of the road between Zemlyanichnaya street and Kurortnyi avenue, Sochi,Krasnodarski krai. The relevant contract is expected to be entered into in November 2010. The project isexpected to have a contract value of approximately RUB50,305 million (excluding VAT) and to becompleted in 2013.

ETS concluded the following significant construction contracts in the period from 30 June 2010 to31 October 2010:

• A contract with the Federal State Enterprise Rosmorport to design and construct access points at seaand river harbours in the commercial seaport Ust-Luga in the Leningradski region with a contractvalue of RUB222 million (excluding VAT). This project is expected to be completed by the end of2010.

• A contract with Olympstroy to design and construct sections of a highway between the Alpika-servisresort and the Sulimovsky brook, between the Sulimovsky brook and the Bezimyanny brook, andbetween the Bezimyanny brook and the biathlon complex in the Krasnodar region (second stage) witha contract value of RUB1,503 million (excluding VAT). This project is expected to be completed in2011.

TSM concluded the following significant construction contracts in the period from 30 June 2010 to31 October 2010:

• A contract with Federal State Enterprise Centravtomagistral to renovate the traffic interchange at the21st kilometre of the M-5 ‘‘Ural’’ highway with a contract value of RUB4,493 million (excluding VAT).This project, for which TSM will act as the general contractor, is expected to be completed in 2013.While entered into after 30 June 2010, this contract is included in TSM’s backlog as at 30 June 2010.See note (5) under ‘‘Selected Financial and Other Information—Selected statement of comprehensiveincome data’’.

• A contract with ETS to construct the foundation for the Main Mediacenter in Sochi with a contractvalue of RUB253 million (excluding VAT). This project is expected to be completed in 2010.

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• A contract with ZAO Stroyputinvest to construct a railway line between Losevo and Kamennogorsk,Leningrad region with a contract value of approximately RUB2,894 million (excluding VAT). Thisproject is expected to be completed in 2011.

Borrowings

Mostotrest, on a stand-alone basis, during the period from 30 June 2010 to 30 September 2010, concludeda number of loan agreements with banks in an aggregate principal amount of RUB2,950 million toreplenish working capital. The loans were obtained at a weighted-average effective fixed interest rate of7.6 percent per annum. The loans are unsecured and mature in 2011. During the same period, Mostotrestrepaid RUB1,620 million of its borrowings. In line with past practice, Mostotrest expects to redeem itsoutstanding short-term borrowings in the second half of 2010. See ‘‘Management’s Discussion and Analysisof Financial Condition and Results of Operation—Key factors affecting the Group’s results of operations andfinancial condition—Seasonality’’. In addition, in October 2010, Mostotrest entered into a credit facilityagreement with OAO Gazprombank for an aggregate principal amount of RUB3,000 million to finance theguarantee of its participation in tender and auction processes. The agreement provides for loans to bedrawn in tranches for periods of up to 90 days. The facility was obtained at a fixed interest rate of6.35 percent per annum, is unsecured and has been drawn in full. The credit facility agreement underwhich loans in tranches are drawn matures in 2013. Further, in October 2010, Mostotrest also entered intoa credit facility agreement with Sberbank of Russia for an aggregate principal amount of RUB1,000 millionto finance its working capital requirements. The agreement allows Mostotrest to draw the facility intranches. Mostotrest’s indebtedness under the agreement must be repaid in January 2011. The facility wasobtained at a fixed interest rate of 6.0 percent per annum and requires Mostotrest to grant the lenderdirect debit rights to its bank accounts. The loan has been drawn in full.

ETS, during the period from 30 June 2010 to 30 September 2010, concluded loan agreements with OAONomos-Bank in an aggregate principal amount of RUB1,200 million to fund working capital requirements.These loans, which were secured by revenue from construction contracts and mature by the end of 2010,were obtained at a weighted-average fixed interest rate of 8 percent per annum. During the same period,ETS also borrowed and fully repaid a loan from OAO Alfa-Bank in an aggregate principal amount ofRUB500 million. ETS did not enter into any additional loan agreements in October 2010.

TSM, during the period from 30 June 2010 to 30 September 2010, concluded loan agreements with banksin an aggregate principal amount of RUB1,074 million to fund working capital requirements. These loanswere obtained at a weighted-average fixed interest rate of 8.5 percent per annum and mature between thefourth quarters of 2010 and 2011. RUB300 million of the aggregate principal amount of such loans wassecured by property, plant and equipment. During the same period, TSM repaid RUB1,753 million of itsborrowings. In addition, in October 2010, TSM entered into five loan agreements with OAOTransCreditBank for an aggregate principal amount of approximately RUB467 million. TSM’sindebtedness under these agreements must be repaid between the fourth quarter of 2010 and the secondquarter of 2011. These loans are unsecured and were obtained at a weighted-average fixed interest rate of7.9 percent per annum. During the same period, TSM also repaid in full four loans from OAOTransCreditBank in an aggregate principal amount of approximately RUB468 million.

Partial resumption of funding for the Moscow Fourth Ring Road

As a result of the economic downturn in 2009 and the consequential effect that had on the City ofMoscow’s budget, funding for Mostotrest’s construction works on the Moscow Fourth Ring Road in 2010was reduced substantially in the second half of 2009. However, in the second half of 2010, funding for thisproject has been largely restored, with the allocated amount for 2010 being increased approximatelyfour-fold compared with the reduced amount allocated at the end of 2009, although the restored amountremains less than the amount indicated in the original construction contract.

HISTORY AND DEVELOPMENT

Mostotrest’s State-owned predecessor, the All-Soviet Organisation for the construction of extra-largebridges ‘‘Mostotrest’’, (Mostotrest’s Predecessor) was founded on 25 January 1930 by a resolution of theCouncil of People’s Commissars of the USSR and remained the sole bridge-construction entity in theUSSR until 1941 and constructed several major bridges such as over the Dnepr river, the Angara river, the

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Oka river and the Moscow river. In 1945, the Soviet Government reorganised the country’s bridgeconstruction industry, creating Glavmoststroy, an entity then controlled by the USSR Transport Ministry,and separating six specialised bridge constructing entities (referred to as Mostostroys) from Mostotrest’sPredecessor. In 1954, Glavmoststroy, including Mostotrest’s Predecessor, became a part of a newly createdMinistry for Transport Construction of the USSR. In the years that followed, the construction of bridgesincreased significantly, with Mostotrest’s Predecessor completing several key infrastructure projects in andaround Moscow, as well as bridges in Armenia, Ukraine and Georgia. The key bridges constructed byMostotrest’s Predecessor during this time include the subway bridge in Luzhniki in Moscow, the bridgeover the Volga river in Nizhny Novgorod, the Sartakovsky railway bridge in Nizhny Novgorod and thebridge over the Volga river in Kostroma.

In 1992, Mostotrest’s Predecessor changed its legal form and was privatised. The Company was registeredas an open joint-stock company in December 1992.

Since 1992, Mostotrest has expanded its operations, modernised its construction equipment, and continuedto conduct research and development activities, developing a number of proprietary technologies. Duringthis time, Mostotrest has constructed a number of significant bridges and other infrastructure, includingthe cable-stayed bridge over the Neva river in St. Petersburg, the cable-stayed bridge in Serebrianyi Bor inMoscow, the cable-stayed bridge over the Oka river in Murom, the Pulkovo interchange in St. Petersburg,the Yaroslavskaya interchange in Moscow and the monorail line in Moscow. It has also constructed threebridges in Turkey during that time. See also ‘‘—Principal completed projects’’.

In 2007, Marc O’Polo Investments Ltd. became the majority shareholder of the Company, and currentlyholds approximately 50.3 percent of the Ordinary Shares, before the Open Subscription. See also‘‘Principal and Selling Shareholders’’.

In the six months ended 30 June 2010, Mostotrest acquired a 51.0 percent equity interest in ETS, a50.1 percent equity interest in TSM and a 25.002 percent equity interest in MS-11. See also ‘‘—Overview’’.

MOSTOTREST OPERATIONS

Mostotrest’s business (excluding the businesses of ETS, TSM and MS-11) is described in more detailbelow. The businesses of ETS, TSM and MS-11 are described separately in ‘‘Business and FinancialCondition of Recent Acquisitions’’.

Mostotrest overview

Mostotrest’s business is divided into the following parts:

• engineering, construction and overhaul of bridges and highways;

• engineering, construction and overhaul of railway infrastructure facilities; and

• other services.

The following table shows the breakdown of Mostotrest’s revenues, as presented in the relevant FinancialStatements for the periods indicated.

Year ended 31 December Six month endedRevenue item 2008 2009 30 June 2010(1)

(RUB millions, percentage as indicated)

Bridges and highways . . . . . . . . . 22,965 75.7% 23,678 73.1% 8,794 53.5%Railway infrastructure facilities . . 11 0% 2,984 9.2% 5,371 32.7%Airfields and airports . . . . . . . . . 0 0% 0 0% 837 5.1%Other infrastructure facilities . . . . 3,249 10.7% 3,026 9.3% 692 4.2%Other facilities . . . . . . . . . . . . . . 3,263 10.8% 2,286 7.1% 134 0.8%Other revenue . . . . . . . . . . . . . . 846 2.8% 418 1.3% 605 3.7%

Total . . . . . . . . . . . . . . . . . . . . . 30,334 100.0% 32,392 100.0% 16,433 100.0%

(1) Includes revenue of ETS and TSM from the applicable dates of acquisition by Mostotrest. See ‘‘Presentation of Financial andOther Information—Financial statements’’.

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The following sections describe Mostotrest’s principal business parts (excluding the recently acquiredentities described in ‘‘—Overview’’), being bridges and highways, railway infrastructure facilities and otherservices (consisting of the remaining items).

Mostotrest (excluding the recently acquired entities described in ‘‘—Overview’’) operates through 14branches of Open Joint Stock Company ‘‘Mostotrest’’ and two subsidiaries. These branches are its keyoperational units, which carry out construction works. They are located in Moscow, Nizhny Novgorod,Yaroslavl, Rostov-on-Don, Ryazan, Tula, Cheboksary, Kirov, Voronezh and the Moscow region. Eachbranch has its own facilities which enable it to construct a range of complex infrastructure, such as bridgebearings, concrete in-situ pre-stressed bridge structures, reinforced concrete bridge structures andfoundations.

Mostotrest is currently constructing a number of landmark Russian infrastructure construction projects,including some of the major highway and railway construction projects for the 2014 Olympic Games inSochi, such as the combined rail and road highway between Adler and the Alpika-servis mountain resortand the two-level traffic interchange on the M-27 ‘‘Dzhubga-Sochi’’ highway in the Adler region,Kranodarski krai. See ‘‘—Mostotrest Operations—Principal projects under construction’’. As at 30 June 2010,Mostotrest was involved in approximately 40 ongoing construction projects, of which approximately83 percent were highway or bridge construction projects, approximately 5 percent were railway or railwaybridge construction projects and approximately 12 percent were other infrastructure andnon-infrastructure construction. Over the last five years, Mostotrest has constructed 259 bridges, trafficinterchanges and similar facilities with a total length of 54.8 kilometres.

Mostotrest works on projects either as a general contractor or as a subcontractor. As at 30 June 2010,approximately 84 percent of Mostotrest’s backlog was attributable to contracts where Mostotrest acted as ageneral contractor.

Typically, Mostotrest’s ultimate customers are federal State agencies, regional and municipal authoritiesand State and State-owned companies, although it does some work for private customers. See‘‘—Customers’’.

Bridges and highways

Construction and overhaul of bridges and highways (which include highway bridges, traffic interchanges,pedestrian and other bridges but excluding railway bridges) is the largest part of its business and includesits traditional area of expertise, bridge construction. Mostotrest was the largest bridge engineering andconstruction company in Russia in 2009 by revenue for works conducted in-house, with an estimatedmarket share of 25 percent, according to PMR. Mostotrest constructs different types of bridges, such ascable-stayed bridges, pedestrian bridges and multi-level bridges. In addition, since 2000, Mostotrest hasbeen engaged in the construction and overhaul of highways. The recent acquisition by Mostotrest ofcontrolling interests in TSM significantly strengthened Mostotrest’s expertise in highway construction. Seealso ‘‘Business and Financial Condition of Recent Acquisitions’’.

Mostotrest has constructed a number of landmark bridges in Russia, such as the cable-stayed bridge inSerebrianyi Bor in Moscow, the Bogdan Khmelnitsky pedestrian bridge in Moscow, the subway bridge inLuzhniki in Moscow (initially constructed by Mostotrest’s Predecessor and recently reconstructed byMostotrest) and the cable-stayed bridge over the Neva river in St. Petersburg. The most notable highwaysand traffic interchanges constructed by Mostotrest include the Pulkovo interchange in St. Petersburg andthe Yaroslavskaya interchange in Moscow. In addition, a number of highways and traffic interchangesconstructed by Mostotrest are of particular significance, along major transport routes such as theSt. Petersburg Ring Road, the Yaroslavskoe highway leading from Moscow, the Moscow Ring Road andthe M-4 ‘‘Don’’ highway joining Moscow and Novorossiysk, a major port in the South of Russia. See‘‘—Principal completed projects’’.

In addition, since 2000, Mostotrest has overhauled a number of key bridges, including the bridge overpassover the Amur river near Khabarovsk, the bridge over the Volga river in Kirov and the subway bridge inLuzhniki in Moscow.

Railway infrastructure facilities

Mostotrest also constructs and overhauls railway bridges and railway pathways and corridors. For railways,Mostotrest performs excavation and structural works for the embankment and typically subcontracts the

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specialised works to lay the rails to third parties. The recent acquisition by Mostotrest of controllinginterests in ETS and TSM significantly strengthened Mostotrest’s expertise in railway pathway and corridorconstruction. See also ‘‘Business and Financial Condition of Recent Acquisitions’’. Mostotrest’s customersfor railways and railway bridge construction in Russia are Russian Railways and the Federal Agency forRailway Transport (Roszheldor). See also ‘‘—Customers’’.

As at 30 June 2010, Mostotrest (as well as Mostotrest’s Predecessor), had constructed more than 30 majorrailway bridges.

Other services

In addition to its core bridge and highway, and railway infrastructure engineering, construction andoverhaul business, Mostotrest constructs and overhauls other infrastructure and non-infrastructureprojects from time to time. Key projects in this part of Mostotrest’s business include sections of subwaysystems and a monorail line in Moscow and a current subway project in Nizhny Novgorod. Mostotrestbelieves that its recent acquisitions will allow it to significantly expand its expertise in other infrastructureconstruction, allowing it to construct port and in-land waterway infrastructure, and airport runways andtaxiways. See also ‘‘—Overview’’ and ‘‘Business and Financial Condition of Recent Acquisitions’’. Typically,Mostotrest’s customers for its other infrastructure construction projects are regional and municipalauthorities and private customers.

Mostotrest also performs other non-infrastructure works. In the past, this has included the construction offoundations for business centres, residential houses and shopping malls, as well as shore protection andother ancillary works. Typically, Mostotrest’s customers for its non-infrastructure construction projects andancillary services are mostly private.

Principal completed projects

Mostotrest has completed the following landmark bridges, highways, traffic interchanges, railway and otherprojects in recent years.

Cable-stayed bridge in Serebrianyi Bor in Moscow. Completed in 2007, this bridge is 1,400 metres long and 45metres wide. It is supported by an arch that is 138 metres wide and 102 metres high, together with astiffening girder. Mostotrest constructed this bridge along the line of the Moscow river rather than directlyacross it, and then assembled the completed segment over the water. Furthermore, the supporting pylonwas constructed without the supporting elements. This bridge also has a span of over 400 metres. A 800tonnes observation platform attached to the pylon was lifted into place using a specialised heavy liftingtechnology, assuring high accuracy of lifting with subsequent installation using high-capacity hoisting jacks.The project had a contract value for Mostotrest of RUB7.4 billion (excluding VAT).

Bridge over the Angara river in Irkutsk. Completed in 2009, this bridge is 1,615 metres long and 32 metreswide. Mostotrest constructed this bridge using the aerial concreting method in harsh climate conditions inSiberia. The project had a contract value for Mostotrest of RUB1.2 billion (excluding VAT).

Pushkinsky pedestrian bridge in Moscow. Completed in 2001, this bridge is 609 metres long. Mostotrestconstructed this bridge using the old bridge spans that were part of the existing historical bridgesconstructed over the Moscow river, reinforcing them and modernising their construction.

Cable-stayed bridge over the Neva river in St. Petersburg. Completed in 2007, this bridge has a total length of2,570 metres. It clears with the river by approximately 30 metres allowing for the passage of river-seaclassed vessels. The project comprises two parallel 24 metres wide four lane bridges. The bridge issupported by the metal pylon, which is more structural and steady than reinforced concrete pylons.Mostotrest used a caterpillar column crane to construct this bridge, which allowed it to significantly reduceits construction costs. The project had a contract value for Mostotrest of RUB3.6 billion (excluding VAT).

Cable-stayed bridge over the Oka river near Murom. Completed in 2009, this bridge has a total length ofapproximately 1,400 metres. It is supported by three pylons. This bridge was the first cable-stayed bridge inthe Vladimir and the Nizhny Novgorod regions and is an important part of the R-72 highway betweenVladimir and Arzamas. The project had a contract value for Mostotrest of RUB2.4 billion (excludingVAT).

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Pulkovo interchange in St. Petersburg. Completed in 2007, this interchange has become a landmarkconstruction on the St. Petersburg Ring Road. It comprises a primary overpass over the Pulkovo highwayand the railway line, with a total length of 850 metres, four cross-over overpasses, an overpass overStartovaya street and a pedestrian bridge over the Pulkovo highway. This was the first three-level trafficinterchange in St. Petersburg. The project had a contract value for Mostotrest of RUB7.1 billion (excludingVAT). Mostotrest constructed this interchange without closing of the underlying highway and railway roadline.

Bogdan Khmelnitsky pedestrian bridge in Moscow. Completed in 2001, this in-situ reinforced concrete bridgeis 295 metres long, with a main span of 137 metres. The bridge has two in-situ reinforced concrete archesof 41 metres and 44 metres. Mostotrest constructed this bridge using the old bridge spans that were part ofthe existing historical bridges constructed over the Moscow river, reinforcing them and modernising theirconstruction.

Reconstruction of subway bridge in Luzhniki in Moscow. Mostotrest’s Predecessor completed this bridge in1958. Between 1999 and 2000 Mostotrest reconstructed this bridge using the cutting edge technologies andmaterials, replacing the spandrel construction, the highway overpass and the subway trains girder. Thisbridge is a dual level bridge with a total length of 1,180 metres. The lower level of this bridge is used bysubway trains. The upper level of this bridge is 25.5 metres wide and is used as a highway.

Backlog

Mostotrest’s backlog represents its estimate of the contract value of its projects that remains to becompleted as at a particular date, excluding VAT. Such value is calculated as the total contract value foreach project less the amounts already recognised as revenue from the contracts for such projects. The totalcontract value of a particular project represents the total amount that Mostotrest expects to recognise asrevenue from the contract for such project, assuming the contract is performed in accordance with itsterms. A project is included in the backlog when a contract for the project is executed. As at 31 December2008, 31 December 2009 and 30 June 2010 Mostotrest’s stand-alone backlog was RUB92,925 million,RUB94,388 million and RUB122,186 million, respectively, in each case excluding VAT.

The following table sets out Mostotrest’s backlog (excluding ETS and TSM) by key business part as at30 June 2010.

As at 30 June 2010

(RUB millions, (%)excluding VAT)(1)

Bridges and highways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113,464 92.9Railway infrastructure facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,358 3.5Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,363 3.6

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122,186 100.0

(1) Includes RUB2,524 million additional works for the contract to construct a combined rail and road highway between Adler andAlpika-servis mountain resort, Sochi, Krasnodarski krai, the material terms of which were agreed prior to 30 June 2010 and theadditional contract for which is expected to be entered into by the end of 2010.

Backlog is not a measure defined by IFRS or RAS. Backlog may not be indicative of Mostotrest’s futureoperating results. See ‘‘Risk Factors—Risks relating to the Group and its industry—The anticipated revenueamounts shown in the Group’s backlog may decline and may not result in actual revenue or translate intoprofits’’.

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Principal projects under construction

The following table sets out the ten largest ongoing projects by backlog value in which Mostotrest wasinvolved as at 30 June 2010.

Total contract Percentage Estimatedvalue for of work backlog as at

Mostotrest completed 30 June 2010(RUB millions, Expected as at (RUB millions,

excluding completion 30 June excludingNo Project description Role of Mostotrest VAT) date 2010 VAT)

1 Construction of a section of the Fourth Ring Road in Moscow General 55,986 2015 12% 49,209between the Entuziastov highway and Izmailovskoe highway contractor

2 Construction of the Moscow-St. Petersburg tollway between the General 41,000 2013 0% 41,00015th kilometre and the 58th kilometre contractor

3 Construction of a combined rail and road highway between Subcontractor for 11,846 2012 64% 4,287Adler and the Alpika-servis mountain resort, Sochi, OOO UKKrasnodarski krai(1) Transyuzhstroy

4 Construction of a secondary road along Kurortnyi avenue Subcontractor for 4,576 2012 17% 3,813between the 172nd kilometre of the M-27 ‘‘Dzhubga-Sochi’’ OAO Tonnelnyhighway and the PK0 Sochi bypass, including reconstruction of Otryad-44a section of the road between Zemlyanichnaya street andKurortnyi avenue, first stage, Sochi, Krasnodarski krai

5 Extension of the Nizhny Novgorod subway system General 5,820 2011 31% 3,693contractor

6 Construction of a multi-level ring traffic interchange, Adler, General 4,187 2011 31% 2,907Krasnodarski krai contractor

7 Construction of the highway between Zvenigorodskoe highway Subcontractor for 2,583 2011 0% 2,583and Moscow City International Business Centre Engeokom and

Transtekhstroy

8 Construction of adjacent road elements for the combined Subcontractor for 4,337 2011 45% 2,381highway and subway bridge over the Oka river in Nizhny OOO StroymostNovgorod

9 Construction of a two-level traffic interchange on the M-27 Subcontractor for 2,512 2011 7% 2,346‘‘Dzhubga-Sochi’’ highway in Golybie Dali district, Adler ETSregion, Sochi, Krasnodarski krai

10 Construction of a traffic interchange at the crossing of General 1,462 2011 19% 1,189Kurortnyi Avenue and 20th Gornostrelkovoy Divizii Street on contractorthe M-27 ‘‘Dzhubga-Sochi’’ highway, Sochi, Krasnodarski krai

(1) Includes RUB2,524 million additional works, the material terms of which were agreed prior to 30 June 2010 and the additional contract for whichis expected to be entered into by the end of 2010.

Customers

Infrastructure construction projects typically originate from the Russian Government and its agencies,regional and municipal governments, or agencies of those governments, as well as from State-ownedcompanies and private customers, including concessionaires for ‘‘public private partnership’’ projects.Mostotrest contracts directly with the project originator where it acts as a general contractor, or with thegeneral contractor where it is a subcontractor. However, for internal classification and managementpurposes, even if Mostotrest is a subcontractor for a general contractor, it views the project originator as itscustomer.

In 2008, 2009 and in the first six months of 2010, approximately 53 percent, 54 percent and 40 percent,respectively, of Mostotrest’s revenue (excluding ETS and TSM), was derived from projects where it wasthe general contractor.

Mostotrest’s ultimate customers are typically divided into the following broad categories:

Federal State agencies. This category consists of agencies of the Russian Ministry of Transport, primarily thefederal highway agency, Rosavtodor, the federal railway agency, Roszheldor, and the federal marine andriver transport agency, Rosmorrechflot. In 2009 revenue from these customers (directly or indirectly via ageneral contractor) accounted for approximately 10 percent of Mostotrest’s revenue (excluding ETS andTSM).

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State, State-owned and State-funded corporations. This category consists of State-owned corporations,primarily Russian Railways, as well as Russian Highways. In 2009, revenue from these customers (directlyor indirectly via a general contractor) accounted for approximately 11 percent of Mostotrest’s revenue(excluding ETS and TSM).

Regional authorities. This category consists of local governments such as the Moscow city government, andlocal government entities or authorities such as the State authority for highways at the administration ofthe Vladimir region, the State authority for highways at the administration of the Nizhniy Novgorod regionand the Yardorsluzhba State authority in the Yaroslavl region, responsible for the development andmaintenance of the highway network in the Yaroslavl region. In 2009, revenue from these customers(directly or indirectly via a general contractor) accounted for approximately 54 percent of Mostotrest’srevenue (excluding ETS and TSM).

Municipal authorities. This category consists of municipal authorities, such as the administration of NizhniyNovgorod, the agency for municipal orders in housing maintenance and the utilities board of Yaroslavl, thedepartment for city construction at the mayor’s office in Yaroslavl, the chief authority for construction andrepair of the underground, bridges and highway network in Nizhniy Novgorod, the chief authority forhighways and transportation of the Nizhniy Novgorod region and the department for highways andarrangement of highway traffic in Rostov-on-Don. In 2009, revenue from these customers (directly orindirectly, via a general contractor) accounted for approximately 24 percent of Mostotrest’s revenue(excluding ETS and TSM).

Private customers, including ‘‘public private partnership’’ concessionaires. This category consists of privateconstruction companies and concessionaires for ‘‘public private partnerships’’ (PPP), such as OOONorth-West Concession Company, the concessionaire for the first section of the M-10 ‘‘Russia’’ highwaybetween Moscow and St. Petersburg. In 2009, revenue from these customers accounted for less than1 percent of Mostotrest’s revenue (excluding ETS and TSM).

Contract process and contract terms

Contract process

Mostotrest works on projects either as a general contractor or as a subcontractor.

For projects where Mostotrest acts as a general contractor, it is typically selected in a regulated competitivetender or an auction. The competitive tender process is usually used for projects with technically complexspecifications, such as bridges. The auction process is used for projects that involve a significant volume ofrelatively straightforward construction works, such as highways. In a competitive tender, the winning bid ischosen on the basis of a combination of criteria, such as the price, a bidder’s qualifications and trackrecord, the completion time and the post-completion guarantee period. In an auction, the winning bid ischosen on the basis of price. In each case, while there is no formal separate pre-qualification process, eachbid is evaluated against criteria set out in the tender documentation at the start of the tender, referred toas the bid opening procedure. A customer may also request bidders to place a cash security deposit tosecure their bids. See also ‘‘Regulation of Infrastructure Construction in Russia’’. In some situations, acontract may be awarded without a broad competitive process. For example, a contract may be awardedwithout a competitive process in emergency situations or other time-critical circumstances, when thecustomer typically approaches only one contractor. See also ‘‘Regulation of Infrastructure Construction inRussia’’.

Where Mostotrest acts as a subcontractor, the procedure for its selection is determined by the generalcontractor. Russian law allows private general contractors to hold competitive tenders or auctions to selecta subcontractor. The procedure for these competitive tenders and auctions is typically broadly similar tothe procedure established for public customers, but is less formal in nature. See ‘‘Regulation ofInfrastructure Construction in Russia’’.

Mostotrest follows a broadly consistent approach to evaluate, prepare and bid for potential projects,irrespective of the method of the bidding, for which Mostotrest has developed an integrated projectselection and management system. The key elements of Mostotrest’s project selection and managementsystem are set out below.

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Assessment of a potential project

Mostotrest regularly monitors the infrastructure construction market to identify the most attractiveprojects on which to bid. Mostotrest’s project selection process typically includes initial identification andassessment by the department of orders and contracts, further review by the deputy general director formarketing and, following that, final approval by Mostotrest’s general director or board of directors,depending on the value of the project.

To select a project, Mostotrest evaluates a range of factors. In addition to assessing whether the project fitsMostotrest’s technical expertise, Mostotrest takes into account the contract size, the location of the projectand its proximity to Mostotrest’s existing operations and branches, and the strategic potential for futurebusiness in that area. Historically, prior to its acquisition of interests in ETS, TSM and MS-11, Mostotrest’sgeographic focus has been on the Central Federal District, the North-West Federal District and theSouthern Federal District. Mostotrest’s recent acquisitions of equity interests in ETS, TSM and MS-11have enhanced its presence in other regions of Russia, such as the Siberian and the Far East FederalDistricts. See also ‘‘—Overview’’ and ‘‘Business and Financial Condition of Recent Acquisitions’’.

At the assessment stage, potential contractors have access only to a limited volume of information includedas preliminary project documentation in the tender documentation package. Information about a projectprovided at this stage typically includes the maximum price the customer sets for the project, high-levelconstruction designs, specifications for the construction works and a construction timetable. See also‘‘Regulation of Infrastructure Construction in Russia’’. However, Mostotrest believes that its long operatinghistory, expertise and detailed project assessment process allow it to assess a potential project even on thebasis of this limited information. In particular, by analysing the project documentation in light of itsexperience, Mostotrest is typically able to calculate the likely profitability of a project, as well as to identifypotential costs and risks that may not be evident from the project documentation. See also ‘‘—Keystrengths—Well-positioned to win and deliver large, complex projects on time and profitably’’.

Bidding

After Mostotrest has approved its participation in a potential project internally in principle, it startspreparing the full bid documentation. This process employed depending on the value and complexity of theproject. For less complicated projects, Mostotrest identifies a branch which will be managing theconstruction. This branch prepares the bid documentation and submits it for approval by relevant centraloffice departments. For more complicated projects, the bid documentation is prepared either by therelevant branch in conjunction with Mostotrest’s central office, or solely by the central office if a project isparticularly complex or important. In each case, the review and preparation of the bid documentationtypically involves several of Mostotrest’s departments, such as the cost estimate department, the planningand economy department, the project management office and the technical department. The orders andcontracts department supervises and coordinates preparation of the bid documentation and the submissionprocess. Mostotrest’s participation in the bidding process is managed by the deputy general director formarketing. Typically, for projects where Mostotrest will engage subcontractors, it also prepares the biddocumentation in cooperation with the relevant subcontractors.

Project management teams

Mostotrest assembles project management teams for complex projects where two or more of its branchesand third-party subcontractors are involved. Depending on the complexity of a project, a projectmanagement team comprises between 5 and 30 persons, typically being employees of Mostotrest’s centraloffice. A project management team includes engineers, managers and analysts. Each team is headed by themanager of the relevant project. The exact size, structure and scope of involvement of a projectmanagement team, as well as its authority and lines of responsibilities, depend on the complexity of eachparticular project and are set out in an internal document referred to as the project’s charter. The projectswhere no project management team has been assembled are typically managed by the Mostotrest branchresponsible for the construction. A team exists until the project is completed and a final report given toMostotrest’s senior management, at which point a team is dissolved. Project management team membersmay be involved in several projects at once.

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To define the scope of involvement of each particular project management team in day-to-day projectimplementation, Mostotrest has adopted a three-tier project classification system, depending on the valueand technical complexity. Project management teams for less complex projects are typically responsible forthe construction timetable and the completion and acceptance process with the customer. Those formoderately complex projects are typically more involved in the management process, supervising theconstruction schedule, raw materials supplies and coordinating the project works. Finally, those forcomplex projects are involved in all major aspects of the project, including general project management,preparation of working documentation, managing cost efficiency, liaising with subcontractors, preparingfinancial forecasts and managing environmental compliance.

Mostotrest believes that its project management teams allow it to more effectively manage its projects,control costs and identify and solve potential problems at earlier stage.

Due to the increasing complexity of Mostotrest’s projects in recent years, the share of projects requiringproject management teams in Mostotrest’s total revenue has been steadily increasing and as at31 December 2008, 31 December 2009 and 30 June 2010, accounted for 15 percent, 38 percent and57 percent, respectively, of Mostotrest’s total revenue (excluding ETS and TSM). This is in line withMostotrest’s strategy to leverage its expertise and technical competency and increase the proportion ofcomplex and technologically sophisticated projects it constructs. See ‘‘—Business strategy—Leveraging itsindustry-leading nationwide business platform to develop new business opportunities’’.

Development of working documentation

Each project requires the preparation of a detailed technical design, approval and other documentation,referred to as the working documentation. Sometimes that documentation is prepared by Mostotrest andsometimes by the customer, depending on the project. See also ‘‘—Contract terms’’. If Mostotrest is toprepare the working documentation, it usually engages third party research and development institutes todo so.

Use of subcontractors

When acting as a general contractor, historically, Mostotrest has primarily engaged subcontractors forprojects requiring performance of non-specialised works, such as the installation of communicationsinfrastructure, road works, civil and industrial utilities construction, architectural and design works andstructural testing. Mostotrest also engages subcontractors for low-skilled, low-margin and labour intensivework, and in circumstances where its own production facilities are engaged on other projects as well as incircumstances where, due to the project location and other factors, performance of certain constructionworks by an unaffiliated subcontractor would be more efficient. Where Mostotrest acts as a generalcontractor for a project, it is typically required to agree the appointment of subcontractors with itscustomer. In 2009, Mostotrest’s three largest subcontractors by value of works performed wereOAO Mosengstroy, OOO Stroymost and ZAO Upravlenie Metrostroya.

Following Mostotrest’s recent acquisition of interests in TSM and MS-11, Mostotrest plans to focus moreon construction of highway and other transport infrastructure construction projects, where it plans to usethose entities as relevant subcontractors where appropriate instead of third-party subcontractors. See also‘‘—Business strategy’’, ‘‘Business and Financial Condition of Recent Acquisitions—Limited Liability Company‘‘Transstroymekhanisatsiya’’ and ‘‘Business and Financial Condition of Recent Acquisitions—JSC‘‘Mostostroy-11’’.

For cases requiring the involvement of subcontractors outside of the Group and MS-11, Mostotrestmaintains a database of subcontractors, collecting information on the subcontractors it has worked with inrecent years. Mostotrest supplements this with publicly available information and references from othercompanies with whom the subcontractors have worked. As at 30 September 2010, this database containeddetailed information on more than 20 subcontractors. Mostotrest updates this database after working witha subcontractor and shares this information with other Russian construction companies, which also sharesimilar information with Mostotrest. This database enables Mostotrest to more accurately select asubcontractor for a particular project, a process managed by the orders and contracts department.

Using the subcontractor database, Mostotrest compiles a short-list of subcontractors to be invited tosubmit proposals for the relevant aspects of the project. Mostotrest normally conducts a detailed due

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diligence of short-listed subcontractors. Mostotrest reviews each potential subcontractor’s previousexperience, qualifications, management expertise, relevant licences, production facilities, and otherinformation in this process. A subcontractor is selected based on criteria specific to each project, but whichnormally include the quality of work the subcontractor can deliver, its ability to timely complete works, aswell as its price.

Once a subcontractor is selected, Mostotrest notifies the subcontractor accordingly and enters into acontract with it. The terms of these contracts typically follow the terms of the contract between Mostotrestand its customer. Contracts with subcontractors typically provide that a subcontractor bears all risksassociated with the performance of its part of the project, as well as responsibility for compliance withsafety regulations and environmental matters. A subcontractor’s compensation is typically negotiateddepending on the prevailing market conditions and matters specific to the project.

Mostotrest seeks to mitigate the risks associated with subcontracting parts of its projects in several ways.For example, Mostotrest requires subcontractors to provide post-completion guarantees in its favour forthe works performed by them. Mostotrest also charges subcontractors for a proportionate share of theinsurance premium Mostotrest incurs to obtain insurance cover for its projects by withholding the relevantshare from amounts paid to the subcontractors.

Acceptance of a completed project

Typically, a completed project is inspected by representatives of Mostotrest and the customer to ensurethat compliance with the project specifications and the terms and conditions of applicable federal and localapprovals and regulations. Following that inspection, Mostotrest and the customer sign a transfer andacceptance act to formally complete the project.

Mostotrest typically follows a similar process to accept completed parts of a project from itssubcontractors. In some cases, parts of a project are accepted by the ultimate customer directly.

Contract terms

There is no industry-wide standard form construction contract in the Russian infrastructure market.Although the terms of these documents for each project can vary significantly, they are typically fixed pricecontracts. Accordingly, Mostotrest seeks to carefully estimate the costs of a project prior to submitting abid. To do so, it relies on its own experience and expertise to develop and analyse the project specificationsand other information provided by the customers. See ‘‘—Contract process—Assessment of a potentialproject’’. Even so, there are a number of factors that may influence the final cost of a project comparedwith the price originally bid, such as differences between the actual and anticipated site and environmentalconditions, weather conditions, and the availability and pricing of raw materials and labour.

In addition to seeking to manage its project costs as efficiently as possible, in particular by using specialisedproject management software discussed at ‘‘—Information technology’’, for longer-term projects,Mostotrest seeks to mitigate the effect of inflation and cost overruns by either incorporating into therelevant documentation a price adjustment mechanism or to renegotiate the price from time to time,having identified particularly significant events, such as unforeseen physical obstacles or extraordinaryconditions, or additional requests from the customer not in the original specifications that have causedMostotrest to incur additional costs or other make the original fixed price less profitable. See also ‘‘RiskFactors—Risks relating to the Group and its industry—Actual costs or risks associated with the Group’scontracts may exceed its initial evaluation and lead to cost overruns’’ and ‘‘—Changes to contracts and claims’’.

Mostotrest’s contracts typically contain price adjustment mechanisms. For contracts with governments andgovernmental agencies awarded in a competitive tender or auction as described above, this mechanismmay only be incorporated into contracts with terms exceeding three years and with a value exceedingcertain thresholds, depending on the category of customer. In practice, price adjustments under contractswith public customers are rarely exercised by Mostotrest. For contracts with private customers, such aswhere Mostotrest is a subcontractor, Russian law allows the contractor to request an increase in contractvalue, if works beyond the initially agreed scope are performed. Contracts with private customerssometimes provide for other grounds for price adjustments, as negotiated. See also ‘‘Regulation ofInfrastructure Construction in Russia—Infrastructure Construction Process—Construction andsub-construction contracts’’.

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In addition, Mostotrest’s construction contracts typically contain detailed payment terms, completionschedules for the project, quality and other technical details for the project, and details of thepost-completion guarantee, and allocate the responsibility for developing the working documentationrequired.

Mostotrest’s construction contracts also typically include liquidated damages provisions for late completionof a project, calculated on a daily basis as a percentage of the total contract value. Some selected key termstypically found in Mostotrest’s construction contracts are set out below.

Payment terms

Mostotrest’s contracts usually require an annual advance payment from its customers of up to 30 percentof the anticipated annual work amount. Mostotrest typically uses this amount to finance some of its rawmaterials, fuel and labour costs. However, Mostotrest is typically required to provide its customers with abank guarantee covering the refund of this amount if Mostotrest fails to perform its contractualobligations. Most of Mostotrest’s construction contracts provide for monthly progress payments in arrearsbased on a schedule of works performed during that month. On occasions, Mostotrest may decide tocomplete construction works ahead of schedule if it is more efficient to do so from an operationsperspective. This may require additional working capital, funded from its own sources or from externalfinancing, as schedule payments under the relevant contract are not typically accelerated for earlycompletion. Completion of each stage of the project is certified by Mostotrest’s and the customer’s siteengineers and accepted by the customer.

Mostotrest issues its invoices to customers in accordance with terms specified in the relevant contract,which generally require payment within one to 30 days after the invoice date. To ensure the timelycollection of its account receivables and to minimise the incurrence of bad debts, Mostotrest hasimplemented management controls and established collection monitoring and investigation procedures tomanager its accounts receivable. It regularly monitors the status of accounts receivable and actively seeksto manage the risk of non-payment or late payment primarily by maintaining close customer contacts.

For projects where Mostotrest acts as a general contractor for a public customer, Mostotrest may berequired to provide a bank guarantee, a suretyship or other collateral to secure its obligation to completethe relevant project. This collateral may be up to 30 percent of the total contract value. See ‘‘Regulation ofInfrastructure Construction in Russia—Public procurement—Tender documentation’’. Typically, thesecontracts require Mostotrest to supply the relevant customer with a bank guarantee for this amount.Where Mostotrest acts as a general contractor for a private customer, it is typically required to provide thecustomer with collateral securing its obligation to complete the relevant project on terms similar to thoserequired by public customers.

Changes to contracts and claims

During the ordinary course of some projects, the original contract may be changed to reflect, among otherthings, changes in specifications or design, method or manner of construction, facilities, equipment,materials, site conditions and period for completion of the work. These modifications are typicallydocumented as amendments to the original contract.

For contracts with public customers, where these modifications increase the contract price, the relevantpublic customer’s approval is required for some types of contracts. See also ‘‘Regulation of InfrastructureConstruction in Russia—Entry into the construction contract’’. This process may be time-consuming and maypotentially lead to delays in construction works.

Mostotrest does not often experience significant cost overruns while constructing its projects that wouldforce it to renegotiate contract amounts or to claim compensation from its customer. However, this mayhappen from time to time, and action required in these circumstances to renegotiate the agreed terms orclaim compensation is known as ‘‘claim’’. The procedure to have a claim recognised can be long andcomplex and it is sometimes necessary to resort to litigation or arbitration to resolve a claim. It is thereforedifficult to predict with certainty the value of any claim that will be recognised or the timeframe withinwhich this may happen. Mostotrest relies on its in-house legal counsel to assist it in the technical and legalevaluation process for claims. Using this approach, Mostotrest aims to manage the claims processefficiently with a view to accurately assessing and recovering the value of the claims it makes.

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Post-completion guarantee

Following the acceptance of a completed project by the customer, a typical construction contract requiresMostotrest to provide customers with a post-completion guarantee against defects in construction. Theterm of that guarantee typically varies from one year to 15 years and may vary for different elements of theproject. While Mostotrest is typically required to provide post-completion guarantee for the entirety ofworks it performed, where a defect is attributable to a subcontractor, Mostotrest requests thesubcontractor to correct the relevant defect on the basis of the post-completion guarantee provisions in itsagreement with the relevant subcontractor. In addition to post-completion guarantees, in some casescustomers are entitled to retain part of the contract value from each monthly payment. Typically, theretained amount does not exceed 5 percent of the total contract value. The customer releases the retainedamount in two steps. The first part is released upon completion of a project and signing of the transfer andacceptance act, and the remaining part is paid following the expiration of the post-completion guaranteeperiod.

Mostotrest manages the risk associated with claims under post-completion guarantees by procuringrelevant insurance. In some circumstances, Mostotrest is required to supply a customer with a bankguarantee securing its obligations under a post-completion guarantee. See ‘‘Risk Factors—Risks relating tothe Group and its industry—The Group is exposed to potential liability under post-completion guarantees’’.

Equipment and production facilities

Mostotrest owns and uses a large variety of advanced machinery and equipment to construct bridges,highways, railway bridges and other projects. In circumstances where Mostotrest does not own thenecessary equipment, it either leases it from third parties or engages a subcontractor that possesses thenecessary equipment.

Each of Mostotrest’s branches has its own production facilities which produce concrete, cement, structuralprecast concrete and reinforced concrete, and reinforced cages. The aggregate capacity at Mostotrest’sproduction facilities allows it to produce approximately 350,000 cubic metres of concrete, 40,000 tonnes ofprecast concrete and 11,000 tonnes of engineered metal structures per year.

In addition, Mostotrest has two larger production facilities, located in Moscow and Tula, which producemore complex building components. These facilities are operated by two of its branches, Zavod Mokon inMoscow, which produces concrete, channellers and beam spans, and Mekhstroymost in Tula, whichproduces engineered metal structures, bearings and expansion joints. Mostotrest also sells buildingcomponents produced at these facilities to third parties.

Mostotrest believes that having its own production facilities in proximity to construction sites allows it tosupply construction materials for its projects faster and more cost-efficiently.

Technology, research and development

The key technologies utilised in Mostotrest’s construction operations include: (i) technologies used formodern bridge construction, including the construction of bridge bearings, concrete in-situ pre-stressedbridge structures, reinforced concrete bridge structures, and steel and concrete steel bridge structure;(ii) construction technologies for constructing bridge foundations, including deep laying using driven ordrilled pylons and water retaining walls; (iii) construction technologies for quay structures and shoreprotection; and (iv) construction technologies for bridges with high pylons and large spans.

Mostotrest (as well as Mostotrest’s Predecessor) has developed several proprietary technologies. As at30 June 2010, Mostotrest had more than 60 patents registered in Russia, the technologies behind whichrelate to, among other matters, the longitudinal launching of reinforced concrete span structures, joinedsteel reinforced concrete span structure of bridges, manually assembled inventory scaffolding and bridgesupport blocks. These technologies are aimed at increasing labour productivity, reducing materialsconsumption and associated costs, as well as reducing Mostotrest’s costs associated with importing rawmaterials.

Mostotrest typically focuses its research and development activities on particular aspects of its currentprojects, either acting alone or with the assistance of third-party institutes and companies, as required.

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Mostotrest is planning to expand its research and development activities to develop further technologies toimprove the efficiency of its construction activities.

Since 1992, Mostotrest has been a member of the International Association for Bridge and StructuralEngineering (the IABSE), an organisation created to promote the international exchange of technicalknowledge and to advance the practice of structural engineering. Since 2003, Mostotrest has been amember of the European Federation of Foundation Contractors (the EFFC), an organisation created topromote the common interests of its members with the aim of improving standards of workmanship andmaintaining high technical standards, safety and innovation. Mostotrest regularly participates in seminarsand other events arranged by the IABSE and the EFFC.

Raw materials and suppliers

The key raw materials used by Mostotrest are metal, engineered metal structures, cement, crushed stoneand fuel and lubricants. Mostotrest primarily sources its raw materials (other than engineered metalstructures) from Russian suppliers, such as OOO Mechel Service, OOO VPK-Stroy, OOO AGROpak,OOO Karbofer Metall Centre, OAO NK Russneft and OOO TD Neftmagistral. Mostotrest’s principalsuppliers of engineered metal structures are OAO Moststroyindustriya, OAO Chelyabinskyi ZavodMetallokonstruktsiy and ZAO Borisovsky Zavod MMK.

Mostotrest has a centralised purchasing system through its corporate head office for a majority of its rawmaterials, allowing it to more closely monitor its stock of raw materials, negotiate more favourable supplyterms with suppliers and supervise the supply of raw materials. The centralised purchasing system alsoallows Mostotrest to more efficiently and comprehensively monitor the relevant markets for raw materialsand unify its purchasing procedures. The share of centrally purchased materials has been increasing inrecent years and accounted for 61, 73 and 76 percent of the total raw materials expenses incurred byMostotrest in 2008, 2009 and in the six months ended 30 June 2010 (excluding ETS and TSM),respectively.

Mostotrest seeks to purchase high quality raw materials and carefully selects its suppliers and regularlymonitors market prices. Mostotrest selects suppliers on the basis of a combination of factors, such as price,quality of raw materials and the reputation of the supplier.

Typically, Mostotrest enters into supply contracts directly with the producers of the relevant raw materials,rather than with distributors. The supply contracts are usually framework contracts with a term of one year,with an extension option for a further year. The quantity of raw materials, as well as the price of eachpurchase, is agreed separately at the prevailing market prices under the relevant framework contract.However, for engineered metal structures, due to their customised nature, Mostotrest enters into fixed-price supply contracts. Most supply contracts provide for deferred payment of up to 30 days. However, insome cases, Mostotrest’s suppliers require full or partial payment before delivery. Some of the supplycontracts allow the suppliers to unilaterally change the price.

In general, Mostotrest purchases the raw materials for each of its projects separately, as needed tominimise storage or safekeeping costs. However, in some cases, Mostotrest holds a reserve of some rawmaterials, sufficient to ensure construction of the relevant project for periods of up to 45 days.

Risk management

Mostotrest’s risk management policies are aimed at the timely detection and management of operationaland financial risks, allowing Mostotrest to react and prevent or mitigate the effect of those risks.

To manage industry risks, Mostotrest has implemented a number of policies such as an enhanced internalbudgeting system and project management standards, based on the international project managementstandards developed by the Project Management Institute (PMI), a leading worldwide project managementassociation. The project management standards developed by PMI are prescribed by the ProjectManagement Body of International Knowledge in a handbook also containing the principal guidelines forthose standards. These standards cover Mostotrest’s internal documents relating to project management(such as preparation of each project’s charter), provide a database for bench-mark resource planning (suchas data on tariff and costs, as well as resources), the project management documents turnover system andinternal budgeting as well as specialised IT software, and are overseen by Mostotrest’s project

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management office. Mostotrest is currently developing its IT system further to ensure its risk managementprocesses remain effective. See ‘‘—Information technology’’.

Mostotrest believes that its implementation of these corporate project management standards has allowedit to maintain a consolidated automated project planning and evaluation system, consistently applyingbench-mark data for planning and budgeting processes, maintaining a consolidated database of costs andresources guidebooks necessary to evaluate the performance of Mostotrest’s branches and subsidiaries,maintaining a database of production cost of each primary works performed by Mostotrest allowing it toprepare competitive tender offers, and consolidate the information relating to completed and ongoingprojects.

Mostotrest also seeks to ensure that the value and scope of works to be performed are specified at the timethe project documentation is entered into. It also seeks to build into its estimates inflation forecasts andother significant factors that could affect its profitability. To manage raw materials price risks, whenMostotrest wins a tender, it assesses the required raw materials for the project and their current marketprices. If it believes prices are likely to increase, it typically purchases raw materials promptly and storesthem until required.

Mostotrest’s IT system allows it to forecast the construction completion schedule, identify the scope ofworks that need to be performed and to analyse the expenses associated with each stage of the project. Seealso ‘‘—Information technology’’.

Mostotrest manages the effect that non-payment or partial payment by its customers could have on itsworking capital by borrowing funds. This also mitigates to some extent the risk that a public customerceases unexpectedly to finance a project. In particular, Mostotrest has undrawn loans from banks suchSberbank of Russia, OAO VTB and ZAO Raiffeisenbank, available to meet short-term working capitalrequirements. These loans may be drawn for varying periods, up to several years. Typically, these loans aresecured by pledges over some of Mostotrest’s contract receivables and pledges over some of its equipmentand real property.

Mostotrest maintains various types of insurance to cover a variety of risks associated with its projects. See‘‘—Insurance and performance guarantees’’.

When engaging subcontractors, Mostotrest typically requires subcontractors to provide a post completionguarantee, securing the obligations of the subcontractor in favour of Mostotrest, which mirrors theobligations of Mostotrest under its contract with the relevant customer.

Mostotrest seeks to manage currency risk by balancing revenue and expenses in similar currencies(typically the Rouble), although some of its capital expenditures (such as selected items of equipment) arein foreign currencies (typically the Euro). Mostotrest seeks to manage interest rate risk by fixing theinterest rates applicable to most of its borrowings. See also ‘‘Management’s Discussion and Analysis ofFinancial Condition and Result of Operations—Quantitative and qualitative disclosure on market and otherrisks’’.

Quality management system

Mostotrest believes that an important factor in the growth of its business has been the quality managementsystem, which is aimed at insuring the highest standards of efficiency and quality in the productionprocesses and services it offers. Mostotrest has approved its quality control policy for 2010. This policyprescribes detailed monitoring of Mostotrest’s quality management system, as well as sets out theguidelines for its further development. Mostotrest’s quality management system, set out in various internaldocuments, is aimed at perfecting the quality of all stages of a project. To achieve this, these documentsdescribe the persons responsible for quality control for each construction operation as well as determinethe frequency of quality control inspections.

For projects managed by separate project management teams, Mostotrest has established a centralisedquality management system. See ‘‘—Project management teams’’. This involves the site engineers workingin each of its business units inspecting the quality of construction work on-site and reporting to the head ofthe relevant project. The head of the relevant project issues order to the manager of the construction siterequiring it to rectify any defects found. Mostotrest’s employees regularly attend special training coursesaimed to increase their professional expertise and, ultimately, the quality of construction.

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Mostotrest first received ISO9001:2001 certification in 2004 in respect of its internal quality managementsystem. In 2010, it received ISO9001:2008 certification. Mostotrest carries out regular internal audits of itsinternal quality management system.

Mostotrest’s quality management system was introduced in 2004 and is supervised by its quality controldepartment. That department oversees the quality management systems of its business units, including bycertifying their standard of products and services. It also develops internal documentation for the qualitycontrol of construction and installation work, the frequency of audits and the reporting and analysis of theresults of those audits.

Quality control for construction and installation works is carried out on a regular basis at each Mostotrestregional business unit and is overseen by Mostotrest’s central office. In some cases, Mostotrest createsquality control working groups consisting of employees from both the central office and the relevantbusiness unit.

Information technology

Mostotrest uses an integrated IT system comprising software supplied by major Russian and foreignvendors. Different segments of Mostotrest’s IT system are designed for management of Mostotrest’sbranches and subsidiaries and supervision of their financial reporting, developing its business and financialmodels, and monitoring its operating costs. Mostotrest’s IT system allows its central office to exchangeinformation with the branches, as well as to promptly combine and analyse this information. One of thekey elements of Mostotrest’s IT system is the Spider Project Information software, which is capable ofcalculating a project’s completion schedule, assessing the scope of works required to complete a project,estimating costs and raw materials expenses, and modelling profitability. Mostotrest also uses the SpiderProject Information software to plan project budgets, work out the distribution of resources, and toidentify and evaluate other risks. Currently, projects representing a majority of its backlog use thissoftware. This allows Mostotrest to more effectively manage the construction process, allocate funds topurchase raw materials in a timely manner and forecast the completion of the project. Mostotrest believesthat its IT system is one of the key elements of its centralised operating model, allowing it to operate moreeffectively. Mostotrest is planning to further improve and consolidate its IT system including byintroducing a combined accounting system for its head office and subsidiaries, and to integrate its internalbudgeting system with its other systems.

Employees

As at 31 December 2008 and 2009 and 30 June 2010, Mostotrest had 15,355, 15,313 and 15,509 employees,respectively. The following table sets out the number of employees as at those dates by function.

As at 31 December As at 30 June

2008 2009 2010

Workers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,528 12,438 12,561Managers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,400 1,358 1,403Engineers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,323 1,397 1,438Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 120 107

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,355 15,313 15,509

From time to time, Mostotrest obtains personnel from third-party staff outsourcing providers. As at30 June 2010, Mostotrest’s total personnel, including personnel from these staff outsourcing providers, wasapproximately 16,900.

As at the date of this offering circular, more than 9,000 of Mostotrest’s employees were members of theRussian Railway and Transport Construction Trade Union. In March 2010, Mostotrest entered into acollective bargaining agreement with its employees, for the period from 2010 to 2012. This agreementrequires Mostotrest to, among other matters, seek the trade union’s consent before it makes redundancies.

Mostotrest has not experienced any industrial action by its employees since its establishment. Mostotrestconsiders its relationship with its employees to be satisfactory.

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Mostotrest has an incentive scheme for its employees that primarily consists of the payment of bonuses.For Mostotrest’s employees generally, each department maintains a monthly bonus pool, which isdetermined by the performance of that department. Bonuses are paid to employees from this pooldepending on their individual performance. For senior and middle management, Mostotrest paysadditional quarterly bonuses, depending on Mostotrest’s performance measured against its business plan.Qualified employees (with a minimum of one year’s experience in their current role) are paid the bonus asa lump sum annually.

Mostotrest has adopted comprehensive training programmes for its employees. Typically, theseprogrammes are implemented in association with the leading Russian industry universities. Between 2007and 2009, approximately 8,000 Mostotrest’s employees participated in various training programmes.

ENVIRONMENT

Mostotrest produces various types of waste, which are removed by third-party waste disposal contractors.Mostotrest follows its internal environmental policy and believes that it complies in all material respectswith the environmental standards applicable to Mostotrest under Russian law. Mostotrest has not beeninvolved in any material legal proceedings that are, or have been in the 12 months preceding the date ofthis offering circular, related to environmental protection issues.

INSURANCE AND PERFORMANCE GUARANTEES

Mostotrest maintains insurance policies with some of the major Russian insurance companies providinginsurance for the infrastructure construction market, including ZAO SAO Gefest, OSAORESO-Garantiya, OAO Voenno-Strakhovaya Kompaniya and OAO Sogaz Insurance Group. Mostotrest’sinsurance covers a significant part of its construction contracts where it acts as a general contractor.Mostotrest typically obtains insurance covering the entire project and its property and equipment againstrisks associated with construction works and third-party liability as well as general insurance products, suchas medical insurance for its employees and car insurance.

Mostotrest also obtains bank guarantees from banks such as Sberbank of Russia, OAO Nomos-Bank, OAOMDM-Bank and other Russian commercial banks, as required by its customers to cover its performanceobligations under construction contracts, the return of prepayments received from customers in the eventof non-performance and post-completion defects. See also ‘‘—Mostotrest Operations—Contract process andcontract terms—Contract terms’’.

OCCUPATIONAL HEALTH AND SAFETY

Mostotrest’s health and safety management policies seek to systematically establish work practices thatpreserve and enhance its employees’ occupational health and safety, and are in compliance with applicablelaws. Mostotrest is committed to the creation of safe labour conditions. In 2008, 2009 and the six monthsended 30 June 2010, the total annual number of days absent by Mostotrest’s employees (excluding ETSand TSM) due to injury as a percentage of total work days was 0.11 percent, 0.05 percent and 0.01 percent,respectively.

LEGAL PROCEEDINGS

From time to time, Mostotrest is involved in litigation in the ordinary course of its business activities suchas disputes with suppliers and third-party service providers.

Neither Mostotrest nor any member of its group is or has been involved in any governmental, legal orarbitration proceedings (including any such proceedings that are pending or threatened of whichMostotrest is aware) during the 12 months preceding the date of this offering circular that may have, orhave had, a significant effect on Mostotrest’s business, financial position or profitability.

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OVERVIEW

In the six months ended 30 June 2010, Mostotrest acquired the following companies with whom it hasworked closely for some time, to enhance its organic growth:

• a 51.0 percent equity interest in Limited Liability Company ‘‘Corporation Engtransstroy’’ (ETS), atransport infrastructure engineering and construction management company specialising in highway,railway, airport, port, in-land waterway and bridge engineering and construction management withprojects in the Central, the North-Western, the Siberian, the Southern and the Far East FederalDistricts;

• a 50.1 percent equity interest in Limited Liability Company ‘‘Transstroymekhanisatsiya’’ (TSM), atransport infrastructure construction and overhaul company specialising in highway and airportinfrastructure construction with operations in the Central, the Southern and the Far East FederalDistricts; and

• a 25.002 percent equity interest in JSC ‘‘Mostostroy-11’’ (MS-11), a transport infrastructureconstruction company, with operations in the Siberian and the Southern Federal Districts.

Each of these is described in more detail in the sections below.

LIMITED LIABILITY COMPANY ‘‘CORPORATION ENGTRANSSTROY’’

Overview

In the six months ended 30 June 2010, Mostotrest acquired a 51.0 percent equity interest in ETS forRUB2,220 million. The remaining 49.0 percent equity interest in ETS is beneficially owned by members ofits management.

ETS is a transport infrastructure engineering and construction management company providing completeengineering services to its customers. It specialises in highway, railway, airport, port, in-land waterway andbridge engineering and construction management. It currently operates primarily in the Central, theNorth-Western, the Siberian, the Southern and the Far East Federal Districts. Its team of engineers,technicians and other specialists has substantial technical expertise and experience in engineering andmanaging the construction of large-scale complex projects in diverse geotechnical and climate conditions,from the engineering stage through to completion. ETS usually acts as the general contractor for itsprojects, providing engineering and project management services for its project.

In 2009 and in the first six months of 2010, ETS’s consolidated revenue was RUB46,805 million andRUB14,510 million, respectively. In 2009, its net profit was RUB569 million and in the first six months of2010, its net loss was RUB277 million. Mostotrest’s interests in ETS are consolidated in the 2010Unaudited Interim Mostotrest Financial Statements from the date of acquisition. See also ‘‘Pro FormaFinancial Information’’.

Mostotrest has acquired its equity interest in ETS to gain expertise in the engineering and management ofcomplex infrastructure projects, as well as to increase its geographic presence. Mostotrest believes that thisacquisition has been an important step in creating a diversified infrastructure construction group. See also‘‘Business—Key strengths—Integrated transport infrastructure construction business model’’. Mostotrest alsobelieves that working together with ETS will diversify its customer base by expanding its operations incomplementary infrastructure construction markets, such as highway, port and airport infrastructureconstruction.

Business

History and development

ETS was incorporated in March 2007. Since 2007, ETS has completed a number of significant projects,including the Eastern Siberia—Pacific Ocean oil pipeline, sections of the M-4 ‘‘Don’’ highway, Logisticscentre Industrial park ‘‘Vostochniy’’ and the highway between Chita and Zabaikalsk. See ‘‘—Principalcompleted projects’’.

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Operations

ETS is one of the leading transport infrastructure engineering and project management companies inRussia. Acting as a general contractor, ETS provides engineering and project management services forlarge-scale complex transport and other construction projects in Russia. For each project ETS typicallyengages subcontractors to carry out construction works.

ETS’s business is divided into the following parts:

• engineering, construction and overhaul of bridges and highways;

• engineering, construction and overhaul of railway infrastructure facilities;

• engineering, construction and overhaul of ports and in-land water infrastructure facilities;

• engineering. construction and overhaul of airport runways and taxiways; and

• other infrastructure facilities construction and other services.

The following table shows the breakdown of ETS’s revenues, as presented in the relevant FinancialStatements for the periods indicated.

Year ended Six months endedRevenue item 31 December 2009 30 June 2010

(RUB millions, percentage as indicated)

Bridges and highways . . . . . . . . . . . . . . . . . . . . 17,254 36.9% 9,222 63.6%Railway infrastructure facilities . . . . . . . . . . . . . 10,423 22.3% 1,739 12.0%Ports and in-land water infrastructure facilities . . 8,533 18.2% 259 1.8%Airfields and airports . . . . . . . . . . . . . . . . . . . . 3,653 7.8% 2,428 16.7%Other infrastructure facilities . . . . . . . . . . . . . . . 5,814 12.4% 0 0.0%Other facilities . . . . . . . . . . . . . . . . . . . . . . . . . 952 2.0% 832 5.7%Other revenue . . . . . . . . . . . . . . . . . . . . . . . . . 176 0.4% 30 0.2%

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,805 100.0% 14,510 100.0%

ETS operates through a single legal entity based in the Central Federal District, with branches in theNorth-Western, the Southern and the Far East Federal Districts. In some circumstances, ETS may establishfurther branches necessary to manage the day-to-day implementation of its projects. See ‘‘—Contractprocess and contract terms’’.

Principal completed projects

Since its establishment in 2007, ETS has completed the following significant projects, in each case acting asa general contractor.

• Eastern Siberia—Pacific Ocean oil pipeline. Completed in 2009, this project consisted of three stages.The first stage included the installation of 23 kilometres of pipelines and other excavation works. Thesecond stage included the construction of several marine and shore structures, berth facilities and theinstallation of a utility line area from a petroleum storage platform to shore facilities. The third stageincluded the construction of a railway station and the construction of 28 kilometres of railway tracks.The project had a total contract value for ETS of approximately RUB20.9 billion (excluding VAT).This project was constructed over a short period of time in extremely challenging weather conditions,using innovative construction technology and specialised machinery.

• Section of the M-4 ‘‘Don’’ highway. Completed in 2009, this project included the construction of 27kilometres of a four-lane segment of the M-4 ‘‘Don’’ highway bypassing the city of Efremov in the Tularegion, with a paved area of approximately 600,000 square metres. The project had a contract valuefor ETS of approximately RUB3.9 billion (excluding VAT). The key challenge of the project wasoperating on difficult terrain.

• Highway between Chita and Zabaikalsk, Chita region. Completed in 2009, this project included theconstruction of 12 kilometres of highway on the bridge overpass over the Ingoda river near theDarasun station in the Chita region. The project also included the installation of over 1.5 kilometres

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of pipes as crossings over smaller rivers. The project had a contract value for ETS of approximatelyRUB1.1 billion (excluding VAT). The key challenge of the project was operating on difficult terrain.

• Logistics centre Industrial park ‘‘Vostochniy’’. Completed in 2009, this project included theconstruction of three ‘‘Class A’’ warehouses in Noginsk, Moscow region, with each building andwarehouse having an area of approximately 37,500 square metres. ETS also constructed railwaysidetracks with access to a container depot for unloading rail cars. The project had a contract value forETS of approximately RUB1.6 billion (excluding VAT). This is currently one of the largest industrialparks in the Moscow region, fully integrated with the road and rail infrastructure.

Backlog

ETS’s backlog represents its estimate of the contract value of its projects that remains to be completed asat a particular date, excluding VAT. Such value is calculated as the total contract value for each project lessthe amounts already recognised as revenue from the contracts for such projects. The total contract value ofa particular project represents the total amount that ETS expects to recognise as revenue from the contractfor such project, assuming the contract is performed in accordance with its terms. A project is included inthe backlog when a contract for the project is executed. As at 31 December 2009 and 30 June 2010, ETS’sbacklog was RUB78,917 million and RUB71,063 million, respectively, in each case excluding VAT.

The following table sets out the contract value of ETS’s backlog by key business part as at 30 June 2010.

As at 30 June 2010

(RUB millions, (%)excluding VAT)

Bridges and highways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,241 42.5Railway infrastructure facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,570 41.6Ports and in-land waterway infrastructure facilities . . . . . . . . . . . . . . . . . . 3,046 4.3Airfields and airports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,669 6.6Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,537 5.0

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,063 100.0

Backlog is not a measure defined by IFRS or RAS. Backlog may not be indicative of ETS’s futureoperating results. See ‘‘Risk Factors—Risks relating to the Group and its industry—The anticipated revenueamounts shown in the Group’s backlog may decline and may not result in actual revenue or translate intoprofits’’.

Principal projects under construction

The following table sets out the ten largest ongoing projects by backlog value in which ETS was involved asat 30 June 2010.

Total Estimatedcontract Percentage backlog asvalue for of work at 30 June

ETS (RUB completed 2010 (RUBmillions, Expected as at millions,

Role of excluding completion 30 June excludingNo Project description ETS VAT) date 2010 VAT)

1 Construction of a section of the Naryn-Lugokan railway, General 38,805 2012 26% 28,647Zabaikalskyi krai contractor

2 Construction of highway between the Alpika-servis General 9,315 2011 26% 7,040resort and Roza-Khutor resort, Krasnodarski krai contractor

3 Reconstruction of the M-1 ‘‘Belarus’’ highway between General 7,720 2011 32% 5,27133rd and 45th kilometre contractor

4 Construction of a section of the St. Petersburg Ring General 12,262 2011 60% 4,851Road between Narva and Bronka, St. Petersburg, lot contractorNo. 2

5 Construction of a section of the St. Petersburg Ring General 4,746 2011 27% 3,485Road between Narva and Bronka, St. Petersburg, lot contractorNo. 3

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Total Estimatedcontract Percentage backlog asvalue for of work at 30 June

ETS (RUB completed 2010 (RUBmillions, Expected as at millions,

Role of excluding completion 30 June excludingNo Project description ETS VAT) date 2010 VAT)

6 Reconstruction and development of the Vladivostok General 6,771 2011 50% 3,377airport runways and taxiways, Primorskiy krai contractor

7 Construction of in-land waterway infrastructure for the General 3,978 2011 24% 3,023Mzymta cargo port in Sochi, Krasnodarski krai (second contractorstage)

8 Construction of an educational building for the Finance General 2,527 2014 0% 2,527Academy, Moscow contractor

9 Construction of a two-level traffic interchange on the General 2,536 2011 7% 2,346M-27 ‘‘Dzhubga-Sochi’’ highway contractor

10 Reconstruction of highway between the Sanatornaya General 1,928 2011 0% 1,926station and the Golden Horn Bay, bridge overpass, contractorVladivostok

Contract process and contract terms

Contract process

ETS usually works as a general contractor, frequently for public customers, where it is typically selected ina regulated competitive tender or an auction. See also ‘‘—Customers’’. In these cases, Russian law sets outthe procedures to evaluate tender offers and to select a winning bid. See also ‘‘Regulation of InfrastructureConstruction in Russia’’. ETS follows a broadly consistent approach to evaluate, prepare and bid forpotential projects irrespective of whether it is to work for public or other customers. Selected key elementsof ETS’s approach to project selection and management are set out below.

ETS regularly monitors the infrastructure construction market to identify the most attractive projects onwhich to bid. ETS selects project in several stages. To select a project, ETS evaluates a range of factors,including the scale and complexity of the project, its location, the construction timetable, its existingexpertise and the contract size. After ETS has approved a potential project in principle, it starts preparingthe full bid documentation. Typically, ETS works together with its subcontractors to prepare the biddocumentation.

ETS’s project management system has been developed in accordance with the international standardsISO 9001:2008 and ISO 14001:2004. Typically, ETS creates separate project management teams for itsprojects, with each team responsible for the project’s overall management. For complex projects located inareas where ETS does not have existing operations, ETS creates special offices responsible for the overallmanagement of a project. Typically, these offices are closed following the project’s completion.

As a general contractor, ETS focuses on engineering and project management, while the actualconstruction works are performed by its subcontractors. To select a subcontractor, ETS evaluates a numberof criteria, including available technical facilities, expertise, experience and financial condition. ETS alsotakes into consideration its previous experience with the relevant subcontractor, as well as feedback fromother infrastructure construction companies.

Contract terms

ETS’s contracts are typically fixed price contracts, with terms similar to those applicable to Mostotrest. See‘‘Business—Mostotrest operations—Contract process and contract terms—Contract terms’’.

The payment terms contained in ETS’s contracts are also broadly similar to those in Mostotrest’s contracts.See ‘‘Business—Mostotrest operations—Contract process and contract terms—Contract terms—Paymentterms’’. ETS issues its invoices to customers in accordance with terms specified in the relevant contract,which generally require payment within 20 to 30 days after the receipt of an invoice.

ETS’s public customers typically require it to provide collateral to secure its obligations to completeprojects in a similar manner to Mostotrest. See ‘‘Business—Mostotrest operations—Contract process and

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contract terms—Contract terms—Payment terms’’ and ‘‘Regulation of Infrastructure Construction in Russia—Public procurement—Tender documentation’’.

ETS is typically required to provide its customers with a post-completion guarantee against defects inconstruction for a term of between two and 11 years and which may vary for different elements of theproject. In some circumstances, ETS is required to supply its customers with a bank guarantee securing itsobligations under the post-completion guarantee.

In 2009, ETS’s three largest subcontractors by value of works performed were TSM, OOO Sochimorstroyand OOO SK Mosty i tonneli.

Customers

ETS’s principal customers are State-owned corporations, such as the Federal State Enterprise SoleContractor Directorate for Roszheldor, the Federal State Enterprise Administration for Civil Airfields andAirports and State Company Olympstroy, as well as municipal agencies, such as the Sochi cityadministration, the St. Petersburg Committee for Construction and the Department of VladivostokAdministration for Maintenance of Housing Facilities and Urban Areas. In 2009 and six months ended30 June 2010, these customers accounted for 95.7 and 93.6 percent of ETS’s total revenue, respectively.ETS also provides services to private customers.

Raw materials

As a transport infrastructure engineering and construction management company, ETS does not requireconstruction raw materials for its principal operations and its subcontractors procure the necessary rawmaterials at their own expense. However, in some cases, ETS manages the supplies of raw materials toconstruction sites purchasing the necessary raw materials for its subcontractors.

Employees

As at 31 December 2009 and 30 June 2010, ETS had 254 and 261 employees, respectively. ETS has notexperienced any industrial action in the last five years. ETS is not aware of its employees belonging to anyofficial trade union, labour or workers’ syndicate and there are no collective bargaining agreementsbetween ETS and it employees. ETS considers its relationship with its employees to be satisfactory.

Legal proceedings

From time to time, ETS is involved in litigation in the ordinary course of its business activities such asdisputes with suppliers and third-party service providers. Other than as described below, neither ETS norany of its subsidiaries is or has been involved in any governmental, legal or arbitration proceedings(including any such proceedings that are pending or threatened of which ETS is aware) during the12 months preceding the date of this offering circular that may have, or have had, a significant effect onETS’s business, financial position or profitability.

In 2010, the Astrakhan Municipal Enterprise Directorate for Capital Construction (AMEDCC) filed anumber of claims against ETS in the Arbitrazh court of the Astrakhan region, claiming termination of anumber of construction contracts with a total value of approximately RUB900 million. These claimsalleged that ETS had failed to properly perform the relevant construction contracts. While dismissing theseclaims, the court also ruled that the contracts were not validly concluded, as the parties had failed to agreeon some of the material terms. As a result, the AMEDCC has a right to claim compensation from ETS foran amount up to the entire value of the contracts, default interest and losses. However, should AMEDCCfile such claims, and should the relevant court support them, as ETS has completed most parts of therelevant projects, the value of any compensation awarded to AMEDCC would possibly be reduced by thevalue of the completed woks, or as otherwise determined by the relevant court.

In the first half of 2010, ZAO MOL Morstroy (MOL), one of ETS’s subcontractors, filed a claim againstETS in the Moscow Arbitrazh Court, claiming payments of approximately RUB300 million for worksperformed under a construction contract with ETS. MOL claimed that ETS had failed to pay the contractvalue due to it under the contract. The claim was dismissed in the court of first instance and a subsequent

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appellate court. However, in October 2010, a further court of review upheld MOL’s claim and ordered thatthe claim be heard in the court of first instance. These proceedings are currently pending.

Selected financial and other information

Selected statement of comprehensive income data

The following table sets out the principal components of ETS’s statement of comprehensive incomeextracted from the 2010 Unaudited Interim ETS Financial Statements.

Six months ended 30 June

2009 2010

(unaudited)(RUB millions)

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,005 14,510Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,658) (12,923)

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,347 1,587Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 16Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (396) (417)Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (116) (80)

Results from operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 850 1,106

Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 60Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4) (13)Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (303) (1,200)

Net finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (252) (1,153)

(Loss)/profit before income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 598 (47)Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (190) (230)

(Loss)/profit and total comprehensive income for the period . . . . . . . . . . . . 408 (277)

Additional (non-IFRS) informationGross margin (percent) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7 10.9EBITDA(1)(2) (RUB millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 896 1,169EBITDA margin (percent) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5 8.1Adjusted net income(3) (RUB millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 711 923Backlog(4) (RUB millions) (as at 30 June 2010) . . . . . . . . . . . . . . . . . . . . . 71,064

(1) ETS defined EBITDA as ‘‘(loss)/profit and total comprehensive income for the period’’ plus ‘‘income tax expense’’, ‘‘netfinance costs’’ and ‘‘depreciation’’ shown as an adjustment in cash flows from operating activities in the cash flow statement.

EBITDA is presented as a supplemental measure of ETS’s operating performance. ETS believes this supplemental measure isfrequently used by securities analysts, investors and other interested parties to evaluate companies in the transportinfrastructure construction industry.

EBITDA has limitations as an analytical tool, and investors should not consider it in isolation, or as a substitute for analysis ofETS’s operating results as reported under IFRS. Some of these limitations are as follows:

• EBITDA does not reflect the impact of financing costs on ETS’s operating performance. Such costs can be significant andcan increase if ETS incurs additional debt.

• EBITDA does not reflect the impact of income taxes on ETS’s operating performance.

• EBITDA does not reflect the impact of depreciation and amortisation on ETS’s operating performance. ETS’sdepreciated, depleted or amortised assets will have to be replaced in the future and the depreciation and amortisationexpense may not approximate the future replacement cost of these assets. By excluding this expense from EBITDA,EBITDA does not reflect ETS’s future cash requirements for these replacements.

• Other companies in the transport infrastructure construction industry may calculate EBITDA differently or may use it fordifferent purposes than ETS, limiting its usefulness as a comparative measure.

EBITDA is not defined by, or presented in accordance with, IFRS. EBITDA is not a measurement of ETS’s operatingperformance under IFRS and should not be considered as an alternative to ‘‘(loss)/profit and comprehensive income for theperiod’’, net cash from operating activities, a measure of ETS’s liquidity or any other measure of performance under IFRS. In

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particular, EBITDA should not be considered as a measure of discretionary cash available to ETS to invest in the growth of itsbusiness.

(2) Reconciliation of EBITDA to (loss)/profit and total comprehensive income for the period.

Six months ended 30 June

2009 2010

(unaudited)(RUB millions)

(Loss)/profit and total comprehensive income for the period . . . . . . . . . . . . . . . . . . . 408 (277)(Plus)/MinusIncome tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (190) (230)Net finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (252) (1,153)Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (46) (63)

EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 896 1,169

(3) Adjusted net income is defined as ‘‘(loss)/profit and total comprehensive income for the period’’ plus ‘‘dividends’’.

(4) Backlog is not a measure defined by IFRS or RAS. ETS’s backlog represents its estimate of the contract value of its projectsthat remains to be completed as at a particular date, excluding VAT. Such value is calculated as the total contract value for eachproject less the amounts already recognised as revenue from the contracts for such projects. The total contract value of aparticular project represents the total amount that ETS expects to recognise as revenue from the contract for such project,assuming the contract is performed in accordance with its terms. A project is included in ETS’s backlog when a contract for theproject is executed. Backlog may not be indicative of ETS’s future operating results. See ‘‘Risk Factors—Risks relating to theGroup and its industry—The anticipated revenue amounts shown in the Group’s backlog may decline and may not result in actualrevenue or translate into profits’’.

Selected statement of financial position data

The following table sets out the principal components of ETS’s statement of financial position extractedfrom the 2010 Unaudited Interim ETS Financial Statements.

As at

31 December 30 June2009 2010

(unaudited)(RUB millions)

Total non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 923 770Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,016 16,884

Including cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,718 2,036

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,939 17,654

Total long-term liabilities (other than net assets attributable to participants) . 1 —Including loans and borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 —

Total net assets attributable to participants . . . . . . . . . . . . . . . . . . . . . . . . . 163 (114)Total short-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,775 17,768

Including loans and borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 1,814

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,939 17,674

Key factors affecting ETS’s results of operations and financial condition

ETS’s financial results have been affected, and these results are likely to be affected in the future by a widevariety of factors including those described under ‘‘Management’s Discussion and Analysis of FinancialCondition and Results of Operations—Key factors affecting the Group’s results of operations and financialcondition’’. The nature of ETS’s business and its legal form, however, expose it to other factors, asdescribed below.

ETS’s role in projects as general contractor and its arrangements with subcontractors

As a general contractor without substantial in-house construction capabilities, ETS relies onsubcontractors to execute the specific construction works associated with its construction projects. Prior totendering for any given construction project, ETS solicits quotes from subcontractors able to perform the

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various component parts of the tendered project according to their capabilities. Only after makingpreliminary arrangements with the relevant subcontractors regarding the prices at which the componentconstruction works associated with a particular project can be performed does ETS submit its bid. Thetotal price submitted by ETS (reflecting the costs of the constituent construction works, plus an acceptablemargin) cannot usually be adjusted. Therefore, in any given period, ETS’s cost of sales and its gross profitcan be affected by its ability to find subcontractors who will be able to execute the specific constructionworks required for the specific construction project and by fluctuations in the prices at which itssubcontractors are able to execute the relevant construction works awarded to them.

Seasonality

ETS’s results of operations and cash flows from its highway construction and overhaul projects are subjectto seasonality. See ‘‘Management’s Discussion and Analysis of Financial Condition and Results ofOperation—Key factors affecting the Group’s results of operations and financial condition—Seasonality’’.

Recognition of dividends as part of net finance costs

Dividends that ETS pays to its participants are recognised as part of net finance costs, which reduces itsprofit before income tax. Dividends are treated in this way as ETS is a limited liability company, and underapplicable Russian law, each participant (if the company’s charter so provides) is entitled to withdraw fromthe company and receive the actual value of its participatory share in the company. IFRS require suchrights to be recognised as a debt instrument. Accordingly, any dividends distributable by the Company toits participants are recognised as part of net finance costs, and are not deducted from taxable income forincome tax calculations. This accounting treatment of dividends will continue to affect ETS’s profit beforeincome tax, unless and until ETS’s charter is amended or Russian law changes.

Recent developments

Trading update

The Group’s management expects that ETS’s revenue for the year ended 31 December 2010 may be lowerthan its revenue for the year ended 31 December 2009 due to delays in construction works on certainprojects resulting from operational matters such as challenging weather conditions and delays in thefinalisation of project documentation, as a result of which some construction works originally planned forthe second half of 2010 are likely to be deferred until the first half of 2011. While this may materiallyimpact ETS’s results of operations for the year ended 31 December 2010, the Group’s managementbelieves that the impact on the Group’s results of operations for that period is unlikely to be significant.

Construction contracts

In the period from 30 June 2010 to 31 October 2010, ETS entered into the following significantconstruction contracts:

• A contract with the Federal State Enterprise Rosmorport to design and construct access points at seaand river harbours in the commercial seaport Ust-Luga in the Leningradski region with a contractvalue of RUB222 million (excluding VAT). This project is expected to be completed by the end of2010.

• A contract with Olympstroy to design and construct sections of a highway between the Alpika-servisresort and the Sulimovsky brook, between the Sulimovsky brook and the Bezimyanny brook, andbetween the Bezimyanny brook and the biathlon complex in the Krasnodar region (second stage) witha contract value of RUB1,503 million (excluding VAT). This project is expected to be completed in2011.

Borrowings

During the period from 30 June 2010 to 30 September 2010, ETS concluded loan agreements with OAONomos-Bank in an aggregate principal amount of RUB1,200 million to fund working capital requirements.These loans, which were secured by revenue from construction contracts and mature by the end of 2010,were obtained at a weighted-average fixed interest rate of 8 percent per annum. During the same period,ETS also borrowed and fully repaid a loan from OAO Alfa-Bank in an aggregate principal amount ofRUB500 million. ETS did not enter into any additional loan agreements in October 2010.

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Results of operations for the six months ended 30 June 2009 and 2010

The following table sets out the principle components of ETS’s statement of comprehensive income for thesix months ended 30 June 2009 and 2010.

Six months ended 30 June Change from2009 2010 prior period

(unaudited)(RUB millions) (%)

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,005 14,510 (27.5)Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,658) (12,923) 30.7

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,347 1,587 17.8Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 16 6.7Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . (396) (417) (5.3)Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (116) (80) 31.0

Results from operating activities . . . . . . . . . . . . . . . . . . . . . . 850 1,106 30.1

Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 60 9.1Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4) (13) (225.0)Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (303) (1,200) (296.0)

Net finance expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (252) (1,153) (357.5)

(Loss)/profit before income tax . . . . . . . . . . . . . . . . . . . . . . . 598 (47) (107.9)Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (190) (230) (21.1)

(Loss)/profit and total comprehensive income for the period . . 408 (277) (167.9)

See also ‘‘—Key factors affecting ETS’s results of operations and financial condition’’.

Revenue

The following table sets out a breakdown of ETS’s revenue for the six months ended 30 June 2009 and2010, as presented in the 2010 Unaudited Interim ETS Financial Statements.

Six months ended 30 June Change from2009 2010 prior period

(unaudited)(RUB millions) (%)

Revenue by construction contract:bridges and highways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,748 9,222 94.2railway infrastructure facilities . . . . . . . . . . . . . . . . . . . . . . 6,598 1,739 (73.6)port and in-land water infrastructure facilities . . . . . . . . . . . 4,651 259 (94.4)other infrastructure facilities . . . . . . . . . . . . . . . . . . . . . . . 3,206 — (100.0)airport infrastructure facilities . . . . . . . . . . . . . . . . . . . . . . 110 2,428 2,107.3other facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 529 832 57.3

Total revenue from construction contracts . . . . . . . . . . . . . . . 19,842 14,480 (27.0)Other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 30 (81.6)

Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,005 14,510 (27.5)

Revenue decreased by RUB5,495 million, or 27.5 percent, from RUB20,005 million in the six monthsended 30 June 2009 to RUB14,510 million in the six months ended 30 June 2010. The decrease in revenuewas primarily due to the completion of the Eastern Siberia-Pacific Ocean oil pipeline in 2009. This projectwas replaced in ETS’s project portfolio by several new highway and bridge construction projects in the firsthalf of 2010, and the share of revenue from bridges and highways as a percentage of total revenueincreased from 23.7 percent in the six months ended 30 June 2009 to 63.6 percent in the six months ended30 June 2010. As a result, revenue attributable to the construction of bridges and highways increased byRUB4,474 million in the six months ended 30 June 2010 compared to the six months ended 30 June 2009,although the total increase was negatively affected by the seasonality in highway construction works. See‘‘—Key factors affecting ETS’s results of operations and financial condition—Seasonality’’. This increase

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partially offset the decrease in revenue caused by the completion of the Eastern Siberia-Pacific Ocean oilpipeline project.

The construction works for the Eastern Siberia-Pacific Ocean oil pipeline included (i) the construction ofthe Neftyanaya railway station and railway tracks, (ii) the construction of an oil loading terminal and othermarine and shore structures and (iii) the installation of pipelines. The absence of such works in the firsthalf of 2010 was the primary reason for the decrease in revenue attributable to the construction of railwayinfrastructure facilities revenue of RUB4,859 million, or 73.6 percent, from RUB6,598 million in the sixmonths ended 30 June 2009 to RUB1,739 million in the six months ended 30 June 2010; the decrease inrevenue attributable to the construction of port and in-land waterway infrastructure facilities ofRUB4,392 million, or 94.4 percent, from RUB4,651 million in the six months ended 30 June 2009 toRUB259 million in the six months ended 30 June 2010; and the significant decrease in revenue attributableto the construction of other infrastructure facilities revenue from RUB3,206 million in the six monthsended 30 June 2009 to nil in the six months ended 30 June 2010, respectively. Also impacting the revenueattributable to the construction of railway infrastructure facilities was a delay in the construction worksscheduled for the first half of 2010 on a section of the Naryn-Lugokan railway in Zabaykalski krai. Thisdelay was due to revisions to the project’s technical documentation, which caused construction work to berescheduled for the second half of 2010.

These decreases were partially offset by the increase in revenue attributable to the construction of bridgesand highways of RUB4,474 million, or 94.2 percent, from RUB4,748 million in the six months ended30 June 2009 to RUB9,222 million in the six months ended 30 June 2010. Such increase was primarily dueto (i) revenue recognised from the contract for the construction of a section of the St. Petersburg RingRoad between Narva and Bronka in St. Petersburg, lot number 3 entered into at the end of 2009 and(ii) revenue recognised from the contract for the construction of a highway between the Alpika-servisresort and the Roza-Khutor resort in the Krasnodar region entered into at the beginning of 2010. Inaddition, ETS entered into contracts in the first half of 2010 for several new highway construction projects,although the revenue recognised under these contracts was not significant in the first half of 2010 due tothe seasonality effect in highway construction works. See ‘‘—Key factors affecting ETS’s results of operationsand financial condition—Seasonality’’.

Also partially offsetting the decreases described above was a significant increase in revenue attributable tothe construction of airport infrastructure facilities of RUB2,318 million, from RUB110 million in the sixmonths ended 30 June 2009 to RUB2,428 million in the six months ended 30 June 2010, which wasprimarily due to (i) revenue recognised from the contract for the reconstruction of the Sochi airportrunways and taxiways entered into at the end of 2009 and (ii) revenue recognised from the contracts for thereconstruction of the Vladivostok airport runways and taxiways in Primorskiy krai entered into in the firstand second half of 2009.

Cost of sales

The following table sets out a breakdown of ETS’s cost of sales for the six months ended 30 June 2009 and2010.

Six months ended 30 June Change from2009 2010 prior period

(unaudited)(RUB millions) (%)

Services of subcontractors . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,008 12,607 (21.2)Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272 126 (53.7)Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 46 (39,4)Lease expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 6 (94.7)Repair and maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 4 300.0Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,079 — —Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152 134 (11.8)

Total costs of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,658 12,923 (30.7)

Cost of sales decreased by RUB5,735 million, or 30.7 percent, from RUB18,658 million in the six monthsended 30 June 2009 to RUB12,923 million in the six months ended 30 June 2010. The decrease in cost ofsales was primarily due to the decrease in expenses for services of subcontractors of RUB3,401 million, or

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Business and Financial Condition of Recent Acquisitions

21.2 percent, from RUB16,008 million in the six months ended 2009 to RUB12,607 million in the sixmonths ended 30 June 2010, as a result of the decrease in the amount of construction works performed byETS, and the decrease in expenses for materials from RUB2,079 million in the six months ended 30 June2010 to nil in the six months ended 30 June 2010, as a result of the absence of the arrangementsimplemented in connection with the construction works for the Eastern Siberia-Pacific Ocean oil pipeline,whereby ETS purchased equipment for subcontractors.

Also contributing to the decrease in cost of sales in the six months ended 30 June 2010 compared to the sixmonths ended 30 June 2009 were (i) the decrease in insurance expenses of RUB146 million, or53.7 percent, from RUB272 million in the six months ended 30 June 2009 to RUB126 million in the sixmonths ended 30 June 2010, which was primarily due to the absence in the first half of 2010 of theinsurance expenses incurred in the six months ended 30 June 2009 in connection with the construction offacilities for the Eastern Siberia-Pacific Ocean oil pipeline, and (ii) the decrease in lease expense ofRUB107 million, or 94.7 percent, from RUB113 million in the six months ended 30 June 2009 toRUB6 million in the six months ended 30 June 2010, which was primarily due to the absence in the firsthalf of 2010 of expenses incurred as a result of leasing machinery required for construction of the marinestructures for the Eastern Siberia-Pacific Ocean oil pipeline.

Gross profit and gross margin

Gross profit increased by RUB240 million, or 17.8 percent, from RUB1,347 million in the six monthsended 30 June 2009 to RUB1,587 million in the six months ended 30 June 2010. This increase wasprimarily due to the factors discussed above. Gross margin increased from 6.7 percent in the six monthsended 30 June 2009 to 10.9 percent in the six months ended 30 June 2010 primarily due to (i) an increasein total revenue from construction contracts that was recognised using the percentage-of-completionmethod, with the percentage of revenue recognised using that method increasing from 58 percent of thetotal revenue from construction contracts for the six months ended 30 June 2009 to 95 percent of the totalrevenue from construction contracts for the six months ended 30 June 2010, and (ii) the revenuerecognised from the contracts that were completed in the first half of 2010 and that in prior periods wasrecognised to the extent of costs incurred only. In addition, in the first half of 2010, ETS had a greaternumber of contracts for relatively higher-margin works, such as for bridge construction and airport relatedinfrastructure construction. In the first half of 2009, a price ceiling on highway projects imposed by theRussian Government during the recent economic downturn also had a negative affect on revenue.

Other income

Other income remained relatively stable, decreasing by RUB1 million, or 6.7 percent, from RUB15 millionin the six months ended 30 June 2009 to RUB16 million in the six months ended 30 June 2010.

Administrative expenses

The following table sets out a breakdown of ETS’s administrative expenses by category for the six monthsended 30 June 2009 and 2010.

Six months ended 30 June Change from2009 2010 prior period

(unaudited)(RUB millions) (%)

Personnel expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169 210 24.3Lease expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 63 (6.0)Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 44 0.0Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 17 30.8Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 11 0.0Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 — —Charity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2 100.0Tax other than income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 — —Other administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . 88 70 (20.5)

Total administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . 396 417 5.3

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Business and Financial Condition of Recent Acquisitions

Administrative expenses increased by RUB21 million, or 5.3 percent, from RUB396 million in the sixmonths ended 30 June 2009 to RUB417 million in the six months ended 30 June 2010. Such increase wasprimarily due to the increase in personnel expenses of RUB41 million, or 24.3 percent, fromRUB169 million in the six months ended 30 June 2009 to RUB210 million in the six months ended 30 June2010, as a result of an increase in headcount in the second half of 2009 in line with the overall growth ofETS’s operations in the second half of 2009. This increase was partially offset by the decrease in otheradministrative expenses of RUB18 million, or 20.5 percent, from RUB88 million in the six months ended30 June 2009 to RUB70 million in the six months ended 30 June 2010, as a result of a decrease inpersonnel travelling expenses caused by the completion of projects with remote works sites, primarily thosefor the Eastern Siberia-Pacific Ocean oil pipeline.

Other expenses

The following table sets out a breakdown of ETS’s other expenses by category for the six months ended30 June 2009 and 2010.

Six months ended 30 June Change from2009 2010 prior period

(unaudited)(RUB millions) (%)

Bad debt provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 3 (95.1)Loss on impairment of advances given and receivables from

customers under long-term construction/services contracts . . — 33 —Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 44 (20.0)

Total other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 80 (31.0)

Other expenses decreased by RUB36 million, or 31.0 percent, from RUB116 million in the six monthsended 30 June 2009 to RUB80 million in the six months ended 30 June 2010. This decrease was primarilydue to the decrease in the provision for bad debt of RUB58 million, or 95.1 percent, from RUB61 millionin the six months ended 30 June 2009 to RUB3 million in the six months ended 30 June 2010, primarily asa result of the repayment of outstanding indebtedness that was overdue by more than 180 days in thesix months ended 30 June 2010. The decrease in the provision for bad debt was partially offset by a lossthat was due to a RUB33 million impairment of advances given and receivables from customers underlong-term construction/services contracts in the six months ended 30 June 2010. Such impairment wasprimarily due to an increase in advances and receivables overdue by more than 180 days. This increase inadvances given and receivables from customers under long-term construction/services contracts overdue bymore than 180 days in part reflects an increase in trade and other receivables.

Results from operating activities

Results from operating activities increased by RUB256 million, or 30.1 percent, from RUB850 million inthe six months ended 30 June 2009 to RUB1,106 million in the six months ended 30 June 2010. Thisincrease was primarily due to the factors discussed above.

Net finance expense

Net finance expense increased by RUB901 million, from RUB252 million in the six months ended 30 June2009 to RUB1,153 million in the six months ended 30 June 2010. Such increase was primarily due to theincrease in dividends discussed below.

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Finance income

The following table sets out a breakdown of ETS’s finance income for the six months ended 30 June 2009and 2010.

Six months ended 30 June Change from2009 2010 prior period

(unaudited)(RUB millions) (%)

Foreign exchange gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 1 —Interest income on loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 10 (73.7)Interest income on bank deposits . . . . . . . . . . . . . . . . . . . . . . 12 47 (291.7)Income from participation in other companies . . . . . . . . . . . . — 2 —Interest Income on finance leases . . . . . . . . . . . . . . . . . . . . . 5 — —

Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 60 9.1

Finance income increased by RUB5 million, or 9.1 percent, from RUB55 million in the six months ended30 June 2009 to RUB60 million the six months ended 30 June 2010. This increase was primarily due to theincrease in interest income on bank deposits of RUB35 million, from RUB12 million in the six monthsended 30 June 2009 to RUB47 million in the six months ended 30 June 2010, as a result of an increase inthe amount of bank deposits and higher interest rates on account of the longer term of such deposits, ascompared to the six months ended 30 June 2009. Partially offsetting this increase was the decrease ininterest income on loans given of RUB28 million, or 73.7 percent, from RUB38 million in the six monthsended 30 June 2009 to RUB10 million in the six months ended 30 June 2010, as a result of the repaymentof loans that were made in an earlier period.

Finance costs

The following table sets out a breakdown of ETS’s finance costs for the six months ended 30 June 2009 and2010.

Six months ended 30 June Change from2009 2010 prior period

(unaudited)(RUB millions) (%)

Interest expense on borrowings . . . . . . . . . . . . . . . . . . . . . . . (4) (11) (175.0)Interest expense on finance leases . . . . . . . . . . . . . . . . . . . . . — (2) —

Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4) (13) (225.0)

Finance costs increased by RUB9 million, from RUB4 million in the six months ended 30 June 2009 toRUB13 million in the six months ended 30 June 2010. This increase was primarily due to the increase ininterest expense on borrowings of RUB7 million, from RUB4 million in the six months ended 30 June 2009to RUB11 million in the six months ended 30 June 2010, as a result of an increase in short-termborrowings, which were used to fund working capital requirements in the six months ended 30 June 2010.

Dividends

Dividends, distributions of which correlate to ETS’s financial results in the previous financial year,increased by RUB897 million, from RUB303 million in the six months ended 30 June 2009 toRUB1,200 million in the six months ended 30 June 2010. This increase was primarily due to ETS’sshareholders’ decision to distribute larger dividends in line with ETS’s stronger financial results in 2009, ascompared to 2008.

(Loss)/profit before income tax

(Loss)/profit before income tax changed by RUB645 million, from a profit of RUB598 million in the sixmonths ended 30 June 2009 to a loss of RUB47 million in the six months ended 30 June 2010. This changewas primarily due to the factors discussed above.

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Income tax expense

Income tax expense increased by RUB40 million, or 21.1 percent, from RUB190 million in the six monthsended 30 June 2009 to RUB230 million in the six months ended 30 June 2010, primarily as a result of anincrease in taxable income broadly in line with an increase in gross profit during the same period. Theeffective income tax rate (calculated as income tax expense divided by a sum of (loss)/profit before incometax and dividends) decreased from 21.1 percent in the six months ended 30 June 2009 to 19.9 percent in thesix months ended 30 June 2010, primarily as a result of a decrease in non tax-deductible expenses in the sixmonths ended 30 June 2010.

(Loss)/profit and total comprehensive income for the period

(Loss)/profit and total comprehensive income for the period changed by RUB685 million, from a profit ofRUB408 million in the six months ended 30 June 2009 to a loss of RUB277 million in the six months ended30 June 2010. This change was primarily due to the factors discussed above.

LIMITED LIABILITY COMPANY ‘‘TRANSSTROYMEKHANISATSIYA’’

Overview

In the six months ended 30 June 2010, Mostotrest acquired a 50.1 percent equity interest in limited liabilitycompany ‘‘Transstroymekhanisatsiya’’ (TSM) for approximately RUB1,264 million. The remaining49.9 percent equity interest in TSM is beneficially owned by members of its management.

TSM is a transport infrastructure construction and overhaul company specialising in highways (bothconcrete and asphalt) and airport infrastructure construction. It also carries out excavation and demolitionof buildings and other structures. It currently operates primarily in the Central, the Southern and the FarEast Federal Districts.

In 2009 and in the first six months of 2010, TSM’s consolidated revenue was RUB12,790 million andRUB6,187 million, respectively, and its net profit was RUB102 million and RUB448 million, respectively.Mostotrest’s interests in TSM are consolidated in the 2010 Unaudited Interim Mostotrest FinancialStatements from the date of acquisition. See also ‘‘Pro Forma Financial Information’’.

Mostotrest has acquired its equity interest in TSM primarily to expand its geographic presence and scopeof operations particularly into complementary parts of the transport infrastructure construction market,such as highway and airport infrastructure construction. Mostotrest believes that this acquisition has beenan important step in creating a diversified infrastructure construction group. See also ‘‘Business—Keystrengths—Integrated transport infrastructure construction business model’’.

Business

History and development

TSM was incorporated in July 2005 and has been primarily engaged in highway and airport infrastructureconstruction and overhaul. Since 2005, TSM has completed a number of significant projects, including theSheremetievo-2 airport runways and taxiways in Moscow, the Gelendgik airport runways and taxiways, theUfa airport runways and taxiways, and the railway in Nakhodka. See ‘‘—Principal completed projects’’.

Operations

TSM is one of the leading transport infrastructure construction companies in Russia. TSM’s business isdivided into the following parts:

• construction and overhaul of bridges and highways;

• construction and overhaul of airport runways and taxiways;

• construction and overhaul of railway infrastructure facilities; and

• other infrastructure facilities and other services.

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The following table shows the breakdown of TSM’s revenues, as presented in the relevant FinancialStatements for the periods indicated.

Year ended Six months endedRevenue item 31 December 2009 30 June 2010

(RUB millions, percentage as indicated)

Bridges and highways . . . . . . . . . . . . . . . . . . . . 4,820 37.7% 2,479 40.1%Airfields and airports . . . . . . . . . . . . . . . . . . . . 2,940 23.0% 2,662 43.0%Railway infrastructure facilities . . . . . . . . . . . . . 1,325 10.3% 551 8.9%Other infrastructure facilities . . . . . . . . . . . . . . . 2,903 22.7% 0 0.0%Other revenue . . . . . . . . . . . . . . . . . . . . . . . . . 802 6.3% 495 8.0%

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,790 100.0% 6,187 100.0%

TSM’s expertise and equipment allow it to construct a wide range of complex infrastructure projects. Forhighways, this includes various classes of roads and related works. For airports, TSM primarily constructsrunways and taxiways. For railways, TSM primarily constructs railway pathways and corridors, with thetracks themselves being installed by a specialised contractor. TSM also performs ancillary works such asexcavation works and produces raw materials, such as asphalt concrete and cement concrete.

TSM operates through a single legal entity based in Moscow, with a branch in Primorski krai.

Principal completed projects

In the last five years, TSM has completed the following significant highways, airport runways and taxiways,airfields and other infrastructure projects.

• Sheremetievo-2 airport runways and taxiways, Moscow. Completed in 2009, this project was a part of alarger redevelopment of the Sheremetievo airport in Moscow. It primarily included the overhaul ofapproximately 500,000 square metres of pavement, the installation of lighting navigational aids andthe construction of drainage facilities. The project had a contract value for TSM of approximatelyRUB2.6 billion (excluding VAT).

• Gelendgik airport runways and taxiways, Krasnodarski krai. Completed in 2009, this project primarilyincluded the construction of a runway with a total paved surface of approximately 210,000 squaremetres, two taxiways and a platform with a total area of over 125,000 square metres. TSM alsoconstructed the apron and other areas, the drainage facilities and patrol roads and performed otherexcavation works. The project had a contract value for TSM of approximately RUB2.5 billion(excluding VAT).

• Ufa airport runways and taxiways, Republic of Bashkortostan. Completed in 2009, this projectincluded comprehensive reconstruction of the airport, comprising the preparatory ground works,installation of drainage facilities and installation of navigation aids. Following completion of theproject, the airport was able to receive any type of aircraft without landing weight limitation. Theproject had a contract value for TSM of approximately RUB1.3 billion excluding VAT.

• Railway in Nakhodka, Far East Federal District. Completed in 2009, this project included theconstruction of an industrial freight terminal, the reconstruction of the Khmylovskyi station and theconstruction of a railway between that terminal and the station. The project had a contract value forTSM of approximately RUB2.5 billion (excluding VAT).

Backlog

TSM’s backlog represents its estimate of the contract value of its projects that remains to be completed asat a particular date, excluding VAT. Such value is calculated as the total contract value for each project lessthe amounts already recognised as revenue from the contracts for such projects. The total contract value ofa particular project represents the total amount that TSM expects to recognise as revenue from thecontract for such project, assuming the contract is performed in accordance with its terms. A project isincluded in the backlog when a contract for the project is executed. As at 31 December 2009 and as at30 June 2010, TSM’s backlog was RUB16,027 million and RUB22,052 million, respectively, in each caseexcluding VAT.

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The following table sets out TSM’s backlog by key business part as at 30 June 2010.

As at 30 June 2010

(RUB (%)millions,excluding

VAT)

Bridges and highways(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,410 51.7Airfields and airports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,619 30.0Railway infrastructure facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,023 18.2

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,052 100.0

(1) Includes a project for the construction of a traffic interchange at the 21st kilometre of the M-5 ‘‘Ural’’ highway, Moscow region,the material terms of which were agreed prior to 30 June 2010 and the contract for which was entered into in July 2010, and atotal of RUB5,843 million additional works relating to two other projects, the material terms of which were agreed prior to30 June 2010 and the additional contracts for which are expected to be entered into by the end of 2010. See notes (2) and(3) under ‘‘—Principal projects under construction’’.

Backlog is not a measure defined by IFRS or RAS. Backlog may not be indicative of TSM’s futureoperating results. See ‘‘Risk Factors—Risks relating to the Group and its industry—The anticipated revenueamounts shown in the Group’s backlog may decline and may not result in actual revenue or translate intoprofits’’.

Principal projects under construction

The following table sets out the ten largest ongoing projects by backlog value in which TSM was involvedas at 30 June 2010.

Total Estimatedcontract Percentage backlog asvalue for of work at 30 June

TSM (RUB completed 2010 (RUBmillions, Expected as at millions,excluding completion 30 June excluding

No. Project description Role of TSM VAT) date 2010 VAT)

1 Construction of a traffic interchange at the General 4,493 2013 0% 4,49321st kilometre of the M-5 ‘‘Ural’’ highway, Moscow contractorregion(1)

2 Construction of the Naryn-Lugokan railway, Subcontractor 6,007 2012 33% 4,023Zabaikalskyi krai(2) for ETS

3 Construction of a highway between the Alpika-servis Subcontractor 3,997 2011 20% 3,194resort and Roza-Khutor resort, Krasnodarski krai for ETS

4 Reconstruction and development of the Vladivostok Subcontractor 5,895 2011 52% 2,853airport runways and taxiways, Primorskiy krai(3) for ETS

5 Second stage of reconstruction of the Sochi airport General 2,763 2010 0% 2,763runways and taxiways, Krasnodarski krai contractor

6 Reconstruction of highway between the Sanatornaya Subcontractor 1,599 2011 0% 1,599station and the Golden Horn Bay bridge overpass, for ETSVladivostok

7 Reconstruction and development of the Vnukovo General 919 2011 3% 895airport runways and taxiways, Moscow contractor

8 Reconstruction of a section of the M-4 ‘‘Don’’ highway Subcontractor 1,969 2010 63% 738between 21st kilometre and 117th kilometre, Moscow for ETSregion

9 Construction of a highway between Vladivostok, Subcontractor 916 2011 26% 682Nakhodka and Port Vostochniy, Primorskiy krai for ETS

10 Reconstruction of a section of the M-4 ‘‘Don’’ highway Subcontractor 2,129 2010 71% 623between the bypass of Zadonsk and bypass of Khlebnoe for ETSsettlement, Lipetsk region

(1) The material terms of this project were agreed prior to 30 June 2010 and the relevant contract was entered into in July 2010.

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(2) Includes RUB3,747 million additional works, the material terms of which were agreed prior to 30 June 2010 and the additionalcontract for which is expected to be entered into by the end of 2010.

(3) Includes RUB2,096 million additional works, the material terms of which were agreed prior to 30 June 2010 and the additionalcontract for which is expected to be entered into by the end of 2010.

Contract process and contract terms

Contract process

Historically, TSM has primarily worked as a subcontractor, primarily for ETS. However, TSM is planningto increase the number of projects for which it acts as a general contractor. For example, TSM is currentlya general contractor on projects such as the construction of a traffic interchange at the 21st kilometre of theM-5 ‘‘Ural’’ highway in the Moscow region, the reconstruction of the Sochi airport runways and taxiwaysand the reconstruction and development of the Vnukovo airport runways and taxiways. See also‘‘—Principal projects under construction’’ and ‘‘—Customers’’.

Where TSM acts as a subcontractor, the procedure for its selection is determined by the generalcontractor. For projects where TSM acts as a general contractor, it is typically selected in a regulatedcompetitive tender or an auction. In these cases, Russian law sets out the procedures to evaluate tenderoffers and to select a winning bid. See also ‘‘Regulation of Infrastructure Construction in Russia’’. TSMfollows a broadly consistent approach to evaluate, prepare and bid for potential projects, irrespective ofwhether it is to be a general contractor or a subcontractor for public or other customers. Selected keyelements of TSM’s approach to project selection and management are set out below.

TSM sources information on potential projects either from the general contractor (where it acts as asubcontractor) or from publicly available information (where it acts as a general contractor). To select aproject, TSM evaluates a range of factors, including its existing expertise and the availability of itsproduction facilities. TSM also takes into consideration the contract size.

For projects where TSM acts as a subcontractor, TSM typically works together with the general contractorto prepare the bid. Once the general contractor wins a bid, it enters into a contract with TSM. For projectswhere TSM acts as a general contractor, TSM prepares and submits the bid itself.

For each project, TSM nominates a project manager, who is typically responsible for the overallmanagement of a project and the site’s organisation.

When acting as a general contractor, TSM primarily engages subcontractors for projects requiringperformance of works that are outside of TSM’s expertise. TSM also engages subcontractors where its ownproduction facilities are engaged on other projects as well as where, due to the project location and otherfactors, performance of some construction works by a subcontractor would be more cost efficient. To selecta subcontractor, TSM prepares a short-list of subcontractors based on expertise and experience, as well asavailable technical facilities, financial condition and other criteria and then selects a subcontractor basedon the quality of work the subcontractor is expected to deliver, its speed, and its price.

In 2009, TSM’s three largest subcontractors by value of works performed were OOO SDS-D,ZAO Upravlenie Mekhanisatsii-9 and Genproektstroy.

Contract terms

TSM’s contracts are typically fixed price contracts with the terms similar to those applicable to Mostotrest.See ‘‘Business—Mostotrest Operations—Contract process and contract terms—Contract terms’’.

The payment terms contained in TSM’s contracts are also broadly similar to those in Mostotrest’scontracts. See ‘‘Business—Mostotrest operations—Contract process and contract terms—Contract terms—Payment terms’’. TSM issues its invoices to customers in accordance with terms specified in the relevantcontract, which generally require payment within five to 10 days after the receipt of an invoice.

TSM’s public customers typically require it to provide collateral to secure its obligations to completeprojects in a similar manner to Mostotrest. See ‘‘Business—Operations—Contract process and contractterms—Contract terms—Payment terms’’ and ‘‘Regulation of Infrastructure Construction in Russia—Publicprocurement—Tender documentation’’. For projects where TSM acts as a subcontractor, it is typicallyrequired to provide a ‘‘mirror’’ guarantee, securing its obligations in favour of the general contractor,similar to the obligations of a general contractor under its contract with the project originator.

TSM is typically required to provide its customers with a post-completion guarantee against defects inconstruction for a term of between two and 10 years.

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Customers

Historically, TSM has typically worked on projects as a subcontractor for ETS. In 2009 and the six monthsended 30 June 2010, the revenue generated by TSM from these projects accounted for 98.9 and98.6 percent of TSM’s total revenue, respectively. TSM’s other customers include federal State agenciesand State-owned corporations, such as the Federal State Enterprise Administration for Civil Airfields andAirports and the Russian Air Forces General Headquarters, as well as private customers. TSM plans todiversify its customer base as it increases the number of projects for which it is a general contractor.

Where TSM acts as a subcontractor for ETS, its ultimate customers are described at ‘‘Business andFinancial Condition of Recent Acquisitions—Limited Liability Company ‘‘Corporation Engtransstroy’’—Customers’’.

Equipment

TSM owns and uses a large variety of machinery and equipment to construct highways, airport runwaysand taxiways, railway pathways and corridors and other infrastructure. In circumstances where TSM doesnot own the necessary equipment, it either leases it from third parties or engages a subcontractor thatpossesses the necessary equipment.

Raw materials and suppliers

The key raw materials used by TSM are cement, concrete aggregates (such as crushed stone and sand),binding materials (such as bitumen), fuel and lubricants and engineered metal structures. TSM’s key rawmaterials suppliers include OOO Avtodorstroy, OOO SDS-D, OOO TransKomplekt and ProductionCompany (Cooperative) Betonschik.

TSM’s supply contracts are usually framework contracts with a term of one year and an extension optionfor a further year. The quantity of raw materials, as well as the price of each purchase, is agreed separatelyat the prevailing market prices under the relevant framework contract. Occasionally, TSM enters intofixed-price supply contracts. Typically, TSM’s supply contracts provide for deferred payment of up to180 days. Depending on market conditions, TSM’s suppliers may require full or partial prepayment underits supply contracts.

TSM also uses on-site fabrication facilities to produce concrete and asphalt concrete.

Employees

As at 31 December 2009 and 30 June 2010, TSM had 1,964 and 2,740 employees, respectively. TSM hasnot experienced any industrial action in the last five years. TSM is not aware of its employees belonging toany official trade union, labour or workers’ syndicate and there are no collective bargaining agreementsbetween TSM and it employees. TSM considers its relationship with its employees to be satisfactory.

Legal proceedings

From time to time, TSM is involved in litigation in the ordinary course of its business activities such asdisputes with suppliers and third-party service providers. TSM is not or has not been involved in anygovernmental, legal or arbitration proceedings (including any such proceedings that are pending orthreatened of which TSM is aware) during the 12 months preceding the date of this offering circular thatmay have, or have had, a significant effect on TSM’s business, financial position or profitability.

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Selected financial and other information

Selected statement of comprehensive income data

The following table sets out the principal components of TSM’s statement of comprehensive incomeextracted from the 2010 Unaudited Interim TSM Financial Statements.

Six months ended 30 June

2009 2010

(unaudited)(RUB millions)

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,960 6,187Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,993) (5,123)

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 967 1,064Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 139Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (218) (246)Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (41) (34)

Results from operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 776 923

Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (156) (69)Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (200)

Profit before income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 629 657Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (158) (209)

Profit for the period from continuing operations . . . . . . . . . . . . . . . . . . . . 471 448Loss for the period from discontinued operations . . . . . . . . . . . . . . . . . . . . (658) —

Profit/(loss) and total comprehensive income for the period . . . . . . . . . . . . (187) 448

Additional (non-IFRS) information

Gross margin (percent) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.5 17.2EBITDA(1)(2) (RUB millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 976 1,191EBITDA margin (percent) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.7 19.3Adjusted net income(3) (RUB millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 471 648Backlog(4) (as at 30 June 2010) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,053

(1) TSM defined EBITDA as ‘‘profit for the period from continuing operations’’ plus ‘‘income tax expense’’, net finance costs(being the sum of ‘‘dividends’’, ‘‘finance costs’’, and ‘‘finance income’’) and ‘‘depreciation’’ shown as an adjustment in cash flowsfrom operating activities in the cash flow statement.

EBITDA is presented as a supplemental measure of TSM’s operating performance. TSM believes this supplemental measure isfrequently used by securities analysts, investors and other interested parties to evaluate companies in the transportinfrastructure construction industry.

EBITDA has limitations as an analytical tool, and investors should not consider it in isolation, or as a substitute for analysis ofTSM’s operating results as reported under IFRS. Some of these limitations are as follows:

• EBITDA does not reflect the impact of financing costs on TSM’s operating performance. Such costs can be significantand can increase if TSM incurs additional debt.

• EBITDA does not reflect the impact of income taxes on TSM’s operating performance.

• EBITDA does not reflect the impact of depreciation and amortisation on TSM’s operating performance. TSM’sdepreciated, depleted or amortised assets will have to be replaced in the future and the depreciation and amortisationexpense may not approximate the future replacement cost of these assets. By excluding this expense from EBITDA,EBITDA does not reflect TSM’s future cash requirements for these replacements.

• Other companies in the transport infrastructure construction industry may calculate EBITDA differently or may use it fordifferent purposes than TSM, limiting its usefulness as a comparative measure.

EBITDA is not defined by, or presented in accordance with, IFRS. EBITDA is not a measurement of TSM’s operatingperformance under IFRS and should not be considered as an alternative to ‘‘profit for the period from continuing operations’’,net cash from operating activities, a measure of TSM’s liquidity or any other measure of performance under IFRS. Inparticular, EBITDA should not be considered as a measure of discretionary cash available to TSM to invest in the growth of itsbusiness.

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(2) Reconciliation of EBITDA to profit for the period from continuing operations.

Six months ended 30 June

2009 2010

(unaudited)(RUB millions)

Profit for the period from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . 471 448(Plus)/MinusIncome tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (158) (209)Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (200)Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (156) (69)Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (200) (268)

EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 976 1,191

(3) Adjusted net income is defined as ‘‘profit for the period from continuing operations’’ plus ‘‘dividends’’.

(4) Backlog is not a measure defined by IFRS or RAS. TSM’s backlog represents its estimate of the contract value of its projectsthat remains to be completed as at a particular date, excluding VAT. Such value is calculated as the total contract value for eachproject less the amounts already recognised as revenue from the contracts for such projects. The total contract value of aparticular project represents the total amount that TSM expects to recognise as revenue from the contract for such project,assuming the contract is performed in accordance with its terms. A project is included in TSM’s backlog when a contract for theproject is executed. Backlog may not be indicative of TSM’s future operating results. See ‘‘Risk Factors—Risks relating to theGroup and its industry—The anticipated revenue amounts shown in the Group’s backlog may decline and may not result in actualrevenue or translate into profits’’. This also includes a project for the construction of a traffic interchange at the 21st kilometre ofthe M-5 ‘‘Ural’’ highway, Moscow region, the material terms of which were agreed prior to 30 June 2010 and the contract forwhich was entered into in July 2010, and a total of RUB5,843 million additional works relating to two other projects, thematerial terms of which were agreed prior to 30 June 2010 and the additional contracts for which are expected to be enteredinto by the end of 2010. See notes (2) and (3) under ‘‘—Principal projects under construction’’.

Selected statement of financial position data

The following table sets out the principal components of TSM’s statement of financial position extractedfrom the 2010 Unaudited Interim TSM Financial Statements.

As at

31 December2009 30 June 2010

(unaudited)(RUB millions)

Total non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,077 2,128Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,799 4,628

Including cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213 95

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,876 6,756

Total long-term liabilities (other than net assets attributable to participants) . 109 126Including loans and borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 126

Total net assets attributable to participants . . . . . . . . . . . . . . . . . . . . . . . . . (1,180) (732)Total short-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,947 7,362

Including loans and borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 475 2,004

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,876 6,756

Key factors affecting TSM’s results of operations and financial condition

TSM’s financial results have been affected, and such results are likely to be affected in the future, by a widevariety of factors including those described under ‘‘Management’s Discussion and Analysis of FinancialCondition and Results of Operations—Key factors affecting the Group’s results of operations and financialcondition’’, and in particular, the effect that the seasonality of its highway construction and overhaulprojects has on its results of operations and cash flows. See ‘‘Management’s Discussion and Analysis ofFinancial Condition and Results of Operation—Key factors affecting the Group’s results of operations andfinancial condition—Seasonality’’. TSM’s legal form, however, exposes it to another factor described below.

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Recognition of dividends as part of net finance costs

Dividends that TSM pays to its participants are recognised as part of net finance costs (being the sum of‘‘dividends’’, ‘‘finance costs’’, and ‘‘finance income’’), which reduces its profit before income tax. Dividendsare treated in this way as TSM is a limited liability company, and under applicable Russian law, eachparticipant (if the company’s charter so provides) is entitled to withdraw from the company and receive theactual value of its participatory share in the company. IFRS require such rights to be recognised as a debtinstrument. Accordingly, any dividends distributable by the company to its participants are recognised aspart of net finance costs, and are not deducted from taxable income for income tax calculations. Thisaccounting treatment of dividends will continue to affect TSM’s profit before income tax, unless and untilTSM’s charter is amended or Russian law changes.

Recent developments

Construction contracts

In the period from 30 June 2010 to 31 October 2010, TSM entered into the following significantconstruction contracts:

• A contract with Federal State Enterprise Centravtomagistral to renovate the traffic interchange at the21st kilometre of the M-5 ‘‘Ural’’ highway with a contract value of RUB4,493 million (excluding VAT).This project is expected to be completed in 2013. While entered into after 30 June 2010, this contractis included in TSM’s backlog as at 30 June 2010. See note (5) under ‘‘—Selected financial and otherinformation—Selected statement of comprehensive income data’’.

• A contract with ETS to construct the foundation for the Main Mediacenter in Sochi with a contractvalue of RUB253 million (excluding VAT). This project is expected to be completed in 2010.

• A contract with ZAO Stroyputinvest to construct a railway line between Losevo and Kamennogorsk,Leningrad region with a contract value of approximately RUB2,894 million (excluding VAT). Thisproject is expected to be completed in 2011.

Borrowings

During the period from 30 June 2010 to 30 September 2010, TSM concluded loan agreements with banksin an aggregate principal amount of RUB1,074.3 million to fund working capital requirements. These loanswere obtained at a weighted-average fixed interest rate of 8.5 percent per annum and mature between thefourth quarters of 2010 and 2011. RUB300 million of the aggregate principal amount of such loans wassecured by property, plant and equipment. During the same period, TSM repaid RUB1,753.7 million of itsborrowings. In addition, in October 2010, TSM entered into five loan agreements with OAOTransCreditBank for an aggregate principal amount of approximately RUB467 million. TSM’sindebtedness under these agreements must be repaid between the fourth quarter of 2010 and the secondquarter of 2011. These loans are unsecured and were obtained at a weighted-average fixed interest rate of7.9 percent per annum. During the same period, TSM also repaid in full four loans from OAOTransCreditBank in an aggregate principal amount of approximately RUB468 million.

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Results of operations for the six months ended 30 June 2009 and 2010

The following table sets out the principle components of TSM’s statement of comprehensive income forthe six months ended 30 June 2009 and 2010.

Six months ended 30 June Change from2009 2010 prior period

(unaudited)(RUB millions) (%)

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,960 6,187 24.7Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,993) (5,123) (28.3)

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 967 1,064 10.0Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 139 104.4Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . (218) (246) (12.8)Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (41) (34) 17.1

Results from operating activities . . . . . . . . . . . . . . . . . . . . . . 776 923 18.9

Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3 (66.7)Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (156) (69) 55.8Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (200) —

Profit before income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . 629 657 4.5Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (158) (209) (32.3)

Profit for the period from continuing operations . . . . . . . . . . 471 448 (4.9)

See also ‘‘—Key factors affecting TSM’s results of operations and financial condition’’.

Revenue

The following table sets out a breakdown of TSM’s revenue for the six months ended 30 June 2009 and2010, as presented in the 2010 Unaudited Interim TSM Financial Statements.

Six months ended 30 June Change from2009 2010 prior period

(unaudited)(RUB millions) (%)

Revenue by construction contract:airport infrastructure facilities . . . . . . . . . . . . . . . . . . . . . . 126 2,662 2,012.7bridges and highways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,630 2,479 52.1other infrastructure facilities . . . . . . . . . . . . . . . . . . . . . . . 2,027 — —railway infrastructure facilities . . . . . . . . . . . . . . . . . . . . . . 784 551 (29.7)

Total revenue from construction contracts . . . . . . . . . . . . . . . 4,567 5,692 24.6Revenue from resale of materials . . . . . . . . . . . . . . . . . . . . . . 393 495 26.0

Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,960 6,187 24.7

Revenue increased by RUB1,227 million, or 24.7 percent, from RUB4,960 million in the six months ended30 June 2009 to RUB6,187 million in the six months ended 30 June 2010. The increase in revenue wasprimarily due to the increase in revenue attributable to the construction of airport infrastructure facilitiesof RUB2,536 million, from RUB126 million in the six months ended 30 June 2009 to RUB2,662 million inthe six months ended 30 June 2010, as a result of (i) revenue recognised from two contracts for the secondstage of reconstruction of the Sochi airport airfield, one of which was entered into at the end of 2009 andthe other in the first half of 2010 and (ii) revenue recognised from the contract for reconstruction of theVladivostok airport airfield in Primorskiy krai entered into in 2009.

Also contributing to the increase in revenue in the six months ended 30 June 2010, compared to the sixmonths ended 30 June 2009, was the increase in revenue attributable to the construction of bridges andhighways of RUB849 million, or 52.1 percent, from RUB1,630 million in the six months ended 30 June

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2009 to RUB2,479 million in the six months ended 30 June 2010. The increase in revenue attributable tothe construction of bridges and highways was primarily due to (i) revenue recognised from the contract forconstruction of a highway between the Alpika-servis resort and the Roza-Khutor resort near Sochi enteredinto at the end of 2009 and the contract for construction of a highway between Vladivostok, Nakhodka andPort Vostochniy in Primorskiy krai entered into in 2010, which was negatively affected by seasonality inhighway construction works (see ‘‘—Key factors affecting TSM’s results of operations and financialcondition’’), and (ii) increased revenue recognised from the following construction contracts completed inthe six months ended 30 June 2010 in line with TSM’s revenue recognition policy described under‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations—Significantaccounting policies, critical accounting estimates and judgments—Significant accounting policies—Revenue’’,as a result of the inability to form a reliable estimate of the outcome of such contracts prior to theircompletion: the contract for construction of a section of the St. Petersburg Ring Road between Narva andBronka in St. Petersburg, lot number 2 entered into in 2008; the contract for reconstruction of a section ofthe M-4 ‘‘Don’’ highway between the bypass of Zadonsk and the bypass of the Khlebnoe settlement in theLipetsk region entered into in 2008; the contract for reconstruction of a section of the M-4 ‘‘Don’’ highwaybetween the 21st kilometre and the 117th kilometre in the Moscow region entered into in 2008; and thecontract for construction of a section of the M-4 ‘‘Don’’ highway bypassing the city of Efremov in the Tularegion entered into in 2009.

These increases were partially offset by the decrease in revenue attributable to the construction of otherinfrastructure facilities from RUB2,027 million in the six months ended 30 June 2009 to nil in the sixmonths ended 30 June 2010, primarily as a result of the completion in 2009 of excavation works performedfor the construction of an industrial cargo terminal at the Neftyanaya station and the railway between theKhmilovskiy station and the Neftyanaya station in Primorskiy krai and the absence of such works in the sixmonths ended 30 June 2010. Also partially offsetting the increases described above was the decrease inrevenue attributable to the construction of railway facilities of RUB233 million, or 29.7 percent, fromRUB784 million in the six months ended 30 June 2009 to RUB551 million in the six months ended 30 June2010, primarily as a result of a decrease in the amount of excavation works performed for the constructionof a section of the Naryn-Lugokan railway between the Naryn station and the Kytikan station inZabaikalskyi krai, due to a delay in the construction works scheduled for the first half of 2010 on a sectionof the Naryn-Lugokan railway in Zabaykalski krai. This delay was due to revisions to the project’s technicaldocumentation, which caused construction work to be rescheduled for the second half of 2010.

Cost of sales

The following table sets out a breakdown of TSM’s cost of sales for the six months ended 30 June 2009 and2010.

Six months ended 30 June Change from2009 2010 prior period

(unaudited)(RUB millions) (%)

Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,133 1,558 37.5External companies services . . . . . . . . . . . . . . . . . . . . . . . . . 651 1,401 115.2Personnel expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348 573 64.7Subcontractors services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,010 572 (43.4)Cost of sold goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 353 436 23.5Services of principal contractors . . . . . . . . . . . . . . . . . . . . . . . 239 218 (8.8)Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169 208 23.1Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 157 74.4

Total costs of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,993 5,123 28.3

Cost of sales increased by RUB1,130 million, or 28.3 percent, from RUB3,993 million in the six monthsended 30 June 2009 to RUB5,123 million in the six months ended 30 June 2010. The increase in cost ofsales was primarily due to the growth in TSM’s construction projects portfolio, in particular an increase inthe amount of works performed by TSM as a general contractor using its own in-house capabilities rather

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than relying on subcontractors’ services. TSM’s decision to use its own in-house capabilities is madeindividually with respect to each project.

This trend was the primary reason for (i) an increase in the use of third-party truck vehicles services androad-building machinery, which resulted in the increase in expenses for external companies services ofRUB750 million, from RUB651 million in the six months ended 2009 to RUB1,401 million in the sixmonths ended 30 June 2010, (ii) an increase in the use of construction materials such as crushed stone,stone screening dust, bitumen, cement and concrete, which resulted in the increase in expenses formaterials of RUB425 million, or 37.5 percent, from RUB1,133 million in the six months ended 30 June2009 to RUB1,558 million in the six months ended 30 June 2010, and (iii) a significant increase inheadcount in the six months ended 30 June 2010, compared to the six months ended 30 June 2009, whichresulted in the increase in personnel expenses of RUB225 million, or 64.7 percent, from RUB348 millionin the six months ended 30 June 2009 to RUB573 million in the six months ended 30 June 2010. This trendwas also the primary reason for the decrease in expenses for subcontractors services of RUB438 million, or43.4 percent, from RUB1,010 million in the six months ended 30 June 2009 to RUB572 million in the sixmonths ended 30 June 2010, which partially offset the increases described above.

Gross profit and gross margin

Gross profit increased by RUB97 million, or 10.0 percent, from RUB967 million in the six months ended30 June 2009 to RUB1,064 million in the six months ended 30 June 2010. This increase was primarily dueto the factors discussed above and reflected the increase in revenue, partially offset by the increase in costsof sales. Gross margin decreased from 19.5 percent in the six months ended 30 June 2009 to 17.2 percent inthe six months ended 30 June 2010 due to the effect that one contract in the six months ended 30 June2009 with a relatively high gross margin had on TSM’s results in that period (that did not recur in the sixmonths ended 30 June 2010), despite a significant increase in the percentage of revenue recognised usingthe percentage-of-completion method (increasing from 44.9 percent in the six months ended 30 June 2009to 73.0 percent in the six months ended 30 June 2010) in the six months ended 30 June 2010. In addition,most of the contracts that did not use the percentage-of-completion method in the six months ended30 June 2010 were not completed during that period, and the revenue attributable to these uncompletedcontracts was only recognised to the extent of contract costs incurred. See ‘‘Management’s Discussion andAnalysis of Financial Condition and Results of Operations—Significant accounting policies, critical accountingestimates and judgments—Significant accounting policies—Revenue’’. Going forward, TSM expects that thenumber of contracts the revenue from which will be recognised according to the percentage-of-completionmethod will increase further.

Other income

The following table sets out a breakdown of TSM’s other income for the six months ended 30 June 2009and 2010.

Six months ended 30 June Change from2009 2010 prior period

(unaudited)(RUB millions) (%)

Gains on disposal of property plant and equipment . . . . . . . . 1 34 3,300.0Revenues from the lease of property . . . . . . . . . . . . . . . . . . . 44 19 (56.8)Gain on derecognition of accounts payable . . . . . . . . . . . . . . . — 49 —Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 37 60.9

Total other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 139 104.4

Other income increased by RUB71 million, from RUB68 million in the six months ended 30 June 2009 toRUB139 million in the six months ended 30 June 2010. This increase was primarily due to (i) a gainattributable to the derecognition of accounts payable of RUB49 million in the six months ended 30 June2010, compared to nil in the six months ended 30 June 2009, primarily as a result of the liquidation of oneof TSM’s creditors and the consequent write-off of the payables owed to such creditor following theexpiration of the relevant limitation period and (ii) the increase in gain on disposal of property, plant and

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equipment of RUB33 million, from RUB1 million in the six months ended 30 June 2009 to RUB34 millionin the six months ended 30 June 2010 as a result of the disposal of some of its fixed assets, including acoating plant, an excavator and a portable loading crane, as part of the fixed assets renewal programme.These increases were partially offset by the decrease in revenues from the lease of property ofRUB25 million, or 56.8 percent, from RUB44 million in the six months ended 30 June 2009 toRUB19 million in the six months ended 30 June 2010, primarily as a result of the increased use by TSM ofits own fixed assets, such as road-building machinery and equipment, which reduced the availability of suchfixed assets for leasing.

Administrative expenses

The following table sets out a breakdown of TSM’s administrative expenses by category for the six monthsended 30 June 2009 and 2010.

Six months ended 30 June Change from2009 2010 prior period

(unaudited)(RUB millions) (%)

Personnel expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 76 52.0External companies services . . . . . . . . . . . . . . . . . . . . . . . . . 71 68 (4.2)Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 60 200.0Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 7 (87.9)Other administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . 19 35 84.2

Total administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . 218 246 12.8

Administrative expenses increased by RUB28 million, or 12.8 percent, from RUB218 million in the sixmonths ended 30 June 2009 to RUB246 million in the six months ended 30 June 2010. This increase wasprimarily due to the increase in depreciation expenses of RUB40 million, from RUB20 million in the sixmonths ended 30 June 2009 to RUB60 million in the six months ended 30 June 2010, as a result of anexpansion of TSM’s leased equipment, which was due to the assignment of finance leases by OOODorstroyproekt to TSM in connection with the bankruptcy of OOO Dorstroyproekt (see ‘‘—Discontinuedoperations of OOO Dorstroyproekt’’), and the increase in personnel expenses of RUB26 million, or52.0 percent, from RUB50 million in the six months ended 30 June 2009 to RUB76 million in the sixmonths ended 30 June 2010, as a result of an increase in headcount primarily reflecting the growth inTSM’s construction projects portfolio, which necessitated an increase in administrative personnel tomanage the construction process.

These increases were partially offset by the decrease in expenses for materials of RUB51 million, or87.9 percent, from RUB58 million in the six months ended 30 June 2009 to RUB7 million in the six monthsended 30 June 2010, due to cost-cutting measures implemented by TSM.

Other expenses

The following table sets out a breakdown of TSM’s other expenses for the six months ended 30 June 2009and 2010.

Six months ended 30 June Change from2009 2010 prior period

(unaudited)(RUB millions) (%)

Recovery of loss on impairment of inventories . . . . . . . . . . . . 8 9 12.5Past years profit and loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 4 (77.8)Bad debt provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 2 —Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 19 26.7

Total other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 34 (17.1)

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Other expenses decreased by RUB7 million, or 17.1 percent, from RUB41 million in the six months ended30 June 2009 to RUB34 million in the six months ended 30 June 2010. This was primarily due to a decreasein past years profit and loss of RUB14 million, or 77.8 percent, from RUB18 million in the six monthsended 30 June 2009 to RUB4 million in the six months ended 30 June 2010, as a result of an improvementin TSM’s accounting system which enabled it to record TSM’s operations more precisely.

Results from operating activities

Results from operating activities increased by RUB147 million, or 18.9 percent, from RUB776 million inthe six months ended 30 June 2009 to RUB923 million in the six months ended 30 June 2010. This increasewas primarily due to the higher growth in gross profit compared to the growth in administrative expenses,as well as the increase in other income.

Finance income

The following table sets out a breakdown of TSM’s finance income for the six months ended 30 June 2009and 2010.

Six months ended 30 June Change from2009 2010 prior period

(unaudited)(RUB millions) (%)

Foreign exchange gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1 (87.5)Interest income on loans given . . . . . . . . . . . . . . . . . . . . . . . 1 1 0.0Interest income on bank deposits . . . . . . . . . . . . . . . . . . . . . . — 1 —

Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3 (66.7)

Finance income decreased by RUB6 million, or 66.7 percent, from RUB9 million in the six months ended30 June 2009 to RUB3 million the six months ended 30 June 2010. This decrease was primarily due to thedecrease in foreign exchange gain of RUB7 million, or 87.5 percent, from RUB8 million in the six monthsended 30 June 2009 to RUB1 million in the six months ended 30 June 2010, which was a result of areduction in the volume of operations denominated in foreign currencies.

Finance costs

The following table sets out a breakdown of TSM’s finance costs for the six months ended 30 June 2009and 2010.

Six months ended 30 June Change from2009 2010 prior period

(unaudited)(RUB millions) (%)

Interest expense on borrowings . . . . . . . . . . . . . . . . . . . . . . . (95) (23) 75.8Foreign exchange loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25) — —Interest expense on finance leases . . . . . . . . . . . . . . . . . . . . . (36) (46) (27.8)

Finance expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (156) (69) 55.8

Finance costs decreased by RUB87 million, or 55.8 percent, from RUB156 million in the six months ended30 June 2009 to RUB69 million in the six months ended 30 June 2010. This decrease was primarily due tothe decrease in interest expense on borrowings of RUB72 million, or 75.8 percent, from RUB95 million inthe six months ended 30 June 2009 to RUB23 million in the six months ended 30 June 2010, which resultedfrom a decrease in interest rates on bank loans and a reduction in funds borrowed by TSM during the sixmonths ended 30 June 2010, compared to the six months ended 30 June 2009.

Dividends

Dividends, distributions of which correlate to TSM’s financial results in the previous financial year,increased from nil in the six months ended 30 June 2009 to RUB200 million in the six months ended

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20 June 2010. This increase was primarily due to TSM’s shareholders’ decision to distribute dividends inline with TSM’s stronger financial results in 2009, as compared to 2008.

Profit before income tax

Profit before income tax increased by RUB28 million, or 4.5 percent, from RUB629 million in the sixmonths ended 30 June 2009 to RUB657 million in the six months ended 30 June 2010. This increase wasprimarily due to the factors discussed above.

Income tax expense

Income tax expense increased by RUB51 million, or 32.2 percent, from RUB158 million in the six monthsended 30 June 2009 to RUB209 million in the six months ended 30 June 2010, primarily as a result of anincrease in taxable income broadly in line with an increase in gross profit during the same period. Theeffective income tax rate (calculated as income tax expense divided by a sum of profit before income taxand dividends) decreased from 25.1 percent in the six months ended 30 June 2009 to 24.4 percent in the sixmonths ended 30 June 2010, primarily as a result of a decrease in non tax-deductible expenses in the sixmonths ended 30 June 2010.

Profit for the period from continuing operations

Profit for the period from continuing operations decreased by RUB23 million, or 4.9 percent, fromRUB471 million in the six months ended 30 June 2009 to RUB448 million in the six months ended 30 June2010. This decrease was primarily due to the factors discussed above.

Discontinued operations of OOO Dorstroyproekt

In the six months ended 30 June 2009, TSM incurred a loss of RUB658 million from discontinuedoperations that was attributable to its wholly-owned subsidiary, OOO Dorstroyproekt. In November 2009,a Russian arbitration court declared OOO Dorstroyproekt bankrupt, and proceedings to wind it up werecommenced. OOO Dorstroyproekt’s bankruptcy was caused by inefficiencies in its operations, as a resultof which, in May 2009, TSM’s management decided to discontinue its operations and transferred theoperational management of OOO Dorstroyproekt to an independent administrator. The assets andliabilities of OOO Dorstroyproekt were excluded from the consolidated financial statements of TSM from17 November 2009, the date when TSM lost control over it.

Profit/(loss) and total comprehensive income for the period

Profit/(loss) and total comprehensive income for the period changed by RUB635 million, from a loss ofRUB187 million in the six months ended 30 June 2009 to a profit of RUB448 million in the six monthsended 30 June 2010. This change was primarily due to the factors discussed above.

JSC ‘‘MOSTOSTROY-11’’

In the first six months of 2010, Mostotrest acquired a 25.002 percent equity interest in JSC‘‘Mostostroy-11’’ (MS-11) for approximately RUB1,575 million. The management of MS-11 beneficiallycontrols in excess of 50 percent of its shares. The shares of MS-11 are admitted to trading on the RTSunder the symbol ‘‘MSTS’’.

MS-11 is a transport infrastructure construction company based in Surgut, in the Siberian Federal District,that specialises in the construction of highway and railway bridges, traffic interchanges, as well as in civiland industrial building construction. It currently operates through eight branches located in the Siberianand the Southern Federal Districts. In 2009, it constructed more than 30 infrastructure projects. Over itshistory, which dates back to 1975, MS-11 (and its Soviet-era predecessor) has built more than 3,000 bridgesin the challenging climate and weather conditions of Siberia and the northern parts of Russia. MS-11 hastypically performed its major construction projects as the general contactor.

MS-11 has constructed a number of landmark infrastructure projects. In particular, MS-11 constructed thecable-stayed highway bridge over the Ob river near Surgut. Completed in 2000, this bridge is 2,110 metreslong and has one tower with a central span of 408 metres and a left bank span of 556 metres. Constructed

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Business and Financial Condition of Recent Acquisitions

in extremely harsh climate conditions, this bridge is a unique engineering structure in the world due to theratio of the bridge span width (15.2 metres) to the main span length. MS-11 also constructed the bridgeover the Irtysh river on the highway between Khanty-Mansyisk and Nyagan. Completed in 2004, this bridgeis located at the convergence of the Ob and Irtysh rivers, the two major shipping routes in western Siberia.Constructed in harsh conditions, including high vessel traffic density and drops between seasonal waterlevels, this bridge has a continuous steel span structure unique in Russia. In both cases, MS-11 acted as ageneral contractor.

Traditionally, MS-11 has focused on transport infrastructure construction. However, in recent years it hassought to diversify its operations and has worked on industrial and civil construction projects, as well asselling construction products and services. Currently, MS-11 is involved in a range of construction projects.Most notably, these include two projects relating to the 2014 Olympic Games in Sochi, and several bridgesand overpasses for the M-4 ‘‘Don’’ highway.

MS-11 has a strong transport infrastructure construction market position in the geographic areas in whichit operates, particularly in the Tyumen region in the Siberian Federal District where it has a significantshare of transport infrastructure construction, having specialist bridge and highway construction expertiseto operate in extreme climate conditions, using methods such as rapid-flow construction and otherspecialised techniques.

Mostotrest has acquired its equity interest in MS-11 to increase its geographic presence. Mostotrest plansto bid in tenders together with MS-11 for projects in areas where Mostotrest would not previously havebeen able to operate. See also ‘‘Business—Key strengths—Well-positioned to win and deliver large, complexprojects on time and profitably’’.

152

MANAGEMENT AND CORPORATE GOVERNANCE

OVERVIEW

The Company’s current charter was approved by its general shareholders’ meeting on 29 June 2007 andwas duly registered with the Unified State Register of Legal Entities of the FTS on 26 July 2007. As at thedate of this offering circular, the Company’s authorised governing bodies have approved five sets ofamendments to the Company’s current charter with the latest set passed by the Company’s board ofdirectors on 4 August 2010 and duly registered with the Unified State Register of Legal Entities on7 October 2010. The Company’s principal management bodies are the general shareholders’ meeting (theGeneral Shareholders’ Meeting), the board of directors (the Board of Directors) and the general director (theGeneral Director).

The Company’s ultimate decision making body is the General Shareholders’ Meeting. It is followed by theBoard of Directors, which is responsible for the general management of the Company, includingcoordinating its strategy and determining its business priorities. The General Director is responsible forthe Company’s day-to-day operations. A brief description of each of the General Shareholders’ Meeting,the Board of Directors and the General Director is set out below.

GENERAL SHAREHOLDERS’ MEETING

The General Shareholders’ Meeting is the Company’s supreme governing body. General Shareholders’Meetings are convened by the Board of Directors at least once a year. For more details, see ‘‘Description ofShare Capital and Applicable Russian Law—General Shareholders’ Meeting’’.

BOARD OF DIRECTORS

The Board of Directors currently consists of eleven members, as listed below. All members were elected bythe General Shareholders’ Meeting on 4 October 2010 and their terms will expire on the date of the nextannual General Shareholders’ Meeting. The business address of each of the Company’s directors isMyasnitskaya street, 24/7 building 3, 101990, Moscow, Russia.

Year of YearName Birth Position Appointed

Mikhail Abyzov . . . . . . . . . . 1972 Chairman of the Board of Directors 2007Denis Demidov . . . . . . . . . . 1973 Member of the Board of Directors 2009Georgiy Koryashkin . . . . . . . 1969 Member of the Board of Directors 2007Danil Nikitin . . . . . . . . . . . . 1972 Member of the Board of Directors 2009Boris Ryabov . . . . . . . . . . . . 1980 Member of the Board of Directors 2010Andrey Sharonov . . . . . . . . . 1964 Independent, non-executive member of the Board of 2010

DirectorsSergei Shevchuk . . . . . . . . . 1966 Member of the Board of Directors 2010Nikolai Stepanov . . . . . . . . . 1974 Member of the Board of Directors 2010Elena Sukhorukova . . . . . . . 1964 Member of the Board of Directors 2008Oleg Toni . . . . . . . . . . . . . . 1964 Member of the Board of Directors 2008Maria Zhurba . . . . . . . . . . . 1979 Deputy chairman of the Board of Directors 2008

Mikhail Abyzov—Chairman of the Board of Directors

Mr. Abyzov has been the chairman of the Board of Directors since June 2007. Mr. Abyzov graduated fromMoscow State University in 1995 and holds a degree in mathematics. Mr. Abyzov has more than 10 yearsof managerial experience, including more than five years as a director of companies operating in the fueland energy sector. Prior to joining the Group, he worked as the general director of ZAO UKKuzbassrazrezugol and held several managerial positions in OAO RAO UES. Mr. Abyzov is also currentlythe chairman of the board of directors of OAO Bureyagesstroy, OAO Gruppa E4 and OOO RU-COM.

Denis Demidov—Member of the Board of Directors

Mr. Demidov has been a member of the Board of Directors since June 2009. Mr. Demidov graduated fromthe Finance Academy of the Government of the Russian Federation in 1995 and holds a degree in finance.Mr. Demidov is currently a Deputy Executive Director of NPF Blagosostoyanie. He is also currently amember of the board of directors of OOO TransFin-M, ZAO Voenno-Memorialnaya Kompaniya, ZAO

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YK RVM Kapital, ZAO TransKlassService, AIFN Meridian, TKB Capital (CJSC) and ZAOZheldoripoteka, the deputy chairman of the board of directors of OAO ZHASO, OAO Kit and FinansInvesticionniy Bank, and the chairman of the board of directors of ZAO Natsionalnyj Kapital and OAOKalugaputmash.

Georgiy Koryashkin—Member of the Board of Directors

Mr. Koryashkin has been a member of the Board of Directors since June 2007. Mr. Koryashkin graduatedfrom the Ordzhonikidze Moscow Management Institute in 1995 and holds a degree in economics andproduction management. Prior to joining the Group, he worked as First Deputy Head of the PropertyManagement and Organisation Structures Department of OAO Russian Railways and as a member of theboard of directors of OOO Nevskaya Koncessionnaya Kompaniya. He is also currently the general directorof OAO NPV Engineering and a member of the board of directors of OAO NPV Engineering, OAOSouzgiprozem, OOO North-West Concession Company, OAO Novorossijskii Morskoy Torgovii Port, OAOMoskovskii Zavod Kristall, OAO Svyazdorinvest and OOO Stroygazmontazh.

Danil Nikitin—Member of the Board of Directors

Mr. Nikitin has been a member of the Board of Directors since June 2009. Mr. Nikitin graduated from theFinance Academy of the Government of the Russian Federation in 1995 and holds a degree in economics.Prior to joining the Group, Mr. Nikitin held various managerial positions in OAO RAO UES, ZAO UKKuzbassrazrezugol and OOO RU-COM and was a member of the board of directors of OAO UKKuzbassrazrezugol and the deputy chairman of the board of directors of OAO Novosibirskenergo.Mr. Nikitin is also currently the deputy chairman of the board of directors and the general director ofOAO Gruppa E4, the chairman of the board of directors of OAO Dalmosstroy, and the deputy chairmanof the board of directors of OAO Bureyagesstroy and OOO E4-Magistral.

Boris Ryabov—Member of the Board of Directors

Mr. Ryabov has been a member of the Board of Directors since October 2010. Mr. Ryabov graduated fromthe Finance Academy of the Russian Government in 2001 and holds a degree in economics. He also holdsa PhD in economics. Prior to joining the Group, Mr. Ryabov worked as the head of management at ZAONerl and director for development and technology in ZAO UK Aptechnaya Set 36,6. He is also currentlythe chairman of the board of directors of ZAO Novosibirskenergosnabkomplektoborudovanie and amember of the board of directors of ZAO Ingomaks Regiony, OAO E4-Sibenergostroy, OOO RazrezYuzhny and OOO Razrez Ilyinsky and the deputy general director for strategy and development atOOO RU-COM.

Andrey Sharonov—Independent, non-executive member of the Board of Directors

Mr. Sharonov has been an independent, non-executive member of the Board of Directors since October2010. Mr. Sharonov graduated from the Ufa Aviation University in 1986 and holds a degree in aviationinstrument engineering. Prior to joining the Group, Mr. Sharonov worked as the Russian Deputy Ministerof Economic Development and Trade (formerly, the Russian Economics Ministry) between 1997 and 2007.Mr. Sharonov is also currently a member of the board of directors in OAO Mezhdunarodnyi AeroportSheremetievo, Russian Railways and OAO Rosagrolising and the executive director of CJSC InvestmentCompany ‘‘Troika Dialog’’.

Sergei Shevchuk—Member of the Board of Directors

Mr. Shevchuk has been a member of the Board of Directors since June 2010. Mr. Shevchuk graduatedfrom the Moscow Physics and Technology Institute in 1989. Prior to joining the Group, he was the deputygeneral director of ZAO Tsentr Fondovykh Operatsii Tantiema. He is also currently the president of ZAOFondovyi Tsentr Infina.

Nikolai Stepanov—Member of the Board of Directors

Mr. Stepanov has been a member of the Board of Directors since June 2010. He graduated from theIrkutsk State Academy of Economy in 1996 and holds a degree in regional management. He also received

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a degree in foreign trade management from the All-Russian Academy of Foreign Trade in 1998. Prior tojoining the Group, he worked in various managerial positions in OAO RKS and OOO RU-COM. He isalso currently the chairman of the board of Directors of OOO Byiskenergo, the general director of OOORU-COM and the Chairman of the board of directors of OAO Novosibirskenergo, OOO KoPitania, OAONPO ELSIB and OOO Razrez Ilyinskyi.

Elena Sukhorukova—Member of the Board of Directors

Ms. Sukhorukova has been a member of the Board of Directors since June 2008. Ms. Sukhorukovagraduated from the Moscow Aviation Institute in 1987 and qualified as an electrical engineer. She alsoreceived a banking and insurance economics degree from the Finance Academy of the Government of theRussian Federation in 2004 and a psychology degree from the St. Petersburg Academy of PostgraduatePedagogical Education in 2004. She is currently the executive director and a member of the board ofdirectors of NPF Blagosostoyanie, the chairman of the board of directors of OOO TransFin-M, ZAORusskaya Troika and ZAO TransKlassServis, and a member of the board of directors of Non-CommercialOrganisation Blagotvorutelnyi Fond Pochet, ZAO Spestializirovannyi Pensionnyi Administrator, ZAOVoenno-Memorialnaya Kompaniya, OAO TransCreditBank and ZAO RailTransAvto.

Oleg Toni—Member of the Board of Directors

Mr. Toni has been a member of the Board of Directors since June 2008. Mr. Toni graduated from theVoronezh Civil Engineering Institute in 1986 and holds a degree in civil and industrial construction. Healso obtained a degree in state and municipal management from the North-West Academy of the CivilService in 2003. He is currently a vice-president and a member of the executive board of Russian Railways,the chairman of the board of directors of ZAO KB Millenium Bank and the general director of OAORZDStroy.

Maria Zhurba—Member of the Board of Directors

Ms. Zhurba has been a member of the Board of Directors since June 2008. Ms. Zhurba graduated from theSt. Petersburg State Economic and Finance University in 2001 and holds a degree in economics. She alsoreceived a degree in financial management from the High Commercial Management School in 2006 and adegree in strategic management from the Peoples Friendship University of Russia in 2007. Prior to joiningthe Group, she was a finance director of ZAO GK Russkyi Svinets and a member of the board of directorsof OOO SGM, OAO Volgogradneftemash and OAO LenGasSpetsStroy. She is also currently the head ofthe finance department of OAO NPV Engineering and a member of the board of directors of JSC‘‘Mostostroy-11’’, OAO Souzdorproekt and ZAO Chelyabinskii Zavod Metallokonstruktsyi.

On 28 October 2010, the Board of Directors decided to convene a General Shareholders’ Meeting, to beheld in January 2011. Prior to that General Shareholders’ Meeting, the Board of Directors will nominatecandidates for its membership, upon which shareholders at that meeting will vote. The Company and theSelling Shareholder expect that the current membership of the Board of Directors will change, including asa result of the recent changes in the beneficial ownership of the Selling Shareholder. See note (4) under‘‘Principal and Selling Shareholders’’. In addition, Mr. Andrey Sharonov is expected to be nominated forre-election as an independent, non-executive member of the Board of Directors. Further, the SellingShareholder intends to nominate Mr. Mikhail Noskov (among others) for membership of the Board ofDirectors. If elected, Mr. Noskov would become an independent, non-executive member of the Board ofDirectors. Mr. Noskov was born in 1963. He graduated from the Moscow Finance Institute in 1986 andholds a degree in economics. In the past, Mr. Noskov worked as the deputy general director for economicsand finance at ZAO Severstal-group and OAO Severstal. He is currently working as the deputy generaldirector for economics and finance at ZAO Severgroup.

The Company’s charter provides that the Board of Directors must consist of eleven members. The Boardof Directors is normally elected at the annual General Shareholders’ Meeting through cumulative voting,unless the appointment of the previous board was terminated and a new board was appointed at anextraordinary General Shareholders’ Meeting. Under cumulative voting, each shareholder may cast anaggregate number of votes equal to the number of shares held by that shareholder, multiplied by thenumber of members of the Board of Directors, and the shareholder may cast its votes in favour of one or

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more candidates. Before the expiration of their term, the members of the Board of Directors may beremoved at any time by a majority vote at the General Shareholders’ Meetings.

The Board of Directors is responsible for the general management of the Company. The Board ofDirectors has the authority to decide, among other things, the following:

• the Company’s business priorities;

• the convening of annual and extraordinary General Shareholders’ Meetings, except in circumstancesset out in the Joint Stock Companies Law and the Company’s charter;

• the placement of the Company’s bonds and other securities, as provided for by the Joint StockCompanies Law; and

• other issues, as provided for by the Joint Stock Companies Law and the Company’s charter.

For more details, see ‘‘Description of Share Capital and Applicable Russian Law—Board of Directors’’.

SENIOR MANAGEMENT

The following table sets out the name, year of birth, position and year of appointment of selected keymembers of the Group’s senior managers (the Senior Managers).

Year of YearName Birth Position with the Company, unless otherwise stated Appointed

Vladimir Vlasov . . . . . . . . . 1970 General Director 2006Oleg Tanana . . . . . . . . . . . . 1966 Deputy General Director for Economics and Finance 2006Maxim Bakshinsky . . . . . . . 1963 Deputy General Director for Development 2006Leonid Dobrovsky . . . . . . . 1965 Deputy General Director 2006Valery Dorgan . . . . . . . . . . 1952 Deputy General Director for Marketing 2010Andrey Egorov . . . . . . . . . . 1962 First Deputy General Director 2009Victor Korotin . . . . . . . . . . 1937 Chief Engineer 1990Alexander Ostrovsky . . . . . . 1951 Director for Production 2007Boris Sakun . . . . . . . . . . . . 1964 General Director of TSM 2010

Vladimir Vlasov—General Director

Mr. Vlasov has been the General Director since September 2006. He has graduated from the RussianAcademy of the National Economy and holds a Master of Business Administration. Mr. Vlasov has morethan 15 years of managerial experience, including more than four years in the infrastructure developmentindustry. In the past, Mr. Vlasov has also served as a member of the Board of Directors. Prior to joiningthe Group, he worked as Director for Commerce in OOO Neva-MetallTrade.

Oleg Tanana—Deputy General Director for Economics and Finance

Mr. Tanana has been the Deputy General Director for Economics and Finance since 2006. He graduatedfrom the Belarusian State Institute of the National Economy in 1991 and holds a degree in economics andsocial planning. Mr. Tanana also completed a finance and economics course at the Russian Academy of theNational Economy in 2004. Prior to joining the Group, he served as the Director for Economics andFinance at OAO Kolomenskyi Zavod and ZAO Balans-Oil. In the past, Mr. Tanana has also served as amember of the Board of Directors.

Maxim Bakshinsky—Deputy General Director for Development

Mr. Bakshinsky has been the Deputy General Director for Development since 2006. He graduated fromthe Moscow Technological Institute for the Food Industry in 1985. Prior to joining the Group, he heldmanagerial positions at OAO Uralkaliy, where he also served as a member of the board of directors. In thepast, Mr. Bakshinsky has also served as a member of the Board of Directors.

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Leonid Dobrovsky—Deputy General Director

Mr. Dobrovsky has been the Deputy General Director since 2006. He graduated from the Moscow Physicsand Technology Institute in 1988 and holds a degree in fluid mechanics. Prior to joining the Group, he heldmanagerial positions in OOO Mostal, OOO Montazhtransstroy-MTK and ZAO Intertransstroy. In thepast, Mr. Dobrovsky has also served as a member of the Board of Directors.

Valery Dorgan—Deputy General Director for Marketing

Mr. Dorgan has been the Deputy General Director for Marketing since April 2010. He graduated from theMoscow State Automobile and Highway Institute in 1978 and holds a degree in airfield construction. Healso received a degree in construction management from the Ordzhonikidze Moscow ManagementInstitute in 1987 and holds a PhD in economics. Mr. Dorgan has over 35 years of experience in thetransport infrastructure construction. Prior to joining the Group, he held various managerial positions inthe federal state enterprises responsible for the development of highway infrastructure in central Russia.

Andrey Egorov—First Deputy General Director

Mr. Egorov has been the First Deputy General Director since 2009. He graduated from the MoscowInstitute of Railway Engineers in 1985 and from the State University of Management in 2003 and holds adegree in financial management. Prior to joining the Group, he worked at Spetsmostotrest, a branch ofOAO RZDStroy for more than 20 years, including four years as a director.

Victor Korotin—Chief Engineer

Mr. Korotin joined Mostotrest in 1970 and has held various managerial positions, including the head of theplanning office and chief technologist. He has been Mostotrest’s Chief Engineer since 1990. He graduatedfrom the Novosibirsk University for Railway Transport Engineers in 1965. He is the Group’s most seniortechnical officer and has more than 40 years of experience in the Russian engineering and constructionindustry.

Alexander Ostrovsky—Director for Production

Mr. Ostrovsky joined Mostotrest in 1973 and has held various managerial positions, including the head ofthe production and technical department and deputy chief engineer of one of Mostotrest’s branches. Hehas been the Director for Production since 2007. He graduated from the Moscow Institute of Engineeringand Construction in 1973 and holds a degree in water facilities construction. Mr. Ostrovsky has more than30 years of experience in the bridge construction industry, including more than 20 years in managerialpositions.

Boris Sakun—General Director of TSM

Mr. Sakun has been the General Director of TSM since September 2010. He graduated from the MoscowInstitute of Railway Engineers in 1986 and holds a degree in railway construction. He also holds a PhD intechnology. Prior to joining TSM, he held various managerial positions in OAO GMK Norilsk Nickel,ZAO Transmonolit and ZAO Engineering Company Transstroy. He is also currently the First DeputyGeneral Director of ETS, a role he has held since 2007.

INTERESTS OF DIRECTORS AND SENIOR MANAGERS

There are no current or potential conflicts between the private interests and duties of the members of theBoard of Directors or the Senior Managers and the duties of those officers to the Company.

LITIGATION STATEMENT ABOUT MEMBERS OF THE BOARD OF DIRECTORS AND THE SENIOR MANAGERS

At the date of this offering circular, none of the members of the Board of Directors or the SeniorManagers has in the previous five years:

• had any convictions for fraudulent offences;

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• held an executive function as a senior manager or a member of the administrative, management orsupervisory bodies, of any company at the time of or preceding any bankruptcy, receivership orliquidation; or

• been subject to official public incrimination or sanction by a statutory or regulatory authority(including a professional body) nor has ever been disqualified by a court from acting as a member ofthe administrative, management or supervisory bodies of a company or from acting in themanagement or conduct of the affairs of a company.

GENERAL DIRECTOR

Under the Joint Stock Companies Law and the Company’s charter, the Company’s day-to-day activities,except for the matters reserved for the General Shareholders’ Meeting and the Board of Directors, aremanaged by the General Director, currently Mr. Vladimir Vlasov. Under Russian law, the GeneralDirector acts on behalf of the Company without a power of attorney, representing its interests, enteringinto transactions and otherwise dealing with operational matters. See also ‘‘Description of Share Capital andApplicable Russian Law—General Director’’.

REVISION COMMISSION

The Company’s revision commission supervises the Company’s financial and operational activities andverifies the accuracy of the Company’s financial reporting and accounting under Russian law. TheCompany’s revision commission currently consists of four members who are elected by the GeneralShareholders’ Meeting for a period ending on the date of the following annual General Shareholders’Meeting. Currently, the members of the revision commission are Mr. Alexander Denisevich, Ms. TatianaProstokishina, Ms. Ekaterina Perelygina and Mr. Sergei Samsonov.

INTERNAL CONTROL

As required by corporate governance standards applicable to companies with shares included on the ‘‘B’’list of the RTS, on 4 October 2010, the General Shareholders’ Meeting approved a regulation on internalbusiness and financial control. The principal aims of this regulation are to ensure that the Company’saccounts and reports are correct and do not contain any misstatements, and that the Company complieswith applicable legislation and internal regulations. The regulation on internal business and financialcontrol contemplates the creation of an audit committee and an internal control service. The internalcontrol service supervises performance of the internal control procedures, while the audit committee isresponsible for the overall assessment of the Company’s internal control. The audit committee consists ofMr. Andrey Sharonov, Mr. Denis Demidov and Ms. Maria Zhurba and is chaired by Mr. Andrey Sharonov.

CORPORATE GOVERNANCE

As a Russian public company, the Company’s primary corporate governance obligations arise from thelisting of its Ordinary Shares on the ‘‘B’’ list of the RTS, starting from 2 June 2010. In particular, thefollowing apply to the Company:

• the Board of Directors must include at least one director who is independent, as described below;

• the Company must maintain an audit committee;

• the Company must have adopted regulations on insider information, aimed at limiting insider tradingand protecting commercially sensitive information; and

• the Company must have regulation governing the activities of its management bodies.

In accordance with the requirements applicable to companies with shares listed on the ‘‘B’’ list of the RTS,the Chairman of the Board of Directors should not also serve as the General Director and at least onemember of the Board of Directors should be independent, meeting the following requirements:

• he/she should not be an officer or employee of the Company nor should he/she have been an officeror employee during the last one year;

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• he/she should not be an officer of another company if an officer of that company is a member of thenomination and remuneration committee of the Board of Directors;

• he/she should not be a spouse, parent, child, brother or sister of an officer of the Company;

• he/she should not be an affiliate of the Company (other than from being a member of the Board ofDirectors);

• he/she should not be a party to transactions with the Company where he/she is entitled to acquireproperty with a value of 10 percent or more of his/her total annual income, excluding compensationfor being a member of the Board of Directors; and

• he/she should not be a representative of the State.

COMPENSATION

The aggregate amount of compensation paid by the Company to the members of the Board of Directorswas approximately RUB3.4 million in 2008, approximately RUB8.2 million in 2009 and approximatelyRUB37.6 million in the six months ended 30 June 2010 (in each case including salary and other cashcompensation paid during the relevant periods).

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REGULATION OF INFRASTRUCTURE CONSTRUCTION IN RUSSIA

Set out below is a summary of material provisions concerning the Russian regulation of the Group’s business.This description does not purport to be a complete description of all applicable laws and regulations and isqualified in its entirety by reference to applicable Russian law.

OVERVIEW OF APPLICABLE LEGISLATION

Federal legislation

Infrastructure construction in Russia is primarily regulated by the following federal laws and regulations:

• the Civil Code of the Russian Federation (Part 1 adopted by Federal Law No. 51-FZ dated30 November 1994; Part 2 adopted by Federal Law No. 14-FZ dated 26 January 1996; Part 3 adoptedby Federal Law No. 146-FZ dated 26 November 2001; and Part 4 adopted by Federal Law N 230-FZdated 18 December 2006), as amended (the Civil Code);

• the Town-Planning Code of the Russian Federation No. 190-FZ dated 29 December 2004, asamended, together with Federal Law No. 191-FZ ‘‘On the Enactment of the Town-Planning Code ofthe Russian Federation’’ dated 29 December 2004, as amended (the Town-Planning Code);

• the Land Code of the Russian Federation No. 136-FZ dated 25 October 2001, as amended, togetherwith Federal Law No. 137-FZ ‘‘On the Enactment of the Land Code of Russia’’ dated 25 October2001, as amended (the Land Code);

• Federal Law No. 122-FZ ‘‘On State Registration of Rights to Real Property and TransactionsTherewith’’ dated 21 July 1997, as amended (the Real Property State Registration Law);

• Federal Law No. 172-FZ ‘‘On the Transfer of Land or Land Plots from One Category to Another’’dated 21 December 2004, as amended (the Federal Law On Reclassification of Land);

• Federal Law No. 94-FZ ‘‘On Placement of Orders for Supply of Products, Performance of Works andRendering Services for State and Municipal Demands’’ (the State and Municipal Orders Law) dated21 July 2005, as amended;

• Federal Law No. 257-FZ ‘‘On Highways and Road Activities in the Russian Federation and onAmendments to Certain Legislative Acts of the Russian Federation’’ dated 8 November 2007, asamended;

• Federal Law No. 145-FZ ‘‘On State Company ‘‘Russian Highways’’ and on Amendments to CertainLegislative Acts of the Russian Federation’’ dated 17 July 2009, as amended;

• Federal Law No. 17-FZ ‘‘On Railway Transport in the Russian Federation’’ dated 10 January 2003, asamended;

• Federal Law No. 29-FZ ‘‘On Peculiarities of Management and Disposal of Railway TransportProperty’’ dated 27 February 2003, as amended;

• Government Regulation No. 585 ‘‘On Incorporation of Open Joint-Stock Company ‘‘RussianRailways’’‘‘ dated 18 September 2003, as amended; and

• Government Regulation No. 145 ‘‘On Procedure for Arranging and Conduct of State Appraisal ofProject Documentation and Results of Engineering Surveys’’ dated 5 March 2007, as amended.

Additionally, certain provisions of the Russian Water Code No. 74-FZ dated 3 June 2006, as amended, theRussian Air Code No. 60-FZ dated 21 February 1992, as amended, the Russian Forest Code No. 200-FZdated 4 December 2006, as amended, Federal Law No. 261-FZ ‘‘On Sea Ports and on Amendments toCertain Legislative Acts of the Russian Federation’’ dated 8 November 2007, as amended, as well asRussian legislation on the safety of dangerous industrial facilities, protection of the population andterritories from man-made and natural accidents, the sanitary and epidemiological welfare of thepopulation, specially protected natural areas, the protection of cultural heritage sites, environmentalprotection, security of hydraulic structures, various technical regulations and other Russian rules andregulations may be applicable and must be complied with in the course of construction of certain types ofinfrastructure construction.

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Regulation of construction in Sochi

The Federal Law No. 310-FZ dated 1 December 2007 ‘‘On the Organisation and Holding of the XXIIWinter Olympic Games and the XI Winter Paralympic Games of 2014 in the city of Sochi, Development ofthe city of Sochi as a Mountain Climate Resort and Amending Certain Legislative Acts of the RussianFederation’’ (as amended) (the Law on the 2014 Olympic Games) sets out a legal framework to createseveral special entities responsible for the organisation of the 2014 Olympic Games. These entities includethe State Corporation on Construction of Olympic Venues and Development of the City of Sochi as aMountain Climatic Resort (Olympstroy).

Olympstroy is responsible for the construction of projects for the 2014 Winter Olympic Games, includingfor the selection of investors and general contractors and for the monitoring of the construction process.Olympstroy’s activities are regulated by of the Federal Law No. 238-FZ dated October 2007 ‘‘On the StateCorporation on Construction of Olympic Venues and Development of Sochi as a Mountain ClimateResort’’.

The Law on the 2014 Olympic Games also deals with numerous administrative matters related to the 2014Olympic Games and delegates to the Russian Government authority to establish a developmentprogramme for the city of Sochi (the Programme).

The Programme, which was approved by the Russian Government in resolution No. 991 dated29 December 2007, sets out the infrastructure to be constructed for the 2014 Olympic Games and identifiesthe entities responsible for specific projects. The Programme contemplates, among other things, theconstruction of the combined highway and railway between Adler and the Alpika-servis mountain resort,the traffic interchange on the M-27 highway between Dzhubga and Sochi and the secondary road alongKurortnyi avenue.

The Law on the 2014 Olympic Games simplifies certain formalities associated with infrastructureconstruction as compared to the general regulation of infrastructure construction in Russia. In particular, itallows construction of facilities such as highways and railways on agricultural land without a formal changeof the designated purpose of that land and simplifies the procedure to receive building permissions.

Regional and local legislation

Russian regional and local authorities are also entitled to regulate certain matters relating to infrastructureconstruction within their respective regions and areas. Although in principle, regional and local lawsshould not contradict federal legislation, in practice some aspects of Russian regional and local legislationmay contradict federal laws. See ‘‘Risk Factors—Risks relating to Russia—Legislative and legal risks—Weaknesses relating to the Russian legal system and Russian laws create an uncertain environment forinvestment and business activity in Russia’’. Selected regional legislation for the principal areas in which theGroup operates are set out below.

In the City of Moscow, infrastructure construction is governed principally by the Law of the City ofMoscow No. 28 ‘‘The Town-Planning Code of the City of Moscow’’ dated 25 June 2008 and the Law of theCity of Moscow No. 48 ‘‘On Land Use in the City of Moscow’’ dated 19 December 2007, as amended.

In St. Petersburg and the Leningradski region, infrastructure construction is governed principally by theLaw of St. Petersburg No. 29-10 ‘‘On the Rules of Land Use and Development in St. Petersburg’’ dated16 February 2009 and the Regional Law of Leningradskaya Oblast No. 28-oz ‘‘On Highways ofLeningradskaya Oblast’’ dated 5 August 1997, as amended.

In the Krasnodarski krai, infrastructure construction is governed principally by the Law of Krasnodarskikrai No. 1540-KZ ‘‘Town-Planning Code of Krasnodarski Krai’’ dated 21 July 2008, as amended, the Lawof Krasnodarski krai No. 532-KZ ‘‘On Basic Principles Governing Land Relations’’ dated 5 November2002, as amended, and the Law of Krasnodarski krai No. 369-KZ ‘‘On Highways Situated in KrasnodarskiKrai’’ dated 7 June 2001, as amended.

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INFRASTRUCTURE CONSTRUCTION PROCESS

Overview

Infrastructure construction in Russia is a complex multi-stage process, which involves compliance withmany regulatory requirements, and obtaining authorisations from a number of authorities at the federal,regional and local levels. As a general comment, many aspects of Russian construction laws andregulations are inconsistent and in some cases, relevant authorities have high levels of discretion whendealing with matters such as construction and related authorisations and approvals. The followingdescription sets out matters as specified in applicable laws. See also ‘‘Risk Factors—Risks relating to theGroup and its industry—The Group must obtain licences, permits and other approvals and comply withapplicable laws, regulations and technical standards to construct its projects’’.

Infrastructure construction in Russia is primarily governed by the Town-Planning Code, Civil Code, LandCode, and other federal laws and regulations, including those applicable to particular types ofinfrastructure. In addition, infrastructure construction may be subject to regional and local regulation.Under Russian federal law, the basic approvals required for infrastructure construction projects are(i) approval of land-use and town-planning documentation, including functional zoning for certain areas ofsettlement land, (ii) approval of project documentation, and (iii) issuance of a construction permit. Thecontractor may perform construction works only once the project documentation has been approved and aconstruction permit has been issued. In addition to these basic approvals, a customer must obtain rights tothe land and make the land plot available to a contractor to begin construction. The contractor must carryout infrastructure construction works in compliance with the construction contract, the projectdocumentation, the local town-planning site plan and numerous technical regulations, construction rulesand standards, including environmental and safety regulations.

Licensing and certification

Under Federal Law No. 128-FZ ‘‘On Licensing of Certain Activities’’ dated 8 August 2001, as amended,activities relating to construction in Russia, including infrastructure construction, are no longer subject tolicensing with effect from 1 January 2010. Instead, the Town-Planning Code requires that to carry outconstruction activities affecting safety of capital construction projects, a contractor must be a member of anon-profit self-governing organisation and obtain certification from that organisation to perform particulartypes of works. Mostotrest has been a member of Non-Commercial Partnership Interregional Associationof Road Builders ‘‘Souzdorstroy’’ since 5 March 2009, and obtained certification on 8 October 2009. Underthe Town-Planning Code and applicable regulations, any structural engineering and construction ofhighways, bridges and railroads affect the safety of capital construction projects and thus can be carried outonly upon obtainment of the relevant certification. Certificates of allowance are obtained by eachconstructor for certain types of construction activities, but not for particular construction projects.

In addition, any construction activity on a particular construction project may only be performed under aconstruction permit issued by the competent governmental bodies pursuant to agreed and approvedproject documentation. See ‘‘—Stages of Infrastructure Construction—Construction permit’’.

Stages of infrastructure construction

The main stages of the infrastructure construction process typically include the following:

• performing engineering surveys;

• preparing project documentation;

• conducting state appraisal of project documentation;

• obtaining the land rights;

• obtaining a construction permit;

• entering into a construction contract or a sub-construction contract;

• performing construction works;

• executing transfer and acceptance acts;

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• obtaining an operational permit to use the infrastructure; and

• registration of title to the infrastructure.

Some of the key stages are described in more detail below.

Project documentation

The project documentation must comply with rules and regulations as to its content. It may be prepared byeither the customer or the contractor, as set out in the construction contract. If prepared by the contractor,the customer is required to provide the contractor with the town-planning site plan, the results ofengineering surveys and the technical specifications. The project documentation is subject to a Stateappraisal and is then approved by the customer. A State appraisal is a long and complicated process aimedat checking the project documentation for compliance with ecological, technical, safety, sanitary and otherrelevant requirements associated with the protection of public interests. The appraisal is typically initiatedby a contractor. Although, by law, the relevant authorities should complete the appraisal process withinthree months, in practice, this process typically takes longer. Additional approvals and appraisal may berequired to approve the project documentation and subsequently obtain a construction permit for specifictypes of infrastructure.

Land rights

The customer must have the land rights and make the relevant land plot available to the contractor tobegin construction. The land rights that the customer may have will vary depending on the type of theinfrastructure and the identity of the customer. For a general overview of rights to real property in Russia,see ‘‘—Overview of real estate Regulation in Russia—Rights to real property’’.

Land in Russia is divided into the following specific categories depending on the designated purpose of theland: (i) agricultural land; (ii) settlement land; (iii) industrial land; (iv) protected land; (v) forestry land;(vi) water front land; and (vii) reserve land. The Land Code requires that each category of land be used inaccordance with its designated purpose. Normally, to construct infrastructure, the relevant land plots needto be designated as settlement land or industrial land. Industrial land includes the land plots used ordesignated for the purposes of automobile, water, rail, air and other transport infrastructure. The mainprocedures for changing the designated purpose of land are set forth in the Land Code and the FederalLaw On Reclassification of Land.

Special rules may apply to construction of certain types of infrastructure on different categories of land, forexample, forested land.

The designated purpose of land plots is established by ‘‘types of permitted use’’ that reflect the applicableterritorial zoning of the relevant area. Land plots of one category could have different types of permitteduse assigned to each land plot. Any use of a land plot must comply not only with its category but also itstype of permitted use. As a result, to start construction on a land plot, the customer must ensure that theland plot underlying has an appropriate permitted use.

Land within each particular category is also subject to specific requirements established by federal,regional and local laws regarding the use of such land. For example, settlement land is subject to specifictown-planning zoning, including residential, administrative and business, industrial, engineering andtransport infrastructure, recreational, agricultural, special purpose, military and other zones.

Construction permit

Construction on a land plot may only be carried out after obtaining a construction permit. Theconstruction permit is a final construction approval which entitles the constructor to commenceconstruction on the land plot and, therefore, the permit must be obtained by a customer beforeconstruction commences. Failure to obtain a construction permit prior to the commencement ofconstruction may be regarded as a violation of Russian law and may lead to administrative fines anddemolition of the infrastructure installations as unauthorised constructions. The construction permit isissued once the customer has obtained all the required approvals for the project documentation and therelevant land rights. The construction permit is issued for the term specified in the project documentationand may be extended upon application.

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Construction and sub-construction contracts

Set out below is a brief summary of some of the key provisions of the Civil Code related to constructionand sub-construction contracts.

A construction contract between a customer and a contractor sets out the principal terms of the proposedconstruction project or other construction works to be carried out by the contractor. Where the customer isa public authority, the construction contract must be concluded in accordance with Russian publicprocurement rules. See ‘‘—Public procurement’’. Under the Civil Code, the contractor must perform theconstruction works in full compliance with the project documentation, which sets out in detail theconstruction works, and construction budget, which determines the price of the works. In general, thecustomer is entitled to alter project documentation without consent of the contractor, and the contractorwill be obliged to comply with the revised project documentation provided that additional works do notexceed ten percent of the construction project and do not alter the nature of works. Where a constructioncontract is entered into with a public customer following an open tender process, the price of that contractmay only be revised in a limited number of circumstances prescribed by the Russian public procurementlaw. Under the Civil Code, if the project documentation omits certain types of work that are necessary tocomplete the construction project, the contractor must stop all construction works and notify the customer.If the customer approves these additional works and compensates the contractor for them, the contractormust perform these works unless they are outside the scope of the contractor’s professional activities orcannot be performed for reasons beyond the contractor’s control. If the customer fails to approve theseadditional works within ten days following the contactor’s notice (unless the relevant construction contractor the law provides for a different term), the customer will be liable for damages due to the downtimecaused by the discontinuance of the construction works. The contractor is entitled to have the constructionbudget revised (and, if the revised construction budget is not approved by the customer, to unilaterallyterminate the contract) if the construction cost to the contractor exceeds the approved construction budgetby ten percent for reasons beyond the contractor’s control. See also ‘‘Business—Mostotrest operations—Contract process and contract terms—Contract terms—Changes to contracts and claims’’.

Unless a contractor is required by law or the construction contract to perform the construction workspersonally, the contractor may enter into sub-construction contracts. Under the Civil Code, the contractor,thus referred to as the general contractor, is liable to the customer for non-performance or defectiveperformance by the subcontractors and to the subcontractors for non-performance or defectiveperformance by the customer. Subject to the general contractor’s agreement, the customer may enter intocontracts for performance of certain types of works with third parties. Unlike subcontractors, who areliable to the general contractor, third parties who have entered into contracts with the customer, will beliable for any non-performance or defective performance directly to the customer. Under the Civil Code,unless the construction contract stipulates otherwise, the customer may at any time prior to accepting theworks terminate the contract unilaterally if it pays to the contractor the share of the contract priceproportionate to the works completed prior to the receipt of the termination notice. The contractor mayalso bring a claim for damages for an additional amount up to the total contract price.

Under the Civil Code, the contractor bears the risk of accidental loss or destruction of the constructionproject prior to acceptance of the construction project (or any stage of construction) by the customer.However, if the loss or damage of the construction project results from defective materials provided by thecustomer or compliance with the customer’s erroneous instructions, the contractor may claimcompensation for construction works stipulated by the construction budget, provided that it has notifiedthe customer and suspended construction works until further instructions. The construction contract mayrequire a party that bears the risk of accidental loss or destruction to insure against those risks.

Under the Civil Code, the contractor is liable for deviations from project documentation and mandatoryconstruction rules and standards, as well as for failure to meet the characteristics of the constructionproject specified in the project documentation. However, certain minor digressions from the projectdocumentation may be allowed as long as the contractor proves that they do not affect the quality of theconstruction project. Unless otherwise stipulated by the construction contract, the contractor guaranteesthat the construction project may be used and operated in accordance with its purpose during the term ofwarranty stipulated by the construction contract. The contractor bears liability for any defects discoveredduring the term of warranty, unless those defects are proved to be due to normal wear and tear or misuseof the construction project.

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Transfer and acceptance act

Once the contractor has completed the construction project and notified the customer, the latter shouldproceed with the final acceptance of the construction project. The customer may examine the constructionworks and assess any defects. The customer and the contractor then sign a transfer and acceptance act,which formalises the acceptance of the construction project by the customer and lists defects revealed bythat time. Presence of defects of the construction does not generally entitle the customer to refuse to signthe transfer and acceptance act, unless these defects cannot be eliminated by the contractor and theconstruction with the defects cannot be used for its intended purpose. The customer may only generallyclaim for defects that have been specified in the transfer and acceptance act, as well as any latent defectsthat could not have been uncovered during the routine acceptance of a construction project. State andlocal authorities may also take part in the transfer and acceptance of some construction projects.

Operational permit

To begin using the infrastructure, the customer must typically obtain an operational permit from thegovernmental body that issued the construction permit. The operational permit certifies that theconstruction works have been carried out in accordance with the construction permit, the town-planningsite plan and the project documentation. The operational permit is issued after the transfer and acceptanceact has been signed by the customer and the contractor and the infrastructure project has been approvedby the representatives of various authorities, such as construction designers, State appraisal authorities,public health authorities, State fire supervision services, architectural and urban development agencies,environmental management and protection agencies and other State authorities responsible formonitoring construction of some types of infrastructure.

When the operational permit is granted, the customer may proceed with state registration of the rights tothe completed infrastructure.

OVERVIEW OF REAL ESTATE REGULATION IN RUSSIA

Definition of real property

Russian legislation defines real property as land plots, buildings and structures, undeveloped constructions,and everything that is closely connected with land (that is, objects that cannot be moved withoutdisproportionate damage). Highways, bridges, railways and other elements of infrastructure that areclosely connected with land are thus ordinarily regarded as real property in Russia.

Rights to real property

Generally, Russian law recognises the right to possess, to use and to dispose of real estate, such asconstructions, including infrastructure, and underlying land. Russian law makes a distinction between thetitle to constructions, including infrastructure, and the title to underlying land, which are treated asseparate legal interests.

Real estate in Russia may be owned by the State (federal or regional authorities), municipal authorities orprivate persons. For land plots, legal entities may generally have one of the following rights under the LandCode: (i) ownership right; (ii) leasehold right; and (iii) right of perpetual use. Legal entities may also havea right of free use for a fixed term or private easement. Public easements may be imposed and upheld byfederal or local authorities. Federal and regional authorities generally have ownership rights to land.

Rights to the infrastructure depend on its type. For example, highways in Russia, which include structuresthat are engineering parts of roads such as bridges and other road structures, may be owned by the State(federal or regional authorities), municipal authorities or private persons. Public highways of federalsignificance and highways that are not in public use but are of federal significance may only be State-owned.

A number of federally-owned tollways of federal significance or highways that contain paid segments havebeen transferred for trust management to the Russian Highways for a period of ninety nine years. TheRussian Highways is a non-profit organisation established by the State and responsible for thedevelopment and maintenance of Russian public highways. It may act as a customer in respect ofengineering surveys and various construction works to be performed on the public highways under its

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management. It has been granted the lease rights to the land plots underlying the public highways that itmanages and to the related roadsides.

Generally, railway infrastructure in Russia, which includes railway tracks and other constructions, may beowned by legal entities or sole traders. Russian Railways is a natural monopoly, as defined in applicableRussian law, that owns and operates Russia’s integrated passenger and freight railway network and relatedinfrastructure. Certain types of railway infrastructure (such as trunk railways) may only be owned either bythe Russian Government or by Russian Railways. Russian Railways acts as a customer for constructionworks carried out in connection with the railway infrastructure that it owns. Other owners of railwayinfrastructure may carry out construction works with respect to their railway infrastructure at their ownexpense, subject to obtaining the consents and approvals required by law.

The majority of the land on which Russian Railways’ facilities are located was granted to it under a right ofperpetual use prior to the enactment of the Land Code. Under the Land Code, all legal entities, withcertain exceptions, are obliged to convert their right of perpetual use into either ownership or lease by1 January 2012 (and in some cases, including land occupied by railway tracks, by 1 January 2015).

State registration of rights to real property

Since 1998, under Russian law, ownership rights to and most transactions with real property require stateregistration in the Unified State Register of Rights to Immovable Property and Transactions Therewith(the Land Register). The rights and the transactions that are subject to state registration in the LandRegister include, but are not limited to, the following: the right of ownership to newly-built buildings,infrastructure and other constructions that are closely connected with land, the right of ownership to landplots, transfer of title to real property through some sale and purchase transactions, mortgage agreements,real property lease agreements for terms of one year or more, the right of ownership, encumbrances andtransactions with in-land waterway infrastructure. Rights to real property that are subject to registrationlegally arise upon the relevant state registration. Absent state registration transactions with real propertyhave no legal effect and rights to real property are not deemed to be created. Transactions with realproperty rights acquired before the entry into force of the Real Property State Registration Law can validlybe entered into without state registration, however the transfer of rights to this property is subject to stateregistration.

As a general rule, rights to real property and transactions with real property are registered by thedepartment of the registration authority (that is, the Federal Service on State Registration, Cadastre andCartography) in the relevant territory where the property is located. State registration of rights to realproperty that is situated in more than one registration district, including highways and railways, andtransactions with that property is carried out by the federal state registration authority. In respect of therights to and transactions with real property that forms part of a highway (such as bridges) and is situatedin more than one registration district, state registration may be carried out at the election of the applicantby either the federal state registration authority or the registration authority in the territory where thatproperty is located.

Ownership or other rights that were acquired before 1998, before the requirement for state registrationentered into force, are deemed valid without that registration. Therefore, the Land Register is notcomprehensive, as ownership or other rights acquired before 1998 will most likely not be included in theLand Register. At the same time, ownership or other rights acquired before 1998 may be voluntarilyregistered at the discretion of the owner. In addition, these rights will be subject to obligatory stateregistration in some cases; for example, if a transaction with respect to these rights is entered into.

CONCESSION LAW

As part of efforts to attract investments into infrastructure, Russia adopted Federal Law No. 115-FZ ‘‘OnConcession Agreements’’ dated 21 July 2005, as amended (the Concession Law). The Concession Lawbecame the first piece of legislation regulating specifically public private partnerships (PPP) or privatefinance initiative (PFI) projects in Russia. It provides the legal framework for the selection, development,procurement, award and implementation of PPP projects on the basis of a build-operate-transfer scheme.In addition, regional and local laws regulating particular PPP projects may also apply.

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Under the Concession Law, a concessionaire (the private party) and a grantor (the public party) enter intoa concession agreement, under which the concessionaire undertakes to build/reconstruct and operate afacility, the title to which is held by the grantor, while the latter grants to the concessionaire the right ofpossession and use of the facility for the term of the concession. The types of the facilities which may bethe subject of a concession project are expressly provided for in the Concession Law and include, amongothers, transport and infrastructure facilities. The grantor also grants to the concessionaire lease rights tothe relevant land plots and is responsible for the site preparation.

The concession agreement is concluded based on the results of an open or closed tender. See ‘‘—Publicprocurement’’. The detailed tender procedure for concession contracts is set out in the Concession Law.

The concessionaire may perform its obligations under the concession contract either on its own or with thehelp of third parties, but the concessionaire remains ultimately responsible to the grantor for the actionsand omissions of third parties. The concessionaire typically engages contractors to design, construct and/oroperate the facility. The identity of the contractors proposed by the concessionaire is usually taken intoconsideration during the tender process. The concessionaire generally seeks to pass the design,construction and cost overrun risks to the contractor where they are not assumed by the grantor.

Under the Concession Law, the concessionaire bears the risk of accidental loss or destruction of theconcession facility from the time when it is transferred to the concessionaire, unless the concessionagreement stipulates otherwise. The concessionaire is also liable to the grantor for failure to meet anyrequirements stipulated in the concession agreement and project documentation, as well as for anydeviations from mandatory construction rules and standards. The grantor may demand that theconcessionaire remedy that failure at the concessionaire’s own expense within a reasonable time, specifiedby the grantor. If the concessionaire fails to cure the relevant matters within that time or if the relevantmatters are material, the grantor may claim damages.

Unless the concession agreement stipulates otherwise, the concessionaire usually bears the expenses of therelevant construction or reconstruction works, although the grantor may assume part of the costs. Theamount of the costs that the grantor has assumed must be stipulated in the decision on the concessionagreement, the bid documentation and the concession agreement itself. In practice, the grantor typicallyfunds part of the construction costs by way of non-repayable government grants.

The concessionaire is responsible for the quality of the concession facility for a post-completion guaranteeperiod, as specified in the concession agreement or, if not specified, for five years following the transfer ofthe concession facility to the grantor. If the period in the concession agreement is less than five years andthe failure to meet the quality requirements has been discovered after that period but within five years ofthe date of transfer, the concessionaire may be liable to the grantor if the grantor proves that such failureoccurred or originated prior to the date of transfer.

One of the first PPP projects implemented in Russia under the Concession Law is the construction of thefirst section of the M-10 ‘‘Russia’’ highway between Moscow and St. Petersburg from the fifteenth to thefifty-eighth kilometre mark. Mostotrest acts as the general contractor for this project and is responsible forthe design and construction works. See ‘‘Business—Mostotrest operations—Principal projects underconstruction’’. Another example of a project implemented under the Concession Law is the toll roadconnecting the Moscow Ring Road to M-10 ‘‘Russia’’ highway between Moscow and Minsk. Both projectsreached financial close in the second quarter of 2010. Other projects at various stages of the processcurrently include the Orlovsky Tunnel in St. Petersburg and the Central Ring Road in the Moscow Region.

Implementation of PPP and PFI projects may be regulated both by the Concession Law and by the locallaws of the relevant federation subjects. As an example, PPP projects in St. Petersburg are beingimplemented on the basis of the St. Petersburg Law ‘‘On Public Private Partnerships’’ (the St. PetersburgPPP Law), which is generally more flexible than the Concession Law, in particular in terms of tenderprocedure and project structure. The St. Petersburg PPP Law allows the private party to own the projectfacility. It also provides for the implementation of projects on the basis of a build-operate-transfer scheme.The first project that is currently being implemented under the St. Petersburg PPP Law is thereconstruction of Pulkovo airport. A number of other projects in the transport and utilities sectors are alsounder consideration.

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PUBLIC PROCUREMENT

Overview

Procurement by federal, regional or municipal governments and agencies of various types of products andservices, including construction services, is governed by the State and Municipal Orders Law. The Stateand Municipal Orders Law sets out, among other matters, the procedures that must be complied with priorto a federal, regional or municipal government or agency entering into a construction contract with aprivate construction company.

The State and Municipal Orders Law applies to the construction contracts which are entered into for thesatisfaction of ‘‘State and municipal demands’’. The State and Municipal Orders Law defines State andmunicipal demands as, among other matters, demands for construction services necessary for the RussianFederation, federation subjects and municipal entities and their agencies to perform their respectivefunctions, to comply with international treaties and to implement special programmes. These demandsneed to be financed by the relevant federal, regional or municipal budgets, or the relevant non-budgetaryfunds.

Under the State and Municipal Orders Law, depending on the category of demand, the following entitiesmay act as customers under a construction contract for the satisfaction of State or municipal demands:

• federal and regional State agencies;

• agencies managing federal and regional non-budgetary funds;

• municipal agencies; and

• State- and municipal-funded organisations.

The State and Municipal Orders Law allows these governments or its bodies, being the ultimate customersunder the construction contracts, to establish specialised agencies to arrange tenders for state andmunicipal demands. These agencies are authorised to carry out the procedures set out in the State andMunicipal Orders Law to select a contractor on behalf of the relevant government or agencies, as theultimate customer. However, once selected, a contractor enters into a contract directly with the relevantgovernment or governmental body.

Further, under the State and Municipal Orders Law, a customer or a specialised agency (as appropriate) isentitled to engage a specialised organisation to arrange a tender and perform certain formalities prescribedby the State and Municipal Orders Law. Typically, this specialised organisation prepares the biddocumentation, publishes a notice to announce an open competitive tender or auction, delivers invitationsto participate in a closed competitive tender or auction and carries out other ancillary functions.

Tender process

Under the State and Municipal Orders Law, a tender process must be conducted before a relevantgovernment or agency may enter into a construction contract for the satisfaction of State and municipaldemands. A construction contract entered into in breach of this requirement may be declared void upon aclaim from the Federal Antimonopoly Service (the FAS), the agency authorised to supervise the tenderprocess.

A tender may be held in the form of a competitive tender or an auction, depending on the type ofconstruction contract. Typically, to enter into a contract for the construction or overhaul of someinfrastructure, such as for some highways or non-complex bridge constructions, a public customer musthold an auction. For contracts concerning the construction or overhaul of dangerous or technicallycomplex infrastructure, as well as for the construction of road structures, being parts of federal, regional,inter-municipal or local highways, a public customer may choose to hold either an auction or a competitivetender.

A competitive tender or auction may either be an ‘‘open’’ process or a ‘‘closed’’ process. In general, mostcompetitive tenders and auctions for construction infrastructure are open processes. Closed processestypically only apply where the relevant project contains State secrets. An auction may be conducted inperson or, in some cases, online.

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An open tender is a complex process involving several stages under the State and Municipal Orders Law.Depending on the complexity of a project and the contents of the tender documentation, an open tenderprocess may take up to two and a half months. Set out below is an overview of each stage of an open tenderprocess.

Tender team

To hold an open tender, a customer, specialised agency or specialised organisation (as appropriate) needsto assemble an open tender team consisting of at least five members. The members of this team must beindependent, meeting the following requirements:

• he/she must not be personally interested in the outcome of the tender;

• he/she must not be employed by the entities bidding for the construction contract;

• he/she must not be shareholders or members of the managing bodies of the entities bidding for theconstruction contract, or anyone providing finance to those entities; and

• he/she must not be an official of a state, regional or municipal authority authorised to supervise thetender process.

The scope of the authorities of a tender team varies depending on the form of tender. For a competitivetender, this team is responsible for the management of the entire tender process, including the review andevaluation of bids, the selection of bidders, the evaluation of bids (referring to as tender offers) and theselection of a winner. For an auction, the team is responsible only for the review and evaluation of bids, thepreparation of the minutes of review and evaluation, and the selection of bidders.

A tender team may only make decisions at meetings where a quorum of at least half of its members ispresent.

Requirements to participate in a tender

The State and Municipal Orders Law sets out the requirements a bidder must comply with to participate ina tender, as follows:

• a bidder must comply with the requirements applicable to a company engaged in construction inRussia;

• no liquidation procedures must be initiated against the bidder, and no court decision declaring thebidder bankrupt has been passed;

• the operations of a bidder must not have been suspended for administrative offences; and

• a bidder must not have had any indebtedness for taxes and other duties for the preceding calendaryear, the volume of which exceeds 25 percent of the value of the bidder’s assets, determined inaccordance with RAS as at the end of the latest accounting period.

Further, the State and Municipal Orders Law allows the customer or specialised agency (as appropriate) toset out additional requirements for a bidder to be eligible to participate in a tender, such as a bidder notbeing in a ‘‘black list’’ of contractors maintained by the FAS.

The State and Municipal Orders Law allows the customer or a specialised agency (as appropriate) torequest bidders to place a deposit securing their tender offers. This deposit may not exceed five percent ofthe maximum contract value. Information on the security deposit, including information concerning itssize, must be included into the tender announcement.

Under the State and Municipal Orders Law, a bidder may not participate in a tender if it:

• fails to submit the tender documents required together with the tender offer or submits documentscontaining inaccurate information;

• does not comply with the applicable eligibility criteria;

• fails to deliver evidence that the security deposit securing the tender offer has been provided (whererequired); and

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• submits a tender offer that does not comply with the tender documentation.

Where the price of the construction contract amounts to or exceeds RUB50 million and the tender is heldas an auction, a customer or a specialised agency (as appropriate) may also require that bidders havecompleted similar construction projects with a value of not less than 20 percent of the initial price of theconstruction contract in the auction in previous five years to be eligible to participate in the auction.

Tender announcements

For an open competitive tender or an auction, an announcement of the tender must be published by thecustomer, specialised agency or specialised organisation (as appropriate) no less than 30 days before thedate of the bid opening procedure (see ‘‘—Completion of the tender process’’ below), for competitivetenders or no less than 20 days before the auction application expiry date for auctions. In each case, theannouncement must be published both in an official printed source, and on the official internet site, ineach case determined by the Russian Government, or the relevant he regional government or municipalgovernment. Currently, the official printed source for federal open tender announcements is theKonkursnye torgi bulletin, and the official website announcing these tenders are www.zakupki.gov.ru.

For a closed competitive tender or an auction, a customer, specialised agency or specialised organisation(as appropriate) must deliver personal invitations to participate in the tender to pre-identified biddershaving access to information containing State secrets. These invitations must be delivered to the potentialbidders no less than 30 days before the date of the bid opening procedure for competitive tenders or20 days before the auction application expiry date for auctions.

Both public announcements and private invitations should contain, among other matters, the followinginformation:

• a description of the bid procedure;

• the contact details of the customer, specialised agency or specialised organisation (as appropriate);

• the subject matter of the construction contract including a description of the project;

• the location of the construction project;

• the maximum price of the construction contract;

• for competitive tenders only, the source of the tender documentation, the period and conditions of itsavailability, indicating the website from which it was sourced, as well as the amount and procedure forthe payment of fees (if any) for granting access to this documentation;

• for competitive tenders only, the place, date and time for the bid opening procedure;

• for competitive tenders only, the place and date for the evaluation of tender offers and announcementof the results of a competitive tender;

• for auctions only, the source of the auction documentation, the period and conditions of itsavailability, indicating the website from which it was sourced, as well as the amount and procedure forthe payment of fees (if any) for granting access to this documentation; and

• for auctions only, the place, date and time of an auction.

A customer, specialised agency or specialised organisation (as appropriate) may amend the terms of apublicly announced tender no later than five days before the application expiry date. A customer,specialised agency or specialised organisation (as appropriate) must announce publicly amendments in anofficial printed source within five business days and on the official internet site one day following thedecision to amend the tender terms. If the tender terms are amended, the application term must beextended so that the period between the publication of the amendments and the bidding expiry date wouldbe at least 20 days for competitive tenders and 15 days for auctions.

The State and Municipal Orders Law allows a customer or specialised agency (as appropriate) to cancel atender following its public announcement. A tender may be cancelled no later than 15 days (forcompetitive tenders) and 10 days (for auctions) before the application expiry date. If a tender is cancelled,the relevant announcement must be published in an official printing source within 5 days and on the

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official internet site within two days of the cancellation. If a tender is cancelled, a customer or specialisedagency (as appropriate) must notify the applicants of the cancellation and, return any security depositgiven by an applicant within five business days of the cancellation. Further, a bidder may claim damages ascompensation if a tender is cancelled.

Tender documentation

Under the State and Municipal Orders Law, tender documentation is developed by a customer, specialisedagency or specialised organisation (as appropriate). Tender documentation should set out a list ofrequirements (for example, technical characteristics) for the project and also attach a draft constructioncontract. The information contained in the tender documentation must comply with the relevant publicannouncement. The contents of tender documentation may vary depending on whether it is a competitivetender or an auction. In each case, the tender documentation must to contain, among other matters, thefollowing information:

• the form and contents of the tender offer, as well as instructions explaining how to complete it;

• the desired characteristics of the project and the anticipated scope of the construction works;

• the desired post-completion guarantee and any post-completion maintenance (if relevant);

• particular contract terms, including the contract price, the payment terms, exchange rate informationand the procedure for changing orders;

• the procedure, place, commencement and expiry date for bids;

• the security deposit a bidder needs to make to secure its tender offer (if relevant); and

• bid entry requirements, including a bidder’s minimum qualifications or expertise.

Tender documentation for a competitive tender should also contain the criteria to be used to evaluate bids,as well as the procedure for selecting a winning bid. Tender documentation for an auction should alsocontain a description of the auction procedure, including the price increments to be used in the auction.

The tender documentation may also provide for collateral to be provided to secure the performance of theconstruction contract. The size of this collateral may not exceed 30 percent of the contract value. Wherethe price of a contract exceeds RUB50 million, the State and Municipal Orders Law requires a customeror a specialised agency (as appropriate) to set out the requirements to place collateral securingperformance of a contract. The size of this collateral may range from 10 to 30 percent of the contractvalue, but in any event, it may not be lower than the advance payment under the relevant contract.

A customer, a specialised agency or specialised organisation (as appropriate) must make tenderdocumentation available on an official web-site at least 30 days before the bid opening procedure.

A bidder may request clarification from a customer or a specialised agency (as appropriate) of provisionsof the tender documentation at least five days before application expiry date. A customer or a specialisedagency (as appropriate) should respond to these requests within two business days following receipt of therelevant application. Within one day following that clarification a customer, a specialised agency or aspecialised organisation (as appropriate) should also publish that request together with the relevantresponse on the official website, but without identifying who made the request.

A customer or a specialised agency (as appropriate) may amend the tender documentation (but not theprimary subject matter of the tender) at its own discretion or upon a bidder’s request, no sooner than fivedays before the application expiry date. Amendments to the tender documentation must be published in amanner similar to the initial publication of the tender and each bidder needs to be notified of theamendments to the tender documentation. This procedure applies to both competitive tenders andauctions.

Delivery of tender offers

To participate in a tender process, a bidder must deliver a bid, referred to in the State and MunicipalOrders Law as a tender offer. The contents of the tender offer vary depending on whether the tender is acompetitive tender or an auction. For competitive tenders, a tender offer must contain the description of

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the project’s technical characteristics, as well as other project performance conditions, including thosestipulated in the tender documentation, and the contract price. For an auction, a tender offer must containthe technical characteristics of the proposed project.

In both cases, a number of documents need to be delivered together with the tender offer, including thefollowing:

• an extract from the Unified State Register of Legal Entities dated no earlier than six month before thebid opening procedure, as well as foundation documents and documents evidencing the bidder’sincorporation;

• documents evidencing the authority of the sole executive body of the bidder and, where applicable, apower of attorney in favour of a person authorised to deliver a tender application on behalf of thebidder;

• resolutions of the bidder’s management bodies approving its participation in an open tender; and

• copies of documents confirming that the construction works to be performed by the bidder complywith the requirements of applicable Russian law.

A tender offer must be duly signed on behalf of a bidder. A customer, specialised agency or a specialisedorganisation (as appropriate) should accept each tender application and, upon request, acknowledge itsreceipt to the bidder.

Under the State and Municipal Orders Law, a tender offer may only be delivered within the periodestablished by a customer, a specialised agency or a specialised organisation (as appropriate). Tender offersreceived after that period may not be accepted and should be returned to the relevant bidder.

A bidder may revoke a tender offer at any time before the bid opening procedure. For competitive tenders,a bidder is also entitled to amend the tender offer at any time before that date.

Typically, if the customer, specialised agency or specialised organisation (as appropriate) receives fewerthan two tender offers for a project, the tender is declared to be ‘‘frustrated’’ and the customer or aspecialised agency (as appropriate) is entitled to revoke the tender. It may then seek consent from the FASor relevant authorised regional authority to enter into the relevant contract with a pre-identified contractorwithout a formal tender process. If a tender offer has been received, it must be examined and, if it meetsthe necessary requirements, the bidder must enter into a construction contract with the customer. Forcompetitive tenders, a customer incorporates terms suggested by the winning bidder in its tender offer intothe draft contract attached to the tender documentation. For auctions, the terms of this contract mustfollow those indicated in the tender documentation. In both cases, the price of this contract may notexceed the price indicated in the tender announcement. If the contractor fails to enter into the contract, itmay be included into a ‘‘black list’’ of contractors maintained by the FAS and may be prevented fromparticipating in tenders in future for the period of up to two years. This list is published by the FAS on itswebsite.

Completion of the tender process

Under the State and Municipal Orders Law, the completion of the tender process varies depending onwhether a tender is held as a competitive tender or an auction.

Competitive tender. For competitive tenders, the evaluation of the tender offer and the selection ofwinning bids is preceded by a formal procedure referred to as the bid opening procedure. At this stage, thetender team opens the envelopes containing the tender offers and makes the information about the tenderoffer publicly available in a digital format to all bidders. The tender team takes minutes of the bid openingprocedure, recording the details of each bidder, the documents and other information required to besupplied under the State and Municipal Orders Law and other matters. The minutes of the tender openingprocedure should be signed by all members of the tender team present on the date of the tender openingprocedure. The customer, specialised agency or specialised organisation (as appropriate) must publish theminutes on the official web site the day after the minutes are signed.

The tender team makes a preliminary evaluation of the tender offers within 20 days following the bidopening procedure. At this stage, the tender team evaluates whether the tender offers comply with the

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requirements set out by the customer, specialised agency or specialised organisation (as appropriate) andindicated in the tender announcement and identifies the bidders whose tender offers comply with therelevant requirements. The bidders whose tender offers do not comply with the relevant requirements areeliminated at this stage. The outcome of this preliminary evaluation is evidenced in the minutes, whichneed to be published by the customer, specialised agency or specialised organisation (as appropriate) onthe official website.

The tender team selects the winning bid within 10 days following the preparation of the minutes of thepreliminary evaluation. Where the relevant contract has a value exceeding RUB50 million, the tender teammust select the winning bid within 30 days following the preparation of the minutes of the preliminaryevaluation.

The winning bid should be selected based on the broad criteria set out in the State and Municipal OrdersLaw, which includes the contract price, the proposed construction completion schedule, the proposed termand the amount of the post-completion guarantee and proposed functional and qualitative characteristicsof the project.

The State and Municipal Orders Law prohibits customers, specialised agencies or specialised organisations(as appropriate) from setting out criteria for the selection of a winning bid other than those describedabove.

For each tender, the customer, specialised agency or specialised organisation (as appropriate) must assigneach criteria a maximum percentage point score, which together add to 100 percent, to be used to gradeeach tender offer. Typically, the price of a contract represents a larger proportion of the maximum totalpercentage points. To select a winning bid, the tender team evaluates and grades the tender offer againsteach of these criteria. The winning tender offer is the one with the highest score.

The tender team takes minutes of the tender offer evaluation procedure, recording the place, date andtime of the evaluation, the participating bidders, the criteria and the tender team’s decisions. Theseminutes must be signed by all members of the tender commission and the customer or the specialisedagency (as appropriate) on the day following the day of the tender offer evaluation process.

Auctions. In a manner similar to competitive tenders, auctions are preceded by a bid opening procedurewhere the tender team identifies eligible bidders. The bid opening procedure must happen within 10 daysof the auction application expiry date.

Under the State and Municipal Orders Law, to start an auction, a tender team registers the bidders inattendance and selects the auctioneer. The auctioneer declares the initially announced contract price andthe price increment to be used in an auction, which starts at five percent of the initially announced contractprice. If no bids are made at this price increment, the auctioneer must reduce the increment size in steps of0.5 percentage points.

The auction proceeds with bidders bidding in successive increments, reducing from the initial contractprice, with the winner being the bidder who bids the lowest.

The tender team takes notes of the auction, recording, among other things, its place, date and time, thebidders in attendance, the initial contract price and the winning price. These minutes must be signed by allmembers of the tender team and the customer or the specialised agency (as appropriate) on the same datewith the auction.

Entry into the construction contract

After determining the winning bid, a customer or a specialised agency (as appropriate) must prepare theconstruction contract and deliver it to the winner within three business days of the preparation of theminutes of the competitive tender or auction. A construction contract may not be entered into withthe winning bidder earlier than ten days following the publication of the minutes of an open tender on theofficial website.

The terms of the final contract depend on the form of the tender. For competitive tenders, a contract mustbe entered into on the terms indicated in the tender offer made by the winner and the price may notexceed the initially published contract price. For auctions, the contract must be entered into on the terms

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contained in the tender documentation in the initial public announcement, with the winning pricecompleted.

The State and Municipal Orders Law requires that the price of a contract with a public customer must befixed. However, that law allows the price to be changed for contracts with a term of at least three yearswhere the cost of construction works increase significantly such that performance of the contract for theinitially agreed price would be impossible. This applies for contracts of at least RUB10 billion for federalcustomers, RUB1 billion for regional customers and RUB500 million for municipal customers. A changein contract price for these contracts must be approved by a resolution of the Russian Government (forcontracts with the federal customers), a special law issued by the relevant Federation subject (for contractswith regional customers) or a resolution of the relevant municipal legislative body (for contracts withmunicipal customers).

Online auction

Under the State and Municipal Orders Law, auctions may be held online, with the auction process beingmanaged by an authorised Internet site operator. In this case, the documents related to the tender processare placed on an authorised website.

Accreditation

To participate in an online auction, a bidder must be accredited by the website operator. To do so, a biddermust provide the operator with a number of documents, including:

• an accreditation application;

• a copy of an extract from the Unified State Register of Legal Entities in relation to the bidder datedno earlier than six months before the application date;

• copies of the bidder’s foundation documents;

• copies of documents confirming the authority of a person to act on the bidder’s behalf; and

• an application to open an account on the website for the bidder.

To become accredited, a bidder must also provide the site operator with its taxpayer identification numberand e-mail address.

The site operator must accredit a bidder and open its account within five business days of receiving thenecessary documents. An accreditation issued by a site operator must be renewed every three years.

A site operator must maintain a register of accredited bidders. The register must contain details of eachbidder and the expiry date of its accreditation.

Notification requirements

Under the State and Municipal Orders Law, an announcement of an online auction must be made by thecustomer, specialised agency or specialised organisation (as appropriate) on an official website no less then20 days before the auction application expiry date, and where the starting price of a contract does notexceed RUB3 million, this announcement may be made no less than seven days before the auctionapplication expiry date, at the discretion of the customer, specialised agency or specialised organisation (asappropriate).

Each online auction announcement should contain broadly the same information as other auctions. See‘‘—Tender announcements’’ above. Further, each online auction announcement must contain the Internetaddress for the auction, the online auction application expiry date and time, as well as the time of thetender opening procedure, which determines if the bidders are eligible to participate in the auction.

A customer or a specialised agency (as appropriate) may amend a publicly announced online auctionsubject to various requirements set out in the State and Municipal Orders Law. These requirements arebroadly similar to those applicable to other auctions. See ‘‘—Tender announcements’’ above.

A customer or a specialised agency (as appropriate) may cancel an online auction at least 10 days beforethe application expiry date, and where the starting price of a contract does not exceed RUB3 million, at

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least five days before the applications expiry date. A customer, a specialised agency or a specialisedorganisation (as appropriate) must publish notice of the cancellation on the website within one day of thecancellation. If bidders have provided security for tender offer already submitted to determine eligibility tobid in the auction (see ‘‘—Delivery of tender offers’’), the site operator must release their security within onebusiness day of that announcement.

Online auction documentation

Online auction documentation must comply with the general requirements applicable to tenderdocumentation. See ‘‘—Tender documentation’’ above.

Online auction documentation must contain a description of the potential project, its desired quality andtechnical specification, the desired guarantee period, the construction timetable and the payment terms,and must include a draft construction contract. Online auction documentation must also contain, amongother matters, the following information:

• requirements as to the contents of tender offers, as well as instruction on how to complete them;

• the size of the security deposit required to secure a bidder’s tender offer;

• the application expiry date and time;

• the completion date for the preliminary assessment of tender offers;

• the source of financing for the construction contract;

• the contract price calculation (including transportation and insurance costs, customs duties, taxes andother mandatory payments);

• the initial, maximum contract price for the auction;

• exchange rate information (if applicable); and

• the required collateral to secure the performance of the construction contract.

Online auction documentation must be published by a customer, a specialised agency or a specialisedorganisation (as appropriate) together with the online auction announcement. The State and MunicipalOrders Law allows any bidder to request clarifications of provisions of the online auction documentationfrom the site operator.

A customer or a specialised organisation (as appropriate) may change the initially published online auctiondocumentation no later than five days before the application expiry date. The State and Municipal OrdersLaw prohibits changing the subject matter of online auction. Amendments to the initially published onlineauction documentation must be published by a customer, a specialised agency or a specialised organisation(as appropriate) on the website within one day of the relevant amendment being made. In thesecircumstances, the application expiry date must be postponed to at least fifteen days after the date whenthese amendments are published or, where the initial contract price does not exceed RUB3 million, to atleast seven days.

Delivery of tender offers

To participate in an online auction, an accredited bidder must also submit documentation prior to theauction, referred to as a tender offer. A bidder may only participate in an online auction if, in addition tohaving met the requirements for a tender offer, it also has sufficient available funds on its account with thesite operator to secure the tender offer, as required by the online auction documentation. Upon submittingthe tender offer, the site operator blocks those funds on the bidder’s account.

A tender offer for an online auction consists of two parts. The first part must contain an express consentfrom the bidder to the terms of the online auction documentation. The second part of a tender offer mustcontain a bidder’s details such as its full legal name, statutory form, location, postal address and its

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individual taxpayer identification number. The second part of the tender offer must also attach thefollowing documents:

• if required by the tender documentation, copies of documents confirming the acceptance of projectsconstructed by the bidder in the past;

• copies of documents confirming that the construction works to be performed for the current projectby the bidder comply with Russian law; and

• resolutions of the bidder’s management bodies approving its participation in the online auction.

Online auction opening procedure

After the application expiry date, the first parts of the tender offers are assessed by the auction team tocheck for compliance with the requirements of the State and Municipal Orders Law. The tender team thenidentifies bidders eligible to participate in the actual auction. This must be completed within seven days ofthe application expiry date. The auction team takes minutes of this process, indicating, among others, thepersons eligible to participate in the online auction. These minutes must be published by the site operatoron the relevant auction site.

The bidders identified as eligible may take part in the actual online auction process, which must be held onthe day specified in the online auction documentation. At the online auction, the initially publishedcontract price is reduced by a price increment for each bid, which varies from 0.5 percent to five percent ofthe original contract price. In some cases, bidders may also suggest their own price increment. If during thecourse of the auction, the contract price is reduced to zero, the site operator reverses the auction, wherebythe bidders offer prices by increasing the price of a contract for a price increment, representing a paymentby the bidder to the customer to complete the project. The site operator takes minutes of the onlineauction, recording the auction commencement time, initial contract price and the bids made. The siteoperator must publish these minutes on the auction website.

Under the State and Municipal Orders Law, the site operator must deliver the minutes of the onlineauction, as well as the second parts of tender offers submitted by the bidders that offered the ten lowestprices, or, where the auction has been reversed, ten highest prices, to a customer or a specialised agency(as appropriate). Following that, the auction team reviews these second parts of the tender offers (whichinclude details of the technical specifications of the project for each bidder) and identifies five bidders thatsatisfy the eligibility criteria. From that time, the bidder with the lowest price (or if the auction has beenreversed, the bidder with the highest price) wins the online auction.

Entry into the contract

Once the winning bid is determined, a customer or a specialised agency (as appropriate) enters into theconstruction contract with the winner. The contract must be entered into on the terms contained in theonline auction documentation in the initial public announcement, with the winning price completed.

Placement of an order with a single contractor

Under the State and Municipal Orders Law, in limited circumstances, a customer is allowed to approach asingle contractor to enter into a construction contract. These circumstances include emergency situationswhere the use of a formal tender procedure would not be efficient.

ENVIRONMENTAL PROTECTION MATTERS

The principal Russian law governing the Group’s environmental compliance is Federal Law No. 7-FZ ‘‘OnEnvironmental Protection’’ dated 10 January 2002, as amended (the Environmental Protection Law). TheEnvironmental Protection Law establishes what is colloquially known as a ‘‘pay-to-pollute’’ regimeadministered by the Russian Federal Service for Ecological, Technological and Nuclear Supervision (theFSETNS) and local authorities.

Under the ‘‘pay-to-pollute’’ regime, companies are required to obtain licences and permits authorising thedischarge of pollutants into the air, water or soil. These licences and permits establish specific limits forpermitted pollution. Fees are assessed for both pollution within the agreed limits and for pollution in

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excess of these limits (the latter containing a penalty element). There are additional fines for certain otherbreaches of environmental regulations. The Environmental Protection Law contains an obligation to makecompensation payments to the State for all environmental losses caused by pollution. The limitation periodfor claims for compensation for pollution is 20 years.

HEALTH AND SAFETY

The principal law regulating industrial safety is Federal Law No. 116-FZ ‘‘On Industrial Safety atDangerous Industrial Facilities’’ dated 21 July 1997, as amended (the Safety Law). The Safety Law applies,in particular, to industrial facilities and sites where certain activities are conducted, including sites whereflammable materials or hazardous equipment such as lifting machines are used. The Safety Law alsocontains a comprehensive list of dangerous substances and their permitted concentrations, and extends tofacilities and sites where these substances are used.

The Group’s activities include operation of certain hazardous industrial sites regulated by the FSETNS.Any construction, reconstruction, liquidation or other activities in relation to such regulated industrial sitesare subject to a State industrial safety review. Companies that operate such industrial facilities and siteshave a wide range of obligations under the Safety Law. Any company or individual violating industrialsafety rules may incur administrative, criminal or civil liability. A company that violates safety rules in away that negatively impacts the health of individuals may also be required to compensate individuals forlost earnings and health-related damages.

Federal Law No. 89-FZ ‘‘On Wastes of Production and Consumption’’ dated 24 June 1998, as amended(the Wastes Disposal Law), regulates waste management with a view to preventing detrimental effects ofwastes on public health and protecting the environment.

Under the Wastes Disposal Law, any activities relating to collection, utilisation, neutralisation,transportation and disposal of waste of certain classes of hazards are subject to licensing in accordancewith Federal Law No. 128-FZ ‘‘On Licensing of Certain Activities’’ dated 8 August 2001, as amended. TheWastes Disposal Law also imposes a number of obligations on sole traders and legal entities engaged in theconstruction of facilities, the operation of which generates waste, as well as in the transportation of wasteof different classes of hazards. In particular, sole traders and legal entities that produce waste as a result oftheir business activities are required to prepare draft standards for the production of waste and limits ontheir disposal, and to submit these for approval to the State authorities. Compliance with variousenvironmental, sanitation and epidemiological, fire safety and other requirements for waste managementis also subject to State control.

In addition, specific safety rules and regulations must be observed while constructing particular types ofinfrastructure, including rules and regulations on road safety, railway safety, life and health safety ofindividuals, fire safety, environmental safety, sanitation and epidemiological safety of the population andothers.

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PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets out certain information regarding the ownership of the Ordinary Shares(i) immediately before the Offering and the Open Subscription, (ii) immediately after the Offering, and(iii) immediately after the Offering, the Open Subscription (assuming that only the Selling Shareholderexercises its pre-emptive rights to acquire 24,824,000 New Shares, the minimum it is contractually obligedto acquire under the Underwriting Agreement) and the exercise of the Put Option. This table also assumesthat no holder of Ordinary Shares buys or sells Ordinary Shares other than as contemplated by theOffering, the Open Subscription as described below and the Put Option.

Number of Ordinary Shares Percentage of Outstanding Ordinary Shares

Immediately Immediatelyafter the after the

Immediately Offering(2), the Immediately Offering(2), thebefore the Open before the Open

Offering and the Immediately Subscription(3) Offering and the Immediately Subscription(3)

Open after the and the Put Open after the and the PutShareholder(1) Subscription Offering(2) Option(6) Subscription Offering(2) Option(6)

Marc O’Polo Investments Ltd.(4) . . . 124,867,600 62,807,600 103,269,612 50.3% 25.3% 37.8%NFP Blagosostoyanie(5) . . . . . . . . . 90,448,475 90,448,475 74,810,463 36.4% 36.4% 27.4%Existing minority shareholders(7) . . . 32,923,925 32,923,925 32,923,925 13.3% 13.3% 12.1%New investors . . . . . . . . . . . . . . . 0 62,060,000 62,060,000 0% 25.0% 22.7%

Total . . . . . . . . . . . . . . . . . . . . . 248,240,000 248,240,000 273,064,000 100.0% 100.0% 100.0%

(1) Information for the Selling Shareholder is based on its depo account opened with a Russian custodian, as at 12 October 2010.Information for NPF Blagosostoyanie is based on the relevant depo accounts opened with Russian custodians by the assetmanagement companies holding Ordinary Shares on its behalf, as at 15 October 2010.

(2) The Selling Shareholder is offering 62,060,000 Ordinary Shares in the Offering.

(3) The Company has authorised the issue of 62,060,000 New Shares to be placed in the Open Subscription. This column assumesthat only the Selling Shareholder exercises its pre-emptive rights to acquire 24,824,000 New Shares, the minimum it iscontractually obliged acquire under the Underwriting Agreement. To the extent other holders of Ordinary Shares exercisepre-emptive rights, or the Selling Shareholder exercises its pre-emptive rights in excess of the minimum contractually required,and acquire New Shares, or those other holders have bought or sold Ordinary Shares since 8 September 2010, the shareholdingsshown will vary.

(4) Marc O’Polo Investments Ltd., a company incorporated in Cyprus, is the Selling Shareholder. It is beneficially owned byMr. Arkadiy Rotenberg (with an indirect share in that company of approximately 68.45 percent), Mr. Konstantin Nikolayev(with an indirect share in that company of approximately 10.516 percent), Mr. Nikita Mishin (with an indirect share in thatcompany of approximately 10.516) and Mr. Andrey Filatov (with the indirect share of approximately 10.516 percent in theCompany). In October 2010, a 50 percent beneficial interest in Marc O’Polo Investments Ltd. was transferred from Mr. MikhailAbyzov to Mr. Arkadiy Rotenberg, thereby increasing Mr. Rotenberg’s beneficial interest in that company from approximately18.45 percent to approximately 68.45 percent.

(5) NPF Blagosostoyanie is a pension fund connected with Russian Railways. These Ordinary Shares are held and managed onbehalf of NPF Blagosostoyanie by Closed Joint-Stock Company ‘‘Transfingroup’’ Asset Management, Closed Joint-StockCompany ‘‘Management Company Trinfico’’ and Limited Liability Company ‘‘Promyshlennye Traditsii’’.

(6) The Selling Shareholder and TKB Capital (CJSC) have entered into an agreement dated 28 September 2010 under which TKBCapital (CJSC) has the right to sell a certain number of Ordinary Shares to the Selling Shareholder and the Selling Shareholderis obliged to buy them upon satisfaction of certain terms and conditions (the Put Option). As far as each of the Company and theSelling Shareholder is aware, to facilitate the sale, TKB Capital (CJSC) intends to buy the relevant number of Ordinary Sharesfrom Closed Joint-Stock Company ‘‘Transfingroup’’ Asset Management, an asset management company holding OrdinaryShares for NPF Blagosostoyanie, a pension fund connected with Russian Railways. The conditions precedent to the Put Optioninclude the receipt of the net proceeds of the Offering by the Selling Shareholder and receipt of consent from the FAS for thepurchase of Ordinary Shares by the Selling Shareholder under the Put Option (which was received in October 2010). The PutOption expires on the earlier of 31 December 2010 or three business days after notice of the satisfaction of all conditionsprecedent. The number of Ordinary Shares to which the Put Option applies is to be calculated by reference to the numbers ofShares being sold in the Offering and the New Shares to be acquired by each of the Selling Shareholder and NPFBlagosostoyanie in the Open Subscription and aims to preserve the proportion of Ordinary Shares held by each of them (asbetween themselves) before the Offering and the Open Subscription. Before the Offering and the Open Subscription, theSelling Shareholder held approximately 50.3 percent and NPF Blagosostoyanie, beneficially held approximately 36.4 percent ofthe Ordinary Shares. No asset management company holding Ordinary Shares on behalf of NPF Blagosostoyanie has exercisedpre-emptive rights to subscribe for any New Shares in the Open Subscription. The sale price per Ordinary Share under the PutOption is to be calculated as the Offer Price less a discount of up to four percent. The payment by the Selling Shareholder forthe Ordinary Shares under the Put Option should be made in Roubles at the official exchange rate established by the CBR forthe date of this offering circular.

(7) On 28 September 2010, shareholders of the Company at an extraordinary general shareholders’ meeting approved theUnderwriting Agreement as an interested party and major transaction. Certain minority shareholders (holding approximately10.5 percent of Mostotrest’s charter capital) did not participate in the meeting, abstained from the relevant voting or votedagainst the resolution, and therefore have received a right to sell their Ordinary Shares to Mostotrest. In accordance with theJoint Stock Companies Law such minority shareholders may elect to do so by 12 November 2010 and Mostotrest will be obligedto purchase those Ordinary Shares within 30 days from that date. See also ‘‘—Risk Factors—Risks relating to Russia—Legislativeand legal risks—Shareholder rights provisions under Russian law could impose significant additional obligations on the Company’’.

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RELATED PARTY TRANSACTIONS

In accordance with IFRS, the Group is required to disclose all related party transactions (as defined inIAS 24 ‘‘Related Party Disclosures’’) necessary to draw attention to the possibility that its financial positionand profit or loss may have been affected by the existence of related parties and by transactions andoutstanding balances with those related parties. In addition, the Company and its Russian subsidiaries arerequired to comply with applicable Russian law when entering into related party transactions.

In 2008 and 2009, Mostotrest has entered into, and in the six months ended 30 June 2010 the Group hasentered into, a number of transactions with related parties. See note 28 of the 2009 Mostotrest AnnualFinancial Statements and note 15 of the 2010 Unaudited Interim Mostotrest Financial Statements. Thefollowing sections set out the selected information concerning related party transactions.

Revenue

The following table sets out the transaction value and outstanding balance for Mostotrest as at and for theyear ended 31 December 2008 and 2009 and as at and for the six months ended 30 June 2009, and for theGroup as at and for the six months ended 30 June 2010 for sales of goods and services rendered to relatedparties.

Transaction value Outstanding balance

As atAs at 31 December As at 30 June As at 31 December 30 June

2008 2009 2009 2010 2008 2009 2010

(audited) (unaudited) (audited) (unaudited)(RUB millions)

Sale of goods:Investments in equity

accounted investees . . . . — — — 1 — — —Other related parties . . . . 81 10 59 49 5 — 332

Services rendered:Investments in equity

accounted investees . . . . — — — 164 — — 83Other related parties . . . . 1,402 11 128 193 25 12 2,756

Total . . . . . . . . . . . . . . . . . 1,483 21 187 407 30 12 3,171

Sale of goods to related parties consisted primarily of sale of construction materials on arms’ length termsprimarily to entities related to the Company’s management. Services rendered to related parties consistedprimarily of subcontractors’ services on arms’ length terms primarily to entities related to the Company’smanagement and, in the six months ended 30 June 2010, also to MS-11.

Expenses

The following table sets out the transaction value and outstanding balance for Mostotrest as at and for theyear ended 31 December 2008 and 2009 and as at and for the six months ended 30 June 2009, and for theGroup as at and for the six months ended 30 June 2010 for purchase of goods and receipt of services fromrelated parties.

Transaction value Outstanding balance

As atAs at 31 December As at 30 June As at 31 December 30 June

2008 2009 2009 2010 2008 2009 2010

(audited) (unaudited) (audited) (unaudited)(RUB millions)

Purchase of goods:Other related parties . . . . 347 572 (2) (20) 15 (89)

Services receivedInvestments in equity

accounted investees . . . . — — — (164) — — (165)Other related parties . . . . 540 225 (1,509) (3,172) 2 49 (4,775)

Total . . . . . . . . . . . . . . . . . 887 797 (1,511) (3,356) 17 49 (5,029)

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Related Party Transactions

Purchase of goods from related parties consisted primarily of purchase of construction materials on arms’length terms primarily from an entity related to the shareholders of the Selling Shareholder. Servicesreceived from related parties consisted primarily of subcontractors’ services on arms’ length termsprimarily from entities related to the Company’s management and, in the six months ended 30 June 2010,also from MS-11.

Loans

The following table sets out the transaction value and outstanding balance for Mostotrest as at and for theyear ended 31 December 2008 and 2009 and as at and for the six months ended 30 June 2009, and for theGroup as at and for the six months ended 30 June 2010 loans from related parties as at 30 June 2010.

Transaction value Outstanding balance

As atAs at 31 December As at 30 June As at 31 December 30 June

2008 2009 2009 2010 2008 2009 2010

(audited) (unaudited) (audited) (unaudited)(RUB millions)

Loans received:Other related parties . . . . — 2,000 — 3,500 — 1,000 3,501

Total . . . . . . . . . . . . . . . . . — 2,000 — 3,500 — 1,000 3,501

In 2009, Mostotrest entered into a number of loan agreements with related parties for an aggregateprincipal amount of RUB2,000 million. In the six months ended 30 June 2010, Mostotrest borrowed anadditional RUB3,500 million in loans from related parties, primarily from OAO TransCreditBank to fundthe acquisition of ETS and TSM. These loans were at fixed interest rates of 13.5 and 14.5 percent perannum and are repayable in 2010. The outstanding balance under loans from related parties wasRUB1,000 million as at 31 December 2009 and RUB3,501 million as at 30 June 2010.

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DESCRIPTION OF SHARE CAPITAL AND APPLICABLE RUSSIAN LAW

Described below are the Ordinary Shares, the material provisions of the Company’s charter in effect on the dateof this offering circular and certain requirements of Russian law. This description, however, is not complete andis qualified in its entirety by reference to the Company’s charter and any applicable Russian law.

THE COMPANY’S PURPOSE

Article 3 of the Company’s charter provides that the Company’s purpose is to earn profit. The Company isentitled to conduct various activities permissible under Russian law, including construction, reconstructionand maintenance of bridges, overpasses and highways, production of building materials, as well as anyother activities provided for in the Company’s charter and applicable Russian law. The Company mayengage in certain types of activities, a list of which is prescribed by law, only on the condition that theCompany hold the relevant permit (licence).

DESCRIPTION OF SHARE CAPITAL

General

The Company’s state-owned predecessor, All-Soviet Trust for the construction of extra-large bridges‘‘Mostotrest’’, (the Company’s Predecessor) was founded on 25 January 1930 by a resolution of the Councilof People’s Commissars of the USSR. The Company’s Predecessor was privatised in October 1992. As aresult of the privatisation, the Company’s Predecessor changed its legal form to an open joint-stockcompany. The Company was registered as an open joint-stock company in December 1992.

The Company’s share capital is divided into ordinary shares each with an equal nominal value and theaggregate nominal value of all such shares constitutes the Company’s share capital. The Company’s sharesmay be sold by their holders to any third parties without triggering any rights of first refusal or requiringany approvals on the part of other shareholders or the Company. On 30 June 2010, the GeneralShareholders Meeting of the Company approved a split of the ordinary shares, whereby each of theordinary shares was split into 200 new Ordinary Shares. Under Russian law, a share split is subject to stateregistration by the FSFM. Furthermore, a Russian prospectus must be registered with respect to the sharesplit to obtain a listing with respect to the relevant shares on a Russian stock exchange. The split of theOrdinary Shares and the mandatory Russian prospectus were registered by the FSFM on 10 August 2010,and the share split was finalised on 2 September 2010.

Pursuant to the Joint Stock Companies Law, the Company has the right to issue registered ordinary shares,preferred shares and other securities provided for by Russian securities law. Following the share splitreferred to above, the Company’s charter capital consists of 248,240,000 Ordinary Shares, each with anominal value of 0.14 Roubles, which are fully paid, issued and outstanding.

The Joint Stock Companies Law requires the Company to dispose of any of its shares that the Companyacquires within one year of their acquisition or, failing that, reduce its charter capital. The Company refersto such shares as treasury shares for the purposes of this offering circular. Russian law does not allow forthe voting of treasury shares.

No preferred shares are authorised or outstanding. Preferred shares may be issued only if amendmentshave been made to the Group’s charter pursuant to a resolution of the General Shareholders’ Meeting.The Joint Stock Companies Law provides for a right to issue preferred shares subject to the nominal valueof all outstanding preferred shares not exceeding 25 percent of the share capital.

The Ordinary Shares are listed on the RTS under the symbol ‘‘MSTT’’. The Ordinary Shares are alsoadmitted to trading on the MICEX.

On 8 September 2010, the Board of Directors approved the issue of 62,060,000 Ordinary Shares to beplaced in the Open Subscription, and the mandatory Russian prospectus that, under Russian law, must beapproved in relation to the new shares to be placed in an open subscription. The decision on the issue ofthese Ordinary Shares and the mandatory Russian prospectus were registered with the FSFM on 5 October2010 under the State registration number 1-03-02472-A-001D.

Rights of shareholders

Holders of the Ordinary Shares have the right to vote at all General Shareholders’ Meetings. As requiredby the Joint Stock Companies Law, all the Ordinary Shares have the same nominal value and grant

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Description of Share Capital and Applicable Russian Law

identical rights to their holders. Each fully paid Ordinary Share, except for treasury shares, gives its holderthe right to:

(i) participate in the General Shareholders’ Meeting as provided for by the Joint Stock Companies Lawand the Company’s charter;

(ii) freely transfer the shares without the consent of other shareholders;

(iii) receive dividends in accordance with the Joint Stock Companies Law and the Company’s charter ifthe Company announces the payment of dividends;

(iv) acquire the Company’s newly issued shares by exercising pre-emptive rights on a pro rata basis inrelation to such shareholder’s existing holdings of the Company’s shares, as provided for by the JointStock Companies Law and the Company’s charter;

(v) delegate voting rights to a representative on the basis of a power of attorney;

(vi) if holding, alone or with other shareholders, 2 percent or more of the voting shares, within 60 daysafter the end of the Company’s fiscal year, make proposals for inclusion of the items to the agenda ofan annual General Shareholders’ Meeting and nominate candidates to the Board of Directors andthe revision commission;

(vii) if holding, alone or with other shareholders, 10 percent or more of the voting shares, demand that theBoard of Directors convene an extraordinary General Shareholders’ Meeting or an unscheduledaudit by the revision commission;

(viii) demand repurchase by the Company of all or some of the shares owned by it, as long as suchshareholder voted against or did not participate in the voting on the decision approving the following:

(a) any reorganisation;

(b) conclusion of a major transaction, as defined by the Joint Stock Companies Law; and

(c) amendment of the Company’s charter or approval of a new addition of the Company’s charterthat limits the shareholder’s rights;

(ix) upon the Company’s liquidation, receive a proportionate amount of the Company’s property after itsobligations are fulfilled;

(x) have access to certain of the Company’s documents, receive copies for a reasonable fee and, ifholding alone or with other shareholders 25 percent or more of the voting shares, have free access toaccounting documents;

(xi) if holding, alone or with other shareholders, 1 percent or more of the voting shares:

(a) access the list of persons entitled to participate in the General Shareholders’ Meeting;

(b) sue in court members of the Board of Directors or the General Director for damages incurredby the Company as a result of their faulty actions or omissions to act;

(xii) obtain information on the Company’s shareholders’ register from the registrar; and

(xiii) exercise other rights of a shareholder provided by the Company’s charter, Russian law and decisionsof General Shareholders’ Meetings approved in accordance with its competence.

Pre-emptive rights

The Joint Stock Companies Law and the Company’s charter provide existing shareholders with apre-emptive right to purchase shares or securities convertible into shares during an open subscription in anamount proportionate to their existing shareholdings. In addition, the Joint Stock Companies Lawprovides shareholders with a pre-emptive right to purchase shares or securities convertible into sharesduring a closed subscription if the shareholders voted against or did not participate in the voting on thedecision approving such closed subscription. The pre-emptive right does not arise in the case of a closedsubscription for shares, which is conducted only between by existing shareholders, provided that suchshareholders are able each to acquire a whole number of shares or securities convertible into shares beingplaced, in proportion to their existing shareholdings. The Company must provide shareholders with written

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notice at least 45 days prior to the offering, during which time shareholders may exercise their pre-emptiverights. If the price of the offered shares or securities convertible into shares is determined after expirationof the pre-emptive right, the Company must provide shareholders with written notice at least 20 days priorto the offering, during which time shareholders may exercise their pre-emptive rights.

Dividends

The Joint Stock Companies Law and the Company’s charter set forth the procedure for determining thedividends that the Company distributes to its shareholders. According to the Company’s charter, theCompany may declare dividends based on its three month, six month, nine month and/or annual results.Dividends are recommended to the General Shareholders’ Meeting by a majority vote of the Board ofDirectors, and approved by the majority vote of the General Shareholders’ Meeting. A decision on threemonth, six month and nine month dividends must be made at the General Shareholders’ Meeting withinthree months of the end of the respective quarter, and a decision on annual dividends must be taken at theannual General Shareholders’ Meeting. The dividends approved at the General Shareholders’ Meetingmay not be more than the amount recommended by the Board of Directors. Fixed dividends payable onpreferred shares must be determined upon the issuance of the respective preferred shares. Dividendspayable on shares are distributed to the Group’s shareholders as at the record date for the GeneralShareholders’ Meeting approving the dividends. According to the Joint Stock Companies Law, the form ofpayment of the dividends should be determined by the General Shareholders’ Meeting. See ‘‘—GeneralShareholders’ Meeting—Notice and participation’’. Dividends are not paid on treasury shares.

The paid dividends are subject to tax. See ‘‘Taxation—Russian taxation—Taxation of dividends’’.

The Joint Stock Companies Law allows dividends to be declared as long as the following conditions havebeen met:

• the share capital of the company has been paid in full;

• the company has repurchased all shares from shareholders that have the right to demand repurchase;

• the company is not, and would not become, insolvent as a result of the proposed dividend payment;

• the value of the company’s net assets is not less (and would not become less as a result of theproposed dividend payment) than the sum of the company’s share capital, the company’s reserve fundand the difference between the liquidation value and the par value of the issued and outstandingpreferred shares of the company; and

• other requirements of Russian law.

In addition, a Russian company is prohibited from paying dividends (even if they have been declared) if:

• the company is insolvent on the date of payment or would become insolvent as a result of theproposed dividend payment;

• the value of the company’s net assets, calculated under RAS, on the date of payment, is less (or wouldbecome less as a result of the proposed dividend payment) than the sum of the company’s sharecapital, the company’s reserve fund and the difference between the liquidation value and the nominalvalue of the issued and outstanding preferred shares of the company; and

• otherwise prohibited by the Russian law.

According to the Company’s charter, dividends on Ordinary Shares may be paid out of the Company’s netprofits calculated under RAS. The Company pays dividends within the time period indicated in theshareholders’ resolution approving the dividends, which may not be more than 60 days from the date ofsuch resolution. Recently, the Board of Directors approved the Regulation on Dividend Policy setting outcertain guidelines concerning how the Board of Directors should recommend the payment of dividends.See ‘‘Dividend Policy’’.

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Distributions to shareholders on liquidation

Under Russian law, liquidation of a company results in the company ceasing to exist without rights andobligations being transferred to other persons as legal successors. The Joint Stock Companies Law and theCompany’s charter allow the Company to be liquidated:

• by a three-quarters majority vote at a General Shareholders’ Meeting; or

• by a court order.

Under Russian law, the General Shareholders’ Meeting may only resolve to liquidate the Company if thatis proposed by the Board of Directors. Following such a decision, the right to manage the Company’saffairs would pass to a liquidation commission which, in the case of voluntary liquidation, is appointed bythe General Shareholders’ Meeting once proposed by the Board of Directors and, in an involuntaryliquidation, is appointed by the court. The Company’s creditors may file claims within a period to bedetermined by the liquidation commission, but such period must not be less than two months from the dateof publication of notice of liquidation by the liquidation commission.

The Civil Code gives creditors the following order of priority during liquidation of a company:

• first—individuals owed compensation for personal injury or deaths, or moral damages;

• second—employees’ and copyright claims;

• third—federal and local governmental authorities claiming taxes and similar payments to the budgetsand non-budgetary funds; and

• fourth—other creditors, in accordance with Russian law.

Subject to certain limitations, claims of creditors in respect of obligations secured by a pledge over acompany’s property are satisfied from the sale proceeds of the pledged property prior to claims of anyother creditors, save for the creditors of the first and second orders of priority, provided that claims of suchcreditors arose before the respective pledges have been entered into. Any residual claims of securedcreditors that remain unsatisfied after the sale of the pledged property rank pari passu with claims of thefourth-priority creditors.

The Federal Law No. 127-FZ ‘‘On Insolvency (Bankruptcy)’’ dated 26 October 2002 (the Insolvency Law),however, provides for a different order of priority for creditors’ claims in the event of bankruptcy.

Liability of shareholders

The Civil Code and the Joint Stock Companies Law generally provide that shareholders of a Russian joint-stock company are not liable for the obligations of the company and bear only the risk of losing theirinvestments. This may not be the case, however, when one person or entity is capable of determiningdecisions made by another entity. The person or entity capable of determining such decisions is called an‘‘effective parent’’. The entity whose decisions are capable of being so determined is called an ‘‘effectivesubsidiary’’. The effective parent bears joint and several liability for transactions concluded by the effectivesubsidiary in carrying out these decisions if:

• this decision-making capability is provided for in the charter of the effective subsidiary or in a contractbetween such persons or entities; and

• the effective parent gives binding instructions to the effective subsidiary.

Therefore, shareholders will not be personally liable for the Company’s debts or those of the Company’seffective subsidiaries unless the shareholders control the Company’s business. See ‘‘Risk Factors—Risksrelating to Russia—Legislative and legal risks—Shareholder liability under Russian corporate law could causethe Company to become liable for the obligations of its subsidiaries’’.

In addition, the effective parent is secondarily liable for the effective subsidiary’s debts if the effectivesubsidiary becomes insolvent or bankrupt resulting from the fault of the effective parent only when theeffective parent has used the right to give binding instructions, knowing that the consequence of carryingout this action would be insolvency or bankruptcy of this effective subsidiary. This is the case no matterhow the effective parent’s capability to determine decisions of the effective subsidiary arises, such as

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through ownership of voting securities or by contract. If the effective subsidiary is a joint-stock company,the effective parent has secondary liability only if the effective parent has caused the effective subsidiary totake any action or fail to take any action, knowing that such action or failure to take action would result ininsolvency of the effective subsidiary. If the effective subsidiary is a limited liability company, the effectiveparent may be held secondarily liable if the effective subsidiary’s insolvency is caused by the wilfulmisconduct or negligence of such effective parent and if the effective subsidiary’s assets are insufficient tocover its obligations. To be relieved from the liability, the effective parent would need to prove before thecourt that it acted in good faith and in the interests of the effective subsidiary.

Shareholders of an effective subsidiary that is a joint-stock company may also claim compensation for theeffective subsidiary’s losses from the effective parent if: (i) the effective parent caused the effectivesubsidiary to take any action or fail to take any action that resulted in a loss and (ii) the effective parentknew that such action or failure to take such action would result in an effective subsidiary’s loss.Participants of an effective subsidiary that is a limited liability company may claim compensation for theeffective subsidiary’s losses from the effective parent if the effective parent through its wilful misconduct ornegligence caused the effective subsidiary to take any action that resulted in a loss.

ALTERATION OF SHARE CAPITAL

Share capital increase

The Company may increase its share capital by:

• issuing new shares; or

• increasing the nominal value of previously issued shares.

A decision to increase the share capital by issuing new shares or increasing the nominal value of previouslyissued shares requires the majority vote of the General Shareholders’ Meeting. A decision on the issuanceof shares by way of distribution between all shareholders or by way of conversion, or an issuance by opensubscription of ordinary shares or securities convertible into ordinary shares constituting 25 percent or lessof the number of issued ordinary shares, requires a unanimous vote by the Board of Directors. In addition,the issuance of shares above the number of authorised and non-issued shares provided in its charterrequires a charter amendment, approved by a three-quarters majority vote at a General Shareholders’Meeting.

A decision on issuance of shares or securities convertible into shares by open subscription, or an issuanceby open subscription of ordinary shares or securities convertible into ordinary shares constituting morethan 25 percent of the number of issued ordinary shares, requires a three-quarters majority vote by aGeneral Shareholders’ Meeting.

The Joint Stock Companies Law requires that newly issued shares be sold at the price determined by theBoard of Directors based on their market value. The Board of Directors may provide for a discount forexisting shareholders exercising their pre-emptive right to purchase shares for a price that shall not be lessthan 90 percent of the price set for third parties. Fees of an intermediary participating in the offering ofshares cannot exceed 10 percent of the share price. The price may not be set at less than the nominal valueof the shares. The Board of Directors shall evaluate any in-kind contributions made in consideration fornew shares based on the appraisal report of an independent appraiser.

Federal Law No. 39-FZ ‘‘On the Securities Market’’ dated 22 April 1996 (the Securities Market Law), andthe FSFM regulations set out detailed procedures for the registration and issuance of shares of the Russianjoint-stock company, including:

• adoption of a decision on an increase of share capital by an offering of additional shares;

• adoption of a decision on a share issuance;

• registration of a share issuance with the FSFM;

• offering of the shares;

• registration of the offering report or filing the offering notification with the FSFM; and

• public disclosures at the required stages of the issuance.

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Description of Share Capital and Applicable Russian Law

Share capital decrease; share buy-backs

The Joint Stock Companies Law does not allow a company to reduce its share capital below the minimumshare capital required by law, which currently is RUB100,000 for a Russian open joint-stock company. TheJoint Stock Companies Law requires that any decision to reduce the Company’s share capital through therepurchase and cancellation of its shares should be made by a majority vote of a General Shareholders’Meeting. The Joint Stock Companies Law provides that a decision to reduce a share capital through areduction in the nominal value of the respective shares should be made by a three-quarters majority at aGeneral Shareholder’s Meeting only on the proposal of the Board of Directors. Any decision to reduce theshare capital by way of reducing the nominal value of the shares may provide for payments to all theshareholders or transfer of securities of other companies owned by the Company.

The Joint Stock Companies Law allows the Company to reduce its share capital only if, at the time of suchreduction:

• the Company’s share capital is paid up in full;

• the Company has repurchased all shares from shareholders that have the right to demand to berepurchased under law protecting the rights of minority shareholders, as described below;

• the Company is not and would not become, as a result of the payment or the alienation of securities tothe shareholders as described above, insolvent;

• the value of the Company’s net assets is not less (and would not become less, as a result of thepayment or the alienation of securities to the shareholders) than the sum of the Company’s sharecapital, the reserve fund and the difference between the liquidation value and the par value of theCompany’s issued and outstanding preferred shares;

• the Company has fully paid all declared dividends; and

• the Company complies with other requirements of Russian law.

Additionally, within 3 business days of a decision to reduce the Company’s share capital, the Companymust notify the tax authorities of the same following which the Company must publish two notices (withthe second notice published 30 days after the publication of the first notice) of the decision to reduce theCompany’s share capital having been taken. The notices must be published on the webpage of the FederalTax Service of the Russian Federation and in the periodical publication designated by applicable Russianregulations. The Company’s creditors would then have the right to demand, within 30 days of the latestpublication, repayment of all amounts due to them, or, if repayment is not feasible, termination of therelevant obligation, as well as compensation for damages.

The Joint Stock Companies Law and the Company’s charter allow the Board of Directors to authorise therepurchase of up to 10 percent of Mostotrest’s Ordinary Shares in exchange for monetary consideration.The Ordinary Shares repurchased pursuant to a decision of the Board of Directors must be resold at themarket price within one year of their repurchase or, failing that, the General Shareholders’ Meeting mustdecide to cancel such shares and decrease the Company’s share capital.

The Joint Stock Companies Law allows the Company to repurchase its shares only if, at the time ofrepurchase:

• the Company’s share capital is paid up in full;

• the Company is not and would not become, as a result of the repurchase, insolvent;

• the value of the Company’s net assets is not less (and would not become less, as a result of theproposed repurchase) than the sum of the Company’s share capital, the reserve fund and thedifference between the liquidation value and the par value of the Company’s issued and outstandingpreferred shares; and

• the Company has repurchased all shares from shareholders having the right to demand repurchase oftheir shares under laws protecting the rights of minority shareholders, as described immediatelybelow.

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Description of Share Capital and Applicable Russian Law

Under Russian law, the Company’s shareholders may demand repurchase of all or some of their shares solong as the shareholders demanding repurchase voted against or did not participate in the voting on thedecision approving any of the following actions:

• any reorganisation;

• conclusion of a major transaction, which requires approval by the General Shareholders’ Meeting,subject to the provisions of the Joint Stock Companies Law; or

• amendment of the Company’s charter in a manner which results in restrictions of such shareholders’rights.

The Company shall repurchase the shares at the price stated by the Board of Directors, which shall not beless than the market value determined by an independent appraiser. The Company may spend up to10 percent of its net assets calculated under RAS for a share redemption demanded by the shareholders. Ifthe value of shares in respect of which shareholders have exercised their right to demand repurchaseexceeds 10 percent of the Company’s net assets, the Company will repurchase shares from each suchshareholder on a pro-rata basis.

REGISTRATION AND TRANSFER OF SHARES

All the Company’s shares are ordinary shares in registered form. Russian law requires that a joint-stockcompany must procure the maintenance of a register of its shareholders. A register of shareholders may bemaintained by the company itself or by a specialised third-party registrar. The Joint Stock Companies Lawrequires that a register of shareholders of a oint-stock company with more than 50 shareholders bemaintained by a registrar. Ownership of the Company registered Ordinary Shares is evidenced solely byentries made on such register. Any of the Company’s shareholders may obtain an extract from the registercertifying the number of shares that such shareholder holds. Under Russian law, an extract from ashareholders’ register may not be traded as a security. Since 1998, the Company’s shareholder register hasbeen maintained by CJSC ‘‘Registratsionno-depositarnyi centre Paritet’’. The purchase, sale or othertransfer of shares is accomplished through registration of the transfer on the register of shareholders, or ina depositary account if shares are held by a depositary. In the latter case, the depositary must act as anominal holder of shares in the Company’s register of shareholders. The registrar or depositary may notrequire any documents in addition to those required by Russian law in order to transfer shares in theregister. Refusal to register the shares in the name of the transferee or, upon request of the shareholder, inthe name of a nominee holder, is not allowed and may be challenged in court.

RESERVE FUND

Russian law requires that each joint-stock company establishes a reserve fund to be used only to cover thecompany’s losses, redeem the company’s bonds and repurchase the company’s shares in cases when otherfunds are not available. The reserve fund must be utilised only for the abovementioned purposes. TheCompany’s charter provides for the reserve fund of 25 percent of the Company’s share capital, fundedthrough mandatory annual transfers of 5 percent of the Company’s net profits until the reserve fund hasreached the 25 percent requirement.

DISCLOSURE OF INFORMATION

Russian securities regulations require the Company to make the following public disclosures and filings ona periodical basis:

• filing quarterly reports with the FSFM containing information about the Company, its shareholders,management bodies, members of its Board of Directors, branches and representative offices, theOrdinary Shares, working capital, bank accounts and auditors, important developments during thereporting quarter and other information about the Company’s financial and business activity anddisclosing the same information on the Company’s website on the same time basis as required byapplicable securities regulations;

• publishing in a newswire (Interfax) and on the Company’s website, as well as in certain cases,publishing in a periodical publication any information concerning material facts and changes in theCompany’s financial and business activity, including among other things the Company’s

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reorganisation, certain changes in the amount of the Company’s assets; certain changes in ownershipand shareholding as well as certain resolutions of the General Shareholders’ Meeting and the Boardof Directors;

• disclosing the Company’s charter and internal regulations;

• disclosing information on any of the following documents the Company has received:

• a voluntary offer (including any competing offer);

• a mandatory offer (including any competing offer);

• a notice of the right of shareholders to sell their shares to the person that has acquired more than95 percent of the Company’s Ordinary Shares;

• a request that minority shareholders sell their shares to the person that has acquired more than95 percent of the Company’s Ordinary Shares;

• disclosing information on various stages of the share issuance, registration and placement throughpublication of certain data, as required by applicable securities regulations;

• publishing the Company’s annual report and annual financial statements prepared in accordance withRAS together with an audit opinion as well as the Company’s annual and interim IFRS financialstatements together with an audit opinion in cases required by applicable securities regulations;

• disclosing on a quarterly basis a list of the Company’s affiliated persons on the Company’s website andpublishing in a newswire a notice about disclosure of the list of affiliated persons on the Company’swebsite within one day after disclosure of the list on the Company’s website; and

• disclosing other information, as required by applicable Russian securities law.

GENERAL SHAREHOLDERS’ MEETING

Procedure

The powers of the General Shareholders’ Meeting are set forth in the Joint Stock Companies Law and inthe Company’s charter. The scope of authority of the General Shareholders’ Meeting is limited to thepowers contemplated by the Joint Stock Companies Law and the Company’s charter. Among issues thatthe General Shareholders’ Meeting has the power to decide on are:

• amendments and additions to the Company’s charter;

• the Company’s reorganisation;

• the Company’s liquidation, appointment of the liquidation commission and approval of preliminaryand final liquidation balances;

• determining of the number of members of the Board of Directors, election and removal of membersof the Board of Directors;

• determining the number, nominal value and class/type of authorised shares and the rights granted bysuch shares;

• transfer of the General Director’s authorities to a management company or a manager, and theirdismissal;

• appointment and removal of the members of the Company’s revision commission;

• approval of the Company’s external auditor;

• increase of the Company’s share capital by means of:

• increasing the nominal value of the Company’s shares;

• issuing shares via closed subscription; and

• issuing shares constituting more than 25 percent of the number of issued and outstandingOrdinary Shares via open subscription;

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• issuing securities convertible into ordinary shares in which such securities which may be convertedexceed 25 percent of the number of issued and outstanding Ordinary Shares;

• reduction of the Company’s share capital either by reduction of the nominal value of the shares, or bybuy-back of the Company’s outstanding Ordinary Shares for the purposes of such reduction, and theirfurther cancellation;

• splitting and consolidating the Company’s shares;

• approval of the Company’s annual reports and financial statements;

• approval of interested party transactions and major transactions subject to requirements of the JointStock Companies Law;

• distribution of profits, including payment of dividends;

• setting out a procedure for holding the General Shareholders’ Meeting;

• approval of the Company’s participation in financial and industrial groups, associations and otherunions of commercial organisations;

• approval of certain internal regulations;

• payment of remuneration and (or) compensations to the members of the Board of Directors;

• payment of remuneration and (or) compensations to the members of the Company’s revisioncommission; and

• other issues, as provided for by the Joint Stock Companies Law and the Company’s charter.

Voting at a General Shareholders’ Meeting is generally based on the principle of one vote per ordinaryshare, with the exception of the election of the Board of Directors, which is done through cumulativevoting.

Ordinarily, a majority vote of the voting shares present at a General Shareholders’ Meeting is required fora decision of the General Shareholders’ Meeting to be taken. However, Russian law requires a three-quarters majority vote of the voting shares present at a General Shareholders’ Meeting to approve thefollowing:

• amendments and additions to the Company’s charter;

• the Company’s reorganisation or liquidation, appointment of the liquidation commission and approvalof preliminary and final liquidation balances;

• determination of the number, nominal value and type of authorised shares and the rights granted bysuch shares;

• major transactions involving assets in excess of 50 percent of the balance sheet value of the Company’sassets;

• reduction of the Company’s share capital by buy-back of the Company’s outstanding shares for thepurposes of such reduction as well as reduction of the Company’s share capital by decreasing thenominal value of the Company’s shares;

• increase of the Company’s share capital by issuance of shares if either placed by closed subscription orplaced by open subscription and the amount of such shares exceeds 25 percent of number of issuedand outstanding Ordinary Shares; and

• issuing bonds or other securities convertible into ordinary shares if either placed by closedsubscription or placed by open subscription and the amount of ordinary shares in which such securitiesmay be converted exceeds 25 percent of number of issued and outstanding Ordinary Shares.

The quorum requirement for a General Shareholders’ Meeting is met if shareholders (or theirrepresentatives) accounting for more than 50 percent of the issued voting shares are present. If the50 percent quorum requirement is not met, another General Shareholders’ Meeting with the same agendamay (and, in case of an annual General Shareholders’ Meeting, must) be convened and the quorum

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requirement is met if shareholders (or their representatives) accounting for at least 30 percent of theissued voting shares are present at that meeting.

An annual General Shareholders’ Meeting must be convened by the Board of Directors between 1 March,and 30 June, of each year, and the agenda must include among other issues the following:

• election of the members of the Board of Directors;

• approval of the annual report and the annual financial statements, including the balance sheet andprofit and loss statement;

• approval of distribution of profits, including approval of annual dividends, if any;

• approval of an external auditor; and

• appointment of the members of the revision commission.

A shareholder or shareholders owning in aggregate at least 2 percent of the issued voting shares mayintroduce proposals for the agenda of an annual General Shareholders’ Meeting and may nominatecandidates for the Board of Directors and the revision commission. Any agenda proposals or nominationsmust be provided to the Company no later than 60 calendar days after the end of the preceding financialyear.

Extraordinary General Shareholders’ Meetings may be convened by the Board of Directors on its owninitiative, or at the request of the revision commission, the external auditor or a shareholder owningindividually or collectively with other shareholders in aggregate at least 10 percent of the issued votingshares as of the date of the request.

A General Shareholders’ Meeting may be held in a form of a meeting or by absentee ballot. The form of ameeting contemplates the adoption of resolutions by a General Shareholders’ Meeting through theattendance of the shareholders or their authorised representatives for the purpose of discussing and votingon issues on the agenda, provided that if the ballot is mailed to shareholders for participation at a meetingconvened in such form, the shareholders may complete and mail the ballot back to the company withoutpersonally attending the meeting. A General Shareholders’ Meeting by absentee ballot envisages collectingshareholders’ opinions on issues on the agenda by means of a written poll.

The following issues cannot be decided by a General Shareholders’ Meeting by absentee ballot:

• election of the members of the Board of Directors;

• election of the revision commission;

• approval of the external auditor; and

• approval of the annual report, the annual financial statements, including balance sheet, profit and lossstatement, and any distribution of profits, including approval of annual dividends, if any.

If the number of shareholders exceeds 1,000 persons, the voting at the General Shareholders’ Meeting heldin the form of a meeting must be done using voting ballots which should be sent to the shareholdersentitled to participate in the General Shareholders’ Meeting at least 20 days in advance of the GeneralShareholders’ Meeting.

Notice and participation

All shareholders entitled to participate in a General Shareholders’ Meeting must be notified of themeeting, whether the meeting is to be held in direct form or by absentee ballot, at least 20, and,if the meeting agenda includes a vote on the Company’s reorganisation, at least 30 days prior to thedate of the meeting. Such notification shall specify the agenda for the meeting. However, if it is anextraordinary General Shareholders’ Meeting to elect the Board of Directors, shareholders must benotified at least 70 days prior to the date of the meeting. Only those items that were set out in the agendato shareholders may be voted upon at a General Shareholders’ Meeting.

The list of persons entitled to participate in a General Shareholders’ Meeting is to be compiled on thebasis of data in the Company’s register of shareholders on the date established by the Board of Directors,which date may neither be earlier than the date of adoption of the resolution of the Board of Directors to

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hold a General Shareholders’ Meeting nor more than 50 days before the date of the meeting (or, in thecase of an extraordinary General Shareholders’ Meeting convened to elect the Board of Directors, notmore than 85 days before the date of such General Shareholders’ Meeting).

Generally, the right to participate in a General Shareholders’ Meeting may be exercised by a shareholderas follows:

• by personal attendance;

• by attendance of a duly authorised representative (by proxy);

• by absentee ballot; or

• by delegating the right of absentee ballot to a duly authorised representative.

BOARD OF DIRECTORS

Pursuant to the Joint Stock Companies Law and the Company’s charter, the Board of Directors performsgeneral management, except for adoption of decisions that fall within the exclusive competence of aGeneral Shareholders’ Meeting.

The Joint Stock Companies Law requires at least a five-member board of directors for all joint-stockcompanies (unless the number of shareholders is 50 or less in which case the board of directors isoptional), at least a seven-member board of directors for joint-stock companies with more than 1,000holders of voting shares, and at least a nine-member board of directors for joint-stock companies withmore than 10,000 holders of voting shares. Only individuals (as opposed to legal entities) are entitled to siton the board of directors. Members of the Board of Directors are not required to be the Company’sshareholders. A charter or a decision of a General Shareholders’ Meeting determines the actual number ofdirectors. The Company’s charter provides that the Board of Directors shall consist of eleven members.

The Joint Stock Companies Law provides for the election of the Company’s entire Board of Directors ateach annual General Shareholders’ Meeting. The Board of Directors is elected by way of cumulativevoting. Cumulative voting means that each shareholder may cast an aggregate number of votes equal to thenumber of shares held by such shareholder multiplied by the number of persons on the Board of Directors,and the shareholder may give all such votes to one candidate or spread them between two or morecandidates. Before the expiration of their term, the entire Board of Directors may be dismissed at any timeupon shareholders’ discretion by a majority vote of a General Shareholders’ Meeting.

The Joint Stock Companies Law generally prohibits the Board of Directors from acting on issues that fallwithin the exclusive competence of a General Shareholders’ Meeting. The Board of Directors has thepower to perform the general management, and to decide, among others, the following issues:

• determination of the Company’s business priorities and strategy;

• convening of annual and extraordinary General Shareholders’ Meetings, except for certain casesspecified in the Joint Stock Companies Law;

• approval of the agenda of a General Shareholders’ Meeting;

• election and removal of the General Director;

• determination of the record date for shareholders entitled to participate in a General Shareholders’Meeting and other issues in connection with preparation for, and holding of, General Shareholders’Meetings;

• adoption of a decision to increase the Company’s share capital in cases specified in the Joint StockCompanies Law and the Company’s charter;

• issuance of bonds and other securities which are not convertible into ordinary shares;

• issuance of bonds or other securities convertible into ordinary shares if placed by open subscriptionand the amount of ordinary shares in which such securities may be converted does not exceed25 percent of number of issued and outstanding ordinary shares;

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• determination of the price of the Company’s property and of the Company’s securities to be placed orrepurchased, as provided for by the Joint Stock Companies Law;

• approval of decisions on issuance of securities, prospectuses related to securities and amendments tosuch documents;

• repurchase of the Company’s shares, bonds and other securities in certain cases provided for by theJoint Stock Companies Law;

• recommendations on the amount of remuneration and compensation to be paid to members of therevision commission and on the fees payable for the services of an external auditor;

• recommendations on the amount of the dividend on shares and the payment procedure thereof;

• use of the Company’s reserve fund and other funds;

• approval of the Company’s internal documents, except for those documents whose approval fallswithin the competence of the General Shareholders’ Meeting;

• establishment of branches and representative offices and their liquidation;

• approval of major and interested party transactions in cases specified by the Joint Stock CompaniesLaw;

• election of the Company’s corporate secretary;

• approval of transactions involving the acquisition, disposal or other transfers of rights to shares orparticipatory interests in the charter capital of legal entities, real property, including land plots andunfinished property construction, as well as certain other transactions as provided for by theCompany’s charter; and

• other issues, as provided for by the Joint Stock Companies Law and the Company’s charter.

Meetings of the Board of Directors are called by the chairman on his or her own initiative, or at therequest of:

• a member of the Board of Directors;

• the Company’s revision commission;

• the Company’s General Director; or

• external auditor.

A meeting of the Board of Directors has a quorum if not less than three quarters of its members elected ata General Shareholders’ Meeting are present at the meeting. Generally, a three-quarters majority vote ofthe members of the Board of Directors is required to adopt a decision. Certain decisions (such as increasesof the share capital and approvals of major transactions) require the unanimous vote of all members of theBoard of Directors. The Joint Stock Companies Law requires that, in certain cases, a decision of the Boardof Directors approving an interested party transaction requires a majority vote of the disinterested andindependent directors.

GENERAL DIRECTOR

The General Director is the Company’s chief executive officer. The Board of Directors elects the GeneralDirector and determines his/her term in the office, but can remove the General Director at any time.

The General Director exercises day-to-day control over the Company’s activities and is accountable to theBoard of Directors and the General Shareholders’ Meeting. The General Director has the power to act onthe Company’s behalf without a power of attorney and to decide, among others, the following issues:

• performance of the routine management of the Company’s operations;

• development of programmes to expand the Company’s principal business;

• ensuring compliance with the Company’s existing business programmes;

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• preparation of reports on the Company’s activities and performance of resolutions of the GeneralShareholders’ Meetings and the Board of Directors;

• disposal of the Company’s property, entry into transactions on behalf of the Company, issuance ofpowers of attorney on behalf of the Company, opening of the Company’s settlement accounts andother accounts with the banks and other credit institutions;

• issuance of orders and instructions binding upon all subordinated officers and employees of theCompany; and

• employment of the Company’s staff.

CORPORATE GOVERNANCE

The Ordinary Shares have been listed on the ‘‘B’’ list of the RTS from 2 June 2010. As a result, theCompany is required to comply with the corporate governance regime established for companies whoseshares are listed on the ‘‘B’’ list of a Russian stock exchange. This regime permits Russian companies tobring their corporate governance procedures into compliance with established corporate governancestandards within one year after the date of listing.

Such corporate governance standards include, among other things, the following:

• at least one independent director (in accordance with the independence criteria as set out by Russianlaw) on the Company’s Board of Directors at all times. See ‘‘Management and Corporate Governance—Corporate Governance’’;

• establishment of an audit committee of the Board of Directors consisting of members of the Board ofDirectors, the chairman of which must be an independent director and the other members must notinclude the General Director or any other members of the management board;

• the provision to the shareholders in advance of the annual General Shareholders’ Meeting of a reportfrom the audit committee summarising any findings from the audit of the financial statements;

• a provision in the Company’s internal regulations requiring the General Director as well as themembers of the Board of Directors and the management board to disclose information on theirownership, sale and purchase of the Company’s issued securities;

• adoption of an internal regulations on the use of insider information and on internal control overfinancial and business activities;

• adoption by the Board of Directors of internal regulations determining the procedures for thesupervision of the Company’s financial and economic activities; and

• a provision in the Company’s charter that shareholders must be given at least 30 days’ notice of theannual General Shareholders’ Meeting.

In addition, the Company is obliged to provide RTS with a list of its affiliated persons as well as toregularly update the same.

As at the date of this offering circular, the Company has complied with all corporate governance standardsestablished for companies whose shares are listed on the ‘‘B’’ list of a Russian stock exchange. TheCompany will need to be in full compliance with all corporate governance standards for companies on the‘‘B’’ list within one year after 2 June 2010, the date of listing of the Group’s shares on the ‘‘B’’ list of theRTS.

To bring the Company into compliance with the corporate governance requirements described above, theCompany has adopted a number of internal regulations governing the activities of its management bodies.As at the date of this offering circular, according to the Company’s internal regulations, the chairman ofthe Board of Directors should not serve as the General Director and at least one member of the Board ofDirectors should be independent, each of them meeting the following requirements:

(i) he/she should not be an officer or employee of the Company nor should he/she have been an officeror employee during the last one year;

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(ii) he/she should not be an officer of another company if an officer of such company is a member of thehuman resources compensation and development committee of the Board of Directors;

(iii) he/she should not be a spouse, parent, child, brother or sister of an officer of the Company;

(iv) he/she should not be the Company’s affiliate (other than from being a member of the Board ofDirectors);

(v) he/she should not be a party to transactions with the Company where he/she is entitled to acquireproperty with a value of 10 percent or more of his/her total annual income, excluding compensationfor being a member of the Company’s Board of Directors; and

(vi) he/she should not be a representative of the State.

To further bring the Company into compliance with the required corporate governance standards it hasalso adopted internal regulations on public disclosure of information, use of insider information andinternal control. See ‘‘Management and Corporate Governance—Internal control’’.

MAJOR TRANSACTIONS

The Joint Stock Companies Law defines a ‘‘major transaction’’ as a transaction, or a series of relatedtransactions, involving the acquisition or disposal, or the possibility of disposal of property with the valueof 25 percent or more of the balance sheet value of the assets of a company as determined under RAS,with the exception of transactions conducted in the ordinary course of business or transactions involvingthe issuance of ordinary shares, or securities convertible into ordinary shares. Major transactions involvingassets ranging from 25 percent to 50 percent of the balance sheet value of the company’s assets, asdetermined according to its financial statement for the latest reporting date, require unanimous approvalby all members of the Board of Directors or, failing to receive such approval, require a simple majorityvote of a General Shareholders’ Meeting. Major transactions involving assets in excess of 50 percent of thebalance sheet value of the assets of the company require a three-quarter majority vote of a GeneralShareholders’ Meeting.

Any major transaction entered into in breach of the above requirements may be invalidated by a courtpursuant to an action of the company or any of its shareholders.

INTERESTED PARTY TRANSACTIONS

The Joint Stock Companies Law contains requirements in respect of interested party transactions. Aninterested party transaction is a transaction with an ‘‘interested party’’, which is a member of the board ofdirectors of a company, a person performing functions of the sole executive body of the company(including a managing company or a manager, which performs functions of the sole executive body of thecompany under a contract), a member of the collective executive body of the company or a shareholder,who owns, together with any of its affiliates, at least 20 percent of the company’s voting shares, or anyperson able to issue mandatory instructions to the company, if any of the abovementioned persons, or anyof these persons’ spouse, close relatives, adoptive parents or children or affiliates:

• is a party to, or beneficiary of, a transaction with the company, whether directly or as a representativeor intermediary;

• owns, individually or collectively, at least 20 percent of the shares of a legal entity that is a party to, orbeneficiary of, a transaction with the company, whether directly or as a representative or intermediary;

• holds office in any management body of the company (or in any management body of the managingcompany of such company) that is a party to, or beneficiary of, a transaction with the company,whether directly or as a representative or intermediary; or if any of these persons or entities qualify asan ‘‘interested party’’ in accordance with a Company’s charter.

The Joint Stock Companies Law requires that a transaction with an interested party be approved by amajority vote of the company’s disinterested members of the board of directors or by a decision of themajority of disinterested shareholders holding voting shares, as applicable.

In a company with more than 1,000 shareholders holding voting shares a disinterested director is entitledto vote on the approval of an interested party transaction only if he/she is an ‘‘independent director’’, i.e. a

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member of the board of directors who is not, and within one year preceding the decision was not,(i) performing the functions of the sole executive body (including being a manager) or the collectiveexecutive body of the company, or holding offices in management bodies of the managing company, (ii) aperson whose spouse, close relatives, adoptive parents or children hold positions in any of theabovementioned management bodies, managing company of the company, or a manager of the company,or (iii) otherwise an affiliate of the company (except for the members of the board of directors of thecompany).

An interested party transaction must be approved by a decision of the majority of disinterestedshareholders holding voting shares if:

• the value of such a transaction, or series of transactions, is 2 percent or more of the balance sheetvalue of the company’s assets as at the last reporting date;

• the transaction, or series of transactions, involves the issuance by subscription of ordinary shares orsecurities convertible into such shares in the amount exceeding 2 percent of the company’s existingordinary shares or securities convertible into such shares;

• the transaction, or series of transactions, involves the issuance by subscription of securities convertibleinto shares, which may be converted into ordinary shares, in the amount exceeding 2 percent of thecompany’s existing ordinary shares or ordinary shares into which the abovementioned convertiblesecurities may be converted;

• all members of the Board of Directors of the company with more than 1,000 shareholders holdingvoting shares are interested parties, or if none of them is an independent director; or

• the number of the disinterested directors of the company with 1,000 or less shareholders holdingvoting shares is not sufficient to constitute a quorum.

The approval of interested party transactions is not required in the following instances:

• the company has only one shareholder that simultaneously performs the functions of the soleexecutive body of the company;

• all shareholders of the company are interested in such transactions;

• the transactions arise from the shareholders executing their pre-emptive rights to purchase newlyissued shares of the company;

• the transactions arise from the repurchase, whether mandatory or not, by the company of its issuedshares;

• the company merges with another company; or

• entering into a transaction is obligatory for the company under Russian law and settlement withrespect to which is effected in accordance with the fixed prices and tariffs established by authorisedregulatory authorities.

An interested party transaction entered into in breach of the abovementioned rules may be invalidated bya court pursuant to an action of the company or any of its shareholders. The interested party is liable to thecompany for any loss incurred by such company.

SHAREHOLDERS’ AGREEMENTS

In June 2009, the Joint Stock Companies Law was amended to expressly permit shareholders’ agreementsin respect of Russian joint-stock companies. In particular, the Joint Stock Companies Law stipulates thatshareholders may enter into an agreement under which they undertake to exercise their shareholder rightsin a certain manner or to refrain from exercising their shareholder rights, including, inter alia:

(i) to vote in a certain manner at a General Shareholders’ Meeting;

(ii) to coordinate voting with other shareholders;

(iii) to acquire or dispose of shares at a pre-determined price or upon occurrence of certain circumstances;

(iv) to refrain from disposing of shares until occurrence of certain circumstances; and

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(v) to perform jointly other actions relating to the company’s management, activities, reorganisation andliquidation.

Provisions of the Joint Stock Companies Law in respect of shareholders’ agreements are very generic andhave been largely untested. It remains to be seen how this new regulation is implemented and enforced inpractice.

As far as the Company or the Selling Shareholder is aware, the Company’s shareholders have not enteredinto any shareholders’ agreements.

CHANGE OF CONTROL

Anti-takeover protection

Effective 1 July 2006, Russian law has been amended to introduce new anti-takeover provisions. The keyanti-takeover provisions of the revised Joint Stock Companies Law are as follows:

A person intending to acquire more than 30 percent of an open joint-stock company’s voting shares(including, for such purposes, the shares already owned by such person and its affiliates), has the right tomake a public tender offer to purchase the remaining shares from other shareholders or holders ofsecurities convertible into company’s shares (voluntary offer).

Within 35 days after acquisition by any means of more than 30 percent, 50 percent or 75 percent of votingshares or 35 days from the date when the acquirer learned or should have learnt that it eitherindependently or together with its affiliates, owns such number of shares, the acquirer is required to makea public offer to purchase the remaining shares from other shareholders (mandatory offer).

If, as a result of either the voluntary or the mandatory offer, the acquirer purchases more than 95 percentof the voting shares, including shares owned by its affiliates, it is required to (i) notify all the othershareholders (within 35 days after acquisition of shares above such threshold) of their right to sell theirshares and other securities convertible into such shares, and (ii) purchase their shares upon request of eachminority shareholder. Instead of giving such notice, the acquirer may deliver to a company a buy-outdemand, binding on the minority shareholders, that they sell their shares if the acquirer crossed the95 percent threshold by acquiring at least 10 percent of the voting shares in a voluntary of mandatory offer.

An offer of the kind described in either of the preceding three paragraphs must be accompanied by anirrevocable bank guarantee of payment, a share price valuation report prepared by an independentappraiser and certain other documents. If the company is publicly traded, prior notice of the offers must befiled with the FSFM; otherwise, such offers must be filed with the FSFM no later than the date of the offer.The FSFM may require revisions to be made to the terms of the offer (including the price) in order tobring them into compliance with the rules.

At any time after the company receives a voluntary or a mandatory offer and until 25 days prior to theexpiration of the relevant acceptance period, any person will have the right to make a competing offer(that satisfies the requirements for a voluntary or mandatory offer, respectively) to purchase shares in thequantity of and at the price that are greater than or equal to the quantity and the price offered in the initialvoluntary or mandatory offer. Any shareholder may revoke its previous acceptance of the respective offerand accept the competing offer. A copy of the competing offer shall be sent to the person who made theinitial voluntary or mandatory offer so that such person can amend its offer by increasing the purchaseprice and/or shortening the settlement period. As soon as the voluntary or mandatory offer has been madeand until expiration of a 20-day period after the expiration of the period for acceptance of the voluntary ormandatory offer, only the company’s shareholders’ meeting will have the exclusive power to makedecisions on a share capital increase through an additional share issuance, on approval of interested partyand certain other transactions and on certain other significant matters.

FOREIGN OWNERSHIP

Federal Law No. 57-FZ ‘‘On Foreign Investments in Companies having Strategic Importance for procuringState Defence and Security’’ dated 29 April 2008 (the Foreign Investments in Strategic Sectors Law) regulatesforeign investments (whether direct or indirect) in Russian businesses having strategic importance forprocuring State defence and security (Strategic Companies) and, among other matters, requires foreign

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Description of Share Capital and Applicable Russian Law

investors to receive a prior consent of the special government commission before acquiring certainpercentages of voting shares or certain management rights in respect of Strategic Companies. Currently,the Company is not considered to be a Strategic Company for purposes of the Foreign Investments inStrategic Sectors Law and except as described below, foreign investments in the Company’s shares are notrestricted.

Federal Law No. 160-FZ ‘‘On Foreign Investments in the Russian Federation’’ dated 9 July 1999, asamended (the Foreign Investments Law), provides that any acquisition (whether direct or indirect) by aforeign State or international organisation or entities controlled by them of (i) more than 25 percent ofvoting shares of a Russian company (such as the Company); or (ii) any powers to block decisions of themanagement bodies of a Russian company (such as the Company), require a prior approval of the specialgovernment commission in accordance with the procedures set forth in the Strategic Investments Law.

OFFERING OUTSIDE OF RUSSIA

Russian law requires a permit from the FSFM to be obtained prior to an offering of a Russian issuer’sshares outside Russia. The recently adopted FSFM regulations provide that no more than 15 percent ofany class of a Russian issuer’s shares listed on the ‘‘B’’ list of a Russian stock exchange may be placed orcirculated abroad. In circumstances where the FSFM entered into a treaty with the relevant foreignsecurities market regulator this threshold may be increased up to 25 percent.

NOTIFICATION OF FOREIGN OWNERSHIP

Foreign persons registered as individual entrepreneurs in Russia and foreign companies, regardless ofwhether they are registered with the Russian tax authorities, who acquire shares in a Russian joint-stockcompany, may need to notify the Russian tax authorities within one month following such acquisition. Theprocedure for notifying the Russian tax authorities by foreign companies that are not registered with theRussian tax authorities at the time of their share acquisitions is unclear. Other than this notificationrequirement and the restriction on foreign sovereign ownership described under ‘‘—Foreign ownership’’above, there are no requirements or restrictions with respect to foreign ownership of the Company’sshares.

NOTIFICATION OF ACQUISITION OF SIGNIFICANT INTEREST

Pursuant to Russian securities laws, each holder of ordinary shares of a joint-stock company which hasissued securities in respect of which a prospectus has been registered by the Russian securities marketregulator, must notify the company and the FSFM of any acquisition of 5 percent or more of the ordinaryshares, or acquisition of the right to cast votes attached to 5 percent or more of the ordinary shares byvirtue of an agreement or otherwise, and any subsequent change in the number of the ordinary sharesabove or below a 5 percent, 10 percent, 15 percent, 20 percent, 25 percent, 30 percent, 50 percent or75 percent threshold. Each notification should contain the name of the acquirer, the name of the company,the State registration number of the ordinary shares issuance and the number of the ordinary sharesacquired (or votes in respect to which can be cast). Such notifications must be generally given within fivedays after the ordinary shares have been transferred to such shareholder’s securities account or after theacquisition of the right to cast votes attached to such ordinary shares, whether by virtue of an agreement orotherwise.

ANTI-MONOPOLY REGULATION

Under Federal Law No. 135-FZ ‘‘On Protection of Competition’’ dated 26 July 2006 (as amended) (theCompetition Law) a person (or a group of affiliated persons) may be considered as having a dominantposition in a particular market. A dominant position may arise in circumstances when (a) the person (or agroup of affiliated persons) has a market share in a particular market in excess of 50 percent, unless it isspecifically established that the person (or a group of affiliated persons) does not have a dominantposition; (b) the person has a market share in a particular market in excess of 35 percent (but less than50 percent), and it is specifically established by the FAS that the person (or a group of affiliated persons)has a dominant position based on the following factors: (i) the share of the person in the relevant market ispermanent or is subject to insignificant changes as compared to competitors’ shares in the same market;(ii) the likelihood of successful entry into the relevant market by a new competitor is low; or (iii) other

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Description of Share Capital and Applicable Russian Law

criteria characterising the market that the FAS deems relevant; or (c) the person has a market share in aparticular market less than 35 percent but exceeding shares of competitors in the same market, which canhave a crucial impact on general conditions of commodity circulation in the market, if (i) the person canunilaterally determine a price level and have a crucial impact on general conditions of sales in the relevantmarket; (ii) access to the relevant market of new competitors is hampered due to economic, technological,administrative or other limitations; (iii) the commodity being sold or purchased by the person cannot bereplaced by other commodities in the course of consumption; and (iv) change of the commodity price doesnot condition the relevant decrease of demand for such commodity. Russian law provides for certain othercases where a person (or a group of affiliated persons) holding a market share in a particular market that isless than 35 percent may be deemed to be holding a dominant position.

Under the Competition Law, a person with a dominant position in a particular market shall not engage inthe activities that result or may result in the prevention, limitation or elimination of competition or theinfringement of interests of other persons, including, among others, the following activities: (a) fix and/ormaintain excessively high or excessively low prices; (b) withdraw goods or services from circulationresulting in price increases; (c) dictate terms unfavourable to a counterparty or irrelevant to the subject-matter of the agreement; (d) reduce or terminate production of goods or provision of services for reasonsthat are not economic or technological in nature, where demand for the goods or services exists, so long asthe goods or services can be produced/provided at a profit; (e) refuse or escape to enter into an agreementwith particular buyers or customers for reasons that are not economically or technologically justified,where the goods or services can be produced or supplied; (f) fix differing prices (tariffs) for the same goodsor services for reasons that are not economically or technologically justified; (g) create discriminatoryconditions; (h) create barriers to enter or exit a particular market; or (i) violate legal requirements relatingto pricing.

The FAS is authorised to issue binding orders on persons to eliminate abuse of a dominant position, as wellas to transfer the profits obtained as a result of the illegal conduct to federal funds. The FAS also has apower to require in a court order a spin-off or split of business operations of a legal entity that holds adominant position and repeatedly (i.e., more than two times within three years) abuses its dominantposition.

In addition to the above requirements set forth with regard to a dominant position, the Competition Lawprovides for a merger control regime, i.e., the necessity of ‘‘approval prior to closing’’ by the FAS, of thefollowing actions:

(a) an acquisition by a person (or its group) of more than 25 percent of the voting shares of a joint-stockcompany (1⁄3 participation interest in a limited liability company) and the subsequent increase of theshareholding up to more than 50 percent and more than 75 percent of the voting shares of a joint-stock company (1⁄2 and 2⁄3 participation interest in a limited liability company); or acquisition by aperson (or its group) of the core production assets (other than land plots of non-industrial use,buildings, structures, constructions, premises and parts thereof, objects of unfinished construction)and/or intangible assets of an entity if the balance sheet value of such assets exceeds 20 percent of thetotal balance sheet value of the core production and intangible assets of such entity; or obtainingrights to determine the conditions of business activity of an entity or to exercise the powers of itsexecutive body by a person (or its group), if the aggregate asset value of an acquirer (and its group)together with a target (and its group) exceeds RUB7 billion and at the same time the total asset valueof the target (and its group) exceeds RUB250 million; or the total annual revenues of such acquirer(and its group) and the target (and its group) for the preceding calendar year exceed RUB10 billionand at the same time the total asset value of the target (and its group) exceeds RUB250 million or anacquirer, and/or a target, or any entity within the acquirer’s group or a target’s group are included inthe Register of Entities Having a Dominant Position or a Market Share in Excess of 35 percent on aParticular Commodity Market (the FAS Register);

(b) mergers and consolidations of companies, if their aggregate asset value (the aggregate asset value ofthe groups of persons to which they belong) exceeds RUB3 billion; or total annual revenues of suchentities (groups of persons to which they belong) for the preceding calendar year exceedRUB6 billion; or if one of these entities is included into the FAS Register; and

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Description of Share Capital and Applicable Russian Law

(c) foundation of a company, if its share capital is paid by the shares (participation interests) and/or theassets (except for cash) of another company or the newly founded entity acquires the shares(participation interests) and/or assets (except for cash) as specified in item (a) above provided that theaggregate asset value of the founders (group of persons to which they belong) and the entities (groupsof persons to which they belong) which shares (participation interests) and/or assets (except for cash)are contributed to the share capital of the newly founded entity exceeds RUB7 billion; or total annualrevenues of the founders (group of persons to which they belong) and the entities (groups of personsto which they belong) which shares (participation interest) and/or assets are contributed to the sharecapital of the newly founded entity for the preceding calendar year exceed RUB10 billion; or if anentity whose shares (participation interests) and/or assets (except for cash) are contributed to theshare capital of the newly founded entity is included in the FAS Register.

The Competition Law establishes a 30-day review period for pre-closing approval of transactions. Thereview period may be extended for a further two months if the FAS believes the prospective transactionmight restrict competition with respect to a particular market.

The Competition Law provides for a mandatory post-transactional notification (within 45 days of theclosing) of the FAS in connection with actions specified in items (a) above if the aggregate asset value ortotal annual revenues of an acquirer (and its group) and a target (and its group) for the preceding calendaryear exceed RUB400 million and at the same time the total asset value of the target (its group) exceedsRUB60 million; and (b) above (with respect to consolidations) if their aggregate asset value or total annualrevenues of the relevant companies for the preceding calendar year exceed RUB400 million.

Under the Competition Law, if an acquirer has acted in violation of the merger control rules and acquired,for example, shares without obtaining the prior approval of the FAS, the transaction may be invalidated bya court resolution held upon the FAS claim, provided that such transaction has led or may lead to therestriction of competition, for example, by means of strengthening of a dominant position in the relevantmarket.

More generally, Russian law provides for civil, administrative and criminal liability for the breach ofanti-monopoly law.

NEGATIVE NET ASSETS

Under Russian corporate law, if the net assets of a Russian limited liability company calculated on thebasis of RAS as at the end of its second or any subsequent financial year are lower than its charter capital,the company must make a decision on the decrease of its charter capital to the amount of its net assets. Ifthe net assets of a Russian joint-stock company calculated on the basis of RAS as at the end of its secondfinancial year are lower than its charter capital, the joint-stock company’s board of directors shall discloseit in the annual report. Furthermore, if the net assets of a Russian joint-stock company calculated on thebasis of RAS as at the end of the financial year that follows its second or any subsequent financial year, atthe end of which the net assets of such company were lower than its charter capital, remain lower than itscharter capital, the company must make a decision on the decrease of its charter capital to the amount ofits net assets or on its liquidation. In addition, if a Russian company’s (both a limited liability company anda joint-stock company) net assets calculated on the basis of RAS as at the end of its second or anysubsequent financial year are lower than the minimum amount of the charter capital required by law, thecompany must make a decision on its liquidation.

Moreover, if a Russian company (both a limited liability company and a joint-stock company) fails tocomply with any of the requirements stated above within the required period of time (within a reasonableperiod of time for a limited liability company and within six months upon the end of the relevant financialyear for a joint-stock company), governmental or local authorities will be able to seek the involuntaryliquidation of such company in court. In addition, if a Russian company (both a limited liability companyand a joint-stock company) fails to comply with any of the requirements stated above within the requiredperiod of time (within a reasonable period of time for a limited liability company and within six monthsupon the end of the relevant financial year for a joint-stock company) or decreases its charter capital, thecompany’s creditors will have the right to accelerate their claims or demand early performance of thecompany’s obligations owed to them and demand compensation of damages.

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Description of Share Capital and Applicable Russian Law

In addition, if a Russian joint-stock company’s net assets calculated on the basis of RAS are lower than itscharter capital by more than 25 percent as at the end of three, six, nine or twelve months of the financialyear that follows its second or any subsequent financial year, at the end of which the net assets of suchcompany were lower than its charter capital, a joint-stock company must publish two notices (with thesecond notice published 30 days after the publication of the first notice) of this fact and certain ofthe company’s creditors will have the right to accelerate their claims or demand early performance of thecompany’s obligations owed to them and demand compensation of damages.

However, if a Russian joint-stock company is able to demonstrate that the creditors’ rights were notviolated as a result of a decrease of its charter capital or a decrease of the amount of its net assets, as thecase may be, and that the security provided for due performance of the company’s obligations is sufficient,a court may dismiss the creditors’ claims that are brought in the following cases: (i) in the event of adecrease of the charter capital of the company, including when the charter capital of the company must bedecreased to the amount of its net assets in compliance with the requirements of Russian law; and (ii) inthe event the company’s net assets calculated on the basis of RAS are lower than its charter capital bymore than 25 percent at the end of three, six, nine or twelve months of the financial year that followed itssecond or any subsequent financial year, at the end of which the net assets of such company became lowerthan its charter capital. Moreover, the existence of negative assets, generally, may not accurately reflect theactual ability to pay debts as they come due. Some Russian courts, in deciding whether or not to order theliquidation of a company for having negative net assets, have looked beyond the fact that the companyfailed to comply fully with all applicable legal requirements and have taken into account other factors, suchas the financial standing of the company and its ability to meet its tax obligations, as well as the economicand social consequences of its liquidation. Nonetheless, creditors have the right to accelerate claims,including damages claims, and governmental or local authorities may seek the liquidation of a companywith negative net assets. Courts have, on rare occasions, ordered the involuntary liquidation of a companyfor having net assets less than the minimum charter capital required by law, even if the company hadcontinued to fulfil its obligations and had net assets in excess of the minimum charter capital required bylaw at the time of liquidation.

See ‘‘Risk Factors—Risks relating to Russia—Legislative and legal risks—A Russian legal entity may beliquidated on the basis of formal non-compliance with particular requirements of Russian law’’.

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TAXATION

The following summary of material Russian tax consequences of ownership of the Ordinary Shares is basedupon laws, regulations, decrees, rulings, income tax conventions or treaties, administrative practice and judicialdecisions in effect at the date of this offering circular. Legislative, judicial or administrative changes orinterpretations may, however, be forthcoming that could alter or modify these statements and conclusions,including with retroactive effect, and could affect the tax consequences of holding the Ordinary Shares. Thissummary does not purport to be a legal opinion or to address all tax aspects that may be relevant to a holder ofthe Ordinary Shares. Each prospective investor is urged to consult its own tax adviser as to the particular taxconsequences of owning and disposing of the Ordinary Shares, including the applicability and effect of any othertax laws or tax treaties in force, including in any other jurisdiction, and of pending or proposed changes inapplicable tax laws as at the date of this offering circular, and of any actual changes in applicable tax laws afterthat date.

RUSSIAN TAXATION

The following is a summary of selected Russian tax considerations relating to the Ordinary Shares. It doesnot purport to be a complete analysis of all tax considerations relating to the Ordinary Shares. Prospectiveinvestors in the Ordinary Shares should consult their tax advisers as to which countries’ tax laws could berelevant to acquiring, holding and disposing of the Ordinary Shares and receiving dividends and theconsequences of these actions under the tax laws of those countries. This summary is based upon the law ineffect on the date of this offering circular, which is subject to change (possibly with retroactive effect). Theinformation and analysis contained in this section is limited to taxation issues, and prospective investorsshould not apply the information or analysis set out below for any other purpose.

This summary does not address the applicability of, and procedures in relation to, taxes levied by theregions, municipalities or other non-federal level authorities in Russia. Nor does this summary address theavailability of double tax treaty relief in respect of the Ordinary Shares, and it should be noted that theremight be practical difficulties, including satisfying documentation requirements, involved in claiming reliefunder an applicable double tax treaty.

No representations concerning the Russian tax consequences to any particular potential investor are madein this offering circular.

General

The following is a summary of Russian tax considerations relevant to acquiring, holding and disposing ofthe Ordinary Shares, as well as the taxation of dividend income.

The provisions of the Russian Tax Code applicable to investors and transactions involving the OrdinaryShares are uncertain and lack interpretative guidance. Both the substantive provisions of the Russian TaxCode applicable to financial instruments and the interpretation and application of those provisions by theRussian tax authorities may be subject to more rapid and unpredictable change and inconsistency than in ajurisdiction with more developed capital markets and more developed taxation systems. In particular, theinterpretation and application of these provisions will in practice rest substantially with local taxinspectorates. In practice, interpretation by different tax inspectorates may be inconsistent or contradictoryand may impose conditions, requirements or restrictions not stated by the law. Similarly, in the absence ofbinding precedents, decisions on tax or related matters by different courts relating to the same or similarcircumstances may also be inconsistent or contradictory.

According to the Russian Tax Code, a tax resident is an individual who spent in Russia not less than183 days within 12 consecutive months (days of medical treatment and education outside of Russia are alsocounted as days in Russia if the individual departed from Russia for these purposes for less than sixmonths).

The interpretation of this definition by the Russian Ministry of Finance states that for tax withholdingpurposes an individual’s tax residence status should be determined on the date the income is received(based on the number of days in Russia in the 12-month period proceeding that date). The individual’sfinal Russian tax liability for the reporting calendar year (or shorter period upon departure from Russia)should be determined based on his/her tax residence status for that calendar year (or that shorter period).

For the purposes of this summary, a ‘‘non-resident investor’’ means (i) an individual investor who has notestablished a Russian tax residence status for the reporting calendar year or (ii) a legal entity or

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organisation in each case not organised under Russian law that holds and disposes of the Ordinary Sharesotherwise than through a permanent establishment in Russia.

For the purposes of this summary, a ‘‘Russian resident investor’’ means (i) an individual investor who hasestablished a Russian tax residence status for the reporting calendar year (that is, a person actually presentin Russia in the aggregate for not less than 183 calendar days within that calendar year) or (ii) a legal entityor organisation which is an investor but is not a non-resident investor as defined in the previous paragraph.

Taxation upon acquiring the Ordinary Shares

No Russian tax implications generally should arise for investors, whether they are Russian residentinvestors or non-resident investors, upon purchasing the Ordinary Shares. However, in somecircumstances, taxable income in the form of a material benefit may arise for individual investors if theOrdinary Shares are purchased at a price that is below the market value. Also, in some circumstances,Russian resident investors which are legal entities or organisations acquiring the Ordinary Shares,including as part of the Offering, must fulfill Russian tax agent responsibilities with respect to profitswithholding tax from the sale proceeds for the Ordinary Shares to be transferred to a non-resident investordisposing of those Ordinary Shares. Resident investors that are legal entities or organisations shouldconsult their own tax advisers with respect to this possibility.

Taxation of dividends

Russian resident investors

Payments of dividends by the Company to a Russian resident investor who is an individual or legal entityresident in Russia for tax purposes (except legal entities or organisations, in each case not organised underRussian law, that hold the Ordinary Shares through a permanent establishment in Russia) should generallybe subject to Russian withholding income tax and that tax should not exceed 9 percent of the grossdividend amount payable to each Russian resident investor.

With effect from 1 January 2008, participation exemptions exist for dividends under which dividendsreceived by an investor that is a Russian legal entity should be taxed at a zero percent rate if the followingconditions are met when the decision on the payment of dividends is adopted:

• the Russian legal entity has owned not less than 50 percent of the charter capital of the Company foran uninterrupted period of at least 365 days; and

• the Russian legal entity’s contribution to the charter capital of the Company exceeds RUB500 million. This condition will be abolished from 1 January 2011 and will not apply to the dividendsto be paid by the Company for the year of 2010 (if the dividends are to be paid after 1 January 2011)and subsequent periods.

An investor which is a Russian legal entity would be required to provide to the tax authoritiesdocumentation to confirm its eligibility for the zero percent rate on dividend income received.

If the above conditions are not met, the dividends received by a Russian legal entity would be taxed inRussia at a rate not exceeding 9 percent as stated above.

Payments of dividends by a Russian entity to an investor which is a legal entity or organisation notorganised under Russian law that holds the Ordinary Shares through a permanent establishment in Russiashould generally be subject to Russian withholding tax at a rate of 15 percent. An investor that is a legalentity or organisation not organised under Russian law that holds the Ordinary Shares through apermanent establishment in Russia is entitled to pay this tax to the Russian budget on its own behalf (thatis, without the Company paying the dividend withholding the tax) if the investor provides the Companywith documentary evidence confirming the fact that this dividend income is attributable to a permanentestablishment of the investor in Russia. This evidence includes a notarised copy of the form confirmingregistration of the investor with the Russian tax authorities. Notification must also be issued by the localtax authorities at the investor’s place of tax registration confirming the fact that this dividend income isattributable to the permanent establishment of the investor in Russia.

Alternatively, payments of dividends on the Ordinary Shares made by the Company to an investor which isa legal entity or organisation not organised under Russian law that holds the Ordinary Shares through a

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permanent establishment in Russia may be subject to taxation at a rate not exceeding 9 percent. This lowerrate could apply to each investor that holds the Ordinary Shares through a permanent establishment inRussia if the applicable double tax treaty between Russia and the country of the tax residence of suchinvestor provides for the non-discrimination of tax residents of that country as compared to Russian taxresidents. In that case, a tax rate not exceeding 9 percent (that is, the rate applicable to Russian legalentities) applies with respect to the gross dividend amount payable to that investor to the extent thatinvestor is entitled to benefit under that double tax treaty, and it satisfies the Russian tax documentationrequirements (that is, the investor provides an annual advance tax residency confirmation). However, therecan be no assurance that double tax treaty relief will be available to an investor which is a legal entity ororganisation in each case not organised under Russian law and holds the Ordinary Shares through apermanent establishment in Russia.

Russian resident investors should consult their own tax advisers with respect to the tax consequences of thereceipt of dividend income on the Ordinary Shares.

Non-resident investors

In general, payments of dividends by a Russian entity to a non-resident legal entity or organisation andnon-resident individuals are subject to Russian withholding tax at a rate of 15 percent. Russian withholdingtax may generally be reduced under the terms of an applicable double tax treaty between Russia and thecountry of tax residence of non-resident investors to the extent non-resident investors are entitled tobenefit from tax treaty relief under an applicable treaty. Payments of dividends on the Ordinary Sharesmade by the Company to non-resident investors may be subject to withholding tax at a reduced rate if adouble tax treaty with Russia applies and if the applicable documentation requirements are satisfied. For anon-resident legal entity or organisation, these documentation requirements include an annual advanceconfirmation of the investor’s tax residency.

However, procedures for advance treaty clearance for non-resident individual investors are not providedfor by current Russian legislation. Instead, income tax will be withheld by the Company when it paysdividends to non-resident individual investors and those investors may be able to apply for a refund withinone year from the end of the tax period in which the tax was withheld. The documentation requirements toobtain this refund include a confirmation of the income received and the taxes paid in the investor’scountry of tax residence as confirmed by the relevant tax authorities of that country.

Non-resident investors should consult their own tax advisers with respect to the tax consequences of thereceipt of dividend income on the Ordinary Shares.

Taxation of capital gains

The following sections summarise the taxation of capital gains in respect of the disposition of the OrdinaryShares.

Russian resident investors

A Russian resident investor that is a legal entity or an organisation should generally be subject to Russianprofits tax at a rate of 20 percent of capital gains realised on the disposal of the Ordinary Shares by aninvestor. An investor that is a legal entity or organisation not organised under Russian law that holds theOrdinary Shares through a permanent establishment in Russia is entitled to pay this tax to the Russianbudget on its own behalf (that is, without the withholding of tax) if the investor provides the Russian entityacquiring the Ordinary Shares (acting as a Russian tax agent) with documentary evidence confirming thefact that the income from the disposal of Ordinary Shares is attributable to a permanent establishment ofthe investor in Russia. This evidence includes a notarised copy of the form confirming the registration ofthe investor with the Russian tax authorities. Notification must also be issued by the local tax authorities atthe investor’s place of tax registration confirming the fact that this income from the disposal of theOrdinary Shares is attributable to the permanent establishment of the investor in Russia. A capital gain isgenerally determined as the gross proceeds from the disposal of the Ordinary Shares less the cost ofacquisition of the Ordinary Shares and less expenses incurred by the resident investor in relation to theacquisition, holding and disposal of the Ordinary Shares (provided that the cost of acquisition of theOrdinary Shares and the other expenses can be confirmed by appropriate documents). Russian resident

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investors which are legal entities or organisations should consult their own tax advisers with respect to thetax consequences of gains derived from the disposal of the Ordinary Shares.

A Russian resident investor who is an individual should generally be subject to income tax at a rate of13 percent on the gross proceeds from a disposal of the Ordinary Shares less any available cost deduction(including for the cost of acquisition of the Ordinary Shares). In some circumstances if the disposalproceeds are payable by a Russian legal entity, individual entrepreneur or a Russian permanentestablishment of a foreign organisation, the payer may be required to withhold this income tax. Unless thetax is withheld by the payer, the resident individual investor would be liable to pay the tax to the Russianbudget. The imposition of this tax could adversely affect the value of the Ordinary Shares. Russian residentinvestors who are individuals should consult their own tax advisers with respect to the tax consequences ofgains derived from the disposal of the Ordinary Shares.

Non-resident investors

If a non-resident investor which is a legal entity or an organisation disposes of the Ordinary Shares (otherthan through a permanent establishment in Russia) and the proceeds from that disposal are deemed to bereceived from a Russian source, the gross proceeds may be subject to Russian withholding tax at a rate of20 percent. Alternatively, the capital gains from the disposal may be subject to a 20 percent withholdingtax. A capital gain is the difference between the sale price and the sum of the acquisition and disposal costs(which need to be evidenced by proper supporting documents) of the Ordinary Shares. Such Russianwithholding tax would generally apply to the gross proceeds or, alternatively, capital gains received by anon-resident investor if more than 50 percent of the Company’s assets consist of immovable propertylocated in Russia. No withholding income tax applies to any Russian shares, regardless of the portion oftotal assets which is comprised of immovable property, where such shares or their derivatives are soldthrough a foreign stock exchange.

The withholding tax rates noted in the paragraph above may be reduced under Russia’s double tax treaties.To obtain the benefits of an applicable double tax treaty, documentary evidence is required prior topayment being made to confirm the applicability of the double tax treaty under which benefits are claimed.Non-resident investors that are legal entities or organisations should consult their own tax advisers withrespect to this possibility.

A non-resident investor should generally not be subject to any Russian taxes in respect of capital gains orother income realised on the disposal of the Ordinary Shares outside of Russia if the proceeds of thedisposal are not received from a source within Russia. Even if a disposal by a non-resident investor toanother non-resident investor could be regarded as received from a Russian source and subject towithholding income tax, there is currently no mechanism for withholding the Russian tax due. Non-residentinvestors that are legal entities or organisations should consult their own tax advisers with respect to thetax consequences of the receipt of proceeds from a disposal of the Ordinary Shares.

If proceeds from the disposal of the Ordinary Shares are received from a Russian source, a non-residentinvestor who is an individual will generally be subject to tax at a rate of 30 percent, subject to any availabledouble tax treaty relief, in respect of gross proceeds from the disposal less any available cost deductions(including for the cost of the acquisition of the Ordinary Shares). In some circumstances, if the disposalproceeds are payable by a Russian legal entity, individual entrepreneur or a Russian permanentestablishment of a foreign organisation, the payer may be required to withhold this tax or the non-residentindividual may be liable to pay the tax. Procedures for advance treaty clearance for non-resident individualinvestors are not provided for by current Russian legislation. As a result, for non-resident individualinvestors, a reduction of withholding income tax provided by the double tax treaty between Russia and theinvestor’s country of tax residence cannot be obtained. If a non-resident individual investor does not obtaindouble tax treaty relief at the time the proceeds from the disposal of the Ordinary Shares are paid to it,and income tax is withheld by the Russian payer of that income, the non-resident individual investor mayapply for a refund within one year from the end of the tax period in which the tax was withheld. However,there can be no assurance that double tax treaty relief (or refund of any taxes withheld) will be availablefor a non-resident investor. Non-resident investors who are individuals should consult their own taxadvisers with respect to the tax consequences of the receipt of proceeds from a disposal of the OrdinaryShares. Where proceeds from the disposal of the Ordinary Shares are received from a Russian source, forthe non-resident investor, whether an individual, legal entity or organisation, to obtain the benefits of an

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applicable double tax treaty, documentary evidence is required to confirm the applicability of the doubletax treaty for which benefits are claimed. No procedures currently exist for non-resident individualinvestors to claim treaty benefits prior to the receipt of income. Therefore, non-resident individualinvestors may be required to claim a refund of taxes withheld from the Russian budget as discussed below.

Tax treaty procedures

To apply for double tax treaty relief, an investor that is a non-resident legal entity or organisation shouldprovide the payer of income with a confirmation of its tax residency. That confirmation should bepresented before the income payment date and certified by the competent authority, and is valid for thecalendar year in which it is issued. It should be legalised or apostilled with a notarised Russian translationattached to it. In the absence of the tax residence confirmation, Russian legal entities acting as tax agentsare required to withhold Russian income tax at the full rate from the proceeds representing taxableRussian source income as provided for by the Russian Tax Code.

For an investor that is not an individual and for which double tax treaty relief is available, where Russianwithholding tax on income was withheld at the source of payment, a refund of that tax is possible withinthree years from the end of the tax period in which the tax was withheld. To obtain a refund, the taxdocumentation confirming the right of the non-resident recipient of the income to double tax treaty reliefis required.

For an individual investor for which double tax treaty relief is available, where Russian withholding tax onincome was withheld by the payer, a refund of that tax may be filed within one year after the end of theyear in which the tax was withheld. To obtain a refund, the tax documentation confirming the right of thenon-resident recipient of the income to double tax treaty relief is required.

The Russian tax authorities may, in practice, require a wide variety of documentation confirming the rightto benefit under a double tax treaty or the right to receive a zero tax rate under Russian domestic tax law,although that documentation may not be explicitly required by the Russian Tax Code. Obtaining a refundof Russian tax withheld may be a time-consuming process and can involve considerable difficulties.

Stamp duties

No Russian stamp duty will be payable by investors upon any of the transactions with the Ordinary Sharesdiscussed in this section of this offering circular (for example, on a purchase or sale of the OrdinaryShares), except for transactions involving the receipt of the Ordinary Shares by way of inheritance.

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PLAN OF DISTRIBUTION, SELLING AND TRANSFER RESTRICTIONS

The Selling Shareholder is offering 62,060,000 Shares in the Offering. The Shares are being offered inRussia and to certain institutional investors outside of Russia and the United States in reliance onRegulation S under the Securities Act. Subject to the terms and conditions set out in the UnderwritingAgreement, each Joint Global Coordinator has agreed, severally (but not jointly or jointly and severally),to procure purchasers to purchase and pay for or, failing which, to purchase and pay for itself, the numberof Shares set out opposite its name in the following table, and the Joint Global Coordinators will arrangefor the transfer of the Shares to those purchasers.

Number ofJoint Global Coordinator Shares

Deutsche Bank AG, London branch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,076,000J.P. Morgan Securities Ltd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,400,000CJSC ‘‘Investment Company ‘‘Troika Dialog’’ and TD Investments Limited . . . . . . . . . . . 30,584,000

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,060,000

The Company and the Selling Shareholder have made certain representations and warranties to the JointGlobal Coordinators in connection with the Offering, including in relation to the Group’s business, theShares and the contents of this offering circular. The Company and the Selling Shareholder have agreed inthe Underwriting Agreement to indemnify the Joint Global Coordinators against certain liabilities inconnection with this Offering.

The Selling Shareholder and the Company will pay to the Joint Global Coordinators a commission of atleast 2.75 percent, and up to a total of 3.50 percent (determined at the sole discretion of the Company andthe Selling Shareholder upon the Closing Date) of the gross proceeds from the Offering. The Companywill also pay a fee to TKB Capital (CJSC) and will reimburse to the Managers their legal expenses, roadshow expenses, printing expenses, certain taxes and certain other expenses from the proceeds of theOffering. These fees and expenses are estimated to amount to approximately US$1.8 million (excludingVAT).

In connection with the Offering, each Manager and any affiliate acting as an investor for its own accountmay acquire Shares and in that capacity may retain, purchase or sell the Shares (or related investments),for its own account and may offer or sell such securities (or other investments) otherwise than inconnection with the Offering. The Managers do not intend to disclose the extent of those transactionsotherwise than where required by applicable laws or regulations.

Lock-up

None of the Company, the Selling Shareholder or any person acting on behalf of the Company or theSelling Shareholder will, for a period of 180 days after the Closing Date, without the prior written consentof the Joint Global Coordinators, (a) (in the case of the Company only) issue, offer, sell, lend, mortgage,assign, contract to sell, pledge, charge, contract to sell or issue, sell any option or contract to purchase,purchase any option or contract to sell or issue, grant any option, right or warrant to purchase, lend, orotherwise transfer or dispose of (or publicly announce any such action), directly or indirectly, any OrdinaryShares or any securities convertible or exchangeable into or exercisable for, or substantially similar to, anyOrdinary Shares or any security or financial product whose value is determined directly or indirectly byreference to the price of the underlying securities, including equity swaps, forward sales and options orglobal depositary receipts representing the right to receive any such securities; or (b) enter into any swapor other agreement that transfers, in whole or in part, any of the economic consequences of ownership ofOrdinary Shares; or (c) enter into any transaction with the same economic effect as, or agree to, or publiclyannounce any intention to enter into any transaction described above, other than in each case, (i) the offer/subscription and sale of the Shares and the New Shares contemplated in connection with the Offering,(ii) the offer and sale of Shares (including New Shares) held by the Selling Shareholder to a subsidiary oraffiliate of the Selling Shareholder if that entity enters into an agreement on substantially similar terms tothe restrictions applicable to the Selling Shareholder above, (iii) the offer, sale or transfer of any Shares(including New Shares) held by the Selling Shareholder to any ultimate beneficial owner (or owners) of theSelling Shareholder or any entity controlled by (or jointly controlled together with another ultimatebeneficial owner (or owners) (or entities controlled by it or them) of the Selling Shareholder) or related tothat ultimate beneficial owner (or owners), in each case if the transferee or transferees (as applicable)enter into an agreement on substantially similar terms to the restrictions applicable to the Selling

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Shareholder above, or (iv) the purchase of Shares by the Selling Shareholder pursuant to the Put Option,provided in respect of items (ii) and (iii) above that the person then holding the Shares shall deliver awritten notice to the Joint Global Coordinators not later than five business days before the date of suchevent. In addition, asset management companies holding 36.4 percent of the Ordinary Shares on behalf ofNPF Blagosostoyanie have agreed to restrictions on conducting transactions with those Ordinary Sharessimilar to the arrangements applicable to the Company and the Selling Shareholder described above, butto apply until 31 May 2011 (inclusive), with certain exceptions including in relation to the exercise of thePut Option. See ‘‘Description of the Offering—Put Option’’ and ‘‘Risk Factors—Risks relating to the Shares—Sale of Ordinary Shares following the Offering may result in a decline in the price of the Ordinary Shares’’.

SELLING AND TRANSFER RESTRICTIONS

Selling restrictions

The distribution of this offering circular and the Offering in certain jurisdictions may be restricted by lawand therefore persons into whose possession this offering circular comes should inform themselves aboutand observe any restrictions, including those set out in the paragraphs that follow. Any failure to complywith these restrictions may constitute a violation of the securities laws of any such jurisdiction.

European Economic Area

To the extent that the offer of the Shares is made in any European Economic Area Member State (theMember State) that has implemented Directive 2003/71/EC (together with any applicable implementingmeasures in any Member State, the Prospectus Directive) the offer (including any offer under this offeringcircular) is only addressed to qualified investors in that Member State within the meaning of theProspectus Directive or has been or will be made otherwise in circumstances that do not require theCompany or the Selling Shareholder to publish a prospectus pursuant to the Prospectus Directive.

United Kingdom

Each Manager has:

(a) only communicated or caused to be communicated, and will only communicate or cause to becommunicated, any invitation or inducement to engage in investment activity (within the meaning ofsection 21 of the FSMA) received by it in connection with the issue or sale of the Shares incircumstances in which section 21(1) of the FSMA does not apply to the Company; and

(b) complied and will comply with all applicable provisions of the FSMA with respect to anything done byit in relation to any Shares in, from or otherwise involving the United Kingdom.

United States

The Shares have not been, and will not be, registered under the Securities Act or the securities of any stateor other jurisdiction of the United States and may not be offered or sold in the United States except incertain transactions exempt from, or not subject to, the registration requirements of the Securities Act andany applicable state securities laws. The Shares are being sold by the Managers outside the United Statesin accordance with Regulation S.

In addition, until 40 days after commencement of this Offering, an offer or sale of the Shares within theUnited States by any dealer (whether or not participating in the Offering) may violate the registrationrequirements of the Securities Act.

Australia

Any person who acquires Shares (i) represents and warrants that the person is a person to whom an offerof securities can be made without a disclosure document in accordance with section 708(8) of theCorporations Act, section 708(11) of the Corporations Act or one or more of the other exemptionscontained in section 708 of the Corporations Act; and (ii) agrees to not sell or offer for sale any Shares inAustralia within 12 months after their issue to the offeree or invitee under this offering circular except incircumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be

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required or where the offer is made pursuant to a disclosure document which complies with Chapter 6D ofthe Corporations Act.

The Shares have not been registered under the Financial Instruments and Exchange Law of Japan (LawNo. 25 of 1948, as amended) (the Financial Instruments and Exchange Law of Japan) and, in connectionwith the Offering, each Manager has not and will not, directly or indirectly, offer or sell any Shares inJapan or to, or for the benefit of, any resident of Japan (which terms as used in this offering circular meansany person resident in Japan, including any corporation or other entity organised under the laws of Japan),except pursuant to an exemption from the registration requirements of, and otherwise in compliance with,the Financial Instruments and Exchange Law of Japan and other relevant laws and regulations of Japan.

Other restricted jurisdictions

The Shares will not be offered or sold in or to any resident of, and no offer to buy the Shares will besolicited in or from any resident of Canada or the Republic of South Africa in connection with theOffering, and neither this offering circular nor any confirmation of sale shall be delivered to any address inany of those countries.

General

No action has been or will be taken in any jurisdiction other than Russia that would permit a publicoffering of the Shares, or possession or distribution of this offering circular or any other offering materialin any country or jurisdiction where action for that purpose is required. Accordingly, the Shares may not beoffered or sold, directly or indirectly, and neither this offering circular nor any other offering material oradvertisement in connection with the Shares may be distributed or published in or from any country ofjurisdiction except under circumstances that will result in compliance with all applicable rules andregulations of any such country or jurisdiction. Persons into whose possession this offering circular comesare required to inform themselves about and to observe any restrictions on the distribution of thisdocument and the offer, subscription and sale of Shares, including those in the paragraphs above. Anyfailure to comply with these restrictions may constitute a violation of the securities laws of any such countryor jurisdiction. This offering circular does not constitute an offer to subscribe for or buy any of the Sharesoffered hereby to any person in any jurisdiction to whom it is unlawful to make such offer or solicitation insuch country or jurisdiction.

Transfer restrictions

Each purchaser of Shares, by purchasing those Shares, will be deemed to have represented, agreed andacknowledged that it has received such information as it deems necessary to make an investment decisionand that:

(a) it understands that the Shares have not been and will not be registered under the US Securities Act,and the Shares are being offered and sold in accordance with Regulation S;

(b) it is, or at the time the Shares are purchased will be, the beneficial owner of such Shares and (i) it ispurchasing the Shares in an ‘‘offshore transaction’’ (as defined in Regulation S) and (ii) it is not anaffiliate of the Company or a person acting on behalf of such an affiliate;

(c) it will not offer, sell, pledge or otherwise transfer Shares, except in accordance with the US SecuritiesAct and any applicable securities laws of any state of the United States; and

(d) the Company, the Registrar, the Managers and their affiliates, and others will rely upon the truth andaccuracy of the foregoing acknowledgments, representations and agreements.

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SETTLEMENT AND DELIVERY

Each purchaser of Shares in the Offering is required to pay for those Shares in US dollars or Roubles, at itselection as notified to the Joint Global Coordinators, in accordance with customary practice. Thesettlement price of those shares in Roubles will be the Offer Price per Share, in US dollars, converted intoRoubles using the official exchange rate established by the CBR for the exchange of US dollars intoRoubles for the day preceding the payment date.

To take delivery of Shares, each purchaser must either have a direct securities account at the Registrar or adeposit account with DCC or NDC, or any other depositary that has an account with DCC or NDC, or adirect account with the Registrar. Each purchaser may decide to hold Shares through a securities accountat the Registrar at their own expense. Information on the procedure and requirements for opening andmaintaining a securities account at the Registrar may be obtained at www.paritet.ru or directly from theRegistrar by a request in person or by telephone at: +7 495 994 7275.

However, Shares held by purchasers through a securities account at the Registrar are ineligible for tradingon the RTS or MICEX. Only if the Shares are deposited with DCC or through another depositary havingan account at DCC can they be traded on the RTS and only if the Shares are deposited with NDC orthrough another depositary having an account at NDC can they be traded on MICEX.

Each purchaser of Shares must comply with all applicable laws and regulations in force in any jurisdictionin which it purchases, offers or sells Shares or possesses or distributes this offering circular or any part of itand must obtain any consent, approval or permission required by it for the purchase, offer or sale by it ofShares under the laws and regulations in force in any jurisdiction to which it is subject or in which it makessuch purchases, offers or sales, and neither the Company, nor the Selling Shareholder, nor any Managershall have any responsibility therefor.

No dealer, salesperson or other person has been authorised to give any information or to make anyrepresentation not contained in this offering circular, and, if given or made, such information orrepresentation must not be relied upon as having been authorised by the Company, the SellingShareholder or the Managers. This offering circular does not constitute an offer to sell or the solicitationof an offer to buy any securities other than the securities to which it relates or an offer to sell or thesolicitation of an offer to buy such securities in any circumstances in which such offer or solicitation isunlawful. Neither the delivery of this offering circular nor any sale made in connection with this offeringcircular shall, under any circumstances, create any implication that there has been no change in theCompany’s or the Group’s affairs since the date of this offering circular or that the information containedin this offering circular is correct as at a date after its date.

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LEGAL MATTERS

Certain legal matters in connection with the Offering will be passed upon for the Company with respect tothe laws of Russia and England by Freshfields Bruckhaus Deringer LLP. Certain legal matters inconnection with the Offering will be passed upon for the Managers with respect to the laws of Russia byClifford Chance CIS Limited and with respect to the laws of England by Clifford Chance LLP.

INDEPENDENT AUDITORS

The consolidated financial statements of OAO Mostotrest as at and for the year ended 31 December 2009included in this offering circular, have been audited by ZAO KPMG, independent auditors, as stated intheir audit reports appearing in this offering circular. ZAO KPMG have registered offices at 10Presenskaya Naberezhnaya, Block C, Moscow, Russia 123317. ZAO KPMG is a member of the AuditChamber in Russia.

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GLOSSARY

The following table sets out some definitions of technical or other construction-related terms that are used inthis offering circular.

Term Description

Box-type feed beam A two-walled beam with a closed single-loop cross-section.

Cable-stayed bridge A type of suspension bridge consisting of one or more pylonsconnected to the road bed by cables and cable stays.

Channellers Metal tubes applied to make end-to-end closed channels in concreteand reinforced concrete products during their manufacture.

Class 1 highway A highway with a traffic flow of over 7,000 cars per day, a basic designspeed of 150 kilometres per hour, an improved capital pavement andfour or more traffic lanes.

Class 2 highway A highway with a traffic flow of 3,000-7,000 cars per day, a basicdesign speed of 120 kilometres per hour, an improved capitalpavement and between two and four traffic lanes.

Class 3 highway A highway with a traffic flow of 1,000-3,000 cars per day, a basicdesign speed of 100 kilometres per hour, an improved light pavementand two traffic lanes.

Class 4 highway A highway with a traffic flow of 200-1,000 cars per day, a basic designspeed of 80 kilometres per hour, an improved light or transitionpavement and two traffic lanes.

Class 5 highway A highway with a traffic flow of fewer than 200 cars per day, a basicdesign speed of 60 kilometres per hour, a transition or lower standardof pavement and one traffic lane.

Console A structure (for example a beam or a truss) with one end rigidly fixedand the other end free, or a part of the structure, standing out of thepillar.

Control joints Sections in the bridge structure dividing the structure into separateblocks. They are used to compensate for temperature and othereffects on the span structures, close off isolation joints and preventwater and dirt from entering into carriages and pillars.

Deck girders A horizontal load-bearing structure with a pillar at two or morepoints.

Double-consoled iron bridge A bridge with a span structure consisting of two consoles.

General contractor The principal executor of the construction contract, entering into theagreement with the customer to perform construction works. Thegeneral contractor is responsible to the customer for the entire scopeof works set out in the contract. A general contractor may engagesubcontractors to perform its contractual obligations towards thecustomer, although the general contractor remains responsible for thesubcontractor’s activities.

In-situ reinforced concrete Reinforced concrete constructions erected in final position frombridge concrete set in-situ. This requires supporting trestlework (also

referred to as falsework) and timbering (also referred to as forms) andalso involves rebar cages being inserted into the structure before theconcrete is cast. The trestlework and timbering are removed after theconcrete has set.

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Glossary

Term Description

Poles Wooden, metal or reinforced concrete bars buried under buildingsstructures to strengthen the foundations.

Screw jacks A simple lifting mechanism used in construction, particularly forheavy loads.

Spandrel construction The irregular triangular space between the curve of an arch and theenclosed right angle; or the space between the outer moldings of twocontiguous arches and a horizontal line above them, or another archabove and enclosed them.

Span structure A part of the bridge structure between the bridge pillars used to holdthe load (such as traffic on a road) and transfer the load to the pillars.It consists of load-bearing elements, such as main girders or trusses,cross girders (or diaphragms) and roadway slabs.

Structural pre-cast cement A construction material containing a mineral binding agent, whichdevelops high strength when hardened, and is used to produceconcrete.

Subcontractor An entity engaged by the general contractor of a project to performspecific works, such as particular installations or specialisedconstruction works, forming part of the project.

Subway trains girder A metal span girder on which a rail track for subway trains is laid.

Trestle bridge An overground, above-water, bridge structure consisting of severaluniform pillars and span structures, used to elevate a highway to crossoccupied land or transport infrastructure.

Truss A solid grid structure typically covering long bridge spans.

212

INDEX TO FINANCIAL STATEMENTS

Consolidated Financial Statements of Mostotrest as at and for the year ended31 December 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3

Consolidated statement of financial position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5Consolidated statement of comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6Consolidated statement of changes in equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7Consolidated statement of cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8Notes to the consolidated financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9Independent auditors’ report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-51

Unaudited Condensed Interim Consolidated Financial Statements of Mostotrest as atand for the six months ended 30 June 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-53

Consolidated interim condensed statement of financial position . . . . . . . . . . . . . . . . . . . . F-55Consolidated interim condensed statement of comprehensive income . . . . . . . . . . . . . . . . F-56Condensed interim consolidated statement of changes in equity . . . . . . . . . . . . . . . . . . . . F-57Consolidated interim condensed statement of cash flows . . . . . . . . . . . . . . . . . . . . . . . . . F-58Selected explanatory notes to the condensed interim consolidated financial statements . . . F-59Independent auditors’ report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-72

Preliminary IFRS Financial Statements of ETS as at and for the year ended31 December 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-73

Preliminary IFRS statement of financial position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-75Preliminary IFRS statement of comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . F-76Preliminary IFRS statement of changes in net assets attributable to participants . . . . . . . . F-77Preliminary IFRS statement of cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-78Notes to the preliminary IFRS financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-79Independent auditors’ report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-107

Unaudited Condensed Interim Financial Statements of ETS as at and for six monthsended 30 June 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-109

Condensed interim statement of financial position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-111Condensed interim statement of comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . F-112Condensed interim statement of changes in equity net assets attributable to participants . . F-113Condensed interim statement of cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-114Selected explanatory notes to the consolidated interim condensed financial information . . F-115Independent auditors’ report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-122

Preliminary IFRS Financial Statements of TSM as at and for the year ended31 December 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-123

Preliminary IFRS consolidated statement of financial position . . . . . . . . . . . . . . . . . . . . . F-125Preliminary IFRS consolidated statement of comprehensive income . . . . . . . . . . . . . . . . . F-126Preliminary IFRS consolidated statement of changes in net assets attributable to the

participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-127Preliminary IFRS consolidated statement of cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . F-128Notes to the consolidated preliminary IFRS financial statements . . . . . . . . . . . . . . . . . . . F-129Independent auditors’ report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-157

Unaudited Condensed Interim Financial Statements of TSM as at and for six monthsended 30 June 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-159

Condensed interim statement of financial position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-161Condensed interim statement of comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . F-162Condensed interim statement of changes in net assets attributable to participants . . . . . . . F-163Condensed interim statement of cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-164Selected explanatory notes to the condensed interim financial information . . . . . . . . . . . . F-165Independent auditors’ report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-172

F-1

(This page has been left blank intentionally.)

F-2

OJSC MOSTOTREST

Consolidated Financial Statements

for the year ended 31 December 2009

F-3

OJSC MOSTOTREST

2

Contents

Consolidated financial statements

Consolidated Statement of Financial Position 3 Consolidated Statement of Comprehensive Income 4 Consolidated Statement of Changes in Equity 5 Consolidated Statement of Cash Flows 6 Notes to the Consolidated Financial Statements 7

Independent Auditors’ Report 49

F-4

F-5

OJSC MOSTOTREST

CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

The consolidated statement of comprehensive income is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements set out on pages 7 to 48.

4

Consolidated Statement of Comprehensive Income Mln RUR Note 2009 2008

Revenue 6 32,392 30,334Cost of sales 7 (24,211) (24,142)Gross profit 8,181 6,192Other income 194 163Administrative expenses 8 (3,827) (3,490)Other expenses (261) (736)Results from operating activities 4,287 2,129Finance income 10 300 119Finance costs 10 (1,116) (1,007)Net finance costs (816) (888)Profit before income tax 3,471 1,241Income tax expense 11 (867) (522)Profit for the year 2,604 719

Other comprehensive incomeNet change in fair value of available-for-sale financial assets, net of tax 10 80 (102)Total comprehensive income 2,684 617Earnings per share Basic earnings per share (RUB) 21 2,098 579Diluted earnings per share (RUB) 21 2,098 579

F-6

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F-7

OJSC MOSTOTREST

CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

The consolidated statement of cash flows is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements set out on pages 7 to 48.

6

Consolidated Statement of Cash Flows

Mln RUR 2009 2008Cash flows from operating activitiesProfit for the year 2,604 719Adjustments for:Depreciation 1,421 1,327Loss on disposal of property, plant and equipment 33 261Net interest expense 966 880Income tax expense 867 522Cash from operating activities before changes in working capital and provisions 5,891 3,709Increase in inventories (67) (366)Decrease/(increase) in trade and other receivables 214 (287)Increase in amounts due from customers for construction contracts (331) (1,041)(Increase)/decrease in prepayments for current assets (102) 1,227Increase/(decrease) in other liabilities 8 (2)(Decrease)/increase in trade and other payables (271) 1,632

Increase/(decrease) in amounts due to customers for construction contracts 853 (149)Cash flows from operations before income taxes and interest paid 6,195 4,723Income tax paid (1,213) (918)Net cash from operating activities 4,982 3,805Cash flows from investing activitiesProceeds from sale of property, plant and equipment 72 97Interest received 67 40Dividends received 2 10Loans given (128) (1,451)Acquisition of property, plant and equipment (245) (1,488)Acquisition of equity accounting investments (1,556) -Proceeds from sale of financial assets - 83(Acquisition)/proceeds from disposal of intangible assets (24) 10Repayment of the loans given 646 889Net cash used in investing activities (1,166) (1,810)Cash flows from financing activitiesProceeds from borrowings 9,883 15,335Repayment of borrowings (12,403) (13,229)Payment of finance lease liabilities (186) (220)Interest paid (1,060) (950)Dividends paid (400) -Net cash (used in)/from financing activities (4,166) 936Net (decrease)/increase in cash and cash equivalents (350) 2,931Cash and cash equivalents at 1 January 5,211 2,280Cash and cash equivalents at 31 December 4,861 5,211

F-8

OJSC MOSTOTREST

CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

7

Notes to the Consolidated Financial Statements

1 Background

(a) Organisation and operations

OJSC Mostotrest (the “Company”) and its subsidiaries (the “Group”) comprise Russian open joint stock companies (OAO) and limited liability (OOO) companies as defined in the Civil Code of the Russian Federation. The Company was established as a state-owned enterprise in 1930. The Company was privatised as an open joint stock company in December 1992.

The Company’s registered office is Myasnitskaya Street 24/7, Bld.3, Moscow, 101990, Russian Federation.

The Group’s principal activity is the construction of transport infrastructure items, including railway, highway and city bridges, overpasses, interchanges, and other engineering structures for the state municipal entities. The Group’s major customers are government agencies and other public bodies. The Group primarily operates in the European part of the Russian Federation.

The Company’s shares are registered for trading on the Russian Trading System (RTS) and Moscow Interbank Currency Exchange (MICEX) stock exchanges.

(b) Business environment

The Russian Federation has been experiencing political and economic change that has affected, and may continue to affect, the activities of enterprises operating in this environment. Consequently, operations in the Russian Federation involve risks that typically do not exist in other markets. In addition, the contraction in the capital and credit markets and its impact on the Russian economy have further increased the level of economic uncertainty in the environment. These consolidated financial statements reflect management’s assessment of the impact of the Russian business environment on the operations and the financial position of the Group. The future business environment may differ from management’s assessment.

2 Basis of preparation

(a) Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”). These are the Group’s first consolidated financial statements prepared in accordance with IFRSs and IFRS 1 First-time Adoption of International Financial Reporting Standards has been applied.

The Group does not prepare consolidated financial statements under Russian Accounting Principles. Accordingly, an explanation of how the transition to IFRSs has been affected to the reported financial position, financial performance and cash flows of the Group is not presented in those consolidated financial statements.

F-9

OJSC MOSTOTREST

CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

8

(b) Basis of measurement

The consolidated financial statements are prepared on the historical cost basis except for the following material items in the statement of financial position:

• items of property, plant and equipment are stated at their fair values as at the date of the first-time adoption of IFRSs;

• financial investments classified as available-for-sale are stated at fair value;

• equity items in existence at 31 December 2002 include adjustments for the effects of hyperinflation, which were calculated using conversion factors derived from the Russian Federation Consumer Price Index published by the Russian Statistics Agency, GosKomStat. Russia ceased to be hyperinflationary for IFRS purposes as of 1 January 2003.

(c) Functional and presentation currency

The national currency of the Russian Federation is the Russian Rouble (“RUR”), which is the Company’s functional currency and the currency in which these consolidated financial statements are presented. All financial information presented in RUR has been rounded to the nearest million.

(d) Use of estimates and judgments

The preparation of consolidated financial statements in conformity with IFRSs requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from those estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements is included in the following notes:

• Note 12 - fair value as deemed cost of property, plant and equipment;

• Note 17 – construction contracts in progress;

• Note 18 – allowances for trade receivables.

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year is included in the following notes:

• Note 6 – revenue recognition based on the percentage-of-completion method on construction contracts;

• Note 27 – contingencies.

F-10

OJSC MOSTOTREST

CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

9

3 Significant accounting policies The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements and in preparing the opening consolidated IFRS statement of financial position as at 1 January 2008 for the purposes of the transition to IFRS. The accounting policies have been applied consistently by Group entities.

(a) Basis of consolidation

(i) Business combinations

Acquisitions on or after 1 January 2008

For acquisitions on or after 1 January 2008, the Group measures goodwill as the fair value of the consideration transferred including the recognised amount of any non-controlling interest in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.

The Group elects on a transaction-by-transaction basis whether to measure non-controlling interest at its fair value, or at its proportionate share of the recognised amount of the identifiable net assets, at the acquisition date.

Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred.

Acquisitions prior to 1 January 2008

In respect of acquisitions prior to 1 January 2008, the Group measures goodwill as the difference between the Company’s interest in a subsidiary’s net identifiable assets on the date of transition and the cost of that interest. Negative goodwill is credited to retained earnings.

(ii) Acquisitions of non-controlling interests

Acquisitions of non-controlling interests are accounted for as transactions with equity holders in their capacity of as equity holders. Therefore no goodwill is recognised as a result of such transactions.

(iii) Subsidiaries

Subsidiaries are entities controlled by the Group. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group.

F-11

OJSC MOSTOTREST

CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

10

(iv) Investments in associates (equity accounted investees)

Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20% and 50% of the voting power of another entity. Investments in associates are accounted for using the equity method and are recognised initially at cost. The Group’s investment includes goodwill identified on acquisition, net of any accumulated impairment losses. The consolidated financial statements include the Group’s share of the income and expenses and equity movements of equity accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases. When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest (including any long-term investments) is reduced to nil and the recognition of further losses is discontinued, except to the extent that the Group has an obligation or has made payments on behalf of the investee.

(v) Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

(b) Foreign currency transactions

Transactions in foreign currencies are translated to RUR at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the reporting period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising in retranslation are recognised in profit or loss, except for differences arising on the retranslation of available-for-sale equity instruments which are recognised in other comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

(c) Financial instruments

(i) Non-derivative financial instruments

Non-derivative financial instruments comprise investments in equity and debt securities, trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables.

The Group initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument.

F-12

OJSC MOSTOTREST

CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

11

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

The Group has the following non-derivative financial assets: loans and receivables and available-for-sale financial assets.

Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. Loans and receivables comprise trade and other receivables.

Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale and that are not classified in any of the previous categories. The Group’s investments in equity securities and certain debt securities are classified as available-for-sale financial assets. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses and foreign currency differences on available-for-sale debt instruments, are recognised in other comprehensive income and presented within equity in the fair value reserve. When an investment is derecognised or impaired, the cumulative gain or loss in other comprehensive income is transferred to profit or loss.

Other

Other non-derivative financial instruments are measured at amortised cost using the effective interest method, less any impairment losses. Investments in equity securities that are not quoted on a stock exchange are principally valued using valuation techniques such as discounted cash flow analysis, option pricing models and comparisons to other transactions and instruments that are substantially the same. Where fair value cannot be reliably measured, investments are stated at cost less impairment losses.

F-13

OJSC MOSTOTREST

CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

12

(ii) Non-derivative financial liabilities

The Group initially recognises debt securities issued and subordinated liabilities on the date that they are originated. All other financial liabilities (including liabilities designated at fair value through profit or loss) are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

The Group has the following non-derivative financial liabilities: loans and borrowings, bank overdrafts, and trade and other payables.

Such financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortised cost using the effective interest method.

(d) Share capital

Ordinary shares

Ordinary shares are classified as equity. Incremental costs directly attributable to issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects.

Repurchase of share capital

When share capital recognised as equity is repurchased, the amount of the consideration paid, which includes directly attributable costs, net of any tax effects, is recognised as a deduction from equity. Repurchased shares are classified as treasury shares and are presented as a deduction from total equity. When treasury shares are sold or reissued subsequently, the amount received is recognised as an increase in equity, and the resulting surplus or deficit on the transaction is transferred to/from retained earnings.

(e) Property, plant and equipment

(i) Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. As of 1 January 2008, the date of the first-time adoption of IFRS, the fair value of the property, plant and equipment were determined and accepted as the deemed cost of these assets.

Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.

F-14

OJSC MOSTOTREST

CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

13

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognised net within “other income” in profit or loss.

(ii) Subsequent costs

The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.

(iii) Depreciation

Depreciation is calculated over the depreciable amount, which is the cost of an asset, or other amount substituted for cost, less its residual value.

Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Land is not depreciated.

The estimated useful lives for the current and comparative periods are as follows:

• Buildings and structures 25 years

• Machinery and equipment 6 years

• Vehicles 6 years

• Other PPE 2 years

Depreciation methods, useful lives and residual values are reviewed at each financial year end and adjusted if appropriate.

(f) Intangible assets

(i) Goodwill

Goodwill that arises on the acquisition of subsidiaries is included in intangible assets. Any negative goodwill is a bargain purchase that is recognised in profit or loss. For measurement of goodwill at initial recognition, see note 3(a)(i).

Subsequent measurement

Goodwill is measured at cost less accumulated impairment losses. In respect of equity accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment, and an impairment loss on such an investment is not allocated to any asset, including goodwill, that forms part of the carrying amount of the equity accounted investee.

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14

(ii) Other intangible assets

Other intangible assets that are acquired by the Group, which have finite useful lives, are measured at cost less accumulated amortisation and accumulated impairment losses.

(iii) Subsequent expenditure

Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in the profit or loss as incurred.

(iv) Amortisation

Amortisation is calculated over the cost of the asset, or other amount substituted for cost, less its residual value.

Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use since this most closely reflects the expected pattern of consumption of future economic benefits embodied in the asset. The estimated useful lives of intangible assets, mainly consisting of software, vary from 1 to 7 years.

Amortisation methods, useful lives and residual values are reviewed at each financial year end and adjusted if appropriate.

(g) Leased assets

Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Other leases are operating leases and the leased assets are not recognised on the Group’s statement of financial position.

(h) Inventories

Inventories are measured at the lower of cost and net realisable value. The cost of inventories is determined based on the weighted-average method, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity.

Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

The Group inventories include construction materials, other inventories and work-in-progress. The work-in-progress includes the cost of inventories, production labor costs and production overhead costs (including depreciation).

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CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

15

(i) Amounts due from/ to customers for construction contracts

Amounts due from customers for construction contracts represent the amount of construction contracts in progress less consideration received by the Group for works already performed. Amounts due from customers are presented separately in the statement of financial position for all contracts in which costs incurred plus recognised profits and losses exceeds consideration received.

If the consideration received for works performed to date exceeds costs incurred plus recognised profits and losses, then the difference is presented as Due to customers for construction contracts in the statement of financial position.

Construction contracts in progress represent the gross amount expected to be collected from customers for contract work performed to date. It is measured at cost plus profit recognised to date (see note 3(m)(i)) less recognised losses. Cost includes all expenditure related directly to specific projects and an allocation of fixed and variable overheads incurred in the Group’s contract activities based on normal operating capacity.

(j) Impairment

(i) Financial assets

A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.

Objective evidence that financial assets are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

The Group considers evidence of impairment for receivables at both a specific asset and collective level. All individually significant receivables are assessed for specific impairment. All individually significant receivables found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Receivables that are not individually significant are collectively assessed for impairment by grouping together receivables with similar risk characteristics.

In assessing collective impairment the Group uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against receivables. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.

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CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

16

Impairment losses on available-for-sale investment securities are recognised by transferring the cumulative loss that has been recognised in other comprehensive income, and presented in the fair value reserve in equity, to profit or loss. The cumulative loss that is removed from other comprehensive income and recognised in profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss previously recognised in profit or loss. Changes in impairment provisions attributable to time value are reflected as a component of interest income.

If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can be related objectively to an event occurring after the impairment loss was recognised in profit or loss, then the impairment loss is reversed, with the amount of the reversal recognised in profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other comprehensive income.

(ii) Non-financial assets

The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, the recoverable amount is estimated each year at the same time.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”). For the purposes of goodwill impairment testing, goodwill acquired in a business combination is allocated to the group of cash generating units that is expected to benefit from the synergies of the combination. This allocation is subject to an operating segment ceiling test and reflects the lowest level at which that goodwill is monitored for internal reporting purposes.

The Group’s corporate assets do not generate separate cash inflows. If there is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the cash generating unit to which the corporate asset belongs.

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

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CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

17

Goodwill that forms part of the carrying amount of an investment in an equity accounted investee is not recognised separately, and therefore is not tested for impairment separately. Instead, the entire amount of the investment in an equity accounted investee is tested for impairment as a single asset when there is objective evidence that the investment in an equity accounted investee may be impaired.

(k) Employee benefits

(i) Defined contribution plans

A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans, including Russia’s State pension fund, are recognised as an employee benefit expense in profit or loss in the periods during which services are rendered by employees. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available. Contributions to a defined contribution plan that are due more than 12 months after the end of the period in which the employees render the service are discounted to their present value.

(ii) Other long-term employee benefits

The Group’s net obligation in respect of long-term employee benefits other than pension plans is the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of any related assets is deducted. The discount rate is the yield at the reporting date on AA credit-rated bonds that have maturity dates approximating the terms of the Group’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. The calculation is performed using the projected unit credit method. Any actuarial gains or losses are recognised in profit or loss in the period in which they arise.

(iii) Short-term benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.

A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.

(l) Provisions

A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost.

F-19

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CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

18

(i) Warranties

A provision for warranties is recognised when the underlying products or services are sold. The provision is based on historical warranty data and a weighting of all possible outcomes against their associated probabilities.

(ii) Onerous contracts

A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with that contract.

(m) Revenue

(i) Construction contracts

Contract revenue includes the initial amount agreed in the contract plus any variations in contract work, claims and incentive payments, to the extent that it is probable that they will result in an inflow of economic benefits and can be measured reliably. As soon as the outcome of a construction contract can be estimated reliably, contract revenue is recognised in profit or loss in proportion to the stage of completion of the contract. Contract expenses are recognised as incurred unless they create an asset related to future contract activity.

The stage of completion is assessed by reference to the share of the costs incurred to date in the total estimated contract costs. The contract costs that relate to future activity on the contract are excluded from costs incurred to date in determining the stage of completion (deferred recognition) and recognized as inventories.

When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred that are likely to be recoverable. An expected loss on a contract is recognised immediately in profit or loss.

(ii) Commissions

When the Group acts in the capacity of an agent rather than as the principal in a transaction, the revenue recognised is the net amount of commission made by the Group.

(iii) Other revenue

Revenue from other activities is recognised when significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, and there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably.

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CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

19

(n) Other expenses

(i) Lease payments

Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.

Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the contingency no longer exists and the lease adjustment is known.

At inception of an arrangement, the Group determines whether such an arrangement is or contains a lease. A specific asset is the subject of a lease if fulfilment of the arrangement is dependent on the use of that specified asset. An arrangement conveys the right to use the asset if the arrangement conveys to the Group the right to control the use of the underlying asset.

(ii) Social expenditure

To the extent that the Group’s contributions to social programs benefit the community at large and are not restricted to the Group’s employees, they are recognised in profit or loss as incurred.

(o) Finance income and costs

Finance income comprises interest income on funds invested (including available-for-sale financial assets), dividend income, gains on the disposal of available-for-sale financial assets, and foreign currency gains.

Interest income is recognised as it accrues in profit or loss, using the effective interest method.

Dividend income is recognised in profit or loss on the date that the Group’s right to receive payment is established, which in the case of quoted securities is the ex-dividend date.

Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions, foreign currency losses, and impairment losses recognised on financial assets. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method.

Foreign currency gains and losses are reported on a net basis.

(p) Income tax

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income.

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

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CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

20

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognised for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax assets and liabilities, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

(q) Earnings per share

The Group presents basic and diluted earnings per share (“EPS”) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for own shares held.

(r) Segment reporting

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. All operating segments’ operating results are reviewed regularly by the Group’s CEO to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

(s) New Standards and Interpretations early adopted

A number of new Standards, amendments to Standards and Interpretations are not yet effective as at 31 December 2009, and have not been applied in preparing these consolidated financial statements. The following new Standards, amendments to Standards and Interpretations may potentially impact the Group’s financial position or performance. The Group plans to adopt these pronouncements when they become effective.

• Revised IAS 24 Related Party Disclosures (2009) introduces an exemption from the basic disclosure requirements in relation to related party disclosures and outstanding balances, including commitments, for government-related entities. Additionally, the standard has been revised to simplify some of the presentation guidance that was previously non-reciprocal. The revised standard is to be applied retrospectively for annual periods beginning on or after 1 January 2011. The Group has not yet determined the potential effect of the amendment.

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CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

21

• IFRS 9 Financial Instruments will be effective for annual periods beginning on or after 1 January 2013. The new standard is to be issued in several phases and is intended to replace International Financial Reporting Standard IAS 39 Financial Instruments: Recognition and Measurement once the project is completed by the end of 2010. The first phase of IFRS 9 was issued in November 2009 and relates to the recognition and measurement of financial assets. The Group recognises that the new standard introduces many changes to the accounting for financial instruments and is likely to have a significant impact on Group’s consolidated financial statements. The impact of these changes will be analysed during the course of the project as further phases of the standard are issued.

• Various Improvements to IFRSs have been dealt with on a standard-by-standard basis. All amendments, which result in accounting changes for presentation, recognition or measurement purposes, will come into effect not earlier than 1 January 2010. The Group has not yet analysed the likely impact of the improvements on its financial position or performance.

4 Determination of fair values A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and for disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

(a) Property, plant and equipment

The fair value of property, plant and equipment recognised as a result of a business combination is based on market values. The market value of property is the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably and willingly. The fair value of items of plant, equipment, fixtures and fittings is based on market approach and cost approaches using quoted market prices for similar items when available.

When no quoted market prices are available, the fair value of property, plant and equipment is primarily determined using depreciated replacement cost. This method considers the cost to reproduce or replace the property, plant and equipment, adjusted for physical, functional or economical depreciation, and obsolescence.

(b) Investments in equity and debt securities

The fair value of available-for-sale financial assets is determined by reference to their quoted closing bid price at the reporting date.

(c) Trade and other receivables

The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. This fair value is determined for disclosure purposes.

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CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

22

(d) Non-derivative financial liabilities

Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. For finance leases the market rate of interest is determined by reference to similar lease agreements.

5 Operating segments

(a) Information about reportable segments

The Group has 15 operating segments, as described below, which are the Group’s strategic business units. The strategic business units are managed separately as they are located in different regions, operate different construction projects and require different technology strategies. Each segment represents a separate legal branch of the Company. For each of the strategic business units, the Group’s CEO reviews internal management reports on at least a quarterly basis. The following summary describes the location of each reportable segment:

Segment Short name Management locationMostotryad -4 МО-4 MoscowMostotryad -1 МО-1 Nizhny NovgorodMostotryad -6 МО-6 YaroslavlMostotryad -10 МО-10 Rostov-On-DonMostotryad -114 МО-114 MoscowMostotryad -90 МО-90 DmitrovMostotryad -81 МО-81 VoronezhOther segments Other - Other segments include 8 operating segments which due to size have been combined as one reportable segment.

Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit before income tax, as included in the internal management reports that are reviewed by the Group’s CEO. Segment profit is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries.

F-24

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F-25

OJSC MOSTOTREST

CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

24

Mln RUR 2009 2008RevenuesTotal revenue for reportable segments 30,391 26,403Timing difference in revenue recognition (944) 793Unallocated amounts 3,849 3,730Elimination of inter-segment revenue (904) (592)Consolidated revenue 32,392 30,334

Profit before taxTotal profit before tax for reportable segments 3,915 1,978Timing difference in revenue recognition (944) 793Other adjustments (109) (611)

Unallocated amounts 609 (919)Consolidated profit before tax 3,471 1,241

AssetsTotal assets for reportable segments 14,513 12,135Other adjustments (127) 616

Other unallocated amounts 10,541 11,958Consolidated total assets 24,927 24,709

6 Revenue Mln RUR 2009 2008Revenue construction contracts:

bridges and highways 23,678 22,965railway infrastructure facilities 2,984 11other infrastructure facilities 3,026 3,249other facilities 2,286 3,263

Total revenue from construction contracts 31,974 29,488Other revenue 418 846Total revenue 32,392 30,334

Below is the information on the geographical allocation of revenues from construction contracts. In presenting the information on the basis of geographical information, revenue is based on the geographical location of construction sites:

Mln RUR 2009 2008Central Federal District 19,914 18,412Southern Federal District 5,958 2,002Volga Federal District 4,724 5,345Siberian Federal District 756 796Northwestern Federal District 622 2,933Total revenue from construction contracts 31,974 29,488

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CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

25

7 Cost of sales Mln RUR 2009 2008Services of subcontractors 6,799 6,286Materials 6,277 7,230Personnel expenses 4,784 4,583Depreciation 1,409 1,312Labor services 756 998Machinery, equipment and vehicles services 733 557Design and technological work 451 390Maintanance and repair services 444 238Fuel 405 420Other 2,153 2,128

24,211 24,142

8 Administrative expenses Mln RUR 2009 2008Personnel expenses 2,098 1,908Consulting services 518 20Social expenses 173 439Materials 136 147Charity 103 74Other administrative expenses 799 902

3,827 3,490

9 Personnel costs Mln RUR 2009 2008Wages and salaries 5,873 5,486Contributions to State pension fund 945 892Unused vacation provision 64 113

6,882 6,491

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CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

26

10 Finance income and finance costs Mln RUR 2009 2008Recognised in profit or loss:Foreign exchange gain 150 -Interest income on loans given 92 75Interest income on bank deposits 56 34Share of profit of associates 2 10Finance income 300 119

Interest expense on borrowings (1,045) (941)Foreign exchange loss - (8)Interest expense on finance leases (71) (58)Finance costs (1,116) (1,007)Net finance costs recognized in profit or loss (816) (888)

Mln RUR 2009 2008

Recognised in other comprehensive income:Net change in fair value of available-for-sale financial assets 100 (137)Income tax on income and expense recognised in other comprehensive income (20) 35Finance income recognised in other comprehensive income, net of tax 80 (102)

11 Income tax expense The Group’s applicable tax rate is the income tax rate of 20% for Russian companies (2008: 24%).

Mln RUR 2009 2008Current tax expenseCurrent year 1,080 519Adjustments of prior years tax 27 12

1,107 531Deferred tax expenseOrigination and reversal of temporary differences (240) (9)

(240) (9)Total income tax expense 867 522

Income tax recognised directly in other comprehensive income

Mln RURBefore tax Tax Net of tax Before tax Tax Net of tax

Revaluation reserve for available-for-sale assets 100 (20) 80 (137) 35 (102)

100 (20) 80 (137) 35 (102)

2009 2008

F-28

OJSC MOSTOTREST

CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

27

Reconciliation of effective tax rate:

Mln RUR % Mln RUR %Profit before income tax 3,471 100% 1,241 100%Income tax at applicable tax rate 694 20% 298 24%Effect of decrease in tax rate - - (111) (9%)Non-deductible expenses 167 5% 356 29%Non-taxable income (21) (1%) (33) (3%)Underprovided in prior years 27 1% 12 1%

867 25% 522 42%

2009 2008

12 Property, plant and equipment Property, plant and equipment have been revalued to determine deemed cost as part of the adoption of IFRSs. The aggregate adjustments to carrying amounts reported under Russian Accounting Principles for each class of property, plant and equipment are as follows:

F-29

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F-30

OJSC MOSTOTREST

CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

29

Depreciation expense of RUR 1,409 mln (2008: RUR 1,312 mln) has been charged to cost of goods sold, RUR 12 mln (2008: RUR 15 mln) to administrative expenses, and RUR 6 mln (2008: RUR 0 mln) to work-in-progress.

(a) Cost of property, plant and equipment

In 2010 management engaged an independent professional appraiser to appraise the fair value of property, plant and equipment as at 1 January 2008 in order to determine their deemed cost on the date of the Group’s adoption of IFRSs. The fair value of property, plant and equipment was determined to be RUR 10,337 mln.

The fair value of property, plant and equipment was primarily determined using depreciated replacement cost. This method considers the cost to reproduce or replace the property, plant and equipment, adjusted for physical, functional or economical depreciation, and obsolescence. The fair value of certain movable property was determined based on the market prices for similar property, plant and equipment using a comparative approach.

In addition to the determination of the depreciated replacement cost, cash flow testing was conducted in order to assess the reasonableness of those values, which resulted in depreciated replacement cost values being decreased by RUR 173 mln in arriving at the above value.

A terminal value was derived from the analysis of value based on income, under which the projected normalized cash flow for the first post-projected year is capitalized.

The following key assumptions were used in performing the cash flow testing:

Key assumptions Value

Projected period 2008-2013Annual revenue growth rate 9.4%Annual costs growth rate 9.0%Discount rate 14.8%

The values assigned to the key assumptions represented management’s assessment of future trends in the business as at 1 January 2008 and are based on both external sources and internal sources.

(b) Security

At 31 December 2009 properties with a carrying amount of RUR 389 mln (2008: RUR 532 mln) are pledged to secure bank loans (see note 22).

(c) Leased machinery and equipment

The Group leases production equipment under a number of finance lease agreements. At the end of each of the leases the Group has the option to purchase the equipment at a beneficial price. At 31 December 2009 the net book value of leased plant and machinery was RUR 623 mln (2008: RUR 619 mln). The leased equipment secures lease obligations.

F-31

OJSC MOSTOTREST

CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

30

13 Other investments Available-for-sale investments comprise equity instruments of financial institutions that are mainly listed either on the RTS or MICEX stock exchanges.

The fair value of available-for-sale equity investments was determined by reference to their quoted market prices.

During the year the Group sold available-for-sale investments stated at cost that had a carrying amount of RUR 56 mln, which resulted in a gain of RUR 14 mln.

The Group’s exposure to credit, currency and interest rate risks related to other investments is disclosed in note 24.

14 Other non-current assets In October 2009 the Group entered into a preliminary agreement to acquire 25.002% interest in OAO Mostostroy-11, a bridge construction company located in West-Siberian district for a consideration of RUR 1,575 mln. Out of the total consideration payable, the Group made a downpayment of RUR 1,512 mln prior to 31 December 2009. The shares in the Company were subsequently acquired in February 2010.

15 Deferred tax assets and liabilities

(a) Recognised deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following: Mln RUR

2009 2008 2009 2008 2009 2008Property, plant and equipment - - (1,067) (1,249) (1,067) (1,249)Investments 21 - - 1 21 1Inventories 4 32 - - 4 32Trade and other receivables - - (5) (77) (5) (77)Construction contracts (including due from and due to customers) 668 650 - - 668 650Loans and borrowings 70 115 - - 70 115Provisions - - (1) (3) (1) (3)Other - - (47) (86) (47) (86)Tax loss carry-forwards 1 1 - - 1 1Tax assets/(liabilities) 764 798 (1,120) (1,414) (356) (616)Net tax assets/(liabilities) 764 798 (1,120) (1,414) (356) (616)

Assets Liabilities Net

(b) Unrecognised deferred tax liability

A temporary difference of RUR 2 mln (31 December 2008: RUR 4 mln, 1 January 2008: RUR 4 mln) relating to investments in subsidiaries has not been recognised as the Group is able to control the timing of reversal of the difference, and reversal is not expected in the foreseeable future.

F-32

OJSC MOSTOTREST

CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

31

(c) Movement in temporary differences during the year

Property, plant and equipment (1,694) 445 - (1,249)Investments (41) 7 35 1Inventories 38 (6) - 32Trade and other receivables 41 (118) - (77)Construction contracts (including due from and due to customers) 795 (145) 650Loans and borrowings 170 (55) - 115Provisions 1 (4) - (3)Other 25 (111) - (86)Tax loss carry-forwards 5 (4) - 1

(660) 9 35 (616)

Property, plant and equipment (1,249) 182 - (1,067)Investments 1 - 20 21Inventories 32 (28) - 4Trade and other receivables (77) 72 - (5)Construction contracts (including due from and due to customers) 650 18 668Loans and borrowings 115 (45) - 70Provisions (3) 2 - (1)Other (86) 39 - (47)Tax loss carry-forwards 1 - - 1

(616) 240 20 (356)

31 December

2009Mln RUR

1 January 2009

Recognised in other

comprehen-sive income

Recognised in income

Recognised in other

comprehen-sive income

31 December

2008

Recognised in income

Mln RUR

1 January 2008

16 Inventories

Mln RUR 2009 20081 January

2008Construction materials 2,426 2,399 1,847Work in progress 47 7 37Finished goods and goods for resale - - 156

2,473 2,406 2,040

F-33

OJSC MOSTOTREST

CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

32

There was no impairment of inventories as at 31 December 2009 (2008: RUR 14 mln). Inventories with a carrying amount of RUR 919 mln (2008: RUR 172 mln) are pledged as security for borrowings (see Note 22).

17 Construction contracts in progress

Mln RUR 2009 20081 January

2008Progress billings 83,894 61,636 35,235Billed in excess of contract revenue recognized (902) (455) (2,216)Contract revenue accumulated to the period end 82,992 61,181 33,019Contract costs accumulated to the period end (68,156) (51,893) (29,606)Expected losses recognised accumulated to the period end (170) (441) (653)Recognised profits less recognised losses 14,666 8,847 2,760

Contract revenue accumulated to the period end 82,992 61,181 33,019Advances received (2,107) (652) (269)Payments (80,984) (60,106) (33,517)Net receivables from/(payables to) customers (99) 423 (767)

Due from customers 3,095 2,764 1,723Due to customers (3,194) (2,341) (2,490)

(99) 423 (767)

Retentions 351 268 228

The retentions on construction contracts in the amount of RUR 351 mln as at December 31, 2009 (2008: RUR 268 mln) are measured at the fair value of the consideration receivable based on the expected timing of cash inflows. Retentions are amounts of progress billings that are not paid until the satisfaction of conditions specified in the contract for the payment of such amounts or until defects have been rectified.

Cash inflows from one of the construction contracts in the amount of RUR 250 mln are pledged as collateral for a bank loan (see Note 22).

18 Trade and other receivables

Mln RUR 2009 20081 January

2008Trade receivables 390 918 613Other receivables 434 120 138

824 1,038 751Non-current 14 210 51Current 810 828 700

824 1,038 751

The Group’s exposure to credit and currency risks and impairment losses related to trade and other receivables are disclosed in notes 24 (b)(i), 24 (d)(i).

F-34

OJSC MOSTOTREST

CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

33

19 Cash and cash equivalents

Mln RUR 2009 20081 January

2008Petty cash 1 1 1Cash at banks 685 1,723 2,279Bank deposits with maturities less than 3 months 4,175 3,487 -

4,861 5,211 2,280

The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in note 24.

20 Capital and reserves

(a) Share capital

Number of shares unless otherwise stated2009 2008

Authorised shares 1,241,200 1,241,200 Par value 28 RUR 28 RUR

On issue at 1 January 1,241,200 1,241,200 On issue at 31 December, fully paid 1,241,200 1,241,200

Ordinary shares

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company.

The share capital of RUR 35 mln was formed prior to 31 December 2002, when the Russian economy was considered to be hyperinflationary for IFRS purposes. Therefore the balance of the share capital was adjusted for the effect of hyperinflation of RUR 96 mln. As a result, the carrying value of the share capital as at 1 January 2008, 31 December 2008 and 31 December 2009 amounted to RUR 131 mln.

(b) Dividends

In accordance with Russian legislation the Company’s distributable reserves are limited to the balance of retained earnings as recorded in the Company’s statutory financial statements prepared in accordance with Russian Accounting Principles. As at 31 December 2009 the Company had retained earnings, including the profit for the current year, of RUR 7,335 mln (2008: RUR 4,323 mln).

At the reporting date dividends of RUR 645 per ordinary share totalling RUR 801 mln have been recommended by the Board of Directors, but have not been approved and, therefore, have not been provided for.

21 Earnings per share The calculation of basic earnings per share at 31 December 2009 was based on the profit attributable to ordinary shareholders of RUR 2,604 mln (2008: RUR 719 mln), and a weighted average number of ordinary shares outstanding of 1,241,200 (2008: 1,241,200), calculated as shown below. The Company has no dilutive potential ordinary shares.

F-35

OJSC MOSTOTREST

CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

34

2009 2008Issue as at 1 January and 31 December 1,241,200 1,241,200 Weighted average number of shares 1,241,200 1,241,200 Profit attributed to shareholders (mln RUR) 2,604 719 Basic and diluted earnings per share (RUR) 2,098 579

22 Loans and borrowings This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings, which are measured at amortised cost. For more information about the Group’s exposure to interest rate, foreign currency and liquidity risk, see note 24.

Mln RUR 2009 20081 January

2008

Short-term liabilitiesSecured bank loans 5,040 5,815 4,657Unsecured bank loans 805 1,810 -Current portion of finance lease liabilities 165 105 87

6,010 7,730 4,744Long-term liabilitiesUnsecured bank loans 208 833 1,586Finance lease liabilities 65 219 150

273 1,052 1,736

Total loans and borrowings 6,283 8,782 6,480

Terms of repayment of long-term bank loans are as follows:

Mln RUR 2009 2008Between 1 and 2 years 208 150Between 2 and 5 years - 683

208 833

F-36

OJSC MOSTOTREST

CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

35

Finance lease liabilities are payable as follows:

Mln RURFuture minimum lease

payments Interest

Present value of minimum lease

payments1 January 2008Less than one year 123 36 87Between 1 and 5 years 180 30 150

303 66 23731 December 2008Less than one year 199 94 105Between 1 and 5 years 251 32 219

450 126 32431 December 2009Less than one year 203 38 165Between 1 and 5 years 77 12 65

280 50 230

The carrying amount and fair value of loans and borrowings were as follows:

2009Mln RUR Face value Carrying amountSecured bank loans 5,040 5,040Unsecured bank loans 1,013 1,013Finance lease liabilities 280 230Total 6,333 6,283

2008Mln RUR Face value Carrying amountSecured bank loans 5,815 5,815Unsecured bank loans 2,643 2,643Finance lease liabilities 450 324Total 8,908 8,782

The carrying amounts of the Group’s loans and borrowings were denominated in the following currencies:

Mln RUR 2009 2008RUB 6,226 8,670USD 2 3EURO 55 109Total 6,283 8,782

The bank loans are attracted in RUR and at fixed interest rates. The weighted-average effective interest rates at the reporting date were as follows:

F-37

OJSC MOSTOTREST

CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

36

2009 2008 Bank loans 13.6% 11.9% Finance lease liabilities 14.2% 15.6%

The outstanding bank loans for total amount of RUR 3,133 mln (2008: RUR 5,243 mln) are secured by the following:

• Property, plant and equipment with total carrying amount of RUR 389 mln (2008: RUR 532 mln), see Note 12(b);

• Inventories with carrying amount of RUR 919 mln (2008: RUR 172 mln), see Note 16;

• Revenue on construction contracts RUR 250 mln (2008: RUR 0 mln), see Note 17.

Finance lease liabilities are secured by the leased assets, see Note 12 (c).

23 Trade and other payables

Mln RUR 2009 20081 January

2008Trade payables 3,294 2,911 2,326Payables to personnel 622 977 316Other taxes payable 754 769 262Other payables and accrued expenses 201 214 123

4,871 4,871 3,027Long-term 306 1,214 71Short-term 4,565 3,657 2,956

4,871 4,871 3,027

The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 24.

24 Financial instruments and risk management

(a) Overview

The Group has exposure to the following risks from its use of financial instruments:

• credit risk

• liquidity risk

• market risk

This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital. Further quantitative disclosures are included throughout these consolidated financial statements.

F-38

OJSC MOSTOTREST

CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

37

Risk management framework

The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The management is responsible for developing and monitoring the Group’s risk management policies. The management reports regularly to the Board of Directors on its activities.

The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

(b) Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers, loans given and investment securities.

(i) Trade and other receivables

The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the demographics of the Group’s customer base, including the default risk of the industry and country, in which customers operate, as these factors may have an influence on credit risk, particularly in the currently deteriorating economic circumstances. There is no concentration of credit risk geographically or with respect to sales transactions with a single customer.

The management has established a credit policy under which each new customer is analysed individually for creditworthiness before the Group’s standard payment and delivery terms and conditions are offered. The Group’s review includes external ratings, when available, and in some cases bank references. Purchase limits are established for each customer, and represent the maximum open amount without requiring approval from the management; these limits are reviewed quarterly. Customers that fail to meet the Group’s benchmark creditworthiness may transact with the Group only on a prepayment basis.

In monitoring customer credit risk, customers are grouped according to their credit characteristics, including whether they are an individual or legal entity, whether they are a wholesale, retail or end-user customer, geographic location, industry, aging profile, maturity and existence of previous financial difficulties. Customers that are graded as “high risk” are placed on a restricted customer list and monitored by the management, and future sales are made on a prepayment basis with approval of the management.

As a result of the deteriorating economic conditions in 2008 and 2009, certain purchase limits have been redefined, since the Group’s experience is that the economic downturn has had a greater impact in these business segments than in the Group’s other business segments.

F-39

OJSC MOSTOTREST

CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

38

The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables and investments. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets.

(ii) Investments

The Group limits its exposure to credit risk by only investing in liquid securities. Management actively monitors credit ratings and given that the Group only has invested in securities with high credit ratings, management does not expect any counterparty to fail to meet its obligations.

(iii) Guarantees

The Group’s policy is to provide financial guarantees only to wholly-owned subsidiaries. At 31 December 2009 no guarantees were outstanding (2008: none).

(iv) Exposure to credit risk

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:

Mln RUR2009 2008

1 January 2008

Available-for-sale financial assets 196 152 235 Amounts due from customers for construction contracts 3,095 2,764 1,723 Loans and receivables 1,175 1,882 998 Cash and cash equivalents 4,861 5,211 2,280

9,327 10,009 5,236

Carrying amount

F-40

OJSC MOSTOTREST

CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

39

Impairment losses

The aging of trade and other receivables and amounts due from customers for construction contracts at the reporting date was:

Gross Impairment Gross Impairment Gross Impairment

2009 2009 2008 20081 January

20081 January

2008Trade and other receivablesNot past due 803 (107) 1,135 (23) 779 (117)Past due 0-183 days 98 (17) 84 (1) 91 (3)Past due more than 183 days 172 (125) 141 (298) 219 (218)

Amounts due from customers for construction contractsNot past due 3,095 - 2,764 - 1,723 -

4,168 (249) 4,124 (322) 2,812 (338)

Mln RUR

Based on historic default rates, the Group believes that, apart from the above, no impairment allowance is necessary in respect of trade receivables not past due or past due by up to 183 days; the main portion of the trade receivables balance relates to customers that have a good track record with the Group.

The allowance accounts in respect of trade receivables are used to record impairment losses unless the Group is satisfied that no recovery of the amount owing is possible; at that point the amounts are considered irrecoverable and are written off against the financial asset directly. At 31 December 2009 and 2008 the Group does not have any collective impairment on its trade receivables or its held-to-maturity investments.

In addition, the majority of the balance of construction in progress due from customers (note 17) is from government agencies and other public bodies, therefore, there is a concentration of credit risk with such type of customers.

(c) Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.

The Group maintains several lines of credit with large banks operating in Russia.

The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements. It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts.

F-41

OJS

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F-42

OJSC MOSTOTREST

CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

41

(d) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

(i) Currency risk

The Group is exposed to currency risk on finance leases, purchases of machinery and equipment, and short-term deposits with banks (with maturities of less than 3 months) that are denominated in a currency other than the RUR.

Interest on borrowings is denominated in currencies that match the cash flows generated by the underlying operations of the Group, primarily RUR. This provides an economic hedge and no derivatives are entered into.

Exposure to currency risk

The Group’s exposure to foreign currency risk was as follows based on notional amounts:

Mln RURUSD-

denominatedEuro-

denominatedUSD-

denominatedEuro-

denominated2009 2009 2008 2008

Cash and cash equivalents 2 188 1,744 1,753Trade payables - (285) - (445)Finance lease liabilities (2) (55) (3) (109)Gross exposure - (152) 1,741 1,199

The following significant exchange rates applied during the year:

2009 2008 2009 20081 January

2008USD 1 31.72 24.86 30.24 29.38 24.55EUR 1 43.82 37.99 43.39 41.44 35.93

Average rate Reporting date spot rate

Sensitivity analysis

A weakening of the RUR, as indicated below, against the following currencies at 31 December would have increased equity and profit or loss by the amounts shown below. This analysis is based on foreign currency exchange rate variances that the Group considered to be reasonably possible at the end of the reporting period. The analysis assumes that all other variables, in particular interest rates, remain constant.

Mln RUR2009 2008

USD (10% weekening) - 174 Euro (10% weekening) (15) 120

Growth in Equity and Profit

F-43

OJSC MOSTOTREST

CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

42

A strengthening of the RUR against the above currencies at 31 December would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.

(ii) Interest rate risk

Changes in interest rates impact primarily loans and borrowings by changing either their fair value (fixed rate debt) or their future cash flows (variable rate debt). Management does not have a formal policy of determining how much of the Group’s exposure should be to fixed or variable rates. However, at the time of raising new loans or borrowings management uses its judgment to decide whether it believes that a fixed or variable rate would be more favourable to the Group over the expected period until maturity.

Profile

At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was:

Mln RUR 2009 2008Fixed rate instrumentsFinancial assets 547 996Financial liabilities (6,283) (8,782)

(5,736) (7,786)

Carrying amount

Fair value sensitivity analysis for fixed rate instruments

The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss. Therefore a change in interest rates at the reporting date would not affect profit or loss.

(iii) Other market price risk

Management of the Group monitors the mix of debt and equity securities in its investment portfolio based on market indices. Material investments within the portfolio are managed on an individual basis and all buy and sell decisions are approved by the management.

The primary goal of the Group’s investment strategy is to maximise investment returns.

The Group does not enter into commodity contracts other than to meet the Group’s expected usage and sale requirements; such contracts are not settled net.

The majority of the Group’s equity investments are listed either on the RTS or MICEX stock exchanges.

The available-for-sale investments, which are carried at cost, mainly consist of unquoted equity securities of financial institutions. There is no market for these investments and there have not been any recent transactions that provide evidence of fair value. In addition, discounted cash flow techniques yield a wide range of fair values due to the uncertainty of future cash flows in this industry.

During the year the Group sold available-for-sale investments stated at cost that had a carrying amount of RUR 56 mln, which resulted in a gain of RUR 14 mln.

F-44

OJSC MOSTOTREST

CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

43

The majority of the Group’s equity investments are listed either on the RTS or MICEX stock exchanges. For such investments, classified as instruments available for sale, an increase of the RTS index or MICEX index by 5% at the reporting date, would lead to an increase in shareholders' equity of RUR 7 mln after tax (2008: increase by RUR 2 mln); similar reduction in these indices would lead to a decrease in shareholders' equity of 7 mln after tax (2008: decrease of RUR 2 mln. Such sensitivity analysis of the fair value reflects the sensitivity of each equity instrument to the appropriate market index.

(e) Fair values versus carrying amounts

The fair values of financial assets and liabilities as at the reporting dates were not significantly different from their carrying amounts. The basis for determining fair values is disclosed in note 4. Inputs for the valuation of the available-for-sale financial assets are primarily based on the observable market data (hierarchy level 1).

(f) Capital management

The Group has no formal policy for capital management but management seeks to maintain a sufficient capital base for meeting the Group’s operational and strategic needs and to maintain confidence of market participants. This is achieved with efficient cash management, constant monitoring of Group’s revenues and profit, and long-term investment plans mainly financed by the Group’s operating cash flows. With these measures the Group aims for steady profits growth.

25 Operating leases Non-cancellable operating lease rentals are payable as follows:

Mln RUR 2009 2008Less than 1 year 63 65From 1 to 5 years 165 165More than 5 years 196 200

424 430

The Group leases a number of land plots, warehouses and production equipment under operating leases. The leases typically run for an initial period of 5 to 49 years for land plots, one to two years for production equipment and other property, with an option to renew the lease after that date. Lease payments are usually increased annually to reflect market rentals.

Since the title to land plots and other property does not pass to the Group, the lease payments are regularly revised based on the market rates, and the Group does not have an interest in the residual value of the leased property, all the risks and rewards incidental to ownership these assets remain with the lessor. As such, the Group classified these leases as operating leases.

During the year ended 31 December 2009 an amount of RUR 65 mln was recognised as an expense in profit or loss in respect of operating leases (2008: RUR 37 mln).

26 Capital commitments As at 31 December 2009 the Group did not have significant contractual obligations to purchase property, plant and equipment.

F-45

OJSC MOSTOTREST

CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

44

27 Contingencies

(a) Insurance

The insurance industry in the Russian Federation is in a developing state and many forms of insurance protection common in other parts of the world are not yet generally available. The Group does not have full coverage for its plant facilities, business interruption, or third party liability in respect of property or environmental damage arising from accidents on Group property or relating to Group operations. Until the Group obtains adequate insurance coverage, there is a risk that the loss or destruction of certain assets could have a material adverse effect on the Group’s operations and financial position. The Group will is responsible for the violation of the Law on Urban Planning, including for causing injury to life, health or property of third parties as a result of conducting construction works or defects in construction, renovation, overhaul of capital construction assets. The Group will also be held responsible for accidental loss of or damage to property being constructed. In order to reduce the risk of losses and obligations to third parties as a consequence of conducting construction works, the Group has obtained full insurance coverage against civil liabilities arising under the construction contracts in accordance with the terms of these contracts.

(b) Warranties

The Group has certain warranty obligations under construction contracts terms of which range from one to seven years. The Group performed analysis of historical data on actual compensations paid and defects rectified under these warranties for the past seven years. Based on this analysis, the Group concluded that the probability of the constructions works carried out during the reporting period will not satisfy the quality conditions specified in the contract and require repair, is low. Therefore the Group did not recognize a warranty liability on construction contracts as at the reporting date.

The retentions held by customers under the construction contracts are usually returned in full.

(c) Litigation

As at 31 December 2009 and 2008 the Group was not engaged in litigations, the outcome of which might have material effect on the consolidated financial statements.

(d) Taxation contingencies

The taxation system in the Russian Federation is relatively new and is characterised by frequent changes in legislation, official pronouncements and court decisions, which are often unclear, contradictory and subject to varying interpretation by different tax authorities. Taxes are subject to review and investigation by a number of authorities, which have the authority to impose severe fines, penalties and interest charges. A tax year remains open for review by the tax authorities during the three subsequent calendar years; however, under certain circumstances a tax year may remain open longer. Recent events within the Russian Federation suggest that the tax authorities are taking a more assertive position in their interpretation and enforcement of tax legislation.

F-46

OJSC MOSTOTREST

CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

45

These circumstances may create tax risks in the Russian Federation that are substantially more significant than in other countries. Management believes that it has provided adequately for tax liabilities based on its interpretations of applicable Russian tax legislation, official pronouncements and court decisions. However, the interpretations of the relevant authorities could differ and the effect on these consolidated financial statements, if the authorities were successful in enforcing their interpretations, could be significant.

Tax compliance of the Group's suppliers

The Group regularly enters into transactions with various suppliers. These entities are fully responsible for their own tax and accounting compliance. However, due to existing tax authorities’ practice, if these entities’ tax compliance is challenged by the tax authorities as not being in full conformity with the applicable tax legislation, this may result in additional tax risks for the Group. Should these suppliers be successfully challenged, the Group may become liable to additional tax payments, although management of these entities is primarily responsible for the correctness and timeliness of the entities’ tax payments. Management of the Group believes that it is not practicable to estimate the financial effect of potential tax liabilities, which ultimately could be imposed on the Group due to transactions with suppliers. However, if such liabilities were imposed, the amounts involved, including penalties and interest, could be material.

If the cases described above were successfully challenged by the Russian tax authorities, the additional payments could become due together with penalties, ranging from 20% - 40% of the amount of underpaid taxes, and late-payment interest. Management has not provided any amounts in respect of such obligations in these consolidated financial statements as it believes that it is possible, but not probable, that an outflow of economic benefits will be required to settle such obligations.

28 Related party transactions

(a) Control relationships

The Company’s immediate parent company is Marc O’Polo Investments Ltd (Cyprus).

Neither the Company’s ultimate parent company nor the next highest parent company prepare IFRS consolidated financial statements that are available for public use.

(i) Management remuneration

Key management received the following remuneration during the year, which is included in personnel costs:

Mln RUR 2009 2008Salaries and bonuses 782 938Contributions to the State Pension Fund 4 4

786 942

During the reporting period there were no other material transactions conducted with key management personnel and their close family members.

F-47

OJSC MOSTOTREST

CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

46

(b) Transactions with other related parties

The Group’s other related party transactions are disclosed below.

(i) Revenue

Mln RUR

2009 2008 2009 20081 January

2008Sale of goods:

Other related parties 10 81 5 5 -Services rendered:

Other related parties 11 1,402 12 25 -21 1,483 17 30 -

Transaction value Outstanding balance

(ii) Expenses

Mln RUR

2009 2008 2009 20081 January

2008Purchase of goods:

Other related parties 572 347 12 15 -Services received:

Other related parties 225 540 49 2 -797 887 61 17 -

Transaction value Outstanding balance

(iii) Loans

Mln RUR

2009 2008 2009 20081 January

2008Loans received:

Other related parties 2,000 - 1,000 - -

2,000 - 1,000 - -

Outstanding balanceTransaction value

The loans received from the related parties are repayable in 2010. The loans bear interest at 13.5% and 14.5% per annum. In 2009 interest expense was amounted to RUR 104 mln (2008: RUR 0 mln).

F-48

OJSC MOSTOTREST

CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

47

29 Group entities

SubsidiaryCountry of incorporation 2009 2008

1 January 2008

ООО "Taganka Most" Russia 100% 100% 100%ООО "Mostotrest SPB" Russia 100% 100% 100%ООО "Sledyashie test-Systemy" Russia 51% 51% 51%

Ownership interest

30 Events subsequent to the reporting date Acquisition of shares in new companies In May 2010 the Company completed acquisition of equity interest in the following companies:

•51% equity interest in the Inzhtransstroy Corporation LLC for a consideration of RUR 2,220 mln, payable in cash. The entity is one of the largest design and engineering companies in the infrastructure construction industry in Russia; •50.1% equity interest in the Transstroymechanizatsiya LLC for a consideration of RUR 1,264 mln, payable in cash. The entity is engaged in the construction and renovation of highways, airports, and has its own facility for production of asphalt and concrete; •25.002% of shares of OJSC OAO Mostostroy-11 for a consideration of RUR 1,575 mln, payable in cash. The entity is the leading bridge-construction entity in the West-Siberian region of the Russian Federation.

The above acquisitions will be accounted for in the Group’s consolidated financial statements for the year ended 31 December 2010. By the date of the issue of these consolidated financial statements the Group has not completed the purchase price allocation and, therefore, the information on the fair values of the respective identifiable assets, liabilities and contingent liabilities is not disclosed.

Significant construction contracts concluded The following significant construction contracts were concluded in 2010:

- The contract to renovate the bridge over the Moskva river in the Moscow region for a total consideration of RUR 564 mln concluded with the “Central Russia Federal Highways Management Department of the Federal Highways Agency”.

- The contract to construct speed-highway in the area of 15th km and 58th km between Moscow and Saint Petersburg for a total consideration of RUR 1,000 mln concluded with the North-West Concession Company LLC.

Significant borrowings During the first half of 2010 the Group concluded a number of loan agreements with banks for total amount of RUR 10,900 mln to replenish the working capital. The loans were obtained under fixed and floating interest rates based primarily on the MosPrime 3M rate. The loans mature in 2011-2013 and are secured by pledging property, plant and equipment, inventories and cash receipts from customers on construction contracts.

F-49

OJSC MOSTOTREST

CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2009

48

A share-split and additional floating of the Company shares On 30 June 2010 the General Meeting of the shareholders approved the split outstanding shares in the ratio of 200 for 1. As a result, the number of outstanding shares after the split amounts to 248,240,000 with the par value of RUR 0.14 per share.

In addition, the General Meeting of the shareholders approved additional issue of 248,240,000 ordinary shares with par value RUR 0.14 each. The additional shares shall provide the same rights that previously issued shares do.

Dividends declared for 2009

On 30 June 2010 the Annual General Meeting of shareholders declared the payment of dividends on ordinary shares for 2009 in the amount of RUR 801 mln (RUR 645 per share).

F-50

11OCT201005540968ZAO KPMG Telephone +7 (495) 937 4477Naberezhnaya Tower Complex, Block C Fax +7 (495) 937 4400/9910 Presnenskaya Naberezhnaya Internet www.kpmg.ruMoscow, Russia 123317

Independent Auditors’ Report

Board of Directors

OJSC Mostotrest

We have audited the accompanying consolidated financial statements of OJSC Mostotrest (the‘‘Company’’) and its subsidiaries (the ‘‘Group’’), which comprise the consolidated statements of financialposition as at 31 December 2009, 31 December 2008 and 1 January 2008, and the consolidated statementsof comprehensive income, consolidated statements of changes in equity and consolidated cash flowstatements for the years ended 31 December 2009 and 31 December 2008, and a summary of significantaccounting policies and other explanatory notes.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financialstatements in accordance with International Financial Reporting Standards. This responsibility includes:designing, implementing and maintaining internal control relevant to the preparation and fair presentationof consolidated financial statements that are free from material misstatements, whether due to fraud orerror; selecting and applying appropriate accounting policies; and making accounting estimates that arereasonable in the circumstances.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits.Except as described in the Basis for Qualified Opinion paragraph, we conducted our audits in accordancewith International Standards on Auditing. Those standards require that we comply with relevant ethicalrequirements and plan and perform the audits to obtain reasonable assurance whether the consolidatedfinancial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures inthe consolidated financial statements. The procedures selected depend on the auditor’s judgment,including the assessment of the risks of material misstatement of the consolidated financial statements,whether due to fraud or error. In making those risk assessments, the auditor considers internal controlrelevant to the entity’s preparation and fair presentation of the consolidated financial statements in orderto design audit procedures that are appropriate in the circumstances, but not for the purpose of expressingan opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating theappropriateness of accounting principles used and the reasonableness of accounting estimates made bymanagement, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for ouropinion.

ZAO KPMG, a company incorporated under the Laws of the RussianFederation and a member firm of the KPMG network of independentmember firms affiliated with KPMG International, a Swiss cooperative.

F-51

11OCT201005540968

11OCT201006021314

OJSC MostotrestIndependent Auditors’ Report

Page 2

Basis for Qualified Opinion

We did not observe the counting of inventories stated at RUR 2,406 million as at 31 December 2008 and atRUR 2,040 million as at 1 January 2008, because we were engaged as auditors of the Group only afterthose dates. It was impracticable to satisfy ourselves as to those inventory quantities by other auditprocedures. Accordingly, we were unable to determine whether any adjustments might be necessary to costof sales, taxation expense and net profit for the years ended 31 December 2009 and 31 December 2008,and to inventories and retained earnings as at 31 December 2008 and 1 January 2008.

Qualified Opinion

In our opinion, except for the effects on the corresponding figures of such adjustments, if any, that mighthave been determined to be necessary had it been practicable to obtain sufficient appropriate auditevidence as described in the Basis for Qualified Opinion paragraph, the consolidated financial statementspresent fairly, in all material respects, the consolidated financial position of the Group as at 31 December2009, 31 December 2008 and 1 January 2008, and its consolidated financial performance and itsconsolidated cash flows for the years ended 31 December 2009 and 31 December 2008 in accordance withInternational Financial Reporting Standards.

ZAO KPMG31 August 2010

F-52

OJSC MOSTOTREST

Condensed Interim Consolidated Financial

Statements for the six months ended 30 June 2010

F-53

OJSC MOSTOTREST

2

Contents

Condensed Interim Consolidated Financial Statements Condensed Interim Consolidated Statement of Financial Position 3 Condensed Interim Consolidated Statement of Comprehensive Income 4 Condensed Interim Consolidated Statement of Changes in Equity 5 Condensed Interim Consolidated Statement of Cash Flows 6 Notes to the Condensed Interim Consolidated Financial Statements 7 Independent Auditors’ Report on Review of Condensed Interim Consolidated Financial Information 20

F-54

F-55

OJSC MOSTOTREST

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE SIX ENDED 30 JUNE 2010

The condensed interim consolidated statement of comprehensive income is to be read in conjunction with the notes to, and forming part of, the condensed interim consolidated financial statements set out on pages 7 to 17.

4

Condensed Interim Consolidated Statement of Comprehensive Income

Mln RUB Note

2010 2009Revenue 8 16,433 13,357Cost of sales 9 (11,987) (9,691)Gross profit 4,446 3,666Other income 70 65Administrative expenses 10 (1,680) (1,583)Other expenses (174) (53)Results from operating activities 2,662 2,095Finance income 11 72 333Finance costs 11 (638) (599)Net finance costs (566) (266)Share of profit of equity accounted investees 25 -Profit before income tax 2,121 1,829Income tax expense (524) (408)Profit for the period 1,597 1,421

Other comprehensive incomeNet change in fair value of available-for-sale financial assets (4) 54Total comprehensive income 1,593 1,475

Earnings per share

Basic and diluted earnings per share calculated on the basis of number of shares subsequent to share split at 30 June 2010 (RUB) 6.43 5.72Basic and diluted earnings per share calculated on the basis of number of shares as at 31 December 2009 (RUB) 1,287 1,145

Six months ended 30 June

F-56

OJS

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45

F-57

OJSC MOSTOTREST

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE PERIOD ENDED 30 JUNE 2010

The condensed interim consolidated statement of cash flows is to be read in conjunction with the notes to, and forming part of, the condensed interim consolidated financial statements set out on pages 7 to 17.

6

Condensed Interim Consolidated Statement of Cash Flows

Mln RUB Notes 30.06.2010 30.06.2009Cash flows from operating activitiesProfit for the period 1,597 1,421Adjustments for:Depreciation 819 729Share of profit of equity accounted investees (25) -(Profit) / loss on disposal of property, plant and equipment (8) 22Net finance costs 591 485Income tax expense 524 408Cash from operating activities before changes in working capital and provisions 3,498 3,065Increase in inventories (695) (97)Decrease/(increase) in trade and other receivables 1,023 (1,692)(Increase)/decrease in amounts due from customers on construction contracts (5,250) 123Decrease/(increase) in prepayments for current assets 2,452 (133)Increase in other liabilities 3 4Decrease in trade and other payables (3,493) (438)(Decrease)/increase in amounts due to customers on construction contracts (2,408) 400Cash flows (used in)/ from operations before income taxes and interest paid (4,870) 1,232Income tax paid (176) (699)Net cash from operating activities (5,046) 533Cash flows from investing activitiesProceeds from sale of property, plant and equipment 60 7Interest received 46 115Loans given (174) (178)Acquisition of property, plant and equipment (589) (178)Acquisition of equity accounting investments (63) -Acquisition of intangible assets (43) (5)Repayment of the loans given 9 379Acquisition of subsidiaries (1,142) -Net cash (used in)/from investing activities (1,896) 140

Cash flows from financing activitiesProceeds from borrowings 15,140 1,818Repayment of borrowings (9,072) (5,180)Payment of finance lease liabilities (116) (61)Interest paid (490) (591)Net cash from/(used in) financing activities 5,462 (4,014)

Net decrease in cash and cash equivalents (1,480) (3,341)Cash and cash equivalents at 1 January 4,861 5,211Cash and cash equivalents at 30 June 3,381 1,870

F-58

OJSC MOSTOTREST

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE PERIOD ENDED 30 JUNE 2010

7

Notes to the Condensed Interim Consolidated Financial Statements

1 Organization and operations OJSC Mostotrest (the “Company”) and its subsidiaries (the “Group”) comprise Russian open joint stock companies (OAO) and limited liability (OOO) companies as defined in the Civil Code of the Russian Federation.

The Company’s registered office is Myasnitskaya Street 24/7, Bld.3, Moscow, 101990, Russian Federation.

The Group’s principal activity is the construction of transport infrastructure items, including railway, highway and city bridges, overpasses, interchanges, and other engineering structures for the state municipal entities. The Group’s major customers are government agencies and other public bodies. The Group primarily operates in the European part of the Russian Federation.

The Company’s shares are registered for trading on the Russian Trading System (RTS) and Moscow Interbank Currency Exchange (MICEX) stock exchanges.

The consolidated financial statements of the Group as at and for the year ended 31 December 2009 are available upon request from the Company’s registered office at the address mentioned above and at www.mostotrest.ru .

2 Statement of compliance These condensed interim consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting. They do not include all of the information required for full set of annual financial statements and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 31 December 2009.

3 Significant accounting policies The accounting policies applied by the Group in these condensed interim financial statements are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 31 December 2009.

From 1 January 2010 the Group has applied IFRS 3 Business Combinations in accounting for business combinations. The change in accounting policy has been applied prospectively and has had no material impact on earnings per share.

Business combinations are accounted for using the acquisition method as at the acquisition date which is the date on which control is transferred to the Group. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, the Group takes into consideration potential voting rights that currently are exercisable.

F-59

OJSC MOSTOTREST

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE PERIOD ENDED 30 JUNE 2010

8

4 Use of estimates and judgments The preparation of condensed interim consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from those estimates.

In preparing these condensed interim consolidated financial statements, the significant judgements made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 December 2009.

5 Operating segments

(a) Information about reportable segments

During the first half of 2010 the Group acquired two new subsidiaries that represent two additional operating segments. Those new segments are managed separately as they operate different construction projects and require different technology strategies. Each of them represents separate legal entity or branch. For each of these strategic business units, the Group’s CEO reviews internal management reports on at least a quarterly basis.

Information regarding the results of each reportable segment is presented below.

Mln RUB30.06.2010 31.12.2009

МО-4 1,604 2,786МО-1 1,292 1,414МО-6 1,797 1,621МО-10 2,033 2,287МО-114 1,241 1,216МО-90 846 1,035МО-81 567 403Other 4,408 3,751Total Mostotrest 13,788 14,513ETS 17,937 -TSM 9,304 -Total 41,029 14,513

Reportable segment assets

F-60

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ent n

et p

rofit

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CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE PERIOD ENDED 30 JUNE 2010

10

Mln RUB 30.06.2010 30.06.2009

RevenuesTotal revenue for reportable segments 15,946 13,342Timing difference in revenue recognition (574) (2,415)Unallocated amounts 1,559 2,816Elimination of inter-segment revenue (498) (386)Consolidated revenue 16,433 13,357

Profit before taxTotal profit before tax for reportable segments 1,992 1,949Timing difference in revenue recognition (573) (2,120)Other adjustments 349 1,108Unallocated amounts 353 892Consolidated profit before tax 2,121 1,829

The major change in segment assets during the six-month-period ended 30 June 2010 relates to the acquisition of new subsidiaries (see note 7).

Mln RUB 30.06.2010 31.12.2009

AssetsTotal assets for reportable segments 41,029 14,513Major adjustmentsIntercompany eliminations (12,075) (4,245)Goodwill 2,404 -Intangible assets recognized from business combination 2,395 -Fair value adjustment to property, plant and equipment 6,869 5,578Investments elimination (3,484) -Other adjustments (4,301) (1,460)

Other unallocated amounts (Corporate assets) 18,425 10,541Consolidated total assets 51,262 24,927

6 Seasonality The business of the Group is not a subject to seasonal fluctuations. Nevertheless the results of first half year are influenced by the fact that government financing limits for the most of significant construction contracts are set in the first quarter of the year. The results of the first quarter of the year are also influenced be less favorable weather conditions for several construction contracts performed in northern and eastern regions. The majority of the contruction contracts are usually completed in the second half of the year.

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CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE PERIOD ENDED 30 JUNE 2010

11

7 Acquisition of subsidiary and non-controlling interests

(a) Acquisition of subsidiaries

On 28 June 2010 the Group obtained control over OOO Engtransstroy Corporation (“ETS”), a design and engineering company operating in the infrastructure construction industry, by acquiring 51% of equity interest for a consideration of RUB 2,220 mln, paid in cash.

On 13 May 2010 the Group obtained control of OOO Transstroymechanizatsiya (“TSM”), the company engaged in the construction and renovation of highways and airports with its own facilities for production of asphalt and concrete, by acquiring 50.1% of equity interest for a consideration of RUB 1,264 mln, payable in cash.

The acquisitions were made to to expand geographical market and enter new market segments of construction industry including the highway and airports infrastructure facilities construction segments. This diversification was also an important step to fulfill the strategic goal of the Group to develop into the leading construction company in Russia.

From the date of acquisition to 30 June 2010 OOO Transstroymechanizatsiya contributed revenue of RUB 1,664 mln and profit of RUB 52 mln.

If the acquisitions had occurred on 1 January 2010 management estimates that the Group’s consolidated revenue would have been RUB 31,108 mln and the Group’s consolidated profit for the period would have been RUB 785 mln. In determining these amounts management has assumed that the fair value adjustments determined previously that arouse on the date of acquisition would have been the same if the acquisition had occurred on 1 January 2010.

Identifiable assets acquired and liabilities assumed

The identifiable assets acquired and the liabilities of OOO Engtransstroy assumed were as follows:

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CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE PERIOD ENDED 30 JUNE 2010

12

’000 RUB

Pre-acquisition carrying amounts on a comparable

IFRS basisFair value

adjustments

Recognised fair values on

acquisitionNon-current assetsProperty, plant and equipment 517 203 720Intangible assets 3 1,815 1,818Other non-current assets 250 (162) 88Amounts due from customers for the construction contracts, trade and other receivables 3,079 (311) 2,768Amounts due to customers, trade and other payables (15,918) 740 (15,178)Other current assets / liabilities, net 11,955 (25) 11,930Long-term liabilities - (324) (324)Net identifiable assets, liabilities and contingent liabilities (114) 1,936 1,822Non-controlling interest 893Acquirer's share in net identifiable assets 929Goodwill on acquisition 1,291Consideration paid 2,220Cash acquired (2,036)Net cash outflow 184

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CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE PERIOD ENDED 30 JUNE 2010

13

The identifiable assets acquired and the liabilities of OOO Transstroymekhanizaciya assumed were as follows:

’000 RUB

Pre-acquisition carrying amounts on a comparable

IFRS basisFair value

adjustments

Recognised fair values on

acquisitionNon-current assetsProperty, plant and equipment 1,972 1,088 3,060Intangible assets 1 582 583Other non-current assets 371 - 371Amounts due from customers for the construction contracts, trade and other receivables 2,058 (46) 2,012Amounts due to customers, trade and other payables (6,073) - (6,073)

Other current assets / liabilities, net 924 (22) 902Long-term liabilities (228) (326) (554)

Net identifiable assets, liabilities and contingent liabilities (975) 1,276 301

Non-controlling interest 150

Acquirer's share in net identifiable assets 151Goodwill on acquisition 1,113Consideration paid 1,264Cash acquired (306)Net cash outflow 958

Goodwill

Goodwill has been recognized as a result of the acquisitions as follows:

Mln RUB ETS TSM TotalTotal consideration transferred 2,220 1,264 3,484Non-controlling interests, based on their proportionate interest in the recognised amounts of the assets and liabilities of the acquiree 893 150 1,043Less value of identifiable assets (1,822) (301) (2,123)Goodwill 1,291 1,113 2,404

Goodwill is attributable mainly to the synergies expected to be achieved from integration of the acquired companies into the Group’s business.

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CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE PERIOD ENDED 30 JUNE 2010

14

(b) Acquisition of non-controlling interest

On 16 February 2010 the Group acquired a 25% interest in OAO Mostostroy-11 for a consideration of RUB 1,575 mln paid in cash. The entity is a bridge-construction entity located in the West-Siberian region of the Russian Federation.

The following summarizes the effect of this acquisition:

Mln RUB OAO Mostostroy-11Company's ownership interest at the beginning of the period -Effect of increase in Company's ownership interest 1,575Share of comprehensive income 25Company's ownership interest at the end of the period 1,600

Assets and liabilities of the company at the acquisition date were as follows:

Mln RUB OAO Mostostroy 11Non-current assets 5,968Current assets 3,131Long-term liabilities (914)Short-term liabilities (2,550)Net identifiable assets, liabilities and contingent liabilities 5,635Acquirer's interest in net identifiable assets and liabilities 1,409Goodwill on acquisition 166Consideration paid 1,575

8 Revenue Mln RUB 30.06.2010 30.06.2009Revenue construction contracts:

bridges and highways 8,794 10,790railway infrastructure facilities 5,371 351airfields and airports 837 -other infrastructure facilities 692 1,645other facilities 134 492

Total revenue from construction contracts 15,828 13,278Other revenue 605 79Total revenue 16,433 13,357

Below is the information on the geographical allocation of revenues from construction contracts. In presenting the information on the basis of geographical information, revenue is based on the geographical location of construction sites:

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CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE PERIOD ENDED 30 JUNE 2010

15

Mln RUB 30.06.2010 30.06.2009Central Federal District 4,777 9,474Southern Federal District 8,428 1,259Volga Federal District 970 2,131Siberian Federal District 526 266Northwestern Federal District 641 148Far Eastern Federal District 486 -Total revenue from construction contracts 15,828 13,278

9 Cost of sales Mln RUB 30.06.2010 30.06.2009

Materials 3,693 2,542Personnel expenses 2,723 2,077Services of subcontractors 2,005 2,602Depreciation 756 720Machinery, equipment and vehicles services 501 385Labor services 259 117Fuel 255 220Other 1,795 1,028

11,987 9,691

10 Administrative expenses Mln RUB 30.06.2010 30.06.2009Personnel expenses 654 1,006Social expenses 101 52Materials 57 63Consulting services 54 25Charity 28 54Other administrative expenses 786 383

1,680 1,583

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CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE PERIOD ENDED 30 JUNE 2010

16

11 Finance income and costs recognized in profit or loss for the period Mln RUB 30.06.2010 30.06.2009Recognised in profit or loss:Foreign exchange gain 26 218Interest income 46 115Finance income 72 333

Interest expense on loans and borrowings (470) (560)Interest expense on finance leases (47) (39)Non controlling interest (121) -Finance costs (638) (599)Net finance costs recognized in profit or loss (566) (266)

12 Property, plant and equipment During the six months ended 30 June 2010 the Group acquired items of property, plant and equipment for a total amount of RUB 956 mln (six months ended 30 June 2009: RUB 232 mln)

During the six months ended 30 June 2010 the assets with the carrying amount of RUB 52 mln were disposed (six months ended 30 June 2009: RUB 29 mln).

13 Construction contracts in progress 30.06.2010 31.12.2009

Progress billings 78,425 83,894Unbilled revenue 286 -Billed in excess of contract revenue recognized - (902)Contract revenue accumulated to the period end 78,711 82,992Contract costs accumulated to the period end (65,620) (68,156)Expected losses recognised accumulated to the period end (149) (170)Recognised profits less recognised losses 12,942 14,666

Contract revenue accumulated to the period end 78,711 82,992Payments (73,999) (83,091)Net receivables from/(payables to) customers of OJSC Mostotrest

4,712 (99)Net receivables from/(payables to) customers of acquired subsidiaries (5,288) -Net receivables from/(payables to) customers (576) (99)

Due from customers 9,100 3,095Due to customers (9,676) (3,194)Net receivables from/(payables to) customers (576) (99)

Retentions 169 351

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CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE PERIOD ENDED 30 JUNE 2010

17

14 Loans and borrowings

Mln RUB Currency Face valueCarrying amount

Year of maturity

Balance at 1 January 2010 6,333 6,283New issuesSecured bank loans RUB 2,340 2,340 2010-2013Unsecured bank loans RUB 12,800 12,800 2010-2013Finance lease liabilities RUB 160 194 2010-2013Bank loans and finance lease liabilities acquired through business combinations RUB 2,201 2,146 2010-2012

Repayments, including interestSecured bank loans RUB (44) (44) 2010-2013Unsecured bank loans RUB (9,519) (9,519) 2010-2013Finance lease liabilities RUB (154) (116) 2010-2013

Intercompany loan elimination RUB (500) (500)

Interest expense 517 517

Balance at 30 June 2010 14,134 14,101

The outstanding bank loans of RUB 4,968 mln (31 December 2009: RUB 3,133 mln) are secured by the following:

• Property, plant and equipment with total carrying amount of RUB 604 mln (31 December 2009: RUB 389 mln);

• Inventories with carrying amount of RUB 748 mln (31 December 2009: RUB 919 mln);

• Revenue on construction contracts RUB 3,250 mln (31 December 2009: RUB 250 mln).

15 Related party transactions

(a) Control relationships

The Company’s immediate parent company is Marc O’Polo Investments Ltd (Cyprus).

(i) Management remuneration

Key management received the following remuneration during the period, which is included in personnel costs:

Mln RUB 30.06.2010 30.06.2009

Salaries and bonuses 77 512Contributions to the State Pension Fund 5 5

82 517

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CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE PERIOD ENDED 30 JUNE 2010

18

During the reporting period there were no other material transactions conducted with key management personnel and their close family members.

(b) Transactions with other related parties

The Group’s other related party transactions are disclosed below.

(i) Revenue

Mln RUB30.06.2010 30.06.2009 30.06.2010 31.12.2009

Sale of goods:Investments in equity accounted investees 1 - - -Other related parties 49 59 332 -

Services rendered:Investments in equity accounted investees 164 - 83 -Other related parties 193 128 2,756 12

407 187 3,171 12

Transaction value Outstanding balance

(ii) Expenses

Mln RUB30.06.2010 30.06.2009 30.06.2010 31.12.2009

Purchase of goods:Other related parties (20) (2) (89) -

Services received:Investments in equity accounted investees (164) - (165) -Other related parties (3,172) (1,509) (4,775) (49)

(3,356) (1,511) (5,029) (49)

Transaction value Outstanding balance

(iii) Loans

Mln RUB30.06.2010 30.06.2009 30.06.2010 31.12.2009

Loans received:Other related parties 3,500 - 3,501 1,000

3,500 - 3,501 1,000

Transaction value Outstanding balance

The loans received from the related parties are repayable in 2010. The loans bear interest at 13.5% and 14.5% per annum.

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CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE PERIOD ENDED 30 JUNE 2010

19

16 Events subsequent to the reporting date Significant construction contracts concluded

The following significant construction contracts were concluded subsequent to 30 June 2010:

• The contract to renovate the bridge over the Volga river in Tverskoy region for a total consideration of RUB 2,638 mln concluded with the “Moscow – Saint Petersburg Highway Management Department of the Federal Highways Agency”.

• The contract to renovate the bridge on the Leningradskiy highway over the Moscow river (the second stage) for a total consideration of RUB 460 mln concluded with OAO Dormost.

• The contract to renovate the Kanavinskiy bridge in the city of Nizhniy Novgorod for a total consideration of RUB 786 mln concluded with the “Main Office of the municipal agency of the city of Nizhniy Novgorod for metro, bridges and highways construction and renovation projects”.

Significant borrowings

Subsequent to 30 June 2010 the Group concluded a number of loan agreements with banks for total amount of RUB 2,600 mln to replenish the working capital. The loans were obtained under fixed and floating interest rates based primarily on the MosPrime 3-month rate. The loans are unsecured and mature in 2011-2013.

A share-split and additional floating of the Company shares

On 2 September 2010 the Federal Commission for the Securities Market registered the split of the Company’s outstanding shares in the ratio of 200 for 1. As a result, the number of outstanding shares after the split amounted to 248,240,000 with the par value of RUB 0.14 per share.

On 30 June 2010 the General Meeting of the shareholders approved additional issue of 248,240,000 ordinary shares with par value of RUB 0.14 each. The additional shares shall provide the same rights that previously issued shares do.

Dividends declared for 2009

On 30 June 2010 the Annual General Meeting of shareholders declared the payment of dividends on ordinary shares for 2009 in the amount of RUB 801 mln (RUB 645 per share).

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11OCT201005540968

11OCT201006021314

ZAO KPMG Telephone +7 (495) 937 4477Naberezhnaya Tower Complex, Block C Fax +7 (495) 937 4400/9910 Presnenskaya Naberezhnaya Internet www.kpmg.ruMoscow, Russia 123317

Independent Auditors’ Report

Board of Directors

OJSC Mostotrest

Introduction

We have reviewed the accompanying condensed interim consolidated statement of financial position ofOJSC Mostorest (the ‘‘Company’’) and its subsidiaries (the ‘‘Group’’) as at 30 June 2010 and 30 June 2009,and the related condensed interim consolidated statements of comprehensive income, changes in equityand cash flows for the six-month periods then ended and a summary of selected explanatory notes (thecondensed interim consolidated financial information). Management is responsible for the preparationand presentation of this condensed interim consolidated financial information in accordance withInternational Financial Reporting Standard IAS 34 Interim Financial Reporting. Our responsibility is toexpress a conclusion on this condensed interim consolidated financial information based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements 2410 Reviewof Interim Financial Information Performed by the Independent Auditor of the Entity. A review of condensedinterim consolidated financial information consists of making inquiries, primarily of persons responsiblefor financial and accounting matters, and applying analytical and other review procedures. A review issubstantially less in scope than an audit conducted in accordance with International Standards on Auditingand consequently does not enable us to obtain assurance that we would become aware of all significantmatters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensedinterim consolidated financial information as at 30 June 2010 and 30 June 2009, and for the six-monthperiods then ended is not prepared, in all material respects, in accordance with International FinancialReporting Standard IAS 34 Interim Financial Reporting.

ZAO KPMG1 October 2010

ZAO KPMG, a company incorporated under the Laws of the RussianFederation and a member firm of the KPMG network of independentmember firms affiliated with KPMG International, a Swiss cooperative.

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ENGTRANSSTROY Corporation LLC

Preliminary IFRS Financial Statements

for the year ended 31 December 2009

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ENGTRANSSTROY Corporation LLC

Contents

Preliminary IFRS Financial Statements

Preliminary IFRS Statement of Financial Position 3

Preliminary IFRS Statement of Comprehensive Income 4

Preliminary IFRS Statement of Changes in Net assets attributable

to participants 5

Preliminary IFRS Statement of Cash Flows 6

Notes to the Preliminary IFRS Financial Statements 7

Independent Auditors’ Report 35

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ENGTRANSSTROY Corporation LLC

PRELIMINARY IFRS FINANCIAL STATEMENTS AS AT AND FOR YEAR ENDED 31 DECEMBER 2009

The preliminary IFRS statement of comprehensive income is to be read in conjunction with the notes to, and forming part of the preliminary IFRS financial statements set out on pages 7 to 34.

4

Preliminary IFRS Statement of Comprehensive Income

Mln RUR Note 2009Revenue 5 46,805Cost of sales 6 (44,067)Gross profit 2,738Other income 57Administrative expenses 7 (1,049)Other expenses 8 (618)Results from operating activities 1,128Finance income 10 98Finance costs 10 (72)Dividends 22 (303)Net finance expense (277)Profit before income tax 851Income tax expense 11 (282)Profit and total comprehensive income for the year 569

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PRELIMINARY IFRS FINANCIAL STATEMENTS AS AT AND FOR YEAR ENDED 31 DECEMBER 2009

The preliminary IFRS statement of changes in net assets attributable to participants is to be read in conjunction with the notes to, and forming part of the preliminary IFRS financial statements set out on pages 7 to 34.

5

Preliminary IFRS Statement of Changes in Net assets attributable to

participants

Mln RUR

Charter capital

Profit and loss attributable to

participants

Total net assets

attributable to participants

Balance at 1 January 2009 30 (436) (406)Profit and total comprehensive income for the year - 569 569Balance at 31 December 2009 30 133 163

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ENGTRANSSTROY Corporation LLC

PRELIMINARY IFRS FINANCIAL STATEMENTS AS AT AND FOR YEAR ENDED 31 DECEMBER 2009

The preliminary IFRS statement of cash flows is to be read in conjunction with the notes to, and forming part of the preliminary IFRS financial statements set out on pages 7 to 34.

6

Preliminary IFRS Statement of Cash Flows

Mln RUR 2009CASH FLOW FROM OPERATING ACTIVITIESProfit for the year 569Adjustments for:Depreciation 99Finance income net of finance costs (26)Provision on loans given 152Gain on disposal of assets held for sale (3)Loss on disposal of property plant and equipment 7Dividends 303Income tax expense 282Cash flows from operating activities before changes in working capital and provisions 1,382

Decrease in inventory 626Decrease in trade and other receivables 1,027Decrease in amounts due from customers for construction contracts 503Increase in trade and other payables 1,917Increase in amounts due to customers for construction contracts 1,572Increase in provisions 25Increase in advances and deferred expense (861)Cash flows from operations before income taxes and interest paid 6,192Income tax paid (293)Net cash from operating activities 5,899

CASH FLOW FROM INVESTING ACTIVITIESAcquisition of property, plant and equipment (134)Loans given (261)Interest received 98Repayment of loans given 823Proceeds from sales of property plant and equipment 70Proceeds from sale of non-current assets held for sale 57Net cash from investing activities 653

CASH FLOW FROM FINANCING ACTIVITIESProceeds from borrowings 1,208Repayment of borrowings (1,209)Finance lease payments (260)Dividends paid (303)Interest paid (29)Net cash used in financing activities (593)

Net increase in cash and cash equivalents 5,959Cash and cash equivalents at 1 January 1,759Cash and cash equivalents at 31 December 7,718

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PRELIMINARY IFRS FINANCIAL STATEMENTS AS AT AND FOR YEAR ENDED 31 DECEMBER 2009

7

Notes to the Preliminary IFRS Financial Statements

1 Background

(a) Organisation and operations

ENGTRANSSTROY Corporation LLC (the “Company”) is a Russian limited liability company established in accordance with the Civil Code of the Russian Federation. The Company was established in 2007. The Company’s registered office is 10, Tarusskaya street, Moscow, 117588, Russia.

The Company is a general contractor specialized in transport infrastructure, industrial and civil construction “turnkey” projects, including a wide range of EPC (engineering, procurement, construction) projects in railways, bridges, tunnels, airports, sea and river ports, industrial buildings and public facilities. The Company’s major customers are government agencies and other public bodies. The Company’s activities are carried out in the Russian Federation.

During 2009 the Company’s immediate parent was Velopretco Holdings Co. Limited (Cyprus), and the Company’s ultimate controlling party was Mr. Basin E.V.

(b) Russian business environment

The Russian Federation has been experiencing political and economic change that has affected, and may continue to affect, the activities of enterprises operating in this environment. Consequently, operations in the Russian Federation involve risks that typically do not exist in other markets. In addition, the contraction in the capital and credit markets and its impact on the Russian economy have further increased the level of economic uncertainty in the environment. These statements reflect management’s assessment of the impact of the Russian business environment on the operations and the financial position of the Company. The future business environment may differ from management’s assessment.

2 Basis of preparation

(a) Statement of compliance

These preliminary IFRS financial statements have been prepared following the requirements of IFRS 1 First-time Adoption of International Financial Reporting Standards (“IFRSs”), as part of the Company’s preparation for the future adoption of IFRSs. When the Company prepares its first complete set of consolidated IFRS financial statements, as at and for the year ending 31 December 2010, they will be prepared in accordance with the Standards and Interpretations in effect as at that date.

Accordingly, these preliminary IFRS financial statements, which are intended to form the comparative information in the Company’s first complete set of financial statements, have been prepared on the basis of the accounting policies expected to be applied in the Company’s first complete set of IFRS financial statements. Any changes to such Standards, Interpretations or

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8

accounting policies may require adjustment to these preliminary IFRS consolidated ?financial statements before they comprise such comparative information.

An explanation of how the transition to IFRSs has affected the reported financial position, financial performance and cash flows of the Company is provided in note 29.

(b) Basis of measurement

The preliminary IFRS financial statements are prepared on the historical cost basis.

(c) Functional and presentation currency

The national currency of the Russian Federation is the Russian Rouble (“RUR”), which is the Company’s functional currency and the currency in which these IFRS financial statements are presented. All financial information presented in RUR has been rounded to the nearest million.

(d) Use of estimates and judgments

The preparation of financial statements in conformity with IFRSs requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from those estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements is included in the following notes:

Note 3(k)(i) – revenue presentation;

Note 14 – deferred tax assets;

Note 16 – construction contracts in progress;

Note 18 – allowance for trade receivables;

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year is included in the following notes:

Note 3(k)(i) Revenue recognition based on the percentage-of-completion method on construction contracts;

Note 26 Contingencies.

3 Significant accounting policies

The accounting policies set out below have been applied consistently throughout the period presented in these preliminary IFRS financial statements and in preparing the opening IFRS statement of financial position as at 1 January 2009 for the purposes of the transition to IFRSs.

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9

(a) Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currency of the Company at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the reporting period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising in retranslation are recognised in profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

(b) Financial instruments

(i) Non-derivative financial instruments

Non-derivative financial instruments comprise investments in equity, trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables.

The Company initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognised initially on the trade date at which the Company becomes a party to the contractual provisions of the instrument.

The Company derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Company is recognised as a separate asset or liability.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

The Company has the following non-derivative financial assets: loans and receivables, cash and cash equivalents.

Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. Loans and receivables comprise trade and other receivables.

Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the

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10

Company’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

(ii) Non-derivative financial liabilities

All financial liabilities are recognised initially on the trade date at which the Company becomes a party to the contractual provisions of the instrument.

The Company derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

The Company has the following non-derivative financial liabilities: loans and borrowings and trade and other payables.

Such financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortised cost using the effective interest method.

(iii) Net assets attributable to participants

In accordance with the Law on Limited Liability Companies No.14-FZ dated 8 February 1998, a participant may unilaterally withdraw from the entity. In such circumstances, the Company is obliged to pay a withdrawing participant its share of the net assets of the entity for the year. The payment should be made no later than twelve months after the end of the year in which the withdrawal occurs on the basis of the participant’s share of the entity’s net assets at their carrying amounts in the entity’s statutory financial statements (prepared under Russian Accounting Principles).

As a result, charter capital of the Company and profit/loss attributable to participants represented in long term liabilities of the Company.

(c) Property, plant and equipment

(i) Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.

Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located, and borrowing costs on qualifying assets for which the commencement date for capitalisation is on or after 1 January 2009. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

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11

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognised net within “other income” in profit or loss.

(ii) Subsequent costs

The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.

(iii) Depreciation

Depreciation is calculated over the depreciable amount, which is the cost of an asset, or other amount substituted for cost, less its residual value.

Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term.

The estimated useful lives for the current and comparative periods are as follows:

Buildings and constructions 7 years

Machinery and equipment 8 years

Vehicles 4 years

Others 4 years

Depreciation methods, useful lives and residual values are reviewed at each financial year end and adjusted if appropriate.

(d) Intangible assets

(i) Intangible assets

Intangible assets that are acquired by the Company, which have finite useful lives, are measured at cost less accumulated amortisation and accumulated impairment losses.

(ii) Subsequent expenditure

Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in the profit or loss as incurred.

(iii) Amortisation

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Amortisation is calculated over the cost of the asset, or other amount substituted for cost, less its residual value.

Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use since this most closely reflects the expected pattern of consumption of future economic benefits embodied in the asset. The estimated useful lives for the intangible assets are 2 to 5 years.

Amortisation methods, useful lives and residual values are reviewed at each financial year end and adjusted if appropriate.

(e) Leased assets

Leases in terms of which the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Other leases are operating leases and the leased assets are not recognised on the Company’s preliminary IFRS statement of financial position.

(f) Inventories

Inventories are measured at the lower of cost and net realisable value.

The cost of inventories is based on the weighted-average method, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition.

Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

The Company’s inventories include materials and goods for resale.

(g) Amounts due from customers for construction contracts and amounts due to customers for

construction contracts

Amounts due from customers for construction contracts represent the amount of construction contracts in progress less consideration received by the Company for works already performed. Amounts due from customers are presented separately in the statement of financial position for all contracts in which costs incurred plus recognised profits and losses exceeds consideration received.

If the consideration received for works performed to date exceeds costs incurred plus recognised profits and losses, then the difference is presented as Due to customers for construction contracts in the statement of financial position.

Construction contracts in progress represent the gross amount expected to be collected from customers for contract work performed to date. It is measured at cost plus profit recognised to date (see note 3(k)(i)) less recognised losses. Cost includes all expenditure related directly to specific projects and an allocation of fixed and variable overheads incurred in the Company’s contract activities based on normal operating capacity.

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(h) Impairment

(i) Financial assets

A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.

Objective evidence that financial assets are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Company on terms that the Company would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

The Company considers evidence of impairment for receivables at both a specific asset and collective level. All individually significant receivables are assessed for specific impairment. All individually significant receivables and held-to-maturity investment securities found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Receivables that are not individually significant are collectively assessed for impairment by grouping together receivables with similar risk characteristics.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against receivables. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.

(ii) Non-financial assets

The carrying amounts of the Company’s non-financial assets, other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, the recoverable amount is estimated each year at the same time.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”).

The Company’s corporate assets do not generate separate cash inflows. If there is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the cash generating unit to which the corporate asset belongs.

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated to reduce the carrying amount of the assets in the unit (group of units) on a pro rata basis.

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The impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

(i) Employee benefits

(i) Short-term benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.

A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.

(j) Provisions

A provision is recognised if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost.

(i) Warranties

A provision for warranties is recognised when the underlying sales under construction contract recognised. The provision is based on historical warranty data and a weighting of all possible outcomes against their associated probabilities.

(ii) Onerous contracts

A provision for onerous contracts is recognised when the expected benefits to be derived by the Company from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Company recognises any impairment loss on the assets associated with that contract. The provision is recognised in accordance with the IAS 11 Contruction contracts requirements.

(k) Revenue

(i) Construction contracts

In capacity of general contractor the Company acts as a principal and therefore recognises revenue from ultimate customer and cost sales to subcontractors on a gross basis.

Contract revenue includes the initial amount agreed in the contract plus any variations in contract work, claims and incentive payments, to the extent that it is probable that they will result in an

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inflow of economic benefits and can be measured reliably. As soon as the outcome of a construction contract can be estimated reliably, contract revenue is recognised in profit or loss in proportion to the stage of completion of the contract. Contract expenses are recognised as incurred unless they create an asset related to future contract activity.

The stage of completion is assessed by reference to the share of the costs incurred to date in the total estimated contract costs. The contract costs that relate to future activity on the contract are excluded from costs incurred to date in determining the stage of completion (deferred recognition) and recognized as inventories.

When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred that are likely to be recoverable. An expected loss on a contract is recognised immediately in profit or loss.

(ii) Commissions

When the Company acts in the capacity of an agent rather than as the principal in a transaction, the revenue recognised is the net amount of commission made by the Company. 

(iii) Revenue from other activities

Revenue from other activities is recognised when significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, and there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably.

(l) Other expenses

(i) Lease payments

Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.

Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the contingency no longer exists and the lease adjustment is known.

At inception of an arrangement, the Company determines whether such an arrangement is or contains a lease. A specific asset is the subject of a lease if fulfilment of the arrangement is dependent on the use of that specific asset. An arrangement conveys the right to use the asset if the arrangement coveys to the Company the right to control the use of the underlying asset.

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(ii) Social expenditure

To the extent that the Company’s contributions to social programs benefit the community at large and are not restricted to the Company’s employees, they are recognised in profit or loss as incurred.

(m) Finance income and costs

Finance income comprises interest income on funds invested and foreign currency gains.

Interest income is recognised as it accrues in profit or loss, using the effective interest method.

Finance costs comprise interest expense on borrowings, foreign currency losses, interest expense on financial lease and impairment losses recognised on financial assets. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method.

Foreign currency gains and losses are reported on a net basis.

(n) Income tax

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income.

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss. In addition, deferred tax is not recognised for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax assets and liabilities, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

(o) New Standards and Interpretations not yet adopted

A number of new Standards, amendments to Standards and Interpretations are not yet effective as at 31 December 2010, and have not been applied in preparing these preliminary IFRS financial statements. The following new Standards, amendments to Standards and Interpretations may potentially impact the the Company’s financial position or performance. The Company plans to adopt these pronouncements when they become effective.

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Revised IAS 24 Related Party Disclosures (2009) introduces an exemption from the basic disclosure requirements in relation to related party disclosures and outstanding balances, including commitments, for government-related entities. Additionally, the standard has been revised to simplify some of the presentation guidance that was previously non-reciprocal. The revised standard is to be applied retrospectively for annual periods beginning on or after 1 January 2011. The Company has not yet determined the potential effect of the amendment.

IFRS 9 Financial Instruments will be effective for annual periods beginning on or after 1 January 2013. The new standard is to be issued in several phases and is intended to replace International Financial Reporting Standard IAS 39 Financial Instruments: Recognition and Measurement once the project is completed by the end of 2010. The first phase of IFRS 9 was issued in November 2009 and relates to the recognition and measurement of financial assets. The Company recognises that the new standard introduces many changes to the accounting for financial instruments and is likely to have a significant impact on Company’s financial statements. The impact of these changes will be analysed during the course of the project as further phases of the standard are issued.

Various Improvements to IFRSs have been dealt with on a standard-by-standard basis. All amendments, which result in accounting changes for presentation, recognition or measurement purposes, will come into effect not earlier than 1 January 2011. The Company has not yet analysed the likely impact of the improvements on its financial position or performance.

4 Determination of fair values

A number of the Company’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and for disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

(a) Trade and other receivables

The fair value of trade and other receivables, excluding construction work in progress and advances paid, is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. This fair value is determined for disclosure purposes.

(b) Non-derivative financial liabilities

Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. For finance leases the market rate of interest is determined by reference to similar lease agreements.

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5 Revenue

Mln RUR 2009 Revenue by construction contract:

bridges and highways 17,254 railway infrastructure facilities 10,423 ports and in-land water infrastructure facilities 8,533 other infrastructure facilities 5,814 airfields and airports 3,653 other facilities 952

Total revenue from construction contracts 46,629 Revenue from resale of goods and materials 176

Total revenue 46,805

Revenue allocation according to the Federal Districts is as follows

Mln RUR 2009Revenue by districts:

Central Federal District 11,588Southerm Federal District 2,527Volga Federal District 133Siberian Federal District 7,231Far Eastern Federal District 20,076Northwestern Federal District 5,074

Total revenue from construction contracts 46,629

6 Cost of sales

Mln RUR 2009Services of subcontractors 38,842Materials 3,557Insurance 673Other services 995

44,067

7 Administrative expenses

Mln RUR 2009Personnel expenses 561Lease expense 138Transportation 97Depreciation 34Other expenses 219

1,049

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8 Other expenses

Mln RUR 2009Bad debt provision 200Write-off of loans given 152Loss on impairment of advances given and receivables from customers under long-term constuction/ services contracts 121Distribution expenses 26Residual value of disposed property plant and equipment 7Other expenses 112

618

9 Personnel costs

Mln RUR 2009Wages and salaries 526Charge on salary and wages 35

561

10 Finance income and finance costs

Mln RUR 2009Recognised in profit or lossInterest income on loans 55Interest income on bank deposits 19Interest income on finance leases 24Finance income 98

Interest expense on borrowings (12)Foreign exchange loss (1)Interest expense on finance leases (59)Finance costs (72)Net finance income in profit or loss 26

11 Income tax expense

The Company’s applicable tax rate is the income tax rate of 20% for Russian companies.

Mln RUR 2009Current tax expenseCurrent year 380

Deferred tax expenseOrigination and reversal of temporary differences (98)Total income tax and expense 282

(a) Reconciliation of effective tax rate:

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Mln RUR %Profit before income tax 851 100

Income tax at applicable tax rate 170 20Non-deductible expenses 112 13

282 33

2009

12 Property, plant and equipment

Mln RUR

Buildings and constructions

Machinery and

equipment Vehicles Other TotalCosts

Balance at 1 January 2009 11 52 280 64 407Additions - 251 45 10 306Disposals (1) (41) (42) (1) (85)Balance at 31 December 2009 10 262 283 73 628

Depreciation Balance at 1 January 2009 - - 23 12 35Depreciation for the year 2 27 53 17 99Disposals - (13) (4) - (17)Balance at 31 December 2009 2 14 72 29 117

Carrying amountsAt 1 January 2009 11 52 257 52 372

At 31 December 2009 8 248 211 44 511

Depreciation expense RUR 65 mln has been charged to cost of sales, RUR 34 mln to administrative expenses.

(a) Leased plant and machinery

The Company leases machinery and equipment and vehicles under a number of finance lease agreements. At the end of each of the leases the Company has the option to purchase the equipment at a beneficial price. At 31 December 2009 the net book value of leased machinery and equipment and vehicles was RUR 219 mln. The leased equipment secures lease obligations.

13 Non-current assets held for sale

Prior to 1 January 2009 the Company acquired a 24.99% interest in Institute for projecting and exploration of highways “Souzdorproject” OJSC for RUR 54 mln.

This investment was acquired in the purpose to resale and was classified as non-current assets held for sale.

In December 2009 the investment was sold for RUR 57 mln.

14 Deferred tax assets

(a) Recognised deferred tax assets

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Deferred tax assets are attributable to the following:

Mln RUR2009 1 January 2009

Trade and other receivables 19 1Construction contracts (including due to and from customers) 233 210Loans and borrowings 34 12Provisions 5 -Other 30 -Net tax assets 321 223

(b) Movement in temporary differences during the year

Mln RUR

Trade and other receivables 1 17 18Construction contracts (including due to and from customers) 210 23 233Loans and borrowings 12 22 34Provisions - 5 5Other - 31 31

223 98 321

31 December 2009

Recognised in income1 January 2009

15 Inventories

2009 1 January 2009Materials 19 546Goods for resale 40 137Other materials 2 4

61 687

Mln RUR

16 Construction contracts in progress

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17

Mln RUR 2009 1 January 2009Progress billings 70,215 23,292Billed in excess of contract revenue recognised (1,048) (998)Contract revenue accumulated to the period end 69,167 22,294Contract costs accumulated to the period end (65,968) (22,143)Recognised profits 3,199 151

Contract revenue accumulated to the period end 69,167 22,294Advances received (8,818) (7,159)Payments (69,708) (22,419)Net receivables from / (payables to) customers (9,359) (7,284)

Amounts due from customers for construction contracts 198 701Amounts due to customers for construction contracts (9,557) (7,985)

(9,359) (7,284)

Prepayments

Prepayments are represented by amounts prepaid to subcontractors engaged by the Company to complete construction contracts.

18 Trade and other receivables

2009 1 January 2009Trade receivables 273 1,440Other receivables 185 330Other taxes receivable 1,530 1,245

1,988 3,015

Non-current 90 173Current 1,898 2,842

1,988 3,015

Mln RUR

The Company’s exposure to credit and currency risks and impairment losses related to trade and other receivables are disclosed in note 23 (b)(i).

19 Cash and cash equivalents

2009 1 January 2009Cash at banks 5,718 759Bank deposits with maturities less than 3 months 2,000 1,000

7,718 1,759

Mln RUR

The Company’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in Note 23 (b)(i).

20 Loans and borrowings

This note provides information about the contractual terms of the Company’s interest-bearing loans and borrowings, which are measured at amortised cost. For more information about the Company’s exposure to interest rate, foreign currency and liquidity risk, see Note 23.

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Mln RUR 2009 1 January 2009Short-term liabilitiesCurrent portion of finance lease liabilities 38 70

38 70

Current liabilities

Finance lease liabilities 1 121 12

(a) Finance lease liabilities are payable as follows:

Mln RUR

Future minimum

lease payments Interest

Present value of

minimum lease

payments

Future minimum

lease payments Interest

Present value of

minimum lease

paymentsLess than one year 41 3 38 85 15 70Between 1 and 5 years 1 - 1 13 1 12

42 3 39 98 16 82

2009 01 January 2009

The carrying amount and face value of loans and borrowings were as follows:

2009Mln RUR

CurrencyNominal

interest rateYear of

maturity Face valueCarrying amount

Finance lease liabilities RUB 1.2%-34.9% 2010-2011 19 19Finance lease liabilities EUR 1.5%-12.8% 2011 23 20Total 42 39

1 January 2009Mln RUR

CurrencyNominal

interest rateYear of

maturity Face valueCarrying amount

Finance lease liabilities RUR 1.2%-18.3% 2009-2011 70 60Finance lease liabilities EUR 12.8% 2011 28 22Total 98 82

The weighted-average effective interest rates at the reporting date were as follows:

Currency 2009 1 January 2009 Finance lease liabilities RUR 15.4% 10.6% Finance lease liabilities EUR 7.2% 12.8%

21 Trade and other payables

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Mln RUR 2009 1 January 2009Trade payables 5,979 4,793Other taxes payable 878 122Other payables and accrued expenses 206 231

7,063 5,146

Non-current - -Current 7,063 5,146

7,063 5,146

The Company’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 23.

22 Net assets attributable to participants

(a) Charter capital

The Company’s charter capital amounts to RUR 30 mln fully paid by participants. Participants have a right on dividends payments declared from time to time and have a right to vote on General Metings in accordance with the rule one share – one voice.

(b) Dividends

In accordance with Russian legislation the Company’s distributable reserves are limited to the balance of retained earnings as recorded in the Company’s statutory financial statements prepared in accordance with the Russian Accounting Principles. As at 31 December 2009 the Company had retained earnings, including the profit for the current year, in the amount of RUR 1,458 mln.

During 2009 the Company declared and paid dividends in the amount oof RUR 303 mln. Subsequent to 31 December 2009, additional dividends of RUR 1,200 mln have been declared.

23 Financial instruments and risk management

(a) Overview

The Company has exposure to the following risks from its use of financial instruments:

credit risk

liquidity risk

market risk

This note prefsents information about the Company’s exposure to each of the above risks, the This note presents information about the Company’s exposure to each of the above risks, the Company’s objectives, policies and processes for measuring and managing risk, and the Company’s management of capital. Further quantitative disclosures are included throughout these preliminary IFRS financial statements.

Risk management framework

The Company’s general director has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Company’s management are responsible for the establishment and oversight of the Company’s risk management framework. The Company’s management regulary report to sole executive officer on its performance.

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The Company’s risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities. The Company, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

(b) Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers and investment securities.

(i) Trade and other receivables

The Company’s management has established a credit policy under which each new customer is analysed individually for creditworthiness before the Company’s standard payment and delivery terms and conditions are offered. The Company’s review includes external ratings, when available, and in some cases bank references. Customers that fail to meet the Company’s benchmark creditworthiness may transact with the Company only on a prepayment basis.

In monitoring customer credit risk, customers are grouped according to their credit characteristics, including whether they are an individual or legal entity, whether they are a wholesale, retail or end-user customer, geographic location, industry, aging profile, maturity and existence of previous financial difficulties. Customers that are graded as “high risk” are placed on a restricted customer list and monitored by the management, and future sales are made on a prepayment basis with approval of the management.

The Company does not require collateral in respect of trade and other receivables.

(ii) Exposure to credit risk

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:

In addition, the majority of the balance of construction in progress due from customers (note 17) is from government agencies and other public bodies, therefore, there is a concentration of credit risk with such type of customers.

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Mln RUR2009 1 January 2009

Loans and receivables 601 2,627Cash and cash equivalents 7,718 1,759Amounts due from customers for construction contracts 198 701

8,517 5,087

Carrying amount

Impairment losses

The aging of trade and other receivables and amounts due from customers for construction contracts at the reporting date was:

Mln RUR Gross Impairment Gross Impairment2009 2009 1 January 2009 1 January 2009

Trade and other receivablesNot past due 454 - 2,439 -Past due 0 - 180 days 202 - 32 -Past due more than 180 days 157 (157) 6 (6)Amounts due from customers for construction contractsNot past due 198 - 701 -

1,011 (157) 3,178 (6)

Based on historic default rates, the Company believes that, apart from the above, no impairment allowance is necessary in respect of trade receivables not past due or past due by up to 180 days; the main portion of the trade receivables balance relates to customers that have a good track record with the Company.

The allowance accounts in respect of trade and other receivables and amounts due from customers for construction contracts are used to record impairment losses unless the Company is satisfied that no recovery of the amount owing is possible; at that point the amounts are considered irrecoverable and are written off against the financial asset directly.

In addition, the majority of the balance of amounts due from customers for construction contracts (note 16) is from government agencies and other public bodies, therefore, there is a concentration of credit risk with such type of customers.

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(c) Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements.

2009

Mln RURCarrying amount 0-6 mth 6-12 мес. 1-2yrs

Non-derivative financial liabilitiesFinance lease liabilities 42 29 12 1Trade and other payables 6,185 6,185 - -

6,227 6,214 12 1

(d) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

(i) Currency risk

The Company is not exposed to significant foreign currency risks.

(ii) Interest rate risk

The Company is not exposed to significant interest rate risks.

(e) Fair values versus carrying amounts

The fair values of financial assets and liabilities approximate their carrying amounts. The basis for determining fair values is disclosed in note 4.

(f) Capital management

The Company has no formal policy for capital management but management seeks to maintain a sufficient capital base for meeting the Company’s operational and strategic needs and to maintain confidence of market participants. This is achieved with efficient cash management, constant monitoring of Company’s revenues and profit, and long-term investment plans mainly financed by the Company’s operating cash flows. With these measures the Company aims for steady profits growth.

24 Operating leases

Non-cancellable operating lease rentals are payable as follows:

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Mln RUR 2009Less than 1 year 197From 1 to 5 years 100

297

The Company leases a number of vehicles and office premisses under operating leases. The leases typically run for an initial period to one year, with an option to renew the lease after that date. Lease payments are usually increased annually to reflect market rentals.

25 Capital commitments

As at 31 December 2009 the Company did not have significant contractual obligations to purchase property, plant and equipment.

26 Contingencies

(a) Insurance

The insurance industry in the Russian Federation is in a developing state and many forms of insurance protection common in other parts of the world are not yet generally available. The Company does not have full coverage for its plant facilities, business interruption, or third party liability in respect of property or environmental damage arising from accidents on Company property or relating to Company operations. Until the Company obtains adequate insurance coverage, there is a risk that the loss or destruction of certain assets could have a material adverse effect on the Company’s operations and financial position. According to the legislation of the Russian Federation the Company is responsible for the violation of the Law on Urban Planning, including for causing injury to life, health or property of third parties as a result of conducting construction works or defects in construction, renovation, overhaul of capital construction assets. The Company is also responsible for accidental loss of or damage to property being constructed. In order to reduce the risk of losses and obligations to third parties as a consequence of conducting construction works, the Company has obtained full insurance coverage against its civil liabilities arising under the construction contracts in accordance with the terms of these contracts.

(b) Warranties

The Company has certain warranty obligations under construction contracts terms of which range from one to fifteen years, depending on type of construction work. The Company performed analysis of historical data on actual compensations paid and defects rectified under these warranties for the past four years. Based on this analysis, the Company concluded that the probability of the constructions works carried out during the reporting period will not satisfy the quality conditions specified in the contract and require repair, is low. Therefore the Company did not recognize a warranty provision on construction contracts as at the reporting date.

(c) Litigation

As at 31 December 2009 the Company was not engaged in litigations, the outcome of which might have material effect on the preliminary IFRS financial statements.

(d) Taxation contingencies

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29

The taxation system in the Russian Federation is relatively new and is characterised by frequent changes in legislation, official pronouncements and court decisions, which are often unclear, contradictory and subject to varying interpretation by different tax authorities. Taxes are subject to review and investigation by a number of authorities, which have the authority to impose severe fines, penalties and interest charges. A tax year remains open for review by the tax authorities during the three subsequent calendar years; however, under certain circumstances a tax year may remain open longer. Recent events within the Russian Federation suggest that the tax authorities are taking a more assertive position in their interpretation and enforcement of tax legislation.

These circumstances may create tax risks in the Russian Federation that are substantially more significant than in other countries. Management believes that it has provided adequately for tax liabilities based on its interpretations of applicable Russian tax legislation, official pronouncements and court decisions. However, the interpretations of the relevant authorities could differ and the effect on these IFRS financial statements, if the authorities were successful in enforcing their interpretations, could be significant.

The Company regularly enters into transactions with various suppliers. These entities are fully responsible for their own tax and accounting compliance. However, due to existing tax authorities’ practice, if these entities’ tax compliance is challenged by the tax authorities as not being in full conformity with the applicable tax legislation, this may result in additional tax risks for the Company. Should these suppliers be successfully challenged, the Company may become liable to additional tax payments, although management of these entities is primarily responsible for the correctness and timeliness of the entities’ tax payments. Management of the Company believes that it is not practicable to estimate the financial effect of potential tax liabilities, which ultimately could be imposed on the Company due to transactions with suppliers. However, if such liabilities were imposed, the amounts involved, including penalties and interest, could be material.

The Company also enters, in the normal course of business, into transactions with its related parties. The Russian tax authorities may challenge such transactions on the basis that relationship between the Company and its related parties may be based not on market prices. Due to the existing tax authorities’ practice, this may result in additional tax risks for the Company. Should the tax authorities prove that the prices in transactions of the Company with its related parties deviated by from the relevant market prices by more than 20%, the Company may become liable to additional tax payments. Management of the Company believes that it is not practicable to estimate the financial effect of potential tax liabilities, which ultimately could be imposed on the Company due to transactions with suppliers. However, if such liabilities were imposed, the amounts involved, including penalties and interest, could be material.

If the cases described above were successfully challenged by the Russian tax authorities, the additional payments could become due together with penalties, ranging from 20% - 40% of the amount of underpaid taxes, and late-payment interest. Management has not provided any amounts in respect of such obligations in these preliminary IFRS financial statements as it believes that it is possible, but not probable, that an outflow of economic benefits will be required to settle such obligations.

27 Related party transactions

(a) Control relationships

The Company’s immediate parent company is Velopretco Holdings Co. Ltd.

Neither the Company’s ultimate controlling party nor the next highest parent company prepare financial statements that are available for public use.

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30

(b) Transactions with management and close family members

Key management received the following remuneration during the year, which is included in personnel costs:

Mln RUR 2009Salaries and bonuses 149

(c) Transactions with other related parties

The Company’s other related party transactions are disclosed below.

(i) Revenue

All outstanding balances with related parties are to be settled in cash within six months of the reporting date. None of the balances are secured.

Mln RURTransaction value

Outstanding balance

2009 2009Sale of goods to fellow subsidiaries 2,551 5,111Services rendered to fellow subsidiaries 163 105

2,714 5,216

(ii) Expenses

All outstanding balances with related parties are to be settled in cash within six months of the reporting date. None of the balances are secured.

Mln RURTransaction value

Outstanding balance

2009 2009

Purchase of subcontractor services from fellow subsidiaries 27,311 3,858Purchase of goods from fellow subsidiaries 1,756 259

29,067 4,117

(iii) Loans

Loans issued by the Company to fellow subsidiaries bear interest rates of 10.5% to 13%, maturing in 2009-2010.

Mln RUR Outstanding balance

Loans given Loans settledOutstanding

balance1 January 2009 2009 2009 2009

Loans given to fellow subsidiaries 550 260 (670) 140

550 260 (670) 140

28 Events subsequent to the reporting date

Change of ownership

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31

In May 2010 Mostotrest OJSC acquired a 51% interest in the Company’s charter capital.

Significant construction contracts concluded

The following significant construction contracts were concluded in 2010:

- The contract to construct building for Finance Academy for RUR 2,527 mln;

- The contract to renovate the highway Sanatornaya – Bridge over Golden Rog bay (1st stage) for RUR 1,928 mln;

- The contract to construct highway Vladivostok-Nakhodka-Vostochny (Primorsky region) 1st stage for RUR 1,087 mln;

- The contract to overhaul highway M-9 Baltiya 286-306 km for RUR 327 mln.

Significant borrowings

During the first half of 2010 the Company concluded a number of loan agreements with banks for total amount of RUR 2,509 mln.

Dividends

In the first half of 2010 the Annual General Meeting of participants declared dividends payable for 2009 in the amount of RUR 1,200 mln.

29 Explanation of the transition to IFRSs

As stated in note 2(a), these are the Company’s first preliminary IFRS financial statements prepared in accordance with IFRSs.

In preparing its opening preliminary IFRS statement of financial position, the Company has adjusted amounts reported previously in its financial statements prepared in accordance with previous GAAP. An explanation of how the transition from previous GAAP to IFRSs has affected the Company’s financial position, financial performance and cash flows is set out in the following tables and the notes that accompany the tables.

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32

Reconciliation of net assets attributable to participants

1 January 2009 ` 31 December 2009

Mln RUR

Carrying amount under

previous GAAP

Adjustments IFRS

Carrying amount under

previous GAAP

Adjustments IFRS

ASSETS

Non-current assets Property plant and equipment 1,310 (938) 372 286 225 511

Intangible assets - 6 6 - 1 1

Trade and other receivables 190 (17) 173 101 (11) 90 Non-current financial investments 55 (55) - - - - Deferred tax assets 1 222 223 - 321 321

Total non-current assets 1,556 (782) 774 387 536 923

Current assets Inventories 952 (265) 687 186 (125) 61

Trade and other receivables 4,030 (1,188) 2,842 2,465 (567) 1,898

Amounts due from customers for construction contracts - 701 701 - 198 198

Loans given 1,857 (1,000) 857 2,295 (2,152) 143

Prepayments 5,149 (12) 5,137 6,273 (275) 5,998

Cash and cash equivalents 759 1,000 1,759 5,718 2,000 7,718

Non-current assets held for sale - 54 54 - - - Total current assets 12,747 (710) 12,037 16,937 (921) 16,016 Total assets 14,303 (1,492) 12,811 17,324 (385) 16,939

LIABILITIES Long-term liabilities (other than net assets attributable to participants) Loans and borrowings - 12 12 - 1 1 Total long-term liabilities (other than net assets attributable to participants) - 12 12 - 1 1 Net assets attributable to participants

Charter capital 30 - 30 30 - 30 Profit and loss attributable to participants 452 (888) (436) 1,458 (1,325) 133 Total net assets attributable to participants 482 (888) (406) 1,488 (1,325) 163 Short-term liabilities Loans and borrowings - 70 70 - 38 38 Trade and other payables 5,777 (631) 5,146 6,928 135 7,063 Amounts due to customers under construction contracts - 7,985 7,985 - 9,557 9,557 Advances received 8,040 (8,040) - 8,816 (8,816) - Provisions - - - - 25 25 Current tax liabilities 4 - 4 92 - 92 Total short-term liabilities 13,821 (616) 13,205 15,836 939 16,775 Total liabilities 14,303 (1,492) 12,811 17,324 (385) 16,939

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33

Reconciliation of comprehensive income for the year ended 31 December 2009

Mln RUR

Carrying amount under

previous GAAP Adjustments IFRS

Revenue 49,947 (3,142) 46,805 Cost of sales (46,739) 2,672 (44,067) Gross profit 3,208 (470) 2,738 Other income 684 (627) 57 Distribution expenses (26) 26 - Administrative expenses (916) (133) (1,049) Other expenses (1,323) 705 (618) Results from operating activities 1,627 (499) 1,128 Finance income 74 24 98 Finance costs (12) (60) (72) Dividends - (303) (303) Net finance income/(expense) 62 (339) (277) Profit before income tax 1,689 (838) 851 Income tax expense (381) 99 (282)

Profit and total comprehensive income for the year 1,308 (739) 569

(a) Material adjustments to the statement of cash flows for the year ended 31 December 2009

Bank deposits of RUR 2,000 million (1 January 2009: RUR 1,000 million), maturing in less than three months, were classified as current financial investments under previous GAAP. These bank deposits were reclassified as cash and cash equivalents under IFRSs. There are no other material differences between the statement of cash flows presented under IFRSs and the statement of cash flows presented under previous GAAP.

(b) Presentation of dividends

Dividends approved by the Company’s shareholders in 2009 in the amounts of RUR 303 million were presented as a direct deduction from net assets attributable to participants under previous GAAP. Under IFRSs the dividends have been presented within net finance expense.

(c) Construction contracts

Under previous GAAP, the Company recognised revenue from construction contracts based on surveys of construction works performed and accepted by customers as of the reporting date, plus revenue from works already accepted by the Company from subcontractors but not yet accepted by customers.

Under IFRSs, revenue from construction contracts is recognised using the percentage-of-completion method (note 3(k)(i)). Amounts due from and due to customers for construction contracts have been disclosed separately on the face of the preliminary IFRS statement of financial position.

In addition, as at 1 January 2009 under previous GAAP the Company capitalised certain contract expenses as property, plant and equipment and inventories, while under IFRSs those contract expenses have been recognised in profit and loss as incurred (note 3(k)(i)).

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34

Besides, under previous GAAP the Company presented general contractor’s fee receivable from subcontractors and contract expenses from those subcontractors gross in revenue and cost of sales, respectively. Under IFRSs these items are presented net.

The impact arising from the changes described above is summarised as follows:

Mln RUR 1 January 2009 31 December 2009

Preliminary IFRS statement of comprehensive income

Revenue (3,142)

Cost of sales 2,672

Adjustment before income tax (470)

Preliminary IFRS statement of financial position

Property, plant and equipment (952) -

Inventories (266) -

Trade and other receivables (689) (519)

Amounts due from customers for construction contracts 701 198

Amounts due to customers for construction contracts (7,985) (9,557)

Advances received 8,039 8,816

Related tax effect 230 212

Adjustment to Net assets attributable to participants, related to construction contracts (922) (850)

Other adjustments, net of related tax effect 34 (475)

Total adjustment to Net assets attributable to participants (888) (1,325)

F-106

11OCT201005540968ZAO KPMG Telephone +7 (495) 937 4477Naberezhnaya Tower Complex, Block C Fax +7 (495) 937 4400/9910 Presnenskaya Naberezhnaya Internet www.kpmg.ruMoscow, Russia 123317

Independent Auditors’ Report

To the General director of

OOO ENGTRANSSTROY Corporation

We have audited the accompanying preliminary IFRS financial statements of OOO ENGTRANSSTROYCorporation (the ‘‘Company’’), which comprise the preliminary IFRS statements of financial position as at31 December 2009 and as at 1 January 2009 and the preliminary IFRS statement of comprehensiveincome, preliminary IFRS statement of changes in net assets attributable to participants and preliminaryIFRS statement of cash flows for the year ended 31 December 2009, and a summary of significantaccounting policies and other explanatory notes.

Management’s Responsibility for the Preliminary IFRS Financial Statements

Management is responsible for the preparation of these preliminary IFRS financial statements inaccordance with the basis of preparation described in Note 2. This responsibility includes: designing,implementing and maintaining internal control relevant to the preparation of preliminary IFRS financialstatements that are free from material misstatements, whether due to fraud or error; selecting and applyingappropriate accounting policies; and making accounting estimates that are reasonable in thecircumstances.

Auditors’ Responsibility

Our responsibility is to express an opinion on these preliminary IFRS financial statements based on ouraudit. Except as described in the Basis for Qualified Opinion, we conducted our audit in accordance withInternational Standards on Auditing. Those standards require that we comply with relevant ethicalrequirements and plan and perform the audit to obtain reasonable assurance whether the preliminaryIFRS financial statements are prepared in accordance with the basis of preparation described in Note 2.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures inthe preliminary IFRS financial statements. The procedures selected depend on the auditor’s judgment,including the assessment of the risks of material misstatement of the preliminary IFRS financialstatements, whether due to fraud or error. In making those risk assessments, the auditor considers internalcontrol relevant to the entity’s preparation and presentation of the preliminary IFRS financial statementsin order to design audit procedures that are appropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluatingthe appropriateness of accounting principles used and the reasonableness of accounting estimates made bymanagement, as well as evaluating the overall presentation of the preliminary IFRS financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for ouropinion.

ZAO KPMG, a company incorporated under the Laws of the RussianFederation and a member firm of the KPMG network of independentmember firms affiliated with KPMG International, a Swiss cooperative.

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11OCT201005540968

11OCT201006021314

OOO ENGTRANSSTROY CorporationIndependent Auditors’ Report

Page 2

Basis for Qualified Opinion

We did not observe the counting of inventories stated at RUR 687 million as at 1 January 2009 because wewere engaged as auditors of the Company only after that date. It was impracticable to satisfy ourselves asto those inventory quantities by other audit procedures.

Accordingly, we were unable to determine whether any adjustments might be necessary to cost of sales,taxation expense and net profit for the year ended 31 December 2009.

Qualified Opinion

In our opinion, except for the effects of such adjustments, if any, that might have been determined to benecessary had it been practicable to obtain sufficient appropriate audit evidence as described in the Basisfor Qualified Opinion paragraph, the preliminary IFRS financial statements as at and for the year ended31 December 2009 and as at 1 January 2009 are prepared, in all material respects, in accordance with thebasis of preparation described in Note 2.

Emphasis of Matter

Without further qualifying our opinion, we draw attention to Note 2, which explains why the preliminaryIFRS financial statements may require adjustment before constituting the corresponding figures in thefinal IFRS financial statements as at and for the year ended 31 December 2010 when the Companyprepares its first complete set of IFRS financial statements. In addition, as described in Note 2 to thepreliminary IFRS financial statements, as part of its adoption of IFRSs the Company has prepared thesepreliminary IFRS financial statements to establish the financial position, financial performance and cashflows of the Company necessary to provide the corresponding figures expected to be included in theCompany’s first complete set of IFRS financial statements as at and for the year ending 31 December2010. These preliminary IFRS financial statements do not themselves include corresponding figures for theprior period.

The preliminary IFRS financial statements have been prepared as part of the Company’s adoption ofInternational Financial Reporting Standards (‘‘IFRSs’’). Note 2 describes how IFRSs have been appliedunder IFRS 1 First-time Adoption of IFRSs, including the assumptions management has made about thestandards and interpretations expected to be effective, and the policies expected to be adopted, whenmanagement prepares its first complete set of IFRS financial statements as at and for the year ending31 December 2010.

ZAO KPMG31 August 2010

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ENGTRANSSTROY Corporation LLC

Condensed Interim Financial Statements

for the six months ended 30 June 2010

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ENGTRANSSTROY Corporation LLC

2

Contents

Condensed Interim Financial Statements Condensed Interim Statement of Financial Position 3 Condensed Interim Statement of Comprehensive Income 4 Condensed Interim Statement of Changes in Equity 5 Condensed Interim Statement of Cash Flows 6 Selected Explanatory Notes to the Condensed Interim Financial Statements 7 Independent Auditors’ Report 14

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F-111

ENGTRANSSTROY Corporation LLC

CONDENSED INTERIM FINANCIAL STATEMENTS AS AT AND FOR THE SIX MONTHS ENDED 30 JUNE 2010

The condensed interim statement of financial position is to be read in conjunction with the notes to, and forming part of, the condensed interim financial statements set out on pages 7 to 13.

4

General director Deputy general director for finance

Condensed Interim Statement of Comprehensive Income

Mln RUB Note 2010 2009For the six months ended 30 JuneRevenue 6 14,510 20,005Cost of sales 7 (12,923) (18,658)Gross profit 1,587 1,347Other income 16 15Administrative expenses 8 (417) (396)Other expenses 9 (80) (116)Results from operating activities 1,106 850Finance income 10 60 55Finance costs 10 (13) (4)Dividends (1,200) (303)Net finance expense (1,153) (252)(Loss)/profit before income tax (47) 598Income tax expense (230) (190)(Loss)/profit and total comprehensive income for the period (277) 408

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ENGTRANSSTROY Corporation LLC

CONDENSED INTERIM FINANCIAL STATEMENTS AS AT AND FOR THE SIX MONTHS ENDED 30 JUNE 2010

The condensed interim statement of changes in net assets attributable to participants is to be read in conjunction with the notes to, and forming part of, the condensed interim financial statements set out on pages 7 to 13.

5

Condensed Interim Statement of Changes in Net assets attributable to participants

Mln RUB

Charter capital

Profit and loss attributable to

participants

Total net assets attributable to

participantsBalance at 1 January 2009 30 (436) (406)Profit and total comprehensive income for the period - 408 408Balance at 30 June 2009 30 (28) 2

Charter capital

Profit and loss attributable to

participants

Total net assets attributable to

participantsBalance at 1 January 2010 30 133 163Loss and total comprehensive income for the period - (277) (277)Balance at 30 June 2010 30 (144) (114)

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ENGTRANSSTROY Corporation LLC

CONDENSED INTERIM FINANCIAL STATEMENTS AS AT AND FOR THE SIX MONTHS ENDED 30 JUNE 2010

The condensed interim statement of cash flows is to be read in conjunction with the notes to, and forming part of, the condensed interim financial statements set out on pages 7 to 13.

6

Condensed Interim Statement of Cash Flows

Mln RUBFor the six months ended 30 June 2010 2009CASH FLOW FROM OPERATING ACTIVITIES(Loss)/profit for the period (277) 408Adjustments for:Depreciation 63 46Net finance income (46) (41)Dividends 1,200 303Income tax expense 230 190Cash flows from operating activities before changes in working capital and provisions 1,170 906Decrease/(increase) in inventory 10 (410)(Increase)/ decrease in trade and other receivables (565) 1,118Increase in amounts due from customers for construction contracts (415) (1,260)Increase in trade and other payables 1,937 3,881Decrease in amounts due to customers for construction contracts (2,639) (2,668)Increase in provisions 8 -Increase in prepayments (4,987) (2,516)Cash flows used in operations before income taxes and interest paid (5,481) (949)Income tax paid (159) (120)Net cash flows used in operating activities (5,640) (1,069)

CASH FLOW FROM INVESTING ACTIVITIESAcquisition of property, plant and equipment (59) (7)Repayment of loans given 79 306Loans issued (683) (155)Interest received 44 30Proceeds from sales of property plant and equipment 14 -Net cash (used in)/from investing activities (605) 174

CASH FLOW FROM FINANCING ACTIVITIESProceeds from borrowings 2,509 601Repayment of borrowings (686) (732)Finance lease payments (49) (89)Interest paid (11) (4)Dividends paid (1,200) -Net cash flows from/ (used in) financing activities 563 (224)Net decrease in cash and cash equivalents (5,682) (1,119)Cash and cash equivalents at 1 January 7,718 1,759Cash and cash equivalents at 30 June 2,036 640

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7

Notes to the Condensed Interim Financial Statements

1 Organisation and operations ENGTRANSSTROY Corporation LLC (the “Company”) is a Russian limited liability company established in accordance with the Civil Code of the Russian Federation in 2007. The Company’s registered office is 10, Tarusskaya street, Moscow, 117588, Russia.

Up to 29 June 2010 the Company’s shares were owned by Velopretco Holdings Co. Limited (Cyprus), the immediate parent company for the Company, and the ultimate controlling party to the Company was Mr. Basin E.V.

On 29 June 2010 the control over the Company was acquired by Mostotrest OJSC. This transaction changed the immediate parent company to Mostotrest OJSC. In addition, Mr.Basin E.V. ceased being the ultimate controlling party to the Company. Mostotrest OJSC prepares publicly available IFRS financial statements.

The preliminary IFRS financial statements of Company as at and for the year ended 31 December 2009 are available upon request from the Company registered offices at the address mentioned.

2 Statement of compliance These condensed interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting. They do not include all of the information required for full set of annual financial statements and should be read in conjunction with the preliminary IFRS financial statements of the Company as at and for the year ended 31 December 2009.

3 Significant accounting policies The accounting policies applied by the Company in these condensed interim financial statements are the same as those applied by the Company in its preliminary IFRS financial statements as at and for the year ended 31 December 2009.

4 Use of estimates and judgments The preparation of condensed interim financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from those estimates.

In preparing these condensed interim financial statements, the significant judgements made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the preliminary IFRS financial statements as at and for the year ended 31 December 2009.

5 Seasonality The business of the Company is not subject to seasonal fluctuations, however, the Company’s financing limits for the year from its customers are normally approved during the 1st quarter of the financial year. The completions of the projects normally occur at end of financial years.

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8

6 Revenue Mln RUB 30/06/2010 30/06/2009Revenue construction contracts:

bridges and highways 9,222 4,748railway infrastructure facilities 1,739 6,598ports and in-land water infrastructure facilities 259 4,651other infrastructure facilities - 3,206airport infrastucture facilities 2,428 110other facilities 832 529

Total revenue from construction contracts 14,480 19,842Other revenue 30 163Total revenue 14,510 20,005

Below is the information on the geographical allocation of revenues from construction contracts. In presenting the information on the basis of geographical information, revenue is based on the geographical location of construction sites:

Mln RUB 30/06/2010 30/06/2009Revenue by districts:

Central Federal District 3,750 3,365Southerm Federal District 3,770 86Volga Federal District 18 28Siberian Federal District 1,738 4,464Far Eastern Federal District 1,508 10,245Northwestern Federal District 3,696 1,654

Total revenue from construction contracts 14,480 19,842

7 Cost of sales Mln RUB 30/06/2010 30/06/2009Services of subcontractors 12,607 16,008Insurance 126 272Depreciation 46 33Lease expense 6 113Repair and maintenance 4 1Materials - 2,079Other expenses 134 152

12,923 18,658

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9

8 Administrative expenses Mln RUB 30/06/2010 30/06/2009Personnel expenses 210 169Lease expense 63 67Transportation 44 44Depreciation 17 13Communications 11 11Insurance - 2Charity 2 1Tax other then income tax - 1Other expenses 70 88

417 396

9 Other expenses Mln RUB 30/06/2010 30/06/2009Bad debt provision 3 61Loss on impairment of advances given and receivables from customers under long-term constuction/ services contracts 33 -Other expenses 44 55

80 116

10 Finance income and finance costs Mln RUB 30/06/2010 30/06/2009Recognised in profit or lossForeign exchange gain 1 -Interest income on loans 10 38Interest income on bank deposits 47 12Income from participation in other companies 2 -Interest income on finance leases - 5Finance income 60 55

Interest expense on borrowings (11) (4)Interest expense on finance leases (2) -Finance costs (13) (4)Net finance income in profit or loss 47 51

11 Property, plant and equipment During the six months ended 30 June 2010 the Company acquired assets with the cost of 85 mln RUB (six months ended 30 June 2009: 70 mln RUB).

During the six months ended 30 June 2010 the assets with the carrying amount of 5 mln RUB were disposed (six months ended 30 June 2009: 51 mln RUB).

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10

12 Construction contracts in progress Mln RUB 30/06/2010 31/12/2009Progress billings 42,042 70,215Billed in excess of contract revenue recognised (354) (1,048)Contract revenue accumulated to the period end 41,688 69,167Contract costs accumulated to the period end (39,063) (65,968)Recognised profits 2,625 3,199

Contract revenue accumulated to the period end 41,688 69,167Payments (47,993) (78,526)Net payables to customers (6,305) (9,359)

Amounts due from customers for construction contracts 613 198Amounts due to customers for construction contracts (6,918) (9,557)

(6,305) (9,359)

The majority of the balance construction in progress due from customers is from government agencies and other public bodies, therefore there is a concentration of credit risk with such type of customers.

13 Loans and borrowings

Mln RUB CurrencyCarrying

amountYear of maturity

Balance at 1 January 2010 39New issuesSecured bank loans RUB 1,800 2010Unsecured bank loans RUB 709 2010-2011

RepaymentsSecured bank loans RUB (308)Unsecured bank loans RUB (412)Finance lease liabilities RUB (13)Finance lease liabilities EURO (12)

Other movementsSecured bank loans interest expense RUB 8Unsecured bank loans interest expense RUB 3

Balance at 30 June 2010 1,814

At 30 June 2010, the loans were secured with the future revenue income from construction contracts for the amount of 1,800 mln RUB.

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11

14 Related party transactions

Control relationships

During the six months ended 30 June 2010 the control over the Company was acquired by Mostotrest OJSC – refer note 1.

Management remuneration

The key management received remuneration of RUB 139 mln (6 months 2009: RUB 49 mln). The remuneration is included in personnel costs. There were no other material transactions conducted with key management personnel and their close family members.

Transactions with other related parties

The Company’s other related party transactions are disclosed below.

Revenue

Mln RUBTransaction

valueOutstanding

balanceTransaction

valueOutstanding

balance30/06/2010 30/06/2010 30/06/2009 31/12/2009

Services rendered to fellow subsidiaries 534 163 1,103 5,111Sale of goods to fellow subsidiaries 16 2 99 105

550 166 1,202 5,216

Expenses

Mln RUBTransaction

valueOutstanding

balanceTransaction

valueOutstanding

balance30/06/2010 30/06/2010 30/06/2009 31/12/2009

Purchase of subcontractor services from fellow subsidiaries (8,418) 1,380 (11,330) (3,858)Purchase of goods from fellow subsidiaries (76) (0) (1,411) (259)

(8,494) 1,380 (12,741) (4,117)

Loans

Mln RUBOutstanding

balanceLoans given Loans settled Outstanding

balance1 January 2010 2010 2010 30 June 2010

Loans given to fellow subsidiaries 90 580 (1) 669

90 580 (1) 669

The loans given to related parties are repayable in 2010. The loans bear interest from 8.25% to 13% per annum. In the six months ended 20 June 2010 interest income has amounted to 22 mln RUB (30 June 2009: 17 mln RUB).

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15 Explanation of the transition to IFRSs In preparing its opening preliminary IFRS statement of financial position as of 1 January 2009, the Company has adjusted amounts reported previously in its financial statements prepared in accordance with previous GAAP. An explanation of how the transition from previous GAAP to IFRSs has affected the Company’s financial performance in the six-month period ended 30 June 2009 is set out in the following tables and the notes that accompany the tables.

Mln RUB 30 June 2009Condensed interim statement of comprehensive incomeRevenue (1,398)Cost of sales 1,314 Adjustment to profits before income tax (84)

Mln RUR

Carrying amount under previous

GAAP Adjustments IFRS ASSETSNon-current assetsProperty plant and equipment 361 13 374Intangible assets - 4 4Trade and other receivables - 101 101Non-current financial investments 55 (55) -Deferred tax assets - 189 189Total non-current assets 416 252 668Current assetsInventories 1,594 (475) 1,119Trade and other receivables 7,237 (5,441) 1,796Amounts due from customers for construction contracts - 1,961 1,961Loans given 669 3 672Prepayments 6,628 1,025 7,653Cash and cash equivalents 640 - 640Non-current assets held for sale - 54 54Total current assets 16,768 (2,873) 13,895Total assets 17,184 (2,621) 14,563

30 June 2009

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13

Mln RUR

Carrying amount under previous

GAAP Adjustments IFRS LIABILITIESLong-term liabilities (other than net assets attributable to participants) Loans and borrowings - 5 5Total long-term liabilities (other than net assets attributable to participants) - 5 5Net assets attributable to participantsCharter capital 30 - 30Profit and loss attributable to participants 726 (754) (28)Total net assets attributable to participants 756 (754) 2Short-term liabilitiesLoans and borrowings 161 32 193Trade and other payables 9,009 (4) 9,005Amounts due to customers under construction contracts - 5,317 5,317Advances received 7,217 (7,217) -Provisions - - -Current tax liabilities 41 - 41

16,428 (1,872) 14,55617,184 (2,621) 14,563

30 June 2009

Major differences between the Russian GAAP and IFRSs include:

• Revenue recognition under percentage of completion method under IFRSs. Under Russian GAAP revenue is recognised based on surveys of construction works performed and accepted by customers as of the reporting date;

• Certain construction contract related expenses are recognised as property, plant and equipment under Russian GAAP. Such expenses are included into the construction work in progress under IFRSs.

• Under Russian GAAP the Company presented general contractor’s fee receivable from subcontractors and contract expenses from those subcontractors gross in revenue and cost of sales, respectively. Under IFRSs these items are presented on net basis.

• Dividends to shareholders in Russian limited liability companies are included into statement of changes in equity. Such dividends are presented as finance expenses under the IFRSs.

16 Events subsequent to the reporting date Significant construction contracts concluded

Subsequent to 30 June 2010 the Company concluded new significant construction contract to design and construct access points at sea and river harbors on the trade route Ust-Luga for RUB 262 mln.

Significant borrowings

Subsequent to 30 June 2010 the Company concluded a number of loan agreements with banks for a total amount of RUB 1,000 mln.

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11OCT201005540968

11OCT201006021314

ZAO KPMG Telephone +7 (495) 937 4477Naberezhnaya Tower Complex, Block C Fax +7 (495) 937 4400/9910 Presnenskaya Naberezhnaya Internet www.kpmg.ruMoscow, Russia 123317

Independent Auditors’ Report

To the General director of OOO ENGTRANSSTROY Corporation

Introduction

We have reviewed the accompanying condensed interim statement of financial position of OOOENGTRANSSTROY Corporation (the ‘‘Company’’) as at 30 June 2010 and 30 June 2009, and the relatedcondensed interim statements of comprehensive income, changes in net assets attributable to participantsand cash flows for the six-month periods then ended and a summary of selected explanatory notes (thecondensed interim financial statements). Management is responsible for the preparation and presentationof these condensed interim financial statements in accordance with International Financial ReportingStandard IAS 34 Interim Financial Reporting. Our responsibility is to express a conclusion on thesecondensed interim financial statements based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements 2410 Reviewof Interim Financial Information Performed by the Independent Auditor of the Entity. A review of condensedinterim financial statements consists of making inquiries, primarily of persons responsible for financial andaccounting matters, and applying analytical and other review procedures. A review is substantially less inscope than an audit conducted in accordance with International Standards on Auditing and consequentlydoes not enable us to obtain assurance that we would become aware of all significant matters that might beidentified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensedinterim financial statements as at 30 June 2010 and 30 June 2009, and for the six-month periods thenended are not prepared, in all material respects, in accordance with International Financial ReportingStandard IAS 34 Interim Financial Reporting.

ZAO KPMG20 September 2010

ZAO KPMG, a company incorporated under the Laws of the RussianFederation and a member firm of the KPMG network of independentmember firms affiliated with KPMG International, a Swiss cooperative.

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Preliminary IFRS Consolidated Financial

Statements

for the year ended 31 December 2009

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Contents

Preliminary IFRS Consolidated Financial Statements

Preliminary IFRS Consolidated Statement of Financial Position 3

Preliminary IFRS Consolidated Statement of Comprehensive Income 4

Preliminary IFRS Consolidated Statement of Changes

in Net assets attributable to participants 5

Preliminary IFRS Consolidated Statement of Cash Flows 6

Notes to the Preliminary IFRS Consolidated Financial Statements 7

Independent Auditors’ Report 35

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Preliminary IFRS Consolidated Statement of Comprehensive Income for the year ended 31 December 2009

The preliminary IFRS consolidated statement of comprehensive income is to be read in conjunction with the

notes to, and forming part of, the preliminary IFRS consolidated financial statements set out on pages 7 to

34.

4

Mln RUR Note 2009

Continuing operations

Revenue 6 12,790

Cost of sales 7 (11,555)

Gross profit 1,235

Other income 170

Administrative expenses 8 (513)

Results from operating activities 892

Finance income 10 5

Finance costs 10 (241)

Dividends 20 (670)

Loss before income tax (14)

Income tax expense 11 (158)

Loss for the year from continuing operations (172)

Discontinued operations

Profit for the year from discontinued operations 5 274

Profit and total comprehensive income for the year 102

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Preliminary IFRS Consolidated Statement of Changes in Net assets attributable to participants

for the year ended 31 December 2009

The preliminary IFRS consolidated statement of changes in net assets attributable to participants is to be read

in conjunction with the notes to, and forming part of, the preliminary IFRS consolidated financial statements

set out on pages 7 to 34.

5

Mln RUR

Charter capital

Profit and loss

attributable to

participants

Total net assets

attributable to

participants

Balance at 1 January 2009 - (1,282) (1,282)

Profit for the year and total comprehensive

income for the year - 102 102

Balance at 31 December 2009 - (1,180) (1,180)

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Preliminary IFRS Consolidated Statement of Cash Flows for the year ended 31 December 2009

The preliminary IFRS consolidated statement of cash flows is to be read in conjunction with the notes to, and

forming part of, the preliminary IFRS consolidated financial statements set out on pages 7 to 34.

6

Mln RUR 2009

CASH FLOW FROM OPERATING ACTIVITIES

Profit for the year 102

Adjustments for:

Effect of derecognition of liabilities related to discontinued operations (1,016)

Property, plant and equipment derecognised 60

Depreciation 432

Net finance costs 236

Dividends 670

Income tax expense 158

Cash flows from operating activities before changes in working capital and

provisions 642

Decrease in inventories 1

Decrease in trade and other receivables 298

Decrease in amounts due from customers 21

Decrease in trade and other payables (822)

Increase in amounts due to customers 1,369

Increase in provisions 4

Decrease in prepayments 80

Cash flows from operations before income taxes 1,593

Income tax paid (114)

Net cash from operating activities 1,479

CASH FLOW FROM INVESTING ACTIVITIES

Acquisition of property, plant and equipment (658)

Repayment of the loans given 10

Proceeds from sales of non-current assets 22

Net cash used in investing activities (626)

CASH FLOW FROM FINANCING ACTIVITIES

Proceeds from borrowings 2,251

Repayment of borrowings (3,326)

Interest paid (164)

Dividends paid (200)

Net cash used in financing activities (1,439)

Net decrease in cash and cash equivalents (586)

Cash and cash equivalents at 1 January 799

Cash and cash equivalents at 31 December 213

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Notes to the Preliminary IFRS Consolidated Financial Statements for the year ended 31 December 2009

7

1 Background

(a) Organisation and operations

OOO Transstroymekhanisatsiya (the “Company”) and its subsidiary OOO Dorstroyproekt (together

- the “Group”) are Russian limited liabilities companies established in accordance with the Civil

Code of the Russian Federation. The Company was established on 08 July 2005. The Company’s

registered office is 1, building 2, Chermyanskiy proezd, Moscow, 127282, Russia.

The Group’s principal activities are construction of highways, airfields, railway embankment and

other engineering structures. The Group’s activiaties are carried out in the Russian Federation. The

Group’s major ultimate customers are government agencies and other public bodies. The Group

primarily operates in the European part of the Russian Federation.

During 2009 the Group’s immediate parent was Albanyblue Investments Limited. The Group’s

ultimate controlling party was Mr.Basin E.V.

(b) Russian business environment

The Russian Federation has been experiencing political and economic change that has affected, and

may continue to affect, the activities of enterprises operating in this environment. Consequently,

operations in the Russian Federation involve risks that typically do not exist in other markets. In

addition, the contraction in the capital and credit markets and its impact on the Russian economy

have further increased the level of economic uncertainty in the environment. These preliminary

IFRS consolidated financial statements reflect management’s assessment of the impact of the

Russian business environment on the operations and the financial position of the Group. The future

business environment may differ from management’s assessment.

2 Basis of preparation

(a) Statement of compliance

These preliminary IFRS consolidated financial statements have been prepared following the

requirements of IFRS 1 First-time Adoption of International Financial Reporting Standards

(“IFRSs”), as part of the Company’s preparation for the future adoption of IFRSs. When the Group

prepares its first complete set of IFRS consolidated financial statements, as at and for the year

ending 31 December 2010, they will be prepared in accordance with the Standards and

Interpretations in effect as at that date.

Accordingly, these preliminary IFRS consolidated financial statements, which are intended to form

the comparative information in the Group’s first complete set of IFRS consolidated financial

statements, have been prepared on the basis of the accounting policies expected to be applied in the

Group’s first complete set of IFRS consolidated financial statements. Any changes to such

Standards, Interpretations or accounting policies may require adjustment to these preliminary IFRS

consolidated financial statements before they comprise such comparative information.

The Group does not prepare consolidated financial statements under Russian Accounting

Principles. Accordingly, an explanation of how the transition to IFRSs has been affected to the

reported financial position, financial performance and cash flows of the Group is not presented in

those preliminary IFRS consolidated financial statements.

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Notes to the Preliminary IFRS Consolidated Financial Statements for the year ended 31 December 2009

8

(b) Basis of measurement

The preliminary IFRS consolidated financial statements are prepared on the historical cost basis.

(c) Functional and presentation currency

The national currency of the Russian Federation is the Russian Rouble (“RUR”), which is the

Company’s functional currency and the currency in which these preliminary IFRS consolidated

financial statements are presented. All financial information presented in RUR has been rounded to

the nearest million.

(d) Use of estimates and judgments

The preparation of consolidated financial statements in conformity with IFRSs requires

management to make judgments, estimates and assumptions that affect the application of

accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual

results may differ from those estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting

estimates are recognised in the period in which the estimates are revised and in any future periods

affected.

Information about critical judgments in applying accounting policies that have the most significant

effect on the amounts recognised in the consolidated financial statements is included in the

following notes:

Note 5 – discontinued operation;

Note 13 – deferred tax assets and liabilities;

Note 15 – construction contracts in progress.

Information about assumptions and estimation uncertainties that have a significant risk of resulting

in a material adjustment within the next financial year is included in the following notes:

Note 3(l) Revenue recognition based on the percentage-of-completion method on

construction contracts;

Note 3(d)(iii) Property, plant and equipment – useful lives;

Note 24 Contingencies.

3 Significant accounting policies

The accounting policies set out below have been applied consistently throughout the period

presented in these preliminary IFRS consolidated financial statements and in preparing the opening

consolidated IFRS statement of financial position as at 1 January 2009 for the purposes of the

transition to IFRSs.

The accounting policies have been applied consistently by Group entities.

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Notes to the Preliminary IFRS Consolidated Financial Statements for the year ended 31 December 2009

9

(a) Basis of consolidation

(i) Business combinations

Adoption of IFRSs

Goodwill/negative goodwill in relation to a business combination that occurred prior to the date of

adopting IFRSs, 1 January 2009, was determined as at that date as the difference between the cost

of acquisition of the subsidiary, adjusted for hyperinflation until the end of 2002 where applicable,

and the IFRS carrying amounts of the assets and liabilities of the subsidiary in the consolidated

financial statements. Any negative goodwill was credited to retained earnings.

Other goodwill

For acquisitions on or after 1 January 2009, the Group measures goodwill as the fair value of the

consideration transferred including the recognised amount of any non-controlling interest in the

acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired

and liabilities assumed, all measured as of the acquisition date. When the excess is negative, a

bargain purchase gain is recognised immediately in profit or loss.

The Group elects on a transaction-by-transaction basis whether to measure non-controlling interest

at its fair value, or at its proportionate share of the recognised amount of the identifiable net assets,

at the acquisition date.

Transaction costs, other than those associated with the issue of debt or equity securities, that the

Group incurs in connection with a business combination are expensed as incurred.

(ii) Subsidiaries

Subsidiaries are entities controlled by the Group. The financial statements of subsidiaries are

included in the preliminary IFRS consolidated financial statements from the date that control

commences until the date that control ceases. The accounting policies of subsidiaries have been

changed when necessary to align them with the policies adopted by the Group.

(iii) Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-

group transactions, are eliminated in preparing the preliminary IFRS consolidated financial

statements. Unrealised losses are eliminated in the same way as unrealised gains, but only to the

extent that there is no evidence of impairment.

(b) Foreign currency transactions

Transactions in foreign currencies are translated into RUR at exchange rates at the dates of the

transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date

are retranslated to the functional currency at the exchange rate at that date. The foreign currency

gain or loss on monetary items is the difference between amortised cost in the functional currency

at the beginning of the period, adjusted for effective interest and payments during the period, and

the amortised cost in foreign currency translated at the exchange rate at the end of the reporting

period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at

fair value are retranslated to the functional currency at the exchange rate at the date that the fair

value was determined. Foreign currency differences arising in retranslation are recognised in profit

or loss, except for differences arising on the retranslation of available-for-sale equity instruments

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Notes to the Preliminary IFRS Consolidated Financial Statements for the year ended 31 December 2009

10

which are recognised in other comprehensive income. Non-monetary items that are measured in

terms of historical cost in a foreign currency are translated using the exchange rate at the date of the

transaction.

(c) Financial instruments

(i) Non-derivative financial instruments

Non-derivative financial instruments comprise investments in equity, trade and other receivables,

cash and cash equivalents, loans and borrowings, and trade and other payables.

The Group initially recognises loans and receivables and deposits on the date that they are

originated. All other financial assets (including assets designated at fair value through profit or

loss) are recognised initially on the trade date at which the Group becomes a party to the

contractual provisions of the instrument.

The Group derecognises a financial asset when the contractual rights to the cash flows from the

asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a

transaction in which substantially all the risks and rewards of ownership of the financial asset are

transferred. Any interest in transferred financial assets that is created or retained by the Group is

recognised as a separate asset or liability.

Financial assets and liabilities are offset and the net amount presented in the statement of financial

position when, and only when, the Group has a legal right to offset the amounts and intends either

to settle on a net basis or to realise the asset and settle the liability simultaneously.

The Group has the following non-derivative financial assets: loans and receivables, cash and cash

equivalents.

Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted

in an active market. Such assets are recognised initially at fair value plus any directly attributable

transaction costs. Subsequent to initial recognition loans and receivables are measured at amortised

cost using the effective interest method, less any impairment losses. Loans and receivables

comprise trade and other receivables.

Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits with original maturities of

three months or less. Bank overdrafts that are repayable on demand and form an integral part of the

Group’s cash management are included as a component of cash and cash equivalents for the

purpose of the statement of cash flows.

(ii) Non-derivative financial liabilities

All financial liabilities are recognised initially on the trade date at which the Group becomes a

party to the contractual provisions of the instrument.

The Group derecognises a financial liability when its contractual obligations are discharged or

cancelled or expire.

Financial assets and liabilities are offset and the net amount presented in the statement of financial

position when, and only when, the Group has a legal right to offset the amounts and intends either

to settle on a net basis or to realise the asset and settle the liability simultaneously.

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Notes to the Preliminary IFRS Consolidated Financial Statements for the year ended 31 December 2009

11

The Group has the following non-derivative financial liabilities: loans and borrowings and trade

and other payables.

Such financial liabilities are recognised initially at fair value plus any directly attributable

transaction costs. Subsequent to initial recognition these financial liabilities are measured at

amortised cost using the effective interest method.

(iii) Net assets attributable to participants

In accordance with the Law on Limited Liability Companies No.14-FZ dated 8 February 1998, a

participant may unilaterally withdraw from the entity. In such circumstances, the Company is

obliged to pay a withdrawing participant its share of the net assets of the entity for the year. The

payment should be made no later than twelve months after the end of the year in which the

withdrawal occurs on the basis of the participant’s share of the entity’s net assets at their carrying

amounts in the entity’s statutory financial statements (prepared under Russian accounting

standards).

As a result, contributions of the Company’s participants and profit/loss attributable to participants

are represented in long-term liabilities of the Company.

(d) Property, plant and equipment

(i) Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation and

accumulated impairment losses.

Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of

self-constructed assets includes the cost of materials and direct labour, any other costs directly

attributable to bringing the asset to a working condition for their intended use, the costs of

dismantling and removing the items and restoring the site on which they are located, and borrowing

costs on qualifying assets for which the commencement date for capitalisation is on or after 1

January 2009. Purchased software that is integral to the functionality of the related equipment is

capitalised as part of that equipment.

When parts of an item of property, plant and equipment have different useful lives, they are

accounted for as separate items (major components) of property, plant and equipment.

Gains and losses on disposal of an item of property, plant and equipment are determined by

comparing the proceeds from disposal with the carrying amount of property, plant and equipment,

and are recognised net within “other income” in profit or loss.

(ii) Subsequent costs

The cost of replacing part of an item of property, plant and equipment is recognised in the carrying

amount of the item if it is probable that the future economic benefits embodied within the part will

flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is

derecognised. The costs of the day-to-day servicing of property, plant and equipment are

recognised in profit or loss as incurred.

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Notes to the Preliminary IFRS Consolidated Financial Statements for the year ended 31 December 2009

12

(iii) Depreciation

Depreciation is calculated over the depreciable amount, which is the cost of an asset, or other

amount substituted for cost, less its residual value.

Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of

each part of an item of property, plant and equipment, since this most closely reflects the expected

pattern of consumption of the future economic benefits embodied in the asset. Leased assets are

depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain

that the Group will obtain ownership by the end of the lease term. Land is not depreciated.

The estimated useful lives for the current and comparative periods are as follows:

Building and constructions 6 years

Machinery and equipment 6 years

Vehicles 5 years

Others 4 years

Depreciation methods, useful lives and residual values are reviewed at each financial year end and

adjusted if appropriate.

(e) Intangible assets

(i) Goodwill

Goodwill that arises on the acquisition of subsidiaries is included in intangible assets. Any negative

goodwill is a bargain purchase that is recognised in profit or loss. For measurement of goodwill at

initial recognition, see note 3(a)(i). In respect of acquisitions prior to 1 January 2009, goodwill is

included on the basis of its deemed cost, which represents the amount recorded under previous

GAAP, adjusted for the reclassification of certain intangibles.

Goodwill is measured at cost less accumulated impairment losses. In respect of equity accounted

investees, the carrying amount of goodwill is included in the carrying amount of the investment,

and an impairment loss on such an investment is not allocated to any asset, including goodwill, that

forms part of the carrying amount of the equity accounted investee.

(ii) Other intangible assets

Other intangible assets that are acquired by the Group, which have finite useful lives, are measured

at cost less accumulated amortisation and accumulated impairment losses.

(iii) Subsequent expenditure

Subsequent expenditure is capitalised only when it increases the future economic benefits

embodied in the specific asset to which it relates. All other expenditure, including expenditure on

internally generated goodwill and brands, is recognised in the profit or loss as incurred.

(iv) Amortisation

Amortisation is calculated over the cost of the asset, or other amount substituted for cost, less its

residual value.

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Notes to the Preliminary IFRS Consolidated Financial Statements for the year ended 31 December 2009

13

Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of

intangible assets, other than goodwill, from the date that they are available for use since this most

closely reflects the expected pattern of consumption of future economic benefits embodied in the

asset. The estimated useful lives for the current and comparative periods are as follows:

Software 1-5 years;

Licences 1-3 years.

Amortisation methods, useful lives and residual values are reviewed at each financial year end and

adjusted if appropriate.

(f) Leased assets

Leases in terms of which the Group assumes substantially all the risks and rewards of ownership

are classified as finance leases. Upon initial recognition the leased asset is measured at an amount

equal to the lower of its fair value and the present value of the minimum lease payments.

Subsequent to initial recognition, the asset is accounted for in accordance with the accounting

policy applicable to that asset. Other leases are operating leases and the leased assets are not

recognised on the Group’s preliminary IFRS statement of financial position.

(g) Inventories

Inventories are measured at the lower of cost and net realisable value.

The cost of inventories is based on the weighted-average method, and includes expenditure

incurred in acquiring the inventories, production or conversion costs and other costs incurred in

bringing them to their existing location and condition.

Net realisable value is the estimated selling price in the ordinary course of business, less the

estimated costs of completion and selling expenses.

The Group inventories include materials, components, fuel intended for construction and other

inventories.

(h) Amounts due to/ from customers for construction contracts

Amounts due from customers for construction contracts represent the amount of construction

contracts in progress less consideration received by the Group for works already performed.

Amounts due from customers are presented separately in the statement of financial position for all

contracts in which costs incurred plus recognised profits and losses exceeds consideration received.

If the consideration received for works performed to date exceeds costs incurred plus recognised

profits and losses, then the difference is presented as Due to customers for construction contracts in

the statement of financial position.

Construction contracts in progress represent the gross amount expected to be collected from

customers for contract work performed to date. It is measured at cost plus profit recognised to date

(see note 3(l)(i)) less recognised losses. Cost includes all expenditure related directly to specific

projects and an allocation of fixed and variable overheads incurred in the Group’s contract

activities based on normal operating capacity.

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Notes to the Preliminary IFRS Consolidated Financial Statements for the year ended 31 December 2009

14

(i) Impairment

(i) Financial assets

A financial asset is assessed at each reporting date to determine whether there is any objective

evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss

event has occurred after the initial recognition of the asset, and that the loss event had a negative

effect on the estimated future cash flows of that asset that can be estimated reliably.

Objective evidence that financial assets are impaired can include default or delinquency by a

debtor, restructuring of an amount due to the Group on terms that the Group would not consider

otherwise, indications that a debtor or issuer will enter bankruptcy, the disappearance of an active

market for a security. In addition, for an investment in an equity security, a significant or prolonged

decline in its fair value below its cost is objective evidence of impairment.

The Group considers evidence of impairment for receivables at both a specific asset and collective

level. All individually significant receivables are assessed for specific impairment. All individually

significant receivables found not to be specifically impaired are then collectively assessed for any

impairment that has been incurred but not yet identified. Receivables that are not individually

significant are collectively assessed for impairment by grouping together receivables and with

similar risk characteristics.

In assessing collective impairment the Group uses historical trends of the probability of default,

timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as to

whether current economic and credit conditions are such that the actual losses are likely to be

greater or less than suggested by historical trends.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the

difference between its carrying amount, and the present value of the estimated future cash flows

discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and

reflected in an allowance account against receivables. Interest on the impaired asset continues to be

recognised through the unwinding of the discount. When a subsequent event causes the amount of

impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.

(ii) Non-financial assets

The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax

assets are reviewed at each reporting date to determine whether there is any indication of

impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For

goodwill and intangible assets that have indefinite lives or that are not yet available for use, the

recoverable amount is estimated each year at the same time.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its

fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted

to their present value using a pre-tax discount rate that reflects current market assessments of the

time value of money and the risks specific to the asset. For the purpose of impairment testing,

assets that cannot be tested individually are grouped together into the smallest group of assets that

generates cash inflows from continuing use that are largely independent of the cash inflows of

other assets or groups of assets (the “cash-generating unit”). For the purposes of goodwill

impairment testing, goodwill acquired in a business combination is allocated to the group of cash

generating units that is expected to benefit from the synergies of the combination. This allocation is

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Notes to the Preliminary IFRS Consolidated Financial Statements for the year ended 31 December 2009

15

subject to an operating segment ceiling test and reflects the lowest level at which that goodwill is

monitored for internal reporting purposes.

The Group’s corporate assets do not generate separate cash inflows. If there is an indication that a

corporate asset may be impaired, then the recoverable amount is determined for the cash generating

unit to which the corporate asset belongs.

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit

exceeds its recoverable amount. Impairment losses are recognised in profit or loss. Impairment

losses recognised in respect of cash-generating units are allocated first to reduce the carrying

amount of any goodwill allocated to the units and then to reduce the carrying amount of the other

assets in the unit (group of units) on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment

losses recognised in prior periods are assessed at each reporting date for any indications that the

loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in

the estimates used to determine the recoverable amount. An impairment loss is reversed only to the

extent that the asset’s carrying amount does not exceed the carrying amount that would have been

determined, net of depreciation or amortisation, if no impairment loss had been recognised.

Goodwill that forms part of the carrying amount of an investment in an equity accounted investee is

not recognised separately, and therefore is not tested for impairment separately. Instead, the entire

amount of the investment in an equity accounted investee is tested for impairment as a single asset

when there is objective evidence that the investment in an equity accounted investee may be

impaired.

(j) Employee benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed

as the related service is provided.

A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-

sharing plans if the Group has a present legal or constructive obligation to pay this amount as a

result of past service provided by the employee, and the obligation can be estimated reliably.

(k) Provisions

A provision is recognised if, as a result of a past event, the Group has a present legal or

constructive obligation that can be estimated reliably, and it is probable that an outflow of

economic benefits will be required to settle the obligation. Provisions are determined by

discounting the expected future cash flows at a pre-tax rate that reflects current market assessments

of the time value of money and the risks specific to the liability. The unwinding of the discount is

recognised as finance cost.

(i) Warranties

A provision for warranties is recognised when the underlying sales under construction contract

recognised. The provision is based on historical warranty data and a weighting of all possible

outcomes against their associated probabilities.

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Notes to the Preliminary IFRS Consolidated Financial Statements for the year ended 31 December 2009

16

(ii) Onerous contracts

A provision for onerous contracts is recognised when the expected benefits to be derived by the

Group from a contract are lower than the unavoidable cost of meeting its obligations under the

contract. The provision is measured at the present value of the lower of the expected cost of

terminating the contract and the expected net cost of continuing with the contract. Before a

provision is established, the Group recognises any impairment loss on the assets associated with

that contract. The provision is recognised in accordance with the IAS 11 Contruction contracts

requirements.

(l) Revenue

(i) Construction contracts

Contract revenue includes the initial amount agreed in the contract plus any variations in contract

work, claims and incentive payments, to the extent that it is probable that they will result in an

inflow of economic benefits and can be measured reliably. As soon as the outcome of a

construction contract can be estimated reliably, contract revenue is recognised in profit or loss in

proportion to the stage of completion of the contract. Contract expenses are recognised as incurred

unless they create an asset related to future contract activity.

The stage of completion is assessed by reference to the share of the costs incurred to date in the

total estimated contract costs. The contract costs that relate to future activity on the contract are

excluded from costs incurred to date in determining the stage of completion (deferred recognition)

and recognized as inventories.

When the outcome of a construction contract cannot be estimated reliably, contract revenue is

recognised only to the extent of contract costs incurred that are likely to be recoverable. An

expected loss on a contract is recognised immediately in profit or loss.

(ii) Commissions

When the Group acts in the capacity of an agent rather than as the principal in a transaction, the

revenue recognised is the net amount of commission made by the Group.

(iii) Revenue from other activities

Revenue from other activities is recognised when significant risks and rewards of ownership have

been transferred to the buyer, recovery of the consideration is probable, the associated costs and

possible return of goods can be estimated reliably, and there is no continuing management

involvement with the goods, and the amount of revenue can be measured reliably.

(m) Other expenses

(i) Lease payments

Payments made under operating leases are recognised in profit or loss on a straight-line basis over

the term of the lease. Lease incentives received are recognised as an integral part of the total lease

expense, over the term of the lease.

Minimum lease payments made under finance leases are apportioned between the finance expense

and the reduction of the outstanding liability. The finance expense is allocated to each period

F-138

OOO Transstroymekhanisatsiya

Notes to the Preliminary IFRS Consolidated Financial Statements for the year ended 31 December 2009

17

during the lease term so as to produce a constant periodic rate of interest on the remaining balance

of the liability.

Contingent lease payments are accounted for by revising the minimum lease payments over the

remaining term of the lease when the contingency no longer exists and the lease adjustment is

known.

At inception of an arrangement, the Group determines whether such an arrangement is or contains a

lease. A specific asset is the subject of a lease if fulfilment of the arrangement is dependent on the

use of that specific asset. An arrangement conveys the right to use the asset if the arrangement

coveys to the Group the right to control the use of the underlying asset.

(ii) Social expenditure

To the extent that the Group’s contributions to social programs benefit the community at large and

are not restricted to the Group’s employees, they are recognised in profit or loss as incurred.

(n) Finance income and costs

Finance income comprises interest income on funds invested and foreign currency gains.

Interest income is recognised as it accrues in profit or loss, using the effective interest method.

Finance costs comprise interest expense on borrowings, foreign currency losses, interest expense

on financial lease and impairment losses recognised on financial assets. Borrowing costs that are

not directly attributable to the acquisition, construction or production of a qualifying asset are

recognised in profit or loss using the effective interest method.

Foreign currency gains and losses are reported on a net basis.

(o) Income tax

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognised

in profit or loss except to the extent that it relates to a business combination, or items recognised

directly in equity or in other comprehensive income.

Current tax is the expected tax payable or receivable on the taxable income or loss for the year,

using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax

payable in respect of previous years.

Deferred tax is recognised in respect of temporary differences between the carrying amounts of

assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

Deferred tax is not recognised for the following temporary differences: the initial recognition of

assets or liabilities in a transaction that is not a business combination and that affects neither

accounting nor taxable profit or loss, and differences relating to investments in subsidiaries and

jointly controlled entities to the extent that it is probable that they will not reverse in the

foreseeable future. In addition, deferred tax is not recognised for taxable temporary differences

arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are

expected to be applied to the temporary differences when they reverse, based on the laws that have

been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are

offset if there is a legally enforceable right to offset current tax assets and liabilities, and they relate

to income taxes levied by the same tax authority on the same taxable entity, or on different tax

F-139

OOO Transstroymekhanisatsiya

Notes to the Preliminary IFRS Consolidated Financial Statements for the year ended 31 December 2009

18

entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets

and liabilities will be realised simultaneously.

A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary

differences, to the extent that it is probable that future taxable profits will be available against

which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced

to the extent that it is no longer probable that the related tax benefit will be realised.

(p) Discontinued operations

A discontinued operation is a component of the Group’s business that represents a separate major

line of business or geographical area of operations that has been disposed of or is held for sale, or is

a subsidiary acquired exclusively with a view to resale. Classification as a discontinued operation

occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if

earlier. When an operation is classified as a discontinued operation, the comparative statement of

comprehensive income is re-presented as if the operation had been discontinued from the start of

the comparative period.

(q) New Standards and Interpretations not yet adopted

A number of new Standards, amendments to Standards and Interpretations are not yet effective as

at 31 December 2010, and have not been applied in preparing these preliminary IFRS consolidated

financial statements. The following new Standards, amendments to Standards and Interpretations

may potentially impact the the Group’s financial position or performance. The Group plans to

adopt these pronouncements when they become effective.

Revised IAS 24 Related Party Disclosures (2009) introduces an exemption from the basic

disclosure requirements in relation to related party disclosures and outstanding balances,

including commitments, for government-related entities. Additionally, the standard has been

revised to simplify some of the presentation guidance that was previously non-reciprocal. The

revised standard is to be applied retrospectively for annual periods beginning on or after 1

January 2011. The Group has not yet determined the potential effect of the amendment.

IFRS 9 Financial Instruments will be effective for annual periods beginning on or after 1

January 2013. The new standard is to be issued in several phases and is intended to replace

International Financial Reporting Standard IAS 39 Financial Instruments: Recognition and

Measurement once the project is completed by the end of 2010. The first phase of IFRS 9 was

issued in November 2009 and relates to the recognition and measurement of financial assets.

The Group recognises that the new standard introduces many changes to the accounting for

financial instruments and is likely to have a significant impact on Group’s consolidated

financial statements. The impact of these changes will be analysed during the course of the

project as further phases of the standard are issued.

Various Improvements to IFRSs have been dealt with on a standard-by-standard basis. All

amendments, which result in accounting changes for presentation, recognition or measurement

purposes, will come into effect not earlier than 1 January 2011. The Group has not yet analysed

the likely impact of the improvements on its financial position or performance.

F-140

OOO Transstroymekhanisatsiya

Notes to the Preliminary IFRS Consolidated Financial Statements for the year ended 31 December 2009

19

4 Determination of fair values

A number of the Group’s accounting policies and disclosures require the determination of fair

value, for both financial and non-financial assets and liabilities. Fair values have been determined

for measurement and for disclosure purposes based on the following methods. When applicable,

further information about the assumptions made in determining fair values is disclosed in the notes

specific to that asset or liability.

(a) Trade and other receivables

The fair value of trade and other receivables is estimated as the present value of future cash flows,

discounted at the market rate of interest at the reporting date. This fair value is determined for

disclosure purposes.

(b) Non-derivative financial liabilities

Fair value, which is determined for disclosure purposes, is calculated based on the present value of

future principal and interest cash flows, discounted at the market rate of interest at the reporting

date. For finance leases the market rate of interest is determined by reference to similar lease

agreements.

5 Discontinued operation

In November 2009, OOO DorStroyProekt, the 100% owned subsidiary, was announced bankrupt

by the decision of the arbitration court and bankruptcy procedures have commenced. The

bankruptcy was caused by the inefficiencies involved in the operations of the entity, as a result of

which management decided, in May 2009, to discontinue the operations of the subsidiary. The

operational management of the subsidiary was transferred to an independent administrator. The

Company believes that since than it had no power to govern the financial and operating policies of

the entity so as to obtain benefits from its activities. The assets and liabilities of the subsidiaries

were excluded from the consolidated financial statements as of 17 November 2009, the date when

the Company lost control over the entity. The discontinuance of the subsidiary had the following

effect on the Group’s operations:

The management believes that the operations of DorStroyProekt represented a separate

geographical area of operations and was part of a single co-ordinated disposal plan, therefore the

result of disposal was classified as profit from discontinued operations.

The profit from discontinued operation of RUR 274 mln is attributable to the owners of the Group.

Mln RUR 2009

Results of discontinued operation

Revenue 205

Effect of derecognition of liabilities related to discontinued operations 1,016

Property, plant and equipment derecognised (60)

Expenses (887)

Profit for the period 274

F-141

OOO Transstroymekhanisatsiya

Notes to the Preliminary IFRS Consolidated Financial Statements for the year ended 31 December 2009

20

6 Revenue

Revenue allocation according to the Federal Districts is as follows:

7 Cost of sales

Mln RUR 2009

Materials 3 834

Subcontractors services 3 219

External subcontractors services 1 911

Services of principal contractors 584

Personnel expenses 853

Cost of sold goods 741

Depreciation 341

Other 72

11 555

Mln RUR 2009

Cash flows from/(used in) discontinued operation

Net cash used in operating activities (90)

Net cash from investing activities 117

Net cash used in financing activities (71)

Net cash used in discontinued operation (44)

Mln RUR 2009

Revenue by construction contract:

bridges and highways 4,820

other infrastructural facilities 2,903

airfields and airports 2,940

railway infrustructure facilities 1,325

Total revenue from construction contracts 11,988

Revenue from resale of materials 802

Total revenue 12,790

Mln RUR 2009

Siberian Federal District 4,225

Central Federal District 3,807

Far Eastern Federal District 1,917

Southern Federal District 1,076

Northwestern Federal District 723

Volga Federal District 240

Total revenue from construction contract 11,988

F-142

OOO Transstroymekhanisatsiya

Notes to the Preliminary IFRS Consolidated Financial Statements for the year ended 31 December 2009

21

8 Administrative expenses

9 Personnel costs

10 Finance income and finance costs

11 Income tax expense

The Group’s applicable tax rate is the income tax rate of 20% for Russian companies.

Mln RUR 2009

Materials 157

Personnel expenses 138

Depreciation 67

Other administrative expenses 151

513

Mln RUR 2009

Wages and salaries 824

Charge on salary and wages 167

991

Mln RUR 2009

Recognised in profit or loss

Foreign exchange gain 3

Interest income on loans given 1

Interest income on bank deposits 1

Finance income 5

Interest expense on borrowings (169)

Interest expense on finance leases (72)

Finance expense (241)

Net finance expense in profit or loss (236)

Mln RUR 2009

Current tax expense

Current year 128

Underaccrued in prior years 1

129

Deferred tax expense

Origination and reversal of temporary differences 29

Total income tax expense 158

F-143

OOO Transstroymekhanisatsiya

Notes to the Preliminary IFRS Consolidated Financial Statements for the year ended 31 December 2009

22

(a) Reconciliation of effective tax rate:

Mln RUR %

Loss before income tax (14) (100)

Income tax benefit at applicable tax rate 3 20

Tax effect on dividends declared (134) (957)

Non-deductible expenses (27) (191)(158) (1,128)

2009

12 Property, plant and equipment

Depreciation expense amounting to RUR 341 mln, RUR 67 mln and RUR 24 mln has been charged

to cost of sales, administrative expenses and loss from discontinued operations, respectively.

(a) Security

At 31 December 2009 property, plant and equipment with a carrying amount of RUR 43 mln

(1 January 2009: RUR 179 mln) were pledged to secure bank loans.

Mln RUR

Buildings and

constructions

Machinery

and

equipment Vehicles Other

Construction

in progress Total

Costs

Balance at 1 January 2009 69 1,632 643 90 1 2,435

Additions 11 328 112 11 196 658

Disposals related to

discontinued operations (24) (41) (143) (26) (2) (236)

Disposals (3) (29) (58) (4) - (94)

Transfers 161 3 - 26 (190) -

Balance at 31 December

2009 214 1,893 554 97 5 2,763

Depreciation

Balance at 1 January 2009 20 450 249 56 - 775

Depreciation for the year 14 287 121 10 - 432

Disposals related to

discontinued operations (21) (24) (105) (26) - (176)

Disposals - (6) (15) (19) - (40)

Balance at 31 December

2009 13 707 250 21 - 991

Carrying amounts

At 1 January 2009 49 1,182 394 34 1 1,660

At 31 December 2009 201 1,186 304 76 5 1,772

F-144

OOO Transstroymekhanisatsiya

Notes to the Preliminary IFRS Consolidated Financial Statements for the year ended 31 December 2009

23

(b) Leased plant and machinery

The Group leases machinery and equipment and vehicles under a number of finance lease

agreements. At the end of each of the leases the Group has the option to purchase the equipment at

a beneficial price. At 31 December 2009 the net book value of leased machinery and equipment

and vehicles was RUR 997 mln. The leased equipment secures lease obligations.

13 Deferred tax assets and liabilities

(a) Recognised deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:

(b) Movement in temporary differences during the year

Mln RUR

2009

1 January

2009 2009

1 January

2009 2009

1 January

2009

Property, plant and equipment - - (172) (146) (172) (146)

Inventories 107 275 - - 107 275

Amounts due from and due to

customers under construction

contracts 460 305 - - 460 305

Loans and borrowings - - (117) (126) (117) (126)

Provisions 1 - - - 1 -Other - - - - -

Net tax assets/(liabilities) 568 580 (289) (272) 279 308

Assets Liabilities Net

Property, plant and equipment (146) (26) (172)

Inventories 275 (168) 107

Amounts due from and due to customers

under construction contracts 305 155 460

Loans and borrowings (126) 9 (117)

Provisions - 1 1

308 (29) 279

31 December

2009

Recognised in

incomeMln RUR1 January 2009

F-145

OOO Transstroymekhanisatsiya

Notes to the Preliminary IFRS Consolidated Financial Statements for the year ended 31 December 2009

24

14 Inventories

As at 31 December 2009 no inventories were pledged as security for loans and borrowings

(1 January 2009: RUR 232 mln).

15 Construction contracts in progress

Mln RUR 2009 1 January 2009

Progress billings 28,727 15,977

Billed in excess of contract revenue recognised (2,453) (1,691)

Contract revenue accumulated to the period end 26,274 14,285

Contract costs accumulated to the period end (25,103) (14,285)

Expected losses recognised accumulated to the period end (1,584) (1,494)

Recognised profits less recognised losses (413) (1,494)

Contract revenue accumulated to the period end 26,274 14,285

Payments (27,037) (13,658)

Net receivables from / (payables to) customers (763) 627

Amounts due from customers for construction contracts 1,025 1,046

Amounts due to customers for construction contracts (1,788) (419)

(763) 627

16 Trade and other receivables

The Group’s exposure to credit and currency risks and impairment losses related to trade and other

receivables are disclosed in note 21 (b)(i).

2009 1 January 2009

Materials 302 368

Spare parts 64 18

Intermediate products and components 41 13

Other materials 33 43

Fuel 15 14

455 456

Mln RUR

2009 1 January 2009

Trade receivables 712 1,059

Other receivables 20 66

Other taxes receivable 136 41

868 1,166

F-146

OOO Transstroymekhanisatsiya

Notes to the Preliminary IFRS Consolidated Financial Statements for the year ended 31 December 2009

25

17 Cash and cash equivalents

The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and

liabilities are disclosed in note 21.

18 Loans and borrowings

This note provides information about the contractual terms of the Group’s interest-bearing loans

and borrowings, which are measured at amortised cost. For more information about the Group’s

exposure to interest rate, foreign currency and liquidity risk, see note 21.

The bank loans are attracted in RUR, EURO and USD and at fixed interest rates. The weighted-

average effective interest rates at the reporting date were as follows:

Currency 2009 1 January 2009

Secured bank loans RUR 19% 16%

Unsecured bank loans RUR 12% 18%

Unsecured bank loans USD - 13%

Unsecured loans RUR 20% 20%

Finance lease liabilities RUR 9% 12%

Finance lease liabilities USD - 5%

Finance lease liabilities Euro 11% 11%

As at 1 January 2009 bank borrowings in the total amount of RUR 560 mln were secured by

property, plant and equipment and inventories with carrying amounts of RUR 179 mln and

RUR 232 mln, respectively, and by revenue on construction contracts in the amount of

RUR 595 mln.

Finance lease liabilities are secured by the leased assets, see note 12.

2009 1 January 2009

Cash at banks 23 799

Bank deposits with maturities less than 3 months 190 -

213 799

Mln RUR

Mln RUR 2009 1 January 2009

Short-term liabilities

Unsecured bank loans - 891

Unsecured loan 218 440

Interest due 78 48

Secured bank loans 5 560

Current portion of finance lease liabilities 174 299

475 2,238

Long-term liabilities

Finance lease liabilities 109 154

109 154

Total loans and borrowings 584 2,392

F-147

OOO Transstroymekhanisatsiya

Notes to the Preliminary IFRS Consolidated Financial Statements for the year ended 31 December 2009

26

(a) Finance lease liabilities are payable as follows:

The carrying amount and face value of loans and borrowings were as follows:

19 Trade and other payables

The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed

in note 21.

Mln RUR

Future

minimum

lease

payments Interest

Present

value of

minimum

lease

payments

Future

minimum

lease

payments Interest

Present

value of

minimum

lease

payments

Less than 1 year 225 51 174 326 27 299

Between 1 and 5 years 114 5 109 173 19 154

339 56 283 499 46 453

2009 1 January 2009

2009

Mln RUR Currency

Nominal

interest rate

Year of

maturity

Carrying

amount

Secured bank loans RUR 19% 2010 5

Unsecured loans RUR 20% 2010 296

Finance lease liabilities RUR 1%-17% 2010-2012 272

Finance lease liabilities EUR 0 2010-2011 11

Total 584

1 January 2009

Mln RUR Currency

Nominal

interest rate

Year of

maturity

Carrying

amount

Secured bank loans RUR 12%-20% 2010 560

Unsecured bank loans RUR 12%-20% 2009 575

Unsecured bank loans USD 13% 2009 316

Unsecured loans RUR 20% 2009 488

Finance lease liabilities RUR 7%-16% 2009-2011 386

Finance lease liabilities USD 5% 2009 9

Finance lease liabilities EUR 8-15% 2009-2011 58

Total 2,392

Mln RUR 2009 1 January 2009

Trade payables 2,587 3,645

Other taxes payable 349 249

Other payables and accrued expenses 662 302

3,598 4,196

F-148

OOO Transstroymekhanisatsiya

Notes to the Preliminary IFRS Consolidated Financial Statements for the year ended 31 December 2009

27

20 Net assets attributable to participants

(a) Charter capital

The Company’s charter capital is RUR 10 thousand paid in full. Participants have a right on

dividends payments declared from time to time and have a right to vote on General Meetings in

accordance with the rule one share – one voice.

(b) Dividends

In accordance with Russian legislation the Company’s distributable reserves are limited to the

balance of retained earnings as recorded in the Company’s statutory financial statements prepared

in accordance with Russian Accounting Principles. As at 31 December 2009 the Company had

retained earnings, including the profit for the current year, of RUR 256 mln.

During 2009 the Company approved dividends in the amount of RUR 670 mln., RUR 200 mln of

which were paid in 2009, and RUR 470 mln.were paid in 2010. Also, subsequent to 31 December

2009, the Company approved and paid additional RUR 200 mln.

21 Financial instruments and risk management

(a) Overview

The Group has exposure to the following risks from its use of financial instruments:

credit risk

liquidity risk

market risk

This note presents information about the Group’s exposure to each of the above risks, the Group’s

objectives, policies and processes for measuring and managing risk, and the Group’s management

of capital. Further quantitative disclosures are included throughout these consolidated financial

statements.

Risk management framework

The General directors has overall responsibility for the establishment and oversight of the Group’s

risk management framework. Group’s management are responsible for the establishment and

oversight of the Group’s risk management framework. Group’s management regulary report to sole

executive officer on its performance.

The Group’s risk management policies are established to identify and analyse the risks faced by the

Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk

management policies and systems are reviewed regularly to reflect changes in market conditions

and the Group’s activities. The Group, through its training and management standards and

procedures, aims to develop a disciplined and constructive control environment in which all

employees understand their roles and obligations.

F-149

OOO Transstroymekhanisatsiya

Notes to the Preliminary IFRS Consolidated Financial Statements for the year ended 31 December 2009

28

(b) Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial

instrument fails to meet its contractual obligations, and arises principally from the Group’s

receivables from customers and investment securities.

(i) Trade and other receivables

The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each

customer. Approximately 93% of the Group’s revenue is attributable to sales transactions with a

single customer OOO ENGTRANSSTROY Corporation, a related party.

The Group’s management has established a credit policy under which each new customer is

analysed individually for creditworthiness before the Group’s standard payment and delivery terms

and conditions are offered. The Group’s review includes external ratings, when available, and in

some cases bank references. Customers that fail to meet the Group’s benchmark creditworthiness

may transact with the Group only on a prepayment basis.

In monitoring customer credit risk, customers are grouped according to their credit characteristics,

including whether they are an individual or legal entity, whether they are a wholesale, retail or end-

user customer, geographic location, industry, aging profile, maturity and existence of previous

financial difficulties. Customers that are graded as “high risk” are placed on a restricted customer

list and monitored by the management, and future sales are made on a prepayment basis with

approval of the management.

The Group does not require collateral in respect of trade and other receivables.

(ii) Exposure to credit risk

The carrying amount of financial assets represents the maximum credit exposure. The maximum

exposure to credit risk at the reporting date was:

Mln RUR 2009 1 January 2009

Loans and receivables 757 1,158

Amounts due from customers for construction contracts 1,025 1,046

Cash and cash equivalents 213 7991,995 3,003

Carrying amount

Impairment losses

The aging of trade and other receivables at the reporting date was:

F-150

OOO Transstroymekhanisatsiya

Notes to the Preliminary IFRS Consolidated Financial Statements for the year ended 31 December 2009

29

Gross Impairment Gross Impairment

2009 2009 1 January 2009 1 January 2009

Trade and other receivables

Not past due 732 - 1,125 -

Amounts due from customers for construction contracts

Not past due 1,025 1,0461,757 - 2,171 -

Mln RUR

Based on historic default rates, the Group believes that, apart from the above, no impairment

allowance is necessary in respect of trade receivables not past due or past due by up to 180 days;

the main portion of the trade receivables balance relates to customers that have a good track record

with the Group.

The allowance accounts in respect of trade receivables and are used to record impairment losses

unless the Group is satisfied that no recovery of the amount owing is possible; at that point the

amounts are considered irrecoverable and are written off against the financial asset directly. At 31

December 2009 the Group does not have any collective impairment on its trade receivables.

(c) Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations

associated with its financial liabilities that are settled by delivering cash or another financial asset.

The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have

sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions,

without incurring unacceptable losses or risking damage to the Group’s reputation.

The following are the contractual maturities of financial liabilities, including estimated interest

payments and excluding the impact of netting agreements.

2009

Mln RUR

Carrying

amount 0-6 mth 6-12 mth 1-2 yrs 2-3 yrs

Non-derivative financial

liabilities

Secured bank loans 5 5 - - -

Finance lease liabilities 283 94 80 99 10

Unsecured loans 296 296 - - -

Trade and other payables 3,249 2,951 298 - -3,833 3,346 378 99 10

(d) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates

and equity prices will affect the Group’s income or the value of its holdings of financial

instruments. The objective of market risk management is to manage and control market risk

exposures within acceptable parameters, while optimising the return.

F-151

OOO Transstroymekhanisatsiya

Notes to the Preliminary IFRS Consolidated Financial Statements for the year ended 31 December 2009

30

(i) Currency risk

The Group is not exposed to significant foreign currency risks.

(ii) Interest rate risk

Changes in interest rates impact primarily loans and borrowings by changing either their fair value

(fixed rate debt) or their future cash flows (variable rate debt). At the time of raising new loans or

borrowings management uses its judgment to decide whether it believes that a fixed or variable rate

would be more favourable to the Group over the expected period until maturity.

Profile

At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments

was:

Fair value sensitivity analysis for fixed rate instruments

The Group does not account for any fixed rate financial assets and liabilities at fair value through

profit or loss. Therefore a change in interest rates at the reporting date would not affect profit or

loss.

(e) Fair values versus carrying amounts

The fair values of financial assets and liabilities approximate their carrying amounts. The basis for

determining fair values is disclosed in note 4.

(f) Capital management

The Group has no formal policy for capital management but management seeks to maintain a

sufficient capital base for meeting the Group’s operational and strategic needs and to maintain

confidence of market participants. This is achieved with efficient cash management, constant

monitoring of Group’s revenues and profit, and long-term investment plans mainly financed by the

Group’s operating cash flows. With these measures the Group aims for steady profits growth.

Mln RUR 2009 1 January 2009

Fixed rate instruments

Financial assets 25 33

Financial liabilities (584) (2,392)

(559) (2,359)

Carrying amount

F-152

OOO Transstroymekhanisatsiya

Notes to the Preliminary IFRS Consolidated Financial Statements for the year ended 31 December 2009

31

22 Operating leases

Non-cancellable operating lease rentals are payable as follows:

The Group leases a number of vehicles, mashinery andaquipment and office premisses under

operating leases. The leases typically run for an initial period to one year, with an option to renew

the lease after that date. Lease payments are usually increased annually to reflect market rentals.

23 Capital commitments

As at 31 December 2009 the Group did not have significant contractual obligations to purchase

property, plant and equipment.

24 Contingencies

(a) Insurance

The insurance industry in the Russian Federation is in a developing state and many forms of

insurance protection common in other parts of the world are not yet generally available. The Group

does not have full coverage for its plant facilities, business interruption, or third party liability in

respect of property or environmental damage arising from accidents on Group property or relating

to Group operations. Until the Group obtains adequate insurance coverage, there is a risk that the

loss or destruction of certain assets could have a material adverse effect on the Group’s operations

and financial position.

(b) Warranties

The Group has certain warranty obligations under construction contracts terms of which range from

one to fifteen years, depending on type of construction work. The Group performed analysis of

historical data on actual compensations paid and defects rectified under these warranties for the

past four years. Based on this analysis, the Group concluded that the probability of the

constructions works carried out during the reporting period will not satisfy the quality conditions

specified in the contract and require repair, is low. Therefore the Group did not recognize a

warranty provision on construction contracts as at the reporting date.

(c) Litigation

As at 31 December 2009 and 2008 the Group was not engaged in litigations, the outcome of which

might have a material effect on the preliminary IFRS consolidated financial statements.

2009

Less then 1 year 35

35

Mln RUR

F-153

OOO Transstroymekhanisatsiya

Notes to the Preliminary IFRS Consolidated Financial Statements for the year ended 31 December 2009

32

(d) Taxation contingencies

The taxation system in the Russian Federation is relatively new and is characterised by frequent

changes in legislation, official pronouncements and court decisions, which are often unclear,

contradictory and subject to varying interpretation by different tax authorities. Taxes are subject to

review and investigation by a number of authorities, which have the authority to impose severe

fines, penalties and interest charges. A tax year remains open for review by the tax authorities

during the three subsequent calendar years; however, under certain circumstances a tax year may

remain open longer. Recent events within the Russian Federation suggest that the tax authorities

are taking a more assertive position in their interpretation and enforcement of tax legislation.

These circumstances may create tax risks in the Russian Federation that are substantially more

significant than in other countries. Management believes that it has provided adequately for tax

liabilities based on its interpretations of applicable Russian tax legislation, official pronouncements

and court decisions. However, the interpretations of the relevant authorities could differ and the

effect on these preliminary IFRS consolidated financial statements, if the authorities were

successful in enforcing their interpretations, could be significant.

The Group regularly enters into transactions with various suppliers. These entities are fully

responsible for their own tax and accounting compliance. However, due to existing tax authorities’

practice, if these entities’ tax compliance is challenged by the tax authorities as not being in full

conformity with the applicable tax legislation, this may result in additional tax risks for the Group.

Should these suppliers be successfully challenged, the Group may become liable to additional tax

payments, although management of these entities is primarily responsible for the correctness and

timeliness of the entities’ tax payments. Management of the Group believes that it is not practicable

to estimate the financial effect of potential tax liabilities, which ultimately could be imposed on the

Group due to transactions with suppliers. However, if such liabilities were imposed, the amounts

involved, including penalties and interest, could be material.

The Group also enters, in the normal course of business, into transactions with its related parties.

The Russian tax authorities may challenge such transactions on the basis that relationship between

the Group and its related parties may be based not on market prices. Due to the existing tax

authorities’ practice, this may result in additional tax risks for the Group. Should the tax authorities

prove that the prices in transactions of the Group with its related parties deviated by from the

relevant market prices by more than 20%, the Group may become liable to additional tax payments.

Management of the Group believes that it is not practicable to estimate the financial effect of

potential tax liabilities, which ultimately could be imposed on the Group due to transactions with

suppliers. However, if such liabilities were imposed, the amounts involved, including penalties and

interest, could be material.

If the cases described above were successfully challenged by the Russian tax authorities, the

additional payments could become due together with penalties, ranging from 20% - 40% of the

amount of underpaid taxes, and late-payment interest. Management has not provided any amounts

in respect of such obligations in these consolidated financial statements as it believes that it is

possible, but not probable, that an outflow of economic benefits will be required to settle such

obligations.

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OOO Transstroymekhanisatsiya

Notes to the Preliminary IFRS Consolidated Financial Statements for the year ended 31 December 2009

33

25 Related party transactions

(a) Control relationships

The Company’s immediate parent company is Albanyblue Investments Limited.

Neither the Company’s ultimate parent company nor the next highest parent company prepare

financial statements that are available for public use.

(b) Transactions with management and close family members

Key management received the following remuneration during the year, which is included in

personnel costs:

(c) Transactions with other related parties

The Group’s other related party transactions are disclosed below.

(i) Revenue

All outstanding balances with related parties are to be settled in cash within six months of the

reporting date. None of the balances are secured.

(ii) Expenses

All outstanding balances with related parties are to be settled in cash within six months of the

reporting date. None of the balances are secured.

Mln RUR 2009

Wages and bonuses 70

Contributions to state pension fund 2

72

Mln RUR Turnover

Outstanding

balance

Outstanding

balance

2009 2009 1 January 2009

Sale of goods 841 670 542

Rendering construction services 12,756 1,889 1,446

13,597 2,559 1,988

Mln RUR Turnover

Outstanding

balance

Outstanding

balance

2009 2009

1 January

2009

Purchase of goods 532 49 35

Received construction services 2,763 1,790 1,282

3,295 1,839 1,317

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OOO Transstroymekhanisatsiya

Notes to the Preliminary IFRS Consolidated Financial Statements for the year ended 31 December 2009

34

(iii) Loans

26 Events subsequent to the reporting date

Change of ownership

In May 2010 OJSC Mostotrest acquired 50,1% interest in the Company from Albanyblue

Investments Limited.

Significant construction contracts concluded

The following significant construction contracts were concluded in 2010:

- The contract to construct highway Vladivostok-Vostochny for RUR 1,081 mln.

- The contract to renovate the airfield in Sochi airport (Adler, Krasnodarskiy region, 2nd

stage of construction) for RUR 3,260 mln.

- The contract to renovate the highway Sanatornaya – Bridge over Golden Rog bay (1st

stage) for RUR 2,275 mln.

Significant borrowings

During the first half of 2010 the Group concluded a number of loan agreements with banks for a

total amount of RUR 2,022 mln.

Dividends

Dividends for 2009 in the amount of RUR 200 mln were declared and paid in April 2010.

Mln RUR

Amount of

transaction Balance Balance

2009 31 December 2009 1 January 2009

Loans received (142) 2 144

(142) 2 144

F-156

11OCT201005540968ZAO KPMG Telephone +7 (495) 937 4477Naberezhnaya Tower Complex, Block C Fax +7 (495) 937 4400/9910 Presnenskaya Naberezhnaya Internet www.kpmg.ruMoscow, Russia 123317

Independent Auditors’ Report

To the General director of

OOO Transstroymekhanisatsia

We have audited the accompanying preliminary IFRS consolidated financial statements of OOOTransstroymekhanisatsia (the ‘‘Company’’) and its subsidiary (the ‘‘Group’’), which comprise thepreliminary IFRS consolidated statements of financial position as at 31 December 2009 and as at 1 January2009 and the preliminary IFRS consolidated statement of comprehensive income, preliminary IFRSconsolidated statement of changes in net assets attributable to participants and preliminary IFRSconsolidated statement of cash flows for the year ended 31 December 2009, and a summary of significantaccounting policies and other explanatory notes.

Management’s Responsibility for the Preliminary IFRS Financial Statements

Management is responsible for the preparation of these preliminary IFRS consolidated financialstatements in accordance with the basis of preparation described in Note 2. This responsibility includes:designing, implementing and maintaining internal control relevant to the preparation of preliminary IFRSconsolidated financial statements that are free from material misstatements, whether due to fraud or error;selecting and applying appropriate accounting policies; and making accounting estimates that arereasonable in the circumstances.

Auditors’ Responsibility

Our responsibility is to express an opinion on these preliminary IFRS consolidated financial statementsbased on our audit. Except as described in the Basis for Qualified Opinion, we conducted our audit inaccordance with International Standards on Auditing. Those standards require that we comply withrelevant ethical requirements and plan and perform the audit to obtain reasonable assurance whether thepreliminary IFRS consolidated financial statements are prepared in accordance with the basis ofpreparation described in Note 2.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures inthe preliminary IFRS consolidated financial statements. The procedures selected depend on the auditor’sjudgment, including the assessment of the risks of material misstatement of the preliminary IFRSconsolidated financial statements, whether due to fraud or error. In making those risk assessments, theauditor considers internal control relevant to the entity’s preparation and presentation of the preliminaryIFRS consolidated financial statements in order to design audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internalcontrol. An audit also includes evaluating the appropriateness of accounting principles used and thereasonableness of accounting estimates made by management, as well as evaluating the overallpresentation of the preliminary IFRS consolidated financial statements.

ZAO KPMG, a company incorporated under the Laws of the RussianFederation and a member firm of the KPMG network of independentmember firms affiliated with KPMG International, a Swiss cooperative.

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11OCT201005540968

11OCT201006021314

OOO TransstroymekhanisatsiaIndependent Auditors’ Report

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for ouropinion.

Basis for Qualified Opinion

We did not observe the counting of inventories stated at RUR 456 million as at 1 January 2009 because wewere engaged as auditors of the Group only after that date. It was impracticable to satisfy ourselves as tothose inventory quantities by other audit procedures.

Accordingly, we were unable to determine whether any adjustments might be necessary to cost of sales,taxation expense and net profit for the year ended 31 December 2009.

Qualified Opinion

In our opinion, except for the effects of such adjustments, if any, that might have been determined to benecessary had it been practicable to obtain sufficient appropriate audit evidence as described in the Basisfor Qualified Opinion paragraph, the preliminary IFRS consolidated financial statements as at and for theyear ended 31 December 2009 and as at 1 January 2009 are prepared, in all material respects, inaccordance with the basis of preparation described in Note 2.

Emphasis of Matter

Without further qualifying our opinion, we draw attention to Note 2, which explains why the preliminaryIFRS consolidated financial statements may require adjustment before constituting the correspondingfigures in the final IFRS consolidated financial statements as at and for the year ended 31 December 2010when the Group prepares its first complete set of IFRS consolidated financial statements. In addition, asdescribed in Note 2 to the preliminary IFRS consolidated financial statements, as part of its adoption ofIFRSs the Group has prepared these preliminary IFRS consolidated financial statements to establish theconsolidated financial position, consolidated financial performance and consolidated cash flows of theGroup necessary to provide the corresponding figures expected to be included in the Group’s firstcomplete set of IFRS consolidated financial statements as at and for the year ending 31 December 2010.These preliminary IFRS consolidated financial statements do not themselves include corresponding figuresfor the prior period.

The preliminary IFRS consolidated financial statements have been prepared as part of the Group’sadoption of International Financial Reporting Standards (‘‘IFRSs’’). Note 2 describes how IFRSs havebeen applied under IFRS 1 First-time Adoption of IFRSs, including the assumptions management hasmade about the standards and interpretations expected to be effective, and the policies expected to beadopted, when management prepares its first complete set of IFRS consolidated financial statements as atand for the year ending 31 December 2010.

ZAO KPMG6 September 2010

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OOO Transstroymekhanisatsiya

Condensed Interim Financial Statements

for the six months ended 30 June 2010

F-159

OOO Transstroymekhanisatsiya

2

Contents

Condensed Interim Financial Statements Condensed Interim Statement of Financial Position 3 Condensed Interim Statement of Comprehensive Income 4 Condensed Interim Statement of Changes in Net Assets attributable to participants 5 Condensed Interim Statement of Cash Flows 6 Selected Explanatory Notes to the Condensed Interim Financial Statements 7 Independent Auditors’Report 14

F-160

F-161

OOO Transstroymekhanisatsiya

CONDENSED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2010

The condensed interim statement of comprehensive income is to be read in conjunction with the notes to, and forming part of, the condensed interim financial statements set out on pages 7 to 13.

4

Condensed Interim Statement of Comprehensive Income Mln RUBFor six months ended 30 June Note 2010 2009

Continuing operationsRevenue 6 6,187 4,960Cost of sales 7 (5,123) (3,993)Gross profit 1,064 967Other income 9 139 68Administrative expenses 8 (246) (218)Other expenses 10 (34) (41)Results from operating activities 923 776Finance income 11 3 9Finance costs 11 (69) (156)Dividends (200) -Profit before income tax 657 629Income tax expense (209) (158)

Profit for the period from continuing operation 448 471

Discontinued operationsLoss for the period from discontinued operations 16 - (658)Profit/ (loss) and total comprehensive income for the period 448 (187)

F-162

OOO Transstroymekhanisatsiya

CONDENSED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2010

The condensed interim statement of changes in net assets attributable to participants is to be read in conjunction with the notes to, and forming part of, the condensed interim financial statements set out on pages 7 to 13.

5

Condensed Interim Statement of Changes in Net assets attributable to participants

Mln RUB Share Capital

Profit and loss attributable to

participants

Total net assets attributable to

participantsBalance at 1 January 2009 - (1,282) (1,282)Loss and total comprehensive income for the period - (187) (187)Balance at 30 June 2009 - (1,469) (1,469)

Mln RUB Share Capital

Profit and loss attributable to

participants

Total net assets attributable to

participantsBalance at 1 January 2010 - (1,180) (1,180)Profit and total comprehensive income for the period - 448 448Balance at 30 June 2010 - (732) (732)

F-163

OOO Transstroymekhanisatsiya

CONDENSED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2010

The condensed interim statement of cash flows is to be read in conjunction with the notes to, and forming part of, the condensed interim financial statements set out on pages 7 to 13.

6

Condensed Interim Statement of Cash Flows

Mln RUB 2010 2009For six months ended 30 JuneCASH FLOW FROM OPERATING ACTIVITIESProfit/(loss) for the period 448 (187)Adjustments for:Depreciation 268 200Net finance costs 67 169Dividends 200 -Gain on disposal of property plant and equipment (34) (19)Income tax expense 209 164Cash flows from operating activities before changes in working capital and provisions 1,158 327

Increase in inventory (576) (216)Increase/(decrease) in trade and other receivables (421) 200Increase /(decrease) in amounts due from customers for constraction contracts (254) 567Increase/(decrease) in trade and other payables 892 (130)

Decrease in amounts due to customers for construction contracts (552) (463)Increase in provisions 2 -Increase in prepayments (641) (77)Cash flows (used in)/from operations before income taxes (392) 208Income tax paid (93) (81)Net cash (used in)/ from operating activities (485) 127

CASH FLOW FROM INVESTING ACTIVITIESAcquisition of property, plant and equipment (205) (83)Loans given (33) (14)Proceeds from sales of property plant and equipment 57 124Net cash flows used in investing activities (181) 27

CASH FLOW FROM FINANCING ACTIVITIESProceeds from borrowings 2,159 1,422Repayment of borrowings (740) (1,809)Finance lease payments (189) (244)Interest paid (12) (174)Dividends paid (670) -Net cash flows from/ (used in) financing activities 548 (805)Net decrease in cash and cash equivalents (118) (651)Cash and cash equivalents at 1 January 213 799Cash and cash equivalents at 30 June 95 148

F-164

s 7

Selected Explanatory Notes to the Condensed Interim Consolidated Financial Statements

1 Organization and operations OOO Transstroymekhanisatsiya (the “Company”) is a Russian limited liabilities company established in accordance with the Civil Code of the Russian Federation. The Company was established on 08 July 2005. The Company’s registered office is 1, building 2, Chermyanskiy proezd, Moscow, 127282, Russia.

Up to 13 May 2010 the Company’s shares were owned by Albanyblue Investments Limited (Cyprus), the immediate parent company for the Company, and the ultimate controlling party to the Company was Mr. Basin E.V.

On 13 May 2010 the control over the Company was acquired by OAO Mostotrest. This transaction changed the immediate parent company to OAO Mostotrest. In addition, Mr.Basin E.V. ceased being the ultimate controlling party to the Company. OAO Mostotrest prepares publicly available IFRS financial statements.

The preliminary IFRS financial statements of Company as at and for the year ended 31 December 2009 is available upon request from the Company registered offices at the address mentioned.

As of 30 June 2010 the Company’s current liabilities exceeded the Company’s current assets by RUB 2,734 million. The Company’s management believes that as of the date of these financial statements being approved there were no significant uncertainties with respect to the Company’s ability to continue as a going concern since the Company in excess of contract revenue recognised to 30 June 2010 has legal right to claim its customers with the billed volume of work for an amount of approximately RUR 1,614 million. The Company expects that this consideration will be collected within twelve months from the reporting date. In addition, new significant construction contracts have been concluded for an amount of 5,600 mln RUB subsequent to period end – refer note 17.

2 Statement of compliance These condensed interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting. They do not include all of the information required for full set of annual financial statements and should be read in conjunction with the preliminary IFRS financial statements of the Company as at and for the year ended 31 December 2009.

Comparative financial information for the six months ended 30 June 2009 was prepared on consolidated basis for the Company and its subsidiary OOO Dorstroyproekt (note 16) (together – the “Group”). The Group did not prepare consolidated financial statements under Russian Accounting Principles in that period. Accordingly, an explanation of how transition to IFRSs has been affected to the reported financial position as at 1 January 2009 and 30 June 2009, and financial performance and cash flows of the Group for the six months ended 30 June 2009 is not presented in these interim condensed financial statements.

3 Significant accounting policies The accounting policies applied by the Company in these condensed interim financial statements are the same as those applied by the Company in its preliminary IFRS financial statements as at and for the year ended 31 December 2009.

F-165

s 8

4 Use of estimates and judgments The preparation of condensed interim financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from those estimates.

In preparing these condensed interim financial statements, the significant judgements made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the preliminary IFRS financial statements as at and for the year ended 31 December 2009.

5 Seasonality The business of the Company is not subject to seasonal fluctuations; however, the Company’s financing limits for the year from its customers are normally approved during the 1st quarter of the financial year. The completions of the projects normally occur at end of financial years.

6 Revenue Mln RUB 30.06.2010 30.06.2009Revenue construction contracts:

airport infrastucture facilities 2,662 126bridges and highways 2,479 1,630other infrastructure facilities - 2,027railway infrastructure facilities 551 784

Total revenue from construction contracts 5,692 4,567Revenue from resale of materials 495 393Total revenue 6,187 4,960

Below is the information on the geographical allocation of revenues from construction contracts. In presenting the information on the basis of geographical information, revenue is based on the geographical location of construction sites:

Mln RUB 30.06.2010 30.06.2009Revenue by districts:

Southerm Federal District 1,894 45Far Eastern Federal District 1,636 67Central Federal District 1,334 1,213Siberian Federal District 552 2,820Northwestern Federal District 276 286Volga Federal District - 136

Total revenue from construction contracts 5,692 4,567

F-166

s 9

7 Cost of sales Mln RUB 30.06.2010 30.06.2009Materials 1,558 1,133External companies services 1,401 651Personnel expenses 573 348Subcontractors services 572 1,010Cost of sold goods 436 353Services of principal contractors 218 239

Depreciation 208 169Other 157 90

5,123 3,993

8 Administrative expenses Mln RUB 30.06.2010 30.06.2009Personnel expenses 76 50External companies services 68 71Depreciation 60 20Materials 7 58Other administrative expenses 35 19

246 218

9 Other income Mln RUB 30/06/2010 30/06/2009Gain on disposal of property plant and equipment 34 1Revenues from the lease of property 19 44Gain on derecognition of accounts payable 49 -Other income 37 23

139 68

F-167

s 10

10 Other expenses Mln RUB 30.06.2010 30.06.2009Recovery of loss on impairment of inventories 9 8Past years profit and loss 4 18Bad debt provision 2 -Other expenses 19 15

34 41

11 Finance income and finance costs

Mln RUB 30.06.2010 30.06.2009Recognised in profit or lossForeign exchange gain 1 8Interest income on loans given 1 1Interest income on bank deposits 1 -Finance income 3 9

Interest expense on borrowings (23) (95)Foreign exchange loss - (25)Interest expense on finance leases (46) (36)Finance expense (69) (156)Net finance expense in profit or loss (66) (147)

12 Property, plant and equipment During the six months ended 30 June 2010 the Company acquired assets with the cost of 544 mln RUB (six months ended 30 June 2009: 277 mln RUB).

During the six months ended 30 June 2010 the assets with the carrying amount of 23 mln RUB were disposed (six months ended 30 June 2009: 105 mln RUB).

At 30 June 2010 property, plant and equipment with a carrying amount of 17 mln RUB were pledged to secure supply contracts.

F-168

s 11

13 Construction contracts in progress Mln RUB 30/06/2010 31/12/2009Progress billings 22,137 28,727Billed in excess of contract revenue recognised (1,614) (2,453)Contract revenue accumulated to the period end 20,523 26,274Contract costs accumulated to the period end (19,311) (25,103)Expected losses recognised accumulated to the period end - (1,584)Recognised profits 1,212 (413)

Contract revenue accumulated to the period end 20,523 26,274Payments (20,480) (27,037)Net receivables from / (payables to) customers 43 (763)

Amounts due from customers for construction contracts 1,279 1,025Amounts due to customers for construction contracts (1,236) (1,788)

43 (763)

14 Loans and borrowings

Mln RUB CurrencyCarrying amount

Year of maturity

Balance at 1 January 2010 584New issuesUnsecured bank loans RUB 1,559 2010Unsecured borrowings received RUB 600 2010Finance lease liabilities RUB 305 2011-2012

RepaymentsUnsecured bank loans RUB (613)Unsecured borrowings received RUB (139)Finance lease liabilities RUB (182)Finance lease liabilities EUR (7)

Other movementsUnsecured bank loans interest expense RUB 9Unsecured borrowings received interest expense RUB 14

Balance at 30 June 2010 2,130

F-169

s 12

15 Related party transactions

Control relationships

During the six months ended 30 June 2010 the control over the Company was acquired by OAO Mostotrest – refer note 1.

Management remuneration

The key management received remuneration of 51 mln RUB (6 months 2009: 9 mln RUB), including related contributions to the pension funds. The remuneration is included in personnel costs. There were no other material transactions conducted with key management personnel and their close family members.

During the reporting period there were no other material transactions conducted with key management personnel and their close family members.

Transactions with other related parties

The Company’s other related party transactions are disclosed below.

Revenue

Mln RUB TurnoverOutstanding

balance TurnoverOutstanding

balance30.06.2010 30.06.2010 30.06.2009 31.12.2009

Sale of goods 31 251 271 172Rendering construction services 4,900 1,222 4,796 2,324

4,931 1,473 5,067 2,496

Expenses

Mln RUB TurnoverOutstanding

balance TurnoverOutstanding

balance30.06.2010 30.06.2010 30.06.2009 31.12.2009

Purchase of goods 17 - 181 49Received construction services 332 1,683 604 1,657

349 1,683 785 1,706

Loans

As at 30 June 2010 the Company’s balance of loans payable to related parties amounted to 1,442 mln RUB, including 502 mln RUB payable to fellow subsidiary, 270 mln RUB payable to the immediate parent company and 673 mln RUB payable to other related party to the Company. The loans received from the related parties are repayable in 2010. The loans bear interest at 9% and 12.5% per annum.

F-170

s 13

16 Discontinued operations In November 2009, OOO DorStroyProekt, the 100% owned subsidiary, was announced bankrupt by the decision of the arbitration court and bankruptcy procedures have commenced. The bankruptcy was caused by the inefficiencies involved in the operations of the entity, as a result of which management decided, in May 2009, to discontinue the operations of the subsidiary. The operational management of the subsidiary was transferred to an independent administrator. The Company believes that since than it had no power to govern the financial and operating policies of the entity so as to obtain benefits from its activities. The assets and liabilities of the subsidiaries were excluded from the consolidated financial statements on 17 November 2009, the date when the Company lost control over the entity. The discontinuance of the subsidiary had the following effect on the Group’s operations for the six-month period ended 30 June 2009:

Mln RUB 30.06.2009Results of discontinued operationRevenue 176Expenses (834)Loss for the period (658)

The statement of financial position of the Company as at 30 June 2009 included certain assets with the carrying amount of 71 mln RUB and liabilities with the carrying amount of 1,210 mln RUB related to the discontinued operation. These assets and liabilities have been derecognised in the second half of 2009.

17 Events subsequent to the reporting date Significant construction contracts concluded

After 30 June 2010 the Company concluded the following new significant construction contracts:

- On renovation of road interchange on 25 km M-5 Ural for 5,302 mln RUB.

- On construction of foundation for the Main Mediacenter for 298 mln RUB.

Significant borrowings After 30 June 2010 the Company concluded a number of loan agreements with banks for a total amount of 972 mln RUB and repaid its liabilities to previously attracted borrowings of 1,560 mln RUB.

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11OCT201005540968

11OCT201006021314

ZAO KPMG Telephone +7 (495) 937 4477Naberezhnaya Tower Complex, Block C Fax +7 (495) 937 4400/9910 Presnenskaya Naberezhnaya Internet www.kpmg.ruMoscow, Russia 123317

Independent Auditors’ Report

To the General director of OOO Transstroymekhanisatsiya

Introduction

We have reviewed the accompanying condensed interim statement of financial position of OOOTransstroymekhanisatsiya (the ‘‘Company’’) as at 30 June 2010 and 30 June 2009, and the relatedcondensed interim statements of comprehensive income, changes in net assets attributable to participantsand cash flows for the six-month periods then ended and a summary of selected explanatory notes (thecondensed interim financial statements). Management is responsible for the preparation and presentationof these condensed interim financial statements in accordance with International Financial ReportingStandard IAS 34 Interim Financial Reporting. Our responsibility is to express a conclusion on thesecondensed interim financial statements based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements 2410 Reviewof Interim Financial Information Performed by the Independent Auditor of the Entity. A review of condensedinterim financial statements consists of making inquiries, primarily of persons responsible for financial andaccounting matters, and applying analytical and other review procedures. A review is substantially less inscope than an audit conducted in accordance with International Standards on Auditing and consequentlydoes not enable us to obtain assurance that we would become aware of all significant matters that might beidentified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensedinterim financial statements as at 30 June 2010 and 30 June 2009, and for the six-month periods thenended are not prepared, in all material respects, in accordance with International Financial ReportingStandard IAS 34 Interim Financial Reporting.

ZAO KPMG20 September 2010

ZAO KPMG, a company incorporated under the Laws of the RussianFederation and a member firm of the KPMG network of independentmember firms affiliated with KPMG International, a Swiss cooperative.

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COMPANY

Open Joint Stock Company ‘‘Mostotrest’’24/7 Myasnitskaya Street, Building 3

Moscow 101990Russia

JOINT GLOBAL COORDINATORS AND JOINT BOOKRUNNERS

Deutsche Bank AG, J.P. Morgan TD Investments CJSC ‘‘InvestmentLondon Branch Securities Ltd Limited Company ‘‘Troika

1 Great Winchester 10 Aldermanbury 2-4 Arch. Makarios III Dialog’’Street EC2V 7RF Avenue, 4 Romanov Pereulok

London EC2N 2DB London Capital Centre, Moscow 125009United Kingdom United Kingdom 9th floor, 1505, Nicosia Russia

Cyprus

CO-LEAD MANAGER

TKB Capital (CJSC)7 Znamenka Street, Building 3

125009 MoscowRussia

LEGAL ADVISERS TO THE COMPANY

as to English law as to Russian law as to certain matters of Russian law

Freshfields Bruckhaus Freshfields Bruckhaus Liniya PravaDeringer LLP Deringer LLP Smolensky Passage Business65 Fleet Street 14/2 Kadashevskaya Centre,

London EC4Y 1HS Embankment 3 Smolenskaya SquareUnited Kingdom Moscow 119017 Moscow 121099

Russia Russia

LEGAL ADVISERS TO THEJOINT GLOBAL COORDINATOR AND BOOKRUNNERS

as to English law as to Russian law

Clifford Chance LLP Clifford Chance CIS Limited10 Upper Bank Street Ducat Place III

London E14 5JJ Gasheka Street 6United Kingdom Moscow 125047

Russia

INDEPENDENT AUDITORS TO THE COMPANY

ZAO KPMG10 Presnenskaya Naberezhnaya, Block C

Moscow 123317Russia

Merrill Corporation Ltd, London10ZCI73001

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