Reading Labour and Salary

Throughout the year 2003 we complied with all requirements of the labor laws pertaining to labour payroll management for the Company and its subsidiaries. We fulfilled all provisions of the in-house regulations addressing the remuneration of labour, fringe benefits, guarantees and compensations.

Pursuant to the Law On Collective Agreements and Contracts, Labour Code and the Industry Tariff Agreements for 2002-2004 applicable to the organizations of oil gas branches of industry and construction of the facilities of oil and gas complex of the Russian Federation, the Company subsidiaries have made the collective agreements that established the general rules regulating the system of remuneration for labor, social benefits, guarantees and compensations for the employees.

In the reporting year the activities were accomplished to improve the unified salary scale (USS).

For the purpose of streamlining the manning table and time-keeping records maintenance the subsidiary companies have developed and implemented the Standard Procedures for maintaining the manning table and time-keeping records.

With the objective of improving the workmanship and promoting the labor creativity the “Best in the Job” contest was conducted on the eve of the professional holiday, the Day of Oil and Gas Industry Workers. The contest involved the AK Transneft Company Group workers of the leading trades, the winners of the similar contests in the subsidiary companies. A joint “Best in the Job” contest between the workers of the leading trades of OJSC AK Transneft and CJSC KazTransOil was held in August, 2003 within the programs of the Year of Kazakhstan in Russia.

In the reporting year salaries were paid to the employees in a timely manner within the timelines specified in the collective agreement. Neither the Company nor its subsidiaries had any salary payment arrears in 2003.

For the purpose of ensuring the employees social protection, and in connection with the growth of consumer prices of goods and services indexation of salaries was applied in the course of the year.

The average monthly salary of an employee equaled RUR 15,401 in 2003, which means a 19.5% growth compared to the preceding year.

The gross payroll constituted RUR 11,146,869.8 thousand.

The employees enjoy social benefits, guarantees and compensations provided for by the RF Laws, the Industry Tariff Agreement, and the collective agreements developed on the basis thereof. The social benefits of the employees include:

• lumpsum welfare payment at marriage, birth of child, death of the employee, members of his/her family;

• paid additional vacations;

• paid stay at the health rehabilitation facilities;

• vacation bonus;

• paid treatment of especially serious diseases;

• lumpsum bonuses at jubilee events;

• lumpsum grant at retirement on pension;

• benefit for non-working pensioners, etc.

The average number of staff on the payroll of 17 major subsidiaries of the Company constituted 60,313 employees in 2003, having decreased by 889 employees compared to 2002. The reduction of staff was due to the restructuring of the maintenance and construction divisions of the subsidiaries, and reorganization of OJSC Strojneft.