Independent Auditor’s Report

We have audited the accompanying consolidated balance sheet of ОАО АК Transneft and its subsidiaries (the "Group") as of 31 December 2003, and the related consolidated statements of income, cash flows and changes in shareholders’ equity for the year then ended. These consolidated financial statements, as set out on the pages 6 to 25 are the responsibility of the Group’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

The consolidated financial statements of the Group for the year ended 31 December 2002 were audited by another auditor, whose report dated 26 May 2003 expressed an unqualified opinion on those statements.

We conducted our audit in accordance with International Standards on Auditing as issued by the International Federation of Accountants. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group of 31 December 2003 and the results of its operations, cash flows and changes in equity for the year then ended in accordance with International Financial Reporting Standards promulgated by the International Accounting Standards Board.

Without qualifying our opinion, we draw your attention to the fact that, whilst there have been improvements in the economic situation in the Russian Federation in recent years, the country continues to display some of the characteristics of an emerging market. These characteristics include, but are not limited to, the existence of a currency that is not freely convertible in most countries outside of the Russian Federation, restrictive currency controls, and relatively high inflation. The prospects for future economic stability in the Russian federation are largely dependent upon the effectiveness of economic measures undertaken by the government, together with legal, regulatory, and political developments.

KPMG Limited

Moscow, Russian Federation

28 June 2004 Words and expressions

consolidated balance sheet cash flow to conduct in accordance with assurance to promulgate to draw your attention to convertible

консолидированный баланс движение денежной наличности проводить в соответствии с гарантия, заверение пропагандировать, распространять привлекать внимание конвертируемый

Exercise 13. Look through the table which represents “Consolidated Balance Sheet” of Transneft Company.

1. Translate the terms into Russian.

2. Discuss the numbers in the table, compare and comment on them.