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Vladimir Putin: Alexei Borisovich, please say a few words about the results of the company's work.

Alexei Miller: Last year was the most successful in the entire history of Gazprom. And today we can state that Gazprom has established itself as an international, vertically integrated energy company, which is a serious player on the international energy market. Last year the growth of gas production was around 20 billion cubic metres, making a total amount of 540 billion.

Vladimir Putin: What was the growth in gas production?

Alexei Miller: The growth was 20 billion. And this year we are going higher than the planned figures that we set for the results of the first half of the year. The volume of extra production was one and a half million cubic metres of gas. And this, of course, is a very important factor for continuing the programme of gasification. This year, we plan to open almost twice as many gas networks. If around 1,300 kilometres was opened last year, this year we plan to open 2,600 kilometres. Last year, over 300 new areas were gasified. The volumes of consumption on the domestic market grow by 7.5 billion cubic metres, and we plan that this year these volumes of consumption on the domestic market will also grow.

Vladimir Putin: What about the structure of deliveries?

Alexei Miller: As for the structure of deliveries, of course the priorities are electrical energy, the population, and municipal gas. And today we can see that the volumes of consumption in export-oriented industries are growing, although today Gazprom is to a very large degree focused on the export market, and export is still a very interesting area of work, both in volumes of gross receipt and volumes of profitable sales. Export volumes are growing, and last year they came to 132.9 billion cubic metres of gas.

Vladimir Putin: The most interesting above all from the economic viewpoint…

Alexei Miller: From the economic viewpoint….

Vladimir Putin: There are also other factors.

Alexei Miller: Of course, from the economic viewpoint, taking into account the good situation for us on international markets, there is a very high effectiveness of sales. And thus volumes of export deliveries are growing, and in the first half of the year volumes grew by 7 billion cubic metres of gas in comparison with the figures for last year. This is a growth of about 10%. And in future, we plan that export delivery volumes will grow yearly by 5–6 billion cubic metres of gas.

Thanks to our long-term contracts, we have formed a portfolio for many years ahead, and thus it is now very important to understand the profitability of sales on the domestic market.

The government has taken a decision to increase tariffs in 2005 to a level which would allow us to break even on the domestic market. But unfortunately, the price dynamic on metals which currently exists in the country is such that evidently, Gazprom will not be able to pass a level of zero profitability this year, or perhaps even next year. Evidently, issues of increasing prices for industry should now be very important in dialogue between Gazprom and the government, because this state of affairs does not in any way help to increase the delivery volumes of our industry, as the company, if the current trends continue, will simply increase its losses at the expense of increasing volumes of sales.

I would like to make special mention of the development of cooperation with our close neighbours. Gazprom has now returned to all republics of the former USSR. We have begun to realise the programme ”Central Asia – Centre“, and a very important document has been signed with Ukraine on forming a long-term joint Russian-Ukrainian balance of gas, and the conditions of our joint work in the gas sphere until 2028 have been determined.

As for issues of increasing the effectiveness of the company, I would like to note that we have now completed the first stage of reforming Gazprom. At the first stage, work has been concentrated on optimising the management structure of the head company, introducing regulating procedures and systems of budgeting.

We have now moved to a second stage of reforming Gazprom, which involves optimising the system of the company's work at the level of our branch enterprises, separating and consolidating the main types of activity, i.e. creating full companies which will specialise in gas production only, in transport only, in underground storage and gas distribution. We plan that this work will be finished by the end of this year, and in the new year Gazprom will have a new structure.

The new strategy of Gazprom, which is designed to establish the company as an international, vertically integrated company, is based on a series of programmes which were passed quite recently.

There is a programme of developing the raw mineral base of the company up until 2030, and the basis of this programme is two new production regions – Yamal, Eastern Siberia, and the Far East. And we also set Gazprom the task of ensuring that the replenishment volumes of our resources are greater than the volumes of yearly production.

Another programme involves synchronisation of production, transport and sale. I would like to note that if in the volumes of the investment programme of last year, the ratio of volume of investments which were directed towards transport and production were 40% and 40%, i.e. in equal volumes, this year the ratio of investment volumes directed towards production is 30%, and 60% towards transport. This trend will continue in future.

Today the issue of production is not critical, but we need to work on new gas transport routes, in diversifying our routes, and we are currently working on a project of a North European gas pipeline with our European partners. This project will make it possible to ensure a greater reliability and stability of deliveries for our European consumers. The base gas field for realising this project has been determined– the South Russian gas field.

At the same time, we plan that this project may be realised on completely new principles of cooperation with our foreign colleagues. We think it is possible that our foreign partners may take part in production. But, in its turn, Gazprom will take part in assets at all stages in the process – from production to the end consumer, i.e. we will take part in assets in gas distribution networks in Germany and in final consumer assets, above all in electrical energy.

The basis of our strategy is a programme of diversification, diversification of products. This is primarily liquefied gas, synthetic liquid hydrocarbons, and now we are examining electrical energy as a new form of our main activity, and plan in the near future to be represented more actively in this area.

For Gazprom, oil has always been a profile form of activity, and as part of the second stage of reform we plan to create a new company, Gazpromneft, which will specialise only in mining and processing liquid hydrocarbons. Currently, the volume of liquid hydrocarbons mined by Gazprom comes to around 11 million tons, and according to our calculations, only reconstructing this business and creating an independent legal body will make it possible to increase volumes to 40–50 million tons on the basis of our Gazprom fields in the years to come.

Vladimir Putin: I think the consolidation of efforts with our partners in Central Asia and your steps towards integration in the European economy are certainly two very important components for developing the energy sector as a whole and Gazprom in particular. At the same time I would like to return to what I said a little earlier: I am simply convinced that increasing the transparency of the company, improving the management and improving the structure of the company – which we have just talked about – are excellent means for increasing the quality of the company's work and increasing its profitability. The company's strategy should be under your constant personal control, and in dialogue with the Government, steps are needed that were envisaged in this area, and I know you have according plans here, which need to be carefully but gradually realised.