SOURCE: O.A.O. Tatneft

August 29, 2006 12:02 ET

O.A.O. Tatneft announces Comment Re Rating Withdrawal

Taterstan -- (MARKET WIRE) -- August 29, 2006 --

     On August 29, 2006 OAO Tatneft issued the following press-release:


OAO Tatneft comments on withdrawal of its credit rating by 
Standard & Poor's

29 August 2006

On 25 August 2006 Standard & Poor's (S&P) announced the withdrawal of the credit rating of OAO Tatneft (A-) in connection with, in the opinion of S&P, a continuing lack of information. OAO Tatneft is surprised at S&P's decision and believes that the withdrawal of its credit rating is not justified, given its recent increased financial disclosure, actions taken and commitment to ongoing transparency. However, the company underlines that it respects S&P's policy in taking decisions with respect to credit ratings.

The press-release regarding withdrawal of the company's credit rating distributed by S&P says that "the rating withdrawal reflects a lack of information on the company's consolidated financial position and its strategy". The S&P statement further says: "for the third year in succession Tatneft has substantially delayed publishing its audited U.S. GAAP accounts, which have been much more belated compared with those of local peers. The 2004 accounts were published in June 2006, and the 2005 financials are not yet available. The nature of relationships with the government of the Republic of Tatarstan (BB-/ Stable/-) and other related parties is further unclear and there is a lack of clarity regarding financing of the major Nizhnekamsk refinery project (for a total estimated cost of $4.8 billion)".

On 26 June 2006 OAO Tatneft published consolidated financial statements of Tatneft Group for 2004 prepared in accordance with US GAAP with an unqualified auditor's report on these financial statements (as a part of the annual report on Form 20-F for 2004), as well as unaudited US GAAP financial statements of Tatneft Group for the first half of 2005. In addition, the company, on a confidential basis, provided S&P with draft US GAAP financial statements of Tatneft Group for 2005, as well as explanations to these statements. OAO Tatneft recognizes and agrees with S&P's statement that "the rating withdrawal does not necessarily indicate a deterioration of the company's credit quality", particularly given the increased cash and profit generation of the company and improved liquidity of the Group and its financial strength.

The company has regularly provided S&P with information on OAO Tatneft's financial position. Information about the financial position (under Russian Accounting Rules or RAR) of OAO Nizhnekamskshina, the largest subsidiary of the company, is regularly published by the former in its issuer's quarterly reports. Therefore, the company believes that S&P has a good deal of current information about OAO Tatneft's consolidated financial position.

The Company has indeed delayed release of audited consolidated financial statements of Tatneft Group for 2005 and filing of its annual report on Form 20-F for 2005 with the U.S. Securities and Exchange Commission because of delays in the preparation of audited US GAAP financial statements for 2003 and 2004. The above-mentioned delays were primarily caused by an investigation into certain transactions involving Tatneft Group companies reflected in the US GAAP consolidated financial statements of Tatneft Group for 2003 which was completed only in beginning of June 2005. The reasons for the investigation, and the manner in which it has been resolved, have been discussed by the company in numerous press-releases. The US GAAP consolidated financial statements of Tatneft Group for 2005 are currently being audited by an independent auditor, and the company expects the completion of the audit in the fourth quarter of 2005. OAO Tatneft is planning to announce a more detailed timetable for completion of the audit of the US GAAP consolidated financial statements for 2005 in the first half of September 2006.

Annual reports of the company (including on Form 20-F) clearly define the strategic goals of the company which include, in particular, maintaining oil production levels at existing oil fields; increasing the resource base, including outside of the Republic of Tatarstan; strengthening vertical integration by developing the company's refining and petrol stations network; and compliance with advanced principles of corporate governance. OAO Tatneft regularly informs investors and the public in press-releases about its actions to reach these strategic goals.

For example, the following steps to improve corporate governance have been taken in the last few years: independent directors were elected to the Board of Directors of OAO Tatneft; the following committees of the Board of Directors were formed and are now operating: audit committee, human resources and remuneration committee, disclosure committee and corporate governance committee; department of internal audit was reorganized; consolidated financial reporting department was expanded; and communication with investors and shareholders has been improved.

OAO Tatneft discloses information about transactions with related parties in compliance with regulatory requirements and applicable accounting standards. The company believes that it has provided S&P with explanations regarding related party transactions. As to the relationship with the Republic of Tatarstan, it is built on the basis of mutual benefit and observance of interests of all shareholders of the company. The Republic of Tatarstan (through OAO Svyazinvestneftekhim) is the largest shareholder of OAO Tatneft that holding 33.59% of all shares of the company. "Tatneft is the most important company in Tatarstan. The Republic of Tatarstan, as the largest shareholder, is interested more than anyone else in Tatneft's successful operations and that Tatneft reaches its primary goal - making profit" said Rustam N. Minnikhanov, the Prime Minister of the Republic of Tatarstan and the Chairman of the Board of Directors of OAO Tatneft speaking at the meeting of the Board of Directors of the company on 28 August 2006. In particular, the Government of the Republic of Tatarstan supported the company in connection with the approval of amendments to the Russian Tax Code related to differentiation of oil production tax and granting financing from the Investment Fund of the Russian Federation for the construction of infrastructure of the oil refining and petrochemical complex in Nizhnekamsk.

In connection with financing of the oil refining and petrochemical complex in Nizhnekamsk, as reported to S&P, ZAO Nizhnekamsk Refinery, together with financial advisors of the project, is developing a structure for the financing of the construction of the complex. As reported earlier, a significant portion of the funds for the construction of the complex is expected to be attracted on a project finance basis. Until this work is completed, the company believes that it is not possible to provide S&P with finalized plans for financing of the construction of the complex. In addition, on 26 June 2006 the Government Commission for Investment Projects of National Importance approved co-financing from the Investment Fund of the Russian Federation for construction and reconstruction of external transport infrastructure of the oil refining and petrochemical complex in Nizhnekamsk in the amount of RR16.5 billion. The investment program of OAO Tatneft provides for extension in 2006 of RR6.7 billion for financing of works related to the construction of the complex until external financing for the construction is obtained by ZAO Nizhnekamsk Refinery.

As of 30 June 2006, cash of OAO Tatneft under RAR was RR12.5 billion, while the long-term and short-term loans of OAO Tatneft under RAR as of 30 June 2006 were RR2.3 billion and RR1.3 billion, respectively. According to Evgeny A. Tikhturov, Head of Finance Department of OAO Tatneft, the company is currently able to repay all indebtedness under its loans and credits upon creditors' first request. OAO Tatneft is repaying its debt under loans and credits in time in strict compliance with the terms of the loan agreements.

Long-term and short-term loans and credits of OAO Nizhnekamskshina, the largest subsidiary of OAO Tatneft, under RAR as of 30 June 2006 were RR229 million and RR1.8 billion respectively. OAO Tatneft's net income under RAR for the first half of 2006 was RR23.4 billion, and OAO Nizhnekamskshina's net income under RAR for the same period was RR68 million.

Forward-looking statements: This press-release may contain certain forward-looking statements of OAO Tatneft. OAO Tatneft does not guarantee occurrence of any events mentioned in such statements as well as term of their occurrence.

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