the RUSSIA oil & gas competitive intelligence report - Report Buyer

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Russia Oil and Gas Competitive Intelligence Report 2010 Russia Upstream Rating -- Overview Russia has a share of fifth place with Turkey in BMI's updated Upstream Business Environment Ratings, aided by unrivalled hydrocarbons resources. Its oil and gas reserves account for much of the upstream score, but licensing, privatisation and country risk factors are less impressive. Medium-term scope exists for Russia to challenge Bulgaria and Poland above it, although the major Caspian states are likely to remain out of reach. Russia Upstream Rating -- Potential Returns Upstream Market: On the basis of upstream data alone, Russia is the joint second most attractive state in the CEE region, alongside Turkmenistan. This reflects the highest-placed oil and gas reserves, fifthranked oil production growth outlook and gas reserves to production ratio (RPR). Country Structure: Influencing Russia's fourth-highest position in the Limits to Potential Returns section is its unenviable country structure, which takes last place, behind even Uzbekistan. The state has greater ownership of upstream assets than elsewhere in the region -- and the industry features relatively few non-state concerns. Russia Upstream Rating -- Risks To Potential Returns Industry Risks: Russia is ranked last, behind even Turkmenistan, in the Risks to Realisation of Potential Returns section of our ratings. Its last position for Industry Risks is attributable to a poor licensing environment, and limited near-term privatisation prospects. Country Risks: Russia's broader country risk environment is unexceptional and ranked 11 th behind Kazakhstan. The best, and only respectable, score is for long-term policy continuity. Physical infrastructure barely matches the regional average, while corruption is a key risk for private companies. Furthermore, their ability to operate is weakened by the country's rule of law. © Business Monitor International Ltd Page 81
Russia Oil and Gas Competitive Intelligence Report 2010 Downstream Scores Russia and Bulgaria now bracket the 13 other CEE states in the downstream rankings, with Russia now challenged by second-placed Turkey, in spite of the size of its fuels market and refining capacity. Turkey's risk profile is substantially better and it may be able to challenge for regional leadership over the medium term. Poland is just a point further back and also a potential regional leader. Ukraine is now just one point behind Poland, but is unlikely to challenge it during the next few quarters. Kazakhstan, the Czech Republic and Romania are squabbling over fifth place, having edged ahead of Azerbaijan. Turkmenistan is now on the same score as Slovenia and there is little to choose between Croatia, Slovakia and Uzbekistan near the foot of the table. Table: Regional Downstream Business Environment Rating Limits of Potential Returns Risks to the Realisation of Potential Returns Downstrea m Market Country Structure Limits Industry Risks Country Risk Risks Downstrea m Rating Rank Russia 71 72 71 20 54 34 60 1 Turkey 49 74 55 80 51 69 59 2 Poland 40 80 50 85 61 75 58 3 Ukraine 57 60 58 65 45 57 57 4 Czech Republic 33 56 39 100 62 85 53 5= Kazakhstan 67 46 62 20 50 32 53 5= Romania 47 56 49 70 48 61 53 5= Azerbaijan 61 50 58 25 59 39 52 8 Hungary 32 44 35 95 62 82 49 9 Turkmenistan 51 26 45 40 48 43 44 10= Slovenia 26 38 29 85 70 79 44 10= Croatia 36 38 36 65 54 60 43 12 Slovakia 24 40 28 85 58 74 42 13 Uzbekistan 41 34 39 40 53 45 41 14 Bulgaria 23 42 28 60 48 55 36 15 Source: BMI. Scores are out of 100 for all categories, with 100 the highest. The Downstream BE Rating is the principal rating. It comprises two sub-ratings 'Limits of Potential Returns' and 'Risks to Realisation of Returns', which have a 70% and 30% weighting respectively. In turn, the 'Limits' Rating comprises Power Sector and Country Structure, which have a 75% and 25% weighting respectively. They are based upon the downstream refining capacity/product growth outlook/import dependence (Downstream) and the broader socio-demographic and economic context (Country). The 'Risks' rating comprises Market Risks and Country Risk, which have a 60% and 40% weighting respectively and are based on a subjective evaluation of regulation and liberalisation (Market) and the industry's broader Country Risk exposure (Country), which is based on BMI's proprietary Country Risk Ratings. The ratings structure is aligned across the 14 Industries for with BMI provides Business Environment Ratings methodology, and is designed to enable clients to consider each rating individually or as a composite, with the choice depending on their exposure to the industry in each particular state. For a list of the data/indicators used, please consult the appendix. © Business Monitor International Ltd Page 82
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