Diversification: Key to Economic Development 1. ECONOMY 2. INVESTMENT 3. STRATEGY OF ECONOMIC GROWTH 4. SISTEMA CASE STUDY 5. Q&A April 2004 Russian Economic Forum London

2 1. ECONOMIC CONTEXT Strong economy: 7.3% GDP growth for 2003 High oil prices Strong domestic demand Large FX (>$61 bn) and fiscal (>$7 bn) reserves Budget surplus since 2000 (2% of GDP in 2003) Strong rouble and declining inflation Widespread corporate restructuring and growing labour productivity Progress of structural reforms in key areas (tax, natural monopolies, land and administration) Moody’s upgrade to investment grade (“Baa3” rating) as an evidence of economical and political progress recognition GDP / Industrial Production Growth, %YOY CPI, %YOY RUSSIA HAS DEMONSTRATED STRONG MACROECONOMIC PERFORMANCE OVER THE PAST TWO YEARS Source: Goskomstat

3 1.1 GROWTH DYNAMICS ARE HIGH COMMODITY PRICES THE ONLY SOURCE OF ECONOMIC GROWTH? ???????? RUSSIAN ECONOMY’S GROWTH RATES RAISE QUESTIONS ON THEIR UNDERLYING REASONS Source: Goskomstat Oil Price (US$/barrel)

4 1.2 SOURCES OF ECONOMIC GROWTH SERVICES, MANUFACTURING AND CONSTRUCTION ARE BECOMING THE NEW GROWTH LEADERS THE NEW TREND Commodity factor still vital However, growth rates in the raw materials sector are beginning to lag behind those in manufacturing, construction and services MANUFACTURING INDUSTRIES, CONSTRUCTION AND SERVICES ARE BECOMING SIGNIFICANT SOURCES OF ECONOMIC GROWTH Source: Goskomstat, IMF, IRG

5 1.3 PRODUCTION BREAKDOWN MANUFACTURING INDUSTRIES STILL CONSTITUTE ONLY ABOUT 40% OF TOTAL INDUSTRIAL PRODUCTION, BUT THEIR SHARE WILL GROW

6 1.4 EXPORTS BREAKDOWN EXPORTS ARE DOMINATED BY COMMODITIES (>70%), HOWEVER, THE SHARE OF PROCESSED GOODS IS ALSO INCREASING

7 Source: Ministry of Telecommunications, Company data CAGR – 32% Global Average (3.6%) TELECOM SECTOR REVENUES ARE RAPIDLY GROWING WHILE STILL RETAINING HIGH GROWTH POTENTIAL 1.5 CASE STUDY: TELECOMS

8 2. SOURCES FOR FUTURE GROWTH GROWTH OF DOMESTIC CONSTRUCTION AND SERVICES GROWTH OF EXPORTS IN THE MANUFACTURING SECTOR I N V E S T M E N T HI-TECH PROJECTS DEEPER PROCESSING OF RAW MATERIALS DOMESTIC ECONOMIC GROWTH DOMESTIC ECONOMIC GROWTH SHOULD COME FROM FOUR MAIN SOURCES

9 RUSSIAN AND FOREIGN INVESTORS ARE READY TO INVEST IN THE NON- NATURAL RESOURCES SECTOR 2.1 INVESTMENT Do you see a move away from dollar denominated export sectors to rouble-heavy domestic sectors? Source: Goskomstat, company information Source: Ansdell Report 2004 Investment Growth (%)

INVESTMENT GROWTH FOREIGN INVESTORS PLAN TO INCREASE THEIR EXPOSURE TO RUSSIA, BUT IT DEPENDS ON A NUMBER OF FACTORS What factors would lead you to increase your exposure to Russia? Progress on reforms Resolution of YUKOS situation Rise in oil prices Better corporate governance More IPOs Government on side of minor investors 36% 21% 14% 11% 9% Source: Ansdell Report 2004

11 You might see a shift from export-oriented sectors to more domestic sectors. Russian export sectors will probably be hurt by the currency trend, whilst domestic stocks will benefit from the fact that high oil prices are making Russian people richer which means they have more money to spend on consumer goods. The reliance on oil has over-loaded the Russian economy in some respects. I do think we will see the Russian government make efforts to move the economy away from the oil & gas sectors to other sectors in the future. Buy-side analyst We would like to see a signal from local consumers in Russia that they are buying more consumer goods. Most of the listed companies in Russia are oil and telecoms companies. I would increase my exposure if there was an offering from other sectors such as the foods/consumer goods sector. European emerging markets fund manager 2.3 FUTURE INVESTMENT DIRECTION FOREIGN INVESTORS BELIEVE IN COMPANIES POISED TO BENEFIT FROM GROWING DOMESTIC CONSUMPTION Source: Ansdell Report 2004

12 3. STRATEGY OF ECONOMIC GROWTH STATE BUSINESS 1.Legal and infrastructural framework for economic development 2. Industrial policy 1.Implementing investment projects 2.Satisfying the market’s needs RUSSIA’S ECONOMIC GROWTH AREA OF I N T E R A C T I O N ECONOMIC GROWTH IN RUSSIA IS ONLY ACHIEVABLE WITH EFFICIENT COOPERATION BETWEEN BUSINESS AND THE STATE

COMPETITIVE ECONOMY PROJECTS InfrastructuralInnovative COMPETITIVE ECONOMY MEANS SUPPORTING PROMISING PROJECTS RATHER THAN STAGNATING SECTORS SAMPLE PROJECTS: Development of microchip exports (Mikron) Telecom equipment manufacturing (Strom Telecom) Billing software production (Strom Telecom) ADSL services (MTU-Intel) Development of ‘smart’ offices (Sistema Hals) Impact on the sector and general business environment Value Chains Competitive Product 1. Objectiveness2. Transparency 3. Systemic Approach COMPETITIVE ECONOMY

14 Largest non-natural resource based conglomerate in Russia Diversified portfolio of assets with high degree of control over its subsidiaries −Involvement in 13 business sectors −Asset value of $5.5bn as of 1H2003 Strong growth history and perspectives −Total consolidated asset growth of 306% from 1999 to 1H2003 −Substantial market cap growth of MTS (NYSE: MBT) −Strong growth potential in core businesses and ventures Strategic partnerships with leading international players −e.g. Deutsche Telekom (MTS), Allianz AG (ROSNO), Volvo, Siemens, Accor History of successful management of major projects in Russia −First-hand knowledge of the business environment −Excellent track record of the management team Industry leadership −Sistema’s subsidiaries in each core business are industry leaders in their sectors Rated B by S&P and Fitch, and B1 by Moody’s SISTEMA IS A PERFECT EXAMPLE OF SERVICE- AND HIGH-TECH-, RATHER THAN COMMODITY-BASED, GROWTH 4. SISTEMA AS A GROWTH CASE

15 SISTEMA Telecommunications Pharma & Biotech Travel & Overseas Assets Children’s Goods Retail Mass Media Radio & Space Technology Banking Insurance Real Estate Mobile Telecom Fixed Line CLECs Internet SERVICES VENTURESPRODUCTION Aviation Venture Fund Electronics Micro Electronics Industrial Electronics White and Brown Goods Software and IT Sistema’s strategic focus 4.1 GROUP STRUCTURE ALL OF SISTEMA’S BUSINESSES ARE CONCENTRATED OUTSIDE OF THE RAW MATERIALS SECTOR

STRATEGIC PRINCIPLES SISTEMA’S SUCCESS IS BASED ON FIVE CORE STRATEGIC PRINCIPLES Building a balanced portfolio of operating companies Effective portfolio management Portfolio Diversification Return-Based Strategy Investing into companies with leading competitive positions Establishing sales and earnings targets for operating companies Disposing of underperforming assets Management Capability Attracting, developing and motivating professionals, and building an effective management structure Strategic Partnerships Successful development of strategic partnerships Acquiring know-how, management skills and market knowledge Focus Concentration in services and high-tech industries with fast growth Growing size and value of technology, insurance, real estate and retail businesses

PORTFOLIO COMPOSITION (as of June 30, 2003) FOUR BUSINESS SECTORS MAKE UP THE CORE OF SISTEMA’S INVESTMENT PORTFOLIO Sistema Asset Value BreakdownSistema Sales Breakdown Total: US$ 5.5 bnTotal: US$ 1.6 bn DUE TO THE SECTOR’S RAPID DEVELOPMENT, TELECOMS CONSTITUTE OVER 80% OF SISTEMA’S PORTFOLIO BOTH IN TERMS OF ASSETS AND REVENUES

FINANCIAL SUCCESS MTS EXAMPLE DEMONSTRATES HUGE POTENTIAL FOR VALUE CREATION IN SISTEMA’S CORE BUSINESSES MTS EXAMPLE Deutsche Telekom/Sistema strategic partnership #1 in the Russian market Market Cap exceeds $13 bn ( ) 3.3 times Market Cap growth over past 12 months +230%

19 1………………………………………………. 2………………………………………………. 3………………………………………………. 4………………………………………………. 5………………………………………………. ? THANK YOU FOR YOUR ATTENTION 5. Q&A