IMPORTANT NOTICE THIS OFFERING IS AVAILABLE ONLY TO INVESTORS WHO ARE EITHER (1) QIBS (AS DEFINED BELOW) OR (2) PERSONS LOCATED OUTSIDE OF THE UNITED STATES.

IMPORTANT: You must read the following before continuing. The following applies to the prospectus (the "Prospectus"), whether received by e-mail, accessed from an internet page or received as a result of electronic transmission, and you are therefore advised to read this carefully before reading, accessing or making any other use of the Prospectus. In accessing the Prospectus, you agree to be bound by the following terms and conditions, including any modifications to them any time you receive any information as a result of such access.

The Prospectus has been prepared solely in connection with the proposed offering to certain institutional and professional investors of the securities described herein (the "Bonds").

NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER OF BONDS FOR SALE IN ANY JURISDICTION WHERE IT IS UNLAWFUL TO DO SO.

THE BONDS HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) IN ACCORDANCE WITH RULE 144A UNDER THE SECURITIES ACT ("RULE 144A") TO QUALIFIED INSTITUTIONAL BUYERS (AS DEFINED IN RULE 144A) ("QIBs") OR (2) OUTSIDE THE UNITED STATES IN RELIANCE ON REGULATION S UNDER THE SECURITIES ACT ("REGULATION S"), IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES.

THE PROSPECTUS MAY NOT BE FORWARDED OR DISTRIBUTED OTHER THAN AS PROVIDED BELOW AND MAY NOT BE REPRODUCED IN ANY MANNER WHATSOEVER. THE PROSPECTUS MAY ONLY BE DISTRIBUTED IN "OFFSHORE TRANSACTIONS," AS PERMITTED BY REGULATION S, OR WITHIN THE UNITED STATES TO QIBS IN ACCORDANCE WITH RULE 144A. ANY REPRODUCTION OF THE PROSPECTUS IN WHOLE OR IN PART IS UNAUTHORISED. FAILURE TO COMPLY WITH THESE RESTRICTIONS MAY RESULT IN A VIOLATION OF THE SECURITIES ACT OR THE APPLICABLE LAWS OF OTHER JURISDICTIONS.

Confirmation of your representation: In order to be eligible to view the Prospectus or make an investment decision with respect to the Bonds, you must be (i) outside the United States for the purposes of Regulation S under the Securities Act or (ii) a QIB that is acquiring the Bonds for its own account or for the account of another QIB. By accepting this electronic transmission and accessing, reading or making any other use of the Prospectus, you shall be deemed to have represented to the Russian Federation and to Deutsche Bank AG, London Branch, HSBC Bank plc, J.P. Morgan Securities Ltd., Renaissance Securities (Cyprus) Limited and VTB Capital plc (the "Joint Lead Managers") that (1) you understand and agree to the terms set out herein; (2) in respect of Bonds being offered pursuant to Rule 144A, you are (or the person you represent is) a QIB, and that the e-mail address to which, pursuant to your request, the Prospectus has been delivered by electronic transmission is utilised by someone who is a QIB; (3) in respect of the Bonds being offered outside of the United States in an offshore transaction pursuant to Regulation S, you are outside the United States, and that the e-mail address to which, pursuant to your request, the Prospectus has been delivered by electronic transmission is not located in the United States for the purposes of Regulation S under the Securities Act; (4) you consent to delivery by electronic transmission; (5) you will not transmit the Prospectus (or any copy of it or part thereof) or disclose, whether orally or in writing, any of its contents to any other person except with the consent of the Joint Lead Managers; and (6) you acknowledge that you will make your own assessment regarding any legal, taxation or other economic considerations with respect to your decision to subscribe for or purchase any of the Bonds.

You are reminded that the Prospectus has been delivered to you on the basis that you are a person into whose possession the Prospectus may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located and you may not, nor are you authorised to, deliver the Prospectus to any other person and in particular to any U.S. address. Failure to comply may result in a direct violation of the Securities Act or the applicable laws of other jurisdictions. The materials relating to the offering do not constitute, and may not be used in connection with, an offer or solicitation in any place where offers or solicitations are not permitted by law. If a jurisdiction requires that the offering be made by a licensed broker or dealer and the Joint Lead Managers or any affiliate of the Joint Lead Managers is a licensed broker or dealer in that jurisdiction, the offering shall be deemed to be made by the Joint Lead Managers or such affiliate on behalf of the Ministry of Finance of the Russian Federation acting on behalf of the Russian Federation in such jurisdiction.

Under no circumstances shall the Prospectus constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Bonds in any jurisdiction in which such offer, solicitation or sale would be unlawful.

The Prospectus has been sent to you in an electronic form. You are reminded that documents transmitted via this medium may be altered or changed during the process of electronic transmission, and consequently none of the Russian Federation or the Ministry of Finance of the Russian Federation or any officials thereof, Deutsche Bank AG, London Branch, HSBC Bank plc, J.P. Morgan Securities Ltd., Renaissance Securities (Cyprus) Limited and VTB Capital plc, any person who controls any of the foregoing, any director, officer, employee, representative or agent of any of the foregoing or affiliate of any such person accepts any liability or responsibility whatsoever in respect of any difference between the Prospectus distributed to you in electronic format and the version available to you on the website of the London Stock Exchange, being www.londonstockexchange.com.

[GRAPHIC] Russian Federation RUB40,000,000,000 7.85 per cent. Bonds due 2018 Issue Price of the Bonds: 100.00 per cent.

Interest on the RUB40,000,000,000 7.85 per cent. Bonds due 2018 (the "Bonds") issued by the Ministry of Finance of the Russian Federation (the "Ministry of Finance") acting on behalf of the Russian Federation (the "Issuer," "Russia" or the "Russian Federation") is payable semi annually in arrear on 10 March and 10 September in each year. See "Terms and Conditions of the Bonds-Interest." Payments under the Bonds will be made free and clear of, and without withholding or deduction for, any taxes imposed by the Russian Federation, to the extent described under "Terms and Conditions of the Bonds-Taxation." Unless previously redeemed, or purchased and cancelled, the Bonds will be redeemed at their principal amount together with accrued interest on 10 March 2018 and are not redeemable prior to that date. See "Terms and Conditions of the Bonds-Redemption, Purchase and Cancellation." Applications have been made to the Financial Services Authority in its capacity as competent authority under the Financial Services and Markets Act 2000 (the "UKLA") for the Bonds to be admitted to the official list of the UKLA (the "Official List") and to the London Stock Exchange plc (the "London Stock Exchange") for the Bonds to be admitted to trading on the London Stock Exchange's Regulated Market (the "Market"). References in this Prospectus to the Bonds being "listed" (and all related references) shall mean that the Bonds have been admitted to the Official List and have been admitted to trading on the Market. The Market is a regulated market for the purposes of Directive 2004 /39/EC (the "Markets in Financial Instruments Directive").

SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS TO BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE BONDS STARTING ON PAGE 5.

The Bonds have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), or with any securities regulatory authority of any State or other jurisdiction of the United States, and may not be offered or sold within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. For a summary of certain restrictions on resale, see "Subscription and Sale," "Form and Transfer of the Bonds" and "Transfer Restrictions." The Bonds will be offered and sold outside the United States in reliance on Regulation S under the Securities Act ("Regulation S") and within the United States to "qualified institutional buyers" ("QIBs") (as defined in Rule 144A under the Securities Act ("Rule 144A")) in reliance on Rule 144A. Prospective purchasers are hereby notified that sellers of the Bonds may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A.

The Bonds will be offered and sold in registered form in the denomination of RUB5,000,000. The Bonds which are offered and sold in reliance on Regulation S (the "Unrestricted Bonds") will each be represented by beneficial interests in a global bond (the "Unrestricted Global Bond") in registered form without interest coupons attached, which will be registered in the name of a nominee for, and shall be deposited on or about 10 March 2011 (the "Closing Date") with a common depositary for, and in respect of interests held through, Euroclear Bank SA/NV ("Euroclear") and Clearstream Banking, société anonyme ("Clearstream, Luxembourg"). The Bonds that are offered and sold in reliance on Rule 144A (the "Restricted Bonds") will each be represented by beneficial interests in one or more global bonds (the "Restricted Global Bond" and, together with the Unrestricted Global Bond, the "Global Bonds") in registered form without interest coupons attached, which will be deposited on or about the Closing Date with a custodian (the "Custodian") for, and registered in the name of Cede & Co. as nominee for, The Depository Trust Company ("DTC"). It is expected that the Bonds will be issued on the Closing Date. Interests in the Restricted Global Bond will be subject to certain restrictions on transfer.

Beneficial interests in the Global Bonds will be shown on, and transfers thereof will be effected only through, records maintained by DTC, Euroclear and Clearstream, Luxembourg and their participants. Except as described herein, certificates will not be issued in exchange for beneficial interests in the Global Bonds.

Joint Lead Managers and Joint Bookrunners Deutsche Bank HSBC J.P. Morgan Renaissance Capital VTB Capital Prospectus Dated 4 March 2011 This document (the "Prospectus") comprises a prospectus for the purposes of Directive 2003/71/EC (the "Prospectus Directive"). The Russian Federation accepts responsibility for the information contained in this Prospectus. To the best of the knowledge of the Russian Federation (which has taken all reasonable care to ensure that such is the case), the information contained in this Prospectus is in accordance with the facts and does not omit anything likely to affect the import of such information.

Information contained herein that is identified as being derived from a publication of the Russian Federation or one of its agencies or instrumentalities is included herein on the authority of such publication as an official public document of the Russian Federation. All other information contained herein is included as an official public statement made on the authority of the Minister of Finance of the Russian Federation.

No person has been authorised in connection with the offering of the Bonds to give any information or make any representation regarding the Issuer or the Bonds other than as contained in this Prospectus. Any such representation or information should not be relied upon as having been authorised by the Issuer or any agency thereof or the Managers (as defined under "Subscription and Sale"). You should carefully evaluate the information provided by the Issuer in light of the total mix of information available to you, recognising that neither the Issuer nor any other person can provide any assurance as to the reliability of any information not contained in this document. Effective from the date of commencement of discussions concerning the Issuer or sale of Bonds, prospective purchasers of Bonds and each of their employees, representatives or other agents may disclose to any and all persons, without limitation of any kind, the U.S. federal income tax treatment and tax structure of the offering and all materials of any kind, including opinions or other tax analyses that the Issuer has provided to such prospective purchasers relating to such U.S.

federal income tax treatment and tax structure. Neither the delivery of this Prospectus nor any sales made in connection with the issue of the Bonds shall, under any circumstances, constitute a representation that there has been no change in the affairs of the Issuer since the date hereof.

This Prospectus does not constitute an offer of, or an invitation by or on behalf of, the Issuer or any agency thereof or any Manager in any jurisdiction where an offer or invitation by or on behalf of the Issuer or any agency thereof or any Manager is not permitted by the laws of such jurisdiction. The distribution of this Prospectus and the offering of the Bonds in certain jurisdictions may be restricted by law. Persons into whose possession this Prospectus comes are required to inform themselves about and to observe any such restrictions. For a description of certain further restrictions on offers and sales of Bonds and distribution of this Prospectus, see "Subscription and Sale," "Form and Transfer of the Bonds" and "Transfer Restrictions." Except as otherwise provided herein, any reference in this Prospectus to an action being taken by the Russian Federation should be construed as a reference to such action being taken by the Ministry of Finance acting on behalf of the Russian Federation.

The Fiscal Agent, the Registrars, the Paying Agents, the Exchange Agent and the Transfer Agents referred to herein make no representation regarding this Prospectus or the Bonds.

To the fullest extent permitted by law, the Managers do not accept any responsibility for the contents of this Prospectus or for any other statement, made or purported to be made by the Managers in connection with the issue and offering of the Bonds. The Managers accordingly disclaim all and any liability whether arising in tort or contract or otherwise which any of them might otherwise have in respect of this Prospectus or any such statement. Each person receiving this Prospectus acknowledges that such person has not relied on any Manager or any person affiliated with any Manager in connection with its investigation of the accuracy of such information or its investment decision.

Each person contemplating making an investment in the Bonds must make its own investigation and analysis of the creditworthiness of the Issuer and its own determination of the suitability of any such investment, with particular reference to its own investment objectives and experience and any other factors which may be relevant to it in connection with such investment.

The Bonds have not been approved or disapproved by the U.S. Securities and Exchange Commission, any State securities commission in the United States or any other U.S. regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits of the offering of the Bonds or the accuracy or adequacy of this Prospectus. Any representation to the contrary is a criminal offence in the United States.

In connection with the issue of the Bonds, VTB Capital plc (the "Stabilising Manager") or any person acting on behalf of the Stabilising Manager may over-allot Bonds or effect transactions with a view to supporting the market price of the Bonds at a level higher than that which might otherwise prevail.

However, there is no assurance that the Stabilising Manager (or any persons acting on behalf of the Stabilising Manager) will undertake stabilisation action. Any stabilisation action may begin on or after the date on which adequate public disclosure of the terms of the offer of the Bonds is made and, if begun, may be ended at any time, but it must end no later than the earlier of 30 days after the issue date of the Bonds and 60 days after the date of the allotment of the Bonds. Any stabilisation or over-allotment must be conducted by the Stabilising Manager (or persons acting on behalf of the Stabilising Manager) in accordance with all applicable laws and rules.

NOTICE TO NEW HAMPSHIRE RESIDENTS NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENCE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES ("RSA" ) WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.

This Prospectus has been prepared by the Issuer for use in connection with the offer and sale of the Bonds outside the United States, the resale of the Bonds in the United States in reliance on Rule 144A under the Securities Act and the admission of the Bonds for listing on the London Stock Exchange. The Issuer and the Managers reserve the right to reject any offer to purchase the Bonds, in whole or in part, for any reason. This Prospectus does not constitute an offer to any person in the United States other than any QIB to whom an offer has been made directly by one of the Managers or its U.S. broker-dealer affiliate.

Distribution of this Prospectus by any person outside the United States or by any QIB in the United States to any person within the United States (other than any QIB and those persons, if any, retained to advise such person outside the United States or QIB with respect thereto) is unauthorised, and any disclosure without the prior written consent of the Issuer of any of its contents to any such person within the United States (other than any QIB and those persons, if any, retained to advise such person outside the United States or QIB) is prohibited.

Credit ratings included or referred to in this Prospectus have been issued by Moody's Investors Service Limited, Standard & Poor's Credit Market Services France S.A.S. and Fitch Ratings Ltd., each of which is established in the European Union (the "EU") and has applied to be registered under Regulation (EC) No. 1060/2009 of the European Parliament and European Council of 16 September 2009 on credit rating agencies.

PRESENTATION OF CERTAIN INFORMATION In this Prospectus, all references to "RUB" or "rouble" are to the lawful currency of the Russian Federation, all references to "dollar" and "U.S.$" are to the lawful currency of the United States of America, all references to "euro" and "€" are to the lawful single currency of member states of the EU that adopt or have adopted the euro as their currency in accordance with the legislation of the EU relating to the European Economic and Monetary Union and all references to interest accruing from a specified date or to a specified date are to interest accruing from and including the first specified date to but excluding the second specified date.

Except as otherwise provided, translations of amounts from one currency into another currency are solely for the convenience of the reader and are made at various exchange rates. No representation is made that amounts referred to herein could have been, or could be, converted into another currency at any particular exchange rate or, in the case of rouble and dollar amounts, at all.

Statistical information reported herein has been derived solely from official publications of, and information supplied by, the U.S. Federal Reserve, solely in respect of dollar to euro exchange rates presented in the section "Exchange Rates" on page v, and the following agencies of the Russian Federation: the Federal Service for State Statistics ("Rosstat"), the Central Bank of the Russian Federation (the "Bank of Russia"), the Central Election Commission, the Federal Service for Financial Markets (the "FSFM"), the Ministry of Finance, the Federal Customs Service (the "Customs Service"), the Ministry of Transport, the Ministry of Health and Social Development, the Ministry of Energy, the Ministry of Foreign Affairs, the Ministry of Economic Development, the Ministry of Industry and Trade, the Federal Agency of Air Transport and State Corporation "Bank for Development and Foreign Economic Affairs (Vnesheconombank)" ("Vnesheconombank"). In certain cases, the Ministry of Finance has performed arithmetic calculations or otherwise determined the form in which information is classified or presented herein. Unless otherwise stated, all annual information, including budget information, is based on calendar years, and interim statistical information has not been annualised.

Data included in this Prospectus have been subject to rounding adjustments; accordingly, data shown for the same item of information may vary, and total figures may not be arithmetical sums of their components. In addition, certain data presented herein differ from data made public previously due to regular revisions conducted by Rosstat, the Bank of Russia, the Ministry of Finance, the Customs Service, Vnesheconombank and other Russian authorities. The Issuer confirms that such information has been accurately reproduced and that as far as the Issuer is aware and is able to ascertain from information published by such sources, no facts have been omitted which would render the reproduced information inaccurate or misleading.

FORWARD-LOOKING STATEMENTS This Prospectus includes forward-looking statements. All statements other than statements of historical fact included in this Prospectus regarding, among other things, the Russian Federation's economy, fiscal condition, politics, debt or prospects may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "project," "intend," "estimate," "anticipate," "believe," "continue," "could," "should," "would" or the like. Although the Issuer believes that expectations reflected in its forward-looking statements are reasonable as at the date of this Prospectus, there can be no assurance that such expectations will prove to have been correct. The Issuer undertakes no obligation to update the forward-looking statements contained in this Prospectus or any other forward-looking statement it may make.

For the Issuer, in addition to the factors described in this Prospectus, including, but not limited to, those discussed under "Risk Factors," the following factors, among others, could cause future conditions to differ materially from those expressed in any forward-looking statements made herein: • External factors, such as: - the impact of the international economic environment on the Russian economy, including liquidity in the international financing markets and volatility in international equity, debt and foreign exchange markets; - interest rates in financial markets outside the Russian Federation; - the impact of any changes in the credit rating of the Russian Federation; - the impact of changes in the international prices of commodities; and - economic conditions in Russia's major export markets.

• Internal factors, such as: - general economic and business conditions in the Russian Federation; - the level of foreign direct and portfolio investment; - changes in interest rates; - the depreciation or appreciation of the rouble; and - governmental, statutory, regulatory or administrative initiatives.

EXCHANGE RATES The following table sets forth the rouble to dollar, the rouble to euro and the dollar to euro exchange rates for the last day of the periods indicated and the average exchange rates during the periods indicated.

Year ended 31 December 2005 2006 2007 2008 2009 2010 (Rouble per U.S.$) Period end 28.78 26.33 24.55 29.38 30.24 30.48 Average for the period(1) 28.28 27.18 25.57 24.98 31.93 30.34 (Rouble per €) Period end 34.19 34.70 35.93 41.44 43.39 40.33 Average for the period(1) 35.26 34.11 35.01 36.41 44.13 40.17 (U.S.$ per €) Period end 1.18 1.32 1.46 1.39 1.46 1.31 Average for the period(1) 1.24 1.27 1.38 1.47 1.40 1.33 Note: (1) The average rates are calculated as the average of the exchange rates on the last business day of each month for the period.

Sources: Bank of Russia; U.S. Federal Reserve.

TABLE OF CONTENTS OVERVIEW 1 RISK FACTORS 5 TERMS AND CONDITIONS OF THE BONDS 9 USE OF PROCEEDS 18 RUSSIAN FEDERATION 19 THE RUSSIAN ECONOMY 26 BALANCE OF PAYMENTS AND FOREIGN TRADE 47 PUBLIC FINANCE 61 MONETARY AND FINANCIAL SYSTEM 79 PUBLIC DEBT AND RELATED MATTERS 96 TAXATION 105 FORM AND TRANSFER OF THE BONDS 110 TRANSFER RESTRICTIONS 117 SUBSCRIPTION AND SALE 118 GENERAL INFORMATION 119 OVERVIEW This overview should be read as an introduction to the Prospectus. Any decision to invest in the Bonds by an investor should be based on consideration of the Prospectus as a whole. Where a claim relating to the information contained in the Prospectus is brought before a court in a Member State of the European Economic Area, the plaintiff may, under the national legislation of the Member State where the claim is brought, be required to bear the costs of translating the Prospectus before the legal proceedings are initiated. References herein to "Conditions" are to the terms and conditions of the Bonds set forth under "Terms and Conditions of the Bonds." Issuer Ministry of Finance of the Russian Federation acting on behalf of the Russian Federation. The Russian Federation is a sovereign and democratic federal state, consisting of 83 sub-federal political units, also referred to as "Federation subjects." Russia is the largest country in the world by land mass, covering 17.1 million square kilometres. Russia borders 16 countries and spans nine time zones, extending some 9,000 kilometres from the Baltic Sea in the west to the Pacific Ocean in the east and some 4,000 kilometres from its southern border on the Black and Caspian Seas to its northern limits on the Arctic Ocean. Bonds Title RUB40,000,000,000 7.85 per cent. Bonds due 2018. Interest The Bonds bear interest from 10 March 2011 at 7.85 per cent. per annum, payable semi-annually in arrear on 10 March and 10 September in each year, commencing on 10 September 2011. Redemption Unless previously redeemed, or purchased and cancelled, each Bond will be redeemed at its principal amount on 10 March 2018 subject as provided in Condition 7. Repurchase The Russian Federation may at any time purchase Bonds in the open market or otherwise at any price. Any Bonds so purchased may be cancelled or held and resold. Status Each of the Bonds constitute direct, unconditional, unsecured and unsubordinated obligations of the Russian Federation and rank pari passu without any preference among themselves and pari passu in all respects with all other present and future unsecured and unsubordinated obligations of the Russian Federation. Events of Default (1) Failure to pay any amount of principal or interest in respect of the Bonds when due and such failure continues for a period of 30 calendar days. (2) Failure to perform or comply with any obligation in respect of the Bonds, which default (if capable of remedy) is not remedied within 60 days after written notice from any Bondholder (as defined in Condition 1 (b)). (3) The acceleration of the maturity of any Public External Indebtedness (as defined in Condition 4(c)), any failure to pay the final instalment of principal in respect of any Public External Indebtedness following the expiration of any applicable grace period, or the acceleration of any obligation under a guarantee constituting Public External Indebtedness or the failure to pay the final instalment of principal in respect of any such guaranteed obligation following the expiration of any applicable grace period, and such guarantee is not honoured; provided that the aggregate amount of the relevant Public External Indebtedness equals or exceeds U.S.$75,000,000 (or its equivalent in any other currency or currencies). (4) The Russian Federation declares a moratorium on the payment of principal of or interest on any part of its Public External Indebtedness. (5) The Russian Federation or any agency or entity acting on behalf of the Russian Federation contests the validity of the Bonds or denies any of the Russian Federation's obligations under such Bonds or it is or becomes unlawful for the Russian Federation to perform or comply with any of its obligations under or in respect of such Bonds or under or in respect of the fiscal agency agreement in respect of the Bonds (the "Fiscal Agency Agreement") or any of such obligations shall be or become unenforceable or invalid. (6) Any regulation, decree, consent, approval, licence or other authority necessary to enable the Russian Federation to enter into or perform its obligations under the Bonds or under the applicable Fiscal Agency Agreement or for the validity or enforceability thereof expires or is withheld, revoked or terminated or otherwise is void or ceases to remain in full force and effect or is modified in a manner which adversely affects any rights or claims of any holder of such Bonds. Negative Pledge So long as any of the Bonds remains outstanding (as defined in the Fiscal Agency Agreement) the Russian Federation will not create or permit to subsist any Lien (as defined in Condition 4(c)) upon the whole or any part of the International Monetary Assets (as defined in Condition 4(c)) to secure any Public External Indebtedness unless, at the same time or prior thereto, the obligations of the Russian Federation under such Bonds are secured equally and rateably therewith. Form The Bonds will be issued in definitive registered form, without interest coupons attached. Unrestricted Bonds, which are offered and sold outside the United States in reliance on Regulation S under the Securities Act, will be represented by beneficial interests in the Unrestricted Global Bond, which will be registered in the name of a nominee for, and will be deposited on or about the Closing Date with a common depositary for, and in respect of interests held through, Euroclear and Clearstream, Luxembourg. Restricted Bonds that are offered and sold within the United States to QIBs in reliance on Rule 144A will be represented by beneficial interests in the Restricted Global Bond, which will be deposited on or about the Closing Date with the Custodian for, and registered in the name of Cede & Co. as nominee for, DTC. The Bonds will be subject to certain restrictions on transfer. See "Form and Transfer of the Bonds" and "Transfer Restrictions." Currency Payments Payments of principal and interest in respect of the Restricted Global Bond will be made, or procured to be made, by the Exchange Agent in accordance with Clause 14 of the Fiscal Agency Agreement (i) in roubles, in the case of a DTC participant who has irrevocably elected to receive payments on the Bonds in roubles and has so notified DTC on or prior to the time required by DTC for payments on the Bonds to be made in roubles, by transfer of same day funds to the rouble bank account designated by such DTC participant, and (ii) in dollars, in the case of all other DTC participants, by the U.S. Paying Agent crediting the participant's dollar account at DTC with the participant's pro-rata portion of the dollars purchased with the applicable Rouble Amount (as defined in "Form and Transfer of the Bonds-DTC, Euroclear and Clearstream, Luxembourg Arrangements") by the Exchange Agent pursuant to the Fiscal Agency Agreement. To the extent the Exchange Agent receives notification from or on behalf of DTC participants of their election to receive roubles in accordance with the Conditions and the Restricted Global Bond, the Exchange Agent shall arrange for payment in accordance with the wire instructions received from such DTC participant. Payments of principal and interest in respect of the Unrestricted Global Bond will be made, or procured to be made, by the Exchange Agent on the date on which a payment becomes due on the Bonds in accordance with Clause 14 of the Fiscal Agency Agreement (i) in dollars, to the extent the Exchange Agent receives notification from or on behalf of accountholders in Euroclear and/or Clearstream, Luxembourg of their irrevocable election to receive payment in dollars and (ii) for all other accountholders in Euroclear and/or Clearstream, Luxembourg, in roubles, in each case through the facilities of Euroclear and Clearstream, Luxembourg. Bondholders whose interests in the Bonds are represented by Bond Certificates (as defined in "Form and Transfer of the Bonds-Exchange of Interests in Global Bonds for Bond Certificates") shall receive all payments in roubles unless such Bondholders irrevocably elect to receive payments on the Bonds in dollars in accordance with Condition 7(c). Further Issues The Russian Federation shall be at liberty from time to time, without the consent of the holders of the Bonds to create and issue further Bonds ranking equally in all respects (or in all respects save for payments made prior to the issuance of such further Bonds and, if applicable, the date and amount of the first payment on such further Bonds) so that the same shall be consolidated and form a single series with such Bonds, provided that such further issuance constitutes a qualified reopening for U.S. federal income tax purposes. Denomination RUB5,000,000. Taxes Subject to certain exceptions, all payments under the Bonds will be made free and clear of any taxes imposed by the Russian Federation. Governing Law English law. No Waiver of Immunity The Russian Federation has not waived any of its sovereign immunity, and has not submitted to the jurisdiction of any court, in respect of its obligations under the Bonds. Listing and Admission to Application has been made for the Bonds to be listed Trading on the Official List and admitted to trading on the Market. Risk Factors Risks associated with the Bonds generally include: (1) risks related to rouble-denominated securities; (2) there can be no assurance that Russia's credit ratings will not be suspended, downgraded or withdrawn; (3) the terms of the Bonds may be modified pursuant to their collective-action provisions; (4) the Bonds may not be a suitable investment for all investors; (5) legal investment considerations may restrict certain investments; and (6) the Bonds are a new issuance of securities with no established trading market. Risks associated with Russia generally include: (1) any material reduction in the price of crude oil or natural gas may materially and adversely affect the revenues and financial condition of the Russian Federation; (2) the Russian Federation's economy, like many economies, is vulnerable to external shocks, and a global economic crisis, significant future economic difficulties of the Russian Federation's major trading partners, and more general "contagion" effects all could have a material adverse effect on the Russian Federation's economic growth and the market for the Bonds; and (3) Russia is a foreign sovereign state, has not waived any rights to sovereign immunity it may have in any jurisdiction and has not submitted to the jurisdiction of any court and accordingly it may be difficult to obtain or enforce judgments against it. These risk factors are described in greater detail under "Risk Factors." RISK FACTORS The Russian Federation believes that the factors described below represent the principal risks inherent in investing in the Bonds. All of these factors are contingencies, which may or may not occur, and the Russian Federation is not in a position to express a view on the likelihood that one or more of these contingencies will in fact occur.

The Russian Federation does not represent that the statements below are an exhaustive list of the risks inherent in investing in the Bonds, and the Russian Federation may be unable to pay amounts due on the Bonds for reasons not described below. Prospective investors should read the detailed information set out elsewhere in this Prospectus and reach their own views prior to making any investment decision.

Risks Relating to the Russian Federation Any material reduction in the price of crude oil or natural gas may materially adversely affect the revenues and financial condition of the Russian Federation The Russian Federation's revenues are affected by international oil and natural gas prices, which have fluctuated widely in recent years in response to global supply and demand, general economic conditions, competition from other energy sources and other factors. In 2008, for example, the peak price of Urals oil was U.S.$140.80 per barrel and the average price per barrel was U.S.$94.37, compared to a peak price of U.S.$78.15 and an average price of U.S.$60.89 in 2009. In 2010, the peak price of Urals oil was U.S.$92.05 per barrel and the average price per barrel was U.S.$78.20. Russia's 2011 Budget Law assumes an average price per barrel of Urals oil of U.S.$75, U.S.$78 and U.S.$79 for 2011, 2012 and 2013, respectively. See "Public Finance-2011 Federal Budget Law." Natural gas prices have likewise fluctuated significantly in recent years, in part because crude oil prices often provide a benchmark for natural gas prices.

In 2008, the lowest monthly average export price of natural gas was U.S.$294.8 per thousand m3, the highest monthly average export price of natural gas was U.S.$417.1 per thousand m3 and the average export price of natural gas was U.S.$359.1 per thousand m3, compared to the lowest monthly average export price of U.S.$217.7 per thousand m3, a peak monthly average export price of U.S.$332.9 per thousand m3 and an average export price of U.S.$257.1 per thousand m3 in 2009. In the first 11 months of 2010, the lowest monthly average export price of natural gas was U.S.$254.9 per thousand m3, the peak monthly average export price of natural gas was U.S.$287.6 per thousand m3 and the average export price of natural gas was U.S.$271 per thousand m3. Any material reduction in the price of crude oil or natural gas will have a significant effect on Russia's budgetary revenues and foreign reserves, and, if sustained, may materially adversely affect the Russian Federation's financial condition.

The Russian Federation's economy, like many economies, is vulnerable to external shocks. A global economic crisis, significant future economic difficulties of the Russian Federation's major trading partners, and more general "contagion"effects all could have a material adverse effect on the Russian Federation's economic growth and the market for the Bonds The Russian Federation's economy and finances were adversely affected in 2008-09 by the global financial crisis. Real gross domestic product ("GDP"), for example, declined by 7.9% in 2009 compared to 2008, and the average unemployment rate (using the definition of the International Labour Organisation (the "ILO")) increased from 7.1% in the fourth quarter of 2008 to 8.0% in the fourth quarter of 2009. The value of the rouble against the dollar also declined in 2009, by 12.2% in real terms, as did the value of the realeffective exchange rate, which fell by 5.6%.

The Russian Federation's economy remains vulnerable to further external shocks.

A significant decline in the economic growth of the EU or any of the Russian Federation's other major trading partners could have a material adverse effect on the Russian Federation's balance of trade and adversely affect the Russian Federation's economic growth.

Events occurring in one geographic or financial market sometimes result in an entire region or class of investments being disfavoured by international investors-so-called "contagion effects." The Russian Federation has been adversely affected by contagion effects in the past, and it is possible that the market for Russian investments, including the Bonds, will be similarly affected in the future by negative economic or financial developments in countries whose economies or credit ratings are similar to those of the Russian Federation.

There can be no assurance that a future external economic crisis will not have a negative effect on investors' confidence in Russia's markets or on the Russian Federation's economy or ability to raise capital in the international debt markets, all of which could have a material adverse effect on the trading price of the Bonds.

No waiver of immunity; enforcement of liabilities The Russian Federation is a sovereign state and has not waived any rights to sovereign immunity it may have in any jurisdiction. Accordingly, the Russian Federation may be entitled to immunity from suit in any action or proceeding in any jurisdiction arising out of the Bonds, and the Russian Federation and its assets, properties and revenues may be entitled to immunity in any related enforcement action. The Russian Federation has also not submitted to the jurisdiction of any court, agreed that any disputes may be resolved in any forum or appointed any agent for service of process in any jurisdiction, in connection with any action or proceeding arising out of the Bonds. As a result of the foregoing, it may be difficult or impossible for an investor to obtain a judgment against the Russian Federation in a foreign court and/or have such judgment recognised and/or enforced in any jurisdiction.

A final judgment rendered by a foreign court will generally be recognised and enforced in the Russian Federation if there is an international treaty in effect between the Russian Federation and the country where the judgment is rendered providing for the mutual recognition and enforcement of judgments.

There are no international treaties in effect today providing for the mutual recognition and enforcement of foreign judgments rendered by courts in the Russian Federation and courts in most of the countries where Bond investors are likely to reside, including the United States and the United Kingdom.

In the absence of an applicable treaty, enforcement of a final judgment rendered by a foreign court may still be recognised by a Russian court on the basis of reciprocity, if courts of the country where the foreign judgment is rendered have previously enforced judgments issued by Russian courts. While Russian courts have recently recognised and enforced English and Dutch court judgments on these grounds, the existence of reciprocity must be established at the time the recognition and enforcement of a foreign judgment is sought, and it is not possible to predict whether a Russian court will in the future recognise and enforce on the basis of reciprocity a judgment issued by a foreign court, including an English or Dutch court.

Even if an applicable international treaty is in effect or a foreign judgment might otherwise be recognised and enforced on the basis of reciprocity, the recognition and enforcement of a foreign judgment will in all events be subject to exceptions and limitations provided for in Russian law. For example, a Russian court may refuse to recognise or enforce a foreign judgment if its recognition or enforcement would contradict Russian public policy.

As a result, it may be difficult to obtain recognition or enforcement in the Russian Federation of a foreign judgment in respect of the Bonds.

Risks Relating to the Bonds Risks relating to rouble-denominated securities Currency exchange rates can be volatile and unpredictable. See "Monetary and Financial System-Monetary Policy-Exchange Rates" for a presentation of historical rouble/dollar and rouble/euro exchange rates. The effective yield realised by an investor whose currency of investment or account is a currency other than the rouble will be adversely affected by the depreciation of the rouble against the investor's currency of investment or account. Depreciation of the rouble against the dollar or euro may thus affect the market value of the Bonds and could result in an investor realising a loss on the Bonds even if the Bonds are timely paid in full.

Prior to June 2004, when a new currency law came into force, the convertibility of the rouble was heavily regulated. Russia has subsequently eliminated most exchange controls, as described in "Monetary and Financial System-Foreign Exchange Regulations." If the Bank of Russia were to reintroduce exchange controls, they could adversely affect the value of the rouble relative to the dollar or the euro, and impede or prevent bondholders from converting rouble payments into foreign currencies, either of which would materially and adversely affect the market value of the Bonds.

For investors (x) holding Bonds through (i) DTC who have not made an irrevocable election to receive payment in roubles and (ii) Euroclear and/or Clearstream, Luxembourg who have made an irrevocable election to receive payment in dollars or (y) whose Bonds are represented by Bond Certificates and who have made an irrevocable election to receive payment in dollars, the rouble interest and principal payments made by the Russian Federation will be converted into dollars by the Exchange Agent at a purchase price equal to (a) the bid price then used by the Exchange Agent to purchase dollars with roubles for its own account, or (b) if no such bid price is then available from the Exchange Agent, at the bid price for the purchase of dollars with roubles quoted by a leading foreign exchange bank in London or New York City selected by the Exchange Agent, in each case for delivery on the date on which a payment becomes due on the Bonds (the "Relevant Bond Payment Date"). Although the Exchange Agent has agreed in the Fiscal Agency Agreement to ensure that each purchase of dollars with the related aggregate rouble amount will represent the "best execution" for that trade then available to the Exchange Agent, no assurance can be given that the amount of dollars received by an investor will be equal to the amount of dollars that the investor could have realised in the foreign exchange market if the interest and principal payments made on the investor's Bonds were instead paid directly to the investor in roubles.

Debt instruments denominated and settled in roubles have only been accepted for clearance through Euroclear and Clearstream, Luxembourg since 2007, and only a small number of rouble-denominated debt instruments are now settled through these clearing systems. Due to the relative lack of experience of Euroclear and Clearstream, Luxembourg with settling, clearing and trading rouble-denominated debt instruments, there can be no assurance that the clearing, settlement and trading of the Bonds held through Euroclear or Clearstream, Luxembourg will be effected in the same manner as the clearing, settlement and trading of dollar- or euro-denominated instruments.

Holders of Bonds held through Euroclear or Clearstream, Luxembourg who have not irrevocably elected to receive payments in dollars will be required to open and maintain a rouble-denominated bank account. There are significant practical difficulties associated with opening rouble-denominated bank accounts outside Russia, and no assurance can be given that holders will be able either to open or maintain an offshore rouble bank account. Such holders of Bonds who do not open and maintain a rouble-denominated bank account will be unable to transfer from their accounts at Euroclear and Clearstream, Luxembourg the rouble payments made on the Bonds or any rouble proceeds realised from the sale of their Bonds.

Furthermore, Bondholders whose interests in the Bonds are represented by the Restricted Global Bond and who hold their Bonds through a sub-account in Euroclear or Clearstream, Luxembourg may not have the option to elect to receive payments on the Bonds in dollars as Euroclear or Clearstream, Luxembourg may not provide such option in practice in such circumstances.

Credit ratings may not reflect all risks The Russian Federation has been assigned local currency long-term debt credit ratings of Baa1 (Moody's), BBB+ (Standard & Poor's) and BBB (Fitch). Each of the Moody's and Standard & Poor's ratings has a stable outlook; Fitch has a positive outlook. A credit rating is not a recommendation to buy, sell or hold the Bonds, and is subject to revision or withdrawal at any time by the assigning rating agency. No assurance can be given that the Russian Federation's current or future sovereign ratings will not be downgraded or withdrawn entirely, if circumstances in the future so warrant in the judgment of the assigning rating agency. The Russian Federation has no obligation to inform Bondholders of any revision, downgrade or withdrawal of its current or future sovereign credit ratings. A suspension, downgrade or withdrawal at any time of a credit rating assigned to the Russian Federation may adversely affect the market price of the Bonds.

Modification The Bonds may generally be modified with the consent of persons holding or representing at least 662/3 per cent. of the votes cast at a meeting of Bondholders called for that purpose, so long as the meeting is attended by two or more persons holding or representing a clear majority of the aggregate principal amount of such outstanding Bonds (or by two or more persons being or representing Bondholders in the case of an adjourned meeting). The maturity, principal amount, interest rate and other payment terms of the Bonds may be modified with the consent of persons holding or representing at least 75 per cent. of the votes cast at a meeting of Bondholders called for that purpose, so long as the meeting is attended by persons holding or representing at least 75 per cent. of the aggregate principal amount of such outstanding Bonds (or by persons holding or representing at least 25 per cent. of the aggregate principal amount of such outstanding Bonds in the case of an adjourned meeting). Under these collective-action provisions, modifications to the terms of the Bonds that are so approved are binding on all Bondholders, including Bondholders that did not attend or vote at the Bondholders' meeting or that voted against the approved modifications.

Bonds may not be a suitable investment for all investors Potential investors should determine the suitability of an investment in the Bonds in light of their own circumstances. In particular, investors should: • understand thoroughly the terms of the Bonds; • have sufficient knowledge and experience to make a meaningful evaluation of the Bonds, the information contained in this Prospectus, and the merits and risks of investing in the Bonds; • have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of their particular financial situation, an investment in the Bonds and the effect that investment will have on their overall investment portfolio; • have sufficient financial resources and liquidity to bear all of the risks of an investment in the Bonds; and • be able to evaluate (either alone or with the help of a financial advisor) how the Bonds will perform under changing conditions as well as possible economic, interest rate, exchange rate and other developments that may affect their investment and their ability to bear all of the risks of that investment.

Legal investment considerations may restrict certain investments The investment activities of certain investors are subject to investment laws and regulations, or review or regulation by applicable authorities. Potential investors should consult their legal advisors to determine whether and to what extent (1) the Bonds are legal investments for them, (2) the Bonds can be used as collateral for various types of borrowing and (3) other restrictions apply to their purchase or pledge of any Bonds. Financial institutions should consult their legal advisors or the appropriate regulators to determine the appropriate treatment of the Bonds under any applicable risk-based capital or similar rules.

The secondary market generally The Bonds are a new issuance of securities with no established trading market.

Although application has been made to list the Bonds on the London Stock Exchange, the listing does not assure that a trading market for the Bonds will develop. If a market does develop, it may not be liquid. Therefore, investors may not be able to sell their Bonds easily or at prices that will provide them with a yield comparable to similar investments that have a developed secondary market.

TERMS AND CONDITIONS OF THE BONDS The following is the text of the terms and conditions of the Bonds which, subject to amendment, will be endorsed on each Bond Certificate (as defined below) and will be attached and (subject to the provisions thereof) apply to each Global Bond.

The RUB40,000,000,000 7.85 per cent. Bonds due 2018 (the "Bonds") (which expression includes any further Bonds issued pursuant to Condition 13 and forming a single series with the Bonds) of the Ministry of Finance of the Russian Federation (the "Ministry of Finance") acting on behalf of the Russian Federation (the "Russian Federation") were authorised pursuant to the provisions of Federal Law No. 136-FZ of 29 July 1998 (as amended) "On the Specifics of Issuance and Circulation of State and Municipal Securities"; Federal Law No. 357-FZ of 13 December 2010 "On the Federal Budget for 2011 and 2012-2013 (forecast)"; Resolution of the Government of the Russian Federation dated 27 December 2010 No. 2391-r; Resolution of the Government of the Russian Federation dated 12 October 2010 No. 824; Order of the Ministry of Finance dated 3 November 2010 No. 141n; and Order of the Ministry of Finance dated 25 February 2011 No. 60. The fiscal agency agreement dated 4 March 2011 (the " Fiscal Agency Agreement") has been entered into in relation to the Bonds by the Russian Federation, Deutsche Bank AG, London Branch, as fiscal agent (the " Fiscal Agent"), Deutsche Bank Trust Company Americas as U.S. registrar (the " U.S. Registrar") and Deutsche Bank Luxembourg S.A. as Luxembourg registrar (the "Luxembourg Registrar" and together with the U.S. Registrar, the "Registrars" and each a "Registrar"), the other paying agent named therein (together with the Fiscal Agent, the "Paying Agents"), the transfer agents named therein (the "Transfer Agents") and the exchange agent named therein (the "Exchange Agent").

In these Conditions, "Fiscal Agent," "Registrar," "Paying Agent," "Exchange Agent" and "Transfer Agent" shall include any successors appointed from time to time in accordance with the provisions of the Fiscal Agency Agreement for the Bonds, and any reference to an "Agent" or "Agents" shall mean any or all (as applicable) of such persons.

Copies of the Fiscal Agency Agreement are available for inspection during usual business hours at the principal office of the Fiscal Agent (currently Winchester House, 1 Great Winchester Street, London EC2N 2DB) and at the specified offices of each of the other Agents. The Bondholders (as defined in Condition 1(b)) are bound by, and are deemed to have notice of, the provisions of the Fiscal Agency Agreement for the Bonds, including any provision on the Fiscal Agency Agreement which amends or supplements the Bonds.

1 Form, Denomination and Title (a)Form and Denomination The Bonds are in definitive fully registered form, without interest coupons attached, in the denomination of RUB5,000,000 (the "authorised denomination").

A certificate (each a "Bond Certificate") will be issued to each Bondholder in respect of its registered holding or holdings of Bonds. Each Bond Certificate will be numbered serially with an identifying number which will be recorded in the register(s) (together, the "Register") which the Russian Federation shall procure to be kept by the Registrars.

(b)Title Title to the Bonds will pass by and upon registration in the Register. In these Conditions, "Bondholder" and "holder" mean the person in whose name a Bond is registered in the Register (or, in the case of joint holders, the first-named thereof). The holder of any Bond will (except as otherwise requested by such holder in writing, or as otherwise ordered by a court of competent jurisdiction or required by law) be treated as its absolute owner for all purposes, whether or not it is overdue and regardless of any notice of ownership, trust or any interest therein, any writing thereon by any person (other than a duly executed transfer thereof in the form endorsed thereon) or any notice of any previous theft or loss thereof, and no person will be liable for so treating the holder.

2 Transfer of Bonds and Issue of Bonds (a)Transfer Subject to Condition 2(d), a Bond may be transferred in whole or in part in the authorised denomination upon the surrender of the Bond Certificate representing that Bond, together with the form of transfer (including any certification as to compliance with restrictions on transfer included in such form of transfer) endorsed thereon (the "Transfer Form") duly completed and executed, at the specified office of the relevant Registrar or any Transfer Agent, together with such evidence as such Registrar or, as the case may be, such Transfer Agent may reasonably require to prove the title of the transferor and the authority of the persons who have executed the Transfer Form. In the case of a transfer of part only of the Bonds represented by a Bond Certificate, neither the part transferred nor the balance not transferred may be less than the authorised denomination and a new Bond Certificate in respect of the balance not so transferred will be issued to the transferor.

(b)Delivery Each new Bond Certificate to be issued upon a transfer of any Bonds will, within five business days of the request for transfer being duly made, be delivered at the specified office of the relevant Registrar or, as the case may be, any Transfer Agent or (at the request and the risk of such transferee) be mailed by uninsured post to such address as the transferee entitled to the Bonds represented by such Bond Certificate may have specified. In this Condition 2(b), "business day" means a day (other than a Saturday or Sunday) on which commercial banks are open for business (including dealings in foreign currencies) in the cities in which the relevant Registrar and any such Transfer Agent have their respective specified offices.

(c)No Charge Registration or transfer of Bonds will be effected without charge to the holder or transferee thereof, but upon payment (or against such indemnity from the holder or the transferee thereof as the relevant Registrar or the relevant Transfer Agent may reasonably require) in respect of any tax or other duty of whatever nature which may be levied or imposed in connection with such registration or transfer.

(d)Closed Periods No Bondholder may require the transfer of a Bond to be registered during the period of 15 calendar days ending on the due date for any payment of principal in respect of such Bond.

(e)Regulations Concerning Transfer and Registration All transfers of Bonds and entries on the Register will be made subject to the detailed regulations concerning transfer of Bonds scheduled to the Fiscal Agency Agreement. The regulations may be changed by the Russian Federation in a manner which is reasonably required by the Russian Federation (after consultation with the Registrars) to reflect changes in legal requirements or in any other manner which is not prejudicial to the interests of the Bondholders. A copy of the current regulations will be sent by a Registrar to any Bondholder who so requests.

3 Status The Bonds constitute direct, unconditional, unsecured and unsubordinated obligations of the Russian Federation and the full faith and credit of the Russian Federation is pledged for the due and punctual payment of principal of, and interest on, the Bonds and for the performance of all other obligations of the Russian Federation pursuant to the Bonds. The Bonds shall at all times rank pari passu without any preference among themselves and pari passu in all respects with all other present and future unsecured and unsubordinated obligations of the Russian Federation.

4 Negative Pledge and Covenant (a)Negative Pledge So long as any of the Bonds remains outstanding (as defined in the Fiscal Agency Agreement) the Russian Federation will not create or permit to subsist any Lien upon the whole or any part of the International Monetary Assets to secure any Public External Indebtedness unless, at the same time or prior thereto, the obligations of the Russian Federation under the Bonds are secured equally and rateably therewith.

(b)Covenant So long as any Bond remains outstanding the Russian Federation shall obtain, and do or cause to be done all things necessary to ensure the continuance of, all consents, licences, approvals and authorisations, and make or cause to be made all registrations, recordings and filings, which may at any time be required to be obtained or made in the Russian Federation for the execution, delivery or performance of the Bonds or for the validity or enforceability thereof.

(c)Definitions In these Conditions: "Excluded Indebtedness" means any obligation of the Russian Federation, the Government of the Russian Federation, the Ministry of Finance, Vnesheconombank of the U.S.S.R. (now known as state corporation "Bank for Development and Foreign Economic Affairs (Vnesheconombank)") or any other person that may arise from time to time representing restructured indebtedness originally incurred prior to 1 January 1992 by the government of the former Soviet Union or any of its legally authorised entities, other than the Russian Federation U.S. Dollar Denominated Bonds due 2007 to 2030.

"External Indebtedness" means Indebtedness (i) which is not Excluded Indebtedness, (ii) which is denominated or payable, or at the option of the relevant creditor or holder thereof may be payable, in a currency other than the lawful currency of the Russian Federation and (iii) which was not originally incurred or assumed under an agreement or instrument made with or issued to creditors substantially all of whom were residents of the Russian Federation or entities having their head office or principal place of business within the territory of the Russian Federation. For the avoidance of doubt, External Indebtedness does not include Internal Government Hard Currency Bonds known as "OVVZs," "Taiga" bonds or "MinFins" or any bonds representing restructured internal hard currency bonds of the Government of the Russian Federation.

"Government of the Russian Federation" means the Government of the Russian Federation as provided in Article 110 of the Constitution of the Russian Federation, or any successor article, from time to time.

"IMF" means the International Monetary Fund.

"Indebtedness" means any legal obligation or any obligation intended by its terms to be a legal obligation (whether present or future, actual or contingent, secured or unsecured, incurred as principal, surety, guarantor or otherwise) for the payment or repayment of borrowed money created (or intended by its terms to have been created) under an agreement or instrument in which the Russian Federation, the Government of the Russian Federation or the Ministry of Finance is designated as the obligor, or which by operation of Russian law constitutes a legal obligation of the Russian Federation, the Government of the Russian Federation or the Ministry of Finance (it being understood that neither the Central Bank of the Russian Federation, nor any political subdivision, regional or municipal government, ministry (other than the Ministry of Finance), department, authority or statutory corporation of the Russian Federation nor any joint stock company, enterprise or other entity organised or existing under the laws or regulations of the Russian Federation or any of the above, is considered to be part of the Russian Federation, the Government of the Russian Federation or the Ministry of Finance for purposes hereof).

"International Monetary Assets" means all official holdings of gold, Special Drawing Rights, Reserve Positions in the Fund and Foreign Exchange of the Ministry of Finance or the Government of the Russian Federation from time to time (but not, for the avoidance of doubt, any such assets of the Central Bank of the Russian Federation at any time), and the terms "Special Drawing Rights," "Reserve Positions in the Fund" and "Foreign Exchange" have, as to the types of assets included, the meanings given to them in the IMF's publication entitled "International Financial Statistics" or such other meanings as shall be formally adopted by the IMF from time to time.

"Lien" means any lien, pledge, hypothecation, mortgage, security interest, deed of trust, charge or any other encumbrance arising under a security agreement or arrangement.

"Public External Indebtedness" means External Indebtedness which (i) is in the form of, or represented by, bonds, notes or other securities or any guarantee thereof and (ii) is, or may be, quoted, listed or ordinarily purchased and sold on any stock exchange, automated trading system or over-the-counter or other securities market (including, without prejudice to the generality of the foregoing, the market for securities eligible for resale pursuant to Rule 144A under the United States Securities Act of 1933, as amended (the "Securities Act")).

5 Interest Each Bond bears interest on its outstanding principal amount from 10 March 2011 at 7.85 per cent. per annum, payable semi-annually in arrear on 10 March and 10 September in each year until maturity, commencing on 10 September 2011 (each, an "Interest Payment Date"). Interest will be paid subject to and in accordance with the provisions of Condition 7. The period beginning on and including 10 March 2011 and ending on but excluding the first Interest Payment Date and each successive period beginning on and including an Interest Payment Date and ending on but excluding the next successive Interest Payment Date is called an "Interest Period".

Each Bond will cease to bear interest from the due date for redemption unless, after surrender of such Bond, payment of principal is improperly withheld or refused, in which case the outstanding principal amount of such Bond will continue to bear interest at the rate specified above (after as well as before judgment) until whichever is the earlier of (a) the day on which all sums due in respect of such Bond up to that day are received by or on behalf of the relevant Bondholder and (b) the day which is seven days after notice has been given to the Bondholders that the Fiscal Agent has received all sums due in respect of the Bonds up to such seventh day (except, in the case of payment to the Fiscal Agent, to the extent that there is any subsequent default in payment in accordance with these Conditions).

If interest is required to be calculated for a period of equal to or less than a complete Interest Period, it will be calculated on the basis of a year of 360 days consisting of 12 months of 30 days each and, in the case of an incomplete month, the actual number of days elapsed.

6 Redemption, Purchase and Cancellation (a)Redemption Unless previously redeemed, or purchased and cancelled, each Bond will be redeemed at its principal amount on 10 March 2018 (the "Maturity Date") subject as provided in Condition 7.

(b)Purchase and Cancellation The Russian Federation and its affiliates may at any time purchase Bonds in the open market or otherwise at any price. Any Bonds so purchased may be cancelled or held and resold (provided that such resale is outside the United States, as defined in Regulation S under the Securities Act). Any Bonds so cancelled will not be reissued.

7 Payments Payments of principal and interest in respect of the Restricted Global Bond will be made, or procured to be made, by the Exchange Agent in accordance with Clause 14 of the Fiscal Agency Agreement (i) in Russian roubles, in the case of a DTC participant who has irrevocably elected to receive payments on the Bonds in Russian roubles and has so notified DTC on or prior to the time required by DTC for payments on the Bonds to be made in Russian roubles, by transfer of same day funds to the Russian rouble bank account designated by such DTC participant, and (ii) in U.S. dollars, in the case of all other DTC participants, by the U.S. Paying Agent crediting the participant's U.S. dollar account at DTC with the participant's pro-rata portion of the U.S. dollars purchased with the applicable Rouble Amount by the Exchange Agent pursuant to the Fiscal Agency Agreement. To the extent the Exchange Agent receives notification from or on behalf of DTC participants of their election to receive Russian roubles in accordance with the Conditions and the Restricted Global Bond, the Exchange Agent shall arrange for payment in accordance with the wire instructions received from such DTC participant.

Payments of principal and interest in respect of the Unrestricted Global Bond will be made, or procured to be made, by the Exchange Agent on the Relevant Bond Payment Date in accordance with Clause 14 of the Fiscal Agency Agreement (i) in U.S. dollars, to the extent the Exchange Agent receives notification from or on behalf of accountholders in Euroclear and/or Clearstream, Luxembourg of their irrevocable election to receive payment in U.S. dollars and (ii) for all other accountholders in Euroclear and/or Clearstream, Luxembourg, in Russian roubles, in each case through the facilities of Euroclear and Clearstream, Luxembourg.

(a)Principal Payments of principal in respect of each Bond will be made by transfer to a Russian rouble bank account or, in the case of an election pursuant to Condition 7(c), a U.S. dollar bank account, maintained by the Bondholder. Such payment will be made only upon presentation and surrender of the relevant Bond Certificate at the specified office of any of the Paying Agents and will be rounded downwards, if necessary, to the nearest kopeck.

For the purposes of this Condition 7(a) the holder of such Bond will be deemed to be the person shown as the holder (or the first-named of joint holders) on the Register at the relevant Registrar's close of business on the fifteenth day before the due date for such payment of principal and the outstanding amount of each Bondholder's registered holding will be deemed to be the amount shown as such on the Register for such Bondholder at the same time on that date.

(b)Interest Payments of interest (other than interest due on redemption) in respect of each Bond will be made by transfer to a Russian rouble bank account or, in case of an election pursuant to Condition 7(c), a U.S. dollar bank account, maintained by the Bondholder and will be rounded downwards, if necessary, to the nearest kopeck. For the purposes of this Condition 7(b) the holder of such Bond will be deemed to be the person shown as the holder (or the first-named of joint holders) on the Register on the fifteenth day before the due date for such payment of interest.

Payment of interest due on redemption will be made in the same manner as payment of the principal of a Bond.

(c)U.S. Dollar Payment Election Bondholders may, no later than the fifteenth day before the due date for any payment of interest or principal, give an irrevocable election to the relevant Registrar to receive such payment of interest or principal, as the case may be, in U.S. dollars. Upon any such election, such interest or principal will be converted into U.S. dollars by the Exchange Agent and paid on the relevant payment date in accordance with the provisions of Clause 14 of the Fiscal Agency Agreement.

(d)Payments Subject to Fiscal Laws All payments of principal and interest in respect of the Bonds are subject in all cases to any applicable fiscal or other laws and regulations, but without prejudice to the provisions of Condition 8.

(e)Commissions No commissions or expenses shall be charged to the Bondholders in respect of any payments of principal or interest in respect of the Bonds.

(f)Payments on Business Days Where payment is to be made by transfer to a Russian rouble account or, as the case may be, a U.S. dollar account, payment instructions (for value the due date or, if that is not a business day, for value the first following day which is a business day) will be initiated on the due date for payment or, if later, in the case of principal and interest due on redemption, on the business day on which the relevant Bond Certificate is presented and surrendered at the specified office of any of the Paying Agents.

In these Conditions, "business day" means a day (other than a Saturday or Sunday) on which commercial banks are open for business in Moscow and New York City and, in the case of the surrender of a Bond Certificate, in the place where the Bond Certificate is surrendered.

(g)Delay in Payments Bondholders will not be entitled to any interest or other payment for any delay after the due date in receiving any amount due in respect of any Bond as a result of (i) the due date not being a business day or (ii) the Bondholder being late in presenting or surrendering its Bond Certificate (if required to do so).

(h)Partial Payments If at any time a partial payment is made in respect of any Bond, the relevant Registrar shall endorse the relevant Register with a statement indicating the amount and date of such payment.

(i)Agents The initial Agents and their initial specified offices are listed below. Any of the Agents may resign in accordance with the provisions of the Fiscal Agency Agreement and the Russian Federation reserves the right at any time to vary or terminate the appointment of any Agent and appoint additional or other Agents, provided that while the Bonds are outstanding it will maintain (i) a Fiscal Agent, (ii) a Registrar and (iii) an Exchange Agent and (iv) a Paying Agent and a Transfer Agent having a specified office in a major European city which will be in London, so long as the Bonds are listed on the London Stock Exchange and the rules of the London Stock Exchange so require. Notice of any change in the Agents or their specified offices will promptly be given to the Bondholders in accordance with Condition 14.

8 Taxation All payments of principal and interest in respect of the Bonds by the Russian Federation shall be made free and clear of, and without withholding or deduction for, any taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by the Russian Federation or any political subdivision or any authority thereof or therein having power to tax (together, "Taxes"), unless such withholding or deduction is required by law. If at any time any Taxes are withheld or deducted, the Russian Federation shall increase the payment of principal or interest, as the case may be, to such amount as will result in the receipt by the Bondholders of such amounts as would have been received by them had no such withholding or deduction been required, except that no such increased amount shall be payable: (a) to a holder, or to a third party on behalf of a holder, if such holder is liable to such Taxes by reason of having some connection with the Russian Federation other than the mere holding of a Bond or the receipt of payments thereunder; (b) if the Bond Certificate representing a Bond is presented and surrendered for payment more than 30 days after the Relevant Date, except to the extent that the holder would have been entitled to such additional amounts on presentation and surrender of such Bond Certificate for payment on the last day of such period of 30 days; (c) where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to European Council Directive 2003/48/EC or any other Directive implementing the conclusions of the ECOFIN Council meeting of 26-27 November 2000 on the taxation of savings income or any law implementing or complying with, or introduced in order to conform to, such Directive; or (d) to a holder, or to a third party on behalf of a holder, who would have been able to avoid such withholding or deduction by presenting the relevant Bond Certificate representing a Bond to another Paying Agent in a Member State of the European Union.

If, in relation to any payment under the Bonds (a "Payment") any Bondholder has received any increased amount as provided in this Condition 8, the Russian Federation shall have the right to retain any refund of any amount withheld or deducted in respect of such Payment, which refund may be available under a tax treaty or otherwise to such Bondholder. Notwithstanding the foregoing, no Bondholder makes any representation or warranty that the Russian Federation will be entitled to any such refund (or to make any claim in respect thereof) and no Bondholder shall incur any obligation with respect thereto (including, without limitation, incurring any expense or liability in connection therewith).

For the avoidance of doubt, the Russian Federation acknowledges that it shall have no right to make any deduction or withholding in respect of (nor will it purport to set off any amount equal to) any such refund from any payment in respect of any Bond.

In these Conditions, "Relevant Date" means whichever is the later of (i) the date on which the payment in question first becomes due and (ii) if the full amount payable has not been received by the Fiscal Agent on or prior to such due date, the date on which (the full amount having been so received) notice to that effect has been given to the Bondholders.

Any reference in these Conditions to principal or interest in respect of the Bonds shall be deemed to include any increased amounts which may be payable under this Condition 8.

9 Events of Default If any of the following occurs and is continuing (each an "Event of Default") in respect of the Bonds, as applicable: (a)Non-payment The Russian Federation fails to pay any amount of principal or interest in respect of the Bonds, as the case may be, when due and such failure continues for a period of 30 calendar days; or (b)Breach of other obligations or undertakings The Russian Federation defaults in performance or observance of or compliance with any of its other obligations or undertakings in respect of the Bonds, as the case may be, which default (if capable of remedy) is not remedied within 60 days after written notice of such default shall have been given to the Russian Federation by any holder of the Bonds, as the case may be, it being understood that a default in respect of the undertaking set forth in Condition 4(a) shall be deemed capable of remedy for purposes hereof; or (c)Cross-acceleration Any Public External Indebtedness shall become due and payable prior to the stated maturity thereof otherwise than at the option of the debtor following a default or the Russian Federation, the Government of the Russian Federation or the Ministry of Finance shall fail to make the final payment of principal in respect of any Public External Indebtedness on the date on which such final payment is due and payable or at the expiration of any grace period originally applicable thereto or, in the case of any guarantee which constitutes Public External Indebtedness, the underlying obligation in respect of which such guarantee has been given shall have become due and payable prior to the stated maturity thereof otherwise than at the option of the debtor following a default or the debtor shall have failed to make the final payment of principal in respect of such underlying obligation on the date on which such final payment is due and payable or at the expiration of any grace period originally applicable thereto and the guarantee shall not be honoured when due and called upon; provided that the aggregate amount of the relevant Public External Indebtedness in respect of which one or more of the events mentioned in this Condition 9(c) shall have occurred equals or exceeds U.S.$75,000,000 (or its equivalent in any other currency or currencies); and provided, further, that any secured Public External Indebtedness that by its terms is fully non-recourse to the Russian Federation, the Government of the Russian Federation or the Ministry of Finance shall not be counted as Public External Indebtedness for purposes of this Condition 9(c); or (d)Moratorium A moratorium on the payment of principal of, or interest on, all or any part of Public External Indebtedness; or (e)Unlawfulness or Invalidity The validity of the Bonds is contested by the Russian Federation or any agency or entity acting on behalf of the Russian Federation or the Russian Federation or any agency or entity acting on behalf of the Russian Federation shall deny any of the Russian Federation's obligations under the Bonds or it is or will become unlawful for the Russian Federation to perform or comply with any of its obligations under or in respect of the Bonds or under or in respect of the Fiscal Agency Agreement or any of such obligations shall be or become unenforceable or invalid; or (f)Consents etc.

Any regulation, decree, consent, approval, licence or other authority necessary to enable the Russian Federation to enter into or perform its obligations under the Bonds or under the Fiscal Agency Agreement or for the validity or enforceability thereof shall expire or be withheld, revoked or terminated or otherwise be void or cease to remain in full force and effect or shall be modified in a manner which adversely affects any rights or claims of any of the holders of the Bonds, as the case may be, then holders of 25 per cent. or more in aggregate outstanding principal amount of the Bonds may declare the Bonds to be immediately due and payable whereupon the Bonds shall become immediately due and payable at their principal amount, together with accrued interest, without any further formality.

If the Russian Federation receives notice in writing from holders of at least 50 per cent. in aggregate principal amount of the outstanding Bonds to the effect that the Event of Default or Events of Default giving rise to any above mentioned declaration of acceleration is or are cured following any such declaration and that such holders wish the relevant declaration to be withdrawn, the Russian Federation shall give notice thereof to the Bondholders (with a copy to the Fiscal Agent), whereupon the relevant declaration shall be withdrawn and shall have no further effect, but without prejudice to any rights or obligations which may have arisen before the Russian Federation gives such notice (whether pursuant to these Conditions or otherwise). No such withdrawal shall affect any other or any subsequent Event of Default or any right of any Bondholder in relation thereto.

10 Prescription Claims against the Russian Federation in respect of principal and interest shall become void unless made within a period of three years from the date following the Maturity Date or a relevant Interest Period Date, as applicable.

11 Replacement of Bond Certificates If any Bond Certificate is lost, stolen, mutilated, defaced or destroyed, it may be replaced at the specified office of a Registrar or a Transfer Agent subject to all applicable laws and stock exchange requirements, upon payment by the claimant of the expenses incurred in connection with such replacement and on such terms as to evidence, security, indemnity and otherwise as the Russian Federation may reasonably require. Mutilated or defaced Bond Certificates must be surrendered before replacements will be issued.

12 Meetings of Bondholders, Written Resolutions; Modification and Waiver (a)Meetings of Bondholders, Written Resolutions The Fiscal Agency Agreement contains provisions for convening meetings of Bondholders to consider any matter affecting their interests, including the modification by Extraordinary Resolution of these Conditions. The quorum at any such meeting for passing an Extraordinary Resolution shall (subject as provided in the Fiscal Agency Agreement in the event that all outstanding Bonds are held by one person) be two or more persons holding or representing a clear majority of the aggregate principal amount of the outstanding Bonds, or at any meeting that is adjourned two or more persons being or representing Bondholders (whatever the principal amount of the outstanding Bonds so held or represented), and the majority for passing an Extraordinary Resolution at any such meeting shall be at least 662/3 per cent. of the votes cast except that at any meeting the business of which includes consideration of proposals on Reserved Matters, including, inter alia, (i) to modify the maturity of the Bonds, (ii) to reduce or cancel the principal amount of, or interest on, the Bonds, (iii) to change the currency of payment of the Bonds, (iv) to modify the provisions concerning the quorum required at any meeting of Bondholders or the majority required to pass an Extraordinary Resolution or (v) to modify the percentage required to pass any resolution, the necessary quorum for passing an Extraordinary Resolution shall (subject as provided in the Fiscal Agency Agreement in the event that all outstanding Bonds are held by one person) be two or more persons holding or representing at least 75 per cent. of the aggregate principal amount of the outstanding Bonds, or at any meeting that is adjourned at least 25 per cent. of the aggregate principal amount of the outstanding Bonds, and the majority for passing an Extraordinary Resolution on a Reserved Matter at any such meeting shall be at least 75 per cent. of the votes cast. An Extraordinary Resolution duly passed at any meeting of Bondholders will be binding on all Bondholders whether or not they are present at the meeting.

In addition, the Fiscal Agency Agreement contains provisions relating to Written Resolutions. A "Written Resolution" means a resolution in writing signed by or on behalf of holders of at least 75 per cent. of the aggregate principal amount of the outstanding Bonds, in the case of a Reserved Matter, or 662/3 per cent. of the aggregate principal amount of the outstanding Bonds, in the case of a matter other than a Reserved Matter. Any Written Resolution may be contained in one document or several documents in like form, each signed by or on behalf of one or more Bondholders. Any Written Resolution shall be binding on all of the Bondholders, whether or not signed by them.

(b)Modification and waiver The parties to the Fiscal Agency Agreement may agree, without the consent of the Bondholders, to any modification of any provision of the Fiscal Agency Agreement or the Bonds which is of a formal, minor or technical nature or is made to correct a manifest error.

13 Further Issues The Russian Federation shall be at liberty from time to time, without the consent of the Bondholders, to create and issue further Bonds ranking equally in all respects (or in all respects save for payments made prior to the issuance of such further Bonds and, if applicable, the date and amount of the first payment on such further Bonds) so that the same shall be consolidated and form a single series with the Bonds, provided that such further issuance constitutes a qualified reopening for U.S. federal income tax purposes.

14 Notices Notices to the Bondholders will be sent to them by mail (airmail if overseas) at their respective addresses on the Register, and will be deemed to have been given on the fourth day after the date of mailing. So long as the Bonds are listed on the London Stock Exchange and the rules of the London Stock Exchange so require, notices with respect to the Bonds will also be published in a leading newspaper having general circulation in the United Kingdom (which is expected to be The Financial Times) or, if such publication is not practicable, in an English language newspaper having general circulation in Europe, and each such notice shall be deemed to have been given on the date of such publication, or if published more than once or on different dates, on the first date on which publication is made. Notices to the relevant Registrar pursuant to Condition 7(c) will be sent to it by fax or email to the fax number or email address (as the case may be) set out hereon and will be deemed to have been given on the day of transmission.

15 Currency Indemnity The Russian rouble is the sole currency of account and payment for all sums payable by the Russian Federation under or in connection with the Bonds, including damages. Any amount received or recovered in a currency other than the Russian rouble (whether as a result of, or the enforcement of, a judgement or order of a court of any jurisdiction or otherwise) by any Bondholder in respect of any sum expressed to be due to it from the Russian Federation shall only constitute a discharge to the Russian Federation to the extent of the Russian rouble amount which the recipient is able to purchase with the amount so received or recovered in that other currency on the date of that receipt or recovery (or, if it is not practicable to make that purchase on that date, on the first date on which it is practicable to do so). If that Russian rouble amount is less than the Russian rouble amount expressed to be due to the recipient under any Bond, the Russian Federation shall indemnify such recipient against any loss sustained by it as a result. In any event, the Russian Federation shall indemnify the recipient against the cost of making any such purchase. These indemnities constitute separate and independent obligations from the Russian Federation's other obligations, shall give rise to a separate and independent cause of action, shall apply irrespective of any indulgence granted by any Bondholder and shall continue in full force and effect despite any judgement, order, claim or proof for a liquidated amount in respect of any sum due under any Bond or any judgement or order.

16 Contracts (Rights of Third Parties) Act 1999 No person shall have any right to enforce any term or condition of the Bonds under the Contracts (Rights of Third Parties) Act 1999.

17 Governing Law The Bonds and the Fiscal Agency Agreement and any non-contractual obligations arising out of or in connection with them shall be governed by and construed in accordance with the laws of England.

USE OF PROCEEDS The proceeds of the issue of the Bonds (net of commissions but before deduction of expenses) are expected to amount to approximately RUB39,980,000,000 (U.S.$1,364,970,980 at the exchange rate of 29.29 roubles/U.S.$) and will be used for general governmental purposes. Total commissions and expenses payable by the Russian Federation in connection with the Bonds are expected to be approximately RUB20,000,000 (U.S.$682,827 at the exchange rate of 29.29 roubles /U.S.$).

RUSSIAN FEDERATION Territory, Population and Natural Resources The Russian Federation is a sovereign and democratic federal state, consisting of 83 sub-federal political units. Russia is the largest country in the world by land mass, covering 17.1 million square kilometres. Russia borders 16 countries and spans nine time zones, extending some 9,000 kilometres from the Baltic Sea in the west to the Pacific Ocean in the east and some 4,000 kilometres from its southern border on the Black and Caspian Seas to its northern limits on the Arctic Ocean.

Russia is rich in natural resources. It is the world's second-largest producer of natural gas, the world's leading producer of oil and a significant producer of coal, uranium, nickel, palladium and platinum. As of 1 January 2009, Russia's A, B and C1 natural gas reserves (which include explored reserves considered to be fully extractable pursuant to the Russian reserves system) were estimated at 47.8 trillion cubic metres. The country also has substantial gold deposits (located mainly in Eastern Siberia and the Russian Far East) as well as significant deposits of zinc, lead, tin, silver, other rare metals and precious and semiprecious stones. Russia is among the world's leading producers of electricity, steel, fertilisers, cotton textiles and other goods. Forests cover approximately 52% of Russia's total land area, and Russia's timber reserves, the largest of any country, are estimated at 83.3 billion cubic metres.

Russia is home to approximately 142 million people (2.1% of the world's population as of 30 June 2010), ranks ninth in the world by population and has a population density of approximately 8.3 persons per square kilometre. Roughly 73% of the population lives in European Russia, and approximately the same percentage of Russia's population lives in cities. Russia's capital and largest city is Moscow with 10.5 million inhabitants, and ten other Russian cities have a population of more than one million residents.

According to the 2002 general census, ethnic Russians are the largest demographic group and account for approximately 80% of the total population.

Other ethnic groups include Tatars (approximately 3.8% of the total population), Ukrainians (2.0%), Bashkirs (1.2%) and Chuvashs (1.1%). No other ethnic group accounts for more than 1% of Russia's total population.

Russia has a well-developed system of education, with a literacy rate exceeding 99%, according to the 2002 census, and grammar and middle school education is compulsory. Russia had approximately 1,115 institutions of higher education, with approximately 7.0 million students, during the 2009-10 educational year, and an estimated labour force of 75.4 million people in December 2009. As of December 2009, over 99% of the labour force had at least eight years of schooling, 95% had at least ten years, 26.9% had received higher education and 45.9% had received professional training.

Political System Constitution The Constitution of Russia provides for a tripartite governmental structure in which the power of the state is divided among the executive, legislative and judicial branches, each independent of the others. The Constitution also establishes a federal system, allocating responsibilities between federal, sub-federal and local authorities.

The Constitution protects certain fundamental "rights and freedoms of the person and the citizen," and charges the state with guaranteeing the equal treatment of people of all races, nationalities and beliefs. Under the Russian Constitution all forms of property (including private property) are equal before the law, and ideological diversity and a multi-party system are expressly recognised.

In general, the Constitution may be amended through passage of a special federal constitutional law, and its ratification by the legislatures of at least two-thirds of the Federation subjects. See "-Federal Structure and Regional Issues" for more information on Federation subjects. Passage of such a law requires the vote of a two-thirds majority of the State Duma, a three-fourths majority of the Federation Council (the upper house of the Federal Assembly) and signature by the President. The provisions of the Constitution that govern the nature of the constitutional system, individual rights of citizens and the amendment process, however, can be changed only by convening a Constitutional Assembly. A proposed new constitution may be adopted either by the vote of a two-thirds majority of the Constitutional Assembly or by a simple majority in a national referendum in which more than half of the eligible voters participate.

President The President of the Russian Federation is Dmitry Medvedev, who was elected President in March 2008, receiving 70.28% of the vote. See "-Political Parties, Recent Elections and Political Developments." The President is the Head of State and the Supreme Commander of the Armed Forces. The President has broad powers, including the authority to declare a state of emergency, subject to approval of the Federation Council, the ability to commence military engagements, subject to immediate notification of the State Duma and Federation Council, the power to issue decrees and orders that have the force of law (although these may not contravene the Constitution or federal legislation), to suspend acts of sub-federal and local executive authorities, and to call national referenda. In addition, the President is empowered to arbitrate disputes between the federal authorities and the Federation subjects. The President is also responsible for foreign policy.

The President has the power to veto bills passed by the Federal Assembly and, under certain circumstances, to dissolve the State Duma. The President may dissolve the State Duma if (i) the State Duma fails to accept the President's proposed candidate for Prime Minister in three successive votes, (ii) the State Duma twice within three months passes a motion of no confidence in the Government or (iii) the Government loses a confidence motion put before the State Duma by the Prime Minister. The State Duma may not, however, be dissolved at any time during the last six months of a presidential term, during the period between passage by the State Duma of an accusation initiating impeachment proceedings against the President and action by the Federation Council on such accusation, while a state of emergency covering all of Russia is in effect, or, in the case of (ii) or (iii) above, within the first year after State Duma elections. In the event the State Duma is dissolved, the President must schedule elections and a newly elected State Duma must be convened within four months.

The President has significant appointment powers, including the power to appoint the Prime Minister (with the consent of the State Duma) and the other members of the Government (upon the nomination of the Prime Minister). The President may also dismiss deputy prime ministers and federal ministers at any time and may dismiss the Prime Minister, which would simultaneously lead to a dismissal of the Government. In addition, the President nominates candidates for governor of the Bank of Russia (for appointment by the State Duma), Prosecutor General (for appointment by the Federation Council) and judges to the Constitutional Court, the Supreme Court and the Supreme Arbitration Court (for appointment by the Federation Council). The President also has the power to dismiss the legislative and executive authorities of Federation subjects under certain circumstances. Beginning in December 2004, the President's powers were expanded to include nominating the heads of Federation subjects, who are now appointed by the legislatures of the respective Federation subjects. See "-Federal Structure and Regional Issues." The President is elected in a national election for a term of four years.

Beginning with the next Presidential election in 2012, the President will be elected to a six-year term. Under Russia's Constitution, the President may not serve more than two consecutive terms. The Constitution also provides for the early termination of the President's term of office in the event of the President's death, resignation, impeachment, or persistent inability to exercise his powers for health reasons. New presidential elections must be held within three months of an early termination. Impeachment of the President requires an accusation supported by the vote of a two-thirds majority of the State Duma, followed by a vote in favour of impeachment by a two-thirds majority of the Federation Council, with the subsequent confirmation by the Supreme Court of the legality of the accusation and by the Constitutional Court of the observance of due process. Under the Constitution, whenever the President is incapable for any reason of carrying out his duties, the obligations of the office are temporarily assumed by the Prime Minister, except that the Prime Minister, as acting President, may not dissolve the State Duma or propose any national referendum or changes to the Constitution.

Government The Government consists of the Prime Minister, deputy prime ministers and federal ministers, all of whom are appointed by the President as described above. The Government is automatically dissolved after each presidential election in order to permit the President to form a new Government.

The Government is responsible for implementing federal laws, presidential decrees and international agreements. In particular, the Government is responsible for preparing and implementing the federal budget, establishing a unified financial, credit and monetary policy, carrying out social policy, preserving public order and defending the rights and freedoms of citizens.

The Prime Minister of the Russian Federation is Vladimir Putin, who took office in May 2008 following his nomination by President Medvedev. Before becoming Prime Minister, Mr. Putin was President of the Russian Federation. Mr. Putin was initially appointed acting President upon the resignation of Boris Yeltsin in January 2000, was subsequently elected President in March 2000, receiving approximately 53% of the vote, and was then re-elected in March 2004, when he received approximately 71% of the vote. See "-Political Parties, Recent Elections and Political Developments." Legislative Branch The legislative branch consists of the Federal Assembly, which comprises a lower chamber, known as the State Duma, and an upper chamber, known as the Federation Council.

The State Duma consists of 450 deputies, elected for a four-year term by a system of proportional representation. Beginning with the December 2011 elections, deputies to the State Duma will be elected to five-year terms. In accordance with the Federal Law on the Elections of Deputies of the State Duma, which became effective in December 2006, deputies are chosen from "party lists" on the basis of a nationwide election, with seats allocated in proportion to the number of votes received by the party, if the party receives 7% or more of the vote. In addition, parties that garner between 6% and 7% of the vote are allocated two seats in the State Duma, and parties that collect between 5% and 6% of the vote are allocated one seat in the State Duma. Deputies are not able to change party affiliation during their term of office without surrendering their seat. No person may simultaneously serve as a State Duma deputy and hold a position in the Government.

The Federation Council, with 166 deputies, represents Russia's 83 Federation subjects. See "-Federal Structure and Regional Issues." Each Federation subject appoints two members of the Federation Council, one chosen by the legislative body of the Federation subject and the other by its executive body. The members of the Federation Council have to work on a full-time basis and cannot occupy any other office.

For a bill to become federal law, it must first be passed by a majority vote in the State Duma, then be approved by a majority vote in the Federation Council and finally be signed by the President. Rejection of a bill by the Federation Council can be overridden by a two-thirds majority vote in the State Duma.

Rejection of a bill by the President can be overridden by a two-thirds majority of each of the Federation Council and the State Duma.

Judicial Branch Russia has three courts of final appeal. The Constitutional Court has jurisdiction over matters relating to the interpretation of the Constitution, including the constitutionality of federal laws, decrees of the President, resolutions of the Government, resolutions of the State Duma and the Federation Council, laws and legal documents of Federation subjects and agreements between federal and sub-federal authorities. The Supreme Arbitration Court and lower arbitration courts have jurisdiction over economic disputes. Judicial authority is otherwise vested in the Supreme Court and lower courts of general jurisdiction over civil, criminal, administrative and other matters.

Judges of the Constitutional Court, Supreme Arbitration Court and Supreme Court are nominated by the President and appointed by the Federation Council. Judges of lower federal courts are appointed by the President in accordance with procedures established by federal legislation.

Political Parties, Recent Elections and Political Developments Under the Constitution and federal law, Russian citizens who are at least 18 years old have the right to vote in presidential and State Duma elections, regional and local elections and regional and local referenda.

Russian legislation contains a number of provisions designed to encourage the development of a stable party system. First, candidates must collect a specified number of signatures to qualify for elections. In the case of presidential elections, a candidate must collect at least two million signatures of the electorate. In order to participate in elections to the State Duma, a political party must also obtain a specified number of signatures supporting its party-list (150,000 signatures for the next election, in 2011, and 120,000 signatures for elections thereafter), unless such party garnered over 7% of the vote in the immediately preceding State Duma election, in which case the requirement to collect signatures does not apply. Second, political parties must garner at least 7% of the vote in party-list elections to qualify for seats allocated on the basis of proportional representation in the State Duma, though parties are awarded one seat for collecting between 5% and 6% of the vote and two seats for collecting between 6% and 7% of the vote. See "-Political System-Legislative Branch." Third, the rules for presidential elections, which call for a run-off election between the first and second place candidates if no candidate wins more than 50% in the initial round of voting, discourage fragmentation of the vote.

In the most recent State Duma election, held in December 2007, the party Edinaya Rossiya (United Russia), which is currently led by Prime Minister Putin and is the product of the 2001 merger of two large parties, Yedinstvo (Unity) and Otechestvo-Vsya Rossiya (Fatherland-All Russia), received a majority of the votes cast (64.3%) and currently holds 315 State Duma seats. The Communist Party received 11.6% of the votes cast in 2007 (down from 24.3% in 1999) and now holds 57 State Duma seats. Two other parties are also represented in the State Duma: the Liberal Democratic Party (8.1% of the votes cast and a total of 40 seats) and Fair Russia (7.7% of the votes cast and a total of 38 seats).

Parties that received votes in the December 2007 election, but did not pass the 7% threshold required to seat members in the State Duma, include the Agrarian Party (2.3% of the votes cast), the Russian Democratic Party "Yabloko" (1.6% of the votes cast) and several other parties, none of which received more than 1-3% of the vote. Currently, the Ministry of Justice has registered seven political parties.

Federal Structure and Regional Issues Russia consists of 83 Federation subjects, comprising 21 republics, nine krais, 46 oblasts, two cities of federal importance (Moscow and St. Petersburg), one autonomous oblast and four autonomous okrugs.

Many of the republics and autonomous regions contain a substantial number of ethnic non-Russians, with non-Russians constituting a majority in certain regions (e.g., the Republic of Tatarstan and the Republic of Kalmykia).

Federation subjects form the intermediate level of government, and are further subdivided into approximately 23,500 municipalities, comprising cities or geographically separated county territories (raions). Lower-level governments at the county (raion), city and village levels are subordinate to their respective Federation subjects.

Throughout its history, Russia has generally been a unitary state with a single central government. Since the dissolution of the Soviet Union, however, Federation subjects have obtained greater decision-making authority and financial autonomy, and Russia is now a federal state.

The Federation Treaty of 31 March 1992, signed by 87 Federation subjects (all but the Chechen Republic and the Republic of Tatarstan), initially granted each Federation subject a measure of control over budgetary and external policy, as well as local natural resources. The Constitution subsequently refined the division of authority between Russia and the Federation subjects, expressly incorporating the provisions of the Federation Treaty to the extent they were not inconsistent with other provisions of the Constitution. Certain areas of governance are reserved by the Constitution exclusively to the federal authorities, including management of federal property, the issuance of currency and currency regulation, customs policy, foreign relations, military defence, atomic energy and space exploration. Joint federal-regional authority is prescribed in a number of other areas, including tax administration, ownership and use of land and natural resources, environmental protection, social assistance, education, health, science and cultural facilities, and the selection of certain court and law enforcement officials. Responsibility for all matters not reserved to the federal authorities or to joint federal-regional competence is reserved for Federation subjects. The Constitution prohibits any sub-federal barriers to the free movement of goods, capital and labour throughout Russia.

In May 2000, President Putin signed a presidential decree creating seven federal circuits, each comprising several Federation subjects, and authorising the President to appoint a representative to each federal circuit. The representatives' responsibilities include facilitating the implementation of the President's domestic and foreign policies, supervising the implementation of federal decisions in the Federation subjects and reporting to the President on the state of affairs in the Federation subjects. In January 2010, pursuant to Presidential decree, a separate North Caucasus federal circuit was created, bringing the total number of federal circuits to eight.

In August 2000, a law aimed at improving management of the Federation subjects and lower-level authorities came into effect. The law grants the President the power to dismiss the chief legislative and executive authorities of a Federation subject if the authorities refuse to repeal local legislation held by a court to be contrary to the Constitution or federal law and harmful to the fundamental rights and freedoms of Russian citizens or that prevent federal authorities from performing their statutory functions.

A new law abolishing the direct election of executives of the Federation subjects was adopted in December 2004. Under this law, the President may nominate and dismiss the executives of a Federation subject, but Presidential nominations must still be approved by the Federation subject's legislative body. This law was intended to strengthen central control of the country and to facilitate the Government's efforts in combating domestic terrorism.

In general, disputes between the federal authorities and Federation subjects have been resolved peacefully through the political process, with the notable exception of the military confrontation in the Chechen Republic and periodic unrest in the other republics of the North Caucasus, including Daghestan and Ingushetia.

International Relations Russia's Position in the International Community Russia has been recognised by the international community as the successor to the Soviet Union. Russia is currently a member of many international organisations, including the United Nations, where it is a permanent member of the Security Council and, accordingly, plays an active role in maintaining international peace and security.

Russia is a member of the G-8 group of industrial nations, having chaired that group in 2006, and the G-20. Since 1992, Russia has been a member of the International Monetary Fund ("IMF") and the International Bank for Reconstruction and Development (the "World Bank"). See "Public Debt and Related Matters-Relations with International Financial Institutions." Russia is also a member of the International Finance Corporation and participates as a donor in the International Development Association. In December 1996, the Bank of Russia became a member of the Bank for International Settlements, and in September 1997 Russia became a member of the Paris Club of creditor nations.

In June 1993, Russia applied for membership in the General Agreement on Tariffs and Trade, which later became the World Trade Organisation (the "WTO"). The Government has placed a high priority on joining the WTO, in part because entry into the WTO would allow Russia to use the organisation's procedures to combat discrimination against Russian producers and exporters, which the Government believes has had a negative effect on Russian exports. Russia has concluded bilateral agreements on its accession to the WTO with most of the members of the working group established to consider Russia's membership. Before it can join the WTO, Russia must ensure that its laws conform with WTO standards in five key areas: access to the market for goods, intellectual property rights, agricultural tariffs, legislative and institutional framework and access to the market for services.

In 1994, Russia concluded a Declaration on Cooperation with the Organisation for Economic Cooperation and Development (the "OECD"), and, in May 1996, Russia formally applied for membership in the OECD. In 2007, the OECD on a ministerial level made the decision to invite Russia to begin negotiations regarding its accession. Such negotiations are currently underway. Russia is currently participating on a permanent basis in the activities of more than 20 working groups of the OECD.

In 1997, President Yeltsin and the leaders of 16 NATO nations signed the "Founding Act on Mutual Cooperation," establishing new principles to govern their relationship and providing for consultation between Russia and NATO. In December 2001, Russia and NATO agreed upon a process aimed at enhancing future cooperation. In May 2002, a NATO-Russia Council was established, under which more than 20 working groups have been created to enhance political contacts and develop cooperation between Russia and NATO members on issues of mutual interest, including terrorism, crisis management, missile defence, arms control and civil defence.

Russia and Regional Cooperation Russia has wide-ranging contacts with the EU, its most significant economic partner and one of its most important political partners. The Agreement on Partnership and Cooperation between Russia and the EU, in effect since December 1997, was amended in April 2004 and March 2008 to allow new EU members to accede to it. This agreement establishes a framework for the parties' economic and political relationship.

On 15 June 2001, Russia, China, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan signed a declaration on the creation of the Shanghai Co-operation Organisation (SCO). Russia chaired the SCO in 2008-2009. Russia is a member of the European Bank for Reconstruction and Development (the "EBRD") and the Black Sea Bank for Trade and Development. Russia also participates in a number of other regional cooperation forums, including the Association of South-East Asian Nations (ASEAN).

Russia, the Former Soviet Union and the CIS After the dissolution of the Soviet Union, Russia concluded separate agreements ("zero-option agreements") with all of the other republics of the former Soviet Union except the three Baltic republics. All of the zero-option agreements have been mutually ratified, except the agreement with Ukraine, which has not yet been ratified by Ukraine. Each zero-option agreement provides that, as between Russia and the other former Soviet republic, Russia is responsible for virtually all the external debt contracted on behalf of the authorities of the former Soviet Union and receives in return all claims on former Soviet Union assets located outside the territory of the other former Soviet republic. The Government regularised its relations with virtually all the external creditors of the former Soviet Union and agreed to a schedule for the repayment of former Soviet Union debt.

In April 1996, the Government entered into an agreement rescheduling approximately U.S.$33 billion of indebtedness to the Paris Club of official creditors. In August 1999, the Government concluded a further rescheduling agreement providing for the deferral of approximately U.S.$8.3 billion of indebtedness to Paris Club creditors. In the summer of 2005, Russia prepaid U.S.$15 billion of its Paris Club indebtedness. In August 2006, Russia prepaid the remaining balance of approximately U.S.$21.6 billion owed to its Paris Club creditors.

In December 1997, Vnesheconombank restructured the Soviet-era debt owed to the London Club of commercial creditors. In the wake of the events of 17 August 1998, when the Government announced that it would not meet its obligations under its short-term rouble-denominated treasury bills, i.e., GKOs and OFZs, Russia, Vnesheconombank and a committee of London Club creditors agreed, in February 2000, on terms for the further restructuring of Vnesheconombank's London Club debt. The agreed restructuring terms have been implemented through a series of exchange offers. In December 2002, December 2006 and December 2009, Russia restructured most of the Soviet-era debt owed to uninsured trade creditors, and in March 2004 Russia restructured most of the Soviet-era debts owed by Vnesheconombank to the International Bank for Economic Co-operation ("IBEC") and to the International Investment Bank ("IIB"). See "Public Debt and Related Matters-External Debt Restructuring" for a further discussion of Russia's indebtedness to the Paris Club, the London Club, Soviet-era uninsured trade creditors, IBEC and the IIB.

Russia is a member of the Commonwealth of Independent States (the "CIS"), which was founded in December 1991 to promote mutual cooperation among its members.

Currently, 11 of the 15 former Soviet Republics are members of the CIS. The three Baltic states never joined the organization, and Georgia withdrew from the organisation, effective August 2009.

In 1995, Russia, Belarus and Kazakhstan signed a framework agreement to form a customs union. Kyrgyzstan and Tajikistan acceded to this agreement in 1996 and 1999, respectively. In October 2007, Russia, Belarus and Kazakhstan signed a tripartite agreement on the creation of a customs union, which entered into force in October 2008. In November 2009, Russia, Belarus and Kazakhstan concluded several agreements unifying customs tariff and non-tariff regulations among the three nations, which came into force on 1 January 2010, and establishing a customs code to harmonise customs procedures, which came into force in July 2010. The process of finalising customs integration among the three parties is expected to continue through the first half of 2011.

Since 1995, Russia and Belarus have pursued closer economic and political integration. In December 1999, Russia and Belarus signed a treaty on the creation of a unified state and a programme for its implementation. Under the treaty, Russia and Belarus are to preserve their independence and sovereignty, while developing a single economic space, agreed social policies and coordinated foreign and defence policies.

Russia is also a member of the Collective Security Treaty Organisation, founded in 2002 on the basis of the 1992 Collective Security Treaty, to promote collective security among its members, which include Armenia, Belarus, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan.

In August 2008, Russia and Georgia fought a brief war over the territories of South Ossetia and Abkhazia. Both territories are now de facto independent from Georgia and have been legally recognised by Russia, Nicaragua, Venezuela and the Pacific island state of Nauru. In the aftermath of the August 2008 hostilities, Georgia severed diplomatic relations with Russia, and Russian troops are currently stationed in both South Ossetia and Abkhazia.

On several occasions since the collapse of the Soviet Union, disputes have arisen with Ukraine concerning the supply and transit of natural gas and with Belarus concerning the supply and transit of both natural gas and oil. Russia is dependent on pipelines in Ukraine and Belarus to deliver a significant portion of the natural gas it exports to western Europe (Russia supplies approximately one-quarter of the natural gas consumed in the EU), and Ukraine and Belarus are, in turn, dependent on Russian gas to meet their domestic requirements. In 2006, Russia and Belarus reached agreement on the supply of Russian gas to Belarus through 2011. On 19 January 2009, following a dispute regarding Russian gas supplies to Ukraine, Russia and Ukraine agreed to a 10-year transit and supply contract. Under both of these agreements, prices for gas supplies are set pursuant to a European pricing formula.

THE RUSSIAN ECONOMY Overview Russia's initial economic reform programme, first outlined by President Yeltsin in October 1991, set out to achieve three principal goals: liberalisation, privatisation and financial stabilisation.

Liberalisation of the Russian economy required a fundamental redefinition of the role of the state, which had in the Soviet era regulated virtually all economic and financial activities. The subsequent liberalisation of most prices has permitted market forces to determine prices to a significant extent and to play an increased role in the allocation of resources and output. At present, only certain public services and legislatively defined "natural monopolies" (for example, pipeline transport of oil and gas, electricity transmission and production, railway transport, terminal, port and airport services, and postal services) are subject to price regulation. Internationally, liberalisation of Russia's trade regime has helped redirect trade flows away from historically important former socialist markets towards OECD countries and developing nations and contributed to an overall rise in exports. See "Balance of Payments and Foreign Trade-Foreign Trade." Beginning in January 1992, the Government implemented a privatisation programme, made possible by the legal recognition of private property and the creation of an economic and legal environment more conducive to the development of private economic activity.

Russia's economic programme came under severe pressure in the second half of 1997 and the first half of 1998, following the Asian currency and financial crisis and a sharp fall in world prices for oil and other commodities, which adversely affected the Government's ability to continue to finance its budget deficit and to maintain the value of the rouble against the dollar. In 1999, Russia was assigned sovereign credit ratings of CCC (Fitch), B3 (Moody's) and CCC－ (Standard & Poor's). Russia's current long-term debt credit ratings are Baa1 (Moody's), BBB+ (Standard & Poor's) and BBB (Fitch). Each of the Moody's and Standard & Poor's ratings has a stable outlook; in September 2010, Fitch revised its outlook from stable to positive.

In 2004, the responsibilities of federal Governmental structures were reformed.

A new three-tiered system of federal executive bodies was established, which assigned responsibility to federal ministries for the elaboration of state policy and legal regulation, to federal services for the supervision, control and protection of state security and state borders and to federal agencies for the provision of public services and the management of state property and law enforcement (other than supervision and control).

In January 2006, the Government adopted a Medium-Term Programme for the period 2006-2008. The principal priorities of the program were improving the investment climate, diversifying the economy, modernising the industrial sector, reducing Government involvement in the economy, stimulating Russian innovation, developing the housing and mortgage markets and improving the quality of the healthcare and education systems.

In November 2008, the Government adopted a Long-Term Programme for Social and Economic Development through 2020 (the "Development Programme through 2020"), the primary objectives of which are to stimulate Russian innovation, including in high-technology industries, diversify the economy, promote regional economic development and reform the country's natural monopolies.

General Anti-Crisis Measures In response to the global financial crisis that began in the fall of 2008, Russia enacted a set of measures designed to restore investor confidence and support the medium-term economic growth of the country. Many of these measures were aimed at bolstering the liquidity of the Russian banking sector and facilitating the flow of credit within the economy. See "Monetary and Financial System-Banking-Anti-Crisis Measures" for a discussion of the policies specifically related to the banking sector. However, the Government also implemented policies to support the real sector of the economy, the labour market and households.

In April 2009, the Government adopted its Anti-Crisis Programme for 2009, allocating to it approximately 1.2 trillion roubles in federal budget financing. In addition to policies aimed at the banking sector, the programme included the following principal measures: • The allocation of 300 billion roubles for federal budget loans and transfers to sub-federal governments. In 2009, approximately 306 billion roubles were spent on federal budget loans and transfers to sub-federal governments, including 150 billion roubles in financial aid and 87 billion roubles in subsidies.

• The allocation of funds to support approximately 300 key enterprises with supplemental recapitalisations, state loan guarantees (for which the Government has allocated 300 billion roubles) and direct state support. In 2009, enterprises requested state loan guarantees amounting to approximately 276.6 billion roubles, and the Government issued state loan guarantees totalling 145.9 billion roubles.

• The increase of federal support for the defence-industrial complex, including (i) the allocation of (x) up to 100 billion roubles in state guarantees of previously issued loans to companies in the defence industry, and (y) an increase of three billion roubles in payments to certain strategic companies of the defence-industrial complex; and (ii) equity injections into certain key companies, including 15 billion roubles into Russian Aircraft Company "MIG" ("MIG") and eight billion roubles into the Khrunichev Space Center. In 2009, the Government made disbursements to certain defence companies for the repayment of interest under existing loan facilities and injected over 100 billion roubles of capital into certain key companies, including 15 billion roubles into MIG and 13.5 billion roubles into the Open Joint Stock Company "Unified Aviation Construction Corporation.

• The allocation of over 200 billion roubles to support development of the agricultural and fishing industries. In 2009, approximately 205 billion roubles were spent on the development of these industries. An additional 95 billion roubles from regional budgets were earmarked for the same purpose.

• The initial allocation of 39 billion roubles to support the automotive industry. In 2009, approximately 78 billion roubles were spent in support of the automotive industry, which includes the disbursement of a 37 billion rouble, interest-free loan to AVTOVAZ.

• To support the transport industry, the initial allocation of (i) 560 billion roubles for general development, including approximately 342 billion roubles to improve roads; (ii) 50 billion roubles to subsidise losses incurred by Open Joint Stock Company "Russian Railways" ("Russian Railways") in connection with state regulation of tariffs for railway shipments in 2009; and (iii) 11.3 billion roubles for additional contributions to the share capital of Russian Railways. In 2009, 570 billion roubles were spent on general development of the transport industry, including 194 billion roubles to improve roads (126 billion roubles of which were spent on improving federal roads), 40.7 billion roubles were spent to subsidise losses incurred by Russian Railways as a result of lower tariffs on freight transport, 38.7 billion roubles were spent to subsidise falling revenues incurred by Russian Railways due to state regulation of tariffs on passenger transport and 3.0 billion roubles were spent on additional contributions to the share capital of Russian Railways. Within the framework of the Anti-Crisis Programme for 2009, Russian Railways also carried out the issuance and placement of 145 billion roubles of corporate bonds in 2009. The Government also created a new transport leasing company, injecting 10 billion roubles into its charter capital, to finance road construction companies.

• The investment of 343.5 billion roubles in housing construction and development.

In December 2009, the Government passed its Anti-Crisis Programme for 2010, which, in its implementation, combines support for enterprises adversely affected by the crisis with measures to modernise the economy. The key elements of the Anti-Crisis Programme for 2010 include the following: • The allocation of approximately 36 billion roubles to support the labour market, which amount was subsequently increased to 40.5 billion roubles as a result of a February 2010 Government resolution. In the first half of 2010, approximately 33 billion roubles were spent on such measures.

• The allocation of 40 billion roubles for the support of certain strategic enterprises. In the first half of 2010, approximately 34 billion roubles were spent on measures to support certain strategic enterprises.

• To support the automotive industry, the allocation of (i) 21 billion roubles in subsidies to trade organisations for losses incurred in Russia's "cash for clunkers" programme; (ii) 20 billion roubles for the purchase by federal authorities of various automotive products and machinery for road repairs; and (iii) 10 billion roubles in subsidies from the federal budget to the Federation subjects for the purchase of vehicles and automotive parts. In 2010, approximately 11.6 billion roubles were spent on subsidies to trade organisations for losses incurred in connection with the "cash for clunkers" programme, approximately 8.4 billion roubles were spent on the purchase of automotive products and machinery for road repairs and 28.7 billion roubles were spent on federal subsidies to the Federation subjects for the purchase of vehicles and automotive parts. In addition, the Government has allocated 38 billion roubles to the state corporation "Rostekhnologiya" to provide financial support to OAO "Avtovaz." • The allocation of 27 billion roubles to support modernisation measures in single-industry towns, including 10 billion roubles in interbudgetary transfers for the implementation of investment projects and 10 billion roubles in budgetary credits.

• The allocation of funds for investment in housing construction and development. In the first half of 2010, 122.8 billion roubles were spent on such investments.

As the Russian economy continues to recover from the global financial crisis, the Government plans to prioritise the modernisation initiative that forms a central part of its Development Programme through 2020. The modernisation initiative is based on several key priority areas, including the following: diversifying the Russian economy, including developing certain high-tech industries; stimulating innovation; improving regulation of the domestic financial markets; and reducing the share of state ownership in the economy.

The Government also intends to improve the investment climate, in particular, by taking steps to strengthen the financial sector, the legal system and corporate governance. The Government has not adopted, and does not plan to adopt, an anti-crisis programme for 2011.

Civil and Commercial Law Since 1992, Russia has sought to establish a legal framework for economic relations between independent legal persons and entities. The rule of law in Russia nonetheless continues to be undermined by persistent gaps in legislation, inconsistencies between legal norms at the federal level as well as between norms at the federal and regional levels, the significant degree of discretion given to state officials in many areas and the inexperience of some Russian judges and their susceptibility to outside influences, especially at the regional and local levels.

The Constitution protects the right of Russian citizens to hold private property. Property rights and basic rules for commercial relations are set out in Russia's Civil Code. Part I of the Civil Code, passed in 1994, establishes the principles of contract and property law. The Civil Code also specifies the forms that private enterprises may take, including corporations, partnerships and limited liability companies. Part II of the Civil Code, passed in 1996, regulates particular types of contractual relationships, including sales contracts, leases, credit agreements and insurance policies. Part III of the Civil Code came into effect in 2002 and covers inheritance law and private international law. The fourth and final part of the Civil Code, which came into effect on 1 January 2008, codifies rules on intellectual property matters.

The Federal Law on the Enactment of the Land Code (the "Land Code"), enacted in 2001, regulates the ownership of non-agricultural real estate and establishes general principles of private land ownership. The law in this area remains incomplete, however, and there are many local rules and standards that limit the purchase and ownership of land. As a result, private ownership of land is not widespread in Russia, and a land market does not exist to the same extent as is common in countries with more developed market economies. According to the Land Code, legal entities that are currently using their land based on the right of permanent (perpetual) use are required to purchase or lease such land before 1 January 2012, with the exception of land on which power transmission lines, telephone lines, pipelines, roads, railways and other similar facilities are located, which must be purchased or leased before 1 January 2015.

Agricultural land is regulated by the Land Code and the Federal Law on the Circulation of Agricultural Land (the "Agricultural Land Code"). The Agricultural Land Code, which was enacted in July 2002, creates a unified market framework at the federal level for the purchase and sale of farmland.

Under the Agricultural Land Code, foreigners are not allowed to purchase farmland.

The Law on Privatisation of State and Municipal Property dated 21 December 2001 (the "Privatisation Law") sets forth the procedures that govern the privatisation of state and municipal property, including the requirements for potential buyers and other related matters. Under the Privatisation Law, a privatisation programme, including a list of enterprises to be sold, is adopted annually. In accordance with the privatisation programme for 2010, the Government sold off its 13.1% stake in Rosgosstrakh, a leading Russian insurance company, in an auction held in September 2010. Proceeds from the sale amounted to approximately 8.7 billion roubles, bringing overall privatisation proceeds to approximately 11.8 billion roubles through the first three quarters of 2010. In November 2010, the Government published the list of enterprises to undergo privatisation in 2011, 2012 and 2013, which includes Sberbank, Rosneft, Sovcomflot, VTB, the Federal Grid Company and RusHydro. According to the Principal Priorities of the Budget Policy for 2011 and the Planning Period 2012 and 2013, which the Government approved in 2010, the Government expects to generate approximately 800 billion roubles in privatisation proceeds from 2011 through 2013.

The Law on Joint-Stock Companies dated 26 December 1995 came into effect in 1996 and was subsequently amended on several occasions between 1999 and 2010.

The Law on Joint-Stock Companies sets forth the basic framework for corporate organisation and corporate governance, including the formation of companies, shareholder rights and liabilities (including the ability to enter into shareholder agreements), the role of directors, interested party transactions, mergers and acquisitions, shareholder buy-outs and share capital and dividends.

The Law on the Securities Market, adopted in 1996 and subsequently amended, regulates the issuance and circulation of securities. Pursuant to this law, companies that issue securities must, with limited exceptions, register the issuance by filing a prospectus and publicly reporting certain information on a quarterly basis. The law also regulates the activities of professional participants in the securities market, aims to strengthen the protection of investors by imposing rules on market professionals and contains framework provisions on the listing and public trading of securities of foreign issuers in Russia.

The Law on Limited Liability Companies dated 8 February 1998, as amended, sets forth the basic framework for the organisation and governance of limited liability companies. On 1 July 2009, substantial amendments to this law came into effect, the primary purposes of which were to streamline procedures for establishing limited liability companies, to improve the regulation of the purchase and sale of interests in limited liability companies and to make the ownership structure of limited liability companies more transparent.

The Federal Law "On Insolvency (Bankruptcy)" (the "Bankruptcy Law"), which replaced the prior law adopted in 1998, came into effect in November 2002 and was subsequently amended. The Bankruptcy Law provides basic rules for declaring an enterprise bankrupt, for managing and liquidating an enterprise after it has been declared bankrupt, for satisfying creditors' claims and for the bankruptcy process generally. The Bankruptcy Law permits an enterprise to be declared bankrupt if it is unable to make payments to its creditors (including tax authorities) in excess of 100,000 roubles within three months of such payments becoming due. The Bankruptcy Law also expands the types of legal entities that are subject to the Bankruptcy Law and clarifies the procedure for appointing managers of bankrupt enterprises and for initiating insolvency proceedings. In July 2010, amendments to the Bankruptcy Law went into effect, setting forth certain procedures related to the bankruptcy of financial organisations, including credit institutions, insurance companies, professional participants on the securities markets and non-state pension funds.

The legislative framework for the restructuring of credit institutions is further set out in the Law on Insolvency (Bankruptcy) of Credit Institutions, which was adopted in February 1999 and subsequently amended between 2000 and 2009. This legislation details the standards for the appointment by the Bank of Russia of temporary bank administrators, provides an expedited liquidation procedure for banks and gives the Bank of Russia the power to accredit the receivers of bankrupt banks and to propose receivers for approval by arbitration courts.

Russia's Strategic Investments Law, which came into force in May 2008, regulates foreign investments (whether direct or indirect) in Russian businesses having strategic importance in matters of state defence and security and, inter alia, requires foreign investors to receive prior consent of a special government commission before acquiring control (including through the purchase of certain percentages of voting shares or certain management rights) of such strategic companies.

Under Russia's Foreign Investment Law, adopted in July 1999, foreign investors are ensured equal treatment with domestic investors, with some exceptions in the area of land ownership and leasing, access to natural resources and participation in privatisations. The law provides protections against nationalisation and expropriation without compensation, ensures the free transfer of investment proceeds in foreign currency and the reinvestment of profits in local currency and provides recourse to Russian courts. The Foreign Investment Law provides that any acquisition (whether direct or indirect) by a foreign state or international organisation or entities controlled by them of (i) more than 25% of the voting shares of a Russian company; or (ii) any power to block decisions of the management bodies of a Russian company requires prior approval of the special government commission established by the Strategic Investments Law.

Russia's Federal Law "On Protection of Competition" (the "Competition Law") came into force in October 2006. The Competition Law generally prohibits any concerted action, agreement or coordination of business activity that results or may result in the restriction of competition, including (a) price fixing; (b) coordination of auction bids; (c) partition of a commodity market by territory, volume of sales or purchases, types of goods, customers or suppliers; (d) fixing of disparate prices for the same goods for reasons other than economic or technical reasons; and (e) creation of barriers to entering or exiting a market. The Competition Law also regulates persons (or a group of affiliated persons) who have a dominant position in a particular market. A dominant position may arise in circumstances when (a) the person has a market share in a particular market in excess of 50%, unless it is specifically established that the person does not have a dominant position; (b) the person has a market share in a particular market in excess of 35% but less than 50%, and it is specifically established by the Federal Antimonopoly Service (the "FAS") that the person has a dominant position based on certain factors; or (c) in certain circumstances, the person has a market share in a particular market less than 35% but exceeding shares of competitors in the same market, which can have a crucial impact on general conditions of commodity circulation in the market. The FAS is authorised to employ a variety of means to restrain anti-competitive behaviour and can in extreme cases compel the break-up of enterprises. In addition, the Competition Law establishes a merger control regime, pursuant to which FAS consent is required prior to closing in particular circumstances, including the following: (a) acquisitions of voting rights in a joint stock company or assets of a person above a certain threshold; (b) mergers and consolidations that result in an aggregate asset value or aggregate annual revenues above a certain amount; and (c) creation of a company, if its share capital or the contributors of such share capital meet certain specifications. The Competition Law also provides for a mandatory post-transactional notification (within 45 days of the closing) to FAS in certain circumstances.

A new Customs Code took effect in January 2004. The Customs Code seeks to reduce the volume of required documentation and shorten customs clearance times, reflecting a shift in policy to a focus on developing foreign economic activity. This law strives to bring current legislation into line with international standards.

In an attempt to maximise value and increase the efficiency of state assets, a law on concession agreements, enacted in July 2005, establishes a framework for the Government to transfer the management of state-owned property to private companies for a term provided for in the relevant concession agreement. Under the law, the private company is entitled to retain the profits generated from the property in exchange for investing in and managing it.

A law on special economic zones in the Russian Federation, adopted in July 2005, aims to create technical, industrial, production, tourist and health resort zones. Commercial and industrial residents of these zones enjoy reductions in property and land tax and import duties. They also benefit from greater depreciation allowances (except with respect to technical zones) and are permitted to write-off research and development costs within the periods when such costs were incurred without limitation.

Gross Domestic Product The following table sets forth certain information regarding Russia's GDP for the periods indicated: Gross Domestic Product(1) For the For the nine year ended months ended 31 December 30 September 2005 2006 2007 2008 2009 2009 2010 Nominal GDP 21,610 26,917 33,248 41,429 39,101 28,203 32,416 (billions of roubles) Real GDP index 114.0 123.3 133.8 140.8 129.7 129.4 134.1 (%) (2003 prices= 100%) Real GDP growth/ 6.4 8.2 8.5 5.2 (7.9) (9.6) 3.7 (decline) (%, period-on-period) Nominal GDP per 150,997 188,910 233,948 291,840 275,533 n/a n/a capita (roubles) Real GDP per 115.2 125.1 136.1 143.4 132.2 n/a n/a capita index (%) (2003 prices= 100%) Real GDP per 6.9 8.6 8.8 5.4 (7.9) n/a n/a capita growth/ (decline) (%, period-on-period) GDP deflator (%, 19.3 15.2 13.8 18.4 2.5 1.5 10.9 period-on-period) Memo: Total population, 142.8 142.2 142.0 141.9 141.9 141.9 141.8 millions (end of period) Note: n/a = not available. Per capita figures are only calculated on an annual basis.

(1) Certain data presented in this table differ from previously published data due to regular revisions by Rosstat. Figures in this table are current as of 1 January 2011.

Source: Rosstat.

Between 2005 and 2009, real GDP grew by 21%. Russia experienced significant economic growth from 2005 through the first three quarters of 2008. Real GDP growth from 2005 through 2008 amounted to 31.4%, including 6.4% growth in 2005, 8.2% growth in 2006 and 8.5% growth in 2007. Despite substantial growth in the first nine months of 2008 (9.1%, 7.7% and 6.4% in the first, second and third quarters, respectively, against the relevant periods in the previous year), the effects of the global financial crisis contributed to a slowdown in overall growth in 2008 (5.2%), which was until that time the slowest rate of growth recorded since 2002. As a result of the global financial crisis, the economy contracted by 7.9% in 2009 compared to 2008.

Economic growth between 2005 and 2008 resulted mainly from improved labour productivity due to substantial increases in investment and improved management (average annual productivity growth from 2005 to 2008 was 6.1%) and from a rapid expansion in private consumption. The surge in investments and private consumption was, in turn, fuelled by high commodity prices and a significant expansion in credit. Overall consumption as a percentage of GDP remained roughly constant during this period because of relatively flat growth in public consumption, itself caused by strong fiscal discipline on the part of the Government.

Strong real appreciation of the rouble and production growth contributed to an aggregate increase in the dollar value of Russia's GDP between 2005 and 2008.

From 1999 through 2008, Russia registered an average GDP growth rate of 6.9%.

In 2008, based on purchasing power parity, Russia's economy was the world's sixth largest.

Russia experienced particularly adverse economic and financial effects as a result of the global financial crisis. In the fourth quarter of 2008, due to a decline in gross investment and net exports and despite a nominal increase in both private and public consumption, real GDP fell by 1.1% relative to the fourth quarter of 2007. In 2009, real GDP decreased by 7.9% compared to 2008, primarily because of a contraction in private-sector consumption and gross investment. The decline in real GDP in 2009 was slightly offset by a rise in net exports that was, in turn, caused by a disproportionate drop in imports, a result of falling domestic demand and depreciation of the rouble (the average rouble rate fell by 27.4% in 2009 compared to 2008). The rouble depreciation as well as the overall decline in the Russian economy led to a decrease in the dollar value of Russia's GDP in 2009 relative to 2008.

The Russian economy began to recover from the global financial crisis in the first quarter of 2010, when it registered real GDP growth of 3.1% compared to the first quarter of 2009. As a result of an increase in domestic demand, including consumption and gross investment, as well as an increase in net exports, supported, in turn, by higher prices for Russia's principal commodity exports, real GDP grew by 3.7% in the first nine months of 2010 compared to the first nine months of 2009.

In September 2010, the Ministry of Economic Development officially published several estimates of anticipated real GDP growth, each based on a different oil price assumption. Under its "conservative" estimate, which assumes an average price per barrel of Urals oil of U.S.$75 in 2010, U.S.$75 in 2011 and U.S.$78 in 2012, real GDP is expected to grow by 3.6% in 2010, 3.2% in 2011 and 3.0% in 2012. The projected real GDP figures are used by the Ministry of Finance in preparing the annual budget. There can be no assurance that such figures will prove to be accurate. See "Forward-Looking Statements" for a description of the various external and domestic factors that may cause estimates of real GDP to differ from actual results.

GDP and Gross Added Value by Sector The following table illustrates Russia's GDP and gross added value by economic sector for the periods indicated.

Gross Domestic Product and Gross Added Value by Sector(1)(2) For the year ended 31 December ended 30 September 2005 2006 2007 2008 2009 2009 2010 % % % % % % % % change(3) % change(3) % change(3) % change(3) % change(3) % change(3) % change(3) GDP total -- 6.4 -- 8.2 -- 8.5 -- 5.2 -- (7.9) -- (9.6) -- 3.7 Gross added value (in base prices) 100 6.0 100 7.9 100 8.4 100 5.2 100 (7.0) 100 (8.5) 100 3.1 Agriculture(4) 4.7 0.3 4.3 2.7 4.2 1.3 4.2 7.3 4.5 0.2 4.6 (1.3) 3.7 (10.5) Fishery 0.3 (10.9) 0.3 4.0 0.2 (0.9) 0.2 (6.2) 0.2 2.0 0.2 1.8 0.2 3.0 Mining(5) 11.1 1.5 10.9 (2.9) 10.1 (2.2) 9.3 1.7 9.1 (0.9) 9.2 (2.9) 10.9 6.2 Manufacturing 18.3 4.4 17.9 6.6 17.6 7.5 17.4 (2.2) 14.9 (15.8) 15.1 (19.4) 17.0 12.3 Electricity, water and gas production and distribution 3.3 0.9 3.2 4.5 3.0 (3.4) 2.9 (0.3) 3.2 (4.3) 3.1 (5.8) 3.3 6.3 Construction 5.3 10.2 5.2 12.8 5.7 13.0 6.3 11.2 5.5 (17.2) 5.2 (19.5) 4.7 1.4 Trade(6) 19.5 9.1 20.2 14.1 20.3 11.7 20.8 9.4 19.8 (10.3) 19.5 (12.1) 19.1 2.7 Hotels and restaurants 0.9 9.3 0.9 7.9 1.0 13.6 1.0 10.0 1.0 (16.0) 1.0 (15.7) 0.9 (0.3) Transportation and communications 10.2 5.9 9.8 9.7 9.7 4.8 9.1 5.1 9.5 (3.0) 9.7 (5.0) 9.9 7.9 Financial services 3.8 29.2 4.3 25.4 4.4 29.1 4.4 13.5 5.0 (2.4) 5.2 3.0 4.6 (3.1) Operations with real estate, including rent and services 9.9 12.0 10.0 10.0 10.9 20.8 11.3 11.4 12.6 (2.8) 12.4 (1.1) 11.7 0.8 Public administration, defence and mandatory social security 5.2 (5.4) 5.2 2.5 5.1 3.9 5.3 2.9 6.1 2.1 6.2 1.8 5.9 1.4 Education 2.7 0.3 2.7 0.5 2.7 1.1 2.7 (0.1) 3.1 (1.5) 3.1 (1.4) 2.9 0.0 Public health and social services 3.0 1.7 3.3 1.4 3.3 1.1 3.4 0.0 3.8 0.6 3.9 0.2 3.7 (0.6) Communal and other services 1.8 2.9 1.8 7.5 1.8 8.6 1.7 0.1 1.7 (17.5) 1.7 (16.4) 1.4 13.0 Notes: (1) Certain data presented in this table differ from previously published data due to regular revisions by Rosstat. Figures in this table are current as of 1 January 2011.

(2) Sectoral figures in this table are calculated pursuant to gross added value, which does not take into account taxes on products, but does take into account subsidies on products. For this reason, sectoral contributions for each period total 100% of gross added value, but do not total 100% of GDP for that period. For the same reason, GDP growth rates and gross added value growth rates over the same period may also differ.

(3) In constant prices. Percent changes reflect period-on-period changes, based on figures for gross added value.

(4) Includes hunting and forestry.

(5) Includes extraction of oil, gas, coal, metal ores and other minerals.

(6) Includes wholesale and retail trade and repairs of motor vehicles and personal and household goods.

Source: Rosstat.

From 2005 through 2009, the major trend in the composition of gross added value by sector was an increase in the contribution of real estate and a decrease in the share of the mining and manufacturing sectors. As a share of gross added value, operations with real estate rose from 9.9% in 2005 to 12.6% in 2009.

Mining decreased from 11.1% of gross added value in 2005 to 9.1% of gross added value in 2009, and manufacturing declined from 18.3% of gross added value in 2005 to 14.9% of gross added value in 2009. Construction, hotels and restaurants, financial services, public administration, education and public health also increased their respective contributions to overall gross added value during this period.

These shifts in the composition of Russia's gross added value resulted from changes in performance in real terms and from changes in relative prices.

Between 2005 and 2009, the fastest rate of growth among Russia's large sectors was recorded in real estate (61.1%), financial services (132%), trade (36.4%), construction (29.3%) and transportation and communications (24.1%), all of which exceeded the GDP growth rate during this period of 21%. Buoyant economic growth and the real appreciation of the rouble between 2005 and 2008 were the principal reasons for the improvement in these sectors. From 2005 through 2009, growth was recorded in all sectors except for the fishery sector, which contracted by 12.2%, mining, i.e., extraction, which declined by 2.9%, the production and distribution of electricity, water and gas, which declined by 4.6%, manufacturing, which fell by 1.5%, and communal and other services, which declined by 0.8%. Extraction declined, in part, due to a slowdown in oil and gas production in 2006 and 2007 and to lower demand for Russian commodities as a result of the global financial crisis. Manufacturing and communal and other services contracted during this period largely due to declines in 2009 as a result of the global financial crisis. In 2009 compared to 2008, manufacturing fell by 15.8% and communal and other services fell by 17.5%.

Of the country's largest sectors, construction, trade, real estate, mining and transport and communications, in addition to manufacturing, were the worst affected by the global financial crisis in 2009. Compared to 2008, construction declined by 17.2%, trade by 10.3%, operations with real estate by 2.8%, mining by 0.9% and transport and communications by 3.0%. Every industry with the exception of agriculture, fishery, public administration and public health and social services experienced a decline in 2009 compared to 2008.

In the first nine months of 2010 compared to the first nine months of 2009, the major trend in the composition of gross added value by sector was an increase in the contribution of the manufacturing and mining sectors. As a share of gross added value, manufacturing increased from 15.1% in the first nine months of 2009 to 17.0% in the first nine months of 2010, and mining rose from 9.2% in the first nine months of 2009 to 10.9% in the first nine months of 2010.

Transportation and communications and the production of electricity, water and gas also increased their respective contributions to overall gross added value in the first nine months of 2010 compared to the first nine months of 2009. Due to improved economic conditions following the global financial crisis, key sectors of the Russian economy expanded in the first nine months of 2010 compared to the first nine months of 2009. For example, manufacturing grew by 12.3%, mining by 6.2%, transport and communications by 7.9%, trade by 2.7%, operations with real estate by 0.8%, construction by 1.4% and public administration by 1.4%. In contrast, agriculture and financial services experienced period-on-period declines of 10.5% and 3.1%, respectively.

GDP by Use The following table illustrates Russia's GDP by use for the periods indicated: Gross Domestic Product by Use(1) For the For the nine year ended months 31 December ended 30 September 2005 2006 2007 2008 2009 2009 2010 %(2) % %(2) % %(2) % %(2) % %(2) % %(2) % %(2) % change change change change change change change (3) (3) (3) (3) (3) (3) (3) GDP 100 6.4 100 8.2 100 8.5 100 5.2 100 (7.9) 100 (9.6) 100 3.7 Consumption 66.3 9.1 66.1 9.5 66.8 11.2 65.7 8.6 74.2 (5.1) 75.3 (5.0) 71.7 3.0 (4) Private 49.6 12.2 48.2 12.2 48.8 14.3 48.3 10.8 53.7 (7.7) 54.1 (7.6) 52.1 3.8 Public 16.7 1.4 17.4 2.3 17.5 2.7 17.2 2.8 20.0 2.0 20.6 1.8 19.0 0.9 Non-profit 0.6 (18.3) 0.5 (1.7) 0.5 2.7 0.5 (1.4) 0.5 (1.4) 0.6 (1.2) 0.6 (1.3) institutions Gross 20.1 9.5 21.2 17.7 24.4 22.0 25.2 10.6 18.5 (37.4) 17.7 (42.3) 19.4 17.7 investment Fixed assets 17.7 10.6 18.5 18.0 21.2 21.0 22.0 10.4 21.3 (15.7) 18.7 (18.9) 18.1 4.1 accumulation Inventory 2.4 1.5 2.7 15.5 3.2 29.3 3.2 11.5 (2.8) n/a (1.0) n/a 1.3 n/a accumulation Net exports 13.6 (11.9) 12.7 (14.6) 8.8 (26.6) 9.1 (34.9) 7.3 56.6 7.0 52.3 8.9 (2.2) Exports 35.0 6.5 33.7 7.3 30.6 6.3 30.9 0.6 27.5 (4.7) 27.1 (9.4) 29.7 10.5 Imports 21.4 16.6 21.0 21.3 21.8 26.2 21.8 14.8 20.2 (30.4) 20.1 (36.0) 20.8 23.2 Notes: n/a = not available.

(1) Certain data presented in this table differ from previously published data due to regular revisions by Rosstat. The contributions by use to overall GDP for each period are calculated pursuant to the method of revenue usage, and therefore, there is no statistical discrepancy. Figures in this table are current as of 1 January 2011.

(2) The figures in this column are calculated according to the use of revenues method, and, therefore, there is no statistical discrepancy.

(3) In constant prices. Percent changes reflect period-on-period changes.

(4) Represents expenses on final consumption.

Source: Rosstat.

The composition of GDP by use was affected by the overall condition of the Russian economy-from its growth between 2005 and 2008, on the back of high commodity prices, to its contraction, particularly in 2009, as a result of the global financial crisis, and to its subsequent recovery in 2010. As a percentage of GDP, domestic demand, i.e., consumption and gross investment, increased from 86.4% in 2005 to 92.7% in 2009, and net exports decreased from 13.6% in 2005 to 7.3% in 2009. In the first nine months of 2010, domestic demand and net exports accounted for 91.1% and 8.9%, respectively, of GDP compared to 92.6% and 7.4%, respectively, of GDP in the first half of 2009.

Domestic consumption's contribution to GDP decreased slightly in 2006 compared to 2005 and increased slightly in 2007 compared to 2006. In 2008, domestic consumption's share of GDP fell to 65.7%, before expanding to 74.0% of GDP in 2009. Between 2005 and 2009, domestic consumption grew by approximately 36.9%, despite a 5.1% decline in 2009 compared to 2008. In the first nine months of 2010, domestic consumption grew by 3.0% relative to the first nine months of 2009, accounting for 71.7% of GDP in the first nine months of 2010.

Between 2005 and 2009, overall private consumption rose in real terms by 47.2%, outpacing the overall growth rate of GDP during the period, whereas public consumption increased in real terms by only 11.7%, which reflected the country's relatively conservative fiscal policy during the period. Between 2005 and 2008, private consumption increased in real terms by 59.4% due to the overall strength of the Russian economy during that period, including high oil prices and a rapid expansion of available credit. However, as a result of the global financial crisis and its negative effects on Russian consumers, private consumption contracted by 7.7% in 2009 compared to 2008. The contribution to GDP made by private consumption decreased from 49.6% of GDP in 2005 to 48.0% in 2008 before increasing to 53.7% of GDP in 2009. The contribution to GDP made by public consumption increased slightly between 2005 and 2008 (16.7% of GDP in 2005 compared to 17.2% of GDP in 2008), and then significantly more so in 2009, when its share rose by over 16% compared to 2008. The rise in the share of public consumption as a percentage of GDP in 2009 was mainly a function of the Government's fiscal stimulus package. In the first nine months of 2010, private consumption grew by 3.8% relative to the first nine months of 2009, accounting for 52.1% of GDP, compared to 54.1% of GDP in the first nine months of 2009.

Public consumption also grew in the first nine months of 2010, rising by 0.9% compared to the first nine months of 2009. Public consumption accounted for 19.0% of GDP in the first nine months of 2010 and for 20.6% of GDP in the first nine months of 2009.

Between 2005 and 2009, gross investment grew by 8.9% in real terms. This growth represents a significant slowdown from the 73.9% increase in gross investment that occurred between 2005 and 2008. This deterioration in growth was primarily the result of the 37.4% contraction in gross investment in 2009 compared to 2008, which was caused by the adverse effects of the global financial crisis on the Russian economy. Between 2005 and 2009, investments in fixed assets grew by 47% in real terms, which includes a 15.7% contraction in 2009 compared to 2008.

The contribution of fixed asset investments to GDP increased from 17.7% in 2005 to 22.0% in 2008 before declining to 21.3% in 2009. Inventory accumulation increased by 69% in real terms between 2005 and 2008, only to experience a depletion of inventories in 2009 compared to 2008. Gross investment increased by 17.7% in the first nine months of 2010 compared to the first nine months of 2009 due to a significant reduction in inventory withdrawals as well as to a 4.1% increase in fixed asset investments. The contribution of fixed asset investments to GDP decreased from 18.7% in the first nine months of 2009 to 18.1% in the first nine months of 2010.

Between 2005 and 2009, real growth of exports grew at a slower pace than overall GDP, while imports accelerated at a faster rate than GDP. During this period, the real value of exports grew by 16.5%, and the real value of imports grew by 42.6%. Exports as a share of GDP, however, contracted between 2005 and 2009. From 2005 through 2008, this contraction (from 35.0% of GDP in 2005 to 30.9% of GDP in 2008) was due to the rapid expansion of domestic demand, partially reflected in the rise of gross investment, and was supported by the real appreciation of the rouble. Exports declined in 2009 by 4.7% compared to 2008 and, as a share of GDP, from 30.9% in 2008 to 27.5% in 2009, due mainly to lower commodity prices and reduced global demand for Russian exports. The high growth in imports between 2005 and 2008 was a result, generally, of high rates of economic growth in Russia during this period, and, in particular, of rising consumer incomes. Imports as a share of GDP remained generally constant between 2005 and 2008 (21.4%, 21.0%, 21.8% and 21.8% of GDP in 2005, 2006, 2007 and 2008, respectively). The contraction in imports in 2009 compared to 2008 (30.4%) as well as the decline in imports as a share of GDP (from 21.8% in 2008 to 20.2% in 2009) was mainly due to the negative effects of the global financial crisis on the Russian economy. Net exports decreased in real terms by 43.7% between 2005 and 2009 and decreased as a share of GDP from 13.6% to 7.3%.

In the first nine months of 2010 relative to the first nine months of 2009, exports and imports grew at a faster rate than overall GDP. In the first nine months of 2010 compared to the first nine months of 2009, the real value of exports grew by 10.5%, and the real value of imports grew by 23.2%. The growth in exports was due to an increase in both the price and volume of Russia's principal exports, and the growth in imports was caused by an expansion in import volumes, which, in turn, was the result of an improvement in domestic demand in the first nine months of 2010, as well as by a moderate rise in the price of Russia's principal imports. See "Balance of Payments and Foreign Trade-Balance of Payments-Current Account." As a share of GDP, exports increased from 27.1% in the first nine months of 2009 to 29.7% in the first nine months of 2010, and imports increased slightly from 20.1% in the first nine months of 2009 to 20.8% in the first nine months of 2010. Net exports declined in real terms by 2.2% in the first nine months of 2010 compared to the first nine months of 2009. As a share of GDP, net exports accounted for 7.0% and 8.9%, respectively, in the first nine months of 2009 and 2010.

Principal Sectors of the Economy Industry Russia is highly industrialised, with a large share of its industrial activity concentrated in manufacturing. Russia is the world leader in oil extraction, ranks second in the world in natural gas extraction and produces significant amounts of electricity, iron, steel, rolled products, mineral fertilisers and coal. Manufacturing activity is heavily concentrated in metallurgy, coke and petrochemicals, food processing, machine and equipment building, the production of electrical equipment and the production of transport vehicles and equipment.

The following table illustrates the structure of industrial output and period-on-period changes in real industrial output by sector for the periods indicated: Industrial Output by Sector(1) For the For the nine year ended months 31 December ended 30 September 2005 2006 2007 2008 2009 2009 2010 %(2) % %(2) % %(2) % %(2) % %(2) % %(2) % %(2) % change change change change change change change (3) (3) (3) (3) (3) (3) (3) Industrial 100.0 5.1 100.0 6.3 100.0 6.8 100.0 0.6 100.0 (9.3) 100.0 (12.9) 100.0 8.9 Output Extraction 22.5 1.4 21.8 2.8 21.8 3.3 21.3 0.4 22.5 (0.6) 23.6 (2.6) 22.9 4.2 Of which Fuels 19.7 2.0 19.3 2.7 19.3 2.7 18.8 0.1 20.0 0.4 21.1 (0.9) 20.0 4.1 Other minerals 2.8 (2.3) 2.5 4.2 2.5 4.0 2.5 1.1 2.4 (7.4) 2.5 (13.9) 2.8 5.8 Manufacturing 65.1 7.6 65.5 8.4 67.8 10.5 68.3 0.5 63.6 (15.2) 63.0 (19.8) 64.5 12.6 Of which Foods 10.9 6.6 10.1 7.3 10.4 7.3 10.7 1.9 12.5 (0.6) 13.2 (2.2) 11.6 5.3 Paper products 2.3 3.6 2.3 6.7 2.4 8.3 2.2 0.3 2.2 (13.3) 2.4 (17.5) 2.1 8.4 Coke and 10.6 4.4 11.7 6.6 11.0 2.8 12.1 2.8 11.8 (0.6) 10.7 (1.4) 12.3 4.5 petrochemicals Chemicals 4.9 4.1 4.5 4.7 4.6 6.6 5.3 (4.6) 4.7 (6.9) 4.8 (14.7) 5.1 17.1 Metallurgy 14.0 7.0 14.2 9.7 14.3 4.5 13.3 (2.2) 10.6 (14.7) 10.9 (22.6) 12.1 14.6 Machines and 3.5 (0.3) 3.6 11.7 3.9 26.7 4.0 (0.5) 3.5 (31.5) 3.4 (36.7) 3.1 13.6 equipment Electrical 3.3 33.2 3.5 16.3 4.0 11.8 3.7 (7.9) 3.6 (31.6) 3.3 (37.1) 3.4 24.3 equipment Transport 6.1 7.1 6.0 4.7 6.2 7.8 6.1 0.4 5.1 (37.2) 4.8 (41.2) 5.5 31.0 vehicles and equipment Textiles and 0.7 3.6 0.8 11.8 0.7 (0.5) 0.6 (5.4) 0.7 (16.2) 0.7 (20.1) 0.7 12.4 clothing Leather and 0.1 0.2 0.1 22.2 0.1 2.3 0.1 (0.3) 0.2 (0.1) 0.2 (4.0) 0.1 18.8 footwear Wood products 1.1 7.1 0.1 3.6 1.1 7.9 1.0 (0.1) 0.9 (20.7) 0.9 (24.5) 0.9 11.7 Rubber and 1.5 16.4 1.5 21.0 1.7 25.5 1.6 22.8 1.7 (12.6) 1.6 (16.9) 1.7 21.2 plastics Other 3.1 4.9 3.3 14.7 4.1 8.3 4.1 (2.9) 3.0 (27.5) 3.3 (31.0) 3.0 9.8 non-metal mineral products Other 1.6 8.7 1.6 12.2 1.8 5.1 1.8 4.6 1.4 (17.8) 1.2 (26.4) 1.4 27.1 Electricity, 12.4 0.9 12.7 3.4 10.4 (0.6) 10.4 0.6 13.9 (3.9) 13.4 (6.0) 12.7 5.1 water and gas production and distribution Notes: (1) Figures are based on sales of industrial output and therefore include sales from inventories, but exclude output that is produced but not sold. Figures in this table are current as of 1 January 2011.

(2) In prices prevailing at time of sale.

(3) Percent changes in this column are calculated pursuant to production indices and reflect period-on-period changes. Figures adjusted for shadow economic activity.

Source: Rosstat.

Industrial output grew in each year between 2005 and 2008, with overall real output growth equalling 20% over the period. This increase was driven mainly by growth in manufacturing, which, in turn, was the result of improved competitiveness of Russian products in both domestic and international markets, improved management, growth in private investment and strong global commodity prices. Growth in industrial production decelerated in 2008 because of lower commodity prices and the onset of the global financial crisis, which led to a contraction in industrial output in the fourth quarter of the year (a contraction of 9.1% compared to the fourth quarter of 2007) and reduced investment.

Between 2005 and 2008, growth was recorded in all major industrial sectors. The greatest growth over the period was recorded in rubber and plastics (170%), electrical equipment (59.5%) and machines and equipment (40.4%), as these industries benefited from high levels of investment and external demand. Growth in the extraction industry amounted to 8.1% over the period, but slowed down to 0.4% in 2008 relative to 2007 as a result of production bottlenecks.

Electricity, water and gas production and distribution exhibited a weak growth rate of 4.3% between 2005 and 2008, reflecting government-mandated price caps.

In 2008, Russia's total industrial output decelerated, increasing by 0.6% in real terms compared to 2007. Overall annual growth was recorded in several industries, including rubber and plastics (22.8%), coke and petrochemicals (2.8%) and foods (1.9%). Electrical equipment, textiles and clothing and chemicals experienced the largest contractions in output in 2008, falling by 7.9%, 5.4% and 4.6%, respectively, relative to 2007. Overall industrial growth decelerated in 2008 due to the global financial crisis, which began to have a significant negative impact on Russia's real economy in the fourth quarter of 2008. While industrial output grew in each of the first three quarters of 2008 (6.0%, 4.3% and 1.9%, respectively, against the corresponding quarters of 2007), output contracted in the fourth quarter by 9.1% against the fourth quarter of 2007.

In 2009, Russia's total industrial output decreased by 9.3% in real terms compared to 2008. Industrial output contracted in all major industries, with transport vehicles and equipment (37.2%), electrical equipment (31.6%) and machines and equipment (31.5%) experiencing the sharpest declines. The overall contraction was due to the effects of the global financial crisis, including a substantial decline in the overall demand for industrial products and a decrease in global commodity prices.

In the first nine months of 2010, industrial output increased by 8.9% compared to the first nine months of 2009. Growth was recorded in all major industrial sectors due to the overall improvement of the economy following the global financial crisis, and, in particular, an increase in both foreign and domestic demand for industrial products. The transport vehicles and equipment, electrical equipment, rubber and plastics, leather and footwear and chemicals sectors experienced the most significant period-on-period growth, rising by 31.0%, 24.3%, 21.2%, 18.8% and 17.1%, respectively.

Energy In 2009 and the first nine months of 2010, energy (including oil, petroleum products, natural gas, coal and electricity) accounted for approximately 66.1% and 68.0%, respectively, of Russia's exports. In 2009, oil and petroleum products accounted for 49.4% of total exports, while natural gas accounted for 13.9%, coal for 2.4% and electricity approximately 0.3%. In the first nine months of 2010, oil and petroleum products accounted for 52.8% of total exports, while natural gas accounted for 11.5%, coal for 2.5% and electricity for approximately 0.3%.

Domestic energy prices were heavily subsidised in the Soviet Union (amounting to only 10-20% of world market prices in 1992). By 1996, however, domestic energy prices had risen relative to other prices as a result of export liberalisation and the real appreciation of the rouble against foreign currencies. The devaluation of the rouble in 1998 led to a sharp fall in domestic energy prices in dollar terms. Despite a recovery in prices in subsequent years, domestic prices for gas, electricity and crude oil remain lower than international prices. Domestic prices for petroleum products, however, are more similar to international prices after deducting export duties and transportation costs. Federal budget revenues and Russia's balance of payments are affected to a significant extent by world prices for oil and gas.

See "Balance of Payments and Foreign Trade" and "Public Finance." Oil and Natural Gas Russian methodologies for calculating oil and gas reserves and Russian reserves classifications differ from standard international methodologies and classifications, in particular with respect to the manner and extent to which commercial factors affecting exploration, development and production are taken into account. Generally, Russian methodologies classify oil and gas deposits as reserves if such deposits are technically recoverable, even if the recovery of a portion of such reserves, using currently available technology, is uneconomic. In contrast, most international methodologies classify oil and gas deposits as reserves only if such deposits are economically extractable on the basis of existing technologies, prices and costs. Accordingly, the gas reserves information contained in this Prospectus is not comparable, and cannot be made comparable, to gas reserves information provided on the basis of standard international methodologies and classifications. The gas reserves information contained in this Prospectus represents total "explored" reserves, consisting of gas reserves in categories A, B and C1 of the Russian classification system.

Oil Oil output declined significantly following the dissolution of the Soviet Union but has been growing in recent years. Output in 2009 was approximately 478 million tonnes (approximately 13% of world output), an increase of 1.4% over production in 2008 and 1% over production in 2007. Output in 2009 was 14.5% lower than the peak output of 559 million tonnes recorded in 1987.

Between 2005 and 2009, overall oil output (including gas condensate) increased by 5.1% (from 470.2 million tonnes in 2005 to 494.3 million tonnes in 2009). In 2008 and 2009, oil exports to non-CIS countries were 204.9 million tonnes and 210.9 million tonnes, respectively, while exports to the CIS were 38.2 million tonnes and 36.5 million tonnes, respectively. Oil output in the first nine months of 2010 was 363.3 million tonnes, an increase of 1.9% over production in the first nine months of 2009. In the first nine months of 2009 and 2010, oil exports to non-CIS countries were 156.9 million tonnes and 167.1 million tonnes, respectively, while exports to the CIS were 27.4 million tonnes and 18.1 million tonnes, respectively.

Beginning in 1993, the state oil industry was split into several holding companies and operating subsidiaries. This resulted in the creation of a number of large vertically integrated oil groups, with each holding company managing and controlling a stake in many operating subsidiaries. The Government privatised its shareholdings in Slavneft (75%) and Lukoil (13.5%) between 2002 and 2003. In December 2004, a 76.79% stake in Yuganskneftegaz, the main production subsidiary of what was then Russia's largest oil company, Yukos, was sold at auction for U.S.$9.35 billion, in partial settlement of Yukos' tax obligations, to Baikalfinancegroup, which was in turn acquired by Rosneft, then a wholly state-owned entity. In July 2006, the Government privatised approximately 15% of its shareholdings in Rosneft as part of the company's initial public offering.

In 2005, three Yukos shareholders commenced three related arbitrations under the Energy Charter Treaty. The claimants originally sought in the aggregate U.S.$33.1 billion, and are currently seeking in the aggregate U.S.$103.6 billion, as compensation for the Russian Federation's alleged breach of its treaty obligations. Other Yukos-related claims have also been asserted before the European Court of Human Rights and under the Russian Federation's bilateral investment treaty with Spain. In addition, an arbitration tribunal has awarded another Yukos shareholder U.S.$3.5 million in damages in respect of a claim asserted under Russia's bilateral investment treaty with the United Kingdom. The Russian Federation has challenged the jurisdiction of the arbitration tribunal to hear that claim under the Russian Federation's bilateral investment treaty with the United Kingdom.

Natural Gas Russia's A, B and C1 natural gas reserves (which include explored reserves considered to be fully extractable pursuant to the Russian reserves system) were estimated at 47.8 trillion cubic metres as of 1 January 2009. Natural gas output stabilised after declining immediately following the dissolution of the Soviet Union. Between 2005 and 2008, natural gas output increased by 3.9% (from 640.8 billion cubic metres in 2005 to 665.5 billion cubic metres in 2008).

Then, in 2009, output decreased to 582.6 billion cubic metres, or by 12.5% compared to 2008. In 2008 and 2009, natural gas exports to non-CIS countries were approximately 158.4 billion cubic metres and 120.5 billion cubic metres, respectively, while exports to the CIS were 37 billion cubic metres and 47.9 billion cubic metres, respectively. Natural gas output in 2010 was 649.0 billion cubic metres, an increase of 11.4% over production in 2009. In the first nine months of 2009 and 2010, natural gas exports to non-CIS countries were approximately 81.3 billion cubic metres and 76.0 billion cubic metres, respectively, while exports to the CIS were 28.0 billion cubic metres and 46.1 billion cubic metres, respectively.

Russia's natural gas industry is dominated by Gazprom, which has an effective monopoly on gas transmission, storage and export, and accounts for most of Russia's natural gas reserves and production. Approximately 38.4% of Gazprom's shares are owned directly by the Russian Government, although through its ownership of other Gazprom shareholders, the Government controls a majority stake in the company. Gazprom held production licences with respect to approximately 70% of Russia's natural gas reserves at year-end 2009, accounted for approximately 79% of Russia's natural gas production in 2009 and owns and operates the Unified Gas Supply System, which includes approximately 158,000 kilometres of high pressure pipelines.

Coal Russia's A, B and C1 coal reserves were estimated at 193.0 billion tonnes as of 1 January 2010. Currently, nearly all of Russia's coal is extracted by companies in the private sector. As a result of the restructuring of the coal industry following the dissolution of the Soviet Union, together with growing demand, coal production increased by 10.1% between 2005 and 2008. In 2009, coal production nearly returned to 2005 levels. Approximately 301.3 million tonnes of coal were produced in Russia in 2009, a decrease of approximately 8.3% compared to 2008 caused mainly by the global financial crisis. In 2009, coal exports amounted to approximately 105.2 million tonnes, a slight increase compared to 2008. 323.0 million tonnes of coal were produced in Russia in 2010, an increase of approximately 6.7% compared to 2009. In 2010, coal exports amounted to approximately 96.4 million tonnes, compared to 97.0 million tonnes in 2009. Cyprus, Germany, the United Kingdom, China, Turkey and Japan are the primary destinations for Russia's coal exports.

Electricity Russia's electricity output was 992 billion kWh in 2009, representing an increase of 4.1% compared to 2005 and a decrease of 4.6% compared with 2008. Of the total output in 2009, thermal power plants accounted for 652 billion kWh (65.7%), hydrogenation for 176 billion kWh (17.8%) and nuclear generation for 164 billion kWh (16.5%). In 2010, Russia's electricity output was 1,025.0 billion kWh, an increase of 4.4% compared to 2009. Of the total output in 2010, thermal power plants accounted for 635.5 billion kWh (62.0%), hydrogenation for 166.7 billion kWh (16.3%) and nuclear generation for 170.1 billion kWh (16.6%).

As at 31 January 2009, total Russian generating capacity was 226.1 GW, 68.7% of which was attributable to thermal power plants, 20.9% to hydro power plants and 10.3% to nuclear power plants. Electricity is exported primarily to CIS countries, China, Finland, Latvia, Lithuania and Norway.

Following the collapse of the Soviet Union, in 1992, the Russian electricity industry was initially restructured and split into RAO Unified Energy Systems ("UES"), 72 regional energy companies (energos), and a separate nuclear power industry operated by state-owned Rosenergoatom (re-named the Energoatom Concern in 2008).

Until the restructuring of UES, described below, UES was the largest producer of electricity in Russia. At year-end 2007, UES owned more than 72.2% of Russia's generating capacity and was the monopoly high voltage distributor and wholesale purchaser and seller of electricity. Until its sell-off, the Russian Government owned approximately 53% of UES.

In recent years, the Russian electricity industry has undergone a major restructuring, including the break-up of almost all vertically-integrated power companies controlled by UES and the formation of new mono-profile companies with the following activity types: generation, transmission, distribution, retail sales and repairs and servicing operations. The restructuring process culminated on 1 July 2008 in the de-merging of UES into more than 20 independent companies, each engaged in either the competitive sector (power generation) or the non-competitive sector (transmission and distribution).

The electricity generation sector is currently principally comprised of thermal power plants, hydro power plants and nuclear generation complexes.

The thermal power plants, which are powered by fossil fuels, are owned primarily by OGKs (wholesale generating companies, of which there are six), TGKs (regional generating companies, of which there are 14) and several other energy companies, such as OJSC Bashkirenergo and OJSC Irkutskenergo. The OGKs are the largest generators in the wholesale electricity (capacity) market except for RusHydro and Mosenergo. Each OGK owns plants in different regions in order to minimise competition abuse. With the exception of Mosenergo, the TGKs are smaller than the OGKs (as measured by capacity and output) and operate principally on a regional level.

State-controlled RusHydro owns more than 50% of the installed capacity of hydro power plants, with the remainder owned by several TGKs and other regional energy companies. Energoatom Concern, a wholly State-owned company, operates all of Russia's nuclear plants.

Russia's transmission network of high-voltage power lines is operated by the Federal Grid Company, which is 79.11% owned by the state. Most of the country's medium- and low-voltage distribution networks are consolidated into 11 inter-regional distribution companies, which are indirectly controlled by the Russian Federation.

Retail electricity sales are made by the electricity companies that were spun-off from the energos and sold by UES in public auctions and other independent electricity retail companies.

In 2004, all dispatching functions of the Russian electricity sector were transferred from the energos to the System Operator of the Unified Energy System, which is 100% state-owned.

The Russian electricity market is divided into a wholesale electricity market, a capacity market and a retail market. On 1 September 2006, new rules governing the wholesale electricity market took effect, pending full liberalisation of the sector, which is anticipated to occur in 2011. Under these rules, trading in electricity is conducted on the basis of the following mechanisms: regulated contracts; unregulated bilateral contracts; the "one-day-ahead" market; and the balancing market. Regulated contracts are effectively take-or-pay obligations at a regulated tariff for electricity and capacity volumes. Each generator (except those facilities commissioned after 2007) is required to enter into regulated contracts covering a certain percentage of its planned 2007 annual output. This percentage, which is reduced semi-annually (and is expected to continue decreasing until full liberalisation), was 35-40% for the six months ended 30 June 2010 and is 15-20% for the six months ended 31 December 2010. The volumes of planned generation that are not traded under regulated contracts may be sold pursuant to unregulated bilateral contracts or traded on the one-day-ahead market or balancing market. The one-day-ahead market is effectively a spot market for those who wish to trade electricity at unregulated prices. Participants on the one-day-ahead market submit bids for the purchase and sale of electricity for a certain volume and price for each hour of the following day. The balancing market was established as a real-time platform to allow the trading of electricity in order to cover deviations on the one-day-ahead market between planned power volumes and volumes actually generated or consumed.

Since 1 September 2006, electricity capacity has been sold separately from electricity. Currently, capacity is sold on the wholesale market pursuant to both regulated and unregulated contracts. Beginning in 2008, there has been a gradual liberalisation of the capacity market similar to the liberalisation underway on the wholesale electricity market. From 1 July to 31 December 2010, at least 15-20% of a generator's capacity must be sold under regulated contracts. The remaining capacity (and any capacity from power plants commissioned in 2008 or later) can be sold at unregulated prices. Pursuant to resolutions adopted in 2010, new rules governing the capacity market went into effect on 1 January 2011. Under these new rules, capacity is divided into two types: (i) capacity to be sold pursuant to capacity auctions, which includes existing capacity, and (ii) capacity to be constructed under 10-year capacity supply agreements, which is expected to be sold at tariffs indexed to inflation and designed to compensate the generating company for standard capital expenses, operating expenses, property tax, gas and electricity grid connection costs as well as allow a certain rate of return on investments and a payback period of 15 years.

New rules governing the retail electricity market also came into effect on 1 September 2006. Purchasers on the retail market include (i) large industrial consumers, which pay for electricity supplies pursuant to a formula that takes into account the cost of electricity in the competitive wholesale electricity market; and (ii) households, which until at least 2011, pay according to below-market tariffs set by a state regulator. Therefore, until full liberalisation of the retail market, which is expected to occur in conjunction with deregulation of the wholesale market, industrial consumers will continue to, in effect, subsidise retail consumers.

Agriculture Russia's agricultural sector has faced significant challenges in recent years, as major structural changes have been implemented under difficult conditions.

Since the dissolution of the Soviet Union, Government subsidies to the agricultural sector have decreased significantly, the state food purchasing monopoly has been replaced by a decentralised market system and the share of agricultural output purchased by the state has fallen steadily.

The agricultural sector consists primarily of large agricultural concerns (estimated to account for approximately 66% of arable land and 43.9% of agricultural output in monetary terms) and private plots, including both private farm collectives and individual farms (estimated to account for 34% of arable land and 56.1% of agricultural output in monetary terms). The Agricultural Land Code, which came into effect in January 2003, created a unified market framework at the federal level for the purchase and sale of farmland. It also prohibits the non-agricultural use of farmland, regulates the amount of farmland any one owner may hold and prohibits foreign ownership of farmland.

Agricultural output declined by 11.9% in 2010 compared to 2009. In the summer of 2010, due to uncharacteristically hot weather, Russia suffered a severe drought that caused tens of billions of roubles in damage and set off thousands of wildfires. As a result of the drought, Russia's 2010 grain harvest was 60.9 million tonnes, 37.3% lower than the harvest in 2009, and Russia has imposed a temporary ban on the export of grain, which is expected to be in place at least until July 2011. The drought also led to an increase in the price of most agricultural products, such as bread and buckwheat. See "-Environment," below, for a discussion of the environmental impact of the drought and wildfires. While Russia still imports substantial amounts of food and agricultural products, foodstuffs and agricultural products amounted to 3.3% of total exports in 2010.

Construction The construction sector accounted for approximately 6.3% of gross added value in 2008 and 5.5% of gross added value in 2009. Following a steep decline after the dissolution of the Soviet Union and until the onset of the global financial crisis, output in the construction industry grew significantly. Overall growth in construction between 2005 and 2009 amounted to 29.3%, compared to overall growth between 2005 and 2008 of 56.2%. The deceleration was caused by a 17.2% decline in construction sector output in 2009 compared to 2008. New housing construction amounted to 59.9 million square metres in 2009, compared to 64.1 million square metres in 2008. In the first nine months of 2010, output in the construction sector grew by 1.4% relative to the first nine months of 2009 and accounted for 4.7% of gross added value.

Transport and Communications Russia has a railway network, a large merchant fleet, a large number of airports, a developed system of municipal transport, a comprehensive road network, modern telecommunications infrastructure and a major space industry.

The market for the provision of transport and communication services has been liberalised and restructured, particularly in automotive transport, air transport, water transport and communications. Despite a 3.0% decline in 2009 compared to 2008, the transportation and communications sector grew by 24.1% between 2005 and 2009. Investment in transport as a share of total fixed investment in the Russian economy increased from 17.2% at the beginning of 2005 to 19.9% at year-end 2008. In the first nine months of 2010, the transportation and communications sector grew by 7.9% compared to the first nine months of 2009 and accounted for 9.9% of gross added value.

Railways At year-end 2008, there were approximately 86,000 kilometres of railways in Russia for general passenger and freight transportation. In 2009 and the first nine months of 2010, railways accounted for 85.0% and 84.8%, respectively, of all freight transport in tonne-kilometres (excluding pipeline transport). In 2009 and the first nine months of 2010, railways accounted for 37.5% and 33.3%, respectively, of all passenger journeys in passenger-kilometres, making it the country's most important form of transport.

Tariffs for passenger transport are currently subsidised from the railway freight profits of Russian Railways and from the federal budget. Russian Railways, which is wholly-state owned and was founded in 2003, plays a significant role in the Russian railway sector. Among other activities, it is the owner and operator of the Russian Federation's integrated passenger and freight network and related infrastructure, owns and operates nearly all of the locomotives in Russia, is the largest Russian owner, operator and lessor of freight rolling stock and the largest Russian freight rail operator and, through its subsidiary the Federal Passenger Company, carries nearly all suburban and long-haul rail passengers. Substantial funding has been allocated to the renovation and maintenance of railway track and locomotive parks, as well as to the replacement of rolling stock.

The Government has developed a multi-stage programme of structural reforms in the railway sector. Key aspects of the reforms include (i) increasing the safety of railway transport as well as the quality of services offered by the railway sector; (ii) meeting the increasing demand for railway transport; and (iii) enhancing the overall efficiency of the railway sector. As part of these reforms, and in an effort to foster competition and increase private investment in the industry, control and management functions of the railway sector were separated, including through the establishment of Russian Railways, the spin-off of non-core assets of Russian Railways and the creation of new independent operating companies. Currently, more than 65% of freight cars are under the control of such private operating companies. The Government has also taken steps toward reducing or partially eliminating cross-subsidies, including the creation of a federal passenger company in April 2010. The third stage of the reform programme, currently underway, also envisages the privatisation of subsidiaries of Russian Railways, the approval of a market model for freight transport through 2015 and the transition to a new system of tariff regulation.

Roads As of 1 January 2010, there were approximately 982,985 kilometres of roads in Russia (including both public- and private-use roads), 79% of which have hard surfaces. Some 83% of the hard-surface roads are in public use, 70% of which are under regional or municipal ownership, 23% of which are under local ownership and some 8% of which are under federal control. 17%, or approximately 128,905 kilometres, of the hard-surface roads are not in public use, are controlled by legal entities and generally are used to connect with the public road network. Roads falling under federal jurisdiction are renovated and maintained by means of the federal budget, while roads falling under the jurisdiction of Federation subjects are renovated and maintained by the Federation subjects in which they are located through the respective regional and local budget as well as transfers from the federal budget.

Ports and Shipping Currently, Russia has 64 seaports. In 2009, the volume of freight shipments in Russian seaports equalled 496.4 million tonnes, 2.7 times the volume of freight shipments in 2000 and an increase of 9.2% compared to freight shipments in 2008. In the first nine months of 2010, the volume of freight shipments in Russian seaports amounted to 393.3 million tonnes, an increase of 6.7% compared to the first nine months of 2009. In 2009, freight turnover by means of sea transport equalled 98.4 billion tonne-kilometres, an increase of 16.7% compared to 2008. In the first nine months of 2010, freight turnover by means of sea transport equalled 76.2 billion tonne-kilometres, an increase of 2.9% compared to the first nine months of 2010. In November 2007, a new federal law took effect that regulates the activities of seaports and intends to promote the growth of commercial transport by sea. Substantial resources are being invested to improve the competitiveness of Russian ports.

As of 1 January 2009, Russia had approximately 101,500 kilometres of internal navigable waterways with 119 ports for general use and 723 hydraulic installations, including 108 locks as well as several pumping stations, pressure dikes and dams and canals. In 2009, freight turnover on Russia's internal waterways equalled approximately 52.7 billion tonne-kilometres, representing 2.4% of Russia's total freight turnover (excluding pipeline transport). In the first nine months of 2010, freight turnover on Russia's internal waterways equalled approximately 44.8 billion tonne-kilometres, representing 2.5% of Russia's total freight turnover (excluding pipeline transport).

Air Transport As of 30 September 2010, Russia had 328 airports, 71 of which were international. From 2005 through 2009, the number of Russian airports decreased by 16.5%. The largest international airports are located in Moscow, St. Petersburg, Yekaterinburg and Novosibirsk. Air transport in 2009 and 2010 accounted for approximately 27.9% and 34.4%, respectively, of total passenger turnover (excluding certain forms of city transport, such as underground transport) in the country.

Aeroflot was the monopoly carrier until 1991. Following the dissolution of the Soviet Union, Aeroflot was split into 140 regional airlines and an international carrier, Aeroflot-Russian International Airlines. Most of the regional airlines were subsequently privatised. In 1995, Aeroflot-Russian International Airlines was partially privatised, although the state continues to own 51% of its shares. As of year-end 2010, 161 airlines were registered to operate in Russia, the 10 largest of which accounted for roughly 75% of passenger turnover. During the first eight months of 2010, the largest airlines were Aeroflot, with a 23.6% market share, Open Joint Stock Company "Transaero," with a 17.9% market share, and Open Joint Stock Company "Airline Sibir/S7 Airlines," with a 7.1% market share.

The largest Russian airports are those situated in Moscow, which handled more than 51% of airline passenger throughput in 2010. Domodedovo Airport, Sheremyetevo Airport and Vnukovo Airport were responsible for 22.4%, 19.0% and 9.5%, respectively, of passenger throughput in 2010. The largest regional air traffic hubs in Russia include St. Petersburg, Ekaterinburg and Novosibirsk.

Airport infrastructure in Russia is developing rapidly. In March 2007, at Sheremetyevo Airport a new Terminal C opened, and, in November 2009, a new Terminal D opened. In February 2009, Joint Stock Company "International Airport Sheremetyevo" adopted a master plan for development of the airport through 2030. Pursuant to this plan, a new luggage sorting system was installed at the airport, and Terminal F (formerly known as Terminal 2) was expanded by 4,000 square metres. A new Terminal E opened in April 2010, the planned transit capacity of which is expected to be seven million passengers per year. The master plan also envisages modernisation of Terminal B (formerly known as Terminal 1) and the opening of a new business aviation terminal (Terminal A).

According to the plan, overall transit capacity of the airport is expected to reach 64 million passengers per year.

Pipelines As of the end of 2009, Russia had approximately 231,000 kilometres of trunk pipelines, consisting of approximately 166,200 kilometres of natural gas pipelines, 49,000 kilometres of oil pipelines and 15,900 kilometres of oil product pipelines. In 2009, freight turnover by means of pipeline transport totalled 2,246.2 billion tonne-kilometres, a decrease of 8.8% compared with the previous year. In the first nine months of 2010, freight turnover by means of pipeline transport equalled 1,745.8 billion tonne-kilometres, an increase of 8.2% compared with the first nine months of 2009.

Pipelines from major oil- and gas-producing areas in Russia are generally connected to pipelines in the CIS and former Soviet bloc countries. A number of significant new pipeline projects are planned or under construction. Gazprom, together with international partners, has completed the Yamal-Europe project, building new trunk pipelines that extend nearly 6,000 kilometres from the northern part of the Tyumen region of Russia through Belarus and Poland to Germany. Gazprom is also participating in the Nord Stream pipeline construction, expected to extend 1,200 kilometres from Vyborg, Russia to Griefswald, Germany. Gazprom has also constructed a trunk pipeline to Turkey (the "Blue Stream project") that crosses the Black Sea, significantly increasing Russia's gas export capacity. Initial gas flows through the undersea portion of this pipeline commenced in December 2002, with the first commercial delivery to Turkey in February 2003. The pipeline for the Blue Stream project has an annual projected capacity of 16 billion cubic metres. Gazprom is considering supplying gas to Europe by means of another export route (the South Stream project) that would pass under the Black Sea to the coast of Bulgaria.

This pipeline is expected to have an annual capacity of approximately 63 billion cubic metres. A feasibility study is underway, and various routes through south and central Europe are being considered.

New pipeline-related projects intended to increase the export capacity of the oil industry are also being implemented or planned in Europe and Asia, including the Baltic pipeline system, which connects West Siberia with a major new harbour at St. Petersburg. The project was completed in 2006 and increased annual pipeline capacity to 65 million tonnes of crude oil. Other programmes currently underway include the Baltic pipeline system-2, the construction of which began in June 2009 and which is expected to have an annual pipeline capacity of up to 50 million tonnes of crude oil, upgrading the Druzhba oil pipeline through Eastern Europe by constructing by-passes and extensions and the construction of the East Siberia-Pacific Ocean pipeline, which will have a capacity of 80 million tonnes and will extend from Taishet to Primorski Krai, connecting West and East Siberia with the Asia-Pacific region. The first section of the East Siberia-Pacific pipeline came on line in December 2009.

Work on the second, and final, phase began in January 2010.

A significant portion of Russia's existing oil pipeline network has been in operation for at least 20 years. The gas pipeline network is also ageing.

Repair and maintenance costs are accordingly high.

The crude oil and oil product trunk pipeline networks are owned and managed by state-owned monopolies, Transneft and Transnefteprodukt, respectively.

Transneft's pipeline capacity, including its export pipeline capacity, is allocated quarterly to oil producers, generally in proportion to the amount of oil produced and delivered to Transneft's pipeline network in the prior quarter. Generally, a Russian oil company is given an allocation for export to non-CIS countries equal to approximately one-third of the total crude oil it produces and delivers to Transneft. The gas trunk pipeline network is owned and managed by Gazprom. Third-party access to the gas trunk pipeline network is determined generally on the basis of available spare transport capacity, the quality and technical parameters of the natural gas supplies, the availability of supplier input connections and customer output connections and customer demand.

Telecommunications As of year-end 2010, the length of Russia's intercity and international telephone lines reached 98,500 million line-kilometres (according to preliminary estimates), an increase of 14.4% compared to 2009. Fixed-line density equalled 31.8 units per 100 persons. Telephone services grew by approximately 2.3% (as measured by value) in 2010 compared to 2009. There are over 4,500 telephone operators on the local market. By the end of 2010, there were approximately 237 million mobile telephone subscribers, a 91.0% increase compared to 2005. Mobile phone services are available across the entirety of the Russian Federation.

In recent years, in an effort to lower administrative barriers to entry as well as enhance customer choice, the market for intercity and international telephone services began to undergo a process of liberalisation. 67 licences have already been issued for the provision of intercity and international telephone services. Recipients of these licences include Rostelecom, Transtelecom, Interregional Transit Telecom, Vimpelcom, Megafon, Sinterra, Comstar-OTS and others.

Strategic Enterprises The Decree of the President of the Russian Federation No. 1009 dated 4 August 2004 established a list of strategic enterprises that are strategically important to state defence and security or to the public morals, health or rights of the citizens of the Russian Federation. In June 2010, as part of the country's modernisation policy, President Medvedev signed a decree, reducing the number of federal state unitary enterprises on this list from 295 to 165 and the number of joint stock companies considered to be strategic enterprises from 214 to 48. Strategic enterprises include, among others, Russian Railways, Aeroflot and Transneft, which operates an extensive crude oil pipeline network in the country. Such companies, which may be privatised only upon their removal from the list by decision of the President, are subject to specific rules of corporate governance. For example, the Government may retain operating control over these companies through the exercise of a "golden share," and dilution of the Government's stake in such companies remains subject to approval by the President.

Sochi Winter Olympics The southern city of Sochi will host the XXII Olympic Winter Games in 2014, the first time that the Winter Olympics will be held in the Russian Federation. In preparation for the Games, the Government has allocated approximately 327 billion roubles in financing, over 190 billion roubles of which is expected to come from the federal budget. A substantial portion of the financing will be spent on improving the power, transportation and telecommunications infrastructure in and around the Sochi region and on building and modernising sports venues and hotels. The Government created the state corporation Olympstroi to oversee preparations for the Games.

Environment Following a 2005 Government restructuring, environmental protection in Russia has primarily been the responsibility of the Federal Service for Ecological, Technological and Atomic Supervision. Environmental regulations require enterprises to pay fees for emissions or discharges of most pollutants. These fees, which are low by international standards, may be used to fund investment to improve the environment. Russia's environmental protection programme has focused on replanting forests, constructing spent gas treatment plants, installing water recycling systems and constructing sewage purification plants.

A major component of the country's Development Programme through 2020 is to establish priority measures for protecting the environment, including tax incentives for enterprises using ecologically clean technology. Total public and private sector investment in environmental protection in Russia during 2008 amounted to 0.25% of GDP. Federal expenditure to protect the environment and to address the effects of environmental catastrophes and natural disasters in 2009 amounted to approximately 0.03% of GDP and 0.14% of total non-interest expenditure for the year.

In the summer of 2010, due to uncharacteristically hot weather, Russia suffered a severe drought that led to thousands of wildfires and caused tens of billions of roubles in damage. As a result of the fires, thousands of homes were destroyed across European Russia, and, in August, toxic emissions in the atmosphere over European Russia, including carbon monoxide, reached significantly higher levels. In August 2010, the Government announced that, in addition to expenses connected with battling the fires, it had spent approximately five billion roubles on compensating victims and repairing or replacing homes. See "-Principal Sectors of the Economy-Agriculture," above, for a discussion of the agricultural impact of the drought and wildfires.

In November 2004, President Putin signed the Kyoto Protocol to the United Nations Framework Convention on Climate Change, which became effective in February 2005. Under the terms of the Kyoto Protocol, Russia is to maintain its emissions of greenhouse gases at a level no higher than the level prevalent in 1990. Due to the decrease in manufacturing following the collapse of the Soviet Union, Russia's current level of greenhouse emissions is approximately 34% less than its 1990 level.

Employment Overall employment declined in Russia from the dissolution of the Soviet Union through 1999. Beginning in 2000 and until the onset of the global financial crisis in the second half of 2008, employment was increasing, in large part due to the rise in export volumes and import substitution that began in 1999. The rate of increase in employment was less than the rate of increase in real GDP, however, due to gains in labour productivity. Based on the methodology of the ILO, the average number of unemployed workers in 2005, 2006 and 2007 was 5.6 million, or 7.6% of the economically active population, 5.3 million, or 7.2% of the economically active population, and 4.6 million, or 6.1% of the economically active population, respectively. The decline in unemployment levels in 2005-2007 was primarily due to strong domestic demand and a positive economic outlook. In late 2008, unemployment began to rise. In the fourth quarter of 2008, the average number of unemployed workers rose to 5.4 million, or 7.1% of the economically active population, from an average of 4.4 million, or 5.9% of the economically active population, in the third quarter of 2008.

Unemployment continued to rise in 2009, with the average number of unemployed workers in 2009 amounting to 6.3 million, or 8.4% of the economically active population. The rise in unemployment in the second half of 2008 and in 2009 was primarily the result of the global financial crisis, and, in particular, of a contraction both in domestic demand and in worldwide demand for Russian products. In 2010, the average number of unemployed workers was 5.7 million, or 7.5% of the economically active population, compared to an average of 6.4 million unemployed, or 8.4% of the economically active population, in 2009.

The following table sets forth quarterly information regarding unemployment in Russia for the periods indicated: Unemployment (quarterly average) Unemployed Registered (ILO definition) unemployed (1) (2) Million % of Million % of economically economically active active population population 2005 First Quarter 6.0 8.2% 2.0 2.7% Second Quarter 5.5 7.4% 1.9 2.6% Third Quarter 5.4 7.3% 1.8 2.4% Fourth Quarter 5.5 7.5% 1.8 2.4% 2006 First Quarter 5.7 7.8% 1.9 2.6% Second Quarter 5.5 7.4% 1.8 2.4% Third Quarter 5.0 6.7% 1.7 2.3% Fourth Quarter 5.0 6.8% 1.7 2.3% 2007 First Quarter 5.2 7.0% 1.7 2.3% Second Quarter 4.5 6.0% 1.6 2.1% Third Quarter 4.3 5.7% 1.4 2.1% Fourth Quarter 4.4 5.8% 1.5 2.0% 2008 First Quarter 5.1 6.7% 1.6 2.1% Second Quarter 4.3 5.6% 1.4 1.9% Third Quarter 4.4 5.9% 1.3 1.7% Fourth Quarter 5.4 7.1% 1.4 1.8% 2009 First Quarter 6.8 9.1% 2.0 2.6% Second Quarter 6.5 8.6% 2.2 2.9% Third Quarter 6.0 7.8% 2.1 2.7% Fourth Quarter 6.1 8.0% 2.1 2.7% 2010 First Quarter 6.6 8.8% 2.2 3.0% Second Quarter 5.6 7.4% 2.0 2.7% Third Quarter 5.2 6.8% 1.7 2.2% Fourth Quarter 5.2 6.9% 1.5 2.1% Notes: (1) Numbers through the second quarter of 2009 are based on data from surveys carried out quarterly. Subsequent numbers are based on surveys carried out monthly. Persons between the ages of 15 and 72 not working, looking for a job and ready to start work are counted as unemployed.

(2) Based on number of individuals who choose to register as unemployed with the various employment agencies, as recorded by the Federal Labour and Employment Service.

Source: Rosstat.

These figures do not take into account certain "hidden unemployment" resulting from shortened workdays and temporary lay-offs. The number of workers put on obligatory leave with no pay or partial pay amounted to approximately 397,000, 944,000, 1,239,310 in 2007, 2008 and 2009, respectively. The number of workers required by their employers to work reduced hours was approximately 203,000, 699,000 and 1,893,950 in 2007, 2008 and 2009, respectively. Beginning in March 2010, the number of idle workers and those working reduced hours began to decrease due to the various economic and social measures adopted in support of domestic industries.

Wages and Income Real wages increased by 12.6% in 2005, 13.3% in 2006 and 17.2% in 2007. In 2008, primarily due to higher inflation and the effects of the financial crisis on the labour market in the fourth quarter of 2008, the growth in real wages decelerated to 11.5%. In 2009, real wages declined by 3.5% compared to 2008 primarily due to inflation and the negative impact of the global financial crisis on private-sector nominal wage levels. Overall, wages grew by 60.9% in real terms between 2005 and 2009. Real wages increased by 5.1% in the first nine months of 2010 compared to the first nine months of 2009.

The minimum wage has remained relatively low, amounting to just 19.9% of the average monthly wage in June 2010. The minimum wage, established by the State Duma, serves as a benchmark in setting the level of federal benefits and also plays a role in determining certain types of budget expenditures and the size of unemployment benefits. The minimum wage was increased by approximately 11.1% in September 2005 (to 800 roubles/month), by an additional 37.5% in May 2006 (to 1,100 roubles/month), by an additional 109.1% in September 2007 (to 2,300 roubles/month) and then once again in January 2009 by 88.3% (to its current level of 4,330 roubles/month). Beginning 1 September 2007, each Federation subject has discretion to set the minimum wage in its territory, provided it is not lower than the amount set by the federal Government.

Approximately 17.7%, 15.2%, 13.3% and 13.4% of the population had income below the official subsistence level in 2005, 2006, 2007 and 2008, respectively. This decline was the result primarily of consistently high income growth. In the first nine months of 2009, the percentage of the population falling below the subsistence level increased slightly to 14.0% due mainly to the negative effects of the global financial crisis on the Russian economy, including the incomes of Russian citizens. By year-end 2009, however, this percentage dropped to 13.2%, due, in part, to a decline in the unemployment rate in the fourth quarter of 2009. In the first nine months of 2010, the percentage of people living beneath the subsistence level declined (compared to the same period in 2009) to 13.5%. Between 2005 and 2007, real disposable income increased by 43.0%. In 2008 and 2009, growth in real disposable income decelerated, increasing by 2.3% in 2008 compared to 2007 and 2.1% in 2009 compared to 2008, due mainly to the global financial crisis. Real disposable income increased by 5.0% in the first nine months of 2010 compared to the first nine months of 2009.

Organised labour does not play a prominent role in the Russian economy. Whereas nearly 100% of workers in the Soviet Union were unionised, approximately 50% of Russian workers are now members of labour organisations.

Social Benefits and Expenditure Social security reforms were introduced in Russia beginning in 1991, with new institutions founded to deliver social benefits, including unemployment insurance and benefits for the very poor.

Total social expenditure (other than housing subsidies), based on the enlarged budget, amounted to approximately 16.8% of GDP in 2005, 16.9% of GDP in 2006, 17.6% of GDP in 2007, 17.7% of GDP in 2008 and 21.3% of GDP in 2009.

Most social expenditure is provided through state extra-budgetary funds or by sub-federal authorities. In 2005, 2006, 2007, 2008 and 2009, 44.8%, 43.0%, 43.2%, 44.1% and 46.0%, respectively, of social expenditure was provided by state extra-budgetary funds, and 42.1%, 43.4%, 43.5%, 42.0% and 39.5%, respectively was provided by sub-federal authorities, respectively. Direct payments from the federal budget accounted for approximately 13.1%, 13.6%, 13.3%, 13.9% and 14.5% of social expenditure in 2005, 2006, 2007, 2008 and 2009, respectively. In the first nine months of 2010, 52.4% of social expenditure was provided by state extra-budgetary funds, 36.4% was provided by sub-federal authorities and 11.2% was provided by direct payments from the federal budget. The state extra- budgetary funds finance expenditure on health, certain social benefits and pensions. Sub-federal budgets finance housing and transportation subsidies, most education and health expenditures and certain social benefits, while the federal budget is responsible for a portion of the expenditure on education, health, culture and social benefits. See "Public Finance-Federal-Sub-Federal Fiscal Relations." In 2005, several benefit-related fiscal measures took effect. These measures eliminated unfunded benefit entitlements and replaced social privileges financed by the federal budget, e.g., free passenger transportation and free medical drugs, with targeted social benefits largely in the form of monthly cash compensation of between 50 roubles and 2,000 roubles, adjusted for inflation. This monetisation of federal social benefits is available to the disabled, World War II veterans, survivors of the siege of Leningrad, Chernobyl cleanup workers, heroes of the Soviet Union and Russia and certain other groups.

Decisions related to the eligibility for and the provision of social benefits and compensation to other groups is delegated to regional authorities. Regional beneficiaries include labour veterans, victims of Soviet-era political repression, people with dependent children and students.

Pension Reform Pension reform legislation was enacted in 2001, and a new pension system came into effect on 1 January 2002. Under this system, which remained in effect through 2009, a retiree's pension consisted of a basic pension, an insurance pension and a funded pension. Amendments to the pension legislation were passed in 2009, according to which a retiree's pension, effective 1 January 2010, consists of an insurance pension and a funded pension.

The insurance pension is made up of two components: a fixed amount, which is set by law, and a variable amount, which is dependent on past contributions by the pensioner and length of employment. The fixed amount, in effect, replaces the pre-2010 basic pension. The basic pension was funded from the budget through payments of the Unified Social Tax (the "UST"). The UST was abolished as of 1 January 2010, and as a result both elements of the insurance pension come from the Pension Fund of the Russian Federation (the "Pension Fund").

The funded pension is based on the amount of funds accumulated in a pensioner's individual pension account, which in turn depends on the beneficiary's year of birth. For those born before 1967, all mandatory contributions to the pension system are made to the insurance pension. For those born in 1967 or after, the share of contributions accumulated in funded pensions now must equal 6.0% of the first 463,000 roubles of the employee's salary. Regardless of age, an employee may elect to make funded pension contributions in excess of his mandatory pension contributions. For voluntary contributions between 2,000 roubles and 12,000 roubles per year, the Government will make a matching contribution, provided the employee files the appropriate application before 1 October 2013.

The Pension Law envisages that the size of pensions will be adjusted for inflation and growth in average salary levels.

Contributions to the funded pension system are collected by the Pension Fund and are managed by state and private trust companies and private pension funds.

According to the Law On Investments for Financing the Funded Part of Pensions, enacted in 2002, individuals may choose once a year a private trust manager from those selected on the basis of a public tender or a private pension fund.

The initial tender for private trust managers was held in September 2003, and 55 private trust companies were selected. Individuals were required to choose a trust manager by 31 December 2003, and funds were transferred to private trust companies in the beginning of 2004. As of 25 January 2011, there were 150 private pension funds and 48 private trust companies. Only a limited number of individuals choose private trust companies or private pension funds, leaving most pension savings to be managed by Vnesheconombank, which was appointed as the State Trust Management Company. As the State Trust Management Company, Vnesheconombank is responsible for the management of funds held by individuals who selected Vnesheconombank as their pension fund manager, as well as funds held by those citizens who did not select a trust company or private pension fund. Private trust companies and private pension funds may invest pension savings in various assets, including securities of Russian private and public issuers, rouble and foreign currency bank deposits and shares in foreign securities index funds. Vnesheconombank may invest pension savings only in Russian state securities, rouble and foreign currency bank deposits and rouble and foreign currency accounts with credit organisations. See "Public Finance-State Extra-Budgetary Funds" for further discussion of the Pension Fund.

BALANCE OF PAYMENTS AND FOREIGN TRADE Balance of Payments The following table sets forth the balance of payments of the Russian Federation for the periods indicated: Balance of Payments of the Russian Federation(1)(2) (billions of dollars) For the For the nine year ended months ended 31 December 30 September 2005 2006 2007 2008 2009 2009 2010 Current account 84.6 94.7 77.8 103.7 49.4 33.3 58.3 Goods and 104.6 125.7 112.0 155.4 91.7 62.0 95.1 services Export 268.8 334.7 393.7 522.7 344.9 238.2 319.5 Import (164.2) (209.0) (281.6) (367.3) (253.2) (176.2) (224.4) Goods 118.4 139.3 130.9 179.7 111.6 76.4 114.9 Export (fob) 243.8 303.6 354.4 471.6 303.4 207.8 287.4 Import (fob) (125.4) (164.3) (223.5) (291.9) (191.8) (131.5) (172.5) Services (13.8) (13.6) (18.9) (24.3) (19.9) (14.3) (19.7) Export 25.0 31.1 39.3 51.1 41.5 30.4 32.2 Import (38.7) (44.7) (58.1) (75.5) (61.4) (44.7) (51.9) Investment income (18.9) (29.4) (30.8) (49.0) (39.5) (26.9) (34.4) and employee compensation Received 17.5 29.8 47.4 61.8 34.0 25.5 27.9 Paid (36.4) (59.2) (78.1) (110.8) (73.5) (52.4) (62.2) Employee (1.1) (4.2) (7.3) (14.2) (8.6) (6.4) (7.1) compensation Received 1.8 1.9 2.6 3.8 3.3 2.5 2.7 Paid (2.9) (6.1) (9.9) (18.0) (12.0) (8.9) (9.8) Investment income (17.8) (25.3) (23.4) (34.8) (30.8) (20.5) (27.2) Received 15.7 27.9 44.8 58.0 30.7 23.0 25.2 Paid (33.5) (53.1) (68.2) (92.8) (61.5) (43.6) (52.4) Current Transfers (1.0) (1.5) (3.5) (2.8) (2.9) (1.9) (2.4) Received 4.5 6.4 8.4 11.0 8.9 6.5 7.0 Paid (5.5) (7.9) (11.9) (13.7) (11.8) (8.4) (9.5) Capital and (76.7) (104.2) (64.4) (92.4) (47.6) (30.9) (54.5) financial account Capital account (12.8) 0.2 (10.2) 0.5 (11.9) (11.9) 0.2 Capital transfers (12.8) 0.2 (10.2) 0.7 (11.6) (11.9) 0.2 Received 0.7 1.0 1.4 1.6 1.6 1.1 0.9 Paid (13.4) (0.8) (11.6) (0.9) (13.3) (13.0) (0.7) Acquisition/ 0.0 0.0 0.0 (0.2) (0.2) 0.0 0.0 disposal of nonfinancial assets Financial account (63.9) (104.4) (54.2) (92.9) (35.8) (19.0) (54.7) Direct investment 0.1 6.6 9.2 19.4 (7.7) (3.2) (7.4) Abroad (12.8) (23.2) (45.9) (55.6) (44.5) (34.1) (33.9) In Russia 12.9 29.7 55.1 75.0 36.8 30.8 26.5 Portfolio (11.4) 15.7 5.6 (35.4) (2.2) (8.6) 9.5 investment Assets (10.7) 6.2 (10.0) (7.8) (10.4) (11.9) 3.4 Liabilities (0.7) 9.5 15.5 (27.6) 8.2 3.2 6.1 Financial (0.2) (0.1) 0.3 (1.4) (3.2) (3.2) (1.4) derivatives Assets 0.9 1.2 2.8 9.1 9.9 8.2 6.1 Liabilities (1.1) (1.3) (2.4) (10.5) (13.1) (11.4) (7.5) Other investment 9.0 (19.1) 79.7 (114.4) (19.2) (29.3) (10.1) Assets (33.3) (49.4) (60.1) (177.6) 6.0 (8.4) (13.1) Cash foreign (1.4) 9.5 15.5 (30.0) 6.1 1.0 14.3 currency Demand and time (4.6) (12.7) (12.5) (39.5) 6.4 (1.0) 11.2 deposits Trade credits and (7.6) (0.6) (0.8) (8.1) 5.9 5.0 (0.2) advances(3) Loans extended (5.5) (28.0) (35.3) (54.3) 7.4 (1.3) (17.0) (excl. arrears) Arrears 11.0 3.1 8.8 (1.2) 10.0 10.3 0.5 Indebtedness on 1.9 0.08 (0.3) 0.02 (1.8) (2.1) 0.5 supplies under intergovernmental agreements Non-repatriation (27.2) (19.9) (34.5) (39.3) (27.1) (18.3) (21.0) of export proceeds and import advances not repaid in time(4) Other assets 0.04 (0.8) (1.0) (5.3) (0.9) (1.9) (1.4) Liabilities 42.4 30.3 139.8 63.2 (25.2) (20.9) (3.1) Cash domestic 0.09 0.3 0.9 1.4 0.7 0.5 0.0 currency Demand and time 2.3 14.6 11.6 (4.2) (2.3) (3.5) 12.1 deposits Trade credits and - - - - 0.6 0.3 0.3 advances received (3) Loans received 39.6 18.3 127.3 63.5 (32.0) (29.2) (11.0) (excl. arrears) Arrears 0.02 (3.6) (1.3) 0.9 (0.7) 0.2 0.0 Other liabilities 0.3 0.7 1.3 1.6 8.5 10.8 1.7 Reserve Assets(5) (61.5) (107.5) (148.9) 38.9 (3.4) 25.4 (45.4) Net errors and (7.9) 9.5 (13.3) (11.3) (1.7) (2.3) (3.9) omissions Notes: (1) Figures in this table are current as of 15 January 2011. Certain data presented in this table differ from previously published data due to regular revisions by the Bank of Russia. For those transactions denominated in currencies other than the dollar, conversions into dollars are made at the exchange rate prevailing on the date of the relevant transaction.

(2) Precise information on the volume of Russia's foreign trade is difficult to obtain because of the importance of so-called "unregistered trade," consisting of commercial (in contrast to private) transactions that escape customs records or are undervalued by customs authorities. Value adjustments for unregistered trade are made in the official balance of payments accounts. These adjustments amounted to approximately U.S.$29 billion in 2005, U.S.$30 billion in 2006, U.S.$29 billion in 2007, U.S.$32 billion in 2008, U.S.$29 billion in 2009 and U.S.$19 billion in the first nine months of 2010 (on a non-annualised basis).

(3) Through 2008, received trade credits and advances in the export and import of services were reflected in the line item "trade credits and advances." For 2009 (including figures for the first nine months of 2009) and the first nine months of 2010, received trade credits and advances were reflected in the separate line item "trade credits and advances received." (4) Includes the estimated value of the non-supply of goods and services under import contracts and the estimated value of fictitious transactions in securities.

(5) Changes in reserve assets that arise as a result of transactions with reserve assets, i.e., excluding monetisation of gold and valuation changes.

This definition differs from that employed in the calculation of total official reserves. See "-Official Reserves." Source: Bank of Russia.

Current Account Since 2000, Russia has registered a current account surplus. In 2005, Russia recorded a current account surplus of U.S.$84.6 billion (approximately 11.1% of GDP), a 42.2% increase compared to 2004. The growth in the current account surplus was primarily due to an increase in the value of exported goods (which grew by 33.1% in 2005 compared to 2004), which, in turn, was supported by a 40% rise in the average price of certain important export commodities (including the average contract price for Urals oil) in 2005 compared to 2004. The persistent rise in international oil prices was caused, in part, by political instability in oil producing regions and greater demand from east and south Asia. The value of imported goods increased by 28.8% in 2005 compared to 2004, largely as a result of the continued real appreciation of the rouble against the euro and the dollar and a general acceleration of economic activity.

Notwithstanding the growth in the value of Russia's imported goods, Russia's 2005 trade surplus was U.S.$118.4 billion, a 38.0% increase compared to 2004.

The negative balance of services increased by U.S.$1.1 billion in 2005 compared to 2004, amounting to U.S.$13.8 billion. The investment income and employee compensation deficit increased by approximately 47.7% from U.S.$12.8 billion in 2004 to U.S.$18.9 billion in 2005.

In 2006, Russia recorded a current account surplus of U.S.$94.7 billion (approximately 9.6% of GDP), an 11.9% increase compared to 2005. The growth in the current account surplus was primarily caused by a higher trade surplus, which was, in turn, caused largely by a 24.5% increase in the value of exported goods in 2006 compared to 2005. The increase in exports, including oil and natural gas, was primarily driven by price, not volume. For example, in 2006 compared to 2005, the volume of oil exports decreased by 1.6%, whereas the value of oil exports increased by 22.6%. Similarly, in 2006 compared to 2005, the volume of natural gas exports decreased by 3.1%, while the value of gas exports increased by 38.3%. In 2006 compared to 2005, the average export price for Urals oil and for natural gas grew by 24.8% and 43.0%, respectively. Growth in the average export prices of certain other key commodities, including copper (86.7%), nickel (67.6%) and aluminium (23.0%), underpinned export growth over the same period. The value of imported goods increased by 31.0% in 2006 compared to 2005, largely as a result of the real appreciation of the rouble against the euro and dollar and growth in the overall economy. Despite the growth in the value of Russia's imported goods, Russia's trade surplus was U.S.$139.3 billion, a 17.7% increase compared to 2005. The deficit in investment income increased by 42.1% from U.S.$17.8 billion in 2005 to U.S.$25.3 billion in 2006. The negative balance in employee compensation increased by 3.8 times from U.S.$1.1 billion to U.S.$4.2 billion.

In 2007, Russia recorded a current account surplus of U.S.$77.8 billion (approximately 6.0% of GDP), a 17.8% decrease compared to 2006. This decrease was primarily the result of a lower trade surplus, combined with a weakening balance of trade in services and an increase in outflows of current transfers.

In 2007, imports of goods increased by 36% compared to 2006. This growth was caused by the real appreciation of the rouble (by 12.8% against the dollar and 4.2% against the euro) and by the expansion of domestic demand, as reflected by the 8.5% real GDP growth rate. The rise in the value of imported goods was partially offset by a 17.0% increase in the value of exported goods, which was primarily price- and not volume-driven. For example, Russia recorded growth in the average export price for Urals oil (14.1%), iron ore and concentrates (29.8%), coal (15.2%), nickel (40.8%) and aluminum (16.3%) in 2007 compared to 2006. At the same time, as measured in volumes, there was a deceleration in the growth of oil and iron ore exports and a contraction in exports of natural gas and ferrous metals. The resulting trade balance was U.S.$130.9 billion in 2007 compared to U.S.$139.3 billion in 2006. Also contributing to the decline in the current account surplus was an increase in both the negative balance of services (from U.S.$13.6 billion in 2006 to U.S.$18.9 billion in 2007), which was attributable mainly to a rise in imports, and the net outflow of current transfers (from U.S.$1.5 billion in 2006 to U.S.$3.5 billion in 2007). The investment income deficit decreased by 7.5% (from U.S.$25.3 billion in 2006 to U.S.$23.4 billion in 2007); however, it was offset by a 73.8% rise in the net outflow of employee compensation (from U.S.$4.2 billion in 2006 to U.S.$7.3 billion in 2007).

In 2008, Russia recorded a current account surplus of U.S.$103.7 billion (approximately 6.2% of GDP), a 33.3% increase compared to 2007. This increase was caused predominantly by a higher trade surplus, due, in turn, to exports increasing at a faster rate than imports. The value of exported goods increased by 33.1% in 2008 compared to 2007, primarily as a result of an increase in export prices, in particular, the price of oil and petroleum products. For example, in 2008 compared to 2007, the volume of crude oil exports dropped by 5.8%, whereas the value of crude oil exports increased by 32.6%. The average export price for Urals oil grew by 41.2% in 2008 compared to 2007. Similarly, over the same period, increases in the value of natural gas exports (51.3%) outpaced increases in the volume of gas exports (1.8%). An increase in the average export price of coal (45.5%), iron ore and concentrates (74.9%), petroleum products (45.6%) and mixed fertilisers (258.2%) underpinned export growth in 2008 compared to 2007. Concurrently, the value of imported goods increased by 30.6%, primarily as a result of strong real appreciation of the rouble (13.4% against the dollar and 6.4% against the euro) and rising GDP in the first three quarters of 2008. Despite the growth in the value of Russia's imported goods, the trade surplus increased by 37.3% compared to 2007 to U.S.$179.7 billion. The increase in the trade surplus was partially offset by a rise in the services deficit and the investment income deficit, as well as in the net outflows of employee compensation. The negative balance of services increased by U.S.$5.4 billion in 2008 compared to 2007, amounting to U.S.$24.3 billion. This increase was due to imports of services rising at a faster rate than exports. The sharp increase in the investment income deficit (U.S.$23.4 billion in 2007 compared to U.S.$34.8 billion in 2008) was caused largely by a sharp rise in investment income payable. Net outflows in employee compensation increased by 94.5% to U.S.$14.2 billion in 2008, compared to U.S.$7.3 billion in 2007.

In 2009, Russia recorded a current account surplus of U.S.$49.4 billion (approximately 4.0% of GDP), a 52.4% decrease compared to 2008. This sharp decline in the current account balance was primarily attributable to a 37.9% drop in the trade balance from U.S.$179.7 billion in 2008 to U.S.$111.6 billion in 2009. In 2009, despite both nominal and real depreciation of the rouble, the value of exported goods fell significantly to U.S.$303.4 billion from U.S.$471.6 billion in 2008. This 35.7% decline in exports was primarily caused by a drop in both the price and volume of commodity exports as well as by the overall contraction of the economy due to the global financial crisis. The average export price for Urals oil, for example, declined by 38.8% in 2009 compared to 2008. Although the current account balance deteriorated during this period, the value of imported goods fell by 34.3% from U.S.$291.9 billion in 2008 to U.S.$191.8 billion in 2009, and the value of imported services fell by 18.7% from U.S.$75.5 billion in 2008 to U.S.$61.4 billion in 2009 due to contracting domestic demand associated with the global financial crisis. In 2009, Russia also experienced a 38.7% decrease in net employee compensation outflows from U.S.$14.2 billion in 2008 to U.S.$8.6 billion in 2009 and an 11.5% rise in net investment income from a deficit of U.S.$34.8 billion in 2008 to a deficit of U.S.$30.8 billion in 2009.

In the first nine months of 2010, Russia recorded a current account surplus of U.S.$58.3 billion (approximately 5.5% of GDP), which was 75.1% higher than the current account surplus in the first nine months of 2009. This increase in the current account balance was primarily attributable to an increase in the trade surplus from U.S.$76.4 billion in the first nine months of 2009 to U.S.$114.9 billion in the first nine months of 2010, which, in turn, was caused by export prices and volumes increasing at a faster rate than import prices and volumes. For example, the average export price for Urals oil increased by 34.7% in the first nine months of 2010 compared to the first nine months of 2009. The export prices of Russian aluminum, copper and nickel were also higher in the first nine months of 2010 compared to the first nine months of 2009. Although the current account balance improved in the first nine months of 2010 compared to the first nine months of 2009, the value of imported goods and services increased by 34.1% from U.S.$238.2 billion in the first nine months of 2009 to U.S.$319.5 billion in the first nine months of 2010. This increase was due primarily to an expansion in import volumes, which, in turn, was driven by the improvement in domestic demand in the first nine months of 2010 compared to the first nine months of 2009, as well as to a rise in import prices. Partially offsetting the increase in the trade balance was an increase in the net investment income deficit and an increase in the net current transfers deficit.

The net investment income deficit increased by U.S.$6.7 billion from U.S.$20.5 billion in the first nine months of 2009 to U.S.$27.2 billion in the first nine months of 2010 due to an increase in investment income payable, which was partially offset by an increase in investment income received. The net current transfers deficit increased by U.S.$0.5 billion in the first nine months of 2010 compared to the first nine months of 2009.

Capital and Financial Account In 2005, Russia recorded a capital and financial account deficit of U.S.$76.7 billion, a 43.1% increase compared to 2004, primarily as a result of the growth in official foreign currency reserves and the large capital transfers deficit caused by debt relief, a large part of which was granted to developing countries indebted to the former Soviet Union. The balance of direct investment was U.S.$0.1 billion in 2005 compared to U.S.$1.7 billion in 2004 (caused by a relative decrease in foreign investments in Russia, compared to Russian investments abroad), while the net portfolio investment balance reversed from a surplus of U.S.$0.6 billion in 2004 to a deficit of U.S.$11.4 billion in 2005. The reversal in the net portfolio investment balance was primarily caused by the growth in the monetary authority's claims under REPO transactions on international markets (U.S.$6.3 billion in 2005 compared to U.S.$1.6 billion in 2004) and by the banking sector's acquisition of approximately U.S.$2.6 billion of long-term foreign debt securities. The contraction in the direct investment balance, the reversal of the net portfolio investment balance and the increase in foreign reserves were partially offset by a surplus in the other investments balance. In 2005, the other investments surplus reached U.S.$9.0 billion compared to a U.S.$9.0 billion other investments deficit in 2004. The surplus was mainly due to a significant increase in the value of foreign currency loans extended to Russian businesses.

In 2006, Russia recorded a capital and financial account deficit of U.S.$104.2 billion, a 35.9% increase compared to 2005. This increase largely reflected a growth in official foreign currency reserves and a reversal of the other investments balance from surplus to deficit. The rise in foreign reserves (U.S.$107.5 billion in 2006 compared to U.S.$61.5 billion in 2005) was mainly due to the Bank of Russia's policy of preventing excessive real appreciation of the rouble as well as to the Government's expansion of the Stabilisation Fund (the Fund's proceeds at the end of 2006 increased by approximately 1.2 trillion roubles compared to year-end 2005). See "Public Finance-Deficit Financing" for more information regarding the Stabilisation Fund. The other investments balance worsened from a U.S.$9.0 billion surplus in 2005 to a U.S.$19.1 billion deficit in 2006. The deficit was primarily driven by the following factors: (i) an increase in Russian capital outflows in the form of loans extended to foreign residents; (ii) a decrease of arrears of Russian companies owed to nonresidents; (iii) an increased interest of Russian residents in foreign currency demand and time deposits as a form of short-term savings; (iv) a reduction compared to 2005 in the value of foreign loans to Russian businesses; (v) Russia's prepayment of approximately U.S.$21.6 billion in debt to the Paris Club; and (vi) an exchange of Russian Federation Eurobonds for a portion of the uninsured Soviet-era trade indebtedness for which Russia has agreed to be responsible ("FTO Debt"), which led to an approximate U.S.$1.4 billion decline in foreign liabilities. Net foreign direct investment improved from U.S.$0.1 billion in 2005 to U.S.$6.6 billion in 2006 because the volume of foreign investment in Russia exceeded the volume of Russian investment abroad.

The portfolio investment deficit of U.S.$11.4 billion in 2005 improved to a net surplus of U.S.$15.7 billion in 2006 due to increased purchases of Russian corporate securities by non-residents and at the same time a reduction in Russian investments in foreign securities, as well as the exchange of newly issued Russian Federation Eurobonds for a portion of Russia's FTO Debt. As a result of net inflows of foreign investment to both the banking and corporate sectors, net capital inflows to the private sector equalled U.S.$41.4 billion in 2006, a significant increase from the U.S.$0.1 billion of net outflows in 2005.

In 2007, Russia recorded a capital and financial account deficit of U.S.$64.4 billion, a 38.2% decrease compared with 2006. This improvement was mainly the result of increased foreign lending to Russian businesses. Loans received by Russian residents amounted to U.S.$127.3 billion in 2007 compared to U.S.$18.3 billion in 2006. The foreign direct investment balance also contributed to the decrease in the capital and financial account deficit, having increased by U.S.$2.6 billion in 2007 compared to 2006. This 39% increase was the result of foreign investments in Russia exceeding Russian investments abroad. The net portfolio investment surplus declined from U.S.$15.7 billion in 2006 to U.S.$5.6 billion in 2007. This decline was due to a sharp increase of Russian investments in foreign securities from a surplus of U.S.$6.2 billion in 2006 to a deficit of U.S.$10.0 in 2007 and was partially offset by a 63.2% increase in foreign holdings of Russian securities. The overall improvement in the financial account was partially offset by the continued increase in foreign currency reserves, as reflected in part by the approximate 1.2 trillion rouble increase in the Stabilisation Fund, and a sharp rise in net capital transfers from a surplus of U.S.$0.2 billion in 2006 to a deficit of U.S.$10.2 billion, which was caused by debt relief granted by Russia to certain of its debtors. See "Public Debt and Related Matters-External Financial Assets." As a result of net inflows to both the banking and corporate sectors, net capital inflows to the private sector equalled U.S.$81.7 billion in 2007, a 97% increase compared to 2006.

In 2008, Russia recorded a capital and financial account deficit of U.S.$92.4 billion, a 43.5% increase compared to 2007. This increase reflected a reversal from surplus to deficit in both the portfolio investment balance and the other investments balance. The portfolio investment balance reversed from a U.S.$5.6 billion surplus in 2007 to a U.S.$35.4 billion deficit in 2008 as Russian residents repaid or bought back their foreign debt. The other investments balance moved from a U.S.$79.7 billion surplus in 2007 to a U.S.$114.4 billion deficit in 2008, as the global financial crisis prompted investors to reduce their exposure to Russian assets. Russian investors increased their holdings of hard currency and foreign-currency demand and time deposits, leading to combined outflows of U.S.$69.5 billion in 2008 as compared with combined inflows of U.S.$3.0 billion in 2007. Similarly, foreign loans to Russian businesses declined from U.S.$127.3 billion in 2007 to U.S.$63.5 billion in 2008. At the same time, Russian residents increased the volume of loans extended to foreign residents, in part, to foreign subsidiaries of Russian companies. As a result, net private sector capital outflows (including outflows from both the banking and corporate sectors) in 2008 reached U.S.$133.9 billion. A U.S.$38.9 billion decrease in foreign currency reserves in 2008, compared to an increase of U.S.$148.9 billion in 2007, and an increase in the direct investment balance from U.S.$9.2 billion in 2007 to U.S.$19.4 billion in 2008 partially offset the deterioration in the portfolio investment balance and other investments balance.

In 2009, Russia recorded a capital and financial account deficit of U.S.$47.6 billion, a 48.5% decrease compared to 2008. This improvement was mainly attributable to a reduction in the portfolio investment balance deficit and the other investments deficit. The portfolio investment balance improved from a deficit of U.S.$35.4 billion in 2008 to a deficit of U.S.$2.2 billion in 2009 primarily because of an increase of foreign purchases of Russian securities as the rouble stabilised and the overall Russian economy began to recover in the second quarter of 2009. The deficit in other investments improved significantly, from a deficit of U.S.$114.4 billion in 2008 to a deficit of U.S.$19.2 billion in 2009, despite a sharp decline in foreign loans to Russian residents. The other investments deficit fell for several reasons.

Russian investments in foreign currency cash, demand and time deposits decreased, as did the value of Russian loans to foreign residents. Foreign currency cash holdings reversed from a U.S.$30.0 billion deficit in 2008 to a U.S.$6.1 billion surplus in 2009, and foreign currency deposits decreased from a deficit of U.S.$39.5 billion in 2008 to a surplus of U.S.$6.4 billion in 2009. The volume of Russian loans to foreign residents declined from a deficit of U.S.$54.3 billion in 2008 to a surplus of U.S.$7.4 billion in 2009.

Concurrently, an increase in arrears was recorded, reflecting debt relief granted by Russia to certain of its debtors. The drop in the other investments deficit was also supported by a deceleration in the non-repatriation of export proceeds and import advances not repaid in time (from U.S.$39.3 billion in 2008 to U.S.$27.1 billion in 2009). In 2009, despite net inflows in the second and fourth quarters, Russia recorded overall net private sector capital outflows of U.S.$56.9 billion, which were mainly driven by the repayment of loans to Russian borrowers, mainly in the banking sector. The growth in foreign reserves in 2009 equalled U.S.$3.4 billion. The improvement in the portfolio investment deficit and other investment deficit as well as the expansion of foreign reserves was partially offset by a reversal of the net direct investment balance, from a net inflow of U.S.$19.4 billion in 2008 to a net outflow of U.S.$7.7 billion in 2009. This reversal was primarily caused by a sharp decline in foreign direct investment in Russia. The improvement in the financial account deficit was partially offset by net outflows of capital transfers amounting to U.S.$11.6 billion, which was the result of debt relief granted by Russia to certain of its debtors.

In the first nine months of 2010, Russia recorded a capital and financial account deficit of U.S.$54.5 billion, a 76.4% increase compared to the first nine months of 2009. This increase reflected primarily a change in foreign reserves from a U.S.$25.4 billion decrease in foreign reserves in the first nine months of 2009 to a U.S.$45.4 billion increase in foreign reserves in the first nine months of 2010. The increase in foreign reserves was due mainly to a significant improvement in the current account surplus from U.S.$33.3 billion in the first nine months of 2009 to U.S.$58.3 billion in the first nine months of 2010 and from a reduction in capital flight, i.e., the aggregate change in the portfolio investment balance, financial derivatives balance and other investments balance. In the first nine months of 2010, the portfolio investment balance experienced a surplus of U.S.$9.5 billion, compared to a deficit of U.S.$8.6 billion in the first nine months of 2009. In addition, the deficit in the financial derivatives balance improved to U.S.$1.4 billion from U.S.$3.2 billion and the deficit in the other investments balance improved to U.S.$10.1 billion from U.S.$29.3 billion. The change in the portfolio investment balance was due to a net increase of U.S.$2.9 billion in foreign holdings of Russian securities as well as to a reduction in Russian investments in foreign securities. The increase in foreign holdings of Russian securities was, in turn, driven by higher interest rates in rouble fixed-income assets than in foreign assets and by the stable rouble. The decrease in the other investments deficit was primarily attributable to an increase in foreign investment in Russian demand and time deposits (from an outflow of U.S.$3.5 billion in the first nine months of 2009 to an inflow of U.S.$12.1 billion in the first nine months of 2010), a reduction in foreign currency holdings (from a decrease of U.S.$1.0 billion in the first nine months of 2009 to a decrease of U.S.$14.3 billion in the first nine months of 2010), a decline in investments in foreign currency demand and time deposits (from an increase in such investments of U.S.$1.0 billion in the first nine months of 2009 to a withdrawal from such investments of U.S.$11.2 billion in the first nine months of 2010) and a decrease in payments made by Russian entities on loans received from foreign investors (from an outflow of U.S.$29.2 billion in the first nine months of 2009 to an outflow of U.S.$11.0 billion in the first nine months of 2010). Offsetting the decrease in the other investments deficit was a deterioration in the direct investment balance from a deficit of U.S.$3.2 billion in the first nine months of 2009 to a deficit of U.S.$7.4 billion in the first nine months of 2010. In the first nine months of 2009 and 2010, Russia had net private sector outflows of U.S.$65.4 billion and U.S.$15.6 billion, respectively.

Exchange rate fluctuations and periods of economic uncertainty have often caused Russian banks, enterprises and households to convert their current holdings and savings into foreign currency (particularly dollar-denominated) assets. Though the impact of these factors has declined in recent years, capital flight has historically been significant in Russia, caused mainly by illegal outflows through non-repatriation of export proceeds and unrefunded import advances. Non-repatriation of export proceeds and unrefunded import advances fluctuated between 2005 and 2009 (U.S.$27.2 billion in 2005, U.S.$19.9 billion in 2006, U.S.$34.5 billion in 2007, U.S.$39.3 billion in 2008 and U.S.$27.1 billion in 2009). In the first nine months of 2010, they equalled U.S.$21.0 billion, compared to U.S.$18.3 billion in the first nine months of 2009. Russia's balance of payments accounts include a high level of unaccounted transactions, which likewise have historically fluctuated, including outflows of U.S.$7.9 billion in 2005, inflows of U.S.$9.5 billion in 2006 and outflows of U.S.$13.3 billion, U.S.$11.3 billion and U.S.$1.7 billion in 2007, 2008 and 2009, respectively. Outflows due to unaccounted transactions in the first nine months of 2009 and 2010 equalled U.S.$2.3 billion and U.S.$3.9 billion, respectively.

In 2005, the stock of foreign currency cash held by Russian residents (excluding banks) increased by U.S.$1.4 billion, due to the nominal depreciation of the rouble against the dollar and despite the nominal appreciation of the rouble against the euro. The nominal depreciation of the dollar during 2006 and 2007 encouraged Russian individuals and small businesses to convert dollar cash into roubles and resulted in a U.S.$9.5 billion and U.S.$15.5 billion decline in the stock of foreign currency cash in 2006 and 2007, respectively. The sharp depreciation of the rouble in 2008 (19.7% against the dollar and 15.3% against the euro, in nominal terms) as well as instability in global markets encouraged Russian residents to convert rouble holdings into foreign currency and resulted in a U.S.$30.0 billion increase in foreign currency holdings. In 2009, the rouble continued to depreciate (by 2.9% against the dollar and 4.7% against the euro, in nominal terms), but at a slower rate than in the previous year. Deceleration in the nominal depreciation of the rouble, together with the relative improvement of the economy in the second half of 2009 compared to the first half of 2009, led to a U.S.$6.1 billion decline in the stock of foreign currency holdings among Russian households and businesses in 2009. In the first nine months of 2010, the stock of foreign currency holdings declined by U.S.$14.3 billion, compared to a decrease in foreign currency holdings of U.S.$1.0 billion in the first nine months of 2009.

This sharp decline in foreign currency holdings was, in part, due to the relatively stronger value of the rouble (the average rouble/dollar exchange rate appreciated from 32.71 roubles/dollar in the first nine months of 2009 to 30.23 roubles/dollar in the first nine months of 2010) and to relatively greater stability on the global markets in the first nine months of 2010 compared to the first nine months of 2009.

Foreign Trade Foreign Trade Regime Following the dissolution of the Soviet Union, Russia introduced import tariffs for a broad range of goods. In an effort to bring its external trade regime more closely in line with WTO standards, Russia has introduced a maximum import tariff rate and has worked to unify rates within commodity groups. Currently, the maximum rate of import tariffs is 30%, with the exception of five commodity groups, which are levied at various rates, reaching 100% for spirits. In January 2009, Russia substantially raised its import tariffs on used cars in an effort to support the country's domestic automotive industry. The tariffs are calculated in accordance with a formula that is based on the age and engine type of the vehicle. In January 2010, Russia imposed a ban on the import of poultry containing chlorine levels in excess of a certain threshold. This new regulation led to significant reductions in poultry imports from the United States, one of Russia's primary suppliers. The ban on most U.S. poultry imports was rescinded in August 2010.

Exports are an important source of foreign exchange earnings for Russia.

Currently, Russia has various export restrictions in place, such as export quotas, export tariffs and voluntary export restraints, which continue to exist on a list of goods agreed between Russia and the EU (for some steel products) and between Russia and the United States (for certain consumer goods). The Government has also introduced duties on the export of oil and natural gas.

Duties on oil exports are based on world oil prices, and the duty on natural gas is 30%. See "Public Finance-Russian Tax System" for a discussion of these customs duties. On 1 January 2004, a new Customs Code went into effect, which seeks to facilitate customs clearance procedures. See "The Russian Economy-Civil and Commercial Law" for a discussion of the Customs Code.

The Government places a high priority on joining the WTO. Russia has concluded bilateral agreements on its accession to the WTO with most of the members of the working group established to consider Russia's membership and has signed a protocol with the EU on Russia's accession to the WTO. Before it can join the WTO, Russia must ensure that its laws conform with WTO standards in five key areas: Access to the goods market; intellectual property rights; agricultural tariffs; legislative and institutional framework; and access to the market for services. See "Russian Federation-International Relations-Russia's Position in the International Community." Composition of Trade The following table illustrates the composition of Russia's exports and imports on a customs basis (excluding unregistered trade adjustments) for the periods indicated: Structure of Trade(1)(2)(3) (excluding unregistered trade) For the For the nine year ended months ended 31 December 30 September 2005 2006 2007 2008 2009 2009 2010 U.S.$ % U.S.$ % U.S.$ % U.S.$ % U.S.$ % U.S.$ % U.S.$ % billion billion billion billion billion billion billion Exports Machinery, 13.5 5.6 17.4 5.8 19.7 5.6 22.8 4.9 18.0 5.9 11.5 5.6 15.1 5.3 equipment and transport Metals and 33.8 14.0 41.2 13.7 49.1 14.0 54.6 11.7 33.6 11.1 23.8 11.5 30.8 10.9 their products Mineral 156.4 64.8 198.6 65.9 228.4 64.9 326.3 69.8 203.4 67.4 138.5 67.1 195.5 69.1 products(4) Chemical 14.4 6.0 16.8 5.6 20.8 5.9 30.2 6.4 18.7 6.2 13.1 6.3 17.4 6.2 products and rubber Timber, 8.3 3.4 9.5 3.2 12.3 3.5 11.6 2.5 8.4 2.8 6.1 3.0 7.1 2.5 woodpulp and paper products Textiles and 1.0 0.4 1.0 0.3 1.0 0.3 0.9 0.2 0.7 0.2 0.5 0.2 0.5 0.2 textile products Leather and 0.3 0.1 0.4 0.1 0.3 0.1 0.4 0.1 0.2 0.1 0.2 0.1 0.2 0.1 fur products Foodstuffs 4.5 1.9 5.5 1.8 9.1 2.6 9.3 2.0 10.0 3.3 7.2 3.5 7.1 2.5 and agricultural products (excluding textiles) Precious 6.8 2.8 7.8 2.6 6.8 1.9 7.2 1.5 5.0 1.7 3.2 1.5 6.3 2.2 stones, precious metals and their products Other 2.5 1.0 3.1 1.0 4.4 1.2 4.5 0.9 3.8 1.2 2.4 1.2 3.0 1.1 Total trade 241.5 100.0 301.2 100.0 351.9 100.0 467.6 100.0 301.8 100.0 206.4 100.0 283.1 100.0 Imports Machinery, 43.4 44.0 65.7 47.7 101.7 50.9 140.8 52.7 72.6 43.4 49.3 42.9 67.9 43.1 equipment and transport Metals and 7.4 7.5 10.3 7.5 15.8 7.9 18.6 7.0 10.9 6.5 7.5 6.5 11.7 7.5 their products Mineral 3.0 3.1 3.3 2.4 4.7 2.3 8.3 3.1 4.1 2.4 2.7 2.3 4.2 2.6 products(4) Chemical 16.3 16.5 21.8 15.8 27.5 13.8 35.2 13.2 27.9 16.7 19.1 16.6 26.7 16.9 products and rubber Timber, 3.3 3.3 4.0 2.9 5.3 2.7 6.5 2.4 5.1 3.0 3.6 3.1 4.1 2.6 woodpulp and paper products Textiles and 3.6 3.7 5.5 4.0 8.6 4.3 11.7 4.4 9.6 5.7 7.1 6.2 10.7 6.8 textile products Leather and 0.3 0.3 0.4 0.3 0.7 0.4 1.0 0.4 0.8 0.5 0.5 0.5 0.8 0.6 fur products Foodstuffs 17.4 17.7 21.6 15.7 27.6 13.8 35.2 13.2 30.1 18.0 20.8 18.1 25.1 15.9 and agricultural products (excluding textiles) Precious 0.2 0.2 0.3 0.2 0.5 0.3 0.7 0.2 0.4 0.3 0.3 0.3 0.3 0.2 stones, precious metals and their products Other 3.7 3.7 4.8 3.5 7.2 3.6 9.1 3.4 6.0 3.5 4.0 3.5 5.8 3.7 Total trade 98.7 100.0 137.8 100.0 199.7 100.0 267.1 100.0 167.5 100.0 114.8 100.0 157.5 100.0 Balance Machinery, (29.9) - (48.3) - (82.0) - (118.0) - (54.6) - (37.8) - (52.8) - equipment and transport Metals and 26.4 - 30.9 - 33.3 - 36.0 - 22.7 - 16.3 - 19.1 - their products Mineral 153.4 - 195.3 - 223.7 - 318.0 - 199.3 - 135.8 - 191.3 - products(4) Chemical (1.9) - (5.0) - (6.7) - (5.0) - (9.2) - (6.0) - (9.3) - products and rubber Timber, 5.0 - 5.5 - 7.0 - 5.1 - 3.3 - 2.5 - 3.0 - woodpulp and paper products Textiles and (2.6) - (4.5) - (7.6) - (10.8) - (8.9) - (6.6) - (10.2) - textile products Leather and 0.1 - (0.1) - (0.4) - (0.6) - (0.6) - (0.3) - (0.6) - fur products Foodstuffs (12.9) - (16.1) - (18.5) - (25.9) - (20.1) - (13.6) - (18.0) - and agricultural products (excluding textiles) Precious 6.6 - 7.5 - 6.3 - 6.5 - 4.6 - 2.9 - 6.0 - stones, precious metals and their products Other (1.2) - (1.7) - (2.8) - (4.6) - (2.2) - (1.6) - (2.8) - Total trade 142.8 - 163.4 - 152.2 - 200.5 - 134.3 - 91.6 - 125.6 - Notes: (1) Figures differ from the presentation in "-Balance of Payments" due to classification, coverage and other adjustments. Figures in this table are current as of 1 February 2011.

(2) Reflects Customs Service statistics and includes trade with Belarus. The figures for the nine months, ended 30 September 2010 do not include trade with Kazakhstan for the third quarter of 2010.

(3) For those transactions denominated in currencies other than the dollar, conversions into dollars are made at the exchange rate prevailing on the date of the relevant transaction.

(4) Includes oil, gas and coal.

Sources: Rosstat, Customs Service.

Exports of mineral products (including oil, gas and coal), metals and precious stones and metals account for the vast majority of Russia's total exports, representing 81.6% of exports in 2005, 82.2% in 2006, 80.8% in 2007, 83.0% in 2008, 80.2% in 2009 and 82.2% in the first nine months of 2010.

The slight increase between 2005 and 2006 was mainly the result of an increase in export prices for commodities, including oil (the value of oil and gas exports increased by 22.6% and 39.6%, respectively, whereas the volume of oil and gas exports decreased by 1.6% and 2.1%, respectively). Partially offsetting this increase was an approximate 3% drop in the contribution of metals and precious stones and metals to total exports. In 2007, the overall share of mineral products, metals and precious stones and metals as a percentage of total exports declined compared to 2006, primarily due to increases in export revenues from chemical products and rubber, timber and foodstuffs. This decline occurred despite higher revenues in 2007 from oil and gas exports (an increase of 13.9% compared to 2006) and exports of metals and precious stones and metals (an increase of 14.4% compared to 2006). In 2008, the share of mineral products, metals and precious stones and metals as a percentage of total exports rose to 83.0% from 80.8% in 2007. This increase was due to a sharp increase in oil prices (in 2008, compared to 2007, the value of oil and gas exports increased by 32.6% and 54.1%, respectively, whereas the volume of oil exports decreased by 6.0% and the volume of gas exports increased by 1.8%), which, in turn, led to an increase in the share of mineral products as a share of total exports from 64.9% in 2007 to 69.8% in 2008. Partially offsetting this increase was an approximate 17% decrease in the contribution of metals and precious stones and metals to overall exports in 2008 compared to 2007. In 2009, the overall share of mineral products, metals and precious stones and metals as a percentage of total exports declined to 80.2% from 83.0% in 2008.

This decrease was primarily due to the global financial crisis, which contributed to a contraction both in the volume and value of mineral products and metals. In the first nine months of 2010, the overall share of mineral products, metals and precious stones and metals as a percentage of total exports increased to 82.2% from 80.1% in the first nine months of 2009 due in large part to higher prices for oil and oil products.

Other significant exports include machinery, equipment and transport (5.6%, 5.8%, 5.6%, 4.9%, 5.9% and 5.3% of total exports in 2005, 2006, 2007, 2008, 2009 and the first nine months of 2010, respectively) and chemical products and rubber (6.0%, 5.6%, 5.9%, 6.4%, 6.2% and 6.2% of total exports in 2005, 2006, 2007, 2008, 2009 and the first nine months of 2010, respectively).

Imports of machinery, equipment and transport accounted for 44% of total imports in 2005, 47.7% in 2006, 50.9% in 2007, 52.7% in 2008, 43.4% in 2009 and 43.1% in the first nine months of 2010. Russia also imports significant amounts of foodstuffs and agricultural products, chemical products and rubber. In the aggregate, foodstuffs and agricultural products accounted for 17.7% of imports in 2005, 15.7% in 2006, 13.8% in 2007, 13.2% in 2008, 18.0% in 2009 and 15.9% in the first nine months of 2010. Chemical products and rubber constituted 16.5%, 15.8%, 13.8%, 13.2%, 16.7% and 16.9% of total imports in 2005, 2006, 2007, 2008, 2009 and the first nine months of 2010, respectively.

Direction of Trade The following tables illustrate the geographic distribution of Russia's trade on a customs basis (excluding unregistered trade adjustments) for the periods indicated: Exports(1)(2)(3) (excluding unregistered trade) For the year For the nine months ended 31 December ended 30 September 2005 2006 2007 2008 2009 2009 2010 U.S.$ % U.S.$ % U.S.$ % U.S.$ % U.S.$ % U.S.$ % U.S.$ % million change million change million change million change million change million change million change Exports to non-CIS countries 208,846 37.3 258,934 24.0 299,267 15.6 397,920 33.0 254,857 (36.0) 174,275 (44.6) 244,195 40.1 OECD countries 155,853 44.5 200,560 28.7 230,558 15.0 312,343 35.5 193,636 (38.0) 132,832 (46.7) 186,503 40.4 Germany 19,736 48.4 24,498 24.1 26,346 7.5 33,164 25.9 18,712 (43.6) 12,393 (54.3) 17,956 44.9 United Kingdom 8,280 46.8 10,396 25.5 11,030 6.1 14,884 34.9 9,073 (39.0) 6,724 (43.4) 8,122 20.8 Netherlands 24,614 61.2 35,884 45.8 42,879 19.5 56,973 32.9 36,297 (36.3) 25,037 (46.4) 39,101 56.1 Switzerland 10,774 39.8 12,167 12.9 13,523 11.1 9,557 (29.3) 6,320 (33.9) 4,291 (47.3) 6,309 47.0 Japan 3,740 9.9 4,457 19.2 7,665 72.0 10,327 34.7 7,257 (29.7) 4,967 (37.6) 9,085 82.9 USA 6,324 (4.5) 8,638 36.6 8,335 (3.5) 13,357 60.3 9,214 (31.0) 6,266 (37.0) 9,049 44.4 Italy 19,053 57.6 25,090 31.7 27,530 9.7 41,999 52.6 25,058 (40.3) 17,477 (46.0) 20,150 15.3 Finland 7,651 31.3 9,192 20.1 10,751 17.0 15,741 46.4 9,159 (41.8) 6,426 (47.2) 8,258 28.5 France 6,111 38.1 7,675 25.6 8,684 13.1 12,201 40.5 8,722 (28.5) 6,180 (34.2) 9,024 46.0 Turkey 10,841 45.7 14,290 31.8 18,534 29.7 27,655 49.2 16,395 (40.7) 11,438 (47.6) 14,626 27.9 Other OECD 38,729 48.1 48,271 24.6 55,281 14.5 76,484 38.4 47,429 (38.0) 31,633 n/a 44,823 41.7 Transition economies(4) 19,525 36.4 23,164 18.6 24,448 5.5 38,725 58.4 25,233 (34.8) 17,519 (41.7) 23,722 35.4 China 13,048 29.1 15,758 20.8 15,895 0.9 21,142 33.0 16,669 78.8 7,098 67.8 9,793 38.0 Other non-CIS countries 33,468 11.8 35,210 5.2 44,260 25.7 22,852 (48.4) 18,166 (20.5) 12,714 (26.1) 15,408 21.2 Egypt 1,048 35.4 1,241 18.4 1,952 57.2 1,856 (4.9) 1,824 (1.7) 1,272 (1.3) 1,711 34.5 India 2,314 (7.5) 2,925 26.4 4,012 37.1 5,230 30.4 5,936 13.5 4,072 17.0 4,619 13.4 Iran 1,922 0.5 1,905 (0.9) 2,965 55.7 3,289 10.9 2,846 (13.5) 2,022 (13.5) 2,271 12.4 Latvia 1,188 (12.2) 1,699 42.9 2,644 55.7 7,897 199.0 4,155 (47.4) 3,097 (53.7) 4,457 43.9 Lithuania 4,002 36.8 4,208 5.1 4,057 (3.6) 4,581 12.9 3,407 (25.6) 2,251 (33.9) 2,350 4.4 Exports to CIS countries 32,627 10.7 42,310 29.7 52,661 24.5 69,656 32.3 46,809 (32.8) 32,157 (42.4) 38,896 21.0 Ukraine 12,402 15.1 14,983 20.8 16,425 9.6 23,567 43.5 13,811 (41.4) 8,678 (56.4) 15,919 83.4 Belarus 10,118 (9.8) 13,099 29.5 17,205 31.3 23,507 36.6 16,726 (28.8) 11,757 (38.6) 12,411 5.6 Kazakhstan 6,534 40.1 8,967 37.2 11,920 32.9 13,299 11.6 9,147 (31.2) 6,542 (35.6) 5,264 (19.5) Uzbekistan. 861 12.3 1,087 26.3 1,729 59.0 2,038 17.9 1,696 (16.8) 1,246 (14.0) 1,327 6.5 Other CIS 2,713 32.3 4,175 53.9 5,383 28.9 7,245 34.6 5,403 (25.4) 3,934 n/a 3,975 1.0 Total exports 241,473 33.0 301,244 24.8 351,928 16.8 467,576 32.9 301,666 (35.5) 206,432 (44.3) 283,091 37.1 Notes: (1) Certain data presented in this table differ from previously published data due to regular revisions by the Customs Service. Figures in this table are current as of 1 February 2011.

(2) Figures differ from the presentation in "-Balance of Payments" due to classification, coverage and other adjustments.

(3) For those transactions denominated in currencies other than the dollar, conversions into dollars are made at the exchange rate prevailing on the date of the relevant transaction.

(4) Includes Bulgaria, Romania, Vietnam, North Korea, Mongolia and Cuba, in addition to China.

Sources: Customs Service; Rosstat.

Imports(1)(2)(3) (excluding unregistered trade) For the year For the nine months ended 31 December ended 30 September 2005 2006 2007 2008 2009 2009 2010 U.S.$ % U.S.$ % U.S.$ % U.S.$ % U.S.$ % U.S.$ % U.S.$ % million change million change million change million change million change million change million change Imports from non-CIS countries 79,712 37.8 115,433 44.8 169,883 47.2 230,494 35.7 145,535 (36.9) 100,031 (42.0) 135,686 35.6 OECD countries 60,548 34.9 86,267 42.5 123,726 43.4 167,429 35.3 101,088 (39.6) 69,492 (44.7) 88,745 27.7 Germany 13,272 25.7 18,464 39.1 26,534 43.7 34,115 28.6 21,200 (37.9) 14,519 (42.9) 18,185 25.3 USA 4,563 42.6 6,405 40.4 9,471 47.9 13,790 45.6 9,181 (33.4) 6,300 (36.7) 7,569 20.1 Japan 5,834 48.0 7,787 33.5 12,717 63.3 18,586 46.2 7,254 (61.0) 5,347 (62.2) 7,030 31.5 Italy 4,416 38.0 5,726 29.7 8,537 49.1 11,002 28.9 7,887 (28.3) 5,371 (33.1) 6,681 24.4 Republic of Korea 4,005 97.7 6,781 69.3 8,838 30.3 10,594 19.9 4,868 (54.0) 3,326 (60.2) 4,989 50.0 Finland 3,100 32.7 4,003 29.1 5,026 25.6 6,639 32.1 3,954 (40.4) 2,767 (46.5) 3,126 13.0 France 3,673 19.6 5,863 59.6 7,766 32.5 10,015 29.0 8,428 (15.8) 5,382 (26.6) 6,857 27.4 Poland 2,747 18.9 3,410 24.1 4,631 35.8 7,060 52.4 4,215 (40.3) 2,875 (46.6) 3,985 38.6 United Kingdom 2,776 34.3 3,674 32.4 5,645 53.6 7,616 34.9 3,543 (53.5) 2,395 (59.3) 3,042 27.0 Netherlands 1,941 41.2 2,685 38.3 3,857 43.7 4,817 24.9 3,586 (25.5) 2,526 (30.8) 2,990 18.4 Other OECD 14,221 41.7 21,471 51.0 30,703 43.0 43,194 40.7 26,971 (37.6) 18,684 n/a 24,291 30.0 Transition economies(4) 8,026 49.0 14,237 77.4 26,242 84.3 40,453 54.2 26,806 (33.7) 18,072 (39.8) 31,225 72.8 China 7,264 53.1 12,910 77.7 24,424 89.2 34,780 42.4 22,864 34.3 15,191 (40.9) 27,252 79.4 Other non-CIS countries 11,138 46.6 14,129 34.0 19,915 33.4 11,084 (44.3) 8,263 (25.5) 5,845 (29.0) 7,071 21.0 Argentina 621 74.8 958 54.4 1,125 17.4 1,236 9.9 1,157 (6.4) 798 (14.1) 651 (18.4) Brazil 2,346 71.3 2,987 27.3 4,109 37.6 4,672 13.7 3,513 (24.8) 2,589 (24.4) 3,095 19.5 India 784 20.4 968 23.4 1,310 35.4 1,707 30.3 1,524 (10.7) 1,038 (17.9) 1,508 45.2 Malaysia 673 59.0 895 32.9 1,477 65.1 1,971 33.5 1,137 (42.3) 780 (47.5) 865 11.0 Thailand 452 27.2 560 23.9 1,006 79.7 1,497 48.8 931 (37.8) 639 (43.2) 951 48.8 Imports from CIS countries 18,996 7.2 22,374 17.8 29,871 33.5 36,607 22.6 21,818 (40.4) 14,807 (49.8) 21,788 47.1 Ukraine 7,819 28.2 9,238 18.1 13,330 44.3 16,254 21.9 9,129 (43.8) 6,065 (53.5) 9,827 62.0 Belarus 5,716 (11.9) 6,845 19.8 8,879 29.7 10,552 18.8 6,719 (36.3) 4,724 (44.9) 7,022 48.6 Kazakhstan 3,225 (5.9) 3,840 19.1 4,623 20.4 6,379 38.0 3,693 (42.1) 2,549 (51.6) 2,663 4.5 Uzbekistan 904 47.4 1,292 42.9 1,471 13.9 1,300 (11.6) 846 (34.9) 533 (48.4) 1,146 115.0 Other CIS 1,332 22.7 1,158 (13.0) 1,568 35.3 2,121 35.3 1,420 (33.1) 936 n/a 1,130 20.7 Total imports 98,708 30.6 137,807 39.6 199,754 45.0 267,101 33.7 167,353 (37.3) 114,838 (43.1) 157,474 37.1 Notes: (1) Certain data presented in this table differ from previously published data due to regular revisions by the Customs Service. Figures in this table are current as of 1 February 2011.

(2) Figures differ from the presentation in "-Balance of Payments" due to classification, coverage and other adjustments.

(3) For those transactions denominated in currencies other than the dollar, conversions into dollars are made at the exchange rate prevailing on the date of the relevant transaction.

(4) Includes Bulgaria, Romania, Vietnam, North Korea, Mongolia and Cuba, in addition to China.

Sources: Customs Service; Rosstat.

Between 2005 and 2009, Russia's exports to OECD countries grew by approximately 79.7% compared to 66.2% growth in total Russian exports. As a percentage of total exports, exports to OECD countries remained stable, accounting for 64-67% of Russia's total exports (as measured by value) in each year from 2005 through 2009. In 2009, Russian exports to OECD countries declined by 38% compared to 2008 as a result of the contraction in worldwide demand resulting from the global financial crisis. Overall total exports in 2009 fell by 35.5%. In the first nine months of 2010 compared to the first nine months of 2009, Russia's exports to OECD countries grew by 40.4%, while overall growth in total Russian exports equalled 37.1%. Exports to OECD countries accounted for 64.3% and 65.9%, respectively, of total exports in the first nine months of 2009 and 2010.

Russian exports to CIS countries grew by 10.7% in 2005, significantly slower than in 2004, due mainly to a decrease in Russia-Belarus trade caused by a Russian policy switch to the country-of-destination method of calculating value-added tax ("VAT") payments, which took effect on 1 January 2005. In 2006 and 2007, Russian exports to CIS countries grew at a faster rate than exports to non-CIS countries (an increase of 29.7% and 24.5%, respectively, to CIS countries compared to an increase of 24.0% and 15.6%, respectively, to non-CIS countries.) This rise in exports was primarily due to growth of overall economic activity in the CIS countries. At a growth rate of 32.3%, exports to CIS countries grew in 2008 in parallel with exports to non-CIS countries. In 2009, Russia's exports to CIS countries fell by 32.8%, which was slightly less than the rate at which total Russian exports declined (35.5%). From 2005 through 2009, Russian exports to CIS countries recorded an overall growth rate of 58.9%. Exports to CIS countries accounted for 13.5% of Russia's total exports in 2005, increasing to 15.5% in 2009. In the first nine months of 2010, Russia's exports to CIS countries increased by 21.0% compared to the first nine months of 2009, which was primarily due to an improvement in the economy following the global financial crisis. Exports to CIS countries accounted for 13.7% of Russia's total exports in the first nine months of 2010 compared to 15.6% of total exports in the first nine months of 2009.

Growth in exports to transition economies, i.e., Bulgaria, Romania, Vietnam, China, North Korea, Mongolia and Cuba, generally followed trends in Russia's total exports, accounting for approximately 7-8.5% of total exports between 2005 and 2009. Exports to transition economies grew by approximately 36.4% in 2005, 18.6% in 2006, 5.5% in 2007 and 58.4% in 2008, and fell by 34.8% in 2009.

In the first nine months of 2009 and 2010, exports to transition economies accounted for 8.5% and 8.4%, respectively, of total exports. Exports to transition economies increased by 35.4% in the first nine months of 2010 compared to the first nine months of 2009.

Supported by a high rate of GDP growth through 2008, Russia's imports from OECD countries grew by approximately 125% between 2005 and 2009, in line with overall import growth during the same period. As a percentage of total imports, Russian imports from OECD countries equalled 61.3% of total imports (as measured by value) in 2005, increasing to 62.7% by 2008, before declining to 60.4% in 2009. In 2009, because of the contraction in domestic demand and consumer income resulting from the global financial crisis, Russian imports from OECD countries dropped by 39.6%, while overall imports declined by 37.3% compared to 2008. Due to the economic recovery following the global financial crisis, Russia's imports from OECD countries grew by 27.7% in the first nine months of 2010 compared to the first nine months of 2009, while overall growth in total Russian imports equalled 37.1%. Imports from OECD countries accounted for 57.9% and 56.3%, respectively, of total imports in the first nine months of 2009 and 2010.

Between 2005 and 2009, the share of total imports from transition economies followed an upward trend, primarily due to a rise in imports from China. In 2005, imports from transition economies accounted for 8.1% of total imports, compared with 10.3%, 13.1%, 15.1% and 16.0% in 2006, 2007, 2008 and 2009, respectively. In 2009, imports from transition economies declined by 33.7% compared to 2008 due to weaker domestic demand. Imports from transition economies accounted for 19.8% of total imports in the first nine months of 2010 compared to 15.7% of total imports in the first nine months of 2009. In the first half of 2010, imports from transition economies increased by 68.7% compared to the first half of 2009.

Russia's economic growth through 2008 led to a decline in the share of imports from CIS countries, as imports from other countries became more attractive to Russian consumers. In 2005, Russian imports from CIS countries accounted for 19.2% of total Russian imports, compared with 16.2%, 15.0%, 13.7% and 13.0% in 2006, 2007, 2008 and 2009, respectively. Imports from CIS countries declined by 40.4% in 2009 compared to 2008 due to the effects of the global financial crisis. Imports from CIS countries accounted for 13.8% of total imports in the first nine months of 2010, compared to 12.9% of total imports in the first nine months of 2009. In the first nine months of 2010, imports from CIS countries grew by 47.1% compared to the first nine months of 2009.

Of the non-CIS countries, Germany, the Netherlands, China, Italy, Turkey, United States, Poland and Japan are Russia's leading trading partners, as measured by value. Belarus, Ukraine and increasingly Kazakhstan are Russia's leading trading partners as measured by value within the CIS.

Russia's largest export markets in 2008, 2009 and the first nine months of 2010 were the Netherlands (12.2%, 12.0% and 13.8%, respectively, of Russian exports), Italy (9.0%, 8.3% and 7.1%, respectively), Germany (7.1%, 6.2% and 6.3%, respectively), Turkey (5.9%, 5.4% and 5.2%, respectively), Belarus (5.0%, 5.5% and 4.4%, respectively), China (4.5%, 5.5% and 3.5%, respectively) and Ukraine (5.0%, 4.6% and 5.6%, respectively). In 2008, 2009 and the first nine months of 2010, the most important exporters to Russia were China (13.0%, 13.7% and 17.3%, respectively, of Russian imports), Germany (12.8%, 12.7% and 11.5%, respectively), Japan (7.0%, 4.3% and 4.5%, respectively), Ukraine (6.1%, 5.5% and 6.2%, respectively), the United States (5.2%, 5.5% and 4.8%, respectively), Italy (4.1%, 4.7% and 4.2%, respectively), Belarus (4.0% in both 2008 and 2009 and 4.5% in the first nine months of 2010), France (3.7%, 5.0% and 4.4%, respectively) and the Republic of Korea (4.0%, 2.9% and 3.2%, respectively). In 2008, 2009 and the first nine months of 2010, Ukraine and Belarus together accounted for 69.5%, 67.6% and 74.4%, respectively, of Russia's foreign trade with CIS countries.

Official Reserves The following table sets forth information with respect to the official reserves of the Russian Federation as of the indicated dates: Official Reserves(1) As at 31 December 2005 2006 2007 2008 2009 2010 (millions of dollars, except as indicated) Official reserves 175,891 295,567 466,750 411,748 416,653 443,591 (excluding gold) Special Drawing 6 7 1 1 8,901 8,749 Rights Reserve position 196 283 374 1,052 1,927 1,893 in IMF Foreign exchange 175,690 295,277 466,376 410,695 405,825 432,948 Official gold 12.4 12.9 14.5 16.7 20.9 25.4 reserves (fine troy ounces, million) U.S.$ million(2) 6,349 8,164 12,012 14,533 22,798 35,788 Total official 182,240 303,732 478,762 426,281 439,450 479,379 reserves (including gold) Notes: (1) Based on the official rouble/dollar exchange rates and reference price for gold, as established by the Bank of Russia on the relevant reporting date.

(2) At official Bank of Russia reference prices.

Source: Bank of Russia.

In 2005, an increase in world oil prices, together with the Bank of Russia's policy of preventing sharp real appreciation of the rouble, led to an increase in Russia's reserves. As at 31 December 2005, total official reserves (including gold) stood at approximately U.S.$182.2 billion (compared to approximately U.S.$124.5 billion as at 31 December 2004), of which approximately U.S.$175.7 billion was in foreign currency and approximately U.S.$6.3 billion was in gold. These reserves represented 13.3 months of import coverage.

Russia's official reserves improved further in 2006. As at 31 December 2006, total official reserves (including gold) stood at approximately U.S.$303.7 billion, which represents 17.4 months of import coverage and an increase of approximately U.S.$121.5 billion compared to year-end 2005. This improvement was due primarily to an increase in foreign currency reserves (backed by high commodity prices and the country's large trade surplus). As at 31 December 2006, foreign currency reserves amounted to approximately U.S.$295.3 billion, and gold reserves stood at approximately U.S.$8.2 billion.

The growth in reserves was also supported by net private sector foreign capital inflows of U.S.$41.8 billion, a significant expansion over net inflows in 2005.

The growth of official reserves continued in 2007 due to favourable world commodity prices and high inflows of foreign capital, including net private capital inflows of U.S.$83.1 billion. At 31 December 2007, total official reserves (including gold) stood at approximately U.S.$478.8 billion, representing approximately 20 months of import coverage. As of the same date, foreign currency reserves amounted to approximately U.S.$466.4 billion, and gold reserves stood at approximately U.S.$12.0 billion.

As of 31 December 2008, total official reserves (including gold) were U.S.$426.3 billion, a decrease of approximately U.S.$52.5 billion compared with year-end 2007. These reserves represented approximately 13.9 months of import coverage. As of the same date, gold reserves equalled approximately U.S.$14.5 billion. The decrease in total reserves was due to an 11.9% drop in foreign currency reserves to U.S.$410.7 billion. The decline in foreign currency reserves, in turn, was primarily attributable to the onset of the global financial crisis in the second half of 2008 and its negative impact on world commodity prices and aggregate demand. As a result of the financial crisis, Russia experienced a significant outflow of private capital, amounting to U.S.$132.8 billion.

As of 31 December 2009, total official reserves (including gold) stood at approximately U.S.$439.5 billion, an increase of approximately U.S.$13.2 billion compared to year-end 2008. These reserves represented nearly 21 months of import coverage. The increase in reserves was primarily attributable to a significant rise in Russia's balance of special drawing rights, i.e., international reserve assets created by the IMF, from U.S.$1 million in 2008 to U.S.$8.9 billion in 2009 and in the country's gold reserves from approximately U.S.$14.5 billion in 2008 to U.S.$22.8 billion in 2009. The increase in special drawing rights was due to an improvement in Russia's reserve position with the IMF. The increase in gold reserves was the result of Russian purchases of gold as a means to diversify and protect its reserves during the crisis. The overall rise in total reserves was partially offset by a reduction in foreign currency reserves from U.S.$410.7 billion in 2008 to U.S.$405.8 billion in 2009. This decrease was primarily due to the continued impact of the global financial crisis on the Russian economy, particularly in the first quarter of 2009 when foreign currency reserves dropped by 7% and net private capital outflows amounted to U.S.$35.1 billion.

As of 31 December 2010, total official reserves (including gold) equalled U.S.$479,379 billion, an increase of approximately U.S.$13.9 billion compared to year-end 2009. Reserves as of 1 December 2010 represented approximately 24 months of import coverage. The increase in reserves was primarily attributable to a 6.7% rise in foreign exchange reserves from U.S.$405,825 billion at year-end 2009 to U.S.$432,948 billion at 31 December 2010 and a 21.5% rise in official gold reserves from U.S.$20.9 billion at year-end 2009 to U.S.$25.4 billion at 31 December 2010. The increase in foreign exchange reserves was, in part, due to higher oil prices, and the increase in gold reserves reflected the Government's continuing policy of diversifying its reserves portfolio.

Between 1 January 1999 and 31 December 2010, Russia's official reserves grew approximately 39-fold and have covered an increasing portion of the country's external debt. As of 31 December 2005, 2006, 2007, 2008 and 2009, Russia's total external debt (public and private) equalled U.S.$257.2 billion, U.S.$313.2 billion, U.S.$463.9 billion, U.S.$480.5 billion and U.S.$467.2 billion, respectively. As of year-end 2009, Russia's total external debt equalled 36% of GDP. As of 31 December 2010, Russia's total external debt is estimated to equal 31.3% of GDP, with Russia's official reserves providing approximately 99.3% coverage. As of 31 December 2010, Russia's reserves were the second highest among the G-8 countries and the third highest in the world.

The Government strictly regulates Russia's output, sale and export of precious stones and metals, including gold, platinum and diamonds. As part of this regulatory regime, the Government licences and has a right of first refusal to purchase Russia's precious metals output. The Government may add to its reserves any purchased output or any proceeds from the sale and export of precious metals.

Both the Bank of Russia and the Ministry of Finance currently have official foreign exchange and gold reserves. Reserves of the Ministry of Finance are allocated to either the National Wealth Fund or Reserve Fund. See "Public Finance-Deficit Financing" for more information on the National Wealth Fund and Reserve Fund. The percentage of Russia's total official reserves that are controlled by the Ministry of Finance varies year to year and depends on the reserve operations undertaken by the Bank of Russia and Ministry of Finance during the year. In 2007, for example, the Ministry of Finance held approximately one-third of the country's total official reserves, whereas, in 2008, it held nearly one-half. This change was generally due to the Bank of Russia's decision to defend the rouble at the end of 2008 and to the decision to accumulate reserves in the Funds controlled by the Ministry of Finance. At year-end 2009, the share of foreign reserves held by the Ministry of Finance declined to approximately one-third due to the depletion of the Reserve Fund, the proceeds of which were used to cover the budget deficit, and to the accumulation of reserves at the Bank of Russia. The Bank of Russia was able to increase its reserves because there was less need to support the rouble in 2009 than in 2008. As of 31 December 2010, the Ministry of Finance held approximately 24% of the country's total official reserves, with the remainder held by the Bank of Russia.

PUBLIC FINANCE The information presented herein with respect to the federal budget has been prepared substantially in accordance with the guidelines and definitions set forth in the IMF's publication "Government Finance Statistics" (GFS-1986).

Overview Russia maintained a strong fiscal position through 2008, running surpluses of 8.1%, 8.4%, 6.0% and 4.9% of GDP in 2005, 2006, 2007 and 2008, respectively. In 2009, Russia recorded a budget deficit of 6.3% of GDP. The federal budget has followed a similar trend, producing primary surpluses of 8.4%, 8.1%, 5.8% and 4.5% of GDP in 2005, 2006, 2007 and 2008, respectively, and a primary deficit of 5.5% in 2009. Russia's positive fiscal position through 2008 was attributable largely to favourable conditions in world energy markets, resulting in higher revenues from related production, export duties, excise and other taxes as well as higher profit tax revenues, combined with improvements in the federal budgetary process, allowing for greater control over expenditure, and more efficient tax policy. The reduction in the budget surpluses in 2006 and 2007 was caused primarily by increases in spending on the national economy and state administration as well as growth in the volumes of federal transfers to sub-federal budgets. The surplus continued to decrease in 2008 primarily because of a contraction in tax revenues (as a share of GDP), particularly domestic VAT proceeds, and a slight rise in expenditures mainly in the form of transfers to state extra-budgetary funds. The federal budget deficit in 2009 was mainly due to the effects of the global financial crisis, which reduced revenues (particularly as a result of the decline in worldwide demand for Russia's commodity exports) and caused expenditures to rise as a consequence of the Government's fiscal stimulus package. In the first nine months of 2010, Russia ran an enlarged budget surplus of 0.3% of GDP and a federal budget primary deficit of 1.6% of GDP, compared to an enlarged budget deficit of 3.4% and a federal budget primary deficit of 4.2% in the first nine months of 2009.

The following table sets forth certain summary information regarding Russia's public finances for the periods indicated: Enlarged Budget(1) For the year For the nine months ended 30 ended 31 December September 2005 2006 2007 2008 2009 2009 2010 (millions of roubles) Enlarged budget Revenue 8,579,637 10,625,812 13,368,262 16,169,099 13,599,718 9,554,997 11,419,410 Expenditure 6,820,645 8,375,228 11,378,578 14,157,027 16,048,336 10,503,891 11,309,759 Surplus (deficit) 1,758,992 2,250,584 1,989,684 2,012,072 (2,448,618) (948,894) 109,651 Consolidated budget Revenue 7,640,364 9,491,636 11,753,408 14,380,026 11,784,091 8,334,679 9,757,638 Expenditure 5,968,776 7,357,972 9,920,871 12,729,347 14,435,496 9,439,874 9,982,523 Surplus (deficit) 1,671,588 2,133,664 1,832,537 1,650,679 (2,651,405) (1,105,195) (224,885) Primary surplus (deficit)(2) 1,910,808 2,336,218 2,007,662 1,838,894 (2,415,065) (920,568) (14,888) Federal budget Revenue 5,127,229 6,278,888 7,781,119 9,275,931 7,337,751 5,114,423 6,008,628 Expenditure 3,514,347 4,284,803 5,986,562 7,570,879 9,660,061 6,441,651 6,701,190 Surplus (deficit) 1,612,882 1,994,085 1,794,557 1,705,052 (2,322,310) (1,327,228) (692,562) Primary surplus (deficit)(3) 1,821,208 2,166,849 1,937,642 1,858,391 (2,146,155) (1,180,762) (527,240) Consolidated sub-federal budgets Revenue 2,999,863 3,797,334 4,828,460 6,198,775 5,926,622 4,321,653 4,812,739 Transfers from federal budget(4) 486,728 584,586 856,172 1,094,680 1,480,282 1,101,397 1,063,729 Expenditure 2,941,157 3,657,755 4,790,481 6,253,148 6,255,717 4,099,620 4,345,062 Surplus (deficit) 58,706 139,579 37,979 (54,373) (329,095) 222,033 467,677 State extra–budgetary funds Revenue 1,799,514 2,321,624 2,844,370 3,789,971 4,340,777 2,898,575 3,969,920 Transfers to state extra–budgetary funds 758,860 914,328 1,043,932 1,579,954 2,113,162 1,389,424 1,999,960 Expenditure 1,712,274 2,205,194 2,687,291 3,428,679 4,138,009 2,742,193 3,635,394 Surplus (deficit) 87,240 116,430 157,079 361,292 202,768 156,382 334,526 For the For the nine year months ended ended 30 September 31 December (% of GDP) 2005 2006 2007 2008 2009 2009 2010 Enlarged budget Revenue 39.7 39.5 40.2 39.0 34.8 33.9 35.2 Expenditure 31.6 31.1 34.2 34.2 41.0 37.2 34.9 Surplus 8.1 8.4 6.0 4.9 (6.3) (3.4) 0.3 (deficit) Consolidated budget Revenue 35.4 35.3 35.4 34.7 30.2 29.6 30.1 Expenditure 27.6 27.3 29.8 30.7 36.9 33.5 30.8 Surplus 7.7 7.9 5.5 4.0 (6.8) (3.9) (0.7) (deficit) Primary surplus 8.8 8.7 6.0 4.4 (6.2) (3.3) (0.3) (deficit)(2) Federal budget Revenue 23.7 23.3 23.4 22.4 18.8 18.1 18.5 Expenditure 16.3 15.9 18.0 18.3 24.7 22.8 20.7 Surplus 7.5 7.4 5.4 4.1 (5.9) (4.7) (2.1) (deficit) Primary surplus 8.4 8.1 5.8 4.5 (5.5) (4.2) (1.6) (deficit)(3) Consolidated sub-federal budgets Revenue 13.9 14.1 14.5 15.0 15.2 15.3 14.8 Transfers from 2.3 2.2 2.6 2.6 3.8 3.9 3.3 federal budget (4) Expenditure 13.6 13.6 14.4 15.1 16.0 14.5 13.4 Surplus 0.3 0.5 0.1 (0.1) (0.8) 0.8 1.4 (deficit) State extra-budgetary funds Revenue 8.3 8.6 8.6 9.1 11.1 10.3 12.2 Transfers to 3.5 3.4 3.1 3.8 5.4 4.9 6.2 state extra-budgetary funds Expenditure 7.9 8.2 8.1 8.3 10.6 9.7 11.2 Surplus 0.4 0.4 0.5 0.9 0.5 0.6 1.0 (deficit) Memo: Nominal GDP 21,610 26,917 33,248 41,429 39,101 28,203 32,416 (billions of roubles) Notes: (1) Calculated on the basis of cash or other items of value actually collected or spent. Certain data presented in this table differ from data made public previously due to regular revisions made by the Ministry of Finance. Figures in this table are current as of 1 January 2011.

(2) Consolidated budget revenues less non-interest expenditure.

(3) Federal budget revenues less non-interest expenditure.

(4) Includes financial aid to regions and other extra-budgetary transfers.

Source: Ministry of Finance.

Federal Budgetary Process The Ministry of Finance is centrally involved in each stage of the federal budgetary process, including establishing fiscal policy objectives, preparation of the budget, adoption of the budget by the Federal Assembly, executing the budget (including later amendments) and auditing the budget's execution. The Audit Chamber also monitors and audits the execution of the budget.

Budget Preparation and Adoption Under the Budget Code, the draft budget is prepared by the Ministry of Finance and presented, first, to the Government, and then, not later than 1 October of the current financial year, to the State Duma, where it proceeds through three readings. In the first reading, the budget's overall macroeconomic framework and the budgeted revenue, deficit (surplus) and expenditure are established.

The State Duma cannot increase revenues or the deficit ceiling without the approval of the Government. The second reading is devoted to allocating total authorised expenditure to specific purposes according to functional classifications within limits defined after the first reading as well as allocating the expenditure among government institutions, lending and borrowing programmes and other items. In the third reading, the budget as a whole is adopted, and no further amendments are permitted. After the State Duma's third reading, the Federation Council votes on the bill. Once passed by the Federation Council, the bill is sent to the President for consideration. The draft budget becomes law following its signature by the President and publication in the authorised print media. The federal law becomes effective on 1 January of the relevant year. During the course of the fiscal year, the Government may submit to the State Duma amendments to the budget law for consideration in accordance with an expedited legislative procedure. Pursuant to this procedure, the State Duma is required to consider amendments to the budget in three readings, all of which must take place within 25 days after the amendments have been submitted. Such amendments must then be reviewed by the Federation Council within 14 days after their receipt from the State Duma.

In accordance with amendments introduced in 2007, beginning in 2008, the budget includes figures on a three-year, rather than annual, basis. Therefore, the 2011 Budget Law includes figures for 2011 as well as forecasted figures for 2012 and 2013.

Budget Execution The Ministry of Finance is responsible for the execution of the budget law.

The budget law sets overall nominal levels for revenue, expenditure and deficit (surplus), as well as caps for domestic and foreign borrowing and other sources of deficit financing. Subject to the five percent threshold discussed below, approval of the State Duma is required if the budget plan exceeds the nominal level of expenditure or borrowing. In each year since 2005, the Ministry of Finance has executed the budget using only revenue actually collected and without violating the deficit ceiling established in the budget law.

The expenditure levels established in the budget law are annual spending limits with a breakdown for each line item. Upon adoption of the budget law, the Ministry of Finance promulgates annual allocation targets for each line item.

The Ministry of Finance may also establish binding quarterly or monthly allocation targets for each line item in order to enhance operational control over budgetary performance. The Budget Code sets forth an exhaustive list of circumstances when the spending limits for a particular line item can be modified without legislative amendment. For example, the Ministry of Finance may increase expenditure for each line item by no more than five percent if the amount initially allocated proves to be insufficient. Increases of over five percent and other modifications to spending limits beyond those stipulated in the Budget Code can be made only after corresponding amendments are made to the budget law.

In 2005, the federal budget law provided for a fiscal surplus of 278.1 billion roubles, or 1.5% of GDP, and a primary surplus of 522.3 billion roubles, or 2.8% of GDP. Supported by higher than projected oil prices, federal budget revenues in 2005 amounted to 23.7% of GDP, as compared to the budgeted estimate of 17.8% of GDP, while total expenditure equalled the budgeted estimate of 16.3% of GDP. A significant portion of the budgetary surplus from this period (6.5% of GDP) was transferred to the Stabilisation Fund. See "-Deficit Financing" for more information on the Stabilisation Fund. A portion of these funds, equal to approximately 3% of GDP, was subsequently withdrawn to prepay outstanding external debt, including to the Paris Club and IMF. See "Public Debt and Related Matters-External Debt." The 2006 budget law envisaged a fiscal surplus of 776 billion roubles, or 3.2% of GDP, and a primary surplus of 974.5 billion roubles, or 4.0% of GDP.

Supported by higher than projected oil prices, federal budget revenues in 2006 amounted to 23.3% of GDP, as compared to the budgeted estimate of 20.7% of GDP, while total expenditure of 15.9% of GDP was slightly lower in relative terms than the budgeted estimate of 17.5% of GDP. The year ended with an actual surplus of 7.4% of GDP, considerably higher than what was originally budgeted.

Federal budget revenues transferred to the Stabilisation Fund amounted to 1,805 billion roubles, or 6.7% of GDP, in 2006. A portion of these funds, equal to approximately 2.3% of GDP, was subsequently withdrawn to prepay outstanding external debt to the Paris Club.

The budget law adopted in 2007 provided for a fiscal surplus of 1,501.8 billion roubles, or 4.8% of GDP, and a primary surplus of 1,658.7 billion roubles, or 5.3% of GDP. Supported by higher than projected oil prices, federal budget revenues in 2007 amounted to 23.4% of GDP, as compared to the budgeted estimate of 22.3% of GDP, while total expenditure of 18.0% of GDP was slightly higher in relative terms than the budgeted estimate of 17.5% of GDP. The year ended with an actual surplus of 5.4% of GDP, higher than what was originally budgeted.

Federal budget revenues transferred to the Stabilisation Fund amounted to 1,602.8 billion roubles, or 4.8% of GDP, in 2007.

The 2008 budget law provided for a fiscal surplus of 1,435.7 billion roubles or 3.4% of GDP, and a primary surplus of 1,614.7 billion roubles, or 3.8% of GDP.

Federal budget revenues in 2008 amounted to 22.4% of GDP, as compared to the budgeted estimate of 21.2% of GDP, while total expenditure of 18.3% of GDP was slightly higher in relative terms than the budgeted estimate of 17.8% of GDP.

The year ended with an actual surplus of 4.1% of GDP, higher than what was originally budgeted. In 2008, the Stabilisation Fund was replaced by the Reserve Fund and National Wealth Fund, and its outstanding balance was transferred to the two new funds. See "-Deficit Financing" for more information on the Reserve Fund and National Wealth Fund. Federal budget revenues transferred to the Reserve Fund and National Wealth Fund in 2008 (excluding transfers from the Stabilisation Fund) equalled 420.6 billion roubles (1% of GDP) and 1,590.2 billion roubles (3.8% of GDP), respectively. At the end of 2008, the balance of the Reserve Fund was 4,027.6 billion roubles, or 9.7% of GDP, and the balance of the National Wealth Fund was 2,584.5 billion roubles, or 6.2% of GDP.

The 2009 budget law envisaged a fiscal deficit of 2,978.4 billion roubles, or 7.4% of GDP, and a primary deficit of 2,749.3 billion roubles, or 6.8% of GDP.

Federal budget revenues in 2009 amounted to 18.8% of GDP, as compared to the budgeted estimate of 16.6% of GDP, while total expenditure of 24.7% of GDP was slightly higher in relative terms than the budgeted estimate of 24% of GDP. The year ended with an actual federal deficit of 5.9% of GDP, lower than what was originally budgeted. Federal budget revenues transferred to the Reserve Fund in 2009 equalled 489 billion roubles (1.3% of GDP). No federal budget revenues were transferred to the National Wealth Fund in 2009. Proceeds from the Reserve Fund were used to finance the budget deficit in 2009, which led to a 54.5% decline in the Reserve Fund balance during 2009 to 1,831 billion roubles (4.7% of GDP).

The 2010 budget law was amended twice during 2010. The original 2010 budget law (the "Original 2010 Budget Law") envisaged a fiscal deficit of 2,937.0 billion roubles, or 6.8% of GDP, and a primary deficit of 2,633 billion roubles, or 6.1% of GDP. The 2010 budget law, as amended in November 2010 (the "Amended 2010 Budget Law"), envisaged a fiscal deficit of 2,381.0 billion roubles, or 5.3% of GDP, and a primary deficit of 2,161 billion roubles, or 4.8% of GDP.

Federal budget revenues in 2010 amounted to 18.2% of GDP, as compared to the budgeted estimate of 16.1% of GDP according to the Original 2010 Budget Law and 17.4% according to the Amended 2010 Budget Law. Total expenditure in 2010 was 22.1% of GDP, lower in relative terms than the budgeted estimate of 22.9% of GDP according to the Original 2010 Budget Law and 22.7% of GDP according to the Amended 2010 Budget Law. The year ended with an actual federal deficit of 3.9% of GDP, lower than what was estimated in either the Original 2010 Budget Law or the Amended 2010 Budget Law. No federal budget revenues were transferred to either the Reserve Fund or the National Wealth Fund. Proceeds from the Reserve Fund were used to finance the budget deficit, while proceeds from the National Wealth Fund were allocated to the co-financing of pensions.

2011 Federal Budget Law(1) 2011 2012 2013 (billions (% of (billions (% of (billions (% of of GDP) of GDP) of GDP) roubles, roubles, roubles, unless unless unless otherwise otherwise otherwise noted) noted) noted) Total revenue 8,846 17.6 9,503 17.0 10,380 16.8 Tax revenue 4,845 9.6 5,341 9.5 5,959 9.6 Profit tax 253 0.5 270 0.5 294 0.5 Taxes on 1,763 3.5 2,001 3.6 2,302 3.7 domestically produced goods and services VAT 1,535 3.0 1,730 3.1 1,928 3.1 Excises 228 0.5 271 0.5 374 0.6 Taxes on 1,331 2.6 1,450 2.6 1,628 2.6 imported goods and services VAT 1,301 2.6 1,413 2.5 1,585 2.6 Excises 30 0.1 37 0.1 44 0.1 Natural resource 1,433 2.8 1,557 2.8 1,671 2.7 taxes(2) Other taxes 65 0.1 63 0.1 63 0.1 Non-tax revenue 3,998 7.9 4,161 7.4 4,419 7.1 Customs duties 3,391 6.7 3,632 6.5 3,871 6.3 Other non-tax 607 1.2 528 0.9 548 0.9 revenue Total 10,659 21.2 11,238 20.1 12,176 19.7 expenditure Debt service 390 0.8 518 0.9 601 1.0 Interest on 299 0.6 417 0.7 487 0.8 domestic debt Interest on 91 0.2 102 0.2 114 0.2 external debt Non-interest 10,269 20.4 10,300 18.4 10,777 17.4 expenditure General public 852 1.7 794 1.4 771 1.2 services (state administration) Defense 1,517 3.0 1,656 3.0 2,099 3.4 Public order and 1,215 2.4 1,194 2.1 1,184 1.9 safety Economic affairs 1,736 3.4 1,747 3.1 1,637 2.6 Housing 239 0.5 94 0.2 80 0.1 Environmental 17 0.0 17 0.0 17 0.0 protection Social sphere(3) 4,018 8.0 4,263 7.6 4,467 7.2 Interbudgetary 570 1.1 444 0.8 441 0.7 transfers from federal budget (4) Transfers to 2,433 4.8 2,659 4.8 2,900 4.7 state extra-budgetary funds Transfers to the 70 0.1 75 0.1 78 0.1 Social Insurance Fund Transfers to the 2,342 4.6 2,561 4.6 2,803 4.5 Pension Fund Transfers to the 21 0.0 23 0.0 19 0.0 Federal Medical Insurance Fund Fiscal surplus (1,814) (3.6) (1,734) (3.1) (1,796) (2.9) (deficit) External 92 0.2 147 0.3 151 0.2 financing (including IMF) Gross borrowing 222 0.4 222 0.4 222 0.4 Redemption (129) (0.3) (74) (0.1) (71) (0.1) Domestic 1,341 2.7 1,504 2.7 1,485 2.4 financing Primary surplus (1,424) (2.8) (1,216) (2.2) 1,195 (1.9) (deficit) Memo: GDP 50,389 - 55,950 - 61,920 - CPI (December on 6.5 - 6 - 5.5 - December, %) Average exchange 30.5 - 30.7 - 31 - rate (U.S.$/ rouble) Average oil 75 - 78 - 79 - price, Urals (U.S.$/barrel) Notes: n/a = not available.

(1) Includes estimates for 2012 and 2013. All numbers within this table are forward-looking and subject to change in the future based on numerous factors, including the price of Urals oil, inflation and the overall condition of the Russian economy. The Data in this table are current as of 1 January 2011.

(2) Natural resource taxes include resource extraction taxes, royalties, water taxes and taxes charged for the use of fauna products and aquatic biological resources.

(3) Includes expenditures on social policy, education, culture and mass media and health care and sports.

(4) Excludes interbudgetary transfers to state extra-budgetary funds.

Source: Ministry of Finance.

The Government's initial macroeconomic assumptions for 2011 include an average price per barrel of Urals oil of U.S.$75, overall nominal GDP of 50,389 billion roubles and annual inflation of 6.5%.

The 2011 budget law envisages revenue in 2011 of 8,845 billion roubles, or 17.6% of GDP and total expenditure of 10,659 billion roubles, or 21.2% of GDP.

Debt service costs account for 0.8% of GDP under the 2011 budget law.

The 2011 budget law provides for a fiscal deficit in 2011 of 1,814 billion roubles, or 3.6% of GDP and a primary deficit in 2011 of 1,424 billion roubles, or 2.8% of GDP. According to the 2011 budget law, the Government intends to seek new external budget financing in 2011 of 222 billion roubles, or 0.4% of GDP, and domestic borrowings of 1,341 billion roubles, or 2.7% of GDP.

In 2011, 2012 and 2013, the Government expects to finance the federal deficit with a combination primarily of domestic and external borrowing and privatisation sales, and, in 2011, proceeds from the Reserve Fund. The Government also expects in 2011-2013 to make drawdowns on the National Wealth Fund for the purpose of co-financing pensions.

Federal Budget Revenue The following table sets forth information regarding federal budget revenue for the periods indicated: Federal Budget Revenue(1) For the For the nine year months ended ended 31 December 30 September 2005 2006 2007 2008 2009 2009 2010 (millions of roubles) Total 5,127,229 6,278,888 7,781,119 9,275,931 7,337,751 5,111,423 6,008,628 revenue Total 4,859,714 5,963,049 7,376,139 8,769,163 6,827,976 4,738,741 6,008,628 revenue net of UST Tax 3,130,247 3,595,656 4,633,704 5,232,654 3,896,499 2,818,259 revenue 3,174,532 Profit 377,591 509,913 641,322 761,129 195,420 142,885 182,940 taxes VAT 1,472,211 1,510,904 2,261,477 2,132,203 2,049,964 1,506,054 1,782,217 Domestic 1,025,668 924,190 1,390,390 998,388 1,176,608 889,405 980,067 VAT Import 446,543 586,714 871,087 1,133,815 873,356 616,649 802,150 VAT Excise 107,192 110,488 135,035 160,491 101,542 72,950 103,611 taxes Natural 872,310 1,116,685 1,157,362 1,637,515 1,006,261 696,495 1,027,564 resource taxes UST 267,515 315,839 404,980 506,768 509,775 375,682 0 transfer to the federal budget Other tax 33,428 31,827 33,529 34,547 33,537 24,193 78,200 revenue Non-tax 1,996,982 2,683,232 3,147,415 4,043,277 3,441,252 2,296,164 2,834,096 revenue Customs 1,622,845 2,237,352 2,322,904 3,484,868 2,509,411 1,676,527 2,109,338 duties Import 270,936 341,588 488,046 625,574 467,207 332,318 343,303 duties Export 1,351,909 1,895,764 1,834,858 2,859,294 2,042,204 1,344,209 1,766,035 duties Other 374,137 445,880 824,511 558,409 931,841 619,637 724,758 non-tax revenue (% of GDP) Total 23.7 23.3 23.4 22.4 18.8 18.1 18.5 revenue Total 22.5 22.2 22.2 21.2 17.5 16.8 18.5 revenue net of UST Tax 14.5 13.4 13.9 12.6 10.0 10.0 9.8 revenue Profit 1.7 1.9 1.9 1.8 0.5 0.5 0.6 taxes VAT 6.8 5.6 6.8 5.1 5.2 5.3 5.5 Domestic 4.7 3.4 4.2 2.4 3.0 3.2 3.0 VAT Import 2.1 2.2 2.6 2.7 2.2 2.2 2.5 VAT Excise 0.5 0.4 0.4 0.4 0.3 0.3 0.3 taxes Natural 4.0 4.1 3.5 4.0 2.6 2.5 3.2 resource taxes UST 1.2 1.2 1.2 1.2 1.3 1.3 0.0 transfer to the federal budget Other tax 0.2 0.1 0.1 0.1 0.1 0.1 0.2 revenue Non-tax 9.2 10.0 9.5 9.8 8.8 8.1 8.7 revenue Customs 7.5 8.3 7.0 8.4 6.4 5.9 6.5 duties Import 1.3 1.3 1.5 1.5 1.2 1.2 1.1 duties Export 6.3 7.0 5.5 6.9 5.2 4.8 5.4 duties Other 1.7 1.7 2.5 1.3 2.4 2.2 2.2 non-tax revenue (% of total revenue net of UST) Tax 58.9 55.0 57.3 53.9 49.6 51.5 52.8 revenue (excl. UST) Profit 7.8 8.6 8.7 8.7 2.9 3.0 3.0 taxes VAT 30.3 25.3 30.7 24.3 30.0 31.8 29.7 Domestic 21.1 15.5 18.8 11.4 17.2 18.8 16.3 VAT Import 9.2 9.8 11.8 12.9 12.8 13.0 13.3 VAT Excise 2.2 1.9 1.8 1.8 1.5 1.5 1.7 taxes Natural 17.9 18.7 15.7 18.7 14.7 14.7 17.1 resource taxes Other tax 0.7 0.5 0.5 0.4 0.5 0.5 1.3 revenue Non-tax 41.1 45.0 42.7 46.1 50.4 48.5 47.2 revenue Customs 33.4 37.5 31.5 39.7 36.8 35.4 35.1 duties Import 5.6 5.7 6.6 7.1 6.8 7.0 5.7 duties Export 27.8 31.8 24.9 32.6 29.9 28.4 29.4 duties Other 7.7 7.5 11.2 6.4 13.6 13.1 12.1 non-tax revenue GDP 21,610 26,917 33,248 41,429 39,101 28,203 32,416 (billions of roubles) Note: (1) Figures in this table are current as of 1 January 2011.

Source: Translated into international standards from the budget reports of the Ministry of Finance.

Sources of Federal Revenue The main sources of Russia's federal budget revenue are taxes and customs duties.

The main elements of Russia's tax system are VAT, natural resource extraction taxes, a corporate profits tax, a system of excise taxes and a personal income tax. Sub-federal governments may impose only those taxes that are contemplated by the Tax Code of the Russian Federation (the "Tax Code").

From 2005 through 2009, the federal budget included a portion of the UST, the revenue from which was transferred to the Pension Fund after its collection by the Government. The UST's contribution to the federal budget equalled 5.2%, 5.0%, 5.2%, 5.5% and 6.9% of total federal budget revenue in 2005, 2006, 2007, 2008 and 2009, respectively. These amounts were budgeted as part of both the federal budget's revenues and expenditures, and therefore did not affect the budget balance. As of 1 January 2010, the UST was repealed and replaced with a system of direct payments to various extra-budgetary funds. See "-State Extra-Budgetary Funds." The UST is excluded from the following discussion and, unless otherwise noted, figures in this section are exclusive of UST. See "-Russian Tax System." VAT is the largest source of tax-generated federal budget revenue, accounting for 30.3%, 25.3%, 30.7%, 24.3% and 30.0% of total cash revenue in 2005, 2006, 2007, 2008 and 2009, respectively. In the first nine months of 2009 and 2010, VAT accounted for 31.8% and 29.7%, respectively, of total cash revenue. All VAT payments for domestically-produced and imported goods and services are transferred to the federal budget. The generally applicable rate of VAT is 18%, though certain items are charged at a reduced rate of 10% and even 0%, and certain limited items are exempt from VAT.

The natural resource extraction taxes are an important, but fluctuating, source of revenue, due to the volatility of global commodities prices for exported goods, particularly oil and gas. The extraction taxes are allocated between the federal budget and the sub-federal budgets. For example, 100% of the revenues from the diamond extraction tax are allocated to the regional budgets, whereas 100% of the revenues from the natural gas extraction tax and, beginning 1 January 2010, 100% of the revenues from the oil extraction tax are transferred to the federal budget. Prior to 2010, tax revenues from the oil extraction tax were apportioned between the federal Government and the regional governments on a 95%-5% basis. See "-Federal-Sub-Federal Fiscal Relations." Certain taxes on resource extraction are adjusted in accordance with the international prices of commodities. In the case of crude oil, it is calculated at a specific rate in roubles per tonne depending on the current international oil price. For natural gas, the tax is set at a specified rate in roubles per thousand cubic metres of gas produced. See "-Russian Tax System" below. The natural resource extraction taxes accounted for 17.9%, 18.7%, 15.7%, 18.7% and 14.7% of total federal budget revenue in 2005, 2006, 2007, 2008 and 2009, respectively. In the first nine months of 2009 and 2010, the natural resource extraction taxes accounted for 14.7% and 17.1%, respectively, of total federal budget revenue. The prominence of the natural resource extraction taxes, particularly from 2005 to 2008 and in the first nine months of 2010, was a result of the favourable global prices for oil and gas that prevailed at that time.

The corporate profit tax base rate was 24% between 2005 and 2008. The rate was lowered to 20% effective 1 January 2009. The federal portion of the profit tax was 6.5% from 2005 through 2008, with the sub-federal portion equalling 17.5%.

From 1 January 2009, the federal and sub-federal allocation was set at 2% and 18%, respectively, with regional authorities entitled to lower their 18% share to 13.5%. Corporate profit tax accounted for 7.8%, 8.6%, 8.7%, 8.7% and 2.9% of total cash revenue in 2005, 2006, 2007, 2008 and 2009, respectively. In the first nine months of 2009 and 2010, the corporate profit tax accounted for 3.0% of total cash revenue. Beginning in 2009, profit tax as a share of federal budget revenues declined, due to declines in Russian corporate earnings as a result of the global financial crisis and in the portion of profit tax allocated to the federal budget.

Russia's tax system also includes excise duties and a number of other taxes, though they are relatively insignificant to the federal budget. These taxes combined constituted approximately 2.9%, 2.4%, 2.3%, 2.2% and 2.0% of federal budget revenues in 2005, 2006, 2007, 2008 and 2009, respectively. In the first nine months of 2009 and 2010, excise taxes and other taxes accounted for 2.0% and 3.0%, respectively, of federal budget revenues.

Personal income tax is currently assessed at a flat rate of 13%. All personal income tax revenue is allocated to the sub-federal and local governments.

Customs duties on exports and imports make a sizable contribution to the federal budget. Export duties accounted for 27.8% of federal revenues in 2005.

They increased to 31.8% in 2006, primarily due to higher international oil prices, and then declined substantially (as a share of federal revenues) to 24.9% in 2007 due to a decline in the volume of oil and gas exports and to the disproportionate increase in the contribution of other taxes, particularly VAT, to federal budget revenues. In 2008, export duties rose to 32.6% of federal budget revenues, on the back of record high oil prices and an increase in the volume of natural gas exports. In 2009, export duties declined to 29.9%, due to the decline in oil prices and to the relatively greater contribution made by other taxes to the federal budget. Export duties as a share of federal budget revenues increased to 29.4% in the first nine months of 2010 from 28.4% in the first nine months of 2009 due, in part, to a 34.7% increase in the average price for Urals oil in the first nine months of 2010 relative to the first nine months of 2009.

Import duties are also an important source of federal budget receipts and amounted to 5.6%, 5.7%, 6.6%, 7.1% and 6.8% of federal revenues in 2005, 2006, 2007, 2008 and 2009, respectively. The slight rise in import duties between 2005 and 2008 was primarily attributable to the increase in import receipts during this period, which, in turn, was caused, in part, by an increase in the volume of imports and more generally by rising consumer demand and appreciation of the rouble. The 4.2% decline recorded in 2009, compared to 2008, corresponded with an overall decline in imports, which was due to weakening domestic demand resulting from the global financial crisis. Import duties as a share of federal budget revenues decreased to 5.7% in the first nine months of 2010 from 7.0% in the first nine months of 2009 due to the relatively greater contribution of other taxes to the federal budget. Import duties in absolute terms increased by 3.3% in the first nine months of 2010 compared to the first nine months of 2009 primarily as a result of an increase in import volumes, in turn, caused by an improvement in the overall economy, and a moderate rise in overall import prices. See "Balance of Payments and Foreign Trade-Balance of Payments" and "Balance of Payments and Foreign Trade-Foreign Trade-Foreign Trade Regime." Federal budget revenues are further enhanced by other non-tax revenue, which includes revenues from foreign trade activities (excluding customs duties), proceeds from the granting of licences for the use of natural resources, revenues from the use of state property, including Bank of Russia profit transfers, payments for government services and various other administrative payments. Other non-tax revenue constituted 7.7%, 7.5%, 11.2%, 6.4% and 13.6% of federal budget revenues in 2005, 2006, 2007, 2008 and 2009, respectively.

The large increase in other non-tax revenues in 2007 is primarily due to growth in revenues from the use of state property, from administrative payments and from transfers from regional budgets to the federal budget. The significant increase recorded in 2009 was mainly the result of an increase in revenues from foreign trade activities (excluding customs duties) and revenues from the use of state property. Other non-tax revenues as a share of federal budget revenues decreased to 12.1% in the first nine months of 2010 from 13.1% in the first nine months of 2009 due to the relatively greater contribution of other taxes to the federal budget. Other non-tax revenues in absolute terms increased by 3.3% in the first nine months of 2010 compared to the first nine months of 2009 primarily as a result of an increase in revenues from foreign trade activities (excluding customs duties) and administrative payments.

Revenue Performance In each of the years from 2005 through 2009, federal budget revenue (as a share of GDP) has been higher than originally budgeted. In 2005, proceeds from tax arrears, increasing international oil prices and fiscal reform combined to increase federal budget revenues to 22.5% of GDP (or 23.7% of GDP including UST, which was 33% higher than the budgeted target).

In 2006, federal budget revenues amounted to 22.2% of GDP (or 23.3% of GDP including UST, which was 12.6% higher than the originally budgeted target).

2006 federal budget revenues were 22.7% higher in absolute terms than federal budget revenues in 2005. In 2006, compared to 2005, federal tax revenues grew by 14.9% in absolute terms, driven particularly by increases in profit tax, VAT (although VAT's contribution to GDP and total revenues declined, in part, due to the reduction of VAT to 0% on transport services) and natural resource taxes. However, 2006 federal tax revenues declined by 7.6% as a share of GDP and 6.6% as a share of total revenue, primarily because of a corresponding rise in non-tax revenues, particularly, a substantial increase in export duties, which, in turn, was caused by a growth in international oil prices. In 2006, export duties grew by 40.2% in absolute terms, 11.1% as a share of GDP and 14.4% as a share of total revenue.

In 2007, federal budget revenues as a share of GDP remained at 22.2% (or 23.4% of GDP, including UST, which was 5.4% higher than the budgeted amount).

Compared with the preceding year, federal tax revenues grew by 28.9% in absolute terms, by 3.7% as a share of GDP and by 4.2% as a percentage of total revenue. This increase was driven mostly by a 49.7% increase in absolute terms in VAT proceeds, which, in turn, was caused by changes in the way domestic VAT is calculated. In 2007, non-tax revenues (including customs duties) also recorded an increase in absolute terms (17.3%); however, as a share of GDP and total revenues, they declined by 5.0% and 5.1%, respectively. The absolute increase in non-tax revenues was primarily driven by an increase in proceeds from import duties and by large growth in other non-tax revenues. The growth in import duty receipts was, in part, due to an increase in the volume of imports and, more generally, to growing domestic demand for foreign goods and to rouble appreciation. The increase in other non-tax revenues was attributable mainly to growth in revenues from the use of state property, from administrative payments and from transfers from regional budgets to the federal budget.

In 2008, federal budget revenues amounted to 21.2% of GDP (or 22.4% of GDP, including UST, which was 6.1% higher than the originally budgeted target).

Federal tax revenues in 2008 grew by 12.9% in absolute terms, although as a share of GDP and total revenues, they fell by 9.4% and 5.9%, respectively. The absolute increase in federal tax revenues was due primarily to a 41.5% growth in absolute terms in proceeds from natural resource taxes and to a 25.1% rise in UST allocated to the Pension Fund. The substantial growth in the natural resource taxes was, in turn, caused primarily by rising international oil prices. In 2008, non-tax revenues recorded a significant increase of 28.5% in absolute terms, together with increases of 3.2% and 8.0% as a share of GDP and total revenues, respectively. Growth in non-tax revenues was driven by a 55.8% increase in export duties and a 28.2% rise in import duties in absolute terms.

Export duties constituted 5.5% of GDP and 6.9% of GDP in 2007 and 2008, respectively, whereas the share of GDP attributable to import duties remained constant at 1.5% in both years. Export duties grew in 2008 primarily because of higher international oil prices, whereas import duties increased, in part, due to an increase in the volume of imports and, more generally, to growing domestic demand for foreign goods and to rouble appreciation.

In 2009, federal budget revenues equalled 17.5% of GDP (or 18.8% of GDP, including UST, which was 13.3% higher than the original budget target). Federal tax revenues in 2009 compared to 2008 declined by 25.5% in absolute terms, 20.6% as a share of GDP and 8.0% as a share of total revenues. The principal reasons for this decline were a 74.3% drop in absolute terms in profit tax due, in part, to a reduction of the profit tax rate from 24% to 20% in 2009 and a 38.5% contraction in absolute terms in proceeds from natural resource taxes. In 2009, in absolute terms and as a share of GDP, non-tax revenues also declined by 14.9% and 10.2%, respectively. However, as a share of total revenues, non-tax revenues grew by 9.3%. The nominal decrease in non-tax revenues was caused by a 28.6% decline in export duties and a 25.3% decline in import duties, both of which were a function of the weakening economy. Export duties contracted as worldwide demand for Russian commodity exports, especially oil, fell, and import duties declined in line with reduced domestic demand for foreign goods and services. A 66.9% nominal rise in other non-tax revenues (mainly the result of an increase in revenues from foreign trade activities (excluding customs duties) and revenues from the use of state property) partially offset the overall decline in non-tax revenues.

In the first nine months of 2009 and 2010, federal budget revenues equalled 16.8% and 18.5%, respectively, of GDP. In absolute terms, federal tax revenues increased by 12.6% in the first nine months of 2010 compared to the first nine months of 2009. However, federal tax revenues, as a share of GDP, remained relatively constant at 10.0% and 9.8% in the first nine months of 2009 and 2010, respectively, and, as a share of total revenues, increased slightly from 51.5% in the first nine months of 2009 to 52.8% in the first nine months of 2010. The absolute increase in federal tax revenues was primarily due to an 18.3% increase in VAT proceeds, mainly driven by GDP growth, and a 47.5% increase in proceeds from natural resource taxes, mainly attributable to higher oil prices in the first nine months of 2010 compared to the first nine months of 2009. In the first nine months of 2010 compared to the first nine months of 2009, non-tax revenues increased in absolute terms by 23.4% and as a share of GDP by 7.4%; as a share of total revenues, non-tax revenues decreased by 2.7% in the first nine months of 2010 compared to the first nine months of 2009. The nominal increase in non-tax revenues was primarily driven by a 25.8% rise in customs revenues, due, in turn, to a 31.4% increase in export duties and a 3.3% increase in import duties, and a 17.0% rise in other non-tax revenues. The increase in export duties was primarily due to an increase in the prices for Russian commodity exports including oil, whereas the rise in import duties was caused by an increase in domestic demand for foreign goods and services, both functions of a relatively stronger economy in the first nine months of 2010 compared to the first nine months of 2009. The increase in other non-tax revenues was primarily caused by an increase in revenues from foreign trade activities (excluding customs duties) and administrative payments.

The Government adopted a resolution in 2000 that allowed enterprises to reschedule their tax arrears in exchange for the full and orderly payment of current tax payments. In 2005, tax arrears amounted to 3.5% of GDP. In subsequent years, tax arrears as a share of GDP generally decreased (2.8% of GDP in 2006, 1.7% of GDP in 2007, 1.3% of GDP in 2008 and 2.3% of GDP in 2009).

Tax arrears as a share of GDP in 2010 constituted 1.6% of GDP.

The Government's privatisation proceeds, which are treated as revenue, accounted for 0.2% of GDP in 2005, 0.1% of GDP in each of 2006 and 2007, 0.02% of GDP in 2008 and 0.01% of GDP in 2009. Privatisation proceeds equalled 0.01% of GDP in the first nine months of 2010.

Federal Budget Expenditure The following table sets forth information regarding federal budget expenditure for the periods indicated: Federal Budget Expenditure(1) For the For the nine year months ended ended 31 December 30 September 2005 2006 2007 2008 2009 2009 2010 (millions of roubles) Total 3,514,347 4,284,803 5,986,562 7,570,879 9,636,823 6,441,651 6,701,190 expenditure Total 3,246,832 3,968,965 5,581,582 7,064,111 9,127,048 6,065,969 6,701,190 expenditure net of UST Debt service 208,367 172,764 143,085 153,339 176,155 146,466 165,322 Of which Domestic debt 54,136 48,817 65,545 83,372 89,123 71,669 101,325 service Foreign debt 154,231 123,947 77,540 69,967 87,032 74,797 63,997 service Non-interest 3,305,980 4,112,039 5,843,477 7,417,540 9,460,668 6,295,185 6,535,868 expenditure Non-interest 3,038,465 3,796,200 5,438,497 6,910,772 8,950,893 5,919,503 6,701,190 expenditure net of UST State 292,666 360,387 672,648 686,051 653,270 424,570 430,646 administration Law and order 450,100 550,233 666,975 835,564 1,004,505 677,297 706,707 Defence 581,144 681,803 831,875 1,040,855 1,188,174 755,846 782,761 National 255,599 397,703 987,538 1,154,554 1,802,607 1,195,177 790,942 economy Social and 476,178 616,359 776,137 1,015,709 1,205,525 743,705 752,621 cultural sphere Environmental 4,747 6,642 8,200 10,173 13,041 7,769 8,502 protection Financial aid 486,728 584,586 856,172 1,094,680 1,480,282 1,101,397 1,063,729 to regions and other extra-budgetary transfers Transfers to 758,860 914,328 1,043,932 1,579,954 2,113,162 1,389,424 1,999,960 state extra-budgetary funds (% of GDP) Total 16.3 15.9 18.0 18.3 24.6 22.8 20.7 expenditure Total 15 14.7 16.8 17.1 23.3 21.5 20.7 expenditure net of UST Debt service 1.0 0.6 0.4 0.4 0.5 0.5 0.5 Of which Domestic debt 0.3 0.2 0.2 0.2 0.2 0.3 0.3 service Foreign debt 0.7 0.5 0.2 0.2 0.2 0.3 0.2 service Non-interest 15.3 15.3 17.6 17.9 24.2 22.3 20.2 expenditure Non-interest 14.1 14.1 16.4 16.7 22.9 21.0 20.7 expenditure net of UST State 1.4 1.3 2.0 1.7 1.7 1.5 1.3 administration Law and order 2.1 2.0 2.0 2.0 2.6 2.4 2.2 Defence 2.7 2.5 2.5 2.5 3.0 2.7 2.4 National 1.2 1.5 3 2.8 4.6 4.2 2.4 economy Social and 2.2 2.3 2.3 2.5 3.1 2.6 2.3 cultural sphere Environmental 0 0 0 0 0 0.0 0.0 protection Financial aid 2.3 2.2 2.6 2.6 3.8 3.9 3.3 to regions and other extra-budgetary transfers Transfers to 3.5 3.4 3.1 3.8 5.4 4.9 6.2 state extra-budgetary funds For the For the nine year months ended ended 31 December 30 September 2005 2006 2007 2008 2009 2009 2010 (% of total revenue net of UST) Debt service 6.4 4.4 2.6 2.2 1.9 2.4 2.5 Of which Domestic debt 1.7 1.2 1.2 1.2 1.0 1.2 1.5 service Foreign debt 4.8 3.1 1.4 1.0 1.0 1.2 1.0 service Non-interest 93.6 95.6 97.4 97.8 98.1 97.6 100.0 expenditure net of UST State 9.0 9.1 12.1 9.7 7.2 7.0 6.4 administration Law and order 13.9 13.9 11.9 11.8 11.0 11.2 10.5 Defence 17.9 17.2 14.9 14.7 13.0 12.5 11.7 National 7.9 10.0 17.7 16.3 19.8 19.7 11.8 economy Social and 14.7 15.5 13.9 14.4 13.2 12.3 11.2 cultural sphere Environmental 0.1 0.2 0.1 0.1 0.1 0.1 0.1 protection Financial aid 15.0 14.7 15.3 15.5 16.2 18.2 15.9 to regions and other extra-budgetary transfers Transfers to 23.4 23.0 18.7 22.4 23.2 22.9 29.8 state extra-budgetary funds GDP (billions 21,610 26,917 33,248 41,429 39,101 28,203 32,416 of roubles) Note: (1) Figures in this table are current as of 1 January 2011.

Sources: Ministry of Finance.

Total federal budget expenditure decreased from 15.0% of GDP in 2005 to 14.7% of GDP in 2006, although in nominal terms expenditures increased by 22.2% during this period. The nominal increase was attributable to spending growth in each of the principal non-interest expenditure categories, in particular, the national economy, social and cultural sphere, law and order, defence and state administration.

Total federal budget expenditure increased from 14.7% of GDP in 2006 to 16.8% of GDP in 2007 primarily as a result of absolute spending growth in each of the principal non-interest expenditure categories, in particular, national economy (148.3%), state administration (86.6%), financial aid to regions and other extra-budgetary transfers (46.5%), social and cultural sphere (25.9%), defence (22%) and law and order (21.2%).

In 2008, total federal budget expenditure amounted to 17.1% of GDP, an increase in absolute terms of 26.6% compared to 2007, primarily due to spending increases in each of the principal non-interest expenditure categories, in particular, the national economy, social and cultural sphere, financial aid to regions and other extra-budgetary transfers and transfers to state extra- budgetary funds.

Total federal budget expenditure increased significantly in 2009, by 36.3% as a share of GDP to 23.3% of GDP, and by 29.2% in absolute terms. The principal reasons for this growth were increases in spending on the national economy (64.3% growth as a share of GDP), financial aid to regions and other extra- budgetary transfers (46.2% growth as a share of GDP) and transfers to state extra-budgetary funds (42.1% growth as a share of GDP). Fiscal spending as a percentage of GDP increased substantially in 2009 due to the implementation of the Government's anti-crisis programme.

In the first nine months of 2010 compared to the first nine months of 2009, total federal budget expenditure decreased by 3.7% as a share of GDP, despite increasing by 10.5% in absolute terms. The principal reason for this growth was an increase in transfers to state extra-budgetary funds from 4.9% of GDP in the first nine months of 2009 to 6.2% of GDP in the first nine months of 2010.

Expenditures on state administration, law and order, defence, the national economy, the social and cultural sphere and financial aid to the regions and other extra-budgetary transfers decreased as a share of GDP in the first nine months of 2010 compared to the first nine months of 2009. Spending on the national economy, in particular, experienced the largest decrease, falling by 33.8% in absolute terms and by 42.9% as a share of GDP.

Debt service (which includes only payments in respect of discount and interest on Government debt) declined between 2005 and 2009 from 1.0% of GDP in 2005 to 0.5% of GDP in 2009. Debt service equalled 0.5% of GDP in the first nine months of 2010. As a share of total expenditure, debt service contracted from 6.4% in 2005 to 1.9% in 2009. The overall decline in debt service is attributable in part to the Government's conservative debt policies during this period and conservative fiscal policies between 2005 and 2008. In the first nine months of 2010, debt service constituted 2.5% of total expenditure, compared to 2.4% in the first nine months of 2009.

The share of non-interest spending in federal expenditures increased from 93.6% of total cash spending in 2005 to 98.1% in 2009. Spending in each of the principal non-interest expenditure categories grew between 2005 and 2009. In particular, spending on defence and internal security increased from 4.8% of GDP in 2005 to 5.6% of GDP in 2009; spending on social and cultural programmes grew from 2.2% of GDP in 2005 to 3.1% of GDP in 2009; and spending on state administration grew from 1.4% of GDP in 2005 to 1.7% of GDP in 2009. The fastest growth, however, was recorded in spending on the national economy (from 1.2% of GDP in 2005 to 4.6% of GDP in 2009) in large part due to the Government's response to the global financial crisis. The volume of financial aid disbursed by the federal Government for use in sub-federal budgets increased from 2.3% of GDP in 2005 to 3.8% of GDP in 2009. Transfers to state extra-budgetary funds grew from 3.5% of GDP in 2005 to 5.4% of GDP in 2009. The share of non-interest spending in federal expenditures equalled 100.0% of total government spending in the first nine months of 2010, compared to 97.6% in the first nine months of 2009.

Deficit Financing In each year from 2005 through 2008, the enlarged budget (comprising the federal, sub-federal and local budgets and state extra-budgetary funds) registered a surplus. The enlarged budget's surplus was 8.1% of GDP in 2005, 8.4% of GDP in 2006, 6% of GDP in 2007 and 4.9% of GDP in 2008. In 2009, Russia recorded an enlarged budget deficit of 6.2% of GDP. In the first nine months of 2010, Russia recorded an enlarged budget surplus of 0.3% of GDP, compared to an enlarged budget deficit of 3.4% in the first nine months of 2009.

The federal budget registered annual surpluses of 7.5% of GDP in 2005, 7.4% of GDP in 2006, 5.4% of GDP in 2007 and 4.1% of GDP in 2008 and an annual deficit of 5.9% of GDP in 2009. In the first nine months of 2010, Russia recorded a federal budget deficit of 2.1% of GDP, compared to a federal budget deficit of 4.7% in the first nine months of 2009. The federal budget recorded primary surpluses of 8.4% of GDP in 2005, 8.1% in 2006, 5.8% in 2007 and 4.5% in 2008 and a primary deficit of 5.5% of GDP in 2009. In the first nine months of 2010, Russia's federal budget registered a primary deficit equalling 1.6% of GDP, compared to a primary deficit of 4.2% in the first nine months of 2009. The large surpluses in 2005 and 2006 resulted from high international oil prices and the Government's decision to accumulate revenues in the Stabilisation Fund.

The decrease in the surplus from 2006 to 2007 was caused primarily by increases in spending on the national economy and state administration and growth in the volumes of financial aid to regions and other extra-budgetary transfers. The surplus continued to decrease in 2008 because of a contraction in tax revenues as a share of GDP, particularly domestic VAT proceeds, and a slight rise in expenditures mainly in the form of transfers to state extra-budgetary funds. In 2009, the federal budget went into deficit due to a decline in tax and non-tax revenues, in particular, revenues collected from profit tax, the natural resource taxes and export duties, and to an increase in government spending, including spending on the national economy, defence, law and order and social programmes and financial aid to regions and other extra-budgetary transfers and state extra-budgetary funds. The decline in revenues was mainly due to the negative effects of the global financial crisis, including lower worldwide demand for Russia's commodities exports. The increase in expenditures, in particular, spending on the national economy and transfers to regional budgets, was, in part, the result of the Government's fiscal stimulus package designed to mitigate the effects of the global financial crisis on the Russian economy.

The federal budget deficit improved in the first nine months of 2010 compared to the first nine months of 2009 due primarily to an increase in non-tax revenues. As a share of GDP, non-tax revenues increased from 8.1% in the first nine months of 2009 to 8.7% in the first nine months of 2010, which, in turn, was driven primarily by a 31.4% nominal increase in revenues from export duties. In the first nine months of 2010 compared to the first nine months of 2009, tax revenues decreased slightly as a share of GDP, from 10% to 9.8%, despite increasing by 12.6% in absolute terms. As a share of GDP, total expenditures decreased by 3.7% in the first nine months of 2010 compared to the first nine months of 2009, contributing to the overall improvement in the federal budget deficit.

The federal surplus accounted for 7.5% of GDP in 2005. In 2005, higher than expected budget revenue enabled the Government to limit its foreign borrowing to existing credit arrangements. At the same time, a large part of Russia's outstanding debt was redeemed. As a result, net foreign financing in 2005 amounted to negative 4.2% of GDP, including the redemption of foreign debt representing 4.3% of GDP. Net domestic borrowing during this period equalled 0.3% of GDP. In 2005, the Government transferred 1,397.1 billion roubles to the Stabilisation Fund, including 1,351.6 billion roubles of tax and customs proceeds and 45.5 billion roubles of cash balance. At the end of 2005, the Stabilisation Fund had a balance of 1,459 billion roubles.

The Government established the Stabilisation Fund in 2004, initially contributing to it approximately 106 billion roubles from the financial reserve. The Stabilisation Fund, the rules for which were set out in the Budget Code, was created to reduce the effects of oil price fluctuations on the Russian budgetary process. Revenue derived from export duties on crude oil and the oil extraction tax, attributable to oil prices in excess of the budget's oil price assumption (U.S.$20 per barrel in 2004 and 2005 and U.S.$27 per barrel in 2006 and 2007), were contributed to the Stabilisation Fund. The base amount of the Stabilisation Fund was fixed at 500 billion roubles. If oil prices fell below the budget's assumed price and, as a consequence, the Stabilisation Fund's assets fell below the base amount of 500 billion roubles, the Stabilisation Fund could only be used for deficit financing.

The federal surplus accounted for 7.4% of GDP in 2006. Russia continued to redeem a large portion of its outstanding debt. Net foreign financing in 2006 amounted to negative 2.8% of GDP, including the redemption of foreign debt representing 2.9% of GDP and gross foreign borrowing of 0.1% of GDP. Net domestic borrowing during this period equalled 0.5% of GDP. In 2006, the Government contributed 1,805 billion roubles to the Stabilisation Fund, raising its balance at the end of the year to 2,647.2 billion roubles.

The federal surplus accounted for 5.4% of GDP for 2007. Net foreign financing in 2007 equalled negative 0.5% of GDP, including the redemption of foreign debt amounting to 0.6% of GDP. Net domestic borrowing amounted to 0.5% of GDP. In 2007, an additional 1,602.8 billion roubles of excess revenue was transferred to the Stabilisation Fund, raising its balance at the end of the year to 3,851.8 billion roubles.

In 2008, the federal surplus totalled 4.1% of GDP. Net foreign financing equalled negative 0.3% of GDP, including the redemption of foreign debt equalling 0.4% of GDP and gross foreign borrowing of 0.1% of GDP. Net domestic borrowing was 0.3% of GDP.

In 2008, the Stabilisation Fund was replaced by the Reserve Fund and National Wealth Fund, and its remaining balance was transferred to the two new funds.

The Reserve Fund was created to ensure the availability of sufficient budgetary funding in the event of a shortfall in the federal budget due to a decline in oil and gas revenues and to alleviate inflationary pressures resulting from the export of natural resources. The Reserve Fund consists of proceeds generated from export customs duties on oil, oil products and gas as well as from taxes levied on the extraction of hydrocarbons. Proceeds in the Reserve Fund must not exceed 10% of Russia's GDP forecast for the particular year. At year-end 2008, the Reserve Fund had a balance of 4,027.6 billion roubles.

The National Wealth Fund was created to support Russia's pension system.

Pursuant to a January 2008 Government resolution, as amended, proceeds from the National Wealth Fund may be invested, subject to certain conditions, in a range of assets, including foreign currencies, rouble-denominated assets, debt and equity securities of both Russian and foreign entities and deposits with banks, such as Vnesheconombank. No more than 655 billion roubles may be deposited in Vnesheconombank, and no more than 40% of the National Wealth Fund's overall proceeds may be invested in rouble assets. At year-end 2008, the National Wealth Fund had a balance of 2,584.5 billion roubles.

In 2009, the federal budget recorded a deficit of 5.9% of GDP. Net foreign financing in 2009 amounted to negative 0.3% of GDP and included the redemption of foreign debt of 0.4% of GDP and gross foreign borrowing of 0.08% of GDP. Net domestic borrowing was 1% of GDP. In 2009, the Ministry of Finance began to use proceeds from the Reserve Fund to finance the federal budget deficit, spending 2,964.8 billion roubles by year-end 2009 for this purpose. In 2009, the Ministry also began to invest Reserve Fund money in IMF instruments, including special drawing rights. As a result of these transactions, at the end of 2009, Russia had acquired U.S.$8.9 billion of special drawing rights. See "Balance of Payments and Foreign Trade-Official Reserves." As of 1 January 2010, the balance of proceeds in the Reserve Fund was 1,831 billion roubles. As of 1 January 2010, the balance of the National Wealth Fund, including the amount on deposit with Vnesheconombank, equalled approximately 2,769 billion roubles.

As of 30 September 2010, the federal budget recorded a deficit of 2.1% of GDP.

Net foreign financing equalled negative 0.3% of GDP, including the redemption of foreign debt equalling 0.3% of GDP and gross foreign borrowing of 0.6% of GDP. Net domestic borrowing was 0.4% of GDP. In the first nine months of 2010, the Ministry of Finance continued to use proceeds from the Reserve Fund to finance the federal budget deficit, spending approximately 519.5 billion roubles for this purpose. As of 30 September 2010, the balance of proceeds in the Reserve Fund was 1,258.3 billion roubles. During the first nine months of 2010, the balance of the National Wealth Fund decreased by 46.8 billion roubles to 2,722.2 billion roubles. The reduction in proceeds of the National Wealth Fund during this period was primarily attributable to changes in the rouble/ dollar exchange rate and to the co-financing of pensions.

According to the budget forecasts approved by the Government on 29 July 2010, the Government intends to reduce the federal deficit over the next five years, from 3.6% of GDP in 2011, to 3.1% of GDP in 2012, 2.9% of GDP in 2013 and 1.5% of GDP in 2014. The Government expects to achieve a balanced budget in 2015.

Federal-Sub-Federal Fiscal Relations The three sources of funding for the Federation subjects are tax revenues (both federal and regional), non-tax revenues and transfers from the federal budget.

Sub-federal and local governments are directly assigned a specified portion of the revenue from certain federal taxes. From 2009, sub-federal and local governments have been allocated proceeds from the following federal taxes: 100% of personal income tax, 18% of the profit tax (see discussion below), 100% of excise taxes on alcohol production and beer, 50% of excise taxes on ethyl alcohol from foodstuffs and on certain other products containing alcohol, 100% of widespread mineral deposits and diamond extraction taxes, (in 2009 only) 5% of the hydrocarbon tax (excluding the natural gas extraction tax) and 60% of certain other mineral extraction taxes. Taxes imposed directly by the sub-federal subjects since 2009 include the property tax on organisations, the transport tax and the gambling business tax. Taxes imposed directly by local governments include the land tax and the property tax on individuals. The share of domestic VAT transferable to the regions is zero.

From 2005 through 2008, Russia imposed a profit tax at the unified rate of 24%.

Of the 24% profit tax, 6.5% was allocated to the federal budget and 17.5% was allocated to the regional budgets. The unified profit tax rate was lowered to 20% effective 1 January 2009, of which 2% is allocated to the federal budget and 18% to the regional budgets, which regional authorities, at their discretion, may lower to 13.5%. 100% of the revenues from the natural gas extraction tax and, effective 1 January 2010, 100% of the revenues from the hydrocarbon extraction tax are transferred to the federal budget. Between 2005 and 2009, 95% of the hydrocarbon extraction tax was transferred to the federal budget, with the remaining 5% allocated to regional budgets. The federal authorities may change the distribution of taxes in a given year only through legislative amendment.

In 2009, revenues of the consolidated sub-federal budgets stood at 5.9 trillion roubles, an approximate 4.4% decrease compared to 2008. In 2008 and 2009, tax and non-tax revenues comprised 79% and 72%, respectively, of the overall revenues of the consolidated sub-federal budgets. In the first nine months of 2010, revenues of the consolidated sub-federal budgets stood at 4.8 trillion roubles, an approximate 11.4% increase compared to the first nine months of 2009; federal financial aid accounted for 22.1% of the overall revenues of the consolidated sub-federal budgets in the first nine months of 2010, compared to 25.4% in the first nine months of 2009.

Due to significant differences in the level of social-economic development among the Federation subjects, the Government has established various regional support funds, i.e., expenditure line items in the federal budget, through which it allocates by means of subsidies and transfers a portion of federal tax revenues to those regions most in need of assistance.

Since its establishment in 1994, the Fund for Regional Support has been a primary source of federal financial support to regional governments. Through this fund, 189.9 billion roubles, 228.0 billion roubles, 260.4 billion roubles, 328.6 billion roubles and 374.0 billion roubles in 2005, 2006, 2007, 2008 and 2009, respectively, were transferred to the regions. In the first nine months of 2010, federal subsidies channelled through this fund amounted to 330.0 billion roubles. As a result of these subsidies, the gap in financial means between the wealthiest Federation subjects and the poorest has narrowed.

The Compensation Fund was established in 2001, initially to provide financial support to regional budgets to help finance obligations, including under various social laws, such as the Law On Social Protection of the Handicapped and the Law On Childhood Benefits. In 2008, the purpose of the Compensation Fund was broadened to include the financing of any regional expenses incurred in connection with the performance of obligations delegated to the Federation subjects by the federal Government. In 2005, 2006, 2007, 2008 and 2009, federal subsidies channelled through the Compensation Fund amounted to 36.7 billion roubles, 72.8 billion roubles, 141.2 billion roubles, 153.2 billion roubles and 284.4 billion roubles, respectively. In the first nine months of 2010, federal subsidies transferred through the Compensation Fund amounted to 318.4 billion roubles.

The Fund for Co-Financing Social Expenditure was established in 2002 (and renamed the Fund for Co-Financing Expenditure in 2008) to co-finance expenditures on health care, culture, education and salaries of public sector employees, as well as subsidies for housing and public utilities. Federal subsidies provided through this fund amounted to 133.8 billion roubles, 176.5 billion roubles, 356.8 billion roubles, 435.9 billion roubles and 530.1 billion roubles in 2005, 2006, 2007, 2008 and 2009, respectively. In the first nine months of 2010, federal subsidies provided through this fund equalled 302.0 billion roubles.

Consolidated sub-federal budget expenditures (including expenditures financed by federal transfers and federal budget loans) were 13.6% of GDP in each of 2005 and 2006, 14.4% of GDP in 2007, 15.1% of GDP in 2008, 16.0% of GDP in 2009 and 13.4% of GDP in the first nine months of 2010. Social expenditures by regional and local authorities are substantial (approximately 7.1% of GDP in 2005 and 7.4%, 7.8%, 7.4%, 8.4% and 7.5% in 2006, 2007, 2008, 2009 and the first nine months of 2010, respectively). Between 2005 and 2009, sub-federal governments financed approximately 76-79% of education expenditure. During the same period, sub-federal government expenditure accounted for a decreasing proportion of health care expenditure (84.0%, 80.3%, 79.4%, 73.8% and 68.3% of total health care expenditure in 2005, 2006, 2007, 2008 and 2009, respectively) and an increasing proportion of social expenditure (65.0%, 68.0%, 72.6%, 72.2% and 74.8% of total social expenditure in 2005, 2006, 2007, 2008 and 2009, respectively). In the first nine months of 2010, consolidated sub-federal government expenditure accounted for approximately 79.0% of education expenditure, 73.0% of health care expenditure and 77.6% of social expenditure.

Sub-federal spending on the national economy, a portion of which is allocated to housing programmes, is also substantial, amounting to 4.6%, 4.5%, 5.1%, 5.4%, 5.1% and 3.6% of GDP in 2005, 2006, 2007, 2008, 2009 and the first nine months of 2010, respectively.

Significant progress has been made in Russia in the area of federal/sub-federal fiscal relations. All extraordinary fiscal arrangements between the regions and the federal Government have been eliminated. The transfer of federal funds to the regions has become more transparent and efficient through the creation of new funds, the reconfiguration of existing funds and the introduction of new methods to calculate transfer volumes. In 2003, the Law on General Principles of Regional Government Organisation was amended, and a new law on local self-governance was adopted. These two laws established a clear division of spending powers among the various levels of the budgetary system. They also introduced a mechanism for transferring authority from one budgetary level to another, intended to prevent non-financed mandates and to impose temporary restrictions on the budgetary powers of insolvent regional and local authorities. Amendments to the Budget Code and Tax Code that came into effect in 2005 provide a framework for the implementation of the division of fiscal powers.

State Extra-Budgetary Funds At present, the largest state extra-budgetary funds are the Pension Fund (expenditures of 1,299.1 billion roubles, 1,537.3 billion roubles, 1,786.5 billion roubles, 2,357.8 billion roubles and 3,008.7 billion roubles in 2005, 2006, 2007, 2008 and 2009, respectively), the Social Insurance Fund of the Russian Federation (the "Social Insurance Fund") (expenditures of 165.4 billion roubles, 208.1 billion roubles, 303.1 billion roubles, 379.4 billion roubles and 448.5 billion roubles in 2005, 2006, 2007, 2008 and 2009, respectively) and the Federal Medical Insurance Fund (expenditures of 71.5 billion roubles, 119.4 billion roubles, 158.2 billion roubles, 168.7 billion roubles and 130.0 billion roubles in 2005, 2006, 2007, 2008 and 2009, respectively). The large rise in Pension Fund expenditure in 2009 was due to a Government decision to increase the size of pensions to subsistence levels. In the first nine months of 2010, the Pension Fund had expenditures of 3,009 billion roubles, the Social Insurance Fund had expenditures of 127.2 billion roubles and the Federal Medical Insurance Fund had expenditures of 79.2 billion roubles. As of 1 January 2010, approximately 27.5% of the population of Russia received pensions.

In 2001, nearly all social contributions were consolidated into the UST, a single 35.6% payroll tax, paid by employers. In 2005, the UST was reformed, and a regressive scale of payroll for higher wages was introduced. The top rate was reduced to 26%, with 20% transferred to the federal budget, 3.1% transferred to federal and regional medical insurance funds and 2.9% transferred to the Social Insurance Fund. Before the UST was abolished, the employer was entitled to offset a portion of its 20% UST transfer to the federal budget against its mandatory contributions to the Pension Fund. Since 2005, the Pension Fund also receives transfers from the federal budget to finance social benefits and, until the repeal of the UST at the end of 2009, to cover the difference between UST proceeds and pension commitments. Regional medical insurance funds receive transfers from regional budgets and the Federal Medical Insurance Fund. See "The Russian Economy-Pension Reform" above and "-Russian Tax System" below.

Effective 1 January 2010, the UST was repealed and replaced with a system of direct payments to the Pension Fund, Social Insurance Fund and Federal Medical Insurance Fund as well as to regional medical insurance funds. In 2010, the employer makes direct payments equal to 26% of the first 415,000 roubles of each employee's annual salary. In 2011, contributions to state extra- budgetary funds are expected to increase to 34%, with 26% directed to the Pension Fund, 2.9% to the Social Insurance Fund and 3.1% to the Federal Medical Insurance Fund, and contributions to regional medical insurance funds are expected to reach 2.0%. The 415,000 rouble salary ceiling (indexed for inflation and other indicators) is expected to remain in place in 2011. Contributions to these social funds do not affect the basis for determining the employer's profit tax.

The current state extra-budgetary funds have generally remained balanced since their creation in 1992, reflecting their stable revenue base. State extra- budgetary funds recorded an overall surplus of 0.4% of GDP in 2005, 0.4% of GDP in 2006, 0.5% of GDP in 2007, 0.9% of GDP in 2008 and 0.5% of GDP in 2009.

State extra-budgetary funds recorded an overall surplus of 1.0% of GDP in the first nine months of 2010. The Pension Fund ran surpluses of 0.2% of GDP in 2005, 0.4% of GDP in 2006, 0.5% of GDP in 2007, 0.9% of GDP in 2008, 0.6% of GDP in 2009 and 0.9% of GDP in the first nine months of 2010.

In 2011, the Pension Fund's budget law envisages revenue of 5,137 billion roubles, or 10.2% of GDP, and expenditure of 4,822 billion roubles, or 9.6% of GDP. Pension Fund expenditures are expected to increase in the future as a result of demographic and other factors.

Russian Tax System Beginning in 1999, Russia initiated a tax reform programme, which has reduced the total number of taxes, improved the stability, transparency and fairness of the system through the elimination of certain tax exemptions, reduced the overall tax burden and improved tax collection. As a result of these reforms, the following taxation measures have been put into place.

Russia imposes a flat personal income tax rate (13%), which replaced the previous progressive scale of between 12% and 30%. Certain types of income, such as interest income from bank deposits in excess of certain limits, however, remain subject to tax at 35%. Since 2005, the tax rate for income in the form of dividends is 9%, and the personal income tax rate for non-residents is now 30%, except for income in the form of dividends, which is taxed at 15%.

Beginning in 2006, income earned by an individual from a donation or inheritance is now subject to the 13% personal income tax instead of the previous donation and inheritance taxes.

Prior to 2010, Russia also imposed the UST, which, from 2005 through 2009, was assessed pursuant to the following regressive scale: a rate of 26% on annual wages up to 280,000 roubles; a rate of 10% on the portion of annual wages between 280,001 roubles and 600,000 roubles; and a rate of 2% for the portion of annual wages in excess of 600,000 roubles. The UST was abolished as of 1 January 2010. See "-Federal Budget Revenue-Sources of Federal Revenue" and "-State Extra-Budgetary Funds" above.

Prior to 2009, Russia imposed a profit tax at a unified rate of 24%. From 2005 through 2008, of the 24% profit tax, 6.5% was allocated to the federal budget and 17.5% was allocated to the regional budgets. The unified profit tax rate was lowered to 20% effective 1 January 2009, of which 2% is allocated to the federal budget and 18% to the regional budgets, which regional authorities, at their discretion, may lower to 13.5%. In 2006, the number of permitted profit-related tax deductions was expanded (they now include all research and development expenses) and an accelerated amortisation rate of 10% on new capital assets was introduced. Profit tax is calculated using an accrual, as opposed to cash, method.

Russia imposes a modified royalty tax on natural resource extraction, which replaced three taxes on natural resources, including the royalty and excise taxes on crude oil and mineral restoration payments. The natural resource extraction tax on oil is calculated according to a formula that takes international oil prices and the rouble exchange rate into account. Since 2006, the natural resource extraction tax rate for oil has equalled 419 roubles per tonne. Between 2004 and 2006, the natural resource extraction tax charged on natural gas was adjusted from 16.5% of the value of gas extracted to its current rate of 147 roubles per thousand cubic metres.

Small businesses pay a single tax, pursuant to which such firms elect to pay either 6% of revenues or 15% of profits.

In 2004 and 2005, sales tax and a number of local taxes and fees were either reduced or eliminated. The general VAT rate was reduced from 20% to 18% (though some goods retained their preferential 0% and 10% rates), and the 0.8% tax on securities operations was abolished. A stamp duty applicable to the issuance of securities was introduced and is assessed at a rate of 0.2% of the aggregate amount of the securities being issued up to 100,000 roubles. Excise duties were indexed or, in the case of natural gas, abolished.

Beginning in 2006, general VAT is calculated using an accrual method, as opposed to the previous choice between cash or accrual methods. Additionally, input VAT may now be offset or refunded as soon as an invoice is received, instead of after payment has been made for the purchased asset. As of 1 January 2007, VAT refunds on transactions levied at a 0% rate may be claimed through a VAT declaration, eliminating the need for a special application.

A property tax is imposed on legal entities and organisations at a maximum rate of 2.2% of the tax base. Property tax revenue is allocated to sub-federal budgets, and regional authorities may set lower rates in their jurisdictions. A preferred tax regime for agricultural producers is also in place, under which a unified agricultural tax (including a preferred regime for payments to social funds) has replaced corporate income tax, VAT and property tax. Regional land taxes are determined region-by-region and are calculated on a cadastral-value base, with a maximum general rate of 1.5%.

Export duties on oil are determined on a monthly basis by the Government and are currently assessed in the following manner. For average market oil prices of up to U.S.$109.50 per tonne, there is no export duty; for average market prices between U.S.$109.50 and U.S.$146 per tonne, the export duty is assessed at up to 35% of the difference between the average market price and U.S.$109.50; for average market prices between U.S.$146 and U.S.$182.50 per tonne, the export duty is assessed at up to 45% of the difference between the average market price and U.S.$146 plus U.S.$12.78; and when the average market price exceeds U.S.$182.50 per tonne, the export duty is assessed at up to 65% of the difference between the market price and U.S.$182.50 plus U.S.$29.20. For February 2011, the export duty on oil is U.S.$346.60 per tonne. The export duty on natural gas is 30%.

Fiscal Reforms In 2005, the Government adopted reforms for its social benefit programme and reforms resulting in the redistribution of tax revenue and obligations between budgets of different levels.

Social benefit reform is focused on eliminating unfunded benefit entitlements and replacing social privileges with targeted social benefits, generally in the form of monthly cash payments. See "The Russian Economy-Social Benefits and Expenditure." These changes are intended to improve the efficiency of the social protection programmes and to balance the responsible government's social obligations and financial resources.

Certain obligations have also been redistributed between governments. Civil defence and internal security outlays, military commissariats and care for the disabled have been transferred to the federal budget. Expenditures for the maintenance of kindergartens, vocational-technical schools and general-education schools and certain other social expenses have been transferred to regional budgets.

Since 2005, federal and all regional and local budgets have been prepared in accordance with international standards of budget accounting. These new classifications relate to budget revenues, expenditures and sources of deficit financing.

The Government adopted a plan for the reform of the 2004-2006 budgetary process, which was intended to focus on results-oriented budgeting, in an attempt to shift the focus from managing financial resources to managing results. The reform measures included increased autonomy and responsibility for the departments, agencies and individuals managing expenditures and explicit medium-term benchmarks. As a part of these reforms, the Government envisaged the shift to multi-year budgeting and developed rules regulating deviations from the volume and structure of budget appropriations. Government liabilities were also subdivided into separate recurring and non-recurring amounts. These reforms continued to be implemented in 2007 and 2008.

In June 2010, the Government approved a programme through 2012 that is designed to enhance the effectiveness of budgetary expenditures. In particular, the programme envisages the development of measures for ensuring the long-term stability of the country's budgetary system and for continuing the shift towards results-oriented budgeting.

MONETARY AND FINANCIAL SYSTEM The Bank of Russia The Bank of Russia is Russia's central bank, established by the Constitution and federal law as an independent entity with specific powers and responsibilities. Pursuant to the Central Bank Law, as amended (the "Central Bank Law"), the Bank of Russia is charged with responsibility for protecting and ensuring the stability of the rouble, developing and strengthening Russia's banking system and ensuring the efficient and uninterrupted functioning of the settlement system. The Central Bank Law prohibits any government authority from interfering with activities undertaken by the Bank of Russia in furtherance of its constitutionally and legislatively determined responsibilities, permits the Bank of Russia to issue resolutions having the force of law within its area of competence and subjects all federal laws and federal executive actions that would affect the activities of the Bank of Russia to review by the Bank of Russia. The Bank of Russia is accountable to the State Duma in that it is required to present an annual report of its activities to the State Duma and to solicit the State Duma's views on the Bank of Russia's monetary policy.

The Bank of Russia is also responsible for acting as lender of last resort to Russian credit institutions, holding a substantial part of Russia's official reserves, registering credit organisations (together with the Federal Tax Service), issuing banking licences and overseeing the bankruptcy and liquidation proceedings of credit institutions.

The Bank of Russia's governor, who is also the chair of the Bank of Russia's 12-member board of directors, is nominated by the President and confirmed by the State Duma. The governor is appointed for a four-year term, and under the Central Bank Law may not be dismissed except pursuant to grounds provided in the Central Bank Law, including violation of a federal law relating to the activities of the Bank of Russia or the commission of a crime. Sergei Ignatiev, who began his term on 20 March 2002, is the current governor of the Bank of Russia. Members of the board of directors of the Bank of Russia are nominated by the Bank of Russia's governor and confirmed by the State Duma. Board members serve four-year terms, may be dismissed only with the governor's approval and may not be officers of the Government or members of the Federal Assembly.

The Bank of Russia registers and licences (together with the Federal Tax Service) all credit institutions, regulates their banking activities and establishes accounting and record-keeping standards. The Bank of Russia also sets standards for banks with respect to capital adequacy, loan loss provisions and exposure to individual creditors and shareholders. The Bank of Russia monitors compliance by commercial banks with its regulations through a reporting system, periodic inspections and requests for information, and enforces its regulations through a variety of sanctions, including the power to issue warnings, demand changes in a commercial bank's operations, impose temporary restrictions on a bank's activities, appoint a temporary administrator, impose fines and revoke banking licences.

The Bank of Russia also supervises acquisitions in the banking sector. Any acquisition of more than 1% of the charter capital of a credit institution requires notice to the Bank of Russia, and any acquisition of more than 20% requires prior Bank of Russia approval. Prior Bank of Russia consent is also required for any direct acquisition of shares in a credit institution that is a joint-stock company crossing the 25%, 50% and 75% ownership thresholds and for any purchase of a 100% stake in such credit institution.

Amendments to the Central Bank Law enacted in 2002 expanded the Bank of Russia's functions and adjusted the composition of the National Banking Committee, the government-controlled supervisory board of the Bank of Russia.

The Committee consists of representatives of the Government, the Federation Council, the State Duma, the Presidential Administration and the Bank of Russia's governor. The Bank of Russia's accounting rules and staff salaries are subject to the Committee's approval. According to the Central Bank Law, as of 1 January 2011, the statutory capital of the Bank of Russia was three billion roubles.

Monetary Policy Money Supply The following table sets forth information concerning Russia's money supply as of the dates indicated: Monetary Survey(1) As of As of 1 January 1 December 2006 2007 2008 2009 2010 2010 (millions of roubles, except ratio) Net foreign 4,847,029 6,881,452 9,914,137 12,191,390 13,922,893 15,501,807 assets Claims on 6,648,649 9,732,291 14,048,057 17,208,297 18,212,703 20,132,101 nonresidents Liabilities 1,801,620 2,850,839 4,133,920 5,016,907 4,289,810 4,630,295 to nonresidents Domestic 4,498,468 5,799,236 8,325,906 10,645,096 13,345,784 15,912,216 claims Net claims on (1,390,978) (2,962,964) (4,754,989) (7,345,054) (4,990,573) (4,965,579) general government Claims on 948,284 1,027,477 1,223,152 1,241,719 1,736,255 2,162,962 general government Liabilities 2,339,261 3,990,441 5,978,141 8,586,772 6,726,828 7,128,541 to general government Claims on 5,889,446 8,762,200 13,080,896 17,990,150 18,336,357 20,877,795 other sectors Other 101,943 227,823 251,634 546,236 521,226 658,976 financial institutions Public 193,813 221,452 288,713 406,958 450,523 420,961 nonfinancial organisations Other 4,416,457 6,249,622 9,302,315 12,692,650 13,497,690 15,345,145 nonfinancial organisations Households 1,177,233 2,063,302 3,238,232 4,344,306 3,866,918 4,452,712 Broad money 7,222,753 10,149,394 14,636,684 16,774,686 19,520,078 22,382,569 Currency in 2,009,240 2,785,174 3,702,237 3,794,829 4,038,051 4,621,476 circulation (2) Transferable 1,813,280 2,747,235 4,200,292 3,796,567 4,256,447 5,105,669 deposits(3) Other 127,879 155,909 212,944 164,183 200,887 280,743 financial institutions Public 168,798 203,736 422,541 483,768 463,980 391,035 nonfinancial organisations Other 1,135,190 1,759,058 2,640,653 2,242,256 2,457,783 3,107,553 nonfinancial organisations Households 381,413 628,533 924,154 906,359 1,133,796 1,326,338 Other 3,400,234 4,616,985 6,734,155 9,183,289 11,225,579 12,655,424 deposits Other 123,898 159,183 263,664 445,247 542,459 593,410 financial institutions Public 67,178 79,525 85,997 435,903 462,846 320,288 nonfinancial organisations Other 796,303 1,162,028 2,094,871 3,249,274 3,812,021 3,725,624 nonfinancial organisations Households 2,412,855 3,216,248 4,289,622 5,052,865 6,408,254 8,016,101 Deposits not 31,863 21,736 40,720 237,950 182,580 228,303 included in broad money Securities 527,397 723,735 701,375 644,754 576,677 528,178 not included in broad money Shares and 1,373,785 1,658,797 3,201,948 5,158,176 6,219,422 6,612,076 other equity Other items 189,699 127,026 (340,683) 20,919 769,921 1,662,897 (net) Other 959,025 1,205,491 1,286,754 2,339,589 3,585,472 4,337,103 liabilities Other assets 726,252 986,103 1,438,648 2,064,965 2,451,264 2,300,592 Memo: Monetary base 2,914,200 4,122,400 5,513,300 5,578,700 6,467,300 6,945,400 (broad (5) definition) (4) Money supply 6,044,700 8,995,800 13,272,100 13,493,200 15,697,700 18,529,400 (M2) (national definition) (6) Velocity of 4.43 3.85 3.14 3.03 3.00 5.2 M2(7) Notes: (1) Certain data presented in this table differ from previously published data due to regular revisions by the Bank of Russia. Data are presented in accordance with the IMF's "Monetary and Financial Statistics Manual" (IMF, 2000). Data in this table are current as of 14 January 2011.

(2) Comprises cash issued by the Bank of Russia into circulation less currency holdings of the Bank of Russia and credit institutions.

(3) Comprises current and other demand deposits within the banking system.

(4) Comprises cash outside the Bank of Russia, correspondent account balances, deposit account balances and required reserves of credit institutions maintained at the Bank of Russia and Bank of Russia bonds held by banks.

(5) As of 31 December 2005.

(6) M2 is defined as total cash in circulation (outside banks) and balances in the domestic currency on accounts of resident non-financial organisations, financial organisations (excluding credit organisations) and individuals.

(7) Average velocity based on monthly series of M2 and nominal GDP for the period, except for the figure as of 1 December 2010, which is based on preliminary year-end 2010 data.

Source: Bank of Russia.

The Bank of Russia's monetary policy is focused on creating conditions for lower inflation and on maintaining exchange-rate stability. In response to the global financial crisis, beginning in the second half of 2008, the Bank of Russia implemented a set of additional measures designed to maintain financial sector stability, and, in particular, expanded the volume of liquidity available to the banking and corporate sectors. As the Russian economy continues to recover from the crisis, the Bank of Russia intends to gradually reduce its use of anti-crisis measures, while at the same time maintaining a stimulative, growth-oriented monetary policy with relatively low interest rates. Going forward, the Bank of Russia intends to switch to an inflation-targeting and free floating exchange rate regime and at the same time continue the transition from an exchange rate based policy to an interest rate based policy.

From 2005 through 2007, large purchases of dollars by the Bank of Russia resulted in the rapid growth of Russia's international reserves and monetary aggregates. M2 increased by 38.6% in 2005 compared to 2004, by 48.8% in 2006 compared to 2005 and by 47.5% in 2007 compared to 2006. In both 2005 and 2006, positive trends in foreign trade continued and Russia experienced additional growth in its current account surplus. Although the current account surplus and trade balance deteriorated in 2007, each remained higher than its 2004 level (the current account surplus and trade balance in 2007 exceeded their 2004 levels by approximately 28% and 53%, respectively). Concurrently, positive changes in the Russian economy, an improved investment climate, sustained economic growth and political stability led to increases in foreign investment.

The general decline of the dollar against other major currencies also contributed to this exchange inflow, as did the high prices for commodity exports, particularly oil, and the low interest rates available in the international capital markets, which facilitated high levels of foreign borrowing by the Russian corporate sector. Since 2004, Russia has been assigned an investment grade rating from all three major credit rating agencies (Moody's upgraded Russia's rating in 2003, and Fitch and Standard & Poors followed suit in 2004), which supported international investment in Russia between 2005 and 2008 and helped underpin a sustained appreciation of the rouble.

The large inflow of foreign currency during this period caused a persistent excess of foreign currency supply over demand. To prevent excessive rouble appreciation, the Bank of Russia purchased foreign exchange in large amounts.

Total official reserves increased by U.S.$57.7 billion in 2005, U.S.$121.49 billion in 2006 and U.S.$175 billion in 2007. The Bank of Russia was supported in this effort by the Stabilisation Fund, which absorbed a substantial amount of Russia's export revenues and thereby allowed the Bank of Russia to sterilise a significant volume of its foreign exchange interventions during this period.

During the first half of 2008, foreign currency inflows continued due to high energy prices, and the Bank of Russia continued to undertake sterilisation operations in an effort to bolster rouble liquidity in the banking system and at the same time slow appreciation of the rouble. As a result, official reserves increased by approximately U.S.$90.2 billion in the first half of 2008. During the same period, the Bank of Russia tightened its monetary policy in order to control inflation. Between February and July 2008, the refinancing rate was raised in four separate increments from 10% to 11% per annum.

Beginning in the third quarter of 2008, the global financial crisis had a substantial negative effect on the Russian financial and currency markets. The prices of Russia's key exports, including oil, declined, and investors began to withdraw funds from rouble-denominated assets in line with an acceleration of capital outflows from emerging markets in general. Consequently, foreign currency inflows decreased considerably in the second half of 2008, and demand for foreign currency outpaced supply. The amount of hard currency generated through direct repo deals in 2008, most of which was provided in the fourth quarter of the year, totalled 21.51 trillion roubles, nearly triple the amount disbursed in 2007. In the fourth quarter of 2008, the Bank of Russia also adopted measures to stabilise the banking sector. To address the shortage of rouble liquidity and prevent corporate bankruptcies, the Bank of Russia initiated a plan whereby banks, depending on their credit rating, could receive unsecured loans worth up to 150% of their equity capital. By the end of 2008, more than 140 banks qualified for this programme, and, by February 2009, debt on unsecured loans rose to 1.92 trillion roubles. See "-Banking-Anti-Crisis Measures" for a more complete discussion of the policies undertaken to support the banking sector. As a consequence of its interventions, the Bank of Russia's total official reserves decreased by approximately U.S.$142.7 billion in the second half of 2008. During the latter part of 2008, the Bank of Russia raised its refinancing rate on three occasions (to 11% on 14 July, 12% on 12 November and 13% on 1 December). Due, in part, to a relatively tight monetary policy as well as to substantial capital outflows, the overall growth of M2 in 2008 slowed considerably, increasing by 1.7% compared to the preceding year.

The global financial crisis continued to negatively impact the Russian economy in 2009. In early 2009, in an effort to constrain inflationary pressures, the Bank of Russia raised rates on its open market operations; however, it left its refinancing rate unchanged. Concurrently, the demand for foreign currency continued to outpace supply (net sales of foreign currency to households and foreign currency deposits increased substantially in January) and private capital outflows continued to rise, both of which, in turn, contributed to an outflow of international reserves and a contraction in M2 in January. The reduction in M2 exacerbated the shortage of credit in the domestic banking sector and caused short-term rates on interbank loans to rise, which prompted the Bank of Russia to use its refinancing operations to provide more liquidity to credit institutions. In January, the Bank of Russia provided an average of approximately 820 billion roubles in credit per day to the banking sector.

Beginning in February 2009, the Russian markets exhibited certain signs of recovery. By the second quarter, the Government's anti-crisis measures began to take effect, inflationary pressures partially subsided, the exchange rate began to stabilise and the price of oil experienced a slight recovery. As conditions on the domestic foreign exchange market improved, the banking sector's demand for additional liquidity began to fall (the average daily volume of liquidity injection operations carried out by the Bank of Russia declined through the remainder of 2009 from its January peak and the volume of unsecured Bank of Russia loans to banks began to contract from its peak in February).

As a result of the relatively more favourable economic environment, the Bank of Russia was able to ease the tight monetary policy it had kept in place since the second half of 2008. In particular, the Bank of Russia implemented a series of interest rate reductions, which were, in part, designed to reduce the high cost of credit and alleviate the liquidity shortage. During the last three quarters of 2009, the Bank of Russia lowered its refinancing rate from 13% to 8.75% and reduced its minimum rates on open market operations by 3.5-4%, causing rates on short-term interbank credit to fall as well. The interest rate reductions were limited in their ability to expand the credit base, however, by high borrower risk estimates (in part due to growth in overdue loans to non-financial organisations and households), general uncertainty over the economy and the need for banks to restructure their balance sheets and thus keep assets as liquid as possible. In all of 2009, M2 slightly increased despite its initial contraction in January. The increase was largely due to the Bank of Russia's operations on the domestic foreign exchange market and the expansion of net credit to the federal Government, which was prompted, in turn, by the decision to use proceeds from the Reserve Fund to cover the budget deficit. The Bank of Russia's total official reserves increased overall in 2009 by U.S.$12.8 billion, supported by the strengthening of the rouble and the resumption of foreign currency inflows in the final three quarters of the year.

In the first half of 2010, the Bank of Russia continued to ease its monetary policy in an effort to stimulate credit activity and internal demand. In particular, it reduced its refinancing rate four times. Since 1 June 2010, the rate has been set at 7.75%. The Bank of Russia also lowered the upper and lower limits of its interest rate band during the first half of 2010. It lowered its overnight credit rate, the upper limit, on four occasions, from 8.75% to 7.75%, and its "tom-next" deposit rate and standard overnight deposit rate, the lower limit, on three occasions, from 3.5% to 2.5%. Cuts in the Bank of Russia's interest rate band, in turn, led to a decline in interbank rates. During the first half of 2010, M2 increased by 9.5% in nominal terms and by 4.9% in real terms. The increase in M2 was primarily driven by Bank of Russia interventions on the foreign exchange market, the partial financing of the federal budget from the Reserve Fund, growth in net foreign assets of the banking sector and a partial recovery in bank lending activity.

In the third quarter of 2010, the Russian economy experienced a rise in consumer price growth, while at the same time continued to register demand levels lower than potential output. In response to these countervailing trends, i.e., higher inflation, on the one hand, and a negative output gap, on the other, the Bank of Russia decided to leave its interest rates unchanged during the third quarter of 2010. In the third quarter of 2010, the continued rise in M2 was driven primarily by Bank of Russia interventions on the foreign exchange market and the expansion of bank lending activity to real sectors of the economy.

Inflation Consumer price inflation remained relatively high between 2005 and 2007 (10.9% in 2005, 9.0% in 2006 and 11.9% in 2007). Producer price inflation also remained high during this period, amounting to 13.4% in 2005, 10.4% in 2006 and 25.1% in 2007. The gradual adjustment of prices for communal services, electricity and transport continued to be one of the leading drivers of overall inflation during this period. High oil prices also continued to exert additional upward pressure on prices.

Despite a deceleration in the growth of M2 in 2008, consumer price inflation during this period increased to 13.3%, its highest annual level since 2002.

This increase was primarily attributable to the global financial crisis. As the global crisis began to impact the Russian economy in the third quarter of 2008, confidence in the banking sector deteriorated. This, in turn, caused domestic savings to decrease and consumption to increase, thereby fuelling inflationary pressures. At the same time, the depreciation of the rouble, and, in particular, the November 2008 devaluation (see "-Exchange Rates" below), caused further upward pressure on consumer price levels, especially given the strong dependence of the country's consumer market on imports of finished products and raw materials. During 2008, industrial prices exhibited 7.0% deflation primarily because of a contraction in prices in the mining and quarrying and coke and refined petroleum manufacturing sectors.

In 2009, the increase in M2 was accompanied by a decline in consumer price inflation to 8.8%. The inflation rate decreased in 2009 primarily because of the Bank of Russia's tight monetary policy in the beginning of the year, the overall slowdown in economic growth, including lower consumer income and depressed demand, and the rouble appreciation that began at the end of the first quarter. The decline in consumer price inflation occurred despite the gradual easing of interest rates in the second, third and fourth quarters and the devaluation of the rouble in the beginning of the year. During 2009, industrial prices rose by 13.9% mainly due a surge in prices in the mining and quarrying and coke and refined petroleum manufacturing sectors, as well as in electricity, gas and water production and supply.

In the nine months ended 30 September 2010, consumer price inflation equalled 6.2%, compared to 8.1% in the first nine months of 2009. Consumer inflation decelerated in the first nine months of 2010 compared to the first nine months of 2009 primarily due to a decrease in the growth of prices for non-food goods (from 8.3% in the first nine months of 2009 to 3.1% in the first nine months of 2010) and a decrease in the growth of prices for paid services to households, which include housing, transport and utility prices (from 11.0% in the first nine months of 2009 to 7.4% in the first nine months of 2010). The deceleration of consumer inflation in the first nine months of 2010 compared to the first nine months of 2009 was partially offset by a rise in the growth of food prices (from 5.8% in the first nine months of 2009 to 8.4% in the first nine months of 2010), which, in turn, was due, in part, to the impact of adverse weather conditions on the agricultural sector in August and September of 2010. In the nine months ended 30 September 2010, producer price inflation equaled 8.2%, compared to 14.9% in the first nine months of 2009. Producer price inflation decelerated in the first nine months of 2010 compared to the first nine months of 2009 primarily due to a decline in prices in the mining sector (from a 53.5% increase in the first nine months of 2009 to a 1.8% increase in the first nine months of 2010) and a decrease in the growth of prices in the production and distribution of electricity, gas and water (from 18.0% in the first nine months of 2009 to 13.6% in the first nine months of 2010). The deceleration of producer price inflation in the first nine months of 2010 compared to the first nine months of 2009 was partially offset by a rise in the growth of prices in manufacturing industries (from 6.5% in the first nine months of 2009 to 10.5% in the first nine months of 2010).

The following table illustrates the movement in consumer and industrial producer prices for the periods indicated: Inflation: Consumer and Producer Prices Consumer Industrial Price Producer Inflation Price Inflation (% change, end of period) 2005 10.9 13.4 2006 9.0 10.4 2007 11.9 25.1 2008 13.3 (7.0) 2009 8.8 13.9 Nine months ended 30 September 2009 8.1 14.9 Nine months ended 30 September 2010 6.2 8.2 Note: (1) For each of the years 2005 through 2009, the figures represent the percent change from year-end of the previous year. For the nine-month periods ended 30 September 2009 and 2010, the figures represent the percent change from year-end 2008 and year-end 2009, respectively.

Source: Rosstat.

Instruments of Monetary Policy and Interest Rates The primary instruments of monetary policy employed by the Bank of Russia are open-market operations (including the purchase and sale of government securities in the secondary market), bank reserve requirements and standing facilities.

As the exchange rate becomes more flexible, the Bank of Russia expects to have greater control over market interest rates. The Bank of Russia influences short-term interest rates through its interest rate band, the upper limit being the refinancing rate, i.e., the overnight credit rate, and the lower limit the overnight deposit rate. Currently, given the stable surplus of liquidity in the banking sector, money market interest rates approach the level of interest rates on the Bank of Russia's deposit operations. For this reason, the interest rates on deposit operations are considered the key rates for the Bank of Russia's interest rate policy.

From 2005 through 2007, the refinancing rate exhibited a downward trend, moving in graduated intervals from 13.0% in January 2005 to 10.0% in June 2007. During the same period, the stand-by deposit rate increased in graduated intervals from 0.5% in March 2006 to 2.75% in August 2007. The Bank of Russia repo rate did not exhibit sharp changes during this period, adjusting between 6.0% and 6.8% from 2005 through 2007. The interbank market overnight rate adjusted regularly between 2005 and 2007, without exceeding the refinancing rate and only briefly and slightly falling below the stand-by deposit rate on several occasions in 2006 and 2007. In the first half of 2008, both the refinancing rate and the stand-by deposit rate increased on several occasions. During the same period, the Bank of Russia repo rate continued to adjust within the 6-6.8% band and the overnight interbank rate generally remained within the corridor set by the refinancing rate and stand-by deposit rate, except for brief periods when it dipped slightly below the deposit rate floor. Adjustments in the refinancing rate and the rates on deposit operations were active tools in the Bank of Russia's response to the global financial crisis. The refinancing rate was increased three times in the second half of 2008 (to 11.0% on 14 July, 12.0% on 12 November and 13.0% on 1 December). In April 2009, the Bank of Russia began to lower the refinancing rate, which reached its pre-crisis level of 11.0% in July and was further reduced to 8.75% in late December. During the global financial crisis and through 2009, the Bank of Russia repo rate adjusted in line with the movements in the refinancing rate and stand-by deposit rate.

However, during the peak of the crisis at the end of 2008 and beginning of 2009, the interbank overnight exceeded the ceiling set by the refinancing rate, at times quite sharply. For example, in January 2009, the interbank overnight rate exceeded 27.0%. Similarly, rates on other loans and deposits were raised in the second half of 2008 and first quarter of 2009 and were subsequently lowered after inflationary pressures had eased. Each of the refinancing, stand-by deposit, repo and interbank overnight rates exhibited a downward trend during the first half of 2010, before stabilizing during the second half of the year. Since 1 June 2010, the refinancing, overnight credit and currency swap rates have equalled 7.75%. The stand-by deposit rate reached its current level of 2.75% in December 2010. In 2010, the repo rate moved in line with the refinancing rate, and the interbank overnight rate generally remained below the repo rate and above the stand-by deposit rate, except for a brief period in the beginning of January 2010, when it briefly fell below the deposit rate.

The Bank of Russia refinances credit organisations for periods ranging from one day to six months through auctions (direct repo transactions, Lombard auctions and unsecured credits) and standing facilities (overnight loans, currency swaps, direct repo transactions, Lombard loans with fixed terms and collateralised non-market instruments). The Bank of Russia currently regulates banking liquidity through deposit operations (via both standing facilities and auctions), reserve requirements and the purchase and sale of Bank of Russia bonds. Though less frequently used as a tool to regulate liquidity, the Bank of Russia also purchases and sells Russian Government bonds without the obligation to repurchase or resell. In April 2010, the Bank of Russia decided to no longer carry out six- and 12-month REPO auctions and auctions of 12-month Lombard loans as well as to no longer extend collateralised credit facilities for periods of 181 to 365 calendar days to credit organisations. In September 2010, the Bank of Russia decided that from 1 October 2010 auctions of 6-month Lombard loans would no longer be held.

Exchange Rates The Government has adopted a managed floating exchange rate regime, which is designed to limit excessive rouble volatility without imposing quantitative targets or fixed limits on the exchange rate. The Government's exchange rate policy is implemented by the Bank of Russia.

The following table sets forth information with respect to the rouble/dollar and rouble/euro exchange rates for the periods indicated: Official Exchange Rates Rouble/ Rouble/ Dollar Euro Average End of Average End of (1) Period (1) Period 2005 28.28 28.78 35.26 34.19 2006 27.18 26.33 34.11 34.70 2007 25.57 24.55 35.01 35.93 2008 24.98 29.38 36.41 41.44 2009 31.93 30.24 44.13 43.39 The quarter ended 29.89 29.36 41.41 39.70 31 March 2010 The quarter ended 30.24 31.20 38.56 38.19 30 June 2010 The quarter ended 30.43 30.40 39.95 41.35 30 September 2010 Note: (1) The average rates are calculated as the average of the exchange rates on the last business day of each month for the period.

Source: Bank of Russia.

In an effort to neutralise sharp exchange rate fluctuations in the domestic foreign currency market, the Bank of Russia adopted a managed floating exchange rate regime in September 1998, which it continues to follow. Until 2005, the Bank of Russia focused primarily on maintaining a stable dollar/rouble exchange rate. Beginning 1 February 2005, the Bank of Russia adopted a bi-currency basket, consisting of the dollar and euro, as an operating benchmark and began using movements in the rouble value of the bi-currency basket as a reference point for its exchange rate policy. The basket initially consisted of €0.1 and U.S.$0.9. Over time, the weighting of the euro has gradually increased, and the basket is currently set at €0.45 and U.S.$0.55. In January 2009, the Bank of Russia introduced a floating operational band of permissible movements in the rouble against the bi-currency basket. The borders of this operational band are designed to adjust automatically depending on the volume of Bank of Russia interventions. The floating operational band effectively replaced the Bank of Russia's fixed band. The fixed band since its inception underwent a gradual widening and, with a corridor of 26 roubles and 41 roubles, was at its widest when it was phased out in March 2009. The dollar retains its leading position and continues to be the preferred currency for exports and domestic savings, although the euro has become an increasingly common savings instrument among Russian residents, particularly in 2006 and 2007 when the dollar weakened against both the rouble and the euro. Since 2005, exchange rate flexibility has increased substantially, and, starting from 2009, the scale of Bank of Russia's interventions on the domestic exchange market has begun to decrease.

In 2005, 2006 and 2007, Russia experienced large inflows of oil-related foreign capital. Growing international confidence in the Russian economy and the profitability of the oil sector supported the corporate sector's intensive borrowing and accumulation of large liabilities denominated in foreign currency, as well as real appreciation of the rouble. In 2005, the rouble appreciated against the dollar by 10.8% in real terms and against the euro by 12.1% in real terms. The real effective exchange rate, i.e., the trade-weighted exchange rate, of the rouble appreciated by 8.1% in 2005. In 2005, currency interventions on an average monthly basis totalled approximately U.S.$6.0 billion, which included U.S.$1.1 billion of foreign currency sales in January 2005. The bi-currency basket at its inception on 1 February 2005 equalled 28.96 roubles, compared to 30.94 roubles as at 31 December 2005. The rouble continued to appreciate in real terms in 2006 and 2007. In 2006, it appreciated by 10.7% against the dollar and 11.5% against the euro and, in 2007, appreciated by 12.8% against the dollar and 4.2% against the euro. The real effective exchange rate of the rouble appreciated by 9.4% and 4.2% in 2006 and 2007, respectively. Currency interventions on an average monthly basis totalled approximately U.S.$9.8 billion in 2006 and U.S.$11.9 billion in 2007, which included U.S.$2.0 billion of foreign currency sales in August 2007.

During the first half of 2008, the rouble continued to rise as world oil and gas prices remained high and the country continued to experience net inflows of private capital. In order to manage the rouble appreciation, the Bank of Russia purchased foreign currency, as it historically has done when confronted with high oil and gas prices, and adjusted the corridor in which the rouble was allowed to move against the dollar/euro basket. In the first half of 2008, the rouble appreciated against the dollar by 19.0% in real terms and against the euro by 4.5% in real terms. The real effective exchange rate of the rouble appreciated by 4.5% in the first half of 2008. Currency interventions on an average monthly basis totalled approximately U.S.$12.1 billion during the first six months of 2008. The bi-currency basket as at 30 June 2008 equalled 29.51 roubles.

In the second half of 2008, the global financial crisis, and, in particular, the drop in world oil prices and the deteriorating commodities and financial markets, prompted a sell-off of rouble-denominated assets. As a result, in the second half of 2008, the rouble depreciated in real terms by 13.4% against the dollar and 6.4% against the euro. The real effective exchange rate of the rouble depreciated by 5.1% in the second half of 2008. Concurrently, the high level of foreign-currency indebtedness of both the financial and non-financial sectors exacerbated the impact of the global crisis on the rouble. A large share of this debt came due in the fourth quarter of 2008, when equity markets-and thus the value of collateral offered by corporate debtors-were deteriorating. A large number of creditors began to demand additional collateral or early repayment, which had the effect of significantly increasing the demand for foreign currency. In order to meet this increased demand as well as manage the downward pressure on the rouble, the Bank of Russia sold foreign currency on the domestic market during the second half of 2008, resulting in net sales of dollars and euros of U.S.$69.2 billion in 2008, compared to net purchases of U.S.$142.3 billion in 2007. In July and August 2008, the Bank of Russia sold U.S.$26.5 billion and U.S.$0.9 billion, respectively, of roubles on the domestic market. In September, October, November and December 2008, the Bank of Russia sold U.S.$17.9 billion, U.S.$43.1 billion, U.S.$33.8 billion and U.S.$74.2 billion, respectively, of foreign currency on the domestic market. In November 2008, the Bank of Russia announced it would gradually widen the corridor in which the rouble would be allowed to trade against the dollar/euro basket. In all of 2008, the rouble depreciated in nominal terms by 19.7% against the dollar and by 15.3% against the euro. Nevertheless, in 2008, the rouble appreciated in real terms against both the dollar (by 13.4%) and the euro (by 6.4%). The bi-currency basket equalled 34.81 roubles as at 31 December 2008.

The exchange rate policy in 2009 was designed primarily to mitigate the impact of the global financial crisis on the Russian economy. In the first days of January 2009, the Bank of Russia accelerated its controlled devaluation of the rouble. Expectations that the rouble would continue to depreciate put additional downward pressure on the domestic currency, prompting further sales of rouble assets. At the same time, demand for foreign currency on the domestic money markets continued to outpace supply (net sales of foreign currency by the Bank of Russia reached U.S.$39.6 billion in January 2009). As a consequence, interest rates on rouble assets increased sharply, causing the rouble interbank loan market to tighten considerably. In mid-January, in an effort to slow depreciation of the rouble, the Bank of Russia limited its disbursement of unsecured loans. This measure had the effect of increasing the demand for roubles, thereby strengthening the rouble against the dollar/euro basket, as liquidity tightened and tax payments came due. In a further effort to stabilise the rouble, the Bank of Russia on 23 January 2009 announced that it had completed its gradual adjustment of the exchange rate, setting the upper and lower limits of the exchange rate corridor at 41 roubles and 26 roubles, respectively, against the dollar/euro basket. In January 2009, the Bank of Russia sold U.S.$39.6 billion of foreign currency on the domestic currency market in an effort to defend the rouble. Beginning in February 2009, the Bank of Russia began to use the floating operational band discussed above. At its inception, the width of the operational band was set at two roubles.

From February through June 2009, Russia experienced a rise in foreign capital inflows. This positive development was caused by the relative stabilisation of the global financial markets (due to large-scale anti-crisis measures adopted in developed and emerging economies), the increase in the price of oil (Urals oil reached U.S.$60 a barrel by June) and the prevalence of high domestic interest rates relative to foreign rates. Despite these developments in the market, during the first half of 2009, the rouble depreciated against the dollar by 17.6% in real terms and 5.7% in nominal terms and against the euro by 7.0% in real terms and 5.7% in nominal terms. From February through June 2009, the Bank of Russia was a net purchaser of foreign currency, selling U.S.$34.2 billion of roubles on the domestic market. After a two-month period of exchange rate stability, during which the Bank of Russia sold U.S.$5.3 billion in foreign currency, capital inflows resumed in September 2009 mainly because of a further rise in the price of oil and the continued disparity between domestic and foreign interest rates. These factors caused the rouble to strengthen in the fourth quarter of 2009. From September through December 2009, the Bank of Russia was a net purchaser of foreign currency, selling U.S.$27.9 billion of roubles on the domestic market. In 2009, the rouble depreciated in nominal terms by 2.9% against the dollar and 4.7% against the euro. In real terms, the rouble depreciated by 12.2% against the dollar and 8.3% against the euro in 2009. The real effective exchange rate of the rouble depreciated by 5.6% in 2009. During 2009, the operational band adjusted more than twenty times, although it remained a two-rouble wide trading band. During the first months of 2009, the bi-currency basket generally traded in the upper part of the operational band; however, from March 2009 through June 2009, the rouble appreciated, and the bi-currency basket moved to the lower boundary of the band. In July 2009, the Bank of Russia widened the band to three roubles, and, during the second half of 2009, the value of the bi-currency basket fluctuated within the operational band. The bi-currency basket as at 31 December 2009 equalled 36.16 roubles.

In the first quarter of 2010, Russia experienced net private sector capital outflows of U.S.$14.7 billion, compared to inflows of U.S.$8.3 billion in the fourth quarter of 2009, which put downward pressure on the rouble. Net private sector capital outflows were, in part, caused by concerns regarding the stability of the European debt markets and by the reduction in domestic interest rates. See "-Money Supply," above, for a discussion of the interest rate cuts in the first half of 2010. Lower domestic interest rates, in turn, led to the narrowing of the interest rate differential between relatively higher domestic rates and lower foreign rates. At the same time, the prices for many of Russia's dollar-denominated exports rose, generating upward pressure on the rouble. For example, in the first quarter of 2010 relative to the first quarter of 2009, the price of Urals oil increased by 73.7%, world coal prices grew by 32.3% and aluminum and nickel prices increased by 60% and 90%, respectively. During the first three months of 2010, in nominal terms, the rouble depreciated by 1.5% against the dollar and appreciated by 5.2% against the euro. In real terms, the rouble appreciated by 2.3% against the dollar and by 7.7% against the euro. The real effective exchange rate of the rouble appreciated by 4% in the first quarter of 2010. The bi-currency basket as at 31 March 2010 equalled 34.02 roubles.

In the second quarter of 2010, Russia experienced net private sector capital inflows of U.S.$3.1 billion, compared to outflows of U.S.$14.7 billion in the first quarter of 2010, putting upward pressure on the rouble. Notwithstanding these inflows, domestic interest rates continued to fall. See "-Money Supply," above. During the same period, the prices for certain Russian exports, such as natural gas and aluminum, contracted, whereas the prices for other key exports, such as Urals oil and nickel, increased. For example, the price of Urals oil fluctuated during the second quarter of 2010, averaging U.S.$76.60 per barrel, a 2.3% increase relative to the first quarter of 2010. During the second quarter of 2010, in nominal terms, the rouble depreciated by 1.1% against the dollar and appreciated by 7.3% against the euro. In real terms, the rouble depreciated by 0.1% against the dollar and appreciated by 8% against the euro.

The real effective exchange rate of the rouble appreciated by 4.4% in the second quarter of 2010. The bi-currency basket as at 30 June 2010 equalled 34.34 roubles.

From February 2009 through the first half of 2010, the rouble was undervalued relative to other major commodity currencies, such as the Australian dollar, Canadian dollar, Brazilian real and Norwegian krone, based on a nominal exchange rate index, where one dollar equalled 100 units of the relevant currency as on 3 January 2005. In both the first and second quarters of 2010, changes in the rouble/dollar real exchange rate were mainly due to the differential between domestic and U.S. inflation, whereas the real appreciation of the rouble against the euro was primarily driven by the strengthening of the nominal rouble/euro rate.

In the third quarter of 2010, Russia experienced estimated net private sector capital outflows of U.S.$4.2 billion, compared to inflows of U.S.$3.1 billion in the second quarter of 2010, putting downward pressure on the rouble. Though the Bank of Russia left its interest rates unchanged during the third quarter (see "-Money Supply"), key financial market interest rates, including rates on interbank loans and long-term loans to households, continued to decline. During the third quarter of 2010, in nominal terms, the rouble depreciated by 1.3% against the dollar and by 2.3% against the euro, in part due to stronger demand for foreign currency driven by corporate foreign debt payments. In real terms, the rouble appreciated by 0.1% against the dollar and depreciated by 0.9% against the euro. The real effective exchange rate of the rouble depreciated by 1.3% in the third quarter of 2010.

In the first nine months of 2010, the Bank of Russia carried out targeted currency interventions in order to limit rouble volatility and to correct imbalances in the supply of and demand for foreign currency on the domestic currency market. In the first nine months of 2010, currency interventions on an average monthly basis totalled approximately U.S.$4.9 billion, which included net sales of foreign currency in September of U.S.$1.4 billion. The bi-currency basket as at 1 October 2010 equalled 35.43 roubles.

The operational band continued to adjust regularly during the first four months of 2010, although it remained a three-rouble wide corridor. During the first eight months of 2010, the bi-currency basket traded in the lower part of the operational band, before moving to the upper part of the band in September 2010. In October 2010, in line with its implementation of a more flexible exchange rate policy, the Bank of Russia widened the band by 50 kopeks in both directions. As of 1 January 2011, the value of the bi-currency basket was in the central part of the operational band.

Monetary Policy for 2011 through 2013 In October 2010, the Bank of Russia published its monetary policy guidelines for 2011 through 2013, which was formally considered by the State Duma in December 2010.

The Bank of Russia's principal monetary policy objective for 2011 through 2013 is to maintain annual inflation at 5-7%. In pursuit of this objective, the Bank of Russia intends to continue moving in the direction of a freely floating rouble, which, together with the gradual reduction in anti-crisis measures, is expected to facilitate a more effective interest rate policy.

The Bank of Russia's monetary policy for 2011 through 2013 is currently focused on minimising rouble volatility, while at the same time reducing the Bank of Russia's direct currency interventions. In the short term, the Bank of Russia intends to continue using the floating operational band, introduced in the beginning of 2009. See "-Exchange Rates." The Bank of Russia also intends to carry out targeted currency interventions at intervals and in volumes determined in advance depending on current conditions in the Russian economy, including the balance of payments, budgetary indicators and money markets. The Bank of Russia currently expects movements in the current and capital accounts to have the most significant impact on the rouble exchange rate in the next several years, with capital flows becoming an increasingly more important factor. The Bank of Russia also plans to increase the transparency of its monetary policy by conducting regular interviews and press conferences and issuing press releases informing the public of its most important policy decisions and their consequences.

As part of its monetary policy guidelines, the Bank of Russia has adopted three scenarios, each based on a different oil price assumption, for the development of the Russian economy in 2011. Under the first scenario, which assumes an average price per barrel of Urals oil of U.S.$60, the Bank of Russia expects current account inflows of U.S.$4.7 billion, capital account outflows of U.S.$13 billion and, therefore, a change in reserve assets of U.S.$8.3 billion.

Under the second scenario, which assumes an average price per barrel of Urals oil of U.S.$75, the Bank of Russia expects current account inflows of U.S.$35.7 billion, capital account inflows of U.S.$12 billion and a change in reserve assets of U.S.$47.7 billion. Under the third scenario, which assumes an average price per barrel of Urals oil of U.S.$90, the Bank of Russia expects current account inflows of U.S.$67.3 billion, capital account inflows of U.S.$22 billion and a change in reserve assets of U.S.$89.3 billion. The Bank of Russia expects M2 to increase by 11%, 19% and 23% under the first, second and third scenarios, respectively. There can be no assurance that any of the Bank of Russia's projections on the future development of the Russian economy will prove to be accurate. These projections are based on assumptions as to the oil price and other important matters, which may not prove to be accurate and may significantly effect the Bank of Russia's projected outcomes. See "Forward-Looking Statements." Banking Structure of the Banking Industry All credit institutions are required to be licensed by the Bank of Russia. A general banking licence is the most comprehensive licence available and allows a credit institution to engage in various banking operations. Under Russian law, commercial banks holding general licences are allowed to own, underwrite and deal in all types of securities. Banks without a general licence require a separate licence to conduct foreign exchange operations.

Between year-end 2004 and year-end 2010, the total number of credit institutions licensed to conduct banking operations in Russia decreased by approximately 22.1% due to a decrease in the number of credit institutions with fewer than 150 million roubles in share capital. In the same period, the number of credit institutions with share capital above 150 million roubles increased by approximately 45.6%. As of 31 December 2009, there were 1,058 credit institutions licensed to conduct banking operations, of which 1,007 were banks and 51 were non-bank credit institutions. Of the 1,058 credit institutions, 291 held general licences and 701 held foreign exchange licences. As of 1 January 2011, there were 1,012 credit institutions licensed to conduct banking operations, of which 955 were banks and 57 were non-bank credit institutions.

Of the 1,012 credit institutions, 283 held general licences and 677 held foreign exchange licences. As of 1 January 2011, credit institutions licensed to conduct banking operations included 80 wholly foreign-owned organisations and 31 banks with majority foreign ownership. Licensed foreign banks are subject to the general banking laws and regulations and are entitled to participate in the same range of banking activities as their Russian counterparts. As of 1 January 2011, there were 2,926 branches of operating credit institutions in Russia, of which 203 belonged to 100% foreign-owned banks in Russia and 574 belonged to Sberbank, which is the successor of the former state savings bank in the Soviet Union and is controlled by the Bank of Russia.

Between year-end 2004 and year-end 2010, total assets within the Russian banking system expanded by approximately 373.7%. The five largest Russian banks held 44%, 42%, 42%, 46% and 48% of these assets as of year-end 2005, 2006, 2007, 2008 and 2009, respectively. In 2010, total assets within the Russian banking system grew by 14.9%, with the five largest Russian banks holding 48.0% of total assets within the banking system as of 1 December 2010. As of 1 January 2011, Sberbank held approximately 47.9% of all household deposits and itself accounted for approximately 27.3% of total banking assets. As of 1 January 2011, client accounts constituted approximately 62.4% of the liabilities of the banking sector, whereas loans, including loans to banks and overdue debt, constituted 65.5% of the sector's assets. As of 1 January 2011, revenues from foreign exchange operations constituted approximately 62.5% of the revenue structure of the country's operating credit institutions.

From 2005 until the fourth quarter of 2008, the banking sector was a net creditor of the Bank of Russia. As of 1 January 2005, 2006, 2007 and 2008, net credits of the banking sector to the Bank of Russia equalled 584.9 billion roubles, 552.1 billion roubles, 810.0 billion roubles, and 1,124.0 billion roubles, respectively.

The global financial crisis had a severe negative impact on credit institutions, resulting in the banking sector becoming a net debtor of the Bank of Russia. As of 1 January 2009, net credits of the Bank of Russia to the banking sector equalled 2,514.9 billion roubles. At the same time, the crisis caused overall banking sector profits to drop by approximately 98% in the first half of 2009, compared to the first half of 2008. The quality of loans issued by Russian banks also deteriorated as a result of the crisis, with the percentage share of total credit under loans classified as problem loans or worse equalling 3.8% as of 1 January 2009 and 9.5% as of 1 January 2010, compared with 2.5% as of 1 January 2008. Overdue claims of the banking sector on loans, deposits and other placements increased from 184.1 billion roubles as of 1 January 2008 to 1,043.4 billion roubles as of 1 December 2009. This caused credit institutions to make substantial loss provisions, which increased from 3.6% of total loans as of 1 January 2008 to 9.1% of total loans as of 1 January 2010.

The banking sector experienced a recovery in 2010. By the beginning of 2010, the banking sector returned to its pre-crisis position as a net creditor of the Bank of Russia. As of 1 January 2010, net credits of the banking sector to the Bank of Russia equalled 53.2 billion roubles. In addition, overall banking sector profits increased from 205.1 billion roubles in 2009 to 573.4 billion roubles in 2010. The quality of loans issued by Russian banks improved slightly in 2010, with the percentage share of total credit under loans classified as problem loans or worse equalling 8.2% of total loans as of 1 January 2011 compared to 9.5% as of 1 January 2010. Despite this improvement, overdue claims of the banking sector on loans, deposits and other placements increased from 1,014.7 billion roubles as of 1 January 2010 to 1,035.9 billion roubles as of 1 January 2011. Consequently, loss provisions of credit institutions increased to 8.5% of total loans as of 1 January 2011. Currently, the banking sector continues to be a net creditor of the Bank of Russia. As of 1 October 2010, net credits of the banking sector to the Bank of Russia equalled 1,299.1 billion roubles.

In light of the 8.0% minimum capital requirement set forth under Basel II, the Russian banking sector is adequately capitalised. The banking sector's capital adequacy ratio generally exhibited a downward trajectory between 2005 and the beginning of 2007, equalling 17.0% as of 1 January 2005, 16.0% as of 1 January 2006 and 14.9% as of 1 January 2007. The capital adequacy ratio began to rise in the first half of 2007, before falling again in the second half of the year.

Nevertheless, at 1 January 2008, it equalled 15.5%, slightly higher than the ratio at the beginning of the prior year. During the first nine months of 2008, the capital adequacy ratio declined, before rising in the last quarter of the year. At 1 January 2009, the capital adequacy ratio equalled 16.8%. After declining in January 2009, the capital adequacy ratio demonstrated an upward trend through the remainder of the year, resulting in a ratio of 20.9% as at 1 January 2010. After falling in January 2010, the capital adequacy ratio remained roughly constant through April, before declining to 18.1% as of 1 January 2011. From the beginning of 2005 through 2010, total capital in the Russian banking sector increased. Total capital in the banking sector as of 1 January 2005, 2006, 2007, 2008, 2009 and 2010 equalled 946.6 billion roubles, 1,241.8 billion roubles, 1,692.7 billion roubles, 2,671.5 billion roubles, 3,811.1 billion roubles and 4,620.6 billion roubles, respectively. As of 1 January 2011, total capital amounted to 4,732.3 billion roubles.

The following table contains certain key indicators of the overall banking sector's financial soundness as of the dates indicated: As of 1 January 2005 2006 2007 2008 2009 2010 2011 (%) Capital Adequacy Risk Ratio of own funds 17.0 16.0 14.9 15.5 16.8 20.9 18.1 (capital) to risk-weighted assets(1) Credit Risk Share of problem loans 3.3 2.6 2.4 2.5 3.8 9.5 9.2 and bad loans in total loans(2) Loan loss provisions as 4.9 4.6 4.1 3.6 4.5 9.1 9.5 a share of total loans Ratio of insider loans n/a 3.2 4.0 3.4 2.2 1.5 1.8 to own funds(3) Ratio of claims on n/a 1.0 1.1 1.1 0.9 0.7 0.6 insiders to own funds Liquidity Risk Ratio of liquid assets 30.4 27.4 26.8 24.8 25.9 28.0 26.8 to total assets(4) Market Risk(5) 31.7 33.6 45.1 38.7 23.2 49.6 48.6 Of which Interest rate risk(6) 13.3 13.3 19.3 24.3 16.4 37.5 36.7 Equity position risk(7) 12.6 14.4 20.4 10.8 3.4 8.7 8.6 Foreign exchange risk(8) 5.8 5.8 5.3 3.6 3.4 3.5 3.2 Return on Assets(9) 2.9 3.2 3.3 3.0 1.8 0.7 1.9 Return on Equity(10) 20.3 24.2 26.3 22.7 13.3 4.9 12.5 Notes: n/a = not available.

(1) Risk-weighted assets are calculated by totalling the credit risks on a credit institution's assets. A credit institution's assets are divided into five groups on the basis of risk, and risk coefficients are set for each group.

Since 1 July 2010, the risk coefficients are set in accordance with the Simplified Standardised Approach to credit risk within the framework of Basel II.

(2) A problem loan is defined as a loan, 51-100% of which is written off by the creditor. A bad loan is a loan that is 100% written off by the creditor.

(3) Includes loans, bank guarantees and sureties granted by credit institutions to its owners (shareholders).

(4) Liquid assets are those financial assets that credit institutions can receive, claim or sell within 30 calendar days.

(5) Market risk is defined as the risk of financial loss resulting from changes in (i) current (fair) value of financial instruments, (ii) exchange rates and (iii) the price of precious metals. Financial instruments include (i) equity and debt instruments acquired by credit institutions and held for trading or otherwise available for sale, (ii) financial instruments denominated in foreign currencies or in roubles if their value is tied to movements in exchange rates and (iii) derivative instruments, such as interest rate and foreign exchange swaps.

(6) The market risk on financial instruments sensitive to changes in interest rates.

(7) The market risk on financial instruments sensitive to changes in the current (fair) value of equities.

(8) The market risk on positions in foreign currencies and precious metals.

(9) Calculated as the ratio of financial results (before tax) of credit institutions over the reporting period to the average amount of assets of credit institutions over the reporting period.

(10) Calculated as the ratio of financial results (before tax) of credit institutions over the reporting period to the average amount of own funds (capital) of credit institutions over the reporting period.

Source: Bank of Russia.

Pursuant to the federal deposit insurance law, subject to certain exceptions, banks are required to make quarterly contributions of up to 0.15% of their deposits (calculated as the average of a respective bank's daily balances during the relevant quarter) to a federal deposit insurance fund, which is managed and controlled by the Deposit Insurance Agency. At the discretion of the Deposit Insurance Agency, this rate may be increased to 0.30% in the event the deposit insurance fund requires additional funding. Currently, banks are required to make quarterly contributions of 0.1% of their deposits to the federal deposit insurance fund. The fund insures the full repayment of deposits up to 700,000 roubles per depositor per bank. Until 2007, Sberbank's contributions to the fund were kept on a separate account. The state guaranteed household deposits at Sberbank until 1 January 2007.

Banking Supervision and Regulation Russian banks are subject to prudential regulations intended to move the Russian banking industry toward compliance with the capital adequacy standards established by the Basel Committee on Banking Supervision. These regulations impose requirements with respect to minimum capital, capital adequacy, exposure to individual borrowers and shareholders, deposit taking and equity investments in other companies.

The Bank of Russia operates an early warning system under which it analyses the most significant prudential ratios for all banks on a monthly basis. Banks that fail to comply with their reporting obligations can be forced to close their correspondent accounts with other banks and make all settlements exclusively through the Bank of Russia. The ratios reviewed by the Bank of Russia include capital adequacy ratios, credit risk ratios, liquidity risk ratios and market risk ratios. On the basis of these ratios, banks (excluding Sberbank) are placed in one of five groups, according to the level of risk of failure. As of 1 January 2011, there were 14 banks in the highest risk group, compared to 24 as of 1 January 2010, and 11 banks in the second highest risk group, compared to 9 as of 1 January 2010, indicating a likelihood of closure without the injection of new capital. These banks accounted for approximately 1% of total banking assets, are generally small and borrow in the interbank market only to a limited extent. There is only a low risk that their closure would trigger systemic failure.

The Bank of Russia imposes a reserve requirement on all banks. The reserve ratio is currently 3.5% for liabilities to non-resident banks, denominated in either roubles or foreign currencies, and 3.0% for all other financial obligations in any currency. Credit institutions are required to meet their reserve requirements on average during each calendar month or reserve maintenance period. This provision provides for flexible liquidity management and decreases the day-to-day dependence on interbank funds.

The Law on Insolvency (Bankruptcy) of Credit Institutions provides the legislative framework for the restructuring of banks. This law sets out the standards to be used by the Bank of Russia in appointing temporary bank administrators, sets forth a liquidation procedure for banks and gives the Bank of Russia the power to licence the receivers of bankrupt banks and to propose receivers to arbitration courts for their approval.

Anti-Crisis Measures In response to the global financial crisis, Russia undertook a series of measures designed to protect the stability of the banking sector. These measures focused mainly on the following priority areas: bolstering financial sector liquidity; supporting the interbank market; facilitating bank loans to the real economy; and ensuring the recovery and survival of banks that are essential to the stability of the overall sector. Since October 2008, the following measures have been implemented: • In October 2008, the Federal Assembly passed the Financial System Support Law, which authorised the Government to supply up to 910 billion roubles in long-term subordinated loans (with a maturity of up to 31 December 2019) to state-owned and private banks. Pursuant to this law, the Government provided Vnesheconombank with 410 billion roubles, using proceeds from the National Wealth Fund, and the Bank of Russia provided Sberbank with 500 billion roubles.

Of the 410 billion roubles lent to Vnesheconombank, 200 billion roubles were disbursed to VTB, 25 billion roubles to the Russian Agricultural Bank and the remainder to various private banks.

• Pursuant to the Financial System Support Law, through 31 December 2009, Vnesheconombank was given the authority to grant foreign currency loans (of up to U.S.$50 billion in aggregate) to Russian companies, including financial institutions, for the refinancing of foreign currency loans obtained prior to 25 September 2008. Approximately U.S.$11.6 billion were disbursed under this programme before it was suspended.

• The Bank of Russia introduced a new facility for providing unsecured loans to certain private banks. Under this facility, from October 2008 through 2010, approximately 6.6 trillion roubles of unsecured loans were disbursed to banks.

Potential borrowers must apply for these loans, and the maximum amount that each can receive is based on the borrower's credit rating and capital base.

• From 14 October 2008 until 31 December 2010, the Bank of Russia has been given the authority to enter into agreements with credit organisations, pursuant to which the Bank of Russia may compensate such credit organisations for losses incurred on the interbank market as a result of loans they make during the above-mentioned time period to credit organisations whose licences have been revoked. As of 31 December 2010, the Bank of Russia entered into such agreements with 15 banks as well as Vnesheconombank, which, through 31 December 2010, had concluded lending transactions with 346 credit organisations whose licences had been revoked. From 14 October 2008 through 31 December 2010, over 41,000 thousand transactions totalling approximately 9.4 billion roubles were eligible for compensation under this programme. During this period, there were only three instances when the Bank of Russia was required to compensate banks for overdue debt under eligible interbank lending transactions. All proceeds used for such compensation were subsequently repaid to the Bank of Russia.

• In October 2008, the Bank of Russia broadened the range of assets that banks can use as collateral in refinancing transactions and extended the terms of loans secured by non-market assets, such as promissory notes, guarantees and other receivables. As of 1 January 2010, indebtedness pursuant to transactions secured by this broader range of collateral equalled approximately 439.1 billion roubles.

• On 14 October 2008, the Bank of Russia reduced the reserve requirement to 0.5% for all types of financial obligations. The reserve requirement has since then been gradually increased: to 1% as of 1 May 2009, 1.5% as of 1 June 2009, 2.0% as of 1 July 2009 and 2.5% as of 1 August 2009. The reserve requirement currently is 3.5% for liabilities to non-resident banks, denominated in either roubles or foreign currencies, and 3.0% for all other financial obligations in any currency.

• On 27 October 2008, a federal law was passed to support the stability of the banking system and for the restructuring of credit organisations. Pursuant to this law, the Bank of Russia, together with the Deposit Insurance Agency, is permitted to undertake measures to support the financial condition of banks threatened by insolvency. Supporting measures include temporary receivership, mandatory capital decreases, the acquisition by the Deposit Insurance Agency of controlling interests in defaulting banks and the sale to private investors of assets or controlling interests in defaulting banks.

• In November 2008, the Bank of Russia increased the refinancing rate from 11% to 13%. Since 24 April 2009, the Bank of Russia has implemented a series of reductions in the refinancing rate. Since 1 June 2010, the rate has been set at 7.75%.

• Insurance coverage provided by the Deposit Insurance Agency for retail deposits has been expanded to 700,000 roubles per depositor per bank.

• In 2008, additional funding was provided to the Deposit Insurance Agency (200 billion roubles) and the Agency for Home Mortgage Loans was recapitalised (60 billion roubles). As part of its Anti-Crisis Programme for 2009, the Government allocated an additional 60 billion roubles (20 billion roubles for recapitalisation and 40 billion roubles in the form of loans) to the Agency for Home Mortgage Loans.

• As of 30 December 2008, the procedure required for foreclosures has been simplified. Pursuant to the amended procedures, subject to limited exceptions, parties to a pledge agreement may agree on an out-of-court enforcement procedure.

• In an effort to bolster the liquidity of the financial markets and to protect the National Wealth Fund, the Government broadened the types of assets in which balances from the National Wealth Fund may be invested. For this purpose, the Ministry of Finance transferred 175 billion roubles to Vnesheconombank in the fourth quarter of 2008 for its onward investment in various Russian securities.

In December 2009, the 175 billion roubles were repaid to Vnesheconombank.

• To encourage consolidation in the banking sector, the procedures for bank mergers have been streamlined.

• In February 2009, a law requiring all banks to maintain at least 180 million roubles of own funds was adopted. However, pursuant to this law, a bank is permitted to continue operation with less than 180 million roubles of own funds, provided the following conditions are met: (i) the bank had own funds of less than 180 million roubles as of 1 January 2007, and its amount of own funds did not subsequently decrease in a material fashion; (ii) the bank maintains own funds of at least 90 million roubles, beginning 1 January 2010; and (iii) the bank increases its amount of own funds to 180 million roubles by 1 January 2012.

• Under federal law, effective 1 January 2009, certain entities, such as state corporations (gosudarstvennie korporatsii) and limited liability companies, that were previously prohibited from doing so, have been granted the right to issue exchange-traded debt securities.

• As part of its Anti-Crisis Programme for 2009, the Government earmarked 495 billion roubles for loans (and other forms of funding) to banks, a portion of which was provided by the Bank of Russia.

• In July 2009, a federal law was passed to improve the capitalisation of banks. Under this law, until 31 December 2010, banks are entitled to issue non-voting preferred shares with veto rights on certain matters in exchange for receiving federal bonds (OFZs). Ultimately, the preferred shares may either be converted into ordinary shares after a 10-year grace period or be purchased by the bank or its shareholders.

• To ensure control over the disbursement of state funds, the Bank of Russia may appoint its own representatives to each bank that has received state funding either under the Financial System Support Law or the Bank of Russia's uncollateralised lending programme. In particular, until full repayment of state funds, the Bank of Russia's representatives are entitled to participate without voting rights in meetings of all governing bodies of the bank and to receive information about management remuneration and the bank's credit and liability management policies.

• To support the real economy, the Government has simplified the process for granting state guarantees, and, in particular, has delegated to the Ministry of Finance the authority to provide state guarantees of up to 10 billion roubles per guarantee to certain corporate issuers.

Foreign Exchange Regulations Russia has adopted Article 8 of the IMF's Articles of Agreement with respect to current account convertibility and has met all obligations imposed thereunder.

Prior to June 2004, the convertibility of the rouble was heavily regulated. In June 2004, a new currency law came into force that liberalised the exchange control regime. It envisaged full convertibility of the rouble, although a transition period remained in effect for certain provisions until 1 July 2006 and certain other provisions until 1 January 2007, during which time the Bank of Russia and the Government were authorised to impose currency control measures. The currency law distinguishes between two types of capital operations, those that are regulated by the Government (principally commercial credits granted by residents to non-residents) and those regulated by the Bank of Russia (loans, cash transfers and securities transactions). Under the new law, only enumerated currency operations are subject to regulation, and neither the Bank of Russia nor the Government may adopt currency regulations except in cases expressly prescribed by the new law. For example, under the new law, several restrictions may still be imposed to prevent a significant reduction in Russia's gold or foreign currency reserves or severe fluctuations in the currency and to support the stability of Russia's balance of payments. For instance, subject to certain exceptions, Russian residents are required to repatriate their export-related earnings, and currency operations with "external securities" or in currencies other than the rouble between Russian residents are generally prohibited.

The currency law allows residents and non-residents to open bank accounts in Russia and conduct currency operations without limitation. The law further provides that all contradictions and ambiguities in the currency law or in any currency regulation are to be resolved in favour of residents and non-residents conducting currency operations. The law, furthermore, does not impose any restrictions on investments in foreign securities by individual residents.

Currently, Russian residents may open accounts in foreign banks in any country that is a member of the Organization for Economic Cooperation and Development and a party to the Financial Action Task Force on Money Laundering, subject only to post-notification of the Russian tax authorities. Exporters are not required to convert any portion of their foreign currency revenues into roubles.

Foreign Exchange Market The largest share of Russia's foreign exchange trading occurs in the over-the-counter interbank currency market, with other trading conducted on the Moscow Interbank Currency Exchange ("MICEX"). The Bank of Russia buys and sells currencies through MICEX when it acts to influence exchange rates. MICEX was established in 1991 as a department of the Bank of Russia's Soviet predecessor, and was transformed in January 1992 into a closed joint-stock company. MICEX's largest shareholder is the Bank of Russia. Commercial banks and the Association of Russian Banks are also shareholders. Only MICEX members, which include commercial banks, financial institutions and certain other investment institutions, may participate in currency exchange trading on MICEX.

The major currency traded on MICEX is the dollar, with trading volume of U.S.$1,078.75 billion in 2009, accounting for approximately 93% of total turnover (excluding currency swap operations). The other major currency traded on MICEX is the euro, which, in 2009, accounted for approximately 7% of total turnover (excluding swap operations).

The Bank of Russia and MICEX have supported the establishment of a system of regional currency exchanges within Russia. There are currently seven regional exchanges. The largest regional currency exchanges are the St. Petersburg Currency Exchange ("SPCEX") and the Siberian Interbank Currency Exchange.

Capital Markets Government Securities The market for rouble-denominated government securities comprises federal Government rouble-denominated bonds and rouble-denominated bonds of sub-federal entities. The Government's rouble-denominated securities include principally medium-term bonds (OFZs) and state savings bonds (GSOs). OFZs are initially issued through MICEX or via closed subscription. See "-Foreign Exchange Market" above. Secondary trading of OFZs takes place on MICEX and its representative regional exchanges. OFZs are held in book entry form, which minimises transaction risks. As of 1 January 2011, the par value of federal Government rouble-denominated bonds was approximately 2.46 trillion roubles (U.S.$81.11 billion, based on the 1 January 2011 exchange rate), of which 2.154 trillion roubles (U.S.$70.98 billion) were OFZs and 0.307 trillion roubles (U.S.$10.13 billion) were GSOs. For a detailed description of the various Government domestic debt instruments, see "Public Debt and Related Matters-Domestic Debt-Government Domestic Debt." The market for rouble-denominated bonds of sub-federal entities prior to 2002 consisted mainly of City of Moscow bonds placed and traded on MICEX and City of St. Petersburg bonds placed and traded on SPCEX. Bond issuances by sub-federal entities have since increased. As of 1 January 2011, there were 95 outstanding rouble-denominated bond issuances by 34 sub-federal entities, with an aggregate principal amount of approximately 424.88 billion roubles (U.S.$14 billion, based on the 1 January 2011 exchange rate). Of this aggregate principal amount, approximately 416.0 billion roubles (U.S.$13.71 billion) were issued by Federation subjects, including 228.99 billion roubles (U.S.$7.54 billion) by the city of Moscow, and 8.88 billion roubles (U.S.$293 million) were issued by municipal entities.

Corporate Securities The trading of privatisation vouchers issued in connection with Russia's mass privatisation programme, implemented between 1992 and 1994, played an important role in the development of the equity securities market in Russia. A certificateless securities system was subsequently adopted, largely in response to fraud encountered in vouchers trading. As a result, virtually all common and preferred stock in Russia is held in book-entry form, with ownership recorded in the issuer's share register.

The Russian stock market was originally based on an electronic over-the-counter trading system, known as the Russian Trading System ("RTS"), which was introduced in 1995 and managed by the National Association of Stock Market Participants, a self-regulatory body responsible for the development of rules for trading on the RTS. There are currently five licensed stock exchanges in Russia, including MICEX, the largest Russian exchange for equity and debt trading, and RTS, which trades predominantly futures and other derivative products. In 2007, when the Russian equity markets experienced significant growth, the average daily stock turnover on MICEX reached approximately U.S.$4.9 billion. In 2009 and 2010, the average daily stock turnover on MICEX was approximately U.S.$3.4 billion and U.S.$4.0 billion, respectively.

The market capitalisation of companies listed on Russian stock markets increased significantly in the period before the global financial crisis, and then, as a result of the crisis, decreased in 2008. In 2009, both RTS and MICEX recovered a portion of their value lost in 2008. The total market capitalisation of the RTS was approximately U.S.$1,328.8 billion at the end of 2007, U.S.$375 billion at the end of 2008 and U.S.$763.5 billion at the end of 2009. The total market capitalisation of MICEX was U.S.$1,221.2 billion, U.S.$337.4 billion and U.S.$738 billion at the end of 2007, 2008 and 2009, respectively. The total market capitalisation of the RTS and MICEX as of 1 January 2011 equalled U.S.$990.55 billion and U.S.$954.67 billion, respectively.

The Russian corporate bond market has been a fast-growing segment of the Russian financial markets. The number of bond issues and their tenor increased significantly between 2002 and the first half of 2008, and the outstanding volume of corporate bonds continued to increase through 2009 and 2010. New corporate bond offerings typically have a term ranging from two to five years.

The outstanding volume of corporate bonds amounted to 481.3 billion roubles (U.S.$16.7 billion, pursuant to the exchange rate then prevailing), 901.8 billion roubles (U.S.$34.2 billion), 1,257.1 billion roubles (U.S.$51.2 billion), 1,812.3 billion roubles (U.S.$61.7 billion) and 2,526.4 billion roubles (U.S.$83.5 billion) at year-end 2005, 2006, 2007, 2008 and 2009, respectively. The outstanding volume of corporate bonds as of 31 December 2010 amounted to 2,979.7 billion roubles (U.S.$97.8 billion). The average daily turnover of Russian corporate bonds on MICEX was approximately U.S.$0.4 billion in 2007 and 2008 and, as a result of the global financial crisis, decreased to U.S.$0.3 billion in 2009. Following the global financial crisis, the average daily turnover of Russian corporate bonds on MICEX improved to approximately U.S.$0.6 billion in 2010.

Regulation of the Capital Markets The FSFM has primary responsibility for regulating the Russian securities market. The FSFM is a federal executive authority subordinated to the Government. Its functions include registration of securities issues, ensuring the disclosure of information on securities markets and control and supervision of securities issuers and professional securities market participants. Pursuant to its regulatory authority, as an anti-crisis measure, the FSFM prohibited the short-selling of stocks between 30 September 2008 and 9 April 2009 amid concerns that such sales during a period of global financial crisis would lead to a collapse in Russian stock prices and to the bankruptcy of Russian companies. Short-selling continues to be subject to strict regulation by the FSFM. The Bank of Russia oversees government securities transactions (as an instrument of monetary policy), foreign investment (as a matter of currency exchange control) and securities offerings by banks (as the primary regulator of banks).

In 2009, the Government adopted a Concept for Creating an International Financial Centre in Russia. This Concept sets forth the following set of measures designed to prepare Moscow to become an international financial centre: (i) establishing a transparent and flexible regulatory system for the financial markets; (ii) developing an effective financial system, including attracting long-term institutional investors, offering a more diverse array of financial products and fostering a competitive financial-sector labour market; (iii) integrating Russia into the global financial markets; (iv) improving financial and business infrastructure as well as living conditions in Moscow; and (v) improving Russia's image as a reliable partner.

PUBLIC DEBT AND RELATED MATTERS Overview Russia's Government debt was 9.0% of GDP in 2010 and is expected to reach approximately 11.0% and 12.9% of GDP in 2011 and 2012, respectively. In 2010, Russia's domestic and external debt equalled 6.4% of GDP and 2.5% of GDP, respectively. As of 31 December 2010, total external and domestic Government debt equalled U.S.$135.60 billion. Based on current estimates, through 2013, the Government expects both domestic and external debt levels as a share of GDP to rise, and also expects that domestic debt will assume a greater share of the Government's overall debt. In 2011 and 2012, external debt as a share of GDP is expected to equal 2.6% and 2.6%, respectively, and domestic debt as a share of GDP is expected to equal 8.5% and 10.3%, respectively.

The Government intends to use its public debt policy to accelerate Russia's social and economic development. In pursuit of this endeavor, the Government has adopted a public debt policy that is designed to meet the following key objectives: (i) ensuring the performance of the Government's budgetary commitments; (ii) developing an efficient market for government securities; (iii) minimising the costs of public borrowing; and (iv) creating favourable market conditions that facilitate corporate borrowings, including establishing benchmark issuances at various points on the yield curve.

In order to effectively implement its overall public debt policy, the Government has put into place both an external debt policy and a domestic debt policy.

The current objectives of the Government's external debt policy are to maintain Russia's presence as an active sovereign borrower on the international capital markets and to establish a representative yield curve for foreign currency-denominated debt. The Russian authorities also aim to improve the system for monitoring the foreign borrowing of state-owned and private companies.

According to the Principal Priorities of the Budget Policy for 2011 and the Planning Period 2012 and 2013, which was approved by the Government in 2010, the development of the domestic debt market is one of the Government's primary budgetary priorities. In particular, the Government expects domestic borrowing to be the main source of federal budget deficit financing through 2013 and plans to issue on the domestic bond market state securities in excess of one trillion roubles annually from 2011 through 2013. Demand for medium- and long-term debt instruments is expected to remain relatively high due to the pension reforms enacted in 2001 and amended in 2009, which established a "funded" component to the country's pension system, whereby a portion of pension contributions may be invested in domestic securities. See "The Russian Economy-Pension Reform." As part of its plan to develop the domestic debt market, the Government intends to carry out, or is the process of carrying out, certain measures, including the following: (i) establishing benchmark domestic bonds at standard maturities and in volumes sufficient to enhance liquidity; (ii) introducing a new mechanism for exchange-traded debt of government securities; (iii) improving the settlement system used in government bond auctions, and, in particular, removing the requirement for investors to deposit funds in advance in the trading system; and (iv) otherwise enhancing the transparency of the government bond market, including by scheduling regular auctions and notifying market participants in advance of the expected yields on government bonds issued through such auctions. The Government also believes that the provision of state guarantees will play an increasingly important role in its overall domestic debt policy.

The Government also intends to create the Russian State Financial Agency, whose responsibilities are expected to include developing relations with investors and advising the Ministry of Finance on matters related to the Government's debt policy.

External Debt As at 31 December 2010, the total outstanding external debt of the Government, or for which the Government has agreed to be responsible, amounted to approximately U.S.$39.1 billion. This amount included all loans contracted or guaranteed by the Government, loans contracted or guaranteed by Vnesheconombank and debt contracted or guaranteed by other entities legally authorised to borrow on behalf of the government of the former Soviet Union. Undisbursed commitments and public or private sector borrowings not guaranteed by the Government are excluded from the U.S.$39.1 billion outstanding as of 31 December 2010. In 2009, the Government's external debt was 2.9% of GDP, compared to 89.2% of GDP in 1999. External debt comprised approximately 34.3% of the Government's total debt in 2009 and approximately 28.3% of the Government's total debt in 2010. The Government's external debt as a share of the country's total public- and private-sector debt has declined since 1999.

The following table sets forth information with respect to the Government's external debt as of the indicated dates: External Debt Stock of the Government of the Russian Federation by Creditor(1) As of 31 December 2005 2006 2007 2008 2009 2010 (U.S.$ billion) Total external debt 79.7 52.2 44.6 42.6 36.1 39.1 Multilateral creditors(2) 5.6 5.5 5.0 4.5 3.8 3.1 World Bank 5.1 4.8 4.4 3.8 3.2 2.6 Other 0.5 0.7 0.6 0.7 0.6 0.5 Eurobonds 31.5 31.9 28.6 27.8 26.2 30.5 2007 10% Eurobond 2.4 2.4 0.0 0.0 0.0 0.0 2010 8.25% Eurobond 2.8 2.3 1.6 1.0 0.3 0.0 2015 3.625% Eurobond - - - - - 2.0 2018 11% Eurobond 3.5 3.5 3.5 3.5 3.5 3.5 2020 5.00% Eurobond - - - - - 3.5 2028 12.75% Eurobond 2.5 2.5 2.5 2.5 2.5 2.5 2030 7.5% Eurobond(3) 20.3 21.2 21.0 20.8 19.9 19.0 Official Creditors 32.3 8.2 5.4 4.7 4.2 3.7 o/w COMECON, China and 2.1 1.9 1.5 1.5 1.4 1.2 former Yugoslavia Ministry of Finance Hard 7.3 5.1 4.5 4.5 1.8 1.8 Currency Bonds Commercial creditors(4) 3.0 1.5 1.2 1.2 0.1 0.1 Notes: (1) Foreign currency values of outstanding external debt have been converted into dollars at the relevant market exchange rates prevailing at the end of the indicated period. This table does not include amounts representing indebtedness under hard-currency guarantees issued by the Russian Federation, which, in 2009 and in 2010, totalled U.S.$0.9 billion.

(2) Excludes contingent liabilities, which, as of 31 December 2010, amounted to approximately U.S.$0.07 billion in the form of guarantees and counter-guarantees.

(3) The 2030 Eurobond has a step-up coupon which will remain at 7.5% until maturity in 2030.

(4) Includes FTO, London Club and other claims not submitted in previous exchange offers.

Some totals may not add due to rounding.

Sources: Ministry of Finance; Vnesheconombank.

Of the U.S.$39.1 billion outstanding at 31 December 2010, U.S.$3.1 billion represents loans from multilateral creditors, including the World Bank. Of the total U.S.$30.5 billion of Eurobonds outstanding at 31 December 2010, U.S.$2.0 billion represents the 2015 Eurobond maturing in April 2015, U.S.$3.5 billion represents the 2018 Eurobond maturing in July 2018, U.S.$3.5 billion represents the 2020 Eurobond maturing in April 2020, U.S.$2.5 billion represents the 2028 Eurobond maturing in June 2028 and U.S.$19.0 billion represents the 2030 Eurobond maturing between March 2011 and March 2030. An additional U.S.$328.2 million representing the 2010 Eurobond was outstanding at year-end 2009 and was repaid in full on 31 March 2010.

U.S.$3.7 billion represents official government-to-government credits and export credits, of which U.S.$1.2 billion is owed to former member countries of the Council for Mutual Economic Assistance ("CMEA" or "COMECON"), China and the former Yugoslavia. See "-Other Former Soviet Union Debt" below.

U.S.$1.8 billion represents the last outstanding Ministry of Finance Hard Currency Bond, Series VII.

The Government prepaid approximately U.S.$44 billion of its external debt in 2005 and 2006. This included approximately U.S.$37 billion of rescheduled Soviet-era debt owed to the Paris Club, which was prepaid in August 2005 and August 2006.

Russia has in the past purchased Russian Government Eurobonds and other federal Government obligations in the open market and may do so in the future.

External Debt Restructuring Paris Club In January 1992, the Government concluded an initial annual rescheduling agreement with the Paris Club of official creditors, followed by three further annual reschedulings in 1993, 1994 and 1995, covering debt service falling due during the period from December 1991 to the end of 1995.

In April 1996, a comprehensive rescheduling was agreed with the Paris Club covering approximately U.S.$33 billion of debt owed to Paris Club creditors, including debt service falling due between the beginning of January 1996 and the end of March 1999 and virtually all the debt rescheduled under the previous agreements.

In August 1999, the Government concluded a further rescheduling agreement with the Paris Club. This agreement provided for the deferral of approximately U.S.$8.3 billion of debts owed to Paris Club creditors, including payment arrears outstanding at the end of June 1999 and debt service falling due between the beginning of July 1999 and the end of December 2000 in respect of both previously rescheduled and non-previously rescheduled Soviet-era obligations.

In May 2005, the Government reached an agreement with the Paris Club under which approximately U.S.$15 billion of the debts rescheduled under the 1996 and 1999 rescheduling agreements was prepaid at face value. All of Russia's remaining Paris Club debt, in the approximate amount of U.S.$21.6 billion, was prepaid in August 2006.

London Club A comprehensive restructuring agreement in respect of Soviet-era debt owed to Vnesheconombank's London Club commercial bank and other financial creditors was closed in December 1997. Under the terms of this agreement, the entire stock of outstanding principal owed to London Club creditors, amounting to approximately U.S.$22.2 billion, was restructured as interests in restructured loans maturing in 2002 to 2020 ("PRINs"), and the interest regarded as having accrued on this debt (net of a cash down-payment) was restructured into U.S.$6.7 billion principal amount of U.S.$ floating rate interest notes due 2002 to 2015 ("IANs").

In July 2000, the Russian Federation offered to exchange Vnesheconombank's PRINs and IANs for 2030 Bonds and the interest arrears on PRINs and IANs for a combination of 2010 Bonds and cash. For each U.S.$1,000 principal amount of PRINs tendered, a creditor received U.S.$625 principal amount of 2030 Bonds, and for each U.S.$1,000 principal amount of IANs tendered, a creditor received U.S.$670 of 2030 Bonds. In August 2000, U.S.$18.2 billion of 2030 Bonds and U.S.$2.8 billion of 2010 Bonds were issued in exchange for PRINs and IANs, and U.S.$275 million was paid in cash in exchange for PRIN and IAN interest arrears. A further U.S.$129.4 million of 2030 Bonds and U.S.$19.8 million of 2010 Bonds have been issued in subsequent re-openings of this exchange. At 31 December 2010, U.S.$0.1 million of PRINs and U.S.$32.9 million of IANs have not been tendered for exchange and remain outstanding.

FTO Debt In November 2002, the Russian Federation offered to exchange 2030 Bonds and 2010 Bonds for eligible uninsured trade debt of the former Soviet Union for which the Government has agreed to be responsible ("FTO claims") on terms broadly comparable to the terms previously offered to PRIN and IAN holders. In December 2002, U.S.$1.19 billion principal amount of 2030 Bonds and U.S.$183.8 million principal amount of 2010 Bonds were issued in exchange for FTO claims and U.S.$171.5 million was paid in cash. An additional U.S.$1.075 billion of FTO claims were exchanged for U.S.$140.5 million principal amount of 2010 Bonds, U.S.$907.8 million principal amount of 2030 Bonds and U.S.$383.4 million in cash in November 2006. In December 2009, a further U.S.$405.5 million of FTO claims were exchanged for U.S.$45.8 million principal amount of 2010 Bonds, U.S.$327.1 million principal amount of 2030 Bonds and U.S.$262.8 million in cash. The bonds that were exchanged in 2009 were previously issued by the Russian Federation and subsequently acquired in the secondary market. No new Eurobonds were issued in connection with the last exchange offer.

Other Former Soviet Union Debt Following the dissolution of the former Soviet Union, the Government assumed responsibility for Soviet-era debts owed to the former member countries of the CMEA. These debts relate to the CMEA trade settlement systems that were in place between CMEA member countries. Most of these debts were incurred as a result of an imbalance in the settlements in favour of the creditor country at the time of the dissolution of the CMEA and the Soviet Union. As of 31 December 2010, debt to the former member countries of the CMEA, China and the former Yugoslavia amounted to U.S.$1.2 billion. A substantial portion of this debt will be repaid in the form of equipment, goods and services, with the balance to be repaid in cash.

The Government has also concluded negotiations with a number of non-Paris Club official creditors under which repayment is partly in the form of equipment, goods and services. As of 31 December 2010, debt to non-Paris Club official creditors amounted to U.S.$1.7 billion.

In 1993, the Government issued dollar denominated Internal Government Hard Currency Bonds ("OVVZs," known as "Taiga" bonds or "MinFins") to compensate Russian legal entities whose funds had been frozen in 1991 in foreign currency accounts at Vnesheconombank. MinFins were initially issued in five series, with maturities ranging between one and 15 years. Two additional series were issued in May 1996 with maturities of 10 and 15 years, respectively. All of the MinFins pay a 3% coupon annually until redemption. OVVZs trade in the over-the-counter market. As of 31 December 2010, the principal amount of outstanding OVVZs stood at U.S.$1.75 billion, representing MinFin Series VII which were issued in 1996. Historically, OVVZs were regarded as domestic public debt. Starting in 2000, they were reclassified as external debt for budgetary purposes.

On 11 May 1999, the Ministry of Finance requested the holders of U.S.$1.3 billion aggregate principal amount of Series III MinFins maturing on 14 May 1999 not to present their bonds for redemption, pending the development of a restructuring proposal. The Ministry of Finance did, however, pay all of the interest accrued on Series III MinFins and announced that interest on these bonds would continue to accrue at the original rate of 3% until they were restructured into new instruments. Following consultations with representative investor groups, the Government made a proposal in November 1999 to exchange all Series III MinFins for (i) new dollar-denominated Government bonds with an average life of seven and a half years and bearing interest at 3% payable semi-annually or (ii) rouble-denominated OFZs with maturities of four years, paying interest semi-annually at 15% in the first year, declining to 10% in subsequent periods. Under the Government's proposal, Series III MinFins were exchanged for new dollar-denominated bonds at par, and for new rouble-denominated bonds at par at the rate of 26.2 roubles per dollar, that being the average official exchange rate for the first week of November 1999.

Between 2000 and 2005, the Ministry of Finance had received applications for the exchange of substantially all of the outstanding Series III MinFins, of which approximately 72% was exchanged for dollar instruments and the remaining 28% was exchanged for OFZs. In accordance with Government Decree No. 387 dated 20 June 2007, additional Series III MinFins principal and interest claims amounting to U.S.$1.4 million were settled by the Ministry of Finance between 2007 and 2009. In January 2010, the Ministry of Finance announced the expiry of the deadline to submit further Series III MinFins for settlement.

External Debt Service Projection The following table sets forth a projection of the Government's contractual external debt service by type of creditor from 2011 through 2019, including principal and interest payable on all external debt outstanding as of 1 January 2011, on the basis of the exchange rates and interest rates prevailing at that time.

This table does not reflect the external debt service (i) on any borrowings by or on behalf of the Government since 1 January 2011, which have not been significant, (ii) on any new drawdowns on existing borrowings by or on behalf of the Government during the period covered by the table or (iii) on the Bonds.

External Debt Service Projections by Type of Creditor(1) For the year ended 31 December 2011 2012 2013 2014 2015 2016 2017 2018 2019 (U.S.$ billion) Principal 4.89 2.29 2.11 2.02 3.73 1.51 1.50 4.92 1.84 Multilateral 0.73 0.63 0.50 0.42 0.25 0.16 0.15 0.11 0.08 creditors Bonds 1.27 1.27 1.27 1.27 3.27 1.27 1.27 4.74 1.70 Official 1.14 0.39 0.33 0.32 0.20 0.08 0.07 0.07 0.07 creditors(2) Ministry of 1.75 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Finance Hard Currency Bonds Commercial 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 creditors Interest 2.46 2.30 2.19 2.09 1.95 1.81 1.71 1.62 1.13 Multilateral 0.03 0.02 0.02 0.01 0.01 0.00 0.00 0.00 0.00 creditors Bonds 2.35 2.25 2.16 2.06 1.93 1.80 1.70 1.61 1.12 Official 0.03 0.02 0.02 0.01 0.01 0.01 0.01 0.01 0.00 creditors(2) Ministry of 0.05 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Finance Hard Currency Bonds Commercial 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 creditors Total 7.35 4.59 4.30 4.11 5.67 3.32 3.21 6.53 2.97 Notes: (1) Includes contractual payments of existing obligations as at 1 January 2011.

(2) Includes debt service to be made in the form of goods and services. The repayment schedule is provisional and can fluctuate depending on actual delivery.

Some totals may not add due to rounding.

Sources: Ministry of Finance; Vnesheconombank.

External Borrowings Since the dissolution of the former Soviet Union, the Ministry of Finance has borrowed externally on behalf of Russia only in respect of certain multilateral facilities, through bond issues and through certain medium- and short-term financings. All other previous external borrowings of the Government have been implemented through Vnesheconombank, Vneshtorgbank (Russia's foreign trade bank), or Roseximbank (Russia's export-import bank), which were all authorised on a case-by-case basis to borrow externally under the guarantee of the Government and are responsible for recording and monitoring these borrowings.

Borrowings by these banks under the Government's guarantee are included in the external debt statistics of the Government.

The provision of state guarantees is strictly regulated by the budget laws of the Russian Federation. State guarantees are provided solely on the basis of a Government resolution and the federal budget law for a particular year and for a particular target period. The 2011 Budget Law provides for the issuance of state guarantees, including for the purpose of implementing investment projects and promoting the export of industrial products. These guarantees may not exceed 420.5 billion roubles and U.S.$8 billion for 2011.

The Government has in the past provided external guarantees to certain international financial institutions. As of 31 December 2010, U.S.$0.07 billion were outstanding under these guarantees.

The Government has paid in full all of the debt service due on borrowings contracted by the Government since 1 January 1992.

Domestic Debt The following table sets forth information with respect to Russia's domestic debt as of the indicated dates: Domestic Debt of the Federal Government(1) As of 31 December 2005 2006 2007 2008 2009 2010 (billions of roubles) Total 875.4 1,064.9 1,301.1 1,499.8 2,094.7 2,940.2 Domestic bonds 851.1 1,028.0 1,248.8 1,421.4 1,837.2 2,461.6 GKOs 0.0 - - - - - OFZs 851.1 975.6 1,147.4 1,244.0 1,569.8 2,154.2 OFZs with variable 0.0 - - - - - coupon OFZs with fixed 123.7 205.6 288.4 328.2 706.4 1,338.6 rates OFZs with fixed 131.1 94.8 51.4 33.8 - - coupon Amortising OFZs(2) 596.3 675.2 807.6 882.0 863.4 815.6 State savings - 52.4 101.4 177.4 267.4 307.4 bonds (OGSZ, GSO) State guarantees 18.9 31.2 46.7 72.5 251.4 472.2 Other 5.3 5.6 5.5 5.8 6.1 6.4 (% of total) Total 100.0 100.0 100.0 100.0 100.0 100.0 Domestic bonds 97.2 96.5 96.0 94.8 87.7 83.7 GKOs 0.0 - - - - - OFZs 97.2 91.6 88.3 83.0 74.9 73.3 OFZs with variable 0.0 - - - - - coupons OFZs with fixed 14.1 19.3 22.2 21.9 33.7 45.5 rates OFZs with fixed 15.0 8.9 4.0 2.3 - - coupon Amortising OFZs(2) 68.1 63.4 62.1 58.8 41.2 27.7 State savings - 4.9 7.8 11.8 12.8 10.5 bonds (OGSZ, GSO) State guarantees 2.2 2.9 3.6 4.8 12.0 16.1 Other 0.6 0.5 0.4 0.4 0.3 0.2 (% of GDP) Total 4.1 4.0 3.9 3.6 5.4 6.4 Domestic bonds 3.9 3.9 3.9 3.4 4.7 5.4 GKOs 0.0 - - - - - OFZs 4.0 3.7 3.7 3.0 4.0 4.7 OFZs with variable 0.0 - - - - - coupon OFZs with fixed 0.6 0.8 0.9 0.8 1.8 2.9 rates OFZs with fixed 0.6 0.4 0.2 0.1 - - coupon Amortising OFZs(2) 2.8 2.5 2.4 2.1 2.2 1.8 State savings - 0.2 0.3 0.4 0.7 0.7 bonds (OGSZ, GSO) State guarantees 0.1 0.1 0.1 0.2 0.6 1.0 Other 0.0 0.0 0.0 0.0 0.0 0.0 Memo: Exchange rate, 28.78 26.33 24.55 29.38 30.24 30.48 rouble/U.S.$, end of period GDP (billions of 21,610 26,917 33,248 41,429 39,101 45,722 roubles)(3) Total domestic 30.4 40.5 53.1 51.0 69.3 96.5 public debt (U.S.$ billion) Notes: (1) Certain data presented in this table differ from previously published data due to changes in the accounting methodology of the Ministry of Finance.

(2) In accordance with the federal budget law for 2003, non-marketable rouble government bonds (fixed rate OFZs) held by the Bank of Russia were exchanged for amortising OFZs with a total face value of 282.5 billion roubles in February 2003. The goal of this exchange operation was to reinforce liquidity management by the Bank of Russia. Similar exchanges have occurred since 2005.

(3) GDP figures for the years 2005-2009 current as of 1 January 2011. GDP for 2010 current as of 20 January 2011.

Sources: Ministry of Finance; Bank of Russia.

Government Domestic Debt The Government's domestic indebtedness consists principally of medium- and long-term OFZs and rouble-denominated state guarantees. As of 31 December 2009, the Government's domestic debt amounted to 2,094.7 billion roubles (U.S.$69.3 billion), or 5.3% of GDP for 2009. As of 31 December 2010, the Government's domestic debt equalled 2,940.2 billion roubles (U.S.$96.5 billion), or 6.4% of GDP for 2010. Since 2006, the Government has also issued state savings bonds. The Government has in the past issued short-term GKOs. Government domestic debt under Russian law includes rouble-denominated debt issued in the international capital markets.

OFZs are rouble denominated obligations with a maturity of up to or over one year, and pay interest quarterly, semi-annually or annually. Initially issued in June 1995, OFZs (including OFZs issued in the GKO/OFZ restructuring discussed below) represented 93.1% of the Government's domestic debt (17.5% of GDP) at the end of 1998 and 97.2% of the Government's domestic debt (4.0% of GDP) at the end of 2005. Since 2005, OFZs as a share of the Government's domestic debt has declined to 91.6% (3.7% of GDP) in 2006, 88.3% (3.7% of GDP) in 2007, 83.0% (3.0% of GDP) in 2008, 74.9% (4.0% of GDP) in 2009 and 73.3% (4.7% of GDP) in 2010.

OFZs were initially issued with floating coupons pegged to the average weighted market yields of GKOs redeemable during the period beginning 30 days before and ending 30 days after the coupon payment. Since 2004, the Government has not issued OFZs with variable coupons.

In June 1996, fixed rate OFZs were introduced and have subsequently replaced floating rate OFZs. The Government issued two- and three-year fixed rate OFZs until the middle of 1998, paying annual or semi-annual interest at rates between 10% and 20% per annum. Fixed rate OFZs represented 14.1% (0.6% of GDP), 19.3% (0.8% of GDP), 22.2% (0.9% of GDP), 21.9% (0.8% of GDP), 33.7% (1.8% of GDP) and 45.5% (2.9% of GDP) of the Government's domestic debt in 2005, 2006, 2007, 2008, 2009 and 2010, respectively.

GKOs are rouble denominated zero-coupon instruments with a maturity of less than one year. GKOs were first issued in May 1993 and, as a result of a shift to medium-term borrowing and the restructuring of certain GKOs and OFZs after the events of 17 August 1998 (see "Russian Federation-International Relations-Russia, the Former Soviet Union and the CIS"), were gradually eliminated by 2005.

As part of the restructuring of GKOs and certain OFZs following the events of 17 August 1998, the Ministry of Finance issued OFZs with maturities of three and five years and fixed declining coupons. Fixed coupon OFZs have since been issued with maturities varying from two to four years, although their overall contribution to domestic debt has declined in recent years. Fixed coupon OFZs comprised 15.0% (0.6% of GDP), 8.9% (0.4% of GDP), 4.0% (0.2% of GDP) and 2.3% (0.1% of GDP) of the Government's domestic debt in 2005, 2006, 2007 and 2008, respectively. In 2009 and 2010, the Government did not issue fixed coupon OFZs.

In May 2002 and September 2002, the Government issued fixed coupon amortising OFZs (serial bonds) with maturities of 4.5 and 6 years. In 2004, fixed coupon amortising OFZs became the main instrument of domestic borrowing. Fixed coupon amortising OFZs represented 68.1% (2.8% of GDP), 63.4% (2.5% of GDP), 62.1% (2.4% of GDP), 58.8% (2.1% of GDP), 41.2% (2.2% of GDP) and 27.7% (1.8% of GDP) of the Government's domestic debt in 2005, 2006, 2007, 2008, 2009 and 2010, respectively.

In 2006, state savings bonds, which are sold to retail customers and for which there is no trading market, began to play a more substantial role in the Government's domestic borrowing. State savings bonds comprised 4.9% (0.2% of GDP), 7.8% (0.3% of GDP), 11.8% (0.4% of GDP), 12.8% (0.7% of GDP) and 10.5% (0.7% of GDP) of the Government's domestic debt in 2006, 2007, 2008, 2009 and 2010, respectively.

The Government also issues rouble-denominated state guarantees. State guarantees represented 2.2% (0.1% of GDP), 2.9% (0.1% of GDP), 3.6% (0.1% of GDP) and 4.8% (0.2% of GDP) of the Government's domestic debt in 2005, 2006, 2007 and 2008, respectively. As part of its anti-crisis measures, beginning in 2009, the Government significantly expanded in absolute terms the value of state guarantees issued. See "The Russian Economy-General Anti-Crisis Measures" and "Monetary and Financial System-Banking-Anti-Crisis Measures" for a discussion of the measures undertaken by the Government in response to the global financial crisis. As of 31 December 2009 and 2010, rouble-denominated state guarantees totalled 12.0% (0.6% of GDP) and 16.1% (1.0% of GDP), respectively, of the Government's debt.

As at 31 December 2009, the average maturity of the Government's marketable domestic debt was 1,577 days, as compared to 1,892 days as at 31 December 2005.

OFZs represented 85.4% of the total stock (measured in nominal terms) of domestic bonds as of 31 December 2009, as compared to approximately 100% as at 31 December 2005. As at 31 December 2010, the average maturity of the Government's marketable domestic debt was 1,337 days. OFZs represented 87.5% of the total stock (measured in nominal terms) of domestic bonds as of 31 December 2010.

Non-Residents' Access to the Local Bond Market Following the events of 17 August 1998 and the adoption of the restructuring scheme for GKOs and certain OFZs in late 1998, the Bank of Russia reintroduced additional restrictions on non-resident holders of GKOs and OFZs. Conversion of rouble investments in GKOs and OFZs was limited to foreign exchange auctions held by the Bank of Russia, special currency conversion GKO issues offered by the Ministry of Finance and transfers of funds from investment "S" accounts to conversion "S" accounts. The latter required funds to be deposited in non-interest bearing "transit" accounts for 365 days before repatriation.

The restrictions on repatriation of money from "S" accounts by non-residents were subsequently liberalised. Effective 15 September 2003, non-residents were allowed to transfer money from investment "S" accounts to conversion "S" accounts freely for subsequent repatriation. Currently, there are no restrictions on foreign investment in the domestic bond market, except with respect to certain government issuances. According to the Law on State Securities, state savings bonds may only be purchased by an exhaustive list of Russian residents, and secondary trading in such bonds is not permitted.

Furthermore, any government issuer of domestic debt, whether it is the federal Government or a sub-federal or municipal entity, may at the issuer's discretion include in the terms and conditions of an issuance restrictions on a non-resident's ability to purchase, hold or dispose of the securities that are the subject of the issuance.

Government Domestic Debt Service Domestic debt service equalled 0.3% of GDP in 2005, before falling slightly to 0.2% of GDP in each of 2006, 2007, 2008 and 2009. The domestic debt to GDP ratio was 4.1% of GDP in 2005 before falling to 4.0% of GDP in 2006, 3.9% of GDP in 2007 and 3.6% of GDP in 2008. The domestic debt to GDP ratio increased in 2009 and 2010 to 5.4% and 6.6%, respectively. Domestic debt service declined in 2006 mainly due to a decline in interest rates. Despite a decline in the domestic debt to GDP ratio, domestic debt service remained flat through 2007 and 2008, largely due to an increase in interest rates. In 2009, domestic debt service did not change due to declining interest rates.

Other Public Sector Domestic Debt Russia's total domestic public debt includes debt of sub-federal and local governments in the form of municipal bonds and bank credits. The Government is not legally responsible for the debts of sub-federal and local governments in the absence of a Government guarantee. The aggregate principal amount of consolidated debt of Federation subjects and local authorities outstanding at 1 December 2009 and 1 October 2010 was estimated at 937.2 billion roubles (2.4% of GDP) and 1,123.6 billion roubles, respectively.

External Financial Assets Following the dissolution of the Soviet Union, the Russian Government assumed responsibility for virtually all the external debts contracted on behalf of the government of the former USSR pursuant to agreements signed with 11 of the other former Soviet republics. See "-Russian Federation-International Relations-Russia, the Former Soviet Union and the CIS." In return, Russia received the right to the republics' claims on the external assets of the former Soviet Union. These assets included claims on other countries, the majority of which are claims on less-developed countries. In most cases, the loans are non-performing. As of 1 January 2011, the total amount of Russia's external financial assets consisting of claims on credits provided to other countries by the government of the USSR or by the Government of the Russian Federation was estimated at U.S.$62.8 billion, including U.S.$52.2 billion of claims on Soviet-era credits. Currently, Cuba and North Korea are Russia's largest debtors with debt obligations, as of 1 December 2010, of over U.S.$27 billion and U.S.$10 billion, respectively.

In September 1997, Russia became a full member of the Paris Club of official creditors. As a result, the Government now settles its claims against debtor governments predominantly within the Paris Club framework. In connection with Russia's joining the Paris Club, the Government agreed to apply certain up-front discounts on its claims on Paris Club debtors.

Russia is a participant in the international initiative to alleviate the debt of highly indebted poor countries (the "HIPC Initiative"). Through 30 June 2010, within the framework of the HIPC Initiative, Russia has in the aggregate forgiven over U.S.$24.3 billion of debts of the world's poorest countries.

At the 2005 G-8 summit, Russia announced its intention to grant up to 100% Paris Club debt relief to certain of its poorest debtors. Russia provided for this debt relief in its 2006 Budget Law and, in December 2006, the Government issued a statement to this effect. Pursuant to this statement, debt relief to HIPC-eligible countries outside the framework of the Paris Club will be provided through the so-called "debt-for-aid" mechanism. These initiatives have brought Russia's debt relief policy in line with that of other G-8 members and most of the members of the Paris Club. Moreover, Russia continued to grant debt relief to several of its largest debtors. In 2007, Russia relieved Afghanistan of more than U.S.$10 billion of its Soviet-era debt and agreed to restructure its remaining debt over a 23-year period. In February 2008, Russia agreed to forgive Iraq of approximately U.S.$12 billion of its Soviet-era debt as well as restructure the remaining U.S.$900 million (excluding capitalised interest) over a 17-year period. Most recently, in April 2008, Russia agreed to cancel the total amount of Libya's Soviet-era debt (approximately U.S.$4.5 billion) in exchange for the purchase of certain Russian goods and services.

Relations with International Financial Institutions The Government has in the past received financial, budgetary and technical assistance from various international financial institutions, including the IMF, the World Bank (the IBRD and IFC) and the EBRD.

In January 2005, Russia fully prepaid all of its indebtedness to the IMF.

Beginning in 2002, the Russian Federation stopped receiving budgetary assistance from the IBRD, focusing instead on cooperating with the IBRD in the implementation of joint investment projects. Through January 2011, the IBRD has signed 62 loan agreements with Russia (of which 11 are still active) in the amount of U.S.$10.3 billion, directed primarily to infrastructure development and industrial restructuring. Under the IBRD loans, U.S.$9.8 billion has been disbursed, of which U.S.$0.6 billion represents active projects and U.S.$9.2 billion represents completed projects. Approximately U.S.$7.2 billion of the U.S.$9.8 billion has been repaid. Disbursements of up to U.S.$0.19 billion are envisaged for 2011, aimed at improving the business environment, improving public sector management, developing infrastructure and mitigating social and environmental risks. In addition, the IFC has financed 220 private sector projects amounting to over U.S.$5 billion, which were implemented without recourse to borrowings on behalf of the Russian Federation.

The EBRD has signed 14 loan agreements with the Russian Federation amounting to U.S.$1.2 billion. In addition, the EBRD has financed approximately 650 private sector investment projects in Russia amounting to more than €17.0 billion and relating to the financial sector, industry, agriculture and infrastructure development.

TAXATION The following discussion summarises certain Russian tax and United States federal income tax considerations that may be relevant to Bondholders. It also includes a limited discussion of certain EU tax considerations. This summary is based on laws, regulations, rulings and decisions now in effect and is subject to changes in tax law, including changes that could have a retroactive effect.

This summary does not describe all of the tax considerations that may be relevant to holders of Bonds, particularly Bondholders subject to special tax rules. Bondholders are advised to consult their own professional tax advisors as to the consequences under the tax laws of the country of which they are resident of purchasing Bonds.

Russian Taxation General The following is a summary of certain Russian tax considerations relevant to the acquisition, ownership and disposal of Bonds. This summary is based on the tax laws of the Russian Federation and official clarifications of those laws in effect on the date of this Prospectus.

Unless specifically indicated otherwise, this summary is limited to the tax treatment of Bonds that are held by foreign legal entities and organisations, otherwise than through a permanent establishment in the Russian Federation (a "non-resident holder"). A legal entity or organisation is a foreign legal entity or organisation if not organised under Russian law, and a legal entity or organisation will generally not be deemed to have a permanent establishment in the Russian Federation if it does not have a branch, representative office, division, office, bureau, agency or other separate division or place of economic activity through which it conducts business on a regular basis within the Russian Federation. A Bondholder will not be deemed to have a permanent establishment in Russia solely by virtue of having acquired the Bonds.

This summary does not address the availability of, or procedures for claiming, double tax treaty relief, the practical difficulties involved in claiming such relief, or the applicability of, or procedures in relation to, taxes levied by regions, municipalities or other non-federal level authorities of the Russian Federation.

The substantive provisions of Russian tax law applicable to financial instruments and the interpretation and application of those provisions by the Russian tax authorities are not clear in all respects and are subject to significant uncertainty. The interpretation and application of these provisions will in practice rest largely with local tax inspectorates, and are subject to more rapid and unpredictable change and to greater inconsistency than is generally the case in jurisdictions with more developed capital markets.

The Ministry of Finance is officially authorised to issue clarifications of Russia's tax laws, and its clarifications are binding on Russia's tax authorities, including Russia's Federal Tax Service, the federal authority responsible for the collection of Russian taxes, to the extent not inconsistent with the Tax Code. On 8 October 2010, the Ministry of Finance issued Letter No.

03-04-08/2-211, addressed to the Russian Federal Tax Service (the "Tax Letter"), providing clarifications to be followed by the tax authorities in the taxation of the Bonds. None of the clarifications included in the Tax Letter is inconsistent with the Tax Code.

Prospective investors should consult their own tax advisors with respect to the tax consequences of the acquisition, ownership and disposal of Bonds and the application of the Tax Letter to the tax treatment of the Bonds. No representation is made with respect to the Russian tax consequences of any particular Bondholder's acquisition, ownership or disposal of Bonds.

Interest on Bonds The Tax Letter states that no tax is required to be withheld on interest payable on Bonds held by a non-resident holder because tax is required to be withheld only by an organisation within the meaning of the Tax Code that pays income in the form of interest, and (i) the Russian Federation, the issuer of the Bonds, is not an organisation for these purposes, and (ii) none of the other parties participating in the transfer of interest payments (including the Ministry of Finance, the banks making payments for the account of the Russian Federation, the fiscal agent, the paying agents and the depositaries for the Bonds) is (a) deemed to be paying interest on the Bonds and (b) is required to withhold tax on the interest payments made on the Bonds.

Condition 8 of the Terms and Conditions of the Bonds requires the Russian Federation to increase the payment of principal or interest made in respect of the Bonds in the event any Taxes (as defined in Condition 8) are withheld or deducted, subject to the exceptions therein provided. There has been some uncertainty as to whether the payment of additional amounts to a lender in the event Russian tax is withheld from payments made to that lender is consistent with Russian law. The Tax Letter states that the payment of such additional amounts on the Bonds will not contradict the Tax Code.

The Tax Letter further states that if Bonds are sold or disposed of between Bond interest payment dates by a non-resident holder (i) to a Russian legal entity or to an individual who is tax resident in the Russian Federation, (ii) to a foreign legal entity that has a permanent establishment in the Russian Federation, provided that such permanent establishment is a party to the agreement, (iii) through a Russian licensed professional participant in the securities market, or (iv) through an agreement made in the territory of the Russian Federation, then the proceeds attributable to any accrued but unpaid interest will be treated as Russian source income.

Under these circumstances, the purchaser of the Bonds may be required to withhold 15% of the purchase price attributable to the accrued but unpaid interest from the proceeds payable to the seller. The taxation of accrued interest under these circumstances may give rise to a tax liability even if the seller realises a capital loss on the disposal of the Bonds. Depending on the residence of the non-resident holder, any tax withheld in respect of accrued interest may potentially be reduced or eliminated under the terms of an applicable double tax treaty.

Disposal or Redemption of Bonds Gain on the sale, redemption or disposal of Bonds by a non-resident holder from a source within the Russian Federation will not be subject to withholding tax except to the extent attributable to interest accrued but not paid on the Bonds between interest payment dates, as discussed above.

Other Taxes Except as described in this Prospectus, including as set forth below under "General Information" (i) no federal stamp, registration, documentary or similar federal taxes are payable in the Russian Federation by reason of the issue of the Bonds or in relation to any enforcement proceedings in respect of the Bonds brought in Russian courts, (ii) non-resident holders of Bonds will not incur any federal tax on income or capital gain, stamp duty, registration, transfer or other similar federal taxes by reason only of the acquisition, ownership or disposal of Bonds and (iii) all payments by the Russian Federation of principal and interest on the Bonds to non-resident holders may be made without withholding or deduction for or on account of any other federal taxes, duties, assessments or governmental charges in the Russian Federation.

United States Taxation TO ENSURE COMPLIANCE WITH U.S. TREASURY DEPARTMENT CIRCULAR 230, HOLDERS ARE HEREBY NOTIFIED THAT: (A) ANY DISCUSSION OF UNITED STATES FEDERAL TAX ISSUES IN THIS PROSPECTUS IS NOT INTENDED OR WRITTEN TO BE RELIED UPON, AND CANNOT BE RELIED UPON, BY HOLDERS FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON HOLDERS UNDER THE INTERNAL REVENUE CODE; (B) SUCH DISCUSSION IS INCLUDED HEREIN BY THE ISSUER IN CONNECTION WITH THE PROMOTION OR MARKETING (WITHIN THE MEANING OF CIRCULAR 230) BY THE ISSUER OF THE TRANSACTIONS OR MATTERS ADDRESSED HEREIN; AND (C) HOLDERS SHOULD SEEK ADVICE BASED ON THEIR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.

The following summary contains a description of certain U.S. federal income tax consequences of the purchase, ownership and disposition of the Bonds by a U.S.

holder (as defined below). This summary addresses only U.S. holders that purchase Bonds at their issue price as part of the initial offering and that hold Bonds as capital assets for U.S. federal income tax purposes. It does not purport to be a comprehensive description of all tax considerations that may be relevant to a particular investor, and the Issuer has assumed that U.S. holders are familiar with the tax rules applicable to investments in securities generally and with any special rules to which they may be subject. In particular, this summary does not address considerations that may be relevant to an investor that may be subject to special tax rules, such as a bank, thrift, real estate investment trust, regulated investment company, insurance company, tax-exempt organisation, dealer in securities or currencies, trader in securities or commodities that elects mark-to-market treatment, person that will hold the Bonds as a hedge against currency risk or as a position in a "straddle" or conversion transaction, person subject to the alternative minimum tax, or person whose "functional currency" is not the dollar.

This summary is based upon the U.S. Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations issued thereunder and judicial and administrative interpretations thereof, each as in effect on the date hereof, as well as on the income tax treaty between the United States and Russia (the "Treaty"), all of which are subject to change, possibly with retroactive effect. Furthermore, there can be no assurance that the U.S. Internal Revenue Service (the "IRS") will not assert a position contrary to those discussed herein.

As used herein, a "U.S. holder" means a beneficial owner of a Bond that is, for U.S. federal income tax purposes, (i) a citizen or resident of the United States; (ii) a corporation, or any entity treated as a corporation for U.S.

federal income tax purposes, created or organised in the United States or under the laws of the United States or of any political subdivision thereof; (iii) any estate the income of which is subject to U.S. federal income taxation regardless of its source; and (iv) any trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust, or if a valid election is in place to treat the trust as a United States person. A "non-U.S. holder" is a beneficial owner of the Bonds (other than a partnership) that is not a U.S. holder.

If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) holds the Bonds, then the tax treatment of a partner in such partnership generally will depend upon the status of the partner and the activities of the partnership. Such a partner or partnership should consult its own tax advisor as to the tax consequences of acquiring, owning and disposing of the Bonds.

Investors should consult their own tax advisors regarding the tax consequences of the acquisition, ownership and disposition of the Bonds, including the application to their particular circumstances of the tax considerations discussed below, as well as the application of U.S. federal estate and gift tax laws, U.S. state and local tax laws, and foreign tax laws.

Payments of Interest Payments of interest on the Bonds will be taxable to a U.S. holder as ordinary interest income at the time that such payments accrue or are received, in accordance with the U.S. holder's method of accounting for U.S. federal income tax purposes. The amount of interest income realized by a U.S. holder that uses the cash method of tax accounting will be the dollar value of the interest payment received. If a cash basis U.S. holder made the irrevocable election to receive payments in roubles (see "Form and Transfer of the Bonds-DTC, Euroclear and Clearstream, Luxembourg Arrangements), the dollar value of the roubles payment received will be determined based on the exchange rate in effect on the date of receipt regardless of whether the payment in fact is converted into dollars. Regardless of whether a U.S. holder elects to receive interest payments in roubles, a U.S. holder that uses the accrual method of accounting for tax purposes will accrue interest income on the Bonds in roubles and translate the amount accrued into dollars based on the average exchange rate in effect during the interest accrual period (or portion thereof within the U.S.

holder's taxable year), or, at the accrual basis U.S. holder's election, at the spot rate of exchange on the last day of the accrual period (or the last day of the taxable year within such accrual period if the accrual period spans more than one taxable year), or at the spot rate of exchange on the date of receipt, if such date is within five business days of the last day of the accrual period. A U.S. holder that makes such election must apply it consistently to all debt instruments from year to year and cannot change the election without the consent of the IRS. A U.S. holder that uses the accrual method of accounting for tax purposes will recognise foreign currency gain or loss, as the case may be, on the receipt of an interest payment if the exchange rate in effect on the date the payment is received differs from the rate applicable to a previous accrual of that interest income. This foreign currency gain or loss will be treated as ordinary income or loss but generally will not be treated as an adjustment to interest income received on the Bond.

In the event that a Russian withholding tax is imposed on the interest payments, then in addition to interest on the Bonds, a U.S. holder generally would be required to include in income any increased amounts received (as described under "Terms and Conditions of the Bonds-Taxation") and any Russian tax withheld from interest payments notwithstanding that the tax withheld was not in fact received by such U.S. holder. A U.S. holder may be entitled to deduct or credit such Russian withholding tax, subject to applicable limitations and conditions under U.S. federal income tax laws. However, the election to deduct or credit foreign taxes applies to all of the U.S. holder's foreign taxes for a particular taxable year. U.S. holders that are eligible for the benefits under the Treaty will not be entitled to a foreign tax credit for the amount of any Russian taxes withheld in excess of the reduced Treaty rate and for which the holder can obtain a refund from the Russian tax authorities, even though a U.S. holder may be required to pay the amount of such refund to the Issuer. Payments of interest on the Bonds generally will constitute foreign source "passive category income" for U.S. foreign tax credit purposes. The calculation and availability of foreign tax credits and, in the case of a U.S.

holder that elects to deduct foreign taxes, the availability of such deduction involves the application of complex rules that depend on a U.S. holder's particular circumstances. U.S. holders should consult their own tax advisors regarding the availability of foreign tax credits.

Dispositions A U.S. holder generally will recognise gain or loss on the sale, exchange, redemption or other disposition of the Bonds in an amount equal to the difference between the dollar value of the amount realised on such disposition (less any amounts attributable to accrued but unpaid interest, which will be taxable as interest income to the extent not previously included in income) and the U.S. holder's adjusted tax basis in the Bonds. Gain or loss recognised by a U.S. holder on the sale, redemption or other disposition of the Bonds generally will be capital gain or loss, and generally will be long-term capital gain or loss if, at the time of the disposition, the Bonds have been held for more than one year. Notwithstanding the foregoing, gain or loss recognised on the sale, exchange or retirement of the Bonds generally will be treated as ordinary income or loss to the extent that the gain or loss is attributable to changes in exchange rates during the period in which the U.S. holder held such Bond.

This foreign currency gain or loss will not be treated as an adjustment to interest income received on the Bonds.

The deduction of capital losses is subject to limitations. Gain or loss realised by a U.S. holder on the sale, exchange, retirement or other disposition of a Bond generally will be U.S.-source gain or loss for U.S.

federal income tax purposes. Accordingly, if Russian tax is imposed on the sale or disposition of the Bonds, a U.S. holder may not be able to fully utilise its U.S. foreign tax credits in respect of such tax unless such U.S. holder has other foreign-source income. Prospective investors should consult their own tax advisors as to the U.S. tax and foreign tax credit implications of such sale, exchange, retirement or other disposition of a Bond.

A U.S. holder's adjusted tax basis in a Bond generally will equal the dollar value of its initial investment in that Bond. The dollar cost of a Bond purchased with roubles will generally be the dollar value of the purchase price on the date of purchase or, in the case of Bonds that are purchased by a cash basis U.S. holder (or an accrual basis U.S. holder that so elects), on the settlement date for the purchase. If a U.S. holder receives roubles or another foreign currency in respect of the sale, exchange, redemption or other disposition of a Bond, the amount realised will be the dollar value of the specified currency received calculated at the exchange rate in effect on the date the Bond is disposed of or retired. A cash basis U.S. holder, and if it so elects, an accrual basis U.S. holder will determine the dollar value of the amount realised by translating such amount at the spot rate on the settlement date of the sale or retirement. The election available to accrual basis U.S.

holders in respect of the purchase and sale of Bonds, discussed above, must be applied consistently to all debt instruments from year to year and cannot be changed without the consent of the IRS.

Non-U.S. Holders A non-U.S. holder generally will not be subject to U.S. federal income tax (including withholding tax) on payments of interest on the Bonds. In addition, a non-U.S. holder generally will not be subject to U.S. federal income tax on gain realised on the sale, exchange, redemption or other disposition of the Bonds. U.S. federal income tax will apply to such interest and gain, however, to the extent that such income is effectively connected with the conduct of a U.S. trade or business by such non-U.S. holder (subject to the provisions of an applicable income tax treaty); furthermore, gain realised by an individual non-U.S. holder will be subject to U.S. federal income taxation if such holder is present in the United States for 183 days or more in the taxable year of the disposition and certain other conditions are met.

Information Reporting and Backup Withholding Payments in respect of the Bonds that are paid within the United States or through certain U.S.-related financial intermediaries are generally subject to information reporting, unless the U.S. holder is a corporation or other exempt recipient. Such payments to a non-exempt recipient may also be subject to backup withholding, unless the U.S. holder provides a taxpayer identification number and certifies that it has not lost its exemption from backup withholding. The amount of any backup withholding collected from a payment to a U.S. holder will be allowed as a credit against the U.S. holder's U.S. federal income tax liability and may entitle the U.S. holder to a refund, provided that certain required information is furnished to the IRS. A non-U.S. holder generally will not be subject to information reporting or backup withholding, but such a holder may have to comply with certification procedures to establish that it is not a United States person.

EU Savings Directive Under Council Directive 2003/48/EC on the taxation of savings income (the "EU Savings Directive"), Member States are required to provide to the tax authorities of another Member State details of payments of interest and other similar income paid by a person within its jurisdiction to, or secured by such a person for, an individual beneficial owner resident in, or certain limited types of entities established in, that other Member State. However, for a transitional period Austria and Luxembourg are instead required (unless during such period they elect otherwise) to operate a withholding tax in relation to such payments (except that no withholding will be required where, on meeting certain conditions, the beneficial owner of the interest or other income requests that no tax be withheld). The current rate of withholding is 20% and it will be increased to 35% with effect from 1 July 2011. The transitional period will end after agreement on exchange of information is reached between the EU and certain non-EU states.

A number of non-EU countries and certain dependent or associated territories of certain Member States have adopted measures equivalent to the EU Savings Directive.

A proposal to amend the EU Savings Directive has been published, which includes a number of suggested changes that, if implemented in its current form, would broaden the scope of the rules described above. Investors who are in any doubt as to their position should consult their professional advisors.

FORM AND TRANSFER OF THE BONDS Form of Bonds All Bonds will be in definitive registered form, without interest coupons attached.

Unrestricted Bonds which are offered and sold in reliance on Regulation S will be represented by beneficial interests in the Unrestricted Global Bond in registered form without interest coupons attached, which will be registered in the name of a nominee for, and shall be deposited on or about the Closing Date with a common depositary for, and in respect of interests held through, Euroclear and Clearstream, Luxembourg.

Restricted Bonds that are offered and sold in reliance on Rule 144A will be represented by beneficial interests in the Restricted Global Bond in registered form without interest coupons attached, which will be deposited on or about the Closing Date with the Custodian for, and registered in the name of Cede & Co.

as nominee for, DTC.

Beneficial interests in the Global Bonds will be shown on, and transfers thereof will be effected only through, records maintained by DTC, Euroclear and Clearstream, Luxembourg and their participants.

The Restricted Global Bond and any Bond Certificate (as defined below) issued in exchange therefor (a "Restricted Bond Certificate") will be subject to certain restrictions on transfer contained in a legend appearing on the face of such Bonds set forth below.

The Unrestricted Global Bond and the Restricted Global Bond will have separate CUSIP and ISIN numbers and separate Common Codes.

All Bonds will initially be in the form of the Unrestricted Global Bond and/or the Restricted Global Bond. Bond Certificates will only be available in certain limited circumstances described below.

Exchange of Interests in Global Bonds for Bond Certificates Registration of title to Bonds initially represented by the Restricted Global Bond in a name other than DTC or a successor depositary or one of their respective nominees will not be permitted in respect of the Bonds unless (a) such depositary notifies the Russian Federation that it is no longer willing or able to discharge properly its responsibilities as depositary with respect to the Global Bonds or ceases to be a "clearing agency" registered under the United States Securities Exchange Act of 1934 (the "Exchange Act"), or is at any time no longer eligible to act as such, and the Russian Federation is unable to locate a qualified successor within 90 days of receiving notice of such ineligibility on the part of such depositary, or (b) following a failure to pay principal in respect of the Bonds that is due and payable, the Fiscal Agent has received notice from the registered holder of any Global Bond requesting the exchange of such Global Bond for individual Restricted Bond Certificates.

Registration of title to Bonds initially represented by the Unrestricted Global Bond in a name other than the common depositary for Euroclear and Clearstream, Luxembourg or any nominee of such common depositary will not be permitted in respect of the Bonds unless (a) Euroclear or Clearstream, Luxembourg is closed for business for a continuous period of 14 days (other than by reason of legal holidays) or announces an intention permanently to cease business or (b) following a failure to pay principal in respect of the Bonds that is due and payable, the Fiscal Agent has received a notice from the registered holder of the Unrestricted Global Bond requesting the exchange of the Unrestricted Global Bond for individual bond certificates (the "Unrestricted Bond Certificates" and, together with the Restricted Bond Certificates, the "Bond Certificates").

In such circumstances, the relevant Global Bonds will be exchanged in full or in part, as the case may be, for Bond Certificates, and the Russian Federation will, at the cost of the Russian Federation (but against such indemnity as the relevant Registrar or any relevant Transfer Agent may require in respect of any tax or other duty of whatever nature which may be levied or imposed in connection with such exchange), cause sufficient Bond Certificates to be executed and delivered to the relevant Registrar for completion, authentication and dispatch to the relevant holders of the Bonds. A person having an interest in the Global Bonds must provide the relevant Registrar with (a) a written order containing instructions and such other information as the Russian Federation and such Registrar may require to complete, execute and deliver such Bond Certificates and (b) in the case of the Restricted Global Bond only, a fully completed, signed certificate substantially to the effect that the exchanging holder is not transferring its interest at the time of such exchange or, in the case of a simultaneous sale pursuant to Rule 144A, that the transfer is being made in compliance with the provisions of Rule 144A. Bond Certificates issued in exchange for a beneficial interest in the Restricted Global Bond will bear the legends applicable to transfers pursuant to Rule 144A, as set out under "Transfer Restrictions" herein. Such transfer restrictions will terminate with respect to the Bonds one year (or such other period as provided by Rule 144) after the date on which Bonds represented by an interest in the Restricted Global Bond were issued, assuming compliance with Condition 6(b) of the Terms and Conditions of the Bonds.

The holder of a Bond may transfer such Bond in accordance with the provisions of Condition 2 of the Terms and Conditions of the Bonds. Bond Certificates may not be eligible for trading in the DTC, Euroclear or Clearstream, Luxembourg systems.

If principal in respect of any Bonds represented by the Unrestricted Global Bond is not paid when due and payable (but subject as provided below), the registered holder of such Unrestricted Global Bond may from time to time elect that direct enforcement rights ("Direct Rights") against the Russian Federation will come into effect. Thereupon, each relevant holder of an account with Euroclear or Clearstream, Luxembourg shall, at the relevant time, acquire against the Russian Federation all rights (including the right to receive payments due on the Bonds) that such accountholder would have received if it had been the holder of Bond Certificates. Such election shall be made by the holder of the Unrestricted Global Bond by notice to the relevant Registrar and presentation of the Unrestricted Global Bond to or to the order of such Registrar whereupon such Registrar shall reduce the principal amount of Bonds represented by such Unrestricted Global Bond entered on the relevant Register and shall make the appropriate entry or entries on the Register to reflect that such Direct Rights have come into effect. Such Direct Rights may not be eligible for trading in the Euroclear or Clearstream, Luxembourg systems.

No Direct Rights election may be made on or before an Exchange Date (as defined in the Unrestricted Global Bond) unless the registered holder elects in such notice that the exchange in question shall no longer take place.

At the same time that each relevant holder of an account at Euroclear or Clearstream, Luxembourg acquires Direct Rights, each holder of a beneficial interest in the Restricted Global Bond shall have all rights against the Russian Federation which such holder of a beneficial interest would have had if it were the holder of a Restricted Bond Certificate issued immediately before the relevant time in an aggregate principal amount equal to such holder's beneficial interest in the Restricted Global Bond, including, without limitation, the right to receive all payments due at any time in respect of the Restricted Bond Certificate other than payments corresponding to payments already made pursuant to the Restricted Global Bond.

Upon the transfer, exchange or replacement of a Restricted Bond Certificate bearing the legend referred to under "Transfer Restrictions," or upon specific request for removal of the legend on a Restricted Bond Certificate, the Russian Federation will deliver only Restricted Bond Certificates that bear such legend, or will refuse to remove such legend, as the case may be, unless there is delivered to the Russian Federation and the relevant Registrar such satisfactory evidence, which may include an opinion of counsel, as may reasonably be required by the Russian Federation that neither the legend nor the restrictions on transfer set forth therein are required to ensure compliance with the provisions of the Securities Act. Such transfer restrictions will terminate with respect to the Bonds one year (or such other period as provided by Rule 144) after the date on which the Bonds represented by an interest in the Restricted Global Bond were issued, assuming compliance with Condition 6(b) of the Terms and Conditions of the Bonds.

The Registrars will not register the transfer of or exchange of interests in Global Bonds for Bond Certificates during the three Business Days (as defined in the Global Bonds) ending on the due date for any payment of principal of the Bonds.

With respect to any Bond Certificates held by Bondholders that have made an irrevocable election in accordance with the Conditions to receive payments in dollars, as early as practicable on the Relevant Bond Payment Date (as defined below in "-DTC, Euroclear and Clearstream, Luxembourg Arrangements), (a) the Fiscal Agent will remit to the Exchange Agent the Rouble Amount in respect of that payment date, (b) the Exchange Agent will pay, or procure the payment of, the dollar amount purchased with the Rouble Amount to the Paying Agents, and (c) the Paying Agents will, in accordance with instructions received from the Exchange Agent, pay, or procure the payment of, the dollar amount received from the Exchange Agent, to Bondholders that have made an irrevocable election in accordance with the Conditions to receive payments in dollars by wire transfer of same day funds for value the due date for payment or, if the due date for payment is not a Business Day, the next succeeding day which is a Business Day.

If for any reason no bid quotation for the purchase of dollars with the Rouble Amount is available on a Relevant Bond Payment Date while any Bonds are represented by Bond Certificates, the Exchange Agent shall so notify the Fiscal Agent, and the Fiscal Agent shall make all payments on the Bonds in roubles.

DTC, Euroclear and Clearstream, Luxembourg Arrangements So long as DTC or its nominee or Euroclear, Clearstream, Luxembourg or the common depositary or any nominee of such common depositary is the registered holder of a Global Bond, DTC, Euroclear or Clearstream, Luxembourg, the common depositary or such nominee, as the case may be, will be considered the sole owner or holder of the Bonds represented by such Global Bond for the purposes of the Fiscal Agency Agreement and the Bonds. Payments of principal, interest and additional amounts, if any, in respect of Global Bonds will be made to DTC, Euroclear, Clearstream, Luxembourg or such common depositary or nominee, as the case may be, as the registered holder thereof. Neither the Russian Federation nor any affiliate controlled by it for the purposes of the Securities Act will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in Global Bonds or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.

Holders of book-entry interests in Bonds held through DTC will receive from the Fiscal Agent through DTC, to the extent received by DTC from the Fiscal Agent, all distributions of principal and interest made with respect to book-entry interests in such Bonds.

Payments of principal and interest in respect of the Restricted Global Bond will be made, or procured to be made, by the Exchange Agent in accordance with Clause 14 of the Fiscal Agency Agreement (i) in roubles, in the case of a DTC participant who has irrevocably elected to receive payments on the Bonds in roubles and has so notified DTC on or prior to the time required by DTC for payments on the Bonds to be made in roubles, by transfer of same day funds to the rouble bank account designated by such DTC participant, and (ii) in dollars, in the case of all other DTC participants, by the U.S. Paying Agent crediting the participant's dollar account at DTC with the participant's pro-rata portion of the dollars purchased with the applicable Rouble Amount (as defined below) by the Exchange Agent pursuant to the Fiscal Agency Agreement.

To the extent the Exchange Agent receives notification from or on behalf of DTC participants of their election to receive roubles in accordance with the Conditions and the Restricted Global Bond, the Exchange Agent shall arrange for payment in accordance with the wire instructions received from such DTC participant.

Payments of principal and interest in respect of the Unrestricted Global Bond will be made, or procured to be made, by the Exchange Agent on the Relevant Bond Payment Date in accordance with Clause 14 of the Fiscal Agency Agreement (i) in dollars, to the extent the Exchange Agent receives notification from or on behalf of accountholders in Euroclear and/or Clearstream, Luxembourg of their irrevocable election to receive payment in dollars and (ii) for all other accountholders in Euroclear and/or Clearstream, Luxembourg, in roubles, in each case through the facilities of Euroclear and Clearstream, Luxembourg.

The Exchange Agent shall, on or before 12:30 p.m. (Moscow time) on each Relevant Bond Payment Date in respect of which the Exchange Agent shall have received notification pursuant to Clause 14.1 of the Fiscal Agency Agreement, purchase dollars with the related aggregate rouble amount ("Rouble Amount") for delivery on the Relevant Bond Payment Date, at a purchase price equal to (a) the bid price then used by the Exchange Agent to purchase dollars with roubles for its own account, or (b) if no such bid price is then available from the Exchange Agent, at the bid price for the purchase of dollars with roubles quoted by a leading foreign exchange bank in London or New York City selected by the Exchange Agent, in each case for delivery on the Relevant Bond Payment Date, and shall ensure that the purchase of dollars with the related Rouble Amount on each Relevant Bond Payment Date represents the "best execution" for that trade then available to the Exchange Agent.

On each Relevant Bond Payment Date in respect of which the Exchange Agent shall have received notification pursuant to Clause 14.1 of the Fiscal Agency Agreement, the Exchange Agent shall give due notice to Bondholders in accordance with Condition 14 of (a) the total amount of dollars purchased with the related Rouble Amount, (b) the bid quotation at which such dollars were purchased by the Exchange Agent and (c) whether such dollars were purchased from the Exchange Agent or from another leading foreign exchange bank in London or New York City.

With respect to any Global Bonds, as early as practicable on the Relevant Bond Payment Date, (a) the Fiscal Agent will remit to the Exchange Agent the Rouble Amount in respect of that payment date, (b) the Exchange Agent will pay, or procure the payment of, the dollar amount purchased with the Rouble Amount to the Paying Agents, and (c) the Paying Agents will, in accordance with instructions received from the Exchange Agent, pay, or procure the payment of, the dollar amount received from the Exchange Agent (i) pro-rata to their interests in the Restricted Global Bond, to DTC participants that have not made an irrevocable election to receive payment in roubles on the Relevant Bond Payment Date, by wire transfer of same day funds for value the due date for payment or, if the due date for payment is not a Business Day, the next succeeding day which is a Business Day, and (ii) pro-rata to their interests in the Unrestricted Global Bond, to Euroclear and Clearstream, Luxembourg accountholders that have made an irrevocable election to receive payments in dollars, through the facilities of Euroclear and Clearstream, Luxembourg. If, while Bonds are represented by Global Bonds, for any reason no bid quotation for the purchase of dollars with the Rouble Amount is available on a Relevant Bond Payment Date, the Exchange Agent shall so notify the Fiscal Agent, and the Fiscal Agent shall (a) hold the Rouble Amount until the relevant DTC participants make alternative arrangements for receipt of payment in roubles and (b) make payment on the Bonds in roubles to accountholders in Euroclear and Clearstream, Luxembourg.

Notwithstanding any other provision of the Fiscal Agency Agreement to the contrary, including the Conditions, (i) all costs of the purchase of dollars with the Rouble Amount shall be borne pro rata by the relevant Bondholders by deduction from the dollar payment made to the Paying Agents, and (ii) the Russian Federation shall have no obligation whatsoever to pay any commissions or expenses, or to indemnify the Bondholders against any difference between the dollar amount received by such Bondholders and their pro rata portion of the Rouble Amount.

Distributions of principal and interest with respect to book-entry interests in Bonds held through Euroclear or Clearstream, Luxembourg will be credited, to the extent received by Euroclear or Clearstream, Luxembourg from the Fiscal Agent, to the cash accounts of Euroclear or Clearstream, Luxembourg customers in accordance with the relevant system's rules and procedures.

Interest on the Bonds (other than interest on redemption) will be paid to the holder shown on the register maintained by the Registrars on the Clearing System Business Day (as defined below) immediately before the due date for such payment so long as the Bonds are represented by Unrestricted Global Bond, and on the fifteenth day before the due date for such payment if the Bonds are in the form of Bond Certificates or Restricted Global Bond (the "Record Date").

Trading of Bonds will therefore be net of accrued interest from the relevant Record Date to the relevant interest payment date. "Clearing System Business Day" means Monday to Friday inclusive except holidays.

The laws of some states of the United States require that certain persons take physical delivery of securities in definitive form. Consequently, the ability to transfer interests in Global Bonds to such persons may be limited. Because DTC, Euroclear and Clearstream, Luxembourg can only act on behalf of direct and indirect participants, the ability of a person having an interest in Global Bonds to pledge such interest to persons or entities which do not participate in the relevant clearing system, or otherwise take actions in respect of such interest, may be affected by the lack of a physical certificate in respect of such interest.

The holdings of book-entry interests in the Bonds through DTC, Euroclear and Clearstream, Luxembourg will be reflected in the book-entry accounts of each institution. The Registrars will adjust the amounts of Bonds on the relevant Register as necessary for the accounts of (a) Cede & Co. and (b) BT Globenet Nominees Ltd. to reflect the amounts of Bonds held through DTC and Euroclear and Clearstream, Luxembourg, respectively. Beneficial ownership in Bonds will be held through financial institutions as direct and indirect participants in DTC, Euroclear and Clearstream, Luxembourg.

Interests in the Global Bonds will be in uncertificated book-entry form.

Trading between Euroclear and/or Clearstream, Luxembourg Accountholders Secondary market sales of book-entry interests in Bonds held through Euroclear or Clearstream, Luxembourg to purchasers of book-entry interests in Bonds through Euroclear or Clearstream, Luxembourg will be conducted in accordance with the normal rules and operating procedures of Euroclear and Clearstream, Luxembourg and will be settled using the procedures applicable to conventional eurobonds.

Trading between DTC Participants Secondary market sales of book-entry interests in Bonds between DTC participants will occur in the ordinary way in accordance with DTC rules and will be settled using the procedures applicable to U.S. corporate debt obligations in DTC's Same Day Funds Settlement System.

Trading between DTC Seller and Euroclear/Clearstream, Luxembourg Purchaser When a book-entry interest in Bonds is to be transferred from the account of a DTC participant holding a beneficial interest in the Restricted Global Bond to the account of a Euroclear or Clearstream, Luxembourg accountholder wishing to purchase a beneficial interest in the Unrestricted Global Bond (subject to such certification procedures as are provided in the Fiscal Agency Agreement), the purchaser must send instructions to Euroclear or Clearstream, Luxembourg at least one business day prior to the settlement date. Euroclear or Clearstream, Luxembourg, as the case may be, will instruct the common depositary to receive the beneficial interest and make payment for it. Payment will include interest accrued on the beneficial interest in the Bonds from and including the last interest payment date to and excluding the settlement date. On the settlement date, the common depositary will make payment to the DTC participant's account against delivery of the beneficial interest. After settlement has been completed, the beneficial interest will be credited to the respective clearing system, and by the clearing system, in accordance with its usual procedures, to the Euroclear or Clearstream, Luxembourg accountholder's account. The securities credit will appear the next day, European time. The cash debit will be back-valued to, and interest on the Unrestricted Global Bond will accrue from, the value date, which will be the preceding day when settlement occurs in New York. If settlement is not completed on the intended value date, that is, if the trade fails, the Euroclear or Clearstream, Luxembourg cash debit will be valued instead as of the actual settlement date, whenever that may be.

The Euroclear or Clearstream, Luxembourg accountholder will need to make available to its clearing system the funds necessary to process same-day funds settlement. The most direct means of doing so is to pre-position funds for settlement, either from cash on hand or existing lines of credit, as it would for any pre-settlement occurring within Euroclear or Clearstream, Luxembourg.

Under this approach, the purchasing accountholder may take on credit exposure to Euroclear or Clearstream, Luxembourg until the beneficial interest in the Unrestricted Global Bond is credited to its account one day later. As an alternative, if Euroclear or Clearstream, Luxembourg has extended a line of credit to the purchasing accountholder, it can elect not to pre-position funds and allow that credit line to be drawn upon to finance settlement. Under this procedure, the Euroclear or Clearstream, Luxembourg accountholder purchasing the beneficial interest in the Unrestricted Global Bond would incur overdraft charges for one day, assuming it cleared the overdraft when the beneficial interest was credited to its account. However, interest on the Unrestricted Global Bond would accrue from the value date. Therefore, in many cases, the investment income on the Unrestricted Global Bond earned during that one-day period may substantially reduce or offset the amount of such overdraft charges, although this result will depend on each accountholder's particular cost of funds.

Because the settlement is taking place during New York business hours, the DTC participant can use its usual procedures for transferring a beneficial interest in the Global Bonds to the common depositary for the benefit of the Euroclear or Clearstream, Luxembourg accountholder. The sale proceeds will be available to the DTC seller on the settlement date. Thus, to the DTC participant, a cross-market transaction will settle no differently than a trade between two DTC participants.

Day traders that use Clearstream, Luxembourg or Euroclear to purchase interests in the Bonds from DTC participants for delivery to Clearstream, Luxembourg participants or Euroclear participants should note that these trades will automatically fail on the sale side unless affirmative action is taken. At least three techniques should be readily available to eliminate this potential problem: • Borrowing through Clearstream, Luxembourg or Euroclear for one day, until the purchase side of the day trade is reflected in their Clearstream, Luxembourg or Euroclear accounts, in accordance with the clearing system's customary procedures; or • Borrowing the interests in the United States from a DTC participant no later than one day prior to settlement, which will give the interests sufficient time to be reflected in their Clearstream, Luxembourg or Euroclear account in order to settle the sale side of the trade; or • Staggering the value date for the buy and sell sides of the trade so that the value date for the purchase from the DTC participant is at least one day prior to the value date for the sale to the Clearstream, Luxembourg participant or Euroclear participant.

Trading between Euroclear/Clearstream, Luxembourg Seller and DTC Purchaser Due to time zone differences in its favour, a Euroclear or Clearstream, Luxembourg accountholder may employ customary transfer procedures when transferring a book-entry interest in the Unrestricted Global Bond to the account of a DTC participant wishing to purchase a beneficial interest in the Restricted Global Bond (subject to such certification procedures as are provided in the Fiscal Agency Agreement). The seller must send instructions to Euroclear or Clearstream, Luxembourg at least one business day prior to the settlement date. Euroclear or Clearstream, Luxembourg will instruct the common depositary to credit the beneficial interest in the Global Bonds to the DTC participant's account and receive payment. Payment will include interest accrued on the beneficial interest in the Bonds from and including the last interest payment date to and excluding the settlement date. Payment will be reflected in the account of the Euroclear or Clearstream, Luxembourg accountholder the following day. Receipt of cash proceeds in the Euroclear or Clearstream, Luxembourg accountholder's account will be back-valued to the value date, which will be the preceding day, when settlement occurs in New York. If the Euroclear or Clearstream, Luxembourg accountholder has a line of credit with its clearing system and elects to draw on such line of credit in anticipation of receipt of sale proceeds in its account, the back-valuation may substantially reduce or offset any overdraft charges incurred over that one-day period. If settlement is not completed on the intended value date, that is, if the trade fails, receipt of the cash proceeds in the Euroclear or Clearstream, Luxembourg accountholder's account will instead be valued as of the actual settlement date, whenever that may be.

For a further description of restrictions on the transfer of Bonds, see "Transfer Restrictions" below.

DTC has advised the Russian Federation that it will take any action permitted to be taken by a holder of Bonds (including, without limitation, the presentation of Global Bonds for exchange as described above) only at the direction of one or more participants in whose account with DTC interests in Global Bonds are credited and only in respect of such portion of the aggregate principal amount of the relevant Global Bonds as to which such participant or participants has or have given such direction. In the circumstances described above, DTC will surrender the Global Bonds in exchange for individual Bond Certificates, which will, in the case of Restricted Bond Certificates, bear the legend applicable to transfers pursuant to Rule 144A.

DTC has advised the Russian Federation as follows: DTC is a limited-purpose trust company organised under the laws of the State of New York, a member of the United States Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its participants and to facilitate the clearance settlement of transactions between its participants through electronic book-entry changes in accounts of its participants, thereby eliminating the need for physical movement of certificates. DTC participants include securities brokers and dealers, banks, trust companies and clearing corporations and may in the future include certain other organisations.

Indirect access to the DTC system is also available to banks, brokers, dealers and trust companies that clear through, or maintain a custodial relationship with, a participant, either directly or indirectly. DTC is owned by a number of its direct participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National Association of Securities Dealers.

Euroclear and Clearstream, Luxembourg have advised the Russian Federation as follows: Euroclear and Clearstream, Luxembourg hold securities for participating organisations and facilitate the clearance and settlement of securities between their respective accountholders through electronic book-entry changes in accounts of such accountholders. Euroclear and Clearstream, Luxembourg provide to their accountholders, among other things, services for safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing.

Euroclear and Clearstream, Luxembourg interface with domestic securities markets. Euroclear and Clearstream, Luxembourg accountholders are financial institutions such as underwriters, securities brokers and dealers, banks, trust companies and certain other organisations. Indirect access to Euroclear or Clearstream, Luxembourg is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodian relationship with a Euroclear or Clearstream, Luxembourg accountholder, either directly or indirectly.

Although the foregoing sets out the procedures of DTC, Euroclear and Clearstream, Luxembourg to facilitate transfers of beneficial interests in Global Bonds among participants and accountholders of DTC, Euroclear and Clearstream, Luxembourg, none of DTC, Euroclear or Clearstream, Luxembourg is under any obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. Neither the Russian Federation nor any agent of the Russian Federation nor any person by whom any of them is controlled for purposes of the Securities Act will have any responsibility for the performance by DTC, Euroclear or Clearstream, Luxembourg or their respective direct or indirect participants or accountholders of their respective obligations under the rules and procedures governing their operations or the sufficiency for any purpose of the arrangements described above.

While a Global Bond is lodged with DTC or the Custodian, Bonds represented by individual Bond Certificates will not be eligible for clearing or settlement through DTC. While a Global Bond is lodged with Euroclear or Clearstream, Luxembourg or the common depository for Euroclear or Clearstream, Luxembourg, Bonds represented by individual Bond Certificates will not be eligible for clearing or settlement through Euroclear or Clearstream, Luxembourg.

TRANSFER RESTRICTIONS Transfers of interests in Global Bonds within DTC, Euroclear and Clearstream, Luxembourg will be in accordance with the usual rules and operating procedures of the relevant system.

A beneficial interest in the Restricted Global Bond may be transferred to a person who wishes to take delivery of such beneficial interest through the Unrestricted Global Bond only upon receipt by the relevant Registrar of a written certification from the transferor (in the applicable form provided in the Fiscal Agency Agreement) to the effect that such transfer is being made to the Russian Federation or an affiliate of the Russian Federation or in accordance with Regulation S or Rule 144 (if available) under the Securities Act.

In respect of any such transfer as is referred to above, the transferee must give details of the accounts at Euroclear and Clearstream, Luxembourg, as the case may be, and DTC to be credited or debited, as the case may be, with an interest in the relevant Global Bonds.

With respect to the Bonds, transfer restrictions will terminate one year (or such other periods as provided by Rule 144) after the date on which the Bonds represented by an interest in the Restricted Global Bond were last issued, assuming compliance with Condition 6(b) of the Terms and Conditions of the Bonds.

Any beneficial interest in either the Restricted Global Bond or the Unrestricted Global Bond that is transferred to a person who takes delivery in the form of a beneficial interest in the other Global Bond will, upon transfer, cease to be a beneficial interest in such Global Bond and become a beneficial interest in the other Global Bond and, accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to a beneficial interest in such other Global Bond for so long as such person retains such an interest.

The Bonds are being offered and sold in the United States only to QIBs. Because of the following restrictions, purchasers of Bonds offered in the United States are advised to consult legal counsel prior to making any offer, resale, pledge or transfer of such Bonds.

Each purchaser of Bonds offered hereby other than in reliance on Regulation S will be deemed to have represented, agreed and acknowledged as follows (terms used herein that are defined in Rule 144A are used herein as defined therein): (a) The purchaser is (1) a QIB and (2) acquiring the Bonds for its own account or for the account of a QIB.

(b) The purchaser understands that the Bonds have not been and will not be registered under the Securities Act and may not be offered, resold, pledged or otherwise transferred except in accordance with the legend set forth below.

(c) The Restricted Global Bond and any Restricted Bond Certificates offered hereby will bear a legend to the following effect, unless the Russian Federation determines otherwise in accordance with applicable law: THIS BOND HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND MAY NOT BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) TO THE RUSSIAN FEDERATION OR AN AFFILIATE OF THE RUSSIAN FEDERATION, (2) IN ACCORDANCE WITH RULE 144A UNDER THE SECURITIES ACT TO A PERSON THAT THE HOLDER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER, (3) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT OR (4) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT FOR RESALES OF THIS BOND.

The Russian Federation and its affiliates, the Managers and their affiliates and others will rely upon the truth and accuracy of the foregoing representation, acknowledgement and agreement.

SUBSCRIPTION AND SALE Deutsche Bank AG, London Branch, HSBC Bank plc, J.P. Morgan Securities Ltd., Renaissance Securities (Cyprus) Limited and VTB Capital plc (together, the "Managers") have, in a contract with the Issuer (the "State Contract") dated 4 March 2011, agreed jointly and severally to subscribe and pay for the Bonds at their issue price of 100.00 per cent. of their principal amount, less a combined management and underwriting commission. Each Manager is entitled in certain circumstances to be released and discharged from its obligations under the State Contract prior to the issue of the Bonds. The Issuer has agreed to indemnify the Managers against certain liabilities in connection with the issue of the Bonds. The Issuer has not incurred any expenses in relation to the offering of the Bonds, other than commissions. The Managers have agreed to bear certain expenses of the Issuer pursuant to the State Contract.

United States The Bonds have not been and will not be registered under the Securities Act and may not be offered or sold within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Accordingly, the Managers have agreed severally and not jointly, nor jointly and severally, to offer the Bonds for resale in the United States initially only to persons they reasonably believe to be qualified institutional buyers in reliance on Rule 144A and outside the United States in offshore transactions in reliance on Regulation S. Terms used in this paragraph have the respective meanings given to them by Regulation S.

The Bonds are being offered and sold outside of the United States in reliance on Regulation S. The State Contract provides that the Managers may, through their respective U.S. affiliates, resell a portion of the Bonds within the United States only to qualified institutional buyers in reliance on Rule 144A.

In addition, until 40 days after the commencement of the offering, an offer or sale of Bonds within the United States by any dealer (whether or not it is participating in the offering) may violate the registration requirements of the Securities Act if such offer is made otherwise than in accordance with Rule 144A.

United Kingdom Each Manager has severally and not jointly, nor jointly and severally, represented and agreed that it has complied and will comply with all applicable provisions of the Financial Services and Markets Act 2000 with respect to anything done by it in relation to the Bonds in, from or otherwise involving the United Kingdom.

General Each Manager has severally and not jointly, nor jointly and severally, represented and agreed that it will, to the best of its knowledge and belief, comply in all material respects with all applicable securities laws and regulations in each jurisdiction in which it purchases, offers, sells or delivers Bonds or has in its possession or distributes the Prospectus or any other offering material.

Each purchaser of Bonds must comply with all applicable laws and regulations in force in any jurisdiction in which it purchases, offers or sells Bonds or possesses or distributes this Prospectus or any part of it and must obtain any consent, approval or permission required by it for the purchase, offer or sale by it of Bonds under the laws and regulations in force in any jurisdiction to which it is subject or in which it makes such purchases, offers or sales and neither the Issuer nor any Manager shall have any responsibility therefor.

Some of the Managers, dealers and agents who participate in the securities distribution may engage in other transactions with, or perform other services for, the Issuer in the ordinary course of business, for which they have received or will continue to receive customary compensation.

GENERAL INFORMATION 1. The Bonds will be accepted for clearance through DTC, Euroclear and Clearstream, Luxembourg. The CUSIP numbers, ISIN numbers and Common Codes of the Bonds are as follows: Restricted Unrestricted Global Bond Global Bond CUSIP 783064AN8 X7405NAA7 ISIN US783064AN80 XS0564087541 Common Code 059570897 056408754 2. The listing of the Bonds on the Official List will be expressed in roubles as a percentage of their principal amount (excluding accrued interest).

Transactions will normally be effected for settlement in roubles and, under current practice, for delivery on the fifth business day after the day of the transaction.

It is expected that listing on the Official List and admission of the Bonds to trading on the Market will be granted on or about 11 March 2011, subject only to the issue of the Bonds.

If the Bonds are not issued as mentioned in this document, the listing and admission to trading of the Bonds may be cancelled. Prior to official listing and admission to trading, however, dealings in the Bonds will be permitted by the London Stock Exchange in accordance with its rules. All reasonable efforts will be used to maintain any such listing and admission to trading of the Bonds for so long as any of the Bonds remain outstanding.

For 12 months starting on the date this Prospectus is made available, the following documents (with English translations where necessary) may be inspected during normal business hours (local time) on any weekday (public holidays excluded) at the office of the Paying Agent, namely: • The Fiscal Agency Agreement, which include the forms of the Global Bonds and the Bond Certificates; and • The authorisations referred to in item 4 below.

This Prospectus will be made available free of charge on the website of the London Stock Exchange, being www.londonstockexchange.com.

Copies of Russia's federal budget are available free of charge on the website of the Ministry of Finance of the Russian Federation (http://www.minfin.ru).

The Issuer does not publish financial accounts audited by non-state entities.

3. The Russian Federation will obtain prior to the Closing Date all necessary consents, approvals and authorisations in the Russian Federation in connection with the issue of, and performance of its obligations under, the Bonds and the Fiscal Agency Agreement.

4. The issue of the Bonds and the execution of the Fiscal Agency Agreement were authorised pursuant to Federal Law No. 136-FZ of 29 July 1998 (as amended) "On the Specifics of Issuance and Circulation of State and Municipal Securities;" Federal Law No. 357-FZ of 13 December 2010 "On the Federal Budget for 2011 and 2012-2013 (forecast);" Resolution of the Government of the Russian Federation dated 27 December 2010 No. 2391-r; Resolution of the Government of the Russian Federation dated 12 October 2010 No. 824; Order of the Ministry of Finance dated 3 November 2010 No. 141n; and Order of the Ministry of Finance dated 25 February 2011 No. 60.

5. Article 1210 of the Civil Code provides that the parties to an agreement may choose the governing law of the agreement, except that, if the agreement relates solely to one jurisdiction, a Russian court is entitled to apply the law of such jurisdiction. Therefore, the choice of English law will govern rights and obligations in respect of the Bonds in the case of any Bonds held by a foreign person. However, it is uncertain whether the choice of English law to govern rights and obligations in respect of the Bonds would be given effect by a court of the Russian Federation in the case of Bonds held by a Russian person.

6. Under current Russian law, a state duty may be payable upon the initiation of any action or proceeding arising out of the Bonds in any court of the Russian Federation. Such duty, which shall not exceed the maximum value for duties under Russian law, is based on formulas under Russian law that take into account the amount of the relevant claim.

7. The Russian Federation is a sovereign state and has not waived any rights to sovereign immunity it may have in any jurisdiction. Accordingly, the Russian Federation may be entitled to immunity from suit in any action or proceeding arising out of the Bonds, and the Russian Federation and its assets, properties and revenues may be entitled to immunity in any enforcement action. The Russian Federation has also not submitted to the jurisdiction of any court, agreed that any disputes may be resolved in any forum or appointed any agent for service of process in any jurisdiction in connection with any action or proceeding arising out of the Bonds. It may consequently be difficult for an investor to obtain a judgment against the Russian Federation in a foreign court.

8. A final judgment rendered by a foreign court will generally be recognised and enforced in the Russian Federation if there is an international treaty in effect between the Russian Federation and the country where the judgment is rendered providing for the mutual recognition and enforcement of judgments.

There are no international treaties in effect today providing for the mutual recognition and enforcement of foreign judgments rendered by courts in the Russian Federation and courts in most of the countries where Bond investors are likely to reside, including the United States and the United Kingdom.

In the absence of an applicable treaty, enforcement of a final judgment rendered by a foreign court may still be recognised by a Russian court on the basis of reciprocity, if courts of the country where the foreign judgment is rendered have previously enforced judgments issued by Russian courts. While Russian courts have recently recognised and enforced English and Dutch court judgments on these grounds, the existence of reciprocity must be established at the time the recognition and enforcement of a foreign judgment is sought, and it is not possible to predict whether a Russian court will in the future recognise and enforce on the basis of reciprocity a judgment issued by a foreign court, including an English or Dutch court.

Even if an applicable international treaty is in effect or a foreign judgment might otherwise be recognised and enforced on the basis of reciprocity, the recognition and enforcement of a foreign judgment will in all events be subject to exceptions and limitations provided for in Russian law. For example, a Russian court may refuse to recognise or enforce a foreign judgment if its recognition or enforcement would contradict Russian public policy.

As a result, it may be difficult to obtain recognition or enforcement in the Russian Federation of a foreign judgment in respect of the Bonds.

9. During the previous 12 months, the Russian Federation has been involved in a number of litigation and arbitration proceedings in which substantial claims have been asserted or substantial damages sought against the Russian Federation. However, there are no, nor have there been, any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Russian Federation is aware), during the last 12 months, which may have, or have had in the recent past, significant effects on the financial position of the Russian Federation.

10. Since 31 December 2009, there have been no significant changes relating to the tax and budgetary systems, gross public debt, foreign trade and balance of payment figures, foreign exchange reserves, financial position and resources and income and expenditure figures of the Issuer.

11. The address of the Issuer is 9 Ilyinka Street, Moscow 109097, Russia, and its telephone number is +7 495 987 9242.

ISSUER Russian Federation c/o Ministry of Finance of the Russian Federation 9 Ilyinka Street Moscow 109097 Russian Federation JOINT LEAD MANAGERS AND JOINT BOOKRUNNERS Deutsche Bank AG, London HSBC Bank plc J.P. Morgan Branch 8 Canada Square Securities Ltd. Winchester House London E14 5HQ 125 London Wall 1 Great Winchester Street United Kingdom London EC2Y 5AJ London EC2N 2DB United Kingdom United Kingdom Renaissance Securities (Cyprus) Limited VTB Capital plc Arch. Makariou III 14 Cornhill 2-4 Capital Center, 9th floor London EC3V 3ND P.C. 1065, Nicosia United Kingdom Cyprus FISCAL AGENT, EXCHANGE AGENT, TRANSFER AGENT AND PAYING AGENT Deutsche Bank AG, London Branch Winchester House 1 Great Winchester Street London EC2N 2DB United Kingdom LUXEMBOURG REGISTRAR U.S. PAYING AGENT, U.S. TRANSFER AGENT Deutsche Bank Luxembourg S.A. AND U.S. REGISTRAR 2, Boulevard Konrad Adenauer Deutsche Bank Trust Company Americas L-1115 Luxembourg 60 Wall Street, 27th Floor MS: NYC60-2710 New York, NY 10005 United States of America LEGAL ADVISORS TO THE ISSUER As to English and U.S. law Cleary Gottlieb Steen & Hamilton LLP City Place House 55 Basinghall Street London EC2V 5EH United Kingdom LEGAL ADVISORS TO THE JOINT LEAD MANAGERS AND JOINT BOOKRUNNERS As to Russian law As to English and U.S. law Linklaters CIS Linklaters LLP Paveletskaya sq. 2 bld. 2 One Silk Street Moscow 115054 London EC2Y 8HQ Russian Federation United Kingdom (This page has been left blank intentionally.) END