permanent rise in tariffs and prices for energy, main materials and
maintenance services;

the need to increase wages that leads to greater payroll taxes payable;

prior year losses and taxes payable that do not allow the company to
complete the current projects and to launch new projects involving expansion of the
product mix, enhancement of quality and reduction of costs;

the market is not ready to considerably increase consumption of tubes in
order to build new and maintain the existing pipelines, although there is a feel of such a
demand now;

low utilisation of capacities;

dumped tube imports from Ukraine.

What is your attitude towards vertical integration of your
enterprise with suppliers of strips and hollow sections and with your clients? Does your
enterprise make any steps in that direction?

A. Kachur, Ministry for Industrial Policy of
Ukraine

I think that integration will be widespread after all. Here
is an example: the yet unimplemented opportunity to set up a multinational corporation
Trubtrans. Together with a mighty financial leader, the corporation should have included
suppliers of strips (metallurgical mills), producers of large-diameter tubes for
maintenance of the existing and construction of new petroleum and natural gas pipelines, a
number of machinery enterprises and construction companies, Gazprom, Ukrprom, several
other domestic and foreign companies and Russia’s tube mills (like Vyksa, Chelyabinsk
and Volzhsky Tube Works). Delays in passing of the Bill on Special Levying of Taxes and
Charges on Businesses that Implement Investment Project in Priority Sectors of Ukraine’s
Economy have obstructed establishment of Trubtrans. Currently, the financial institution
that should have led Trubtrans settles other issues that have nothing to do with this
multinational. Therefore, a new leader is required to create this corporation.

A. Velichko, economic director of Khartsyzsk Tube Works

We feel positive towards internal integration with
suppliers of strips, with consumers and banking institutions. However, owing to a number
of reasons, none of the projects in this area has been implemented.

Interpipe Corporation

Interpipe has established close business contacts with
suppliers who provide uninterrupted material supplies to the tube mills that are part of
the Corporation. In particular, the largest suppliers are Zaporozhstal, Oskolsk
Electro-Metallurgical Works, Donetsk Metallurgical Works, Dneprovsky Iron & Steel
Works, Alchevsk Iron & Steel Works and Petrovsky Metallurgical Works of
Dnepropetrovsk.

N. Soloshenko, director of Novomoskovsk Tube Works

Without any doubt, a vertical integration of suppliers,
tube makers and consumers is expedient for specialisation and reduction in cost of sales
and delivery expenditures. However, the severe competition among tube mills on the market
and corporate interests of producers of strips and tube mills almost completely eliminate
the possibility of thorough integration. We currently make certain steps as regards
definition of common technical standards with metallurgical mills, main tube mills and key
clients.

N. Podeiko, director general of RodakovoResursy

Vertical integration is a pretty good thing. Currently, we
do business with only one supplier of strips, while permanent clients are much more
difficult to find. There are enough tubes on our regional market, while Nikopol and
Dnepropetrovsk-based tube mills are closer to Western consumers; thus they incur lower
delivery costs. So, even if our price is lower, consumers may save more on delivery. Of
course, we undertake measures to find stable customers for ourselves, however the luck is
not always on our side

A. Fyodorov, director general of Chelyabinsk Tube
Rolling Works

The Board of Directors constantly controls the issues of
vertical integration and strategic partnership with suppliers of conversion metal.

The United Metallurgical Company that includes our Works
has signed an agreement on strategic partnership with Severstal. Within the framework of
regional co-operation program, the Works does keeps close business contacts with
Magnitogorsk Iron & Steel Works and Mechel. Certainly, when business partners unite
their efforts, it works well for the quality of products, delivery terms and quick
response to market needs.

Currently, our relationship with strategic business
partners in the oil and natural gas sector has progressed to a new level. Joint
co-operation programs with Gazprom and Transneft let us clearly define our future steps
towards the growing demands of clients.

V. Anisimov, director general of Vyksa
Metallurgical Works

We appreciate integration, as it is beneficial to both
parties involved. We still remember 1994-1998, when shortage of strips made tube mills
stand idle in the summertime peak of tube demand. The experience shows that it is much
easier to lose the market than to get it back. Suppliers of strips have understood that as
well, and now the United Metallurgical Company and Severstal have signed a strategic
agreement on supplies.

We mainly work together with consumers as regards
enhancement of tube quality. Since tubes are made of metal, co-operation with suppliers
turns out be yet another good point.

A. Brovko, executive director of Volzhsky Tube
Works

We tailor our relationship with clients and suppliers on
the grounds of partnership and common benefit. Together, we work out co-operation programs
for a long term. This is the basis that we use in business contacts with Gazprom,
Transneft, Magnitogorsk Iron & Steel Works and other companies. Using this principle,
our suppliers dispatch the materials of appropriate quality, whereas we make exactly the
kind of products that our clients need. Owing to this co-operation we manage to give
timely response to the growing requirements of the modern market. Obviously, we can make
no good tubes of bad strips and materials. Hence, it is important for us to work together
with suppliers, to jointly set and implement the quality enhancement tasks; thus brining
progress to the manufacturing sector.

A. Shmelev, director general of Pervouralsky
Novotrubny Works

I am against vertical integration as see no benefits it can
yield today. The more effective approach is to set clear partnership agreements, control
supplies and due payments.

So far, I see no room for vertical integration because all
the largest metallurgical mills have their owners now (owners, who have made significant
investment) and hardly anyone is ready to re-distribute or merge their property.

A. Tokarev, director general of Almetyevsk Tube
Works

Vertical integration with suppliers of strips and consumers
of tubes is necessary. Since 1995 the Works has been practising this approach in business
with Tatneft and Natural Gas Fund of the Republic of Tatarstan (the consumers of tubular
goods) and since 1999 with Novolipetsk Iron & Steel Works (the supplier of strips).

What do think about the relationships between Russia and
Ukraine in view of Ukraine’s tube exports to the Russian market?

A. Velichko, economic director of Khartsyzsk Tube
Works

Naturally enough, I have a negative attitude because by
signing that agreement we deprive Russian clients of our commodities, even if those
clients can afford paying a 40% duty (such clients have already visited the Works).
Besides, it also covers certain products that are not manufactured in the Russian
Federation, like all inch tubes, 920-mm-diameter tubes and tubes with corrosion resistant
coating for the use in the Far North.

Interpipe Corporation

We think that supplies of Ukrainian tubes to Russia are not
the only aspect of relationships between the two neighbouring countries. Nevertheless, one
has to keep in mind that business relations among Ukrainian tube mills and Russian
consumers, particularly the oil & gas companies, have been taking shape for dozens of
years. Tube mills were built in Ukraine mainly to provide tubular goods to petroleum and
natural gas companies in the other parts of the former Soviet Union. Therefore, the
widespread opinion that Ukrainian tube exports damage Russia’s tube mills is far from
being correct. Using the same logic, Ukraine may well accuse Russia of economic expansion
and initiate some sort of an investigation. However, these relationships can hardly be
called civilised. In addition, the Corporation frequently purchases materials from Russia,
while many types of unique products have been designed jointly with Russia-based
scientific institutions to meet the demands of Russia’s oil & gas businesses. So,
our exports are unlikely to cause any damage to the Russian economy. It is more a matter
of normal integration processes.

N. Soloshenko, director of Novomoskovsk Tube Works

In due time, Novomoskovsk Tube Works was built to back the
development of Russia’s energy sector, and it supplied an enormous quantity of tubes to
construction of pipelines in the country in the 1970s through 1990s. At the moment, that
sector is recovering, building new and repairing the existing pipelines. Therefore, there
is enough place on that market for everybody provided civilised distribution of market
shares and healthy competition.

N. Podeiko, director general of RodakovoResursy

Mr. Putin gave Russia’s tube mills a present, while the
Ukrainian authorities should learn how to protect the interests of local manufacturers.

Of course, we are against imposition of quotas. No one
likes being trapped within some limitations. Everyone acknowledges that Russia is the key
market for tubes and metal products made in Ukraine.

V. Grinyov, managing director of Stalpromtrest

We do not like imposition of quotas. We believe that
imposition of duties would be more acceptable because economic methods are always better
than political and administrative regulatory efforts.

V. Anisimov, director general of Vyksa
Metallurgical Works

We support fair competition and treat the latest steps
taken by the authorities from precisely this point of view.

A. Shmelev, director general of Pervouralsky
Novotrubny Works

I see the mild decisions on quotas against tube imports
from Ukraine as a step towards protection of the local tube sector from growing imports.
We have sufficient potential (with respect to both capacities and types of products) to
meet domestic demand on our own.

A. Tokarev, director general of Almetyevsk Tube
Works

The issue of Russian-Ukrainian relationships as regards
Ukraine’s tube exports to Russia has matured and calls for solution. We have to
eliminate the opportunity of dumped tube imports from Ukraine due to VAT exemptions, and
place Ukrainian and Russian tube mills in equal position. It is worth limiting the imports
in order to encourage the trade of Russia-based tube mills.

A. Fyodorov, director general of Chelyabinsk Tube
Rolling Works

What can one think about Russian authorities that act in
favour of domestic manufacturers? Russian tube mills initiated an antidumping inquiry
against Ukrainian tube imports to nourish equal conditions on the market rather than to
ban tube imports from that country. We support a civilised market without barriers. It is
wonderful that the authorities have understood that correctly.

A. Brovko, executive director of Volzhsky Tube
Works

Should the rules of trade have been equal for everyone,
there would have been no problem with Ukrainian tube imports whatsoever. I am sure that
all tube mills should have equal opportunities. Quality should become the distinguishing
feature in competition. We cannot afford to let dumped imports from Ukraine hamper
development of Russia’s tube sector. Russia-based mills utilise only 30% of their
capacities and need the orders that Ukraine gets owing to extremely low prices for its
products. To protect our interests, we have united our efforts and succeeded. By the way,
the situation has changed in Volzhky Tube Works as soon as the government limited tube
imports from Ukraine. Our company and Gazprom signed an agreement to manufacture a pilot
batch of tubes, 1,420 mm in diameter. Well, just a short while ago Ukraine insisted that
Russia simply could not make such tubes at all.

Can Ukrainian tube mills co-operate with Russian tube
makers, e.g. set up holding companies, joint ventures, or integrate with oil & gas
companies?

A. Kachur, Ministry for Industrial Policy of
Ukraine

Establishment of corporations backed with powerful
financial leaders is the only way to provide for modernisation of metallurgical and tube
mills, to certify tube materials and ensure direct sales without help any commercial
intermediaries. That would give an opportunity for more efficient business and channel
investment into improvements and new products.

Besides to co-operation of Ukraine’s tube mills within
the framework of the mentioned Trubtrans multinational corporation (that will be founded
sooner or later), I think that it is time to establish a corporation that would make
special purpose tubes. The Ukrainian part of that corporation would embrace Nikopol
Stainless Tube Works, Nikopol Steel Tube Works, Nikopol Seamless Tube Works, Nikopol
Pivdennotrubny Works, the State Tube Institute and Ukrtrubprom Association, while the
Russian participants would be Pervouralsky Novotrubny Works, Sinary Tube Works, Seversk
Tube Works and other companies. That corporation would provide the necessary quality and
types of products for energy sectors of CIS member-states and for Russia’s energy
machinery enterprises. Therefore, the corporation would only appear when all the required
conditions are in place.

A. Velichko, economic director of Khartsyzsk Tube
Works

Perhaps it is impossible today due to the current situation
and the policy pursued by Russia’s Fund for Tube Sector Development.

Interpipe Corporation

Interpipe is always open to efficient business contacts.
The Corporation acts on an international scale. We supply tubes to over 30 countries
worldwide and see no reasons that could stop our business with Russian companies. The most
promising opportunity today is to launch co-operation with oil & gas companies. As a
consequence, oil companies would obtain stable supplies of tubular goods; while
Ukraine’s tube mills would have reliable business partners that place regular orders.

N. Soloshenko, director of Novomoskovsk Tube Works

Co-operation of Ukrainian and Russian tube mills is rather
troublesome now. At the same time, Russia could have profited from a less severe attitude
towards imports of tubes and strips from Ukraine. For instance, considering the current
situation with Ukraine’s output of wide sheets and tubes, 1,420 mm in diameter, one
could have saved huge money on construction of similar manufacturing facilities in Russia.

If a tube mill is capable of offering tubes of improved
quality, then integration with oil & natural gas companies is possible. We already
have such an experience.

A. Brovko, executive director of Volzhsky Tube
Works

Co-operation is quite possible, though not among the rival
tube mills. For instance, Volzhsky Tube Mill and Azovstal Iron & Steel Works of
Mariupol are commencing a joint project of making tubes, 1,420 mm in diameter and 18.7 mm
in wall thickness. This June Volzhsky Tube Works will make tubes of 24-m-long sheets with
no transverse seams, thus meeting one of the principal requirements of Gazprom.
Co-operation between Volzhsky Tube Works and Azovstal is mutually beneficial and necessary
as Russia has no manufacturers of such products. If other companies have similar
interests, why not making them come true?

N. Podeiko, director general of RodakovoResursy

There is nothing impossible out there. Should a Russian
company propose beneficial co-operation, we would accept this proposal.

V. Anisimov, director general of Vyksa
Metallurgical Works

There is a need in co-operation, however, I think that it
will come only in the future. Most importantly, it should be advantageous for both parties
involved and for the whole State. Currently, it is a problem because Russia’s tube mills
do not utilise their full capacity, while their outputs are enough to basically cover the
domestic demand. On the other hand, Gazprom may well acquire Khartsyzsk Tube Works.

A. Shmelev, director general of Pervouralsky
Novotrubny Works

I think it is impossible to launch co-operation with
Ukraine’s tube mills no matter what kind of joint work is chosen. Laws are different,
economies vary and so on. At first, the governments of both countries should reach
understanding and define the common rules.

A. Tokarev, director general of Almetyevsk Tube
Works

Currently, there is no place for integration of Ukraine’s
tube mills with Russian enterprises or with oil & gas companies due to poor quality of
Ukrainian tubes and availability of under-utilised tube making capacities in Russia.
Unstable relationships between Russia and Ukraine and red tape customs procedures are the
main seasons.

Will the enforcement of the new Tax Code in Russia
(imposition of 20% tax on imports) and charging of higher railway freightage fare
influence trade relations?

A. Kachur, Ministry for Industrial Policy of
Ukraine

Imposition of the VAT and greater railway fares would
separate the Russian market from Ukrainian suppliers of hot-shaped conventional tubes,
thin-walled electric welded tubes, water pipes and perhaps some other kinds of products.
Supplies of high-tech and labour-intensive tubular goods made in Ukraine should stay the
same.

A. Velichko, economic director of Khartsyzsk Tube
Works

It is a difficult issue. Mainly, it was done to provide
revenues to the state budget. Time shall show what it will be like because less than a
month remains till imposition of the duty.

N. Podeiko, director general of RodakovoResursy

Trade with Russia is not based on tubes alone. Of course,
consumers would have to pay more owing to higher railway freightage costs and more taxes.
We have already experienced that in Ukraine. Trade relations will continue despite any
regulations, quotas or duties introduced by the authorities.

V. Grinyov, managing director of Stalpromtrest

We greet the mentioned changes in the Russian law, as we
believe that economic relationships should rest on equal opportunities for all export and
import businesses. Be it a resident entity of Ukraine, the USA or any other country, it
should enjoy equal rights and opportunities because any incentives do nothing but bad.

What new types of products, quality improvements,
delivery terms or else is your company intending to offer as regards oil country tubular
goods in the coming future?

A. Kachur, Ministry for Industrial Policy of
Ukraine

Owing to the petroleum boom, oil country tubular goods,
e.g. tubing, casing and drill pipe, are the most wanted commodities on world markets.
Especially, this relates to oil well tubing as the decades of conservation of oil wells in
Russia eliminate the opportunity for replacement of such tubes due to financial
difficulties. Energy machinery sector of Russia has recovered. To meet its demands,
Ukraine-based tube mills reached almost full utilisation of capacities that make hot
rolled and cold rolled shaped tubes for the use in high-pressure boilers. Efforts to
repair the existing and built new natural gas pipelines in CIS countries are growing,
consequently leading to more orders for oil conveyance tubes and large-diameter welded
tubes in Ukraine. However, Russia’s imposition of quotas against tube imports from
Ukraine will slash outputs and make the Ukrainians search for new customers.

A. Velichko, economic director of Khartsyzsk Tube Works

We analyse the incoming orders and monitor the development
of demand for tubes (including the projects of new pipelines). Every company has its
speciality products and its own market niche.

Currently, our enterprise implements a project of
manufacture of tubes, 32, 36, 48 and 56 inches in diameter, made of one sheet with a
12-m-long longitudinal seam and with wide range of wall thickness. In addition, we are
ready to offer our clients the tubes with corrosion resistant coating on the inside.

Interpipe Corporation

We have already mentioned that oil country tubular goods
are the priority products for tube mills that constitute the Corporation.

Interpipe has contributed much money and effort to launch
production of new types of tubular goods, including OCTG, that were designed jointly with
certain Ukrainian and Russian scientific institutions. Currently, the Corporation,
together with Samara-based Scientific Research Institute for Design and Operation of Oil
Tubes and the leading petroleum exploraiton companies of Russia, conducts scientific
research with respect to manufacture of the following kinds of tubular goods:

hot-shaped seamless tubes, for the use in oil and natural gas conveyance,
of enhanced cold resistance, hydrogen sulphide and carbonic acid resistant;

casing of enhanced corrosion and cold resistance, contortion resistant;

oil well tubing of enhanced cold resistance, hydrogen sulphide and
carbonic acid resistant;

cold-shaped tubes for the use in hulls of submersible pumps of enhanced
reliance and corrosion resistance.

Many of those products have no analogues in the CIS and
have been designed upon orders of Russian oil & gas companies.

N. Soloshenko, director of Novomoskovsk Tube Works

We believe that we are now ahead of competitors as regards
the inch series tubes, 168 to 406.4 mm in diameter, that comply with API and DIN
standards. We have launched manufacture of those internally-polished tubes that meet local
technical requirements. We offer products that are absent on the market, like
high-frequency welded tubes, 530 mm in diameter, that excel the tubes that are arc welded
under flux. We have wide opportunities to manufacture welded stainless tubes (made using
the plasma torch welding) for the use in automotive, sugar, foodstuffs and chemical
sectors.

A. Fyodorov, director general of Chelyabinsk Tube
Rolling Works

At the moment, within the framework of co-operation
programs with Gazprom and Transneft, Chelyabinsk Tube Rolling Works is tailoring its
products to the exacting demands of clients. So far, it is too early to summarise the
results of those efforts, however, quality of our products will definitely be enhanced and
product mix will broaden.

E. Kuznetsov, Magnesite Concern

Special property tubes made of high-alloy steels will be in
demand in the coming future and today.

Manufacture of special property tubes for the use in
high-pressure vessels, various power plants and aircraft sector has seen major change. For
this purpose, foreign metallurgical mills offer a wide product mix of tubes and other
metal products of carbon and low-alloy steels, austenite stainless steels, biphasic and
super-biphasic stainless steels, super-austenite stainless steels, alloys with high
contents of nickel, alloys based on titanium, zirconium, copper and aluminium.

Owing to greater offshore exploration of petroleum and
natural gas, there have been designed new grades of steels and alloys of enhanced
resistance to hydrogen sulphide and chlorine ions. Since 2000, ISO 13680: “Petroleum and
natural gas industries – corrosion resistant alloy seamless tubes for use as casing,
tubing and coupling stock – technical delivery conditions” has come into force with
respect to oil country tubular goods.

N. Podeiko, director general of RodakovoResursy

We make small-diameter tubes for the use in water and
natural gas conveyance complying with GOST 3262-75. This kind of tubes finds wide
application in industrial and civil construction; however, the construction industry is
doing badly now. It is very hard to determine what tubes are more important. Demand is the
main factor.

V. Anisimov, director general of Vyksa
Metallurgical Works

The Works is capable of making casing tubes, with both
buttress and OTTM thread.

Additionally, we offer oil tubes that have been plated from
the inside with stainless steel, 08×13. For first time in the country, we have launched
production of thick-walled tubes (19 to 22 mm) of K54 strength.

A. Brovko, executive director of Volzhsky Tube
Works

I have already mentioned that we getting ready to make
1,420-mm-diameter gas main tubes of Azovstal sheets. In June we are planning to phase in
new machinery that would cover tubes with heat insulating polyurethane coatings. We are
ready to meet any demands of our clients as we own the necessary technological and
economic capabilities, as well as creative potential.

A. Shmelev, director general of Pervouralsky
Novotrubny Works

We make a limited mix of oil country tubular goods that
account for around 10% of our total outputs. OCTG is not our speciality and we make about
10,000 tonnes per month. We are short of capacities to make more now; however, we will
retain our market niche for tubing further on.

Today, the Works aims to fundamentally enhance the
technical properties of those tubes. We offer modernised thread joints and we are
currently occupied with that issue.

After all, there is Sinary Tube Works that specialises in
oil country tubular goods and conducts considerable re-equipment of facilities. I think
there is no point in competing with that company. We will stick to our traditional
quantities and will make efforts to enhance quality and keep our positions.

A. Tokarev, director general of Almetyevsk Tube
Works

In 2001 we have started making volume heat-treated tubes,
159 to 219 mm in diameter, that meet GOST 20295-85 (type 1). In addition, we have
broadened the mix of 40×1.5 and 51×1.5 mm tubes complying with GOST 10705-91, whereas in
July 2001 we plan to launch production of 108×3.5-4.5 mm tubes.

In the second half of 2001 we plan to:

phase in the mill 42-114 and start production of shaped tubes;

introduce quality control system complying with ISO 9000:1994 and API 5L,
as well as certify tubular goods with API 5L;

expand the mix of tubes coated from the inside, 76.89 mm and 530 mm in
diameter;

launch manufacture of heat insulated tubes making use of modern
technologies.

Will the market situation and opportunities change as a
result of an alliance of the largest tube mills of Ukraine and Russia?

A. Kachur, Ministry for Industrial Policy of
Ukraine

The alliance of Ukraine’s and Russia’s tube mills will
strengthen their positions on the markets of Russia, Ukraine, other CIS countries and the
rest of the world. Those who are not part of such associations will have to specialise on
the kinds of tubes that are not manufactured by the powerful bilateral cartels or will
have to find themselves some customers in the overseas.

Interpipe Corporation

Competition for the new and the old markets is becoming
stronger in the modern world. Owing to that, tube mills have to set up holding companies
and industrial groups in order to keep and develop their markets. Those processes are
natural to Ukraine, Russia and the other countries. Establishment of such alliances is
advantageous for manufacturers and consumers because the new companies guarantee
comprehensive and timely delivery, provide flexible prices and better after sale services.

N. Soloshenko, director of Novomoskovsk Tube Works

Alliance of a number of tube mills in Ukraine and Russia
would improve the situation on the tube market owing to alleviation of the inauspicious
influence of the factors described in the third question.

N. Podeiko, director general of RodakovoResursy

The situation with small-sized tube mills may change for
the worse (clients may see the same in the long run), because the new gigantic entities
would dictate prices.

A. Fyodorov, director general of Chelyabinsk Tube
Rolling Works

The pending consolidation of Russia’s tube sector has
been brought forth by globalisation of the country’s iron & steel sector. The
consolidation strives to enhance competitiveness of tubular goods. Merger of tube mills
can be treated as an integral step in foundation of vertical industrial groups that do
versatile lines of business, while sharing a common management.

Certainly, a consolidation based on stable industrial
contacts and lengthy business history has a number of advantages for tube mills that back
the stability of any group and safeguard it from unfavourable external influences. For
instance, this relates to developed supplies and sales division, modern management and
integrated management system. This is a merger of financial resources and intellectual
skills. Sales become more effective due to centralisation of efforts, quality can be
enhanced stably, costs and prices reduced owing to deeper scientific and technical
co-operation with suppliers of strips and improvement of manufacturing technologies, while
large investment projects can be implemented.

V. Anisimov, director general of Vyksa
Metallurgical Works

Alliance of Russian tube mills would do well for consumer
qualities of tubular goods (owing to specialisation of manufacturing effort and
concentration of scientific work) and for lower transportation costs.

A. Shmelev, director general of Pervouralsky
Novotrubny Works

Perhaps, it will change as a result of that. Though I have
no idea how it may happen.

A. Brovko, executive director of Volzhsky Tube
Works

The true change of the situation will depend on maturity of
bilateral contacts among the heads of the two States and companies’ management. If we
manage to establish proper relations and find common objectives, we would yield more
profit for our countries and ourselves. Companies merge together to become stronger. Well,
strong companies are the backbone of any State. A short while ago, Russia and Ukraine
constituted parts of a single country with iron & steel and tube sectors being based
on materials, technologies and economies of both countries. That is why I think that
economic integration between the two States will dominate over internal integration
processes.

A. Tokarev, director general of Almetyevsk Tube
Works

The market for tubular goods gives quick response to all
the changes at tube mills. Associations rapidly seize and monopolise the segments of
speciality tubes and tubes with corrosion resistant coating.

What is your vision of the market for tubular goods in
Russia, CIS member-states and the rest of the world in the second half of 2001 and further
on?

A. Kachur, Ministry for Industrial Policy of
Ukraine

Despite the tube output increase in Ukraine by 141.5% or
723,000 tonnes in January through May 2001 against the respective period of prior year,
those growth tempos will not continue in the second half of the year. Firstly, it is
because Ukraine-based tube mills manufactured plenty of tubes in the second half of 2000
(over 1,060,000 t); secondly, because Russia has imposed quotas against tube imports from
Ukraine. The anticipated growth rates would not be material and Ukraine will make 850,000
to 870,000 tonnes of tubes regardless of any efforts to arrange for exports to other CIS
member-states and non-CIS countries. The overall tube outputs in 2001 would remain the
same as in 2000.

Back in 1989 Ukraine consumed 3,532,000 tonnes for tubes,
while in 2000 the domestic consumption scored only 440,000 t of tubes made that year and
55-60,000 t stocked from prior periods. One can hardly anticipate a rapid growth in tube
consumption in Ukraine; however, I estimate the domestic demand in the short run at 1.4 to
1.5 million tonnes of tubes per annum in the view of repairs of gas mains, petroleum
pipelines and water supply systems, and development of the machinery sector.

Owing to efforts undertaken by metallurgical mills and tube
mills to enhance quality of tube metal and tubes themselves and to certify their products
in compliance with Western standards, Ukraine will be able to export 1.5 to 1.6 million
tonnes of tubes per annum. In the coming 5 years, outputs shall reach 3 million tonnes per
year.

CIS and especially Russia will feature greater demand for
tubes in 2001; thus facilitating the growth in Ukrainian outputs. However, in 2001
Ukraine’s tube exports to Russia will definitely not exceed the 2000 level due to quotas
imposed.

Overall, Ukraine will continue making exports to non-CIS
countries in the coming years provided due enhancement of the quality of tubes and,
what’s more important, of tube metal.

A. Velichko, economic director of Khartsyzsk Tube
Works

Considering all the projects we plan to implement in the
second half-year, we feel optimistic about the future. Demand for tubes are not heading
downwards, while there is enough room on the market even in the severe competition.

N. Podeiko, director general of RodakovoResursy

Ukraine will start curtailing outputs and workers will be
losing their jobs, while Russian consumers will see a growth in prices for tubes.

If the new government of Ukraine makes the economy
function, potential customers would get some money and there would be an urgent need to
replace pipelines (everyone knows that water and heat supply systems have not been
repaired for a decade). So, tube mills would get a chance to utilise full capacities. The
tube sector does not function for itself and its welfare depends on the welfare of the
whole country.

A. Brovko, executive director of Volzhsky Tube
Works

Two to three large players that will control the whole tube
sector would remain in Russia in 5 to 10 years. Small-sized businesses are becoming less
profitable now because they are unable to make significant investment in new machinery and
improvements. Sooner or later they will have to leave the market. Today, they are being
replaced by contemporary industrial giants capable of ensuring the international standard
of production management.

A. Fyodorov, director general of Chelyabinsk Tube
Rolling Works

The Russian tube sector has the biggest engineered
capacities for steel and iron tubes in the world. Owing to recession in many sectors,
reduced construction of new pipelines and less repair efforts on the old pipelines, lower
drilling activity and low paying capacity, the domestic market for tubular goods has
shrunk over the past decade hitting back on Russia’s tube mills. Utilisation of
capacities lowered to 30%. Tube outputs were reducing until 1996, then they stabilised and
the year 1998 even saw some sort of a recovery. However, the August 1998 crisis terminated
that process. Recovery came back in 1999 and became a stable feature in 2000 and in the
first half of 2001.

Russia’s tube sector is just starting to move out of the
recession. Outputs are not declining anymore. Domestic clients place more orders, while
export contracts are signed as well. Being spurred by the need to repair the functioning
and build new pipelines and by competition on domestic and foreign markets, the tube
sector develops further on, modernises the manufacturing plant and machinery, reconstructs
and builds tube making workshops for higher quality tubes. The fact that tube mills have
retained skilled staff is very important for development of the whole sector as it gives
solution to technological, economic and financial problems of Russia’s tube sector.

We see the following prospects on the key markets for
tubular goods.

In compliance with the planned growth of GDP by 2005,
consumption of water and natural gas pipe and thin-walled tubes may reach 1.8 million
tonnes per annum, thus opening nice opportunities for manufacturers. In fact, outputs of
those tubes have been rising since the second half of 1998 to meet the deferred demands.

Consumption of tubes for the use in oil conveyance has also
seen recovery since 1999. Since those tubes are consumed by the oil & natural gas
sector and public utilities, demands depend on drilling activities (that require
development of infrastructure) and end consumption that is based on the rate of change in
the GDP. Both factors will tend to increase in the coming future and outputs are estimated
at over 2 million tonnes per annum by 2005.

The market for large-diameter tubes also poses greater
demand owing to construction of new petroleum and natural gas pipelines and greater repair
and maintenance of the existing pipelines. Lately, Gazprom has slashed reconstruction of
the functioning pipelines acquiring only 40,000 tonnes of tubes for that purpose instead
of the required 200,000 t. So, this deferred demand for several hundreds of thousands
tonnes shall come back in the near future. Russia’s consumption of large-diameter tubes
will see a major growth as regards tubes, 1,020 mm, 1,220 mm and 1,420 mm in diameter. By
2005, consumption of large-diameter tubes may surpass 1.8 million tonnes.

The year 2000 with lower drilling activity and reduced
petroleum exploration became the turning point for the market for casing. Considering that
greater exploration will rest on recovery of the available deposits and gradual growth of
drilling activity, demands for casing may come to 750,000 tonnes by 2005.

In the short run, domestic market will remain the major
consumer of our tubular goods. However, we plan to undertake measures to boost tube
exports.

N. Soloshenko, director of Novomoskovsk Tube Works

We think that the market for tubular goods will see no
major change in 2001 and in the coming year.

V. Grinyov, managing director of Stalpromtrest

We anticipate the market for traditional steel tubes to
narrow and the market for metal products and tubes made of composite materials to expand.

Oil country tubular goods meet the hottest demand now. In
the long run, tube mills should start making new kinds of tubes, including the ones with
various coatings.

Interpipe Corporation

The world market for flat rolled steel and tubular goods is
hardly predictable now. Since the market laws are frequently replaced with executive
regulation on that market, any long-term forecasts are doomed to be incorrect.
Unfortunately, as competition intensifies, authorities of many countries more often decide
to limit free competition, impose restrictive duties, quotas, etc.

In the coming future, the biggest growth in demand for
tubular goods is expected in Central Asia, where large oilfields and natural gas deposits
have been found.

Despite the stronger competition, Interpipe Corporation is
confident of its future because it holds a significant scientific and management
potential, as well as a unique experience of operations on markets worlwide.

V. Anisimov, director general of Vyksa
Metallurgical Works

Russia’s market for tubular goods will expand, though
maybe not as fast as it should. The promising areas in the outer world are China and the
Middle East that execute large-scale construction of pipelines.

A. Shmelev, director general of Pervouralsky
Novotrubny Works

I believe that the current year and the near future will
see no considerable increase in tube outputs. The growth rates will be around 5 to 7%.
That is what the market says, and that is how I appraise the demands of our consumers. I
think that it is a favourable development dynamics.

A. Tokarev, director general of Almetyevsk Tube
Works

The market depends on the financial health of Russia.
Currently, the country has no money. Due to lack of funds, regional authorities are unable
to built and maintain pipelines although impairment reaches 80% now.

Rural areas in many regions receive no natural gas or water
supply, while land improvement projects have been frozen completely.

There will be more competition among manufacturers and the
ones who make the best quality products will once again ride the market.