Draft Valuation Report of the Fair Market Value of a 100% Equity Interest inNaftna industrija Srbije A.D., Novi Sad as of 30 June 2008 (draft summary report) Deloitte d.o.o. Makenzijeva 24 11000 Beograd Srbija Tel: +381 11 3812 100; +381 11 3821 200 Fax: +381 11 3812 101; +381 11 3821 202 www.deloitte.com/serbia Agencija za privatizaciju Terazije 23 Belgrade, Serbia Belgrade, 1 September 2008 Dear Madam/Sir, Pursuant to the contract for providing valuation services between Deloitte d.o.o. and Privatization Agency dated 04 August 2008 we have conducted the valuation of the fair market value of a 100% equity interest of Naftna industrija Srbije A.D., Novi Sad, Serbia (further referred to as “NIS”, or the “Company”). We conducted the valuation of 100% interest in equity of NIS on a control non-marketable basis as of 30 June 2008. The purpose of our valuation consulting services was to assist the Privatization Agency in determining the value of equity of NIS in order to calculate the percentage of equity interest that would be transferred to the current and former employees of NIS in accordance with Article 23 of Law on Free Shares and Monetary Remuneration that citizens realize in the process of privatization. It is our understanding that we are required to provide a written report expressing and supporting our opinion of the fair market value of equity of Naftna industrija Srbije a.d., Novi Sad on a control non-marketable basis as of 30 June 2008. This report is not intended to be used for any other purpose or distribution to third parties without the express knowledge and written consent of Deloitte. For the purpose of this draft summary report, we used American Society of Appraisers’ definition of the Fair Market Value: “The estimated amount at which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s- length transaction after proper marketing wherein the parties had each acted knowledgably, prudently, and without compulsion”. The Valuation Report sets out the limiting conditions and pertinent facts available to us in arriving to our conclusions. Our valuation analysis is based on the premise that the Company is and will continue as a going-concern business enterprise. This premise implicitly assumes that (1) the management will implement only those prospective financial and operational strategies that will maximize the efficiency of the business entity, and (2) that there are no factors (such as continued operating losses and financial weakness) that call into question the fundamental assumption that the entity can and will continue to operate as a going-concern. On the basis of our research, study, inspection, investigation, and analysis as set forth in the attached valuation report, we are of the opinion that the fair market value of 100% of equity of Naftna industrija Srbija a.d., Novi Sad, on a control non-marketable basis, as of 30 June 2008 is (rounded): 2,200,000,000 EUR (two billion and two hundredmillion Euros ) The result of our valuation consulting services does not constitute a fairness opinion or investment advice and should not be interpreted as such. Our conclusions do not serve as a substitute for the due diligence process, and any third party should perform their own due diligence in order to structure any possible transaction with the Company. Accordingly, this report is not intended to supplant other inquiries and procedures that any third party should undertake for considering a transaction with the Company. During this consulting analysis, we were provided by NIS with both audited and unaudited financial, operational, and forecast data. In addition to information provided by NIS, we used various publicly available data. We have relied on this data without independent verification or confirmation. As a part of this consulting analysis, we have not audited this data. Accordingly, we issue no opinion or other form of assurance regarding this data. We did not have opportunity to provide the management of NIS with a draft valuation report. Had we been able to discuss the results of our valuation analysis with the management of NIS and had we received their comments thereon we might have found that some changes to this report would be needed, and these changes might be material. It should be understood that the actual price paid in a transaction involving equity interest in NIS might differ from an estimated range of fair market values. The differences between price paid and estimated value may be due to factors such as the motivation of the parties, the Table of Contents 1 INTRODUCITION..........................................................................................................1 1.1 LIMITING CONDITIONS ................................................................................................1 1.2 HYPOTHETICAL ASSUMPTIONS MADE .........................................................................3 1.3 APPRAISAL PROCEDURES ............................................................................................4 1.4 SOURCES OF INFORMATION .........................................................................................5 2 MACROECONOMIC OVERVIEW .............................................................................7 2.1 GENERAL DESCRIPTION OF THE COUNTRY ..................................................................7 2.2 KEY MACROECONOMIC INDICATORS ..........................................................................9 2.3 GROSS DOMESTIC PRODUCT .....................................................................................10 2.4 INFLATION , EXCHANGE RATES AND INTEREST RATES ..............................................11 2.4.1 Inflation Rate .......................................................................................................11 2.4.2 Exchange Rate .....................................................................................................11 2.5 FOREIGN EXCHANGE TRADE .....................................................................................12 2.6 EXTERNAL DEBT .......................................................................................................13 2.7 FOREIGN DIRECT INVESTMENT .................................................................................14 2.8 UNEMPLOYMENT ......................................................................................................16 3 PETROLEUM INDUSTRY IN THE WORLD ..........................................................16 3.1 RESEARCH AND PRODUCTION (UPSTREAM ) ...............................................................17 3.2 REFINING AND PROCESSING (MIDSTREAM )................................................................17 3.3 DISTRIBUTION OF OIL AND OIL DERIVATIVES (DOWNSTREAM ) ..................................18 3.4 GLOBAL MARKET ......................................................................................................19 3.4.1 Demand................................................................................................................19 3.4.2 Oil market supply.................................................................................................19 3.4.3 Crude oil prices....................................................................................................20 3.5 PETROLEUM INDUSTRY IN THE REPUBLIC OF SERBIA ................................................21 3.5.1 Primary energy system – production and import of crude oil.............................22 3.5.2 Primary energy transformation system – refining of crude oil............................22 3.5.3 Final consumption and distribution of oil industry products ..............................23 3.5.4 Oil derivatives prices regulation .........................................................................25 4 VALUATION APPROACHES AND METHODOLOGY.........................................26 4.1 DISCOUNTED CASH FLOW (DCF) .............................................................................27 4.2 MARKET APPROACH .................................................................................................29 4.3 ASSET ACCUMULATION (C OST ) APPROACH ..............................................................30 4.4 SUMMARY - BUSINESS VALUATION METHODS .........................................................31 5 THE COST APPROACH - THE NET ASSETS VALUE METHOD ......................32 5.1 RECLASSIFICATIONS TO THE REPORTED BALANCE SHEET AS OF 30 JUNE 2008..........33 5.1.1 Property, plant and equipment ............................................................................34 5.1.2 Long-term financial placements ..........................................................................34 5.1.3 Current assets ......................................................................................................34 5.1.4 Long-term and short-term liabilities....................................................................35 5.2 ADJUSTMENTS TO THE RECLASSIFIED BALANCE SHEET AS OF 30 JUNE 2008 .............35 5.3 INTANGIBLE ASSETS ..................................................................................................35 5.3.1 Introduction..........................................................................................................35 5.3.2 Trained and assembled workforce.......................................................................36 5.3.3 Research, exploration and extraction of crude oil and natural gas in Serbia concession rights..............................................................................................................40