SLOVNAFT Plc. and ENVIEN Plc. will build a new 100 thousand tons p.a. FAME production capacity in Leopoldov, Slovakia by Q4 2007. This will allow SLOVNAFT to supply all its core markets with bio-diesel since 2008 and thus fully comply with the EU legislation.

International trends indicate that demand is gradually moving towards cleaner fuels, and later on, towards renewable energy sources. SLOVNAFT and the whole MOL Group pays close attention to the reduction of environmental impacts in its product development policy as well. Since 2005 the company produces exclusively sulfur free fuels and in autumn 2005 SLOVNAFT also started limited production of diesel with FAME content for export markets. SLOVNAFT plans to introduce this product to the Slovak market in early autumn and gasoline with bio-components will be launched on the Slovak market by the end of the year.

In order to ensure the required quantities of FAME for supplying all core markets with bio-diesel by 2008, MOL group issued at the beginning of year 2006 an international tender for potential FAME/SVO suppliers for supplying the required feedstock of bio-diesel component or vegetable oil for bio-diesel production. 23 bids were submitted to the tender and 11 were qualified. Two bidders were from Slovakia. The supply contracts to be signed with 6 companies will cover Group’s FAME demand of over 200 kt p.a. for 5 years. Due to the growth of the international demand for bio-fuels, beyond the supply contracts, MOL Group including SLOVNAFT has decided to move into the production of the bio-diesel component. Therefore, according to the preliminary agreement signed on 23rd August 2006, SLOVNAFT would purchase 25% plus one share in MEROCO Plc. from ENVIEN Plc. via a capital increase, performed at nominal value.

MEROCO, in which SLOVNAFT will have 25% plus 1 share, will build within brown field investment in Leopoldov FAME production plant with total capacity of about 100 thousand ton per annum, out of which 60 -70 thousand will be supplied to SLOVNAFT. Currently SLOVNAFT covers about 65 % of its FAME needs from imports. After the start-up of the new plant, the majority of FAME processed in the company, will come from Slovakia. “Thus SLOVNAFT plays key role in accommodating a new investment and modern technologies for mass production of bio-components in Slovakia and setting up new employment possibility for employees in Leopoldov region,” said Juraj Vozárik, Refinery and Marketing Director of SLOVNAFT Plc. The total cost of the project is cca EUR 30 million. The new company will produce FAME fully meeting EU and SK standards.

„The new plant will directly employ over 30 employees and will also contribute indirectly to the employment at its suppliers. The plant will need about 300 thousand tons of rape seed per annum. The company would like to cooperate in this field mainly with domestic suppliers/agricultural companies based on competitive conditions,“ added the chairman of the BoD of ENVIEN and deputy chairman of MEROCO Robert Spišák.

According to the EU directive 2003/30/EC, Member States should ensure a proportion of 5.75% biocomponent content in motor fuels placed on their market until 2010. In EU countries, governments may facilitate the implementation of biofuel program by different instruments. In Slovakia the blending of biofuels will be promoted by lower excise tax.

In line with its environmental concept and following the market trends on the Slovak fuel market where the demand for 91 gasoline has been declining in the recent years by about 25-30% on y/y basis falling to about 5% market share, fuelled mainly by modernization of the car parks, SLOVNAFT is launching a new product - 95 UNI gasoline, which will replace 91 UNI in August.

The new product is fully suitable for cars that used to tank gasoline 91 UNI. Using gasoline with higher octane number might even be beneficial for some types of cars allowing smoother running of the engine, better performance and could even lead to lower fuel consumption, of course depending on the technical conditions of the car. Moreover, 95 octane gasoline contains less olefin compared to 91 gasoline, which is beneficial also from environmental point of view. “The price of 95 UNI will be the same as the price of gasoline 91 UNI, what means that the customers will get higher quality for the same price,” added Tibor Kántor from SLOVNAFT Retail department.

Rescheduled maintenance and persisting strong exports were the key factors of good performance of SLOVNAFT in H1 2006.

SLOVNAFT increased the sold volume of the refined products by nearly 18 %. Volume sold on export markets increased by 17 % compared to the same period of the last year. The main reason behind this growth was extremely high market demand for the ultra low sulphur fuels and bio-fuels mainly in Austria and Hungary. The total volume sold on the domestic market increased in H1 2006 on y/y basis by nearly 20 % mainly as a result of strong demand for diesel due to persisting trend of dieselization in Europe. The volume of plastics sold increased by 33 % in the relevant period mainly due to the new production unit PP3.

Sales revenues of refined products grew by 54 % to SKK 43.1bn as a result of considerably higher volume sold and continuing increase in crude oil and products ´quoted prices. Revenues from plastics’ sales increased by 21 %. Despite of stronger y/y increase of domestic sales volumes compared to exports, increase of export revenues was stronger, when they grew by 48 % to SKK 42.5bn. The main export territories of SLOVNAFT are mainly the highly competitive EU markets - Germany, Austria, Czech Republic and Poland.

„H1 2006 results again proved increasing competitiveness of SLOVNAFT, especially on the export markets, which are the main profit contributor of the company with about 80 % share on SLOVNAFT ´s income. State of art technologies as a result of a long-term sophisticated investment strategy, increasing fuel production of high quality products, namely low-sulphur products fulfilling EU directives to be effective from year 2009 and biodiesel, remain the key sources of SLOVNAFT ´s competitive advantage and basis for the company ´s sustainable growth and stable strong performance also in the future,“ commented on the H1 results the SLOVNAFT CEO Oszkár Világi. SLOVNAFT expects that the rescheduled maintenance and shutdowns, which were shifted to the second half of the year, will influence the results of the company in the relevant period. SLOVNAFT sees the conversion of the MTBE production unit into ETBE unit as the key priority during the expected turnaround. Besides already existing biodiesel production this will enable SLOVNAFT to produce also gasoline with bio-components.

In H1 2006 SLOVNAFT recorded net profit of SKK 4.5bn, which represents y/y drop of 2 %. Operating profit reached SKK 5.6bn what represents practically the same level as that of H1 2005. In comparison to H1 2005, SLOVNAFT operating performance was positively influenced by higher processed and sold volumes with total financial effect of SKK 3,9bn and better gasoline crack spreads with financial contribution of SKK 1.1bn. Significantly better utilization of the key conversion units resulted in an almost 20 % increase in fuel production compared to the previous year. On the other hand, operating profit of SLOVNAFT was negatively influenced by lower diesel and other refined products´ margins with total financial effect of SKK – 2.32bn and development of exchange rate with effect SKK – 152mln.

Total motor fuel volumes sold in retail network during H1 2006 was slightly higher than in the same period of the last year. Diesel sale tendency compensated the drop in gasoline sales. Net retail prices excluding taxes in Slovakia belong among the lowest within the EU25. Based on Eurostat statistics as of 31st of July, net diesel prices were the fourth lowest and net gasoline prices the fifth lowest in EU.

SLOVNAFT continued further in its network optimization and reconstruction program when in H1 2006 two new filling stations were opened and 20 filling stations closed. As of 30th of June SLOVNAFT operated 238 filling stations in Slovakia.

Crude oil processing in H1 2006 was higher on y/y basis by 335kt (13.1%) mainly due to the maintenance and turnaround of the key production units in H1 2005. Gasoline production was higher by 73.2kt and diesel production by 225,3kt. In H1 2006, only diesel with low sulphur content was produced, thereof more than 26 % was diesel with FAME (Fatty Acid Methyl Ester) component, which was produced for export.

In H1 2006 SLOVNAFT invested about SKK 1.2bn, which represents more than 16 % y/y increase. SLOVNAFT concentrated mainly on projects supporting ecology, company’s efficiency and improvement of the production units´ reliability.

The crude price averaged 65.6 USD/bbl in H1 2006. Compared to H1 2005 the oil price increased by 16 USD/bbl. Together with higher prices of other key raw materials necessary for refinery production these were the main factors contributing to y/y increase of the company’s raw materials costs by 55 %. Significant price increase of basic raw materials was caused mainly by the persisting tension in the world crude oil supply/demand balance as a result of a combination of many unfavorable factors. Among the most important were strengthening of the geopolitical tension in the world, continuously strong performance of the global economy, decrease of oil deliveries from some key traditional producers and threats resulting from the hurricane season in U.S., which might cause similar problems in crude and fuel supplies like hurricanes Katrina and Rita did last year.

SLOVNAFT's petrochemical activities from July to be unbundled to a new daughter company - SLOVNAFT Petrochemicals, Ltd.

Starting from 1st of July 2006 all the petrochemical activities of SLOVNAFT will be unbundled to a new 100 %-daughter company of SLOVNAFT – SLOVNAFT Petrochemicals, Ltd. The core business of the new company will be production and sale of petrochemical products, predominantly of wide range of Polyethylene and Polypropylene. SLOVNAFT's petrochemical business, concentrated into this new daughter company, will continue to operate on integrated basis within the MOL Group along with the TVK in Hungary.

„We decided for this step mainly because of the increasing importance of petrochemicals activities for SLOVNAFT and the MOL Group, ongoing process of consolidation of the petrochemical activities within the MOL Group - incorporating SLOVNAFT and TVK-, as well as due to the start up of the new production unit PP3, which has more than tripled the polypropylene production capacity of SLOVNAFT, thus enabling annual output of 255 thousands tons of this product“. New PP3 production unit in SLOVNAFT and the new HDPE in TVK Tiszaújváros with annual output of 1.2 mil. tons ranks MOL Group among the biggest producer of petrochemicals in Central Europe as well as among significant players on the whole European market.

The whole process of unbundling will have no impact on the total number of SLOVNAFT group’s employees. Due to the fact that the new entity will be in 100 % SLOVNAFT ownership, we do not expect impact of this transaction on SLOVNAFT's share value.