RAO UES of Russia: The energy of the reformRUSSIA POST ELECTIONS: GREAT EXPECTATIONS VIII ANNUAL INVESTOR CONFERENCE Moscow, Russia22.06.2004Speech of the Chairman of the Management Boardof RAO UES of Russia A. Chubais

TWhOverview of Russia and Russian Electricity SectorPositive Consumption TrendRussia: 4th Largest Power Producer in the World in 20033,8641,4721,03388958858057754638332801,0002,0003,0004,0005,000USChinaJapanRussiaCanadaGermanyIndiaFranceUKBrazil25.0%9.5%6.7%5.7%3.8%3.7%3.7%3.5%2.5%2.1%% of WorldTotalTWhOptimistic ScenarioPessimistic Scenario199019951996199719981999200020012002200320042005201020151,073841828813809832863875879889945911

1,1351,0201,3151,1001,5451,2008972020Source: IEASource: Energy Recearch Institut, Russian Academy of Sciences

Chart

965

1073

841

828

813

809

832

863

995

1135

1315

1545

1985

1990

1995

1996

1997

1998

1999

2000

2005

2010

2015

2020

945

1,020

1,100

1,200

Data

TWh

Data

Data

1985965

19901,073

1995841

1996828

1997813

1998809

1999832

2000863

2005995

20101,135

20151,315

20201,545

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3864

1472

1033

889

588

580

577

546

383

328

US

China

Japan

Russia

Canada

Germany

India

France

UK

Brazil

Data

TWh

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US3864

Chain1472

Japan1033

Russia889

Canada588

Germany580

India577

France546

UK383

Brazil328

RAO UES of Russia Today: Operating Highlights

Source: RAO UES of Russia, IEA

The Worlds Ten Largest Electricity Companies (2003)

Russian Electricity Sector: Todays StructureFederal Grid Company

System Operator32 Federal Power StationsGenerationTransmission & Distribution GridsSupplyDispatching Services Russian FederationMinorityShareholdersof the Parent CompanyRosEnergoAtomGovernment10 Nuclear Stations73 Regional Power Companies - AO-EnergosFrom 49% to 100%52%48%100%100%From 50 to 100%RAO UES of Russia

RAO UES of Russia Today: Key Financial Data

Growth of the market capitalisation of RAO UES of Russia (RTS data)440%420%400%380%360%340%320%300%280%260%240%220%200%180%160%140%120%100%80%Capitalisation of RAO UES of RussiaRTS Index08/06/200402/09/2002In the recent two years the stocks of RAO UES of Russia were largely outperforming the Russian securities market as a whole Adoption of a package of laws on electricity industry

Power sector reform after adoption of a package of laws: restructuring of RAO UES of RussiaApproval of a configuration of Wholesale Generation Companies;Approval of a configuration of Territorial Generation Companies;Approval of a configuration of Interregional Distribution Companies and Interregional Transmission Companies;Approval of the corporate strategy concept (5+5); Ongoing consolidation of transmission and operational control assets (within AO Federal Grid Company and AO System Operator);Adoption of restructuring decisions by 17 AO-Energos. Restructuring of the first utility (Kalugaenergo) has been completed;Ongoing spin-off of repair and maintenance businesses;A management company for AO North-West CHPP (an international consortium involving ENEL and ESN Energo) has been chosen through a public tender procedure.Establishment of new market participants:

10 wholesale generation companies (WGCs),Up to 20 territorial generation companies (TGCs) 5 interregional distribution companies (IDCs);

! Sale of thermal WGCs and TGCs to private investors;Completion of the restructuring of AO-Energos: by the end of 2004, 40 AO-Energos will have held restructuring shareholders meetings);Completion of the consolidation of transmission and operational control assets;Attracting initernationally recognized strategic investors into the Russian power sector ResultsPlans

Power sector reform after adoption of a package of laws: formation of the market

Since November 2003, electricity trading sessions have been going on in the competitive sector 5-15 Within the first 7 months of its operation, the trading exchange of the Non-Commercial Partnership ATS became one the ten largest specialized trading exchanges of the world by trading volumesThe free sector of the market represents some 8% of the total electricity generation and consumption in European Russia and UralsImplementation of the current model of the competitive wholesale electricity market throughout the Russian territory (with the exception of isolated power systems and the Far East) Development of a new target model of the marketEstablishment of regional liberalized retail market (subject to the elimination of the cross subsidisation practices)ResultsPlans

Volume and price dynamics in the competitive sector of the wholesale marketSource: NP ATSPower sector reform: formation of the market

Improvement of management

Corporate Center

Reform Management Center

Business Unit 1

Business Unit 2

Business Unit Grids

Business Unit Hydro Generation

Business UnitServiceSO-CDUHydro WGCs(4),Hydro Power Stationsunder constructionThermal WGCs(3),TGCs (8), CorrespondingRegional Energos

Thermal WGCs(3),TGCs (6),CorrespondingRegional Energos

Repair andService Companies

Management BoardThe new organizational structure of RAO UES of Russia must stimulate the reform progress in the electric power sector of RussiaFederal Grid Company,IDCs,Export-import,Foreign assets

Participation in assets management,Export

In addition to the traditional exports, RAO UES of Russia has launched a new stage of its strategy abroad based on the acquisition of foreign assets. The company has acquired energy assets in Georgia and Armenia.

Expansion of the geographical scope of exports, attraction of investments into the export-oriented core business development projects.Participation in assets management or acquisition or foreign assets in the CIS area (Moldova, Ukraine, Kazakhstan, Kyrgyzstan,Tadjikistan) and foreign countries (Slovakia, Bulgaria, Poland, Romania, Turkey).ResultsPlansApproval of the key parameters of the Feasibility Study of synchronous interconnection by the European Commission.The Union for the Co-ordination of Transmission of Electricity (UCTE) has prepared draft Terms of Reference for the development of a Feasibility Study of the synchronization project.Synchronization of the electricity systems of Russia and European countries.

OK, Mr. Chubais, I agree that a quality of your reform is more important than its terms But Time is money, isnt it?!RAO UES of Russia Restructuring: Terms and Quality

RAO UES of Russia Restructuring: Wholesale Generation Companies (WGC)

Arrangement Projects for the first five Wholesale Generation Companies will be discussed at the RAO UESR Directors Board Meeting on25.06.2004

I stage: Wholesale Generation Companies are set up as 100 % daughter companies of RAO UES(based on the assets and stocks of federal power plants belonging to RAO UES)

July-August, 2004: setting up of Wholesale Generation Companies 1, 2, 4, 5, 6

2 stage: Auctions to sell out Wholesale Thermal Power Generation Companies

Auctioning mechanism should be approved by the Russian Government

RAO UES of Russia Restructuring: Territorial Generation Companies (TGC)

Arrangement Projects for the first two Territorial Generation Companies will be discussed at the RAO UESR Directors Board Meeting on25.06.2004

April 2004: RAO UES Directors Board has endorsed the scheme of the Territorial Generation Companies being established on the basis of the rented generation equipment of AO-Energos.

Based on this scheme Territorial Generation Companies 9 and 14 will be set up.

It is planned that Territorial Generation Companies 9 and 14 will start operating since 01.01.2005.

Territorial Generation Companies 9 and 14 could be sold to investors after their formation has been completed (2006).

25.06.2004: Time to make a choice

Setting up and further splitting off WGCs and TGCsthe biggest actors on the future electric power competitive market in RussiaBreach of time schedule of setting upelectric power competitive market in Russia

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