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Presentation by Vyacheslav Sinugin, Deputy Chief Executive Officer, RAO UES of Russia on the 3d Annual European Confere

Presentation by Vyacheslav Sinugin, Deputy Chief Executive Officer, RAO UES of Russia on the 3d Annual European Conference Investing in Russia and CIS. 9 Ju ly 200 2. London.

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Presentation by Vyacheslav Sinugin, Deputy Chief Executive Officer, RAO UES of Russia on the 3d Annual European Confere

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  1. Presentation by Vyacheslav Sinugin, Deputy Chief Executive Officer, RAO UES of Russiaon the 3d Annual European Conference Investing in Russia and CIS 9 July 2002 London

  2. The three year results and the middle-term strategy of the Holding development Present 1998 - 2001 2002-2004 1st stage is anti-crisis management Sequence of measures for increasing the Holding efficiencyand further Russian power industry transformation 2nd stage Wholesale market and it’s new effective companies creation The Holding environment Year 2001: The anti-crisis management period is finished, the switch to regular working regime is completed, the conception for further development is worked out

  3. The main results of 1998 – 2001 1998 1st stage 2001 • The financial performance improvement • Solving the non-payments problem • Increasing efficiency of the Corporate Governance

  4. Results: 1998-2001 The international audit made by Pricewaterhouse Coopers: 41,7 billion rubles of the net profit in 2001 Net profit of the Group, billion rubles 41.7 50 1.0 1998 1999 0 2001 2000 - 11.9 -100 -500 In 2000 the Group for the first time obtained operation revenue profit 7.9 billion rubles and net profit 1 billion rubles. - 532.3 * The figures have been calculated taking into account the purchasing power of ruble as of December 31, 2001

  5. Results: 1998-2001 12.3 billion rubles have been earned on the implementation of the Cost Reduction Program in the Holding in 2001 Cost reduction structure of the Holding in 2001 Cost reduction programs stimulate management of companies to reach greater final results thanks to the targeted cost reduction 6% 3% Fuel balance - 2% 1% Fuel rate 4% Fuel - other 35% 4% Refurbishment Wages Non-core services Management expenditures 16% Property surplus Non-core 20% 9% Others

  6. Results: 1998-2001 Solving the Non-payments Problem in RAO UESR: 1998 - 2001 Total losses of RAO UESR on the cause of non-payments and barter, mln. euros (according to Deutsche Bank estimates) % 112 104 101 120 15 14 Mln. Euro 100 7891 13 8000 12 96 80 11 7000 9 48 92 10 8 6000 60 7 22 5000 6 40 17 5 4000 4 20 3 3154 3000 2 0 1 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q1 2000 0 2002 1998 1999 2000 2001 1000 0 9 % cash payments for electric power supplied 7 6 3 1998 1999 2000 2 0

  7. The Holding environment 1998 - 2002 Present 2002 - 2004 • World tendencies of power sector development • Russian economy growth • Low tariffs • Assets worn out • Restructuring of energy sector in Russia

  8. Great Britain (1990) Argentina (1990) Hungary (1999) Skandinavia (1992) Tailand (1996) Brazil (1995) Environment 1990s: World trends in electric power sector complete liberalization of electric power sector California (1995) Kazakhstan (1998) Italy (1999) Competition EU Directive (1996) Price liberalization Russia (2001) Moldova (1999) Ukraine (1997) State monopoly Greece (2000) France (2000) SAR (2000) Non-discriminatory access to grid Private investments

  9. Environment Tendency of Last Years - Increase in Russian Power Consumption Energy Consumption In 1999, for the first time after the crisis power consumption went up by 2,8 % or 22,9 bln. kWh Bln. kW/h 1074 1062 1100 1002 1050 1000 945 950 880 875 863 856 900 832 840 828 813 809 850 800 2001 2002(forecast) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

  10. Environment The forecast of the most important Holding activities Bln. kWt. h. 635,2 634,2 RAO “UES of Russia” electricity production growth 628,7 650 622,8 602,2 600 602,0 2001 2002 (forecast) 2003 (forecast) 501,0 500 Bln. rub. 401,3 Operation incomes of RAO “UES of Russia” 400 2001 2002 (forecast) 2003 (forecast) 12,3 14 Bln. Rub. 9,7 The program of costs decrease 10 2,0 2000 2001 2002 (forecast)

  11. Environment Negative factors and measures to increase capitalization of RAO UES of Russia Factors influencing negative Holding capitalization Measures for capitalization growth 9 8 7 6 5 4 3 2 1 State regulation: in a number of cases tariffs do not cover costs or set low profitability for energy companies Court appeals in order to change decisions of regulating power sector 0 Parliamental delaying of consideration of laws on the Russian electricity reforms and the law which will allow foreign investors to own more than 25% shares of RAO UES of Russia are additional factors of unstability Appeals to the President and Government, laws lobbing in Parliament Negative trends on international financial markets

  12. The RAO «UES of Russia» tasks for 2002 - 2004 2002 2 nd stage 2004 • Holding efficiency growth • Holding restructuringaccording to governmental Decrees and laws on the Russian electricity reforms • Private investments attraction

  13. Wholesale generative companies Trade System Administrator Electricity production Exchange RAO “UES of Russia”: the reform in 2002 Prospect: 2002-2004. Russian power sector reform 2002 Minor shareholders Russian Federation 52 % 48 % RAO «UES of Russia» АО-energy Basic variant of restructuring System Operator Federal Grid Company Generation, LV grids,sales of thermal and electricity energy HV Grids Dispatching

  14. Prospect: 2002-2004. Russian power sector reform Regional projects: basic model for the 1st stage Basic model for reforming AO-energo was approved by the UES Board of Directors on 6.03.2002 AO-ENERGO MANAGEMENT COMPANY GENERATION GRIDS GRIDS GENERATION SALES SALES 1 phase: AO-energo shareholders while Holding restructuring get the proportional quantity of newly created companies 2 phase:companies enlargement in generation and grids

  15. Prospect: 2002-2004. Russian power sector reform Key Decisions on Power Companies Reforming are Made in Cooperation with Minority Shareholders Project application preparation General Shareholders’ Meeting 15 47 14 Minority shareholders UESR’s Project Committee is functioning within corporate procedures Boards of Directors of power companies 8 8 7 7 6 5 5 Governmental Commission on Russian Power Sector reforming 2 2 4 4 1 1 Reforming Committee under UESR’s Board of Directors 1 1 reflects the position of the Government as a company’s shareholder 0 0 Board of Directors of RAO UESR The Evaluation Committee is functioning under the Board of Directors. The Committee has chosen Deloitte & Touche to elaborate the common methods for evaluating power companies business performance

  16. Prospect: 2002-2004. Investments Short-term Investment Program «5000 МWt»:Projects for 2002 North-West TPS (CCGT), + 450 MWt Transaction goal - to attract a strategic investor to complete the 2nd power generating unit Transaction type: tender for 25% +1 share with an option for other 25% Pskov CPS, + 215 MWt Transaction goal - toattract a strategic investor Transaction type: tender for 25%+1 share with gradual increase of investor share in the capital up to 51%

  17. Conclusions • Three years of stress-management are in the past • The Russian Government is planning to accomplish the power sector reform, during which the effective business companies should be created • The top management of “RAO UES of Russia” is preparing the program of measures to increase the Holding activities efficiency in 2002 - 2004

  18. THANK YOU FOR ATTENTION

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