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EURELECTRIC Annual Conference « Power for Europe: Can we shape the future? »

Russia's place in the world electricity landscape: A view to the future. Anatoly Chubais Chief Executive Officer RAO « UES of Russia », President Electric Power Council of the CIS. EURELECTRIC Annual Conference « Power for Europe: Can we shape the future? »

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EURELECTRIC Annual Conference « Power for Europe: Can we shape the future? »

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  1. Russia's place in the world electricity landscape:A view to the future Anatoly Chubais Chief Executive Officer RAO «UES of Russia», President Electric Power Council of the CIS EURELECTRIC Annual Conference «Power for Europe: Can we shape the future?» Vienna, Austria, 13-14.06.2005

  2. 4% RAO “UES of Russia” Other 96% 28% 32% 72% 68% Length of transmission lines RAO: 2,497 thousand km Installed capacity RAO: 156m kW Heat generation RAO: 469m Gcal 24.9% 10.2% 6.8% 5.5% 3.7% 3.7% 3.5% 3.5% 2.4% 2.1% profile RAO «UES of Russia»: Leading role in electricity industry 5 000 3 993 4 000 3 000 1 640 2 000 1 088 889 601 597 567 555 1 000 384 345 0 US UK TWh India China Brazil Japan Russia France Canada Germany % of World Total Source: IEA

  3. profile RAO «UES of Russia»: Financial performance US$m (2) (1) Source: IAS Group financial results (1) Excludes doubtful debtors expense; (2) As reported

  4. Generation • Market prices • Competitive environment Competitive sectors Market rules Sales Dispatching • Securing equal access to grids • Establishing market infrastructure Transmission Regulated tariffs Monopolies Distribution reform RAO «UES of Russia»: Reform basics

  5. reform UES of Russia: Can the recent blackout stop electric power reform? "Sir, I'm absolutelycertain: your slight injury is no cause for amputation ofthe whole leg . . ."

  6. Private majority Wholesale GenCos Wholesale GenCos Formation Private majority Territorial GenCos Territorial GenCos Formation RAO UES unbundling reform The ReformProcess: Finishing line in sight 2005 2006 2007 2008 Competitive Market (5 – 15%) Launch of vesting contracts and competitive market (spot)

  7. Private shareholders Government FGC (Transmission) <25% Other generating companies >75% On the base of independentRegional Energos Nuclear power generating company reform Target sector model Monopolies Competitive Generation System operator Wholesale GenCos (6) Hydro GenCo (1) Territorial GenCos (14) 75-85% <25% 51-60% <48% >75% >52% 25-15% 49-40% Competitivemarket IDC (Distribution) (4) <48% >52% FGC – Federal Grid Company IDC – Inter-regional distribution grid company

  8. Synchronous integration • Asynchronousintegration (installation of direct current links) external vector Integration of IPS/UPS and UCTE power systems April 19, 2005: Cooperation Agreement to prepare a Feasibility Study on Synchronous Interconnection of the IPS/UPS and UCTE was signed Europe: blackout geography and statistics • August 2004: United Kingdom. About 250,000 people without electricity for a time; • September 2004: Denmark and Sweden. Almost 5 million people… • September 2004: Italy. About 56 million people... • May 2005: Russia. About4millionpeople... Conclusion: Reliability is a factor of top importance for integrating systems Possible options:

  9. Business Trends in the Electric Power Industry: Two-Way Road Foreign companies in Russia RAO UES of Russia in other countries - Enel (Italy), in an alliance with ESN Energo, Russia, won a public tender for the operation of North-West CHP; - Fortum (Finland) increased its stake in RAO UES’ Saint Petersburg regional utility Lenenergo up to 30.7%; - Kazakhstan investors acquired blocking stake in Kalugaenergo, one of regional energy companies of RAO UES holding - Acquired or took under management electricity assets in Georgia, Armenia, Tajikistan, Moldova; - RAO «UES of Russia» is a preferred bidder for the purchase of major generation assets in Bulgaria - Is close to complete the acquisition of 50% of shares of a high-capacity power plant in Kazakhstan;

  10. RAO «UES of Russia»:Relative valuation investment opportunities 2005 EV/EBITDA EV/Installed capacity, $/kW Average: 5.8x Average: 984$/kW Sources: Brokers’ Estimates, Bloomberg, companies reporting

  11. investment opportunities Russian Power Sector: Key advantage for investors … By the end of 2006 they will be available amid competitive market conditions. Today, electric power assets are deep in the non-market environment ... 2005-2006: From the swamp to the firm ground

  12. investment opportunities Attraction of Investors to WGCs and TGCs One of the objectives of the RAO UES of Russia is: To sell the controlling stakes of at least three-four new companies – WGCs and TGCs – to foreign strategic investors Effects: -   Attraction of investments into competitive sectors of the electric power industry - generation and sales -  Establishment and development of the free competitive market of electric power -   Application of new technologies in the electric power industry -   Enhancement of the attractiveness of the Russian electric power industry and economy on the whole as an investment destination - …

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