Rao “Ues of Russia” Annual Report 2006

RAO “UES OF RUSSIA” ANNUAL REPORT 2006

The Annual Report 2006 of OAO RAO “UES of Russia” was approved by the Board of Directors of RAO “UES of Russia” on 25 May 2007 and submitted for shareholder approval at the Annual General Meeting of OAO RAO “UES of Russia” on 26 June 2007. Contents ANNUAL REPORT OF RAO “UES OF RUSSIA”

CORPORATE HIGHLIGHTS 4 CORPORATE REFORMING ENSURING RELIABLE ELECTRICITY INVESTMENT INTERNATIONAL APPENDIX

2 0 0 6 GOVERNANCE SYSTEM THE COMPANY OPERATION AND HEAT MARKETS ACTIVITIES ACTIVITIES STATEMENT OF THE UES OF RUSSIA BY BOARD CHAIRMAN AND MANAGEMENT BOARD CHAIRMAN OF RAO “UES OF RUSSIA” 6

ABOUT THE COMPANY 10

CAPITAL 18 36 62 76 96 118 130 OF OAO RAO “UES OF RUSSIA” 12

Results Operation Wholesale International Cooperation Corporate Governance Code Shareholders Meeting 21 of the Structural Reform 38 of the UES of Russia 63 Electricity Market 77 of RAO “UES of Russia” 118 Compliance Report 132 COMPANY’S Board of Directors 22 Liberalization of the Electricity Тechnical Policy 66 Retail Electricity Markets 84 FINANCE Foreign Assets Information Markets 44 and Projects 121 on Members of the Board Management Board 25 Heat Market 85 of Directors, Management First Phase of the Company’s Electricity Exports Board, Committees Reorganization 45 and Imports 122 INVESTMENT PHASE and Commissions under Governance System 26 the Board of Directors Reform Plans 46 OF THE UES DEVELOPMENT of RAO “UES of Russia” 138 PRODUCTION RESULTS CORPORATE Information on Stakes and Voting Shares Held SOCIAL REGULATORY by RAO “UES of Russia”, 100 RESPONSIBILITY Membership in Not-for-Profit ENVIRONMENT Organizations 145 AND MACROECONOMIC Financial Management RAO “UES of Russia” INDICATORS and Financial Subsidiaries Market Operations 101 68 with Shares Traded Company’s on Stock Markets 161 Financial Performance 104 Investment Needs 86 Report on Financing of the UES of Russia 68 126 of OAO RAO “UES of Russia” Auditor’s Report 110 Generation 86 Investment Programme 54 Sources of Investment 71 Statutory Financial Statements Projects 167 Electricity Transmission of the Company 114 and Distribution 92 Information Power Consumption Trends 55 Opinion Statement on Transactions Made Electricity Sales 94 of the Auditing Commission 117 by OAO RAO “UES of Russia” 168 Factors Affecting Pricing in Electricity Industry 57 Company Bylaws 172 Electricity and Heat Tariffs 59 Major Corporate Events 174

Glossary 180

Contact Information 185 2006 Corporate Highlights Key Performance Highlights of RAO “UES of Russia” Holding Company and Parent Company

59 REGIONAL ENERGOS COMPLETE ALL THERMAL WGCs AND MOST TGCs NEW RULES FOR THE OPERATION Unit of SEPARATION BY LINES OF BUSINESS CREATE THEIR INTENDED FINAL OF THE WHOLESALE AND RETAIL Indicators measurement 2004 2005 2006 STRUCTURE ELECTRICITY (CAPACITY) MARKETS ARE ADOPTED Installed capacity of power plants owned by the Holding Company million kW 156.5 157.9 159.2

Electricity output by RAO UES energy companies billion kWh 651.9 665.4 695.0

Heat output by RAO UES entities million Gcal 465.8 465.2 477.8

Average annual number of employees in the ‘000 persons 496.3 461.2 469.3 Holding Company’s entities

Length of the Holding Company’s transmission lines ‘000 km 2,482.5 2,479.0 2,476.8 OAO "WGC-5" COMPLETES ITS IPO, THE FIRST SALE OF A REGIONAL THE EGM OF RAO "UES OF RUSSIA" THE FIRST ONE AMONG THE RAO UES ENERGY retail COMPANY HELD ON 6 DECEMBER 2006 APPROVES Total length of the Holding Company’s backbone GENERATION COMPANIES, RAISING OF RAO "UES OF RUSSIA" TO A PRIVATE THE FIRST PHASE OF THE COMPANY ‘000 km 144.2 144.7 144.9 transmission lines (220 kV and above)* USD459 MILLION IN FUNDS TO FINANCE INVESTOR TAKES PLACE. REORGANIZATION BY SPIN-OFF ITS INVESTMENT PROGRAMME THE SHARES IN OAO "YAROSLAVL OF TWO GENERATION COMPANIES FROM Total length of the Holding Company’s ENERGY RETAIL COMPANY" HELD RAO "UES OF RUSSIA": ‘000 km 478.3 478.7 479.0 BY RAO "UES OF RUSSIA" HAVE BEEN ОАО "WGC-5" AND OAO "TGC-5" transmission lines (35-110 kV) SOLD IN A PUBLIC AUCTION Total length of the Holding Company’s ‘000 km 1,860.0 1,855.6 1,852.9 transmission lines (0.38-20 kV)

Company’s net revenues from sale of goods, products, millions of 34,461 32,579 40,297 works and services RUB

millions of Company’s profit before taxes 27,233 24,964 754,942 RUB

millions of Company’s net (retained) income 24,069 20, 898 745,088 RUB

Dividends per ordinary share of the Company RUB 0.0559 0.0574 0**

Dividends per preferred share of the Company RUB 0.2233 0.1939 0**

* overhead and cable transmission lines ** submitted for shareholder approval at the AGM of OAO RAO "UES of Russia" on 26 June 2007 ANNUAL REPORT OF RAO “UES OF RUSSIA” 2 0 0 6

ALEXANDER VOLOSHIN, ANATOLY CHUBAIS, Chairman of the Board of Directors Chairman of the Management Board RAO "UES of Russia" RAO "UES of Russia" Statement by Directors Board Chairman and Management Board Chairman of RAO “UES of Russia” ANNUAL REPORT OF RAO “UES OF RUSSIA” 2 0 0 6

Dear Shareholders, subsidiaries via a share exchange. 9 out of the city markets were liberalized with effect from The RAO UES Investment Programme is OAO “TGC-1”, and the Chelyabinskaya CHPP-3 as launch a large-scale investment process in 14 TGCs completed the creation of their in- 1 September 2006. The new model for the designed to achieve those goals. By 2011, over of OAO “TGC-10”. By end-2006, the installed the energy sector. We are convinced that our tended corporate structure. To date, 64 out of wholesale electricity market includes a sys- RUB3.1 trillion in funds will be allocated to capacity of power plants of RAO UES Hold- joint efforts will help us meet the challenges During the reporting year, the Company’s the 72 regional energos have fully completed tem of regulated bilateral contracts and the finance the Investment Programme, including Company increased by 1,300 MW reach- that the national economy presents to the management bodies paid special attention to the functional unbundling process, including competitive spot and balancing markets. The ing RUB1.3 trillion to be used for the developing 159,200 MW. Electricity output grew by electricity industry. Investments in the sector implementing the industry reform, shaping 11 companies in 2006. share of electricity sold at unregulated prices ment of power grid facilities. The Programme 4.4 percent, and heat output rose 2.7 percent. will enable us to create an entirely new indus- the five-year investment programme for RAO In the power grid and dispatching business, will increase stepwise to reach 100 percent by takes into account the needs of each region The progress with the electricity reform, the try making use of cutting-edge technologies UES entities, and the current financial and efforts were continued to consolidate the January 2011. The retail market will be liber- of Russia. Together with the regional admin- current results of our financial and production and give an impetus to the development of the production issues. UNEG facilities within OAO “UES FGC” and the alized in parallel with the wholesale market. istrations, we have started to work out and activities during the reporting year were hailed related sectors. The key resolutions taken by the Board of dispatching operations within the framework The first results of the markets’ operation implement five-year programmes designed by the investment community. In February Directors included the approval of the first of OAO “UES SO-CDA”. suggest that they deliver improved efficiency. to ensure reliabile power supply and develop 2007, international rating agency Standard & and final reorganization of the Company, the In the reporting year, the Company’s mana- Today, the wholesale market prices reflect energy facilities in the regions. Poor’s upgraded its corporate credit rating on strategy for issuance of additional shares by gement bodies approved the reorganization of the actual proportion between the demand The key mechanism to attract investments RAO “UES of Russia” to ‘BB’ from ‘B+’. The the generation companies, and the strategy RAO “UES of Russia” (the Parent Company) in and supply. The market gives adequate price in the generation segment is offering new national rating was upgraded to ‘ruAA’ from for disposal of shares in the energy retail com- two phases. The first reorganization phase will signals to both electricity producers and con- shares in WGCs and TGCs to private investors. ‘ruA+’. From 28 June 2006, when the previous panies. Before consideration by the Board, be implemented in 2007 by divesting two com- sumers. To date, we have completed three offerings, AGM of OAO RAO “UES of Russia” was held, Alexander Voloshin, virtually all questions were reviewed by the panies—WGC-5 and TGC-5. Shares in these 2006 saw an unprecedented growth in which we consider were a great success. As to 24 April 2007, the Company’s market capi- Board Chairman Management Board of RAO “UES of Russia” companies will be distributed pro rata among terms of electricity consumption during the a result of the offerings, the three genera- talization grew by 96 percent to USD58 billion, and the advisory bodies under the Board of the shareholders of RAO “UES of Russia”. entire reform period, with the energy use tion companies—WGC-5, WGC-3 and TGC-5— outstripping the RTS Index by 57 percent. Directors — the Strategy and Reform Commit- The second reorganization phase is expected nation-wide increasing 4.2 percent during raised about RUB107 billion in funds for their The revenues of RAO UES Group in 2006 tee, Audit Committee, Appraisal Committee, to be completed by 1 July 2008. By that time, the year. This represents a 2.5-fold increase investment programmes. were in excess of RUB900 billion, an increase and Human Resources and Remunerations RAO “UES of Russia” will have spun out all compared to the average annual growth rate In 2007-2008, seventeen generation compa- of over RUB135 billion compared to 2005. Anatoly Chubais, Committee. In 2006, the Board of Direc- companies of the intended final sector struc- of electricity consumption over the past five nies are to hold IPOs. The Board of Directors Despite that, the Board of Directors recom- Chairman of the Management Board tors created an Investment and Fuel Supply ture, and the Parent Company will discontinue years. In November 2006, the Russian Federa- and the Management Board of RAO “UES of mends, for the first time, that the shareholder Commission. operations. As a result of the reorganization Government released a basic forecast of Russia” expect that these offerings will gen- meeting, which is the supreme management The relationships between the Company’s tion, all shareholders in RAO “UES of Russia” electricity production for domestic consump- erate at least RUB420 billion in cash, which body of the Company, vote to omit the dividend managers and shareholders, the system of will receive shares in the spin off companies tion at 1,426 billion kWh by 2015. This means will be used to implement the WGC and TGC in respect of 2006. This recommendation is accountability, responsibility and manage- in proportion to their holdings of the Parent that the average annual growth rate of elec- investment programmes. As a result, the total due to the review of the market value of the ment actions were regulated by the Revised Company shares. tricity use until 2010 will be approximately amount of investments to be made by the RAO Company’s holdings in its subsidiaries, which Corporate Governance Code of RAO “UES of After the reorganization is completed, the 5 percent, and 3.6 percent in 2011-2015. UES energy companies in 2007 will increase resulted in the accrual of a net “paper profit” Russia” adopted in 2006. state will control OAO “UES FGC”, OAO “UES Such a dramatic increase in electricity almost threefold to RUB520.5 billion com- of RUB717 billion. In such a situation, we be- After the AGM held in 2006, the Board of Di- SO-CDA”, OAO “HydroWGC”, ZAO “INTER RAO consumption means that a lot of new genera- pared to 2006, and 4.5-fold over 2005. lieve that dividend payment from the paper rectors and Management Board of RAO “UES UES”, “IDC Holding”, and “Far East and Is- tion capacity will have to be constructed and During the year under review, we brought profit would not be advisable. of Russia”, together with the management landed Regional Energos Holding”, and the brought on line very quickly. By 2011, we will on line new generation facilities, including Next year, the management and sharehold- bodies of the RAO UES subsidiaries, conti- thermal WGCs and TGCs will become fully need to put into operation over 40,000 MW of power unit 2 of 450 MW at the Severo-Za- ers of the Company will have to complete the nued the process to create the intended final private companies. generation capacity, of which about 34,000 MW padnaya CHPP, new 180 MW power units corporate restructure and vote on the reso- structure of the electricity industry. All ther- Pursuant to the Russian Government will be built by the companies which today at the Khabarovskaya CHPP-3 of OAO “Far lution to implement the final reorganization mal WGCs completed consolidation of their resolution, the wholesale and retail electri- form part of RAO UES Holding Company. Eastern Generation Company”, CHPP-5 of phase of OAO RAO “UES of Russia”, as well 10

Company Structure About the Company as at 31 December 2006

RAO UES Group

RAO UES Holding Company ANNUAL REPORT OF RAO “UES OF RUSSIA”

OAO RAO “UES of Russia” was established RAO UES companies generate in 1992 pursuant to Decrees of the Russian Company’s Mission Executive administration and branches,

2 0 0 6 OAO RAO “UES of Russia” President No. 923, dated 15 August 1992, and (Parent Company) representative offices No. 1334, dated 5 November 1992. The con- In the interests of its shareholders, OAO RAO tributions to the Company’s authorized capital “UES of Russia” endeavours to ensure a long- were made in the form of property of thermal term increase in the value of the Company Companies comprising the final industry structure and hydroelectric power plants, power trans- and its assets and to increase the efficiency of 69.8% mission lines with substations, other energy the Holding Company’s entities. of electricity facilities, and shares in energy companies, OAO “System Operator-Central Dispatch Branches: Integrated Dispatch Administrations (IDAs) power sector research and development and The mission of OAO RAO “UES of Russia” is to: Administration of the Unified Energy System” construction entities. achieve the goals of the electricity reform; 100% OAO RAO “UES of Russia” was registered ensure reliable and uninterrupted power with the Moscow Registration Chamber on supply of electricity and heat to customers; 32.7% OAO “Federal Grid Company of the Branches: Territorial Isolated Units Unified Energy System” Bulk transmission (trunk) grids (TGs) 31 December 1992 (Registration Certificate maintain a balance of interests of the of heat in Russia 100% No. 020.863). Pursuant to the legislative re- Company’s owners (the state and minority quirements, on 19 July 2002 the Company re- shareholders) and other stakeholders. ZAO “INTER RAO UES” registered with the Moscow City Directorate of RAO UES companies the Ministry of Taxes and Levies of Russia and The key strategic goals and objectives pur- account for 60% was assigned the Principal State Registration sued by RAO “UES of Russia” in the course of Number (OGRN) 1027700043293. Pursuant to the sector reform are as follows: Wholesale Generation Companies OAO "WGC-1", OAO "WGC-2", OAO "WGC-3", OAO "WGC-4", OAO "WGC-5", OAO "WGC-6", Order of the Russian President No. 1009, dated to attract massive investment in the elec- OAO "HydroWGC" 49-100% 4 August 2004, OAO RAO “UES of Russia” was tricity industry and create the conditions for 72.1% included in the List of Strategic Enterprises raising private capital; of generating capacity Territorial Generation Companies OAO "TGC-1", OAO "TGC-2", OAO "Mosenergo" (TGC-3), OAO "TGC-4", OAO "TGC-5", and Strategic Joint Stock Companies. to create a competitive market for electri- OAO "TGC-6", OAO "Volzhskaya TGC"*, OAO "Southern Generation Company TGC-8", OAO "TGC-9", OAO "TGC-10", OAO "TGC-11", OAO "Yeniseyskaya TGC (TGC-13)", OAO RAO “UES of Russia” (also the “Com- city (capacity); 49-100% OAO "TGC-14", OAO "Far Eastern Generation Company"* pany” or the “Parent Company”) is engaged to increase the efficiency of power utilities; in organizing activities of its subsidiaries and to expand the market share of the Holding Interregional Distribution Companies OAO "Center and North Caucasus IDC", OAO "North-West 96.0% IDC" OAO "Urals and Volga IDC", OAO "Siberia IDC" dependent companies directly involved in the Company entities on the heat and electri- of the entire length of the generation, dispatching, transmission and re- city markets; 100% UNEG transmission lines tailing of electricity and heat. Taken together, to develop and implement a fair and trans- regional energos 9 14-100% OAO RAO “UES of Russia”, its subsidiaries parent system of regulation for power grid and dependent companies make up RAO UES companies; AO-power plants 22 0.1-100% Holding Company (the “Holding Company”). to improve the corporate governance sys- The Holding Company has The Holding Company and other subsidia- tem. Regional companies Generation Companies 14 ries of OAO RAO “UES of Russia” — research Energy Retail Companies 62 Distribution Companies 57 and development institutions, repair and 49-100% Transmission (Trunk Grid) Companies 8 maintenance companies, services providers, and other entities not involved in the genera- companies included OAO "Power Machines", OAO "Russian Communal Systems" 469,300 in rao ues group Scientific, research, design, and construction companies tion, dispatching, transmission or retailing ZAO "Agency for Power Balance Forecasting", Non-core companies employees of electricity and heat — comprise RAO UES Group (also the “Group”). *the Company’s second-tier subsidiaries. 12 Capital of OAO RAO "UES of Russia" With the electricity reform progressing, favourable conditions are beginning to emerge ANNUAL REPORT OF RAO “UES OF RUSSIA” for the increase in the energy As at 31 December 2006, the share capi- The shareholders owning ordinary and pre- Major Shareholders of OAO RAO "UES of Russia"* Ownership Structure companies’ value. RAO “UES tal of OAO RAO “UES of Russia” amounted ferred shares in OAO RAO “UES of Russia” of OAO RAO "UES of Russia", % 2 0 0 6 to RUB21,558,451,684, and was divided into have all the rights to take part in running the of Russia” is one of the likely 43,116,903,368 shares of 50 kopecks par Company and rights to a share of its assets, Stake, % 2.89 beneficiaries of this process, value each, including 41,041,753,984 ordinary as provided by Russian law and the Company Russian Federation through the Federal Agency for say Aton analysts. According shares and 2,075,149,384 preferred shares. Charter. 52.6832 Federal Property Management 139,989,946 shares of the Company were to them, RAO UES shares issued in 1993, and the second issue of Peculiarities ING BANK (EURASIA) ZAO (as nominee) 18.4521 do not only provide an op- 42,976,913,422 shares took place in 1995. of the Dividend Rights ZAO “Gazprombank” 10.4902 On 17 June 2003, the Federal Commission of Preferred Shareholders 31 December (as nominee) portunity to take part in the for Securities Market (FCSM) of Russia adopted The holders of Type A preferred shares have 2005 Not-for-profit Partnership “The National Depository Center” liberalization of the wholesale 6.8298 Resolution No. 03-1131/r providing for the the right to a fixed annual dividend. The (as nominee) consolidation of the share issues of OAO RAO amount of dividend payable on each Type electricity market and privati- ZAO “Depository Clearing Company” (as nominee) 5.6459 “UES of Russia”: A preferred share makes 10 percent of the zation of the power generation the issues of ordinary shares of OAO RAO Company’s full year net profit divided by the 44.43 52.68 * as at 31 December 2006 assets, they are a very liquid "UES of Russia" were assigned a new state number of preferred shares, which make up registration number, 1-01-00034-A, and the 25 percent of RAO UES authorized capital. instrument. Alfa-Bank’s old state registration numbers, 73-1P-1553 If the dividend amount to be paid by the Com- analysts agree that shares of 18 August 1993, and MF 73-1-00901 of pany on each ordinary share in a particular 3.20 16 October 1995, were cancelled; year is greater than the dividend payable per State Ownership Structure of Shares of RAO “UES of Russia” are the issues of preferred shares of OAO RAO Type A preferred share, the preferred dividend in OAO RAO "UES of Russia"* a reliable and very liquid way "UES of Russia" were assigned a new state amount is to be increased to the amount of of taking part in the electricity registration number, 2-01-00034-A, and the the ordinary dividend. The dividends to the Quantity of old state registration numbers, 73-1P-1553 holders of Type A preferred shares are paid shares Stake, % reform. of 18 August 1993, and MF 73-1-00901 of annually within the period determined by the 31 December 16 October 1995, were cancelled. General Shareholder Meeting, but no later 2006 Ordinary shares Vedomosti newspaper, Under the Charter of RAO “UES of than 1 May of the year following the year of the State ownership, total 22,569,848,313 52.3457 23 November 2006 Russia”, the Company is authorized to is- General Shareholder Meeting which declares sue, in addition to the shares outstanding, the dividend. Additional payments are made including:

6,467,535,504 additional ordinary sha- on the ordinary dividend payment dates where 44.12 52.68 held by the Federal Agency for Federal 22,569,834,761 52.3457 res, 50 kopecks each, worth a total of the amount of the Type A preferred dividend is Property Management RUB3,233,767,752. The Company may issue to be increased to equal the ordinary dividend held by the regional property management authorities 13,552 0.00003 additional shares only within the number amount. of the shares authorized for issuance. STATE Preferred shares The state owns 22,715,371,537 shares, or LEGAL PERSONS AND NOMINEES State ownership, total 145,523,224 0.3375 52.68% of all shares outstanding. PRIVATE INDIVIDUALS including:

held by the Federal Agency for Federal 145,523,224 0.3375 Property Management

* as at 31 December 2006 14 CAPITAL OF OAO RAO “UES OF RUSSIA" CAPITAL OF OAO RAO “UES OF RUSSIA" 15 ANNUAL REPORT OF RAO “UES OF RUSSIA” Russian Federation Resident vs. Non-Resident Ownership Market for Shares Trading Volumes in RAO UES Shares on Russia’s of Shares in OAO RAO "UES of Russia"*, % of OAO RAO "UES of Russia" Major Stock Exchanges, 2006, millions of USD 2 0 0 6 Ordinary shares of OAO RAO “UES of Rus- sia” are included in the Quotation Lists A, 3.98 0.01 4.38 0.01 Level 1, on the trading floors of ZAO “MICEX Period NP “RTS SE” ZAO “MICEX SE” RUSSIAN FEDERATION RESIDENT 24.79 23.18 LEGAL PERSONS Stock Exchange” (ZAO “MICEX SE”), Non- Quarter 1 758.64 22,564.45 NON-RUSSIAN FEDERATION RESIDENT Profit Partnership “Russian Trading System LEGAL PERSONS Stock Exchange” (NP “RTS SE”), and OAO Quarter 2 570.21 28,889.71 RUSSIAN FEDERATION RESIDENT PRIVATE INDIVIDUALS “Russian Trading System Stock Exchange” Quarter 3 492.57 28,493.74 NON-RUSSIAN FEDERATION RESIDENT (OAO “RTS SE”). 12 may 2005 5 october 2006 PRIVATE INDIVIDUALS The Company’s preferred shares are in- Quarter 4 887.12 22,447.53 cluded in the Quotation List A, Level 1, on the trading floor of ZAO “MICEX SE” and the Quo- tation Lists A, Level 2, on NP “RTS SE” and OAO “RTS SE”. markets for electricity (capacity); the public Capitalization Growth of 71.22 72.43 * as of the record dates for the General Shareholder Meetings of RAO "UES of Russia" in 2006 (AGM held In 2006, shares of RAO “UES of Russia” offering of WGC-5. The Russian Federation RAO UES Generation Companies 28 June 2006, and EGM held 6 December 2006). accounted for 18.7% of the overall MICEX Government meeting which established the (From Start-2006/Market Floatation trading volume and 20% of RTS trading. schedule for the liberalization of the electricity to End-2006) Over 2006, the capitalization of RAO “UES of market and gas price increases; the Extraor- Russia” grew by 130 percent, or USD24 billion, dinary General Meeting of shareholders which Trading Capitalization to USD42.04 billion from USD18.04 billion, approved the first phase of the Company’s Start Date growth, % twice the increase of the RTS index, which reorganization, etc. Cross-Ownership of RAO UES Shares* rose 64 percent. The investors reassessed the 2006 was rich in corporate and stock mar- WGC-2 20.07.2006 100 Quantity of shares prospects for the energy companies in all lines ket events at the subsidiaries and dependent Companies owning shares WGC-3 09.02.2006 139 in OAO RAO “UES of Russia” Ordinary shares Preferred shares Stake, % of business: thermal generation (the value of companies of RAO “UES of Russia”. During the the WGCs grew on average by 110 percent year, 5 WGCs and 6 out of 14 TGCs floated on WGC-4 15.08.2006 55 OAO “WGC-5” 2,860,038 – 0.006633 in 2006), electricity distribution (the value of the stock market (OAO “TGC-2”, OAO “TGC-4”, WGC-5 10.01.2006 199 the regional distribution companies grew by OAO “TGC-5”, OAO “TGC-6”, OAO “TGC-8”, OAO “Penzaenergo” 9,400 – 0.000022 150 percent), hydropower, transmission and and OAO “TGC-9”). Due to the trading volume WGC-6 15.08.2006 46 OAO “Samaraenergo” 88,550 – 0.000205 retail companies. As a result, shares of RAO and liquidity growth, shares of OAO “WGC-5”, TGC-2 18.10.2006 34 “UES of Russia”, which has ownership inter- OAO “WGC-6”, OAO “TGC-5” were moved from OAO “Karachayevo-Cherkesskenergo” 118,272 – 0.000274 ests in energy companies operating in different the non-listed securities schedule to the Quo- TGC-4 31.11.2006 4 OAO “Kirovenergo” 2,080,389 – 0.004825 segments, grew on the back of the optimistic tation List “B”. TGC-5 17.07.2006 50 market sentiment regarding the prospects of OAO “Tyumenenergo” 25,653,944 6,693,960 0.075024 the Russian electricity industry. TGC-6 17.07.2006 49 OAO “Altayenergo” 426,735 – 0.000990 The capitalization of RAO “UES of Russia” TGC-8 15.08.2006 61 in 2006 was significantly influenced by the key OAO “Buryatenergo” 100,000 – 0.000232 corporate events and the resolutions adopted TGC-9 15.09.2006 63 OAO “Yakutskenergo” 16,200 – 0.000038 by the Russian Federation Government. Such events included the introduction of new Rules * as at 31 December 2006 for the operation of the wholesale and retail Price Dynamics of RAO UES Shares on MICEX, % 150

140

130

120 110 RAO UES stock prices have 100 come close to one dollar. 90

80 Recently, shares of RAO 70 “UES of Russia” have been 60 Depositary Receipts Programmes of OAO RAO "UES of Russia" going against the stream. 50 Volume of programme Since early November, the Number of

10.01.06 17.01.06 24.01.06 31.01.06 07.02.06 14.02.06 21.02.06 01.03.06 09.03.06 16.03.06 23.03.06 30.03.06 06.04.06 13.04.06 20.04.06 27.04.06 05.05.06 15.05.06 22.05.06 29.05.06 05.06.06 13.06.06 20.06.06 27.06.06 04.07.06 11.07.06 18.07.06 25.07.06 01.08.06 08.08.06 15.08.06 22.08.06 29.08.06 05.09.06 12.09.06 19.09.06 26.09.06 03.10.06 10.10.06 17.10.06 24.10.06 31.10.06 08.11.06 15.11.06 22.11.06 29.11.06 06.12.06 13.12.06 20.12.06 27.12.06 shares Company’s shares have risen held with as % of as % ORDINARY SHARES PREFERRED SHARES MICEX INDEX Depositary authorized of total 30%, compared to the 10% DR program Depositary Bank Bank capital votes growth of the RTS Stock Sponsored Index during the period. The Capitalization of OAO RAO "UES of Russia" (according to MICEX), billions of USD ADR Deutsche Bank Trust 457,141,000 1.06 1.1 50 (ordinary) Company Americas Company’s market capitaliza-

46 ADR Deutsche Bank Trust tion has reached USD40.3 bn. 367,550,300 0.85 — (preferred) Company Americas 42 Analysts say that this is not 38 Unsponsored the limit. 34 GDR Reg S Bank of New York 7,470,656,900 17.33 18.2 (ordinary) 30 RBC Daily Newspaper,

26 5 December 2006

22 RAO UES Depositary tion through spin-off of OAO “WGC-5 Holding” 18 Receipt Programs and OAO “TGC-5 Holding” and the simultane- OAO RAO “UES of Russia” established a Global ous merger of these spin-offs with and into Depositary Receipt Program (Reg S) and a OAO “WGC-5” and OAO “TGC-5”, respectively, 10.01.06 17.01.06 24.01.06 31.01.06 07.02.06 14.02.06 21.02.06 01.03.06 09.03.06 16.03.06 23.03.06 30.03.06 06.04.06 13.04.06 20.04.06 27.04.06 05.05.06 15.05.06 22.05.06 29.05.06 05.06.06 13.06.06 20.06.06 27.06.06 04.07.06 11.07.06 18.07.06 25.07.06 01.08.06 08.08.06 15.08.06 22.08.06 29.08.06 05.09.06 12.09.06 19.09.06 26.09.06 03.10.06 10.10.06 17.10.06 24.10.06 31.10.06 08.11.06 15.11.06 22.11.06 29.11.06 06.12.06 13.12.06 20.12.06 27.12.06 Level 1 American Depository Receipts (ADR) the RAO UES ADR and GDR holders will be for its ordinary shares in 1997. The Company’s able to exercise the following rights to shares DRs are traded OTC in the USA, Great Britain, in OAO “WGC-5” and OAO “TGC-5”: receive Price Dynamics of RAO UES DR on the London Stock Exchange (LSE), USD Germany, and Austria. The ADR program for Depositary Receipts representing shares in 115 preferred shares of RAO “UES of Russia” was OAO "WGC-5" and OAO "TGC-5"; receive 105 established in May 2000. shares in OAO "WGC-5" and OAO "TGC-5"; 95 In December 2001, both of the Company’s receive proceeds from the sale of the shares 85 ADR programs were transferred from The (cash-out). 75 Bank of New York depositary to Deutsche In the course of the Company’s reorga- 65 Bank Trust Company Americas as successor nization, RAO UES DR holders will receive 55 depositary bank. The functions of the deposi- GDR Reg S Receipts representing shares in 45 tary bank for the GDR Reg S programme are OAO “WGC-5” and OAO “TGC-5”. 35 performed, as before, by The Bank of New However, due to the restrictions imposed 25 York. by US laws, DR holders of RAO “UES of Rus- 15 As of 31 December 2006, about 20% of sia” that are U.S. residents will only be able 6 RAO UES shares were traded as Depositary to receive cash proceeds from the sale of the

10.01.06 17.01.06 24.01.06 31.01.06 07.02.06 14.02.06 21.02.06 01.03.06 09.03.06 16.03.06 23.03.06 30.03.06 06.04.06 13.04.06 20.04.06 27.04.06 05.05.06 15.05.06 22.05.06 29.05.06 05.06.06 13.06.06 20.06.06 27.06.06 04.07.06 11.07.06 18.07.06 25.07.06 01.08.06 08.08.06 15.08.06 22.08.06 29.08.06 05.09.06 12.09.06 19.09.06 26.09.06 03.10.06 10.10.06 17.10.06 24.10.06 31.10.06 08.11.06 15.11.06 22.11.06 29.11.06 06.12.06 13.12.06 20.12.0 27.12.06 Receipts outside Russia. WGC-5 and TGC-5 shares they are entitled to. DR (ORDINARY SHARES) DR (PREFERRED SHARES) As the shareholders of OAO RAO “UES of Russia” approved the Company’s reorganiza- Corporate Governance System ANNUAL REPORT OF RAO “UES OF RUSSIA”

The framework for the governance system of Relationships within the Company are OAO RAO “UES of Russia” and the Holding based on hierarchical subordination; the 2 0 0 6 Company entities comprised of Russian laws, activities of the Company officers and divisions the Company’s Charter and Corporate Gover- are regulated in detail by its internal Stan- nance Code. dards and Regulations approved by the Mana- The supreme management body of gement Board of OAO RAO “UES of Russia” RAO “UES of Russia” is the General Share- and its Chairman. Standards have been deve- holders Meeting. Shareholders delegate the loped to regulate the key managerial func- powers to manage the Company between tions, including property management, shareholder meetings to the Board of Direc- corporate governance at the subsidiaries and tors. The Company is operated by the Manage- dependent companies, budgeting and busi- ment Board, the collective executive body of the ness planning, investment activities, deter- Company appointed by the Board of Directors. mination of the key performance indicators, HR management, and internal audit.

5 20 Corporate Governance System

RAO “UES of Russia” has been ShareholderS named the company with the Meeting best investor relations system. ANNUAL REPORT OF RAO “UES OF RUSSIA” Members of the Investor Pro- In order to enhance its corporate gover- Auditing Commission members elected 28 June 2006* Awards and Ratings The highest governing body of OAO RAO “UES nance and information transparency, the in Corporate Governance of Russia” is a General Shareholders Meeting. tection Association have noted 2 0 0 6 Company reviewed and approved the restated and Information Disclosure The procedure for convocation, preparation, the “constant and professional Corporate Governance Code and Regula- In 2006, ZAO “MICEX Stock Exchange” named conduct of the General Shareholders Meeting dialogue between RAO “UES tion on the Information Policy of RAO “UES RAO “UES of Russia” the winner in the cat- and the tally of votes is set forth in the Regu- of Russia” and the investors”, of Russia”. Commission Chairman, Deputy Director egory “Best Equity Issuer”. lation on General Meeting of Shareholder of The amendments made to the Regulation Bystrov, Maxim Sergeyevich of Department, Russian Federation Ministry RAO “UES of Russia” also became a laure- OAO RAO “UES of Russia” approved by the the “information transpar- of Economic Development and Trade on the Information Policy are designed to fur- ate of the Contest “Best Annual Report of Is- shareholders at the AGM of 2002. ency”, and “prompt and timely ther improve the Company’s information dis- suer Included in the RTS Quotation Lists.” Shareholders owning, in the aggregate, at Head of Directorate, Russian Federation Brzhezyansky, Stanislav Edmondovich closure practices, including the methods, tim- Federal Tariffs Service The Investor Protection Association in 2006 least 2 percent voting shares of the Company information disclosure”. ing and scope of information disclosure on the declared RAO “UES of Russia” the winner of may propose items of business for inclusion Head of Financial and Economic Examination Investors believe that RAO corporate website, in the issuer’s quarterly at the Financial Control and Audit Department, the Russian Leaders in Corporate Governance on the AGM agenda. Shareholders’ proposals Myasnikov, Victor Mikhaylovich filings, and the annual report of the Company, Ministry of Industry and Energy of the Russian 2006 Awards in three categories: “Company must be submitted in writing to the Company “UES of Russia” is the nation’s Federation and to bring the disclosure practices into line Exercising the Greatest Influence on Corpo- not later than 60 days after the financial year- leader in corporate govern- Head of Directorate, Russian Federation with the recommendations provided by Stan- Sannikov, Alexey Valeryevich rate Governance Development”, “Company end. Such shareholders may also nominate Federal Tariffs Service ance, saying that no other dard and Poor’s. with the Best Investor Relations”, “Company candidates for the Board of Directors. The In 2006, the Board of Directors of RAO “UES Deputy Director General, FGUP “FT-Center”; with the Best Annual Report”. number of such candidates should not be company has had a greater Stefanenko, Svetlana Mikhaylovna Director, Corporate Governance Analysis and of Russia” approved the Regulation on Inter- Strategy Center Chairman of the Management Board of more than the number of Board members. If influence on the sphere. nal Control Procedures. Internal controls are RAO “UES of Russia” Anatoly Chubais was nominations are submitted for election to the *positions held at the time of election. the set of measures taken by the Company’s named the winner of the Russian Corporate Board of Directors at an Extraordinary Gener- Russia’s electricity reform Auditing Commission, Board of Directors, Governance Leaders - 2006 Awards in the al Meeting of shareholders, they must be re- being implemented by RAO Audit Committee under the Board of Direc- The Auditing Commission’s activities are “UES of Russia” with the business companies category “Best Corporate Manager”. ceived by the Company not later than 30 days “UES of Russia” is seen tors, and the executive bodies and divisions of governed by the Regulation on the Activities of whose shares (ownership interests) are owned In 2006, the Russian Institute of Directors before the date of the meeting. the Company authorized to implement inter- the Auditing Commission of OAO RAO “UES of by RAO “UES of Russia”. and Expert RA Rating Agency assigned a B++ The nomination for the Board of Directors as an example to be followed nal control. Russia”. In 2006, the Commission conducted a RAO “UES of Russia” exercises control over corporate governance rating to RAO “UES of must set forth each candidate’s name and by both Russian and interna- Internal controls in RAO “UES of Russia” are review of the Company’s operations. the current and future activities of the SDCs Russia”. The rating reflects the Company’s ID details, and the body he/she is being nomi- tional energy companies. aimed at identifying non-compliance with the Pursuant to the Regulation on Remunera- by the Board of Directors determining the sound corporate governance practices. The nated for. laws and the Company’s internal regulations tion of Members of the Auditing Commission Company’s stance on the key items of busi- descriptions of B++ and B+ ratings may be The nomination shall be deemed received in the conduct of business, and assessing of RAO “UES of Russia” approved by the AGM ness of General Shareholder Meetings and viewed on the website: www.rid.ru. on the day it is delivered to the Company. Gazeta newspaper, the effectiveness of the Company’s actions to on 28 June 2002 (as amended by the AGM of Board meetings of the SDCs. Special attention An Extraordinary General Meeting of share- 25 December 2006 achieve its goals. Control over the Company’s 28 June 2006), the Commission members is paid to SDCs’ major transactions. holders is held pursuant to a decision of the financial and business operations is exercised were paid remuneration of RUB36,000 in res- The efforts undertaken by RAO “UES of Board of Directors of RAO “UES of Russia” on by the Financial and Corporate Controlling pect of 2006. Russia” to improve the corporate governance its own initiative, on the requirement of the Center and the Internal Audit Department. The Company advances its interests in the are similarly aimed at its subsidiaries and de- Company’s Auditing Commission, the Com- Pursuant to Russian law and the Charter of subsidiaries and dependent companies by us- pendent companies. In 2006, work was per- pany Auditors, and the shareholder(s) who RAO “UES of Russia”, the Auditing Commis- ing corporate methods in strict compliance formed to cause the SDCs’ management bo- hold(s) at least 10% voting shares as of the sion of the Company is elected by the share- with the laws in force, the SDCs’ charters and dies to adopt their own corporate governance date on which the relevant notice is given to holders at the AGM for a term of one year. The regulations. codes and regulations on information policy. the Board of Directors. The items of business Commission has the authority to control the The corporate governance system at The standard forms of these documents were to be considered by the EGM are proposed by Company’s financial and business operations RAO UES Holding Company is based on the drafted by the Company’s experts and recom- the person requiring to call the Meeting. and monitor compliance with Russian laws. Rules of Procedure for interaction of OAO RAO mended for approval. 22 Corporate Governance System Corporate Governance System 23

Board of Directors ANNUAL REPORT OF RAO “UES OF RUSSIA”

In 2006, OAO RAO “UES of Russia” held two The Board of Directors of OAO RAO “UES of In 2006, the Board of Directors held Board of Directors Elected on 28 June 2006* General Meetings of shareholders. Russia” is responsible for the overall man- 28 meetings and considered over 220 items 2 0 0 6 The AGM held on 28 June 2006 approved the agement of the Company’s operations and of business. Company’s 2005 Annual Report and the annual acts under the authority granted to it by the The most important matters considered by financial statements, declared final dividends Charter and the Regulation on the Board of the Board of Directors of RAO “UES of Russia” on its ordinary and preferred shares, approved Directors of RAO “UES of Russia”. in 2006 were as follows: the Board of Directors Voloshin, Alexander Stalyevich Chairman of the Board of Directors, RAO “UES of Russia” the appointment of the Company Auditors, A Board meeting may be called on the re- revised the Strategy Concept for 2003-2008 Deputy Chairman of the Board of Directors, RAO “UES of Russia”; Minister of Industry and Energy of Khristenko, Victor Borisovich adopted amendments and additions to the quest of a member of the Board of Directors, of RAO “UES of Russia” “5+5”; approved the the Russian Federation Company Charter, elected new members of the Auditing Commission, the Company Au- measures to complete the reorganization of Androsov, Kirill Gennadyevich Deputy Minister of Economic Development and Trade of the Russian Federation the Board of Directors and the Auditing Board ditors, Chairman of the Management Board, almost all generation companies (WGCs and of the Company, and approved the interested and the Management Board. TGCs) comprising the intended final industry Berezkin, Grigory Viktorovich Chairman of the Board of Directors, ESN Group party transactions (series of related transac- Regular Board meetings are convoked by structure; approved the sale of the shares of Managing Director, ZAO “Interros Holding Company”; Chairman of the HR and Bugrov, Andrey Evgenyevich tions) involving the acquisition by RAO “UES the Board of Directors according to the ap- the first energy retail company, OAO “Yaroslavl Remunerations Committee under the Board of Directors, RAO “UES of Russia” of Russia” of new shares in OAO “HydroWGC” proved schedule. Retail Company”; determined the approach to Gref, German Oskarovich Minister of Economic Development and Trade of the Russian Federation and OAO “UES FGC”. The meeting results The Board of Directors approves the List of dealing with the shareholding in OAO “Pow- can be viewed on the Company’s website principal issues to be considered the meet- er Machines” and the latter’s development Dementyev, Andrey Vladimirovich Deputy Minister of Industry and Energy of the Russian Federation www.rao-ees.ru. ings of the Board of Directors of RAO “UES strategy; approved the terms of stock option Head of the Directorate for Property Management of Business Sector Organizations, Nikitin, Gleb Sergeyevich The Company’s Extraordinary General Meet- of Russia” during the period until the next agreements offered to the directors general Federal Agency for Federal Property Management of the Russian Federation ing held by absentee vote (without a physical AGM of the Company. The list includes pro- and senior executives of RAO UES subsidiar- Oganesyan, Sergey Aramovich Head of the Federal Energy Agency of the Russian Federation meeting) on 6 December 2006 approved the posals made by the shareholders owning, in ies and dependent companies; approved the first phase of the Company’s reorganization the aggregate, not less than 5 percent of the Programme for raising large-scale invest- Pushkareva, Olga Stanislavovna Director, Sector Development Department of the Government of the Russian Federation by way of spin-off of OAO “WGC-5 Holding” Company’s ordinary shares, by the Board ments in the electricity industry; approved the Senior Advisor to Chairman, Finnish Institute under the Parliament of Finland (Sitra); Remes, Seppo Juha and OAO “TGC-5 Holding”, elected the Boards Chairman and members, by members of the list of companies to issue additional shares; Chairman of the Audit Committee under the Board of Directors, RAO “UES of Russia” of Directors of OAO “WGC-5 Holding” and Auditing Commission and the Management adopted the Strategy for the energy retail Seleznev, Kirill Gennadyevich Member of the Management Board, OAO “Gazprom”; Director General, OOO “Mezhregiongaz” OAO “TGC-5 Holding”, and approved the merg- Board of RAO “UES of Russia”. companies; approved the divestment of the er of those spin-off companies with and into The draft agenda of the Board meeting, ex- Company’s stakes in non-core companies. Urinson, Yakov Moiseyevich Deputy Chairman of the Management Board, RAO “UES of Russia” OAO “WGC-5” and OAO “TGC-5”, respectively. planatory note, draft resolutions of the Board On 22 September 2006, the Board of Di- Chubais, Anatoly Borisovich Chairman of the Management Board, RAO “UES of Russia” The meeting also approved the purchase by of Directors, and the relevant accompanying rectors reviewed the key issues relating to Chairman of the Supervisory Board, NOMOS-BANK (ZAO); Chairman of the Appraisal Committee RAO “UES of Russia” of additional shares documents are circulated to Board members the first phase of RAO UES reorganization Yuzhanov, Ilya Arturovich under the Board of Directors, RAO “UES of Russia” in OAO “UES FGC”. not later than 20 business days before the and recommended them for approval by the meeting. shareholders at the General Meeting. *positions held at the time of election. The Board of Directors has 15 mem- In 2006, the Board of Directors of RAO “UES bers elected by the General Shareholders’ of Russia” approved several interested party The amounts of remuneration and reim- The Regulation establishes the following cording to the growth of market prices of RAO Meeting. transactions (as listed in Appendix 6). Pursu- bursement of expenses payable to the Board components of remuneration to the Board “UES of Russia” in the amount of 0.0175 per- The Board of Directors elected by the ant to the requirements of the Russian laws, members are determined in accordance with members of RAO “UES of Russia”: remunera- cent of the absolute increase in the weighted shareholders at the AGM held on 28 June 2006 the information on such transactions and the the Regulation on Remuneration of Members tion for participation in Board meetings; remu- average value of all ordinary shares based on comprises ten Government representatives, results of the Board meetings of RAO “UES of the Board of Directors for the Performance neration based on the net income according the market data of NP “RTS SE”. including the Management Board Chairman, of Russia” were disclosed on a timely basis of their Duties and Reimbursement of their to the annual financial statements approved In 2006, the overall amount of the directors’ four representatives of the minority share- in the securities issuer’s quarterly filings and Expenses Relating to the Performance of their by the General Shareholders Meeting of RAO remuneration amounted to RUB78,634.28 holders, and one representative of the Com- posted on the corporate website. Functions as Board Members, which was ap- “UES of Russia” at 0.05 percent of the Com- thousand (except for the Government repre- pany executives. proved by the shareholders. pany’s net profit; additional remuneration ac- sentatives). 24 Corporate Governance System Corporate Governance System 25

Management Board ANNUAL REPORT OF RAO “UES OF RUSSIA”

Board of Directors Elected on 29 June 2005* During the first phase of OAO RAO “UES The Management Board is a collective execu- repair and maintenance business of RAO “UES of Russia” reorganization, the Committee ap- tive body of RAO “UES of Russia” appointed of Russia”; Strategy for issuance of additional 2 0 0 6 proved the valuation of the Company’s shares by the Board of Directors and responsible for shares by the SDCs of RAO “UES of Russia”, for repurchase, which was subsequently ap- the day-to-day running of the Company. The and many other aspects of the Company’s proved by the Board of Directors of RAO “UES Management Board performs the functions activities. Voloshin, Alexander Stalyevich Chairman of the Board of Directors, RAO “UES of Russia” of Russia” and the EGM held on 6 December set forth in the Charter of RAO “UES of Rus- The criteria for remuneration of the Mana- 2006. sia” and acts pursuant to the Regulation on gement Board members were set out in the Khristenko, Victor Borisovich Deputy Board Chairman; Minister of Industry and Energy of the Russian Federation The Audit Committee monitored the prepa- the Management Board of RAO “UES of Rus- Terms and Conditions of Remuneration of Top ration of the Company’s financial statements sia” approved by the Company’s shareholders Managers approved by the Board of Directors Berezkin, Grigory Viktorovich Chairman of Board of Directors, OOO “ESN Energo” by RAO UES management, and reviewed at the AGM held 28 June 2002. of RAO “UES of Russia” on 25 June 2004. Managing Director, ZAO “Interros Holding Company”; Chairman of the HR and Bugrov, Andrey Evgenyevich the Auditor’s Report. The Committee also Under the Company Charter, the Manage- The system of incentives (remuneration) for Remunerations Committee under the Board of Directors, RAO “UES of Russia” reviews the internal control system in the ment Board has the authority to develop and the Management Board members provides Gref, German Oskarovich Minister of Economic Development and Trade of the Russian Federation subsidia-ries and dependent companies of submit to the Board of Directors its propo- that the bonus amount depends on the degree RAO “UES of Russia” on an ongoing basis, which sals regarding the key issues of the Company’s of achievement of the priority targets set by the Medvedev, Yury Mitrofanovich Deputy Head of the Federal Agency for Federal Property Management of the Russian Federation makes it possible to identify the deficiencies activities and the long-term plans, and to pro- Board of Directors of RAO “UES of Russia”. and suggest adequate measures to eliminate duce internal organizational and management The total amount of remuneration paid Oganesyan, Sergey Aramovich Head of the Federal Energy Agency of the Russian Federation them, and bring those to the attention of the documents of the Company. to the members of the Management Board Pushkareva, Olga Stanislavovna Department Director, Russian Federation Government RAO UES senior executives. In 2006, the Management Board held of RAO “UES of Russia” for 2006 was The HR and Remunerations Committee 217 meetings (both physical meetings and RUB205,271.86 thousand. The Management Rashevsky, Vladimir Valeryevich Director General, OAO “SUEK” reviewed the key aspects of motivating the se- absentee votes) and considered over Board members of RAO “UES of Russia” Senior Advisor to Chairman, Finnish Institute under the Parliament of Finland (Sitra); nior managers of RAO UES entities to achieve 1,000 items of business. are listed in Appendix 2. Remes, Seppo Juha Chairman of the Audit Committee under the Board of Directors, RAO “UES of Russia” the strategic goals of the Company and its In 2006, the Management Board consi- SDCs: the Committee took decisions on the dered issues relating to the Company opera- Seleznev, Kirill Gennadyevich Member of the Management Board, OAO “Gazprom”; Director General, OOO “Mezhregiongaz” stock option programmes at the RAO UES tions, implementation of the sector reform, Urinson, Yakov Moiseyevich Deputy Chairman of the Management Board, RAO “UES of Russia” subsidiaries and dependent companies and and raising investments for the industry, approved the Key Performance Indicators for including the following: the Management Chubais, Anatoly Borisovich Chairman of the Management Board, RAO “UES of Russia” the top managers of RAO “UES of Russia”. Board approved the Strategy for commer- Sharonov, Andrey Vladimirovich First Deputy Minister of Economic Development and Trade of the Russian Federation. The Commission for Investments and Fuel cial metering on the retail electricity market; Supply was created pursuant to the resolution the Standard for development and adoption Chairman of the Supervisory Board, NOMOS-BANK (ZAO); Chairman of the Appraisal Yuzhanov, Ilya Arturovich of the Board of Directors of RAO “UES of Rus- of the five-year investment programme of Committee under the Board of Directors, RAO “UES of Russia” sia” in November 2006. RAO “UES of Russia”; the long-term pro- *positions held at the time of election. The Commission is responsible for the re- gramme for equipment repair for 2006-2010; view of key investment projects to be imple- the key parameters of the Forecast Electrical Committees and Commissions The members of the Committees and Com- The Appraisal Committee is primarily re- mented by RAO UES entities. Moreover, the Balance and RAO UES Holding Company until under the Board of Directors mission are listed in Appendix 2. sponsible for the valuation of core assets in Commission is engaged in monitoring of the 2010; the Social Responsibility and Corporate In 2006, the Board of Directors of RAO “UES The Strategy and Reform Committee consi- the course of RAO UES restructuring. By now, volumes and progress made by the SDCs Sustainability Report of RAO “UES of Russia”. of Russia” had four Committees and one dered matters relating to the establishment of the Committee has approved the asset valua- in implementing their investment projects. In 2006, the following documents were pro- Commission: Strategy and Reform Commis- the companies of the intended final sector struction reports for the establishment of all WGCs duced by the Management Board and submit- sion, Audit Committee, Appraisal Committee, ture, reorganization of RAO “UES of Russia”, and TGCs, and the valuation reports for some ted for the Board of Directors approval: Strat- HR and Remunerations Committee, and issuance of additional shares by WGCs and TGCs, transmission (trunk grid) companies and en- egy in respect of the energy retail companies; Investments and Fuel Supply Commission. disposal of the Holding Company’s assets, etc. ergy retail companies. Progress Report on the reform in the energy 26 Corporate Governance System

Company’s Governance Structure

Governance System ANNUAL REPORT OF RAO “UES OF RUSSIA”

Governance Structure Property the immovable properties were written off or and Methods Management dismantled. General Meeting 2 0 0 6 The underlying principle of the Company’s The property management system at RAO 2006 saw major changes in the sharehold- of Shareholders governance structure is to identify the respon- “UES of Russia” is designed to ensure ef- ings in other companies owned by OAO RAO sibility centers and strictly determine their ficient use of the Company’s assets and in- “UES of Russia”: goals and the resources available to those crease shareholder value. part of the WGCs and TGCs completed their BOARD OF DIRECTORS centers. As of December 31, 2006, OAO RAO “UES establishment; RAO “UES of Russia” trans- The goals of the Corporate Center are to of Russia” owned the following property: ferred its shares in the generation compa-

shape the overall development and reorgani- shareholdings in 298 joint-stock companies nies and AO-power plants as capital contri- ALEXANDER VOLOSHIN, Chairman of the Board of Directors zation strategy for the Company; set the KPI (compared to 421 at end-2005), ownership butions to the respective WGCs and TGCs; targets for Business Units, Reform Manage- interests in 4 limited liability companies, the some regional energos completed unbun- MANAGEMENT BOARD ment Center and the SDCs of RAO “UES of power grid and dispatching facilities (those not dling by line of business, which resulted in Russia”; perform the coordination and control transferred to OAO “UES FGC” and OAO “UES RAO “UES of Russia” receiving shares in the

functions; prepare the Company’s financial SO-CDA”, respectively), and the property of newly established (spin-off) companies; Anatoly Chubais, Chairman of Management Board statements, and develop the standards and three power plants (to the extent not transferred the Company embarked on the strategy to policies for energy companies. or contributed to the capital of the WGCs). sell off its services businesses and non- Corporate Center Reform Business Unit 1 Business Unit 2 Hydrogeneration Networks Services Management Business Unit Business Unit Business Unit The goals of the Reform Management Over 2006, the share of property, plant core assets. Center Center are to formulate and implement a and equipment in the structure of assets of The capital contributions made by OAO RAO YaKOV YURY ALEXANDER VLADIMIR VYACHESLAV ANDREY VYACHESLAV common policy for reforming the electricity OAO RAO “UES of Russia” significantly de- “UES of Russia” were applied to the Com- Urinson UDALTSOV CHIKUNOV AVETISYAN SINYUGIN RAPPOPORT VORONIN industry and make the policy for RAO “UES of clined due to the following changes in the pany’s financial results in connection with Russia” in the course of the electricity market Company’s property: the liquidation of the following companies: OAO “UES SO-CDA” NP “ATS” WGC 3, 5, 6 WGC 1, 2, 4 HydroWGC OAO “UES FGC”, Services IDCs, companies liberalization. acquisition by OAO “UES FGC” of the power OAO “Informenergo”, OAO “Energostroitel”, TCs and DCs BORIS The goals of the Business Units are to im- grids from RAO “UES of Russia”; OAO “Biyskaya CHPP-1”, OAO “DSK”, AUYEV prove the efficiency of the subsidiaries under transfer of the property of the Novosi- OAO “Dalnie Electroperedachi”, and 34 re-

their charge while maintaining and improving birskaya HPP, Nizhegorodskaya HPP, and gional management companies established in TGC 1, 2, 3, 4, TGC 6, 7, 10, ао-HPPs 3 Regional AO-institutes the reliability and safety of electricity and heat Saratovskaya HPP as capital contributions the course of regional energos’ restructuring. 5, 8, 9, 14 11, 12, 13 Energos supply to consumers, and to ensure imple- to OAO “HydroWGC”; As part of the non-core divestiture pro- mentation of the strategy reform at the sub- sale of the property of the Reftinskaya cess, RAO “UES of Russia” sold its hold- sidiaries and establishment of companies of TPP and Sredneuralskaya TPP to OAO ings of shares in the following companies FEEC AND Energy Energy Retail Hydropower ZAO “INTER RAO Power plants the intended final sector structure. “WGC-5”; in 2006: OAO “NBD-Bank”, OAO “Yurener- companies in the Companies plants under UES” and under In 2006, RAO “UES of Russia” created sale of the property of the Nizhnevartovs- go-UES”, OAO “Severovostokenergostroy”, Russian Far East construction Foreign assets construction (CCGT) the Project Center for Pre-sale Preparation kaya TPP to OAO “WGC-1”; OAO “TEMBR-Bank”, OAO “Mikhailovskoe Re- and Disposal of Assets, which is respon- acquisition of power grids from OAO “Ku- sort”, ZAO “East-West Energy Agency”, and sible for ensuring efficient disposal of non- banenergo”. OAO “Rostopenergo”. Energy Retail AO-institutes OAO “MUS Companies Energetiki” core, repair and maintenance, and retail In connection with the sale or transfer to Information on the ownership and voting in- assets of RAO “UES of Russia” and generate subsidiaries of the immovable properties lo- terests of OAO RAO “UES of Russia” in other maximum proceeds. cated on the land plots leased by RAO “UES companies is set forth in Appendix 3. of Russia”, the Company surrendered the lease of those land plots and terminated the relevant lease agreements. It also took steps to terminate the lease of the land plots where 28 Corporate Governance System Corporate Governance System 29 ANNUAL REPORT OF RAO “UES OF RUSSIA”

Management of Core Assets In 2006, as part of the process to consoli- calculation of share exchange (conversion) for OAO “Ivanovskie PGU” and OAO “Ivanovs- On 8 December 2006, the Board of Direc- mont”, OAO “Motor Transport Enter- Core assets are the property, plants, and date the TGCs via a share exchange, the Ap- ratios for the merger of the distribution com- kaya Generatsiya” for the purpose of the pilot tors of RAO “UES of Russia” approved the sale prise” (OAO “Chelyabenergo”), OAO “Engi- 2 0 0 6 equipment owned by the Company and its praisal Committee reviewed and approved the panies with and into OAO ““Volzhskaya Inter- project to reorganize OAO “Ivanovo Genera- of the Company’s stakes in 52 energy retail neering and Diagnostic Center” (OAO “Chelyab- SDCs and used in their core activities (gene- valuation reports for TGC-1, TGC-7, TGC-8, regional Distribution Company”. The Board tion Company” through simultaneous spin-off companies through a public auction process. energo”). ration, transmission, dispatching, distribution, TGC-9, TGC-10, TGC-11, TGC-13, and TGC-14, of Directors approved the consolidation of and merger. The proceeds from the sale of the compa- and retailing (sales) of electricity and heat), as and the contribution of the 100 percent stake the above TGCs using the share exchange In addition, in 2006, appraisers conducted Services-related Assets Management nies’ shares exceeded the aggregate reserve well as the shares RAO “UES of Russia” and in OAO “Orenburg Thermal Generation Com- (conversion) ratios calculated by the invest- the valuation of shares of OAO “HydroWGC” The services-related assets of RAO UES price by over RUB488 million. its subsidiaries hold in the entities engaged in pany” to the capital of OAO “Volzhskaya Ter- ment banks based on the valuation reports. for the additional share issue, and the assets Group are the repair and services companies, For some repair companies, RAO “UES of such activities. ritorial Generation Company”. The Committee The investment banks were involved to assist of 42 transmission (trunk grid) companies i.e. businesses primarily engaged in providing Russia” arranged a descending price auction A milestone event of 2006 in the core as- also considered the valuation reports for OAO RAO “UES of Russia” in consolidating TGC and the UNEG facilities owned by RAO “UES research and development services, repairs to sell their shares, with the cut-off price set at set management area was the conversion of “Samara Distribution Company”, OAO “Sara- subsidiaries. Also, the Appraisal Committee of Russia” for the purpose of payment for the and maintenance of equipment, buildings and 50 percent of the auction reserve price. In 2006, shares in the AO-power plants and regional tov Distribution Company”, OAO “Ulyanovsk reviewed and approved the valuation reports new shares to be issued by OAO “UES FGC”. structures used in the generation, transmis- the Company disposed of its shares in seven generation companies into WGC and TGC Distribution Company”, and OAO “Volzhskaya In the course of restructuring the energy sion, dispatching, distribution, and retailing of repair and services companies through de- shares as part of the consolidation process. Interregional Distribution Company” for the companies operating in the Russian Far East, electricity and heat. scending price auctions (OAO “Electrosetstroy- appraisers performed valuation of shares As of 31 December 2006, the Company sold Lipetskenergo”, OAO “Vladimirenergo- of OAO “Amurenergo”, OAO “Dalenergo”, 24 out of its 31 services-related companies remont”, OAO “PermGRES-teploavtomatika”, Property Structure of OAO RAO "UES of Russia"* ZAO “LuTEK”, OAO “Khabarovskenergo”, through auctions: OAO “Kurskenergospetsre- OAO “Voronezhenergoremont”, OAO “Astra- OAO “Southern Yakutskenergo” for determin- mont”, OAO “Tulenergoremont”, OAO “Engi- khanenergoremont”, OAO “Energoremstroy”

ing the share exchange (conversion) ratios neering and Production Center”, OAO “Samara (OAO “Ryazanskaya TPP”), OAO “KATEK- for the merger of those companies with and Production and Repair Enterprise”, OAO “Sa- energo-remont” (OAO “Berezovskaya TPP”) into OAO “Far Eastern Energy Company”. The maraenergospetsremont”, OAO “Saratov Pro- for over RUB180 million. OAO “UES SO-CDA” Regional Energos (9) companies’ assets were contributed to the duction and Repair Enterprise”, OAO “Ulya- Thus, as of 2007, the SDCs of RAO “UES of AO-Power Plants (27) capital of OAO “Far Eastern Energy Company” novsk Production and Repair Enterprise”, Russia” divested of their holdings in 38 repair WGCs (7) TGCs (12) on 1 February 2007. OAO “Ulyanovskenergopetsremont”, OAO “Ne- and services companies. Regional Generation Companies (14) The most important events relating to vinnomyssk Specialized Energy Repair En- In order to make the repair companies Regional Retail Companies (62) OAO “UES FGC” the disposal of core assets in 2006 were terprise”, OAO “Energy Repair Enterprise of more attractive for investors, it is provided Transmission (trunk grid) Companies (13) the first auctions to sell shares of RAO UES the Konakovskaya TPP”, OAO “Repair and that the Holding Company’s procurement ZAO “INTER RAO UES” Shares Interregional Distribution Companies (4) core business subsidiaries—47.36 percent of Construction Enterprise of the Konakovs- entities will maintain a guaranteed volume Distribution Companies (57) OAO “Yaroslavl Retail Company” and 100 per- kaya TPP”, OAO “Novocherkassk Energy Re- of orders equal to 75 percent of the amount OAO “Russian Communal Systems” cent of OAO “Taymyrenergo”. The proceeds pair Enterprise”, OAO “Remont Inzhenernykh of contracts actually delivered during the OAO “Power Machines - ZTL, LMZ, Electrosila, Energomashexport” Construction, Logistics and Services Companies (50) from the share sale totalled RUB7,715,324 Kommunikatsiy” (spun off from OAO “Rya- previous 12 months, after the SDC boards Scientific Research, Development and Design Companies (22) million. Also, OAO “Lenenergo” sold its zanskaya TPP”), OAO “Novomichurinsky En- approve the sale of the repair companies. Management Energy Companies (7) Regional Management Companies (4) 12.5 percent stake in OAO “Petersburg Gene- ergo-remont”, OAO “Kirishi Repair Complex”, Banks (3) ration Company” for RUB4,083 million. OAO “Engineering Center” (OAO “Nizhny Insurance Companies (2) In 2007, RAO “UES of Russia” plans to sell Novgorod Generation Company”), OAO “Oren- Property of the Novosibirskaya HPP and Nizhegorodskaya HPP not transferred as capital its stakes in retail and generation companies burgenergoremont”, OAO “TsPRP-Energo- contribution to OAO “HydroWGC” pursuant to the decisions taken by the Rus- servis” (OAO “Petersburg Generation Com- Property of the Ulan-Udenskaya CHPP not transferred as capital contribution to OAO “TGC-14” Property Property of the Verkhnetagilskaya TPP not transferred as capital contribution to OAO “WGC-1” sian Federation Government and the Board of pany”), OAO “Teploremont” (OAO “Murman- Power network facilities not transferred as capital contribution or sold to OAO “UES FGC” Directors of RAO “UES of Russia” on the elec- skaya CHPP”, OAO “Apatitskaya CHPP”), Dispatching facilities not transferred as capital contributions or sold to OAO “UES SO-CDA” tricity industry reform and the final phase of OAO “Kostromaenergorеmont”, OAO “Arkh- * as at 31 December 2006 RAO UES reorganization. energoremont”, OAO “Kamchatskenergore- 30 Corporate Governance System Corporate Governance System 31 ANNUAL REPORT OF RAO “UES OF RUSSIA” Non-core Assets Human Resource Management In 2006, 45.3 percent of the production per- Average Annual Headcount In 2006, the Company continued to imple- The non-core assets of RAO UES Group are One of the Company’s key goals in personnel sonnel at RAO UES energy companies received of OAO RAO "UES of Russia", persons ment its Strategy for non-government pen- 2 0 0 6 the non-current assets owned by the Com- management is to raise the human resour- training under the Company’s advanced and sion insurance for the employees of RAO UES pany and its SDCs comprising the property, ces efficiency at the RAO UES entities in the further training programmes. companies, which seeks to create a long-term plant and equipment, and construction pro- course of the electricity reform. The Company’s key priorities in personnel non-government pension insurance system 1,169 jects in progress not used in the companies’ The average headcount of RAO “UES of development, professional training, retraining 2006 using a uniform approach, based on common 1,108 core businesses (generation, transmission, Russia” in 2006 was 1,169 employees, a re- and further training in 2006 were: goals and principles, and is intended to en- dispatching, distribution and sales of electri- duction of 303 compared to 2005. to create a personnel development system sure an adequate living standard for the Hold- 1,472 city and heat) and related businesses (repairs, The bulk of the reduction comes from the in the subsidiaries and dependent compa- 2005 ing Company’s employees after retirement, 1,176 system, metering and accounting services), as liquidation of the Company’s branch, “UES nies; and effective handling of HR issues relating well as the shares, units, and ownership inter- Energy Construction Complex”, as well as liq- to provide training and development to hire, retention and providing incentives 1,849 ests held by the Company and its SDCs in the uidation of some non-core branches. opportunities for senior executives of 2004 to the energy companies’ employees. 1,450 entities not engaged in the core and related The average number of employees at RAO RAO “UES of Russia” and its SDCs, a mea- In the course of the Strategy implementa- activities. UES entities in 2006 amounted to 469.3 thou- sure intended to improve the professional tion, the Boards of Directors of 255 companies In 2006, RAO “UES of Russia” continued the sand people, 460.1 thousand of which were level of management; of RAO UES Holding approved their non-gov- work to appraise and divest its non-core as- production personnel. In 2005, the headcount to offer personnel training programmes ernmental pension fund plans covering over TOTAL PERSONNEL sets. The Company put in place a new system figures were 461.2 thousand and 452.1 thou- designed to implement special equipment 429 thousand employees. for selling its non-core assets, which allows sand, respectively. failure prevention measures at power fa- PRODUCTION PERSONNEL An important event of year 2006 in the field a more precise procedure for decision-taking The major factors that influenced the head- cilities. of HR management was the approval by the and expanding the range of options available count at RAO UES companies in 2006 were The Corporate Energy University estab- Management Board of RAO “UES of Rus- for the sale of assets and makes the process the transfer of ownership of municipal-owned lished pursuant to the decision of the Man- sia” of the Strategy for Corporate Assistance Development of Non-Governmental more open, competitive, and transparent. communal and distribution electricity grids to agement Board of OAO RAO “UES of Russia” and Corporate Support in Improving Hou- Pension Insurance Programmes at the Holding Company’s SDCs Decisions on the non-core divestitures are some of the Company’s subsidiaries, and the provided training in 2006 to over 7 thousand sing Conditions for Employees of RAO UES taken by the Board of Directors of the Com- commissioning of new generating capacity. staff members of all categories. Subsidiaries. pany if the asset’s fair market value is over The principal objectives of the HR policy at RUB30 million. RAO “UES of Russia” in 2006 were: 250 2006 The key methods used to sell the non-core to provide further training, reorientation 429 assets are as follows: training, and development of personnel; ascending price auction; to ensure professional and career develop- 192 2005 descending price auction; ment; 320 sale without announcing the price (negoti- to create and develop the human capital re- ated sale). serve; 90 2004 In 2006, RAO “UES of Russia” and its to improve the life and health safety ar- 110 SDCs sold their shares in the following rangements and prevent industrial inju- non-core companies: OAO “Mikhaylovskoe ries; Resort”, OAO “Severovostokenergostroy”, to develop the non-state pension insurance OAO “TEMBR-Bank”, OAO “NDB-Bank”, and assist staff members in improving their NUMBER OF PROGRAMMES OAO “Rostopenergo”, ZAO “East-West Energy housing conditions. EMPLOYEE COVERAGE, '000 PERSONS Agency”, ZAO “Yurenergo”. Corporate Governance System 33

Key Performance Motivation: The existing KPI system under- Programme Implementation KPI designed to ning and quarterly reporting on financing quality claims, etc. Also, considerable cost Indicators and Business lies the incentive schemes for employees ensure control over the implementation of the and investment project implementation. The savings are generated through energy costs Planning and managers of the Company and its RAO UES five-year investment programme. new-format business plan provides for the reduction measures (by accessing the com- The system for running the Parent Com- energy subsidiaries. calculation of forward-looking, medium-term petitive segment of the wholesale electricity pany and its SDCs based on the key perfor- In 2006, the KPI system was introduced Business planning and cost control indicators based on the specific scenario pa- market; reduction of technological and com- mance indicators (KPIs) has been in place in in all companies of RAO UES Group. It helped The system of managing the subsidiaries and rameters until 2011. mercial losses of energy; reduction of energy RAO UES Group since 2004. ensure manageability during the sector reform dependent companies of RAO “UES of Russia” In connection with the anticipated transfer consumption for internal and production con- This system is used to set targets for each period when the companies of the final sector includes such instruments of regular mana- of control over WGCs and TGCs to new own- sumption), and cutting repair costs, including subsidiary or dependent company within structure were being established, and meet gement as business planning and cost mana- ers, it is extremely important to guarantee through competitive and other procurement RAO UES Group based on the Group’s general the tough financial and production targets. gement. Together with the KPI system, these that the investment projects launched by the auctions, review of the personnel motivation objectives identified by the management bo- In 2006, the Company set KPIs for the new instruments make up the package which companies are brought to completion. In or- system, sale of non-core assets, etc. dies taking into account their individual cir- interregional companies, WGCs and TGCs. helps meet the targets the shareholders set der to ensure succession in control over the One of the key areas for cost reduction Personally, I am happy cumstances and needs, such as line of busi- The Key Performance Indicators set for the for the energy companies’ officers. full and intended use of the funds raised by at RAO UES entities is the development of ness, composition and state of plant assets, subsidiaries of RAO “UES of Russia” in 2006 The fundamental principles of business the companies, specifically the proceeds from competitive and non-competitive regulated that we completed etc. The KPI are set for different aspects of were: planning at the SDCs of RAO “UES of Russia” their new share offerings, additional sections procurement of products. RAO “UES of Rus- in 2006 the creation of activity: economic efficiency, reliability of return on equity (ROE); have been maintained for several years, which have been included in the business plans and sia” has created and is developing a compre- a management assessment equipment operation and power supply to reliability criterion: a complex measure as- ensures continuity of approach and stability corporate regulations. hensive system for procurement regulation customers, reform progress, and increase of sessing the reliability of equipment opera- of the well-tested procedures: Along with the changes to the format of and management. The Company’s system of pyramid, beginning with the shareholder earnings. tion and power supply to consumers; business plans are an essential tool for business plans, the Company improved the Procurement Standards establishes uniform Key Performance Indica- The principles underpinning the KPI system adherence to the restructuring schedule, achieving target KPIs and are implemented business planning procedures for the WGCs rules for procurement and tenders for the for the Business Units and businesses report- which assesses how timely the corporate in all subsidiaries; and TGCs. The number of adjustments to the RAO UES entities. The fundamental principle tors for the Chairman and ing to them are as follows: measures are implemented within the SDC managers are independent in their SDCs’ business plans was limited to one regu- of the Procurement Standards is that the members of the Management Limited number of KPIs: the number of framework of the sector restructuring. business planning process and are respon- lar adjustment per quarter during the current key method used in procurement activities Board, Business Units, KPIs for each subsidiary/dependent com- The consistent implementation of the prin- sible for business plan development and year. The only exception is one-time additional should be public tendering; non-competi- pany or BU is limited to eight, which helps ciples underlying the KPI system helped sig- implementation; revision of the investment programmes com- tive procurements are allowed only in strictly Reform Management Center set clear objectives and targets and identify nificantly advance towards the completion of business plans are subject to approval by prising the business plan. prescribed situations subject to approval and Corporate Centre management priorities; the sector reform (achievement of the Reform the subsidiaries’ Boards of Directors; As before, cost management is one of the of the Board of Directors or the Company’s Balanced approach: KPIs are the metrics KPI targets), maintain the average efficiency the business planning formats and rules essential regular management tools used by Central Procurement Body. of the Parent Company to Di- used to assess operational, financial and of the RAO UES Group assets at 4.55 percent remain unchanged during the year. RAO “UES of Russia” in running the energy The creation of an effective and efficient rectors General of RAO UES business performance and efficiency of en- (achievement of the ROE KPI targets in 2005), The Business planning standard is reviewed subsidiaries. For that purpose, RAO “UES of management system using the KPIs and ad- subsidiaries ergy companies, their technological integ- ensure reliable operation of the Group enti- on an annual basis with a view to reflecting Russia” uses the KPI “Limit for fixed costs per vanced methods of business planning sig- rity, and the reform progress; ties (the Reliability KPI) and labour safety (the the new economic priorities and benchmarks MW of installed capacity as of the beginning nificantly contributed to the positive results Comparability: In order to maintain compe- Number of Industrial Accidents KPI). in the SDCs’ operations. The new Business of the year”, which ensures control over the achieved in 2006, both at the Parent Company, tition among the Business Units and SDCs, In 2007, the list of KPIs will be generally Planning Standard is designed to ensure semi-fixed costs at generation companies and RAO “UES of Russia”, and most of its SDCs. at least one indicator should be universal in preserved, with some modifications and im- proactive investment process at the SDCs. regional energos. The business plans include terms of content, but should have different provements taking into account the sector In order to achieve that goal, the Company a section “List of Measures Designed to Meet values for different SDCs and BUs. Such in- reform progress and the establishment of the has significantly revised and expanded the KPIs”. The biggest savings are achieved by fuel Yakov Urinson, dicator is Return on Equity (ROE); first companies which will comprise the post- investment part of the business plan: it now cost reduction efforts, such as technological Deputy Chairman of the Management Board, Individual Approach: KPI values were set reform industry structure. Moreover, the KPIs contains a detailed description of the SDCs’ measures to increase efficiency; replacement Head of the Corporate Center, specifically for, and within the context of, set for companies of the intended final sec- investment programme by sources of funds of fuel oil with commercial natural gas; choice RAO “UES of Russia” each SDC or BU; tor structure for 2007 include the Investment and their intended uses, and supports plan- of alternative fuel suppliers; dealing with fuel 34 Corporate Governance System Corporate Governance System 35 ANNUAL REPORT OF RAO “UES OF RUSSIA”

Dividend Policy In 2006, OAO RAO “UES of Russia” paid Standards amounted to RUB745,088 million. Dividends Declared by the SDCs of RAO "UES of Russia", millions of RUB The corporate governance system at RAO UES RUB2,757.6 million in dividends for 2005, Such amount of net income was due to the re- 2 0 0 6 Holding Company ensures that the rights of which was in line with the dividends paid for valuation of investments in shares of subsid- 2004 2005 2006 shareholders of the Parent Company and its 2004. At the same time, the dividends made iaries and dependent companies of RAO “UES Dividends Total for 2003 for 2004* Total for 2004 for 2005* Total for 2005 for 2006* subsidiaries and dependent companies in res- 13.2 percent of the Company’s net income for of Russia” caused by the increased market pect of dividend payments are protected in 2005, up 1.7 percent on the figure for 2004. Of prices of the companies’ shares, and was not Total 11,781 5,909 5,872 10,118 5,738 4,380 14,239 8,641 5,598 a sector reform environment. that amount, RUB1,294 million was paid to supported by any actual cash flows. including: RAO “UES of Russia” is guided by the Divi- the state, and the remaining part to the Com- As provided by Article 5.3 of the Company dividends paid dend Policy Principles approved by the Board pany’s minority shareholders. Charter, the total amount of dividends payable 8,179 3,749 4,430 5,241 2,544 2,697 10,014 5,464 4,550 to OAO RAO “UES of Russia” of Directors. on preferred shares should be at least 10 per- Dividends Paid to Shareholders dividends payable to other The dividends are calculated in accordance cent of the Company’s net income divided by 3,602 2,160 1,442 4,877 3,194 1,683 4,225 3,177 1,048 shareholders with the Revised Methodology for Dividend of OAO RAO “UES of Russia” for 2006 the number of preferred shares, which make Calculation of the Company approved by the In 2006, the net income of OAO RAO “UES of up 25 percent of the Company’s capital. How- *interim dividends Board of Directors in 2005. Russia” according to the Russian Accounting ever, the dividend amount per preferred share

should not be less than the dividend amount pletely undermine the Company’s investment Thus, the dividend amounts paid by the RAO UES Dividend Payment History, thousands of RUB per ordinary share. programme and adversely affect the financial SDCs of RAO “UES of Russia” (taking into ac- In order to resolve that issue, it was pro- position of OAO RAO “UES of Russia”. count the interim dividends declared in 2006) posed to shareholders at the EGM to make In light of that, the Board of Directors of increased 1.4-fold compared to 2005 (taking YEAR Ordinary dividends Preferred dividends TOTAL amendments and additions to the Company RAO “UES of Russia” recommended that the into account the interim dividends declared in Charter which would make it possible not to Annual General Meeting of shareholders vote 2005) to RUB14,239 million. 1994 (for 1993)* 66,626,224 3,368,749 69,994,973 take into account the paper profit from revalu- to omit the dividend for 2006. ation of equity investments when determining 1995 (for 1994)* 133,252,448 6,737,498 139,989,946 the amount of preferred dividends. 1996 (for 1995)* 205,208,770 10,375,747 215,584,517 Such decision required a three-thirds ma- Dividend Payments by SDCs jority of votes of all preferred shareholders of of RAO "UES of Russia" 1997 (for 1996)* 205,208,770 10,375,747 215,584,517 RAO “UES of Russia”. However, the proposed In 2006, the SDCs of RAO “UES of Russia” 1998 (for 1997) 205,209 19,029 224,238 amendments were not supported by the pre- continued to pay interim dividends. This was ferred shareholders. due to the possibility that, in connection with 1999 (for 1998) 255,608 31,542 287,150 In light of the need to ensure reliable and the restructuring and the organizational con- 2000 (for 1999) 537,647 76,158 613,805 uninterrupted electricity supply and ensure straints and legal constraints, the companies balance of capacity in the UES of Russia, the faced the risk of default in payment of their 2001 (for 2000) 820,835 153,146 973,981 Company needs to bring more generating final dividends for 2006 (WGCs, AO-power 2002 (for 2001) 1,067,086 245,905 1,312,991 capacity on line, which requires to increase plants, and regional generation companies). investments in new generation construction The amount of interim dividends declared 2003 (for 2002) 1,383,107 605,114 1,988,221 projects on an annual basis. Implementation by the SDCs of RAO “UES of Russia” for Q1, 2004 (for 2003) 1,924,858 473,757 2,398,615 of the investment programme is one of the key H1 and 9M 2006, including the taxes, to- drivers of the Company’s capitalization growth. talled RUB5,597.6 million, which includes of 2005 (for 2004) 2,294,234 463,381 2,757,615 This means that the dividend payment out of RUB4,549.7 million payable on the shares 2006 (for 2005) 2,355,797 402,371 2,758,168 the Company’s net income not fully supported owned by OAO RAO “UES of Russia”. by actual receipts of funds would almost com- * scale of prices prior to 1 January 1998. Reforming the Company ANNUAL REPORT OF RAO “UES OF RUSSIA”

The restructuring of RAO UES entities is car- establishment of the companies which will ried out pursuant to the laws and regulations make up the final sector structure; 2 0 0 6 of the Russian Federation, resolutions of the reorganization of OAO RAO “UES of Russia”. Russian Government and the Board of Direc- In 2006, the greater part of the structural tors of RAO “UES of Russia”, and the Strategy reform in the sector reform was completed. Concept of RAO “UES of Russia” for 2003- Measures were taken to establish electricity 2008 (“5+5”). market participants and introduce new rules The sector reform is being implemented for the wholesale and retail electricity mar- along the following lines: kets. The electricity reform entered a new reform of the wholesale and retail electri- phase providing for massive investment. city and capacity markets and development of competition in the sector; restructuring of the regional energos; creation of the electricity market infrastructure;

6 Reforming the Company 39

Results of the Structural Reform

The measures under the sector reform pro- Unbundling of Regional establishment of OAO “Far Eastern Distri- Establishment of WGCs will be made in the form of cash, shares and gramme approved by the Russian Government Energos by Lines of Business bution Company” (FEDC) on the basis of Pursuant to Direction of the Russian Federa- property of hydropower plants owned by RAO and the resolutions of the General Sharehold- By 31 December 2006, the Board of Directors the distribution grid assets of OAO “Amur- tion Government No. 1254-r, dated 1 Septem- “UES of Russia”. er Meeting of RAO “UES of Russia” helped of RAO “UES of Russia” had approved the re- energo”, OAO “Dalenergo”, OAO “Khabarovsk- ber 2003, seven wholesale generation compa- In December 2006, OAO “HydroWGC” com- achieve significant progress in all aspects structuring of 71 regional energos, 64 of which energo”, and OAO “Yakutskenergo”; nies were created, six of which were based the pleted its new share issue to OAO RAO “UES of the reform: had completed their corporate unbundling. As spin off of the UNEG facilities owned by thermal generation assets (thermal WGCs) of Russia” in exchange for the property owned unbundling of regional energos by lines a result of their reorganization, 260 new com- OAO “Amurenergo”, OAO “Dalenergo”, OAO and one on the basis of the hydropower assets by RAO “UES of Russia”, including shares in of business; panies were established. “Khabarovskenergo”, and OAO “Yakutsk- (OAO “HydroWGC”). OAO “Zagorskaya PSPP”, OAO “Stavropol creation of wholesale generation compa- In 2006, the Board of Directors of RAO “UES energo” to form their respective wholly- Electricity Generation Company”, OAO “Dage- nies (WGCs); of Russia” approved the restructuring plan owned subsidiaries, contribution of the Thermal WGCs stan Regional Generation Company”, creation of territorial generation compa- for OAO “Tyvaenergo”, and the Management UNEG facilities to the subsidiaries’ capital In 2005, the Board of Directors of RAO “UES of OAO “Cheboksarskaya HPP”, OAO “Zaramag- nies (TGCs); Board took individual divisions on the strategy and the subsequent merger of those sub- Russia” approved the parameters for the es- skie HPPs”, OAO “Zelenchukskiye HPPs”, By end-2006, Business consolidation of the Unified National Elec- for development and restructuring of the iso- sidiaries with and into OAO “UES FGC”; tablishment of all six thermal WGCs, i.e. the OAO “NIIES”, and OAO “Vedeneyev VNIIG”. tricity Grid (UNEG) facilities; lated regional energos, OAO “Kolymaenergo” establishment of a single holding company, terms and ratios for conversion of regional In 2006, measures were launched to reorga- Unit 1 practically com- consolidation of the dispatching system; and OAO “Magadanenergo”. OAO “Far Eastern Energy Company” on energos’ shares into shares in the respective nize OAO “HydroWGC” through consolidation pleted the restructuring of restructuring of the energy retailing opera- As the regional energos’ unbundling is the basis of assets of OAO “Amurenergo”, thermal WGCs. The shareholders of the AO- of its five subsidiaries (OAO “Kamskaya HPP”, the companies subordinated tions; virtually completed and the continued inter- OAO “Dalenergo”, OAO “Khabarovskenergo”, power plants of all thermal WGCs approved OAO “Nizhegorodskaya HPP”, OAO “Chains restructuring of the repair & maintenance regional integration of the new companies ZAO “LuTEK” and OAO “Yakutskenergo”. the plants’ merger with the respective WGCs. of Verkhnevolzhskie HPPs”, OAO “Saratov- to it. All WGCs and TGCs and services businesses. is well underway, the Board of Directors of In 2006, the general shareholder meetings In 2006, all thermal WGCs completed their skaya HPP”, and OAO “Cheboksarskaya HPP”) were established, their five- RAO “UES of Russia” approved the liquidation of the Far Eastern regional energos approved establishment and AO-power plants merged in which HydroWGC holds 100 percent minus of the management companies spun off from the transfer of the core assets to the com- with the WGCs. Today, all thermal WGCs work one share. year investment plans were the reorganized energos. As of 31 December panies being established, OAO “Far Eastern as consolidated operational companies. developed, and preparations 2006, the Company liquidated 34 out of its 37 Generation Company” and OAO “Far Eastern for new share issues were management companies. It is planned that Distribution Company” to enable them to start HydroWGC the regional energos’ reorganization and li- operations on 1 January 2007. In 2005, the Board of Directors of RAO started. By 2011, the quidation of the management companies will On 1 February 2007, OAO “Far Eastern En- “UES of Russia” approved the post-reform companies will build about be completed in 2007. ergy Company” (FEEC) was established as model for operation of OAO “HydroWGC”. 20,000 MW of generation a result of the consolidation of OAO “Amur- After the establishment of OAO “HydroWGC” Reorganization of the Regional energo”, OAO “Dalenergo”, OAO “Khabarovsk- is completed, the company will manage its capacity Energos in the Russian Far East energo”, ZAO “LuTEK”, and OAO “Southern branches (hydropower plants). Under the On 2 September 2005, the Board of Directors Yakutskenergo”. FEEC will perform the elec- Russian le-gislation, the Russian Federation of RAO “UES of Russia” approved the restruc- tricity retailing functions and own 100 per- is to hold at least 50 percent plus one share in turing plan for the energy companies of the Far cent shares in OAO “Far Eastern Generation OAO “HydroWGC”. East IES. The plan provides for: Company” and OAO “Far Eastern Distribution Pursuant to the shareholder resolution establishment of OAO “Far Eastern Gene- Company”. approved at the AGM of RAO “UES of Rus- ration Company” (FEGC) on the basis of sia” on 28 June 2006, in order to establish the generation and heating grid assets of OAO “HydroWGC” and increase the state’s Alexander Chikunov, OAO “Amurenergo”, OAO “Dalenergo”, OAO interest in the company to the level required Member of the Management Board, “Khabarovskenergo”, ZAO “LuTEK”, and the by the legislation, RAO “UES of Russia” is Managing Director non-islanded part of OAO “Yakutskenergo”; taking steps to acquire additional shares in of RAO “UES of Russia”, Business Unit 1 OAO “HydroWGC”. Payment for such shares INDEX MAP OF TGC AREAS AND LOCATION OF WGC POWER PLANTS

tgC-1

tgC-2

nteC mosenergo tgC-9 tgC-6 tgC-4 tgC-5 tgC-10

southern tgC Volzhskaya tgC yeniseiskaya tgC tgC-11

feeC

kuzbassenergo tgC-14

WHOLESALE GENERATION COMPANIES

WGC based on thermal power generation: WGC-1: Iriklinskaya TPP, Kashirskaya TPP, WGC-4: Berezovskaya TPP, Shaturskaya TPP, Nizhnevartovskaya TPP, Permskaya TPP, Smolenskaya TPP, Surgutskaya TPP-2, Urengoiskaya TPP, Verkhnetagilskaya TPP Yaivinskaya TPP WGC based on hydro power generation: WGC-2: Pskovskaya TPP, Serovskaya TPP, WGC-5: Konakovskaya TPP, Nevinnomysskaya TPP, HydroWGC: Akbashskaya HHP, Baksanskaya HPP, HPPs of Stavropolenergo, Irganayskaya HPP, Novosibirskaya HPP, Sadovaya HPP, Saratovskaya HPP, Stavropolskaya TPP, Surgutskaya TPP-1, Troitskaya TPP Reftinskaya TPP, Sredneuralskaya TPP Bekanskaya HPP, Boguchanskaya HPP, Kamskaya HPP, Kora-Ursdonskaya HPP, Sayano-Shushenskaya HPP, Sovetskaya HPP, Bureyskaya HPP, Cheboksarskaya HPP, Kubanskie HPPs, Malaya-Akhtynskaya HPP, Malaya- Uchkulanskaya HPP, Upper-Volga HPPs Cascade, WGC-3: Cherepetskaya TPP, Gusinoozerskaya TPP, WGC-6: Cherepovetskaya TPP, Kirishskaya TPP, Chirkeyskaya HPP, Chiryurtskaya HPP, Kurushskaya HPP, MGES-3 on the Baksan-Malka Volzhskaya HPP, Votkinskaya HPP, Zagorskaya PSPP, Kharanorskaya TPP, Kostromskaya TPP, Krasnoyarskaya TPP-2, Novocherkasskaya TPP, Dzau HPP, Eshkakonskaya HPP, Ezminskaya HPP, Channel, Miatlinskaya HPP, Mukholskaya HPP, Zaramagskie HPPs, Zelenchukskie HPPs, Pechorskaya TPP, Yuzhno-Uralskaya TPP Ryazanskaya TPP, TPP-24 Gergebilskaya HPP, Gizeldonskaya HPP, Nizhegorodskaya HPP, Nizhne-Chereksky HPP Cascade, Zeyskaya HPP, Zhigulevskaya HPP Since 1999, the capitalization of RAO “UES of Russia” grew to $40 billion from $1 billion. The Company’s revenues Establishment of TGCs by RAO “UES of Russia” were transferred to In 2006, OAO “UES FGC” produced a com- Company”, and OAO “Krasnoyarskener- As of December 31, 2006, the following cor- OAO “UES FGC” as payment for new shares prehensive Strategy for the development of gosbyt”, for fiduciary management to the increased from $500 million porate transactions had taken place: TGC-3 in FGC. The remaining TC shares owned by the electricity distribution facilities until 2015. counterparties selected by the regional ad- to over $22 billion. In 2007, (OAO “Mosenergo”) completed its estab- RAO “UES of Russia” will be paid for the next The Strategy envisages a new configuration ministrations; RAO UES subsidiaries expect lishment; OAO “TGC-4”, OAO “TGC-5”, and issue of new shares of OAO “UES FGC”, and for the IDCs and increase in their number. transfer of shares in OAO “Vologda Retail OAO “TGC-14” achieved their intended final distributed to OAO “UES FGC” under the bal- Company” to OAO “WGC-6” for fiduciary to utilize over $15 billion of in- structure after the consolidation of their re- ance sheet for the separation of OAO RAO Consolidation of the Dispatching management on the terms and conditions vestments, a 2.5-fold increase System gional generation subsidiaries; OAO “TGC-12” “UES of Russia”. As provided by Russian law, similar to the terms of the agreement for on the capital investment this was set up on the basis of the assets of the state must hold at least 75 percent plus Under the Russian Federation Government’s fiduciary management of shares of energy OAO “Kuzbassenergo”; OAO “Yeniseyskaya one share in OAO “UES FGC”. order, the Rules for dispatch control in the retail companies entered into with TGCs; year and a 150-fold increase TGC” (TGC-13) implemented the first phase In March 2007, the Board of Directors of electricity industry entered into force with ef- the transfer of shares in OAO “Udmurt over the 1999 investment of its formation. Process is underway to es- RAO “UES of Russia” approved modifications fect from 15 May 2006. Energy Retail Company”, OAO “Chelyab- budget. And this is not the I believe that the key tablish other territorial generation companies to the model for consolidation of TCs and ITCs By end-2006, OAO “UES SO-CDA” com- energosbyt”, and OAO “Novgorod Energy (OAO “TGC-1”, OAO “TGC-2”, OAO “Southern and the single-phase merger of the TCs and pleted the establishment of its branches, Re- Retail Company” for fiduciary management end of the list of Chubais’ ac- event of 2006 was Generation Company TGC-8”, and OAO “TGC-10) ITCs with and into OAO “UES FGC” simultane- gional Dispatch Administrations (RDAs). The to energo retail companies independent of complishments. The Company the determination by the as corporate groups, which will subsequently ously with the final phase of reorganization of property owned by the regional energos (ex- RAO “UES of Russia”; brought on line several large Government of the schedule merge with and into their holding compa- OAO RAO “UES of Russia”. cept for the independent and islanded energy sale by RAO “UES of Russia” of its 47.36 nies. The final structure of OAO “TGC-9” was On 1 January 2006, OAO “UES FGC” was companies) which is needed for the RDA ope- percent stake in OAO “Yaroslavl Retail generation facilities in differ- for the wholesale and retail achieved in February 2007, OAO “TGC-6” granted its own tariff for electricity transmis- ration was leased to OAO “UES SO-CDA”. Company” through a public auction. ent regions of Russia. RAO market liberalization. As the completed the process in March 2007. sion via the UNEG networks. The property It is planned that OAO “UES SO-CDA” will As of December 31, 2006, the regional regu- OAO “Volzhskaya TGC” (TGC-7) completed its of the transmission (trunk grid) companies purchase the RDA property it is currently lators assigned the status of guaranteeing sup- “UES of Russia” invested Government simultaneously group restructure. was used by OAO “UES FGC” under usage leasing before the end of the second phase of plier to all RAO UES energy retail companies. lavishly into equipment that designated the date for the agreements. OAO RAO “UES of Russia” reorganization. The Under Russian law, guaranteeing suppliers are would help eliminate energy reorganization of the Par- Consolidation purchase will be financed with the money pro- obliged to enter into electricity supply or sale of the UNEG Facilities Formation of IDCs vided in the System Operator’s service fee. contracts with any consumer who submits a re- shortages in Russia. ent Company, RAO “UES of In order to administer the Unified National By end-2006, over 90 percent of the regional quest to that effect. Energy Grid (UNEG) facilities, RAO “UES of distribution companies (RDCs) to be spun off Restructuring of the Energy In 2005, as a measure to improve the finan- Russia”, it is safe to say that Company magazine, Russia” established in 2002 a wholly-owned from the regional energos completed their es- Retailing Business cial stability of energy retail companies, shares 20 november 2006 the transitional period of the subsidiary, OAO “Federal Grid Company“ tablishment. An important constituent of the electricity of the remaining ERCs were transferred for fi- electricity reform has been (OAO “UES FGC”), and contributed its UNEG The next stage provides for the consolida- reform is the demonopolization and develop- duciary management to TGCs for a term of one de facto completed assets to the capital of OAO “UES FGC”. tion of the RDCs into interregional distribution ment of competition in energy retailing. year. On 8 December 2006, the Board of Direc- The consolidation of the transmission busi- companies (IDCs). In 2004-2005, RAO “UES of After the regional energos’ reorganization, tors extended the fiduciary management agree- ness within OAO “UES FGC” was due to the Russia” established four wholly-owned sub- the energy retail companies started to operate ments until the sale of the ERC shares. need to comply with the federal laws provid- sidiaries, OAO “Center and North Caucasus as independent legal entities purchasing elec- Also, the Board of Directors of RAO “UES of ing that all UNEG-related facilities must be IDC”, OAO “North-West IDC”, OAO “Urals and tricity on the wholesale market and selling it Russia” approved the Company’s Strategy for operated by a dedicated entity. 2006 saw the Volga IDC”, and OAO “Siberia IDC”. In August to the end consumers. energy retail companies. According to the Stra- establishment of the transmission (trunk grid) 2006, RAO “UES of Russia” created another In 2006, work was continued to implement tegy, the principal option will be the sale of ERC Yury Udaltsov, companies (TCs) on the basis of the UNEG- wholly-owned subsidiary, OAO “Southern Grid pilot projects to dispose of shares in the en- shares through a public auction, with the re- Member of the Management Board, related assets spun off in the course of the Company”, to operate the grid and retail com- ergy retail companies: serve price not lower than the fair market value Head of the Reform Management Center, regional energos’ reorganization. panies in the South of Russia during the tran- transfer of shares in OAO “Kaluga Retail determined by an independent appraiser. RAO “UES of Russia” In August 2006, the shares in 42 TCs owned sitional reform period. Company”, OAO “Tambov Energy Retail 44 Reforming the Company

Liberalization First Phase Semyon Birg, Analyst with of the Electricity of the Company’s Finam Investment Company: Markets Reorganization “The Russian Government’s ANNUAL REPORT OF RAO “UES OF RUSSIA” resolutions adopted on 7 June On 31 August 2006, the Russian Federation wholesale electricity (capacity) market, was schedule (expressed as percentages of elec- The reform of the Parent Company, RAO “UES It is anticipated that, after the first reor- Government adopted its Resolution No. 529 transformed into a balancing market for electricity included in the aggregate electricity of Russia”, means that the Company has en- ganization phase is completed, the Russian 2006 are an extremely positive 2 0 0 6 On Improving the Operation of the Wholesale tricity (capacity). The main function of the ba- (capacity) balance for 2007 approved by the tered the final phase of restructuring, which Fe-deration will hold 26.3 percent and at least event, both for the energy Electricity (Capacity) Market and Resolu- lancing market is to minimize the amounts of Federal Tariff Service of Russia). This phase- will result in the creation of the intended final 25 percent plus one share in OAO “WGC-5” sector and for RAO “UES tion No. 530 On Approval of the Rules for the electricity scheduled for generation and con- in schedule was incorporated in Resolution structure of the electricity industry in Russia and OAO “TGC-5”, respectively (taking into ac- Operation of the Retail Electricity (Capacity) sumption in real time, based on the price bids No. 205 of the Russian Federation Govern- and establishment of independent companies count the new share issues by OAO “WGC-5” of Russia”. At an earlier Markets During the Transitional Period, which and offers submitted by suppliers and market ment, dated 7 April 2007. attractive to investors and efficiently operating and OAO “TGC-5” and the sale of the date, Russian President became effective on 1 September 2006. participants with regulated consumption. The Rules for the retail markets provide in a competitive market environment. 25.03 percent stake in OAO “WGC-5” in 2007). Vladimir Putin approved the Under the new Rules for the Wholesale The competitive trading segment of the that guaranteeing suppliers of electricity will The Company’s assets will be distributed The resolutions needed to implement the Electricity (Capacity) Market, with effect from new wholesale electricity (capacity) market be designated in each region of Russia. These among its shareholders pro rata to their proposed reorganization plan have also been energy company’s plans for 1 September 2006, the regulated segment of has become the foundation for the day-ahead market participants will be obliged to con- interests in the capital of OAO RAO “UES adopted by the shareholders of OAO “WGC-5” new share offerings in some the wholesale market was transformed into a market, in which unregulated prices are cal- clude a public contract to supply electricity on of Russia”. and OAO “TGC-5”. system of regulated contracts. The price set culated on the basis of bids and offers. The standard terms with any consumer based in The EGM of shareholders of OAO RAO “UES After the first phase of the Company’s generation companies. We for each of such contracts is the tariff charged volumes of electricity scheduled for consump- its territory which requests the guaranteeing of Russia” held on 6 December 2006 approved reorganization takes place in Q3 2007, the believe that these resolutions by the generation company for the electricity tion and production that are not included in supplier to do so. the action to implement the first phase of the shareholders in OAO RAO “UES of Russia” will benefit the electricity supplied by it. In September through Decem- the regulated contracts are traded each hour The Rules for retail market operation set Company reorganization by spinning off of two will receive shares in OAO “WGC-5” and OAO ber 2006, 5,175 regulated contracts were con- at unregulated prices. out the new pricing principles for the retail generation companies—OAO “WGC-5 Holding” “TGC-5”. This will help elaborate the mecha- industry: they will provide cluded on the marketplace. At its meeting held 30 November 2006, the electricity market. Deregulation of the retail and OAO “TGC-5 Holding”—from RAO “UES of nisms for the final phase of RAO “UES of Rus- investments the sector needs The deviations segment, which previously Russian Federation Government approved electricity market should be carried out in Russia” and their simultaneous merger with sia” reorganization and create Russia’s first operated as part of the regulated sector of the the wholesale market liberalization phase-in step with the wholesale market deregulation OAO “WGC-5” and OAO “TGC-5”. private generation companies. to finance its development so that the market signals reach the end con- As resolved by the shareholders at the EGM, and give a new momentum Phase-in of the Wholesale Electricity Market sumers of electricity and give them adequate the new shares in OAO “WGC-5 Holding” and to the reform underway at the Liberalization in Russia, 2007-2011 information on the actual cost of electricity. OAO “TGC-5 Holding” will be distributed pro 100 This is needed to enable sound investment rata among the existing shareholders of OAO energy companies. 100% decisions to be taken and to provide incentives RAO “UES of Russia” in the following ratios: 90 If the sector reform plans for energy saving measures. All consumers, for each ordinary share in RAO “UES of are implemented and sector 80 except for households and similar consumer Russia” held, the shareholders will receive 80% groups, have started to purchase part of their 0.41 of an ordinary share in OAO “WGC-5” succeeds in raising invest- 70 electricity needs at unregulated prices. and 13.59 ordinary shares in OAO “TGC-5”; ments, we may see the growth The households will continue to pay for for each preffered share in RAO “UES of 60 60% electricity at the tariffs set by the state regu- Russia” held, the shareholders will receive of RAO UES capitalization 50 lator until at least 2011. 0.37 of an ordinary share in OAO “WGC-5” as investors reassess 50% and 12.45 ordinary shares in OAO “TGC-5”. 40 the risks inherent with the

30 industry reform.” 30% 20 25% Finance magazine, 10 15% 12 June 2006 10% 0 5%

from 01.01.07 from 01.07.07 from 01.01.08 from 01.07.08 from 01.01.09 from 01.07.09 from 01.01.10 from 01.07.10 from 01.01.11 46 Reforming the Company

Tapio Kuula, Senior Vice President of Fortum, Finland: Reform Plans “We are watching closely ANNUAL REPORT OF RAO “UES OF RUSSIA” the progress on the sector Regional Energos Unbundling The peculiarity of the electricity industry in the property of the Kyzylskaya CHPP (current- The shares in individual WGCs/TGCs to be exchange for additional shares issued to the by Lines of Business the Russian Far East is the existence of tech- ly owned by OAO “Tyvaenergo”) will be trans- transferred to OAO “HydroWGC State Holding” state. This step will help increase the Govern- reform and are taking part 2 0 0 6 In 2007, restructuring is planned to be com- nologically isolated energy systems: ferred to OAO “Yeniseyskaya TGC” (TGC-13) will be subsequently sold and its proceeds will ment’s direct stake in OAO “UES FGC” to at in it with keen interest. The pleted at the remaining regional energos, OAO “Kamchatskenergo”; in Q3 2007. be used to finance the HydroWGC Investment least 75 percent plus one voting share. progress made by Russia in OAO “Ingushenergo” and OAO “Tyvaenergo”, OAO “Sakhalinenergo”; Programme. in accordance with the restructuring plans OAO “Yakutskenergo”; HydroWGC Also, in the course of its reorganization, OAO Restructuring of Distribution Assets restructuring its electricity approved for those companies. OAO “Chukotenergo”; In April 2007, the Board of Directors of RAO “UES of Russia” plans to complete the con- Pursuant to the decision of the Board of Direc- industry is very impressive The decision on the restructuring the is- OAO “Magadanenergo”; RAO “UES of Russia” approved the plan for solidation of OAO “HydroWGC” through merger tors of RAO “UES of Russia”, OAO “UES FGC” indeed. The pace of sector landed entity, OAO “Yantarenergo”, is expected OAO “Kolymaenergo”. accelerated consolidation of OAO “HydroWGC” of the AO-hydropower plants (HPPs) and the is managing shares in the IDCs on a fiduciary to be taken after a comprehensive plan is pro- With respect to restructuring of such iso- and creation of the company’s final corporate companies to be spun off from RAO “UES of basis until their intended corporate structure liberalization has outstripped duced for joint action by RAO “UES of Russia” lated energy systems, decisions are taken on structure. Russia” (OAO “HydroWGC State Holding” and is formed. In 2007-2008, steps will be under- some EU countries. I am and the Kaliningrad Region Government a case by case basis. The approved plan provides that OAO “HydroWGC Minority Holding”) with and taken to review, approve and implement the in order to ensure reliable electricity supply By now, restructuring has been completed OAO “HydroWGC” will issue additional shares into OAO “HydroWGC”. The consolidation is ex- Development Strategy for the distribution sure that it is the progress in the region. at OAO “Kamchatskenergo” and OAO “Yakutsk- in favour of the Russian Federation and pected to be completed by 1 July 2008. grid, which provides for the development and achieved in the market reform energo”. RAO “UES of Russia”. In return for the new The new model will help ensure the required implementation of tariff regulation ensuring that makes Russia’s electricity Restructuring of the Regional The Management Board of RAO “UES of shares in OAO “HydroWGC” to be issued in corporate control by the shareholders over the return on assets (RAB) and creating the con- Energos in the Russian Far East Russia” has approved the Development Stra- 2007, RAO “UES of Russia” will contribute operating company, OAO “HydroWGC”, as ear- ditions needed for power grid companies to industry attractive to foreign 1 February 2007 saw the start of opera- tegy for OAO “Sakhalinenergo” for 2006-2010, its shareholdings in the companies planned ly as 2008 (the stake in HydroWGC held by the raise long-term debt. It is expected that the investors.” tions of OAO “Far Eastern Energy Company” which envisages that the power plants of to become part of OAO “HydroWGC” and Russian Federation will be at least 50 percent new tariff system will be introduced in 2008 (FEEC), the unified holding company estab- OAO “Sakhalinenergo” will switch to burning RUB5 billion in funds provided by the federal plus one share), and make it possible to float at up to 10 pilot distribution companies. lished on the basis of assets of “OAO “Amur- natural gas and take steps to replace their re- authorities. the company’s shares on the stock market in The new configuration for the IDCs was Expert Magazine, energo”, OAO “Dalenergo”, ZAO “LuTEK”, tired capacity and develop the power grid in- Under the RAO UES reorganization plan, Q2 2008. It will also create the necessary con- approved at the meeting of the Interagency 13 November 2006 OAO “Khabarovskenergo”, and OAO “Southern frastructure. Measures will be undertaken to the Company’s stake in OAO “HydroWGC” and ditions for successful implementation of its Commission for Electricity Reform chaired by Yakutskenergo”. improve the company’s financial strength. some AO-hydropower plants is to be divided investment programme for 2007-2010. Russian Federation Industry and Energy Mini- To date, the shares of OAO “Far Eastern The Management Board of RAO “UES of into the “state-owned” and “minority-owned” ster Victor Khristenko, and was adopted by Energy Company” have been registered with Russia” also reviewed the Development Stra- parts. It is planned that the following compa- Consolidation of Transmission Assets the Board of Directors of RAO “UES of Russia” the securities regulator. FEEC shares are ex- tegy Guidelines for the energy systems in the nies will be spun off from RAO “UES of Russia” In 2007 and Q1 2008, the transmission (trunk in April 2007. pected to start trading on the stock market Magadan Region, OAO “Kolymaenergo” and and merged with and into OAO “HydroWGC”: grid) companies spun off from the regional en- The new configuration provides that the in Q2 2007. OAO “Magadanenergo”. “HydroWGC Minority Holding”, which will ergos and the ITCs are to hold extraordinary number of the IDCs will be increased to 11 In 2007, it is planned to merge the trans- receive shares in OAO “HydroWGC” and general meetings of shareholders to consider (exclusive of OAO “Far Eastern Distribu- mission (trunk grid) companies spun off from WGCs and TGCs some AO-hydropower plants in the amount the companies’ merger with and into OAO “UES tion Company”). It is based on the principle the regional energos based in the Far East of In Q2 2007, it is planned to complete the es- equal to the minority shareholders’ stake in FGC”. This step is designed to fully consolidate of territorial adjacency and comparability of Russia—OAO “Khabarovsk Trunk Grid Com- tablishment of OAO “Volzhskaya TGC” (TGC-7) the capital of RAO “UES of Russia”; the transmission (trunk grid) infrastructure. the asset value of the distribution companies pany”, OAO “Yakutsk Trunk Grid Company”, and achieve the intended corporate structure “HydroWGC State Holding”, which will re- The consolidation will take place simultane- comprising the IDCs. The IDCs are to be suf- OAO “Amurskaya Trunk Grid Company”, of OAO “TGC-11” and OAO “TGC-12” in con- ceive shares in OAO “HydroWGC” and some ously with the divestiture of OAO “UES FGC” by ficiently large, consolidated operating compa- OAO “Primorskaya Trunk Grid Company”— nection with the sale of stakes in OAO “Zapad- AO-hydropower plants in the amount pro- RAO “UES of Russia”. nies to be attractive to investors. with and into OAO “UES FGC”. no-Sibirskaya CHPP” and OAO “Yuzhno-Kuz- portionate to the stake in RAO “UES of It is planned that the federal government will The proposed IDC composition provides basskaya TPP” owned by RAO “UES of Russia” Russia” owned by the Russian Federation, allocate funds from the budget in 2008-2010 that the existing technological links among the and OAO “Kuzbassenergo”. as well as shares in some thermal WGCs to implement the priority projects provided by DCs comprising the IDCs will be preserved, Also, it is expected that 100 percent shares and TGCs. the FGC Investment Programme. These funds and the regions which call for special control in the company to be created on the basis of will be contributed to the company’s capital in will be spun off into separate companies. Reforming the Company 49

Restructuring of the Energy Retailing According to the RAO UES Board resolution, OAO “Center IDC”: OAO “Belgoroden- Restructuring of the Dispatching Second Phase of OAO RAO “UES of Business the new interregional distribution companies, ergo”, OAO “Bryanskenergo”, OAO “Vo- System Russia” Reorganization OAO “Center and Privolzhye IDC”, OAO “South ronezhenergo”, OAO “Kostromaenergo”, In the course of the reorganization of OAO RAO The Strategy adopted by the Board of Directors of During the second phase of the reorganiza- IDC” and OAO “Volga IDC” will be established OAO “Kurskenergo”, OAO “Lipetskenergo”, “UES of Russia”, the following steps will RAO “UES of Russia” in December 2006 provides tion of OAO RAO “UES of Russia” (2007 - 1 July as wholly-owned subsidiaries of RAO “UES of OAO “Oryolenergo”, OAO “Tambovenergo”, be taken to ensure that the state holds at that the principal method to be used for the dis- 2008), the electricity industry restruc- Russia”, each with a RUB10 million autho- OAO “Smolenskenergo”, OAO “Tverenergo”, least 75 percent plus one share in OAO “UES posal of shares in the energy retail companies turing will be completed, all companies of the rized capital. The name of OAO “Center and OAO “Yarenergo”; SO-CDA”: (ERCs) will be sale through a public auction with intended final sector structure will be spun North Caucasus IDC” will be changed to OAO OAO “Siberia IDC”: OAO “Altayenergo”, it is planned that, in 2007-2008, according to the reserve price not lower than the fair market off from RAO “UES of Russia”, and the Parent “Center IDC”, OAO “Urals and Volga IDC” to OAO “Buryatenergo”, OAO “Krasnoyarsk- the budget call based on the System Ope- value determined by an independent appraiser. Company, RAO “UES of Russia”, will cease to OAO “Urals IDC”, and OAO “South Grid Com- energo”, OAO “Kuzbassenergo – Regional rator’s investment programme, the Russian According to this decision, the sale of the ERC exist as a legal entity. pany” to OAO “North Caucasus IDC”. Electricity Grid Company”, OAO “Omsk- Federation will acquire RUB5.22 billion of shares is to start in Q2 2007 and most of the The reorganization of OAO RAO “UES The intended corporate structure of the energo”, OAO “Tomsk Distribution Com- new shares in OAO “UES SO-CDA”; ERCs will be divested in 2007-2008. of Russia” seeks to achieve the following On 1 September 2006, IDCs (except for OAO “Tyumenenergo”, OAO pany”, OAO “Tyvaenergo”, OAO “Khakas- It is proposed that OAO RAO “UES of Rus- The Board of Directors designated eight en- objectives: “Lenenergo” and the IDC on the basis of the energo”, OAO “Chitaenergo”; sia” should sell its shares in System Ope- ergy retail companies which are slated to be sold to ensure that the restructuring of the elec- a new model of the Moscow City and Region grid facilities) is ex- OAO “South IDC”: OAO “Astrakhanenergo”, rator equal to the “government stake” and in Q2 2007: tricity industry is accomplished, which will wholesale and retail electri- pected to be achieved after the DCs merge with OAO “Volgogradenergo”, OAO “Kuban- use the proceeds to finance the FGC invest- OAO “Belgorod Retail Company”; bring the transitional period of the sector city markets was inaugurated, the respective IDCs. If one or more DCs do not energo”, OAO “Rostovenergo”, OAO “Kalm- ment programme (the System Operator’s OAO “Vologda Retail Company”; reform to completion; approve the merger with the IDC to which they energo”; shares comprising the “government stake” OAO “Kolskaya Energy Retail Company”; to allocate the Company’s assets among which created a fully-fledged belong, the IDC will issue new shares and in- OAO “North Caucasus IDC”: OAO “Dag- are to be transferred to “State Holding”); OAO “Kuban Energy Retail Company”; the state and the minority shareholders competitive market for elec- vite such DC’s shareholders to exchange their energo”, OAO “Caucasus Energy Mana- The remaining shares equal to the “mino- OAO “Kuzbass Energy Retail Company”; pro rata to their stakes in OAO RAO “UES of shares for shares in the IDC. gement Company”, OAO “Nurenergo”, rity” stake (not more than 25 percent plus OAO “Nizhny Novgorod Retail Company”; Russia”; tricity in the country. The The configuration of the IDC to be formed OAO “Stavropolenergo”; one share, taking into account the addition- OAO “Orenburgenergosbyt”; to ensure that the state builds up stakes in System Operator has deve- on the basis of the Moscow City and Moscow OAO “Volga IDC”: OAO “Mordovenergo”, al share issue of OAO “UES SO-CDA”) will OAO “Sverdlovenergosbyt”. OAO “UES FGC”, OAO “UES SO-CDA” and loped and put in place new Region distribution grids, and the question of OAO “Orenburgenergo”, OAO “Penza- be distributed in equal shares to the “Mi- All options for the disposal of ERC shares, if OAO “HydroWGC” required by the Russian which IDC OAO “Yantarenergo” should belong energo”, OAO “Volzhskaya IDC”, OAO “Chu- nority Holdings” of the WGCs/TGCs to be different from the basic scenario, will be consi- legislation; technologies for operational to, is expected to be taken by the Board of vashenergo”; spun off from RAO “UES of Russia”. In the dered by the Board of Directors of RAO “UES of to raise funds for the infrastructure com- planning, powerful software Directors of RAO “UES of Russia” in Q3 2007. OAO “Urals IDC”: OAO “Kurganenergo”, course of the final phase of reorganization Russia” on a case by case basis. panies and OAO “HydroWGC” sufficient to The RAO UES Board of Directors approved OAO “Permenergo”, OAO “Sverdlovenergo”, of OAO RAO “UES of Russia”, these shares The second round of auctions to sell the ERC eliminate the deficit in their investment and hardware facilities, cre- the following configurations for the IDCs: OAO “Chelyabenergo”; are expected to be sold to NP “ATS” or its shares owned by RAO “UES of Russia” is sche- programmes, including by selling the go- ated and tested the systems OAO “North-West IDC” comprising the dis- OAO “Tyumenenergo”; successor. duled for September 2007. vernment’s stakes in thermal generation for information interchange tribution companies spun off from the fol- oAO “Lenenergo”; As a result, the Russian Federation will be The list of ERCs slated for sale includes companies. lowing regional energos: OAO “Arkhenergo”, IDC on the basis of the Moscow City and able to achieve its target of 75 percent plus the following companies: OAO “Voronezh En- During the second phase of the reform, the with the energy market par- OAO “Vologdaenergo”, OAO “Karelenergo”, Moscow Region distribution grids. one share in OAO “UES SO-CDA”. ergy Retail Company”, OAO “Khakasenergo- state is to divest its holdings in the thermal ticipants and the Administra- OAO “Kolenergo”, OAO “Komienergo”, sbyt”, OAO “Udmurt Energy Retail Company”, generation companies (WGCs and TGCs). tor of Trading System OAO “Novgorodenergo”, OAO “Pskovenergo”; OAO “Tver Energy Retail Company”, OAO “Energo- All assets owned by OAO RAO “UES of Rus- OAO “Center and Privolzhye IDC”: sbyt Rostovenergo”, OAO “Karelia Energy Re- sia”, according to the spin-off balance sheet, OAO “Vladimirenergo”, OAO “Ivenergo”, tail Company”, OAO “Kaluga Retail Company”, will be provisionally divided into two groups: Boris Ayuyev, OAO “Kalugaenergo”, OAO “Kirovenergo”, OAO “Bryansk Retail Company”, OAO “Saratov- Assets to be distributed to the state: about Member of the Management Board, OAO “Marienergo”, OAO “Nizhnovenergo”, energo”, OAO “Kurgan Energy Retail Company”, 52 percent of the shares held by RAO “UES RAO “UES of Russia”; Chairman of the OAO “Ryazanenergo”, OAO “Tulenergo”, OAO “Stavropolenergosbyt”, and OAO “Komi of Russia” in each of the companies form- Management Board, OAO “UES SO-CDA” OAO “Udmurtenergo”; Energy Retail Company”. ing the intended sector structure; 50 Reforming the Company

Dmitry Medvedev, First Vice Prime Minister of the Russian Federation: ANNUAL REPORT OF RAO “UES OF RUSSIA” “The model for restructuring Assets to be distributed to the mino- “UES of Russia”) in OAO “HydroWGC” and the merged with and into the respective surviv- ation of such companies and joint proposals It is expected that, after the restructuring, rity shareholders: about 48 percent of the respective thermal WGCs and TGCs in the ing entities forming the intended final sector on the reallocation of the shares in the ther- the state will own: of RAO “UES of Russia” 2 0 0 6 shares held by RAO “UES of Russia” in each amount which will be depend on the amount structure. mal generation companies they are entitled over 75 percent of shares in OAO “UES FGC” proposed by the Government of the companies of the intended sector of funds required to eliminate the investment Holding Companies, whose shares will to receive among the special purpose holding (taking into the funds contributed by the takes full account of the structure. deficit at OAO “HydroWGC” and ensure that be distributed among all shareholders in companies under the spin-off balance sheet federal authorities and the “state-owned” The final phase of RAO UES reorganization the Russian Federation owns at least 50 per- RAO “UES of Russia” pro rata to their inte- of OAO RAO “UES of Russia” in the ratios ap- part of the shares in the WGCs/TGCs); interests of the state in the will be implemented through simultaneous cent plus one share in OAO “HydroWGC” (after rests in the Company: proved by the Board of Directors. over 75 percent of shares in OAO “UES SO- consolidation of assets, spin-off and merger (the so-called “combined the consolidation of its subsidiaries). “INTER RAO UES Holding”, the entity own- The Board of Directors of RAO “UES of Rus- CDA” (taking into the funds contributed by as well as the interests reorganization”), provided by the Federal Law The spin-off of “HydroWGC State Holding” ing shares in ZAO “INTER RAO UES” and sia” may take such shareholder proposals into the federal government); On Joint Stock Companies. To that end, the will take place simultaneously with its merger shares in some AO-power plants (this Hold- account when drawing up the agenda for the over 50 percent of shares in OAO “HydroWGC” of minority shareholders Parent Company will spin off “interim” com- with and into OAO “HydroWGC”. ing Company will simultaneously merge General Shareholders Meeting of OAO RAO (taking into the funds contributed by the of RAO “UES of Russia”. panies owning shares in the entities of the The aggregate stake in the thermal gene- with ZAO “INTER RAO UES”); “UES of Russia” and preparing Board recom- federal authorities and the “state-owned” intended sector structure; simultaneously, ration companies to be transferred to “State “IDC Holding”, the entity owning shares in mendations to the shareholder meeting on the part of the shares in the WGCs/TGCs); Mr. Medvedev highlighted some of the spin-off companies will merge Holding” and “HydroWGC State Holding”, the IDCs and distribution companies; RAO UES reorganization. over 50 percent of shares in ZAO “INTER that “the proposed model with and into the respective surviving entities. respectively, are to be pro rata to the aggre- “Far Eastern and Islanded Power Sys- In accordance with the requirements of the RAO UES”; would enable all shareholders In the course of the reorganization, the gate stake held by the Russian Federation in tems Holding”, the entity owning shares in Russian legislation, the minority shareholders about 52 percent of shares in “IDC Holding” following companies will be spun off from OAO RAO “UES of Russia”. OAO “Far Eastern Energy Company”, as who vote against the proposed arrangement and “Far Eastern and Islanded Regional En- accumulate the energy RAO “UES of Russia”: “FGC Minority Holding”, which will own the well as shares in the companies operating were entitled to receive shares in all compa- ergos Holding”. assets they need by way “State Holding”, which will receive shares “minority” part of the stake in FGC and the in the islanded power systems. nies being established pro rata to their inte- Taking into account the possibility that the attributable to the government’s stake (≈52 transmission (trunk grid) companies (≈48 per- At its meeting of 27 April 2007, the Board rests in OAO RAO “UES of Russia”. In that case, state will sell its shares in OAO “WGC-5” and of exchange.” percent of the shares held by RAO “UES of cent of the shares owned by OAO RAO “UES of Directors of RAO “UES of Russia” ap- the part of the shares in the holding compa- OAO “TGC-5”, the state may fully divest its in- Russia”) in: of Russia”). proved modifications to the framework for the nies spun off from RAO “UES of Russia” will be terests in the thermal generation companies. Interfax agency, OAO “UES FGC”; “HydroWGC Minority Holding”, which will Company’s restructuring which provide for issued to all other shareholders (including the It is anticipated that, after the reorganiza- 17 April 2007 the transmission (trunk grid) companies; own the “minority” part of the stake in the spin-off of companies from RAO “UES of state and minority shareholders who back the tion, the minority shareholders will own: the thermal generation companies. OAO “HydroWGC” (this spin-off is to simultane- Russia” whose shares would be allotted only proposed reorganization model) taking into up to 100 percent shares in the thermal All shares in the State Holding will be is- ously merge with and into OAO “HydroWGC”). to a particular shareholder in RAO “UES of account the results of the share distribution to generation companies; sued to the Russian Federation. The spin-off 5 WGC Minority Holdings (except for Russia”. This step is designed to take into ac- the dissenting shareholders. under 25 percent of shares in OAO “UES of the State Holding will take place simulta- WGC-5, which has already completed its spin- count, to the maximum extent possible, the FGC” and OAO “UES SO-CDA”. neously with its merger into OAO “UES FGC”. off), each owning the “minority” part of the opinions of the Company’s shareholders dur- under 50 percent of shares in OAO As a result of the transfer of the stakes in stake (≈48 percent) in one thermal WGC. ing the final phase of the RAO UES reorganiza- “HydroWGC” and OAO “INTER RAO UES”; WGCs and TGCs attributable to the state 13 TGC Minority Holdings (except for TGC-5, tion. Such special purpose holding companies about 48 percent of shares in “IDC Holding” share, the government will be able to increase which has already completed its spin-off), will receive shares in the thermal generation and “Far Eastern and Islanded Regional its stake in FGC to at least 75 percent plus one each owning the “minority” part of the stake companies, OAO “UES FGC”, OAO “HydroWGC” Energos Holding”. share. The shares in the thermal generation (≈48 percent) in one thermal TGC. and other assets such shareholder is entitled The EGM of shareholders of OAO RAO “UES companies entitled to the State will be sold to The 100 percent shares in “FGC Minority to which are equivalent to its stake in RAO of Russia” to decide on the final phase of the private investors, and the proceeds from the Holding”, “HydroWGC Minority Holding”, and “UES of Russia”. Company’s reorganization is scheduled to be sale will be used to finance the FGC’s invest- the WGC and TGC Minority Holdings will be The shareholders of RAO “UES of Russia” held in autumn of 2007. ment programme. distributed only in favour of RAO UES minority who wish to create such a special purpose The final phase of the RAO UES reorganiza- “HydroWGC State Holding”, which will re- shareholders. holding company for themselves in the course tion is expected to be completed by 1 July 2008. ceive shares attributable to the government’s These Minority Holdings will be spun off of reorganization were invited to submit to the stake (≈52 percent of the shares held by RAO from the Parent Company and simultaneously Company their proposals regarding the cre- FINAL PHASE OF OAO RAO “UES OF RUSSIA” REORGANIZATION

Approved by rao “ues of russia“ board of directors on 25 may 2007 The electricity reform is the guarantee of victory over the imminent energy shortages. Until recently, energy com- Electricity and Capacity Markets Service providers will be selected through panies had only one source RAO “UES of Russia” In Q3-Q4 2007, it is expected that the Russian a special competitive process based on the Federation Government will adopt a Resolution criterion of minimizing the cost of system reli- of funds for investments, the on competitive capacity trading. ability services. The competitive selection will tariff. Now that the sec- The competitive capacity market to be intro- be conducted at the election of System Operator duced is primarily intended to ensure that the in the territories of those integrated energy sys- tor restructuring has been MERGER AFTER THE LAST COMPANY’S SPIN-OFF UES of Russia has sufficient generation capacity tems (IES) which have insufficient resources to completed and the power FROM RAO “UES OF RUSSIA” SPIN-OFF in the short, medium, and long term to satisfy ensure system reliability and electricity quality. plants have merged with the the power consumption in the energy system It is also planned that the Rules for the at any time, in accordance with the required re- Wholesale Electricity Market and the Rules for generation companies, WGCs liability and quality parameters, including suf- the Retail Electricity Market will be amended to and TGCs, the time has come ficient reserve power. provide for the creation of a mechanism to in- SPECIAL FAR IDC HYDROWGC HYDROWGC “INTER 5 WGC 13 TGC FGC STATE In order to maintain reliability of the UES of centivize voluntary reductions in electricity use. for new sources of invest- HOLDINGS EASTERN HOLDING MINORITY STATE RAO UES MINORITY MINORITY MINORITY HOLDING (AT MINORITY AND HOLDING HOLDING HOLDING” HOLDINGS HOLDINGS HOLDING Russia and ensure electric energy quality, it is When put in place, this mechanism will help re- ment in new construction. SHAREHOLDERS’ ISLANDED planned to launch in Q3-Q4 2007 a market for lieve the capacity shortage in certain areas. proposals) POWER The Government has given its SYSTEMS system services. The following system services Beginning on 1 January 2007, several regions HOLDING will be procured separately: of Russia (on the decision of the regional tariff go-ahead to the sale of these to ensure primary regulation for standard regulators) will introduce the “pool” method for companies’ shares to private current frequency; setting the grid tariff. On 1 January 2008, this to ensure automated secondary frequency arrangement will be adopted in all constituent investors, and investors are regulation and active power flows; entities of the Russian Federation. This means now beginning to compete for OWNERSHIP SIMULTANEOUS SPIN-OFF AND MERGER to ensure additional regulation of the reac- that a flat-rate tariff will be set for all users of the right to put money into the tive electric power; the electricity transmission area in the given re- to ensure that a generating facility (power gion with one voltage level and similar network development of power plants. unit) can be started without an external topology, regardless of whose networks they are When this takes place, the WGCs, TGCs, FEEC AND 11 IDCs HydroWGC “INTER 5 WGCs 13 TGCs UES FGC source of electric power; connected to. HydroWGC, ISOLATED RAO UES” state, freed from having to be UES FGC REGIONAL to take and execute the control actions ENERGOS from the centralized emergency protection concerned about the genera- systems. tion facilities, will be able to focus on the infrastructural, natural monopoly sectors of the electricity industry (power transmission and dispatching operations).

Rossiyskaya Gazeta newspaper, 15 November 2006 Regulatory Environment and Macroeconomic Indicators ANNUAL REPORT OF RAO “UES OF RUSSIA” Power Consumption

Trends 2 0 0 6

The last few years have seen an increase growing 44 percent in 2000-2006 in compa- in electricity production and consumption amid rable prices. economic growth in Russia. In 2000 to 2006, Industrial users account for the greater electricity use throughout the country rose part of electricity consumption (about 55 per- by 13.5 percent. cent), and the households and service provi- Russia’s consumption of electricity in 2006, ders consume just under one third of the total taking into account the plants’ own consump- electricity output. tion and grid losses, grew 4.2 percent, 2.5 times At the same time, the energy intensity higher than the growth rate of 1.8 percent in of Russia’s economy is gradually declining. 2005. The total electricity consumption in Specific electricity consumption per RUB1,000 Russia in 2006 reached 980.6 billion kWh. of GDP (in comparable prices) declined by Today, the amount and structure of elec- 21 percent from 118.2 kWh in 2000 to 93.4 kWh tricity demand depend on the development in 2006 The energy intensity is primarily af- of Russia’s industries, with the country’s GDP fected by the structural changes owing to the

7 Regulatory Environment and Macroeconomic Indicators 57

Factors Affecting Pricing in Electricity Industry

increase in the services sector as a percent- In 18 regions of Russia, electricity consump- With electricity and heat tariffs regulated by February 2006 and subsequent increase in age of GDP and growing load of the production grew by more than 5 percent in 2006: Bel- the state, pricing in the energy industry is pri- electricity use in the spring and summer tion facilities, which have a significant basic gorod Region, Voronezh Region, Kaluga Re- marily affected by the changes in fuel prices, of 2006. However, the significant increase in component in electricity consumption. So far, gion, Ryazan Region, Yaroslavl Region, Moscow inflation and investments financed with en- energy companies’ expenses did not have an the energy saving measures being taken by and Moscow Region, Karelia Republic, Komi ergy companies’ own funds. influence of regulated tariffs in 2006, which electricity consumers have yielded relatively Republic, Mari El Republic, and Tatarstan Re- The electricity tariffs growth rate in are set for a year term. modest results in terms of energy intensity public, Orenburg Region, Chelyabinsk Region, 1998-2006 were close to the inflation rate The rates of infrastructure entities in 2006 reduction. Tyumen Region, Tomsk Region, Chechen Re- for industrial products. changed as follows: 2006 was characterized by significant slow- public, Ingush Republic, and Krasnodar Kray. In 2006, the approved tariffs for electri- the fee charged by OAO “UES FGC” for the down in energy intensity decline of Russia’s These regions accounted for more than half of city sold on the wholesale electricity (capa- transmission of electricity via the UNEG economy, and reversal of the decline in indus- the overall electricity consumption growth in city) market grew by 7.5 percent while the grew 56.7 percent; trial consumption. Russia (21 billion kWh). price growth forecast for gas was 11 percent, the fee charged by OAO “UES SO-CDA” for 2006 passed by quickly. In per capita terms, electricity consump- The electricity consumption growth was coal 10.1 percent, and fuel oil 11.2 percent. the system reliability services increased by tion in 2000-2006 grew 16.7 percent, reach- driven by the increased activity in the con- In 2006, the actual price growth was 12.5 percent; There were successes ing 6,864 kWh in 2006 compared to 5,880 kWh struction investment and retailing sectors in 11.7 percent for gas, 9.4 percent for coal, the fee charged for the UES functioning and failures, but positive in 2000. most regions of Russia and more production and 59.2 percent for fuel oil. The gas prices and development services increased by events prevailed. Luckily, the The greater part of electricity is consumed capacity coming on stream in the energy-in- were slightly higher than the forecast due to 11.0 percent. in the areas of centralized electricity supply— tensive industries, such as extractive, oil re- increase in gas deliveries at unregulated The significant growth of the fee charged by work was not routine. I am over 98 percent, or 962.6 billion kWh in 2006, fining and metal industries. prices. The significant fuel oil price growth OAO “UES FGC” in 2006 was due to the con- optimistic about the future. of which 947 billion kWh is consumed in the The basic variant of the electricity con- was dri-ven by the increased demand from solidation of the transmission (trunk) grids seven integrated energy systems of Russia. sumption forecast for 2007-2010 adopted by generation companies during the period of which were separated from the distribution It is variable, predetermined The electricity consumption pattern by region the Russian Federation Government antici- abnormally low temperatures in January and companies. and yet unknown. I am sure is quite diverse. The three largest integrated pates an average growth in electricity demand there will be a lot of new energy systems—Urals IES, Center IES, and in Russia at 5 percent to 1,196.6 billion kWh by Siberia IES—accounted for 673 billion kWh, 2010, including 1,174.8 billion kWh in the areas Industrial Prices vs Electricity Prices* and interesting work to or over 68 percent of Russia’s total electricity of centralized electricity supply. The electri- 12 10.9 consumption in 2006. city consumption forecast for 2010 will 10.5 accomplish the Company’s 10 The highest growth rates in electricity exceed Russia’s annual electricity use of 10.3 mission 10.0 consumption in 2006 compared to the aver- 1,073.8 billion kWh in 1990 by 122.8 billion kWh, 8 8.0 age annual growth rate for the previous five or 11.4 percent. 7.9 6 5.3 5.2 years were observed in the energy areas of the 4.8 4.8 4.7 4.0 4.1 4 3.8 4.7 4.7 Middle Volga (from 0.7 percent to 4.2 percent), 4.4 3.4 3.8 2.9 4.0 Siberia (from 0.7 percent to 2.8 percent), and 2.2 3.6 2 3.2 2.4 2.4 2.7 South of Russia (from 1.5 percent to 4 per- 1.7 3.2 1.7 1.2 2.2 cent). The electricity consumption growth rate 0 in the energy areas of the Urals and Center of 1998 1999 2000 2001 2002 2003 2004 2005 2006 Russia exceeded Russia’s average figures by 6 percent and 4.5 percent, respectively. As be- OIL PRODUCER PRICE INDEX MANUFACTURERS PRICE INDEX Pavel Smirnov, fore, electricity consumption growth rate was FUEL AND POWER PRICE INDEX PRICE INDEX FOR ELECTRICITY AND HEAT SUPPLIED BY THE HOLDING COMPANY'S ENERGY PROVIDERS Member of the Management Board, low at 0.9 percent in the Far East of Russia. RAO “UES of Russia” *price growth on an accrual basis relative to December 1998 Among the key achievements Electricity of the reform, we should first and Heat Tariffs of all mention the launch of Retail Market a fully-fledged, competitive Electricity Tariff Growth and Inflation Dynamic* The pricing in the electricity industry in market for electricity. Today, % 2006 was also affected by certain measures In 2006, electricity tariffs for end consumers designed to reform the sector. On 1 January were set in accordance with the programme this market is quite small: the 2006, most regional generation companies for limiting increase in the regulated tariffs 150 amount of electricity traded at started to trade on the wholesale electricity to the inflation targets for 2004-2006 appro-

142.3 market, which made it possible to more effi- ved by the Russian Federation Government. unregulated prices is about 140 ciently handle the load of their power plants. On 1 January 2006, the electricity and heat 5-10 percent. Nevertheless, The savings these measures produced are es- tariffs for end consumers were reviewed for this market segment 130 timated at RUB4.3 billion, which helped mod- the RAO UES energy entities within the aver- erate the growth of electricity prices. age release tariff thresholds set by the Fed- is already giving adequate 128.5 126.4 The changes in the state regulation of the eral Tariff Service of Russia. 120 price signals needed to attract 120.2 electricity sector, introduction of the new Rules The thresholds (minimum and maximum 118.6 117.1 111.7 for the operation of the wholesale and retail values) for electricity tariffs set for 2006 were investments. Thus, it is fair 115.1 110.3 110 112.0 111.4 110.9 electricity markets also had an influence on 5.5% and 7.5% higher, respectively, than the to say that, today, our country pricing in the sector. In particular, with effect targets for 2005. 109.6 109.0 has a price benchmark for from 1 July 2006, Russia’s Federal Tariffs Ser- The overall increase in the approved ta- 100 vice adopted a new basis for the calculation of riffs for end consumers in 2006 was 7.5 per- electricity. 2000 2001 2002 2003 2004 2005 2006 UNEG transmission fees: instead of the useful cent compared to the target inflation rate output measured in kilowatt-hours, the Ser- of 8 percent. The highest tariffs in the UES TARIFF GROWTH FOR THE ELECTRICITY SUPPLIED INFLATION Power Market magazine, BY THE HOLDING COMPANY'S ENERGY PROVIDERS vice adopted capacity measured in kilowatts. of Russia were set for the Khabarovsk Kray 20 December 2006 *December, year-on-year (178.0 kopecks per kWh) and Arkhangelsk Region (162.3 kopecks per kWh) and the low- Growth of electricity tariffs and prices of products (services) provided est tariffs were set in the Republic of Khaka- by other natural monopolies and the residential utilities, times ssia (27.38 kopecks per kWh). 2.6 2.5 The actual inflation in 2006 was 9 percent,

2.4 2.5 and the actual tariffs in the electricity industry grew on average by 9.5 percent. The rates for 2.2 2.2 the electricity delivered by RAO UES distribu- 2.0 2.0 2.1 tion companies increased by 10.3 percent. 2.0 The key reason for actual tariffs exceed- 1.8 1.9 ing the approved targets was the significant 1.6 1.6 1.7 1.7 deviation of the actual volumes of electricity 1.3 1.6 1.6 consumption mix from the planned balance 1.4 1.3 1.5 1.3 1.4 1.4 of electricity production and consumption ap- 1.2 1.3 proved by the Federal Tariff Service of Russia. 1.2 During the past few years, electricity tariffs 1.0 grew against the background of faster growth 2002 2003 2004 2005 2006 2007 in prices (tariffs) of products and services provided by the other natural monopolies and the UTILITIES TARIFFS RAILWAY TARIFFS residential utilities sector. GAS PRICES ELECTRICITY RATES 60 Regulatory Environment and Macroeconomic Indicators

Russian President Vladimir Putin said that the key objective in the energy sector is ANNUAL REPORT OF RAO “UES OF RUSSIA” Wholesale Market to remove the price disparity Actual Electricity Rates, by Groups of Consumers the income tax) grew by 19 percent, which is In 2006, the number of thermal and hydro- in accordance with the RAO UES Investment on the domestic electricity 2 0 0 6 December rates power plants of the WGCs supplying electric- Programme 2006 agreed with Russia’s Min- market. “The key issue in the ity to the wholesale electricity (capacity) mar- istry of Economic Development and Trade, Unit of Dec 2006/ sector should be an under- Indicators measurement 2004 2005 2006 Dec 2005, % ket grew to 53 from 32 after the power plants, Ministry of Industry and Energy, Federal Tariff which previously formed part of the regional Service, and approved by the Russian Federa- standable and transparent Electricity rates energos, entered the market. tion Government. pricing policy on the electricity The average increase in tariffs approved by The aggregate charges for the services Average tariff for internal consumers kopeck/kWh 84.62 92.79 102.31 110.3 and natural gas markets.” the Federal Tariffs Service of Russia for elec- provided by the infrastructure organizations Tariffs for industrial and equivalent consumers kopeck/kWh 83.35 90.11 95.60 106.1 tricity supplied to the wholesale market grew (OAO RAO “UES of Russia”, OAO “UES FGC”, That is why it is paramount to with connected load of over 750 kW in 2006 by an average of 15.6 percent over 2005, and OAO “UES SO-CDA”) grew by 12 percent eliminate, in the very near fu- Tariffs for households (including VAT) kopeck/kWh 82.28 97.64 117.23 120.1 with the tariffs for hydropower plants grow- over 2005. ing by 51.1 percent and the tariffs for thermal ture, the price disparity on the Heat tariffs power plants declining by 6.2 percent. The domestic market for electri- Average tariff RUB/Gcal 302.38 352.98 386.47 109.5 lower growth rate in tariffs for thermal power city,” said Russian President. plants was due to the wholesale market entry Tariff for industrial consumers RUB/Gcal 306.00 352.41 395.49 112.2 by 16 TPPs which earlier had operated as part Tariff for housing organizations RUB/Gcal 300.27 367.76 395.49 107.5 of the regional energy systems. These new Nezavisimaya Gazeta newspaper, entrants had a tariff lower than the average 31 November 2006 tariff on the wholesale market. Rates for Electricity Supplied by WGC Power Plants to the Wholesale Electricity The wholesale market suppliers’ tariffs Market, kopecks per kWh grew considerably faster than those of the buyers. This was because of the significant The significant increase in electricity ta- surplus (about RUB3 billion) provided for the 2005 2006 2006/2005, % riffs for households in 2006 made it possible wholesale market in 2005 in order to cover to slightly reduce the cross subsidies be- the losses incurred by the wholesale market Average tariff 47.29 53.06 112.2 tween industrial and household consumers. suppliers during the previous periods. In 2006, The existing cross subsidies hinder the steps owing to the increased tariffs set for suppliers, including: to further improve the efficiency of industry the surplus was reduced to RUB300 million. TPPs 66.59 61.65 92.6 entities. The total amount of cross subsidies in 2006 calculated by the Federal Tariff Subscription Fee HPPs 20.26 22.86 112.8 Service of Russia amounted to RUB78 billion The subscription fee for the organizational (exclusive of VAT). services provided by OAO RAO “UES of Rus- The electricity tariffs grew by an average trial consumers was 95.60 kopecks per kWh. The Federal Law On the Federal Budget sia” with respect to the operation and develop- of 10.3 percent, for industrial consumers by The actual tariffs charged to households were for 2007 provides for the right of the Rus- ment of the UES of Russia was set by the 6.1 percent and for households by 20.1 per- lower than the tariffs approved for house- sian Federation Government to grant up to Federal Tariff Service of Russia with effect cent. The average tariff approved for households by the regional energy commissions RUB15 billion in subsidies to the constituent from 1 January 2006 at RUB48.72 per thou- holds for 2006 was 134 kopecks per kWh. The due to the benefits existing for different entities of the Russian Federation to eliminate sand kWh, up 11 percent compared to 2005. actual tariff for households, taking into ac- groups of population. The total electricity interregional cross subsidies. In 2006, the first The operational component of the subscrip- count the social benefits, was 117.23 kopecks allowances to households in 2006 are estimat- practical step was made to replace cross sub- tion fee was the same as in 2005, while the per kWh, whereas the tariff for large indus- ed at RUB30 billion. sidies with budget finance. investment component (taking into account Ensuring Reliable Operation of the UES of Russia ANNUAL REPORT OF RAO “UES OF RUSSIA” Operation of the UES of Russia 2 0 0 6

In 2006, RAO UES entities ensured stable The annual peak load of the UES power functioning of the Unified Energy System of plants was recorded on 23 January 2006, Russia, which operated 100 percent of the with the AC frequency of 50.01 Hz and the time at the standard AC frequency prescribed outdoor temperature of -23.2°C (8.7°C below by the state standard, GOST (49.95 – 50.05 Hz). normal and 12.8°C lower than in 2005). The In 2006, 100 percent of the time the frequency peak load reached 146.4 thousand MW, up 6.6 of electric current in the energy pool of Rus- percent over 2005. sia, CIS countries and the Baltic Republics was maintained within the permissible range provided by the Standard of RAO “UES of Rus- sia” Rules for preventing and eliminating disruption in normal operation of the electrical component of the energy systems.

8 It appears that the Unified En- ergy System of Russia is going through one of the most exciting periods in its development. With In 2006, the UES of Russia operated in par- The dispatch entities, with the assistance 2007, similar programmes will be developed management measures were implemented in allel with the energy systems of Belarus, Es- of other industry infrastructure organizations, and agreements will be signed with 17 regional over 20 thousand hectares; the repair crews the electricity reform nearing tonia, Latvia, Lithuania, Georgia, Azerbaijan, address the strategic goals for optimizing the administrations. replaced over 28 thousand insulators and completion, the new sector Kazakhstan, Ukraine, Moldova, and Mongolia. operational modes of the UES of Russia in the The Reliability and Development over 100 km of lightning protection cables. As structure is being created in The energy systems in the countries of Cen- mid- and long-term perspectives, including: Headquarters of the UES of Russia are part of the R&M activities carried out by the tral Asia—Uzbekistan, Kyrghyzstan, and Ta- forecasting consumption of electricity and responsible for controlling and coordinating transmission (trunk grid) companies of OAO which RAO UES spinoffs—WGCs, jikistan—operated in parallel with the UES of capacity, and development of capacity and the performance of obligations by RAO “UES “UES FGC”, 100 compressors, 2 reactors, over TGCs and energy retail com- Russia through Kazakhstan’s energy system. electric power balances; of Russia” and its energy companies operating 2 thousand disconnecting switches, and over panies—will play a major role. Finland’s energy system, which is part of determination of the transfer capability in the regions with whose administrations the 800 circuit breakers were repaired. NORDEL, the Nordic countries’ energy pool, of the UES power grid; relevant agreements were signed. The distribution companies cleared However, the UES of Russia will operated in an interconnected mode with optimising the use of energy resources and In the course of preparations for the 2006- about 88 thousand hectares of high-voltage remain the backbone ensuring the UES of Russia via the Vyborg conversion carrying out overhaul of generation equip- 2007 autumn and winter period, as a measure power line routes and replaced nearly reliable power to customers. I believe that our suc- plant. Electricity from Russia’s power grid ment, etc. to ensure operational reliability, RAO “UES 800 transformers which had reached the end was also supplied to selected areas of Norway In 2006, measures were implemented to of Russia” signed Agreements on inter- of their service life. Complete overhaul was cess in 2006 was due and China. improve the process to calculate, analyse, and action in the event of danger of emergence made in about 5 thousand substations, nearly Izvestia newspaper, Operational management in the UES of manage the operational modes. A good deal and appearance of power blackouts with 42 thousand distribution points and 10/0.4 kV to the teams of professionals 21 December 2006 in Moscow and the regions. Russia is handled by OAO “UES SO-CDA”, of work was done to develop and increase 18 regional administrations. Under these transformer stations, about 66 thousand which has a three-tier structure of dispatch the reliability of the telecommunication, Agreements, Headquarters for ensuring km of high-voltage lines of 35 kV and The team spirit manifested operation: the Central Dispatch Administration dispatching, UPS and engineering systems. security of power supply to consumers were more, over 183 thousand high-voltage lines itself most strongly in the of the UES of Russia, Integrated Dispatch OAO “UES SO-CDA” organized system-wide set up in each region, consisting of regional of 0.4 kV to 10 kV. Administrations, and Regional Dispatch and cross-system emergency response drills officials and energy companies’ officers. The Winter readiness certificates were received period of abnormally low Administrations (CDA-IDAs-RDAs). and trainings to strengthen the interaction with primary focus of such HQs’ activities will be by 1,018 out of 1,019 RAO UES companies, ex- temperatures last winter. The key functions performed by OAO “UES the crews of Russia’s Emergencies Ministry, on coordinating efforts and prompt decision- cept for OAO “Tyvaenergo”, where consumer It was the mobilization of all SO-CDA” are to: with the participation of the authorities of taking in order to prevent and eliminate the non-payments prevented the company from ensure compliance with the established large cities and regions. consequences of power blackouts. meeting the fuel stockpiling targets for the resources, not only techno- reliability parameters for the functioning In the spring of 2006, RAO “UES of Russia” During 2006, RAO UES entities repaired autumn and winter period. logical ones, but, in the first of the Unified Energy System of Russia and launched the development of programmes to generators having an aggregate capacity of electricity quality; ensure reliable power supply in the so-called 72.2 thousand MW, power boilers with the place, human resources, manage the operational modes of the ener- “peak load areas” (i.e. areas which experience steam capacity of 144.9 thousand t/h, and that made it possible gy facilities pursuant to the Principal Rules capacity shortages during peak load periods). hot-water boilers with a total heat capacity of to stand up to the challenges for the operation of the wholesale and retail RAO “UES of Russia”, its energy companies 6.6 thousand Gcal/h; 443.6 km of heating markets; and the regional administrations have already network pipelines were replaced. of weather develop optimal daily schedules for the approved Five-Year Reliability Assurance and RAO UES companies met their targets operation of power plants and grids of the Energy Industry Development Programmes for repairs of power networks set for the UES of Russia, etc. for the following regions of Russia: Moscow, year. In 2006, OAO “UES FGC” repaired Saint Petersburg, Tyumen (including the 28 autotransformers of 110-1,150 kV in its Tyumen Region, Khanty-Mansi Autonomous own networks, 17 reactors of 110-1,150 kV, Okrug and Yamalo-Nenets Autonomous over 200 110-1,150 kV switchgears, over ANDREY TRAPEZNIKOV, Okrug), Moscow Region, Sverdlovsk Region, 500 disconnecting switches, 166 compressors, Member of the Management Board, Nizhny Novgorod Region, Chelyabinsk Region, and over 4 thousand foundations under grid RAO “UES of Russia” and Krasnodar Kray. It is planned that, by end- facilities. In addition, lineside vegetation The unique modular power unit manufactured by the famous Technical Policy Sevmash plant to order of Hy- droWGC, a RAO UES subsidiary, In order to improve the reliability and op- coal-burning and nuclear power plants. CCGT Under the Regulation on Technical Policy of chines, technology and equipment for fle- erational stability of the UES of Russia, raise plants do not put any extra strain on the envi- OAO “UES FGC” approved in 2006, the com- xible transmission lines; is equipped with a 1,500 kW the efficiency of electricity and heat genera- ronment, they are relatively small in size and pany developed a number of special-purpose creation of technologies and devices using orthogonal turbine designed tion, and ensure power, industrial and envi- easier to site near the energy consumption programmes and regulatory documents de- high-temperature superconductivity; by Russian scientists and engi- ronmental safety at RAO “UES of Russia”, the centers. signed to further improve the technical policy development of design solutions, equip- Holding Company identified the key areas of Another important area for implementation in the grid system, including the following: ment, systems and methods of monitoring neers and has no counterparts its research policy reflecting the most ad- of new advanced technology and equipment is replacement of obsolete equipment with for the creation of next generation substa- in the world. The peculiar vanced technical solutions and performance the construction of coal-fired thermal power modern equipment, fitting out the enter- tions and transmission lines. feature of such turbine is that parameters of power equipment, which are to plants using the traditional steam techno- prises with advanced facilities for techni- be used in the energy companies’ investment logy and power units using ultra supercriti- cal diagnostics and monitoring of electrical the direction of its rotation is the programmes. cal live steam conditions (Po = 30÷32 MPa; equipment and power transmission lines; same during the ebb and flow In 2005, RAO “UES of Russia” produced t°= 600÷620), including circular fluidized-bed creation and implementation of faceted steel of the tide, which increases its For me, the year 2006 the Statement of the Technical Policy Con- (CFB) boilers. This helps increase the efficien- towers for 35-500 kV transmission lines; cept for the Period until 2009. In order to fur- cy of coal-fired power units to 46-48 percent creation of controlled transmission lines; efficiency significantly to 60-70 was remarkable in ther develop the Concept, in 2006 OAO “UES and effectively burn low-quality coals, reduce creation of an automated dispatching sys- percent, and reduces the cost that RAO UES energy com- FGC”, OAO “UES SO-CDA”, OAO “HydroWGC”, specific fuel consumption by 15-20 percent tem for grid control centers; of building such units by 30-40 panies started to implement and nearly all generation and power grid while complying with strict environmental re- creation of digital systems for data trans- companies adopted their own Regulations quirements. mission through ‘dark’ optical fibres in line percent. international standards in on Technical Policy. The construction of tidal power plants and cable facilities. quality management, envi- As part of the process to develop the Stra- (TiPPs) with next-generation orthogonal In 2006, OAO “UES FGC” implemented tegy (Target Vision) for the Development of the (cross-stream) turbines is one of the prio- steps to install improved electrical insulators, Rossiyskaya Gazeta newspaper, ronmental management and Electricity Industry in Russia for the Period rity areas for development in the hydropower replace valve-type arresters, and high-voltage 23 November 2006 personnel health and safety Until 2030, RAO “UES of Russia” is prepar- sector. TiPPs may operate in any load sched- bushings in the interconnected power grids. management. These meas- ing its best practice recommendations on the ule area, do not pollute the atmosphere and New types of pylons have been designed and key principles of technical policy in the Rus- do not have an inundation zone. Investments tested for 35-110 kV and 330 kV transmission ures will result in improved sian electricity industry, Fundamentals of the needed to construct a TiPP are comparable lines. FGC put into operation a Unified Digi- quality of management and Technical Policy for the Electricity Industry to those of HPP construction. When the es- tal Telecommunication Network for the Elec- in Russia for the Period until 2030. timated performance of orthogonal hydraulic tri-city Industry which supports information increased reliability One of the key areas of the Holding Compa- units is confirmed in tests and the techno- exchange among industry participants, in- and safety of equipment ny’s research policy, which is intended to sig- logy for float-on method for TiPP construction cluding subdivisions of RAO “UES of Russia”, and personnel nificantly raise the efficiency of thermal power is verified, energy companies will be able to OAO “UES FGC”, and OAO “UES SO-CDA”. plants, is the broad adoption of the combined- start building new powerful and energy-ef- An important factor that affects implemen- cycle technology. The use of cogeneration will ficient tidal power plants (Mezenskaya TiPP tation of the technical policy of OAO “UES increase their efficiency from 30-35 percent on the White Sea and Tugurskaya TiPP on the FGC” is conducting research under the Com- to 50-60 percent, minimize the environmen- Sea of Okhotsk). prehensive Technical Research Programme tal impact, and reduce fuel consumption for of OAO “UES FGC”, including R&D in the key electricity generation by 25-35 percent. The areas of power grid development, such as: project turnaround time for power plants with development of new technologies, includ- Victor Pauli, combined-cycle units may be as short as two ing the Flexible Alternating Current Trans- Member of Management Board, Chief years from the construction launch until commission Systems (FACTS) using advanced Technical Inspector, RAO “UES of Russia” missioning, which is much faster than for power electronics and asynchronized ma- Investment Phase of the UES Development

Investment Needs of the UES of Russia ANNUAL REPORT OF RAO “UES OF RUSSIA”

According to the forecast approved by the RAO UES energy companies will need Russian Federation Government at its meet- RUB3.1 trillion in funds to finance their in- 2 0 0 6 ing of 30 November 2006, the Country’s elec- vestment programmes until 2011. The invest- tricity consumption will grow by an average of ment programme implementation will help 5 percent annually until 2011, which means satisfy the demand for electricity and heat that that energy companies will need to build from the expanding economy and household and bring on line 40.9 thousand MW of new gene- consumers and prevent capacity shortages ration capacity duing that period. Of that in the areas where the economic growth amount, 33.3 thousand MW will be built by is most rapid. the energy companies established in the course of restructuring of RAO UES entities. According to the RAO UES companies’ investment programmes, the amount of generation capacity to be brought on line will increase tenfold by 2011.

9 70 Investment Phase of the UES Development

The new share issue by WGC-5, Sources a Russian generation company, of Investment was sold to a group of interna- ANNUAL REPORT OF RAO “UES OF RUSSIA” tional investors for US$459m. Planned Additions of Generation The development and implementation of the approved the list of thermal generation com- and Grid Capacity by RAO UES Entities RAO UES Investment Programme was made panies which may place additional shares to One share was valued at 9 cents, 2 0 0 6 possible owing to the consistent and dedicat- private investors. The list includes the follow- which was close to the upper ed policy of reforming the electricity industry, ing thermal generation companies: WGC-1, Unit of boundary of the price range. measurement 2006 2007 2008 2009 2010 TOTAL which unlocks the investment potential of pri- WGC-2, WGC-3, WGC-4, WGC-5, WGC-6, vate (non-governmental) sources of finance. TGC-1, TGC-3, TGC-4, TGC-5, TGC-7, TGC-8, The IPO of WGC-5 was the first Generation: total for Holding Company MW 1,252 2,281 2,222 8,196 19,300 33,251 The large-scale construction of generation TGC-9, TGC-10, TGC-12, and TGC-13. test of the equity markets which facilities will be financed with own capital of It may be decided in 2007 on whether including: is part of the modernization of the energy companies, proceeds from the of- it is advisable for TGC-2, TGC-6, TGC-11, and Thermal Power Plants MW 1,196 1,474 1,596 6,896 17,209 28,371 ferings new WGC and TGC shares to private TGC-14 to issue new shares. the entire energy sector investors, the use of project finance mecha- The proceeds that the WGCs and TGCs may Hydropower plants MW 56 696 467 1,205 1,963 4,387 in Russia. The transaction is nisms, direct private investments, and debt receive from share offerings in 2006-2008 Small-scale HPPs owned by TGCs. MW — 111 159 95 128 493 financing. The RAO UES Investment Pro- are estimated at over RUB400 billion. likely to whet the investors’ ap- gramme provides that the construction of The bulk of funds from the companies’ Length of HV lines of the UNEG km 639 975 1,230 4,256 5,360 12,460 petite for future projects relating power units will also be financed with funds new share issues is anticipated in 2007-2008. to RAO UES reorganization. Transformer capacity of the UNEG MVA 4,124 8,583 13,203 27,312 28,120 81,342 provided by private investors under the invest- In order to ensure that their investment pro- ment guarantee mechanism. grammes are properly financed in 2007-2008, Reactive power of the UNEG Mvar 1,200 540 1,520 1,980 540 5,780 The principal source of investments in the the generation companies will have to rely Financial Times Length of distribution lines km 1,357 1,434 4,762 4,748 6,033 18,334 power grids and dispatching facilities will be strongly on other sources of finance available 1 november 2006 charges for the transmission and dispatch- to them, i.e. own capital and debt funds. Transformer capacity of distribution MVA 999 4,051 6,378 5,664 9,533 26,625 substations ing services, payments for new user connec- In November 2006, OAO “WGC-5” placed its tions, debt finance and the proceeds from the new shares on the stock market. The inves- new share offerings of OAO “UES FGC” and tors were offered 5.1 billion shares in WGC-5, The RAO UES generation companies will spend over RUB700 billion on the development The investments to be made by OAO “UES OAO “UES SO-CDA” to the state, and from the or 14.4 percent of the company’s increased spend RUB1.8 trillion to build new power of the distribution infrastructure by 2011, and SO-CDA” in 2006-2010 will be focussed on the sale of the shares in thermal generation com- authorized capital. The investors’ appetite for units. A greater part of the new capacity will the total amount to be spent on the develop- following: panies (WGCs and TGCs) owned by RAO “UES the shares significantly exceeded the number be built on the sites of the existing power ment of the entire power grid infrastructure development of the calculation, analysis of Russia” to private investors. of shares on offer, tenfold at the lower bound plants, which will significantly reduce the cost will make more than RUB1.3 trillion. and regulation process of the operational of the price range and eightfold at the upper of creating the necessary transport and net- In 2006-2010, the investment program- modes; Additional Share Issues of Generation bound. The bidders were both Russian and work infrastructure. me of OAO “UES SO-CDA” will total development of technologies to support Companies international institutional and strategic inves- The large-scale generation capacity expan- RUB24,108 million. market trading; One of the sources of finance for generation tors. WGC-5 raised USD459 million in its IPO. sion projects will be accompanied with the increasing the reliability of professional ac- companies’ investment projects are additional The issuance of new shares by WGC-5 is construction of the corresponding power grids. tions by staff members; share issues by WGCs and TGCs to private in- the first experience in Russia’s electric power The following UNEG facilities are scheduled increasing the reliability of the informa- vestors. industry in attracting large-scale private infor construction in 2006-2010: 12 thousand tion technology and telecommunication In 2006, the Board of Directors of RAO “UES vestment in electricity generation companies. km of transmission lines, 81 thousand MVA of system; of Russia” took decisions in principle aimed The company will use the offering proceeds to transformer capacity, and nearly 5.8 thousand improvement of the infrastructure support- at attracting private investment through issu- build new power capacity in the areas of Rus- Mvar of reactive power. It is planned that the ing the dispatch administration. ance of additional shares in thermal genera- sia which suffer from energy shortages and to distribution companies will build over 18 thou- tion companies. revamp the existing power plants of WGC-5. sand km of new lines and 26 thousand MVA The Board of Directors at its meetings of In March 2007, OAO “WGC-3” completed of transformer capacity. The companies will 23 June, 30 August and 29 September 2006 the first placement of shares to a strategic in- Investment Phase of the UES Development 73

vestor. The highest price, USD3.084 billion, for The mechanism applies only to investments Sources of Finance for Investment Programmes of the Generation Companies of the 18 billion ordinary shares (37.9 percent of in the creation of new generation capacity, i.e. RAO “UES of Russia”, billions of RUB the WGC-3 increased authorized capital) was investments aimed at addressing capacity offered by Norilsk Nickel Group. shortages in certain regions of Russia. The In May 2007, OAO “TGC-5” was the first IGM is not intended to attract investments for 2006 2007 2008 2009 2010 TOTAL % among the territorial generation companies projects to modernize the existing generation to issue its new shares to a private strategic facilities which do not result in the expansion Own funds 54.9 63.9 82.6 113.0 203.2 517.6 29 investor. The company issued 329.734 bil- of their installed capacity. New share issues and proceeds from asset sales — 101.9 149 139.9 67.4 458.2 26 lion ordinary shares, which makes 26.8 per- The Russian Federation Ministry of Industry cent of its increased capital, and raised over and Energy has prepared an order to hold a Raised funds 29.2 52.3 51.2 118.3 129.8 380.8 21 USD450 million. tender to procure the construction of a ther- Funds from outside investors provided — 3.3 38.1 46.7 52.4 140.5 8 The offerings by the three generation com- mal power plant of up to 1,200 MW near the for IGM projects panies alone—WGC-3, WGC-5 and TGC-5— Tarko-Sale Substation in the Tyumen Region. Since my first day in Federal budget 0.1 7.0 7.9 12.0 — 27.0 2 raised USD4 billion in funds for the electricity Also, an order is pending approval from the the electricity sector, Other (including VAT recovery, capital lease, industry. This amount is much bigger than the ministries and government agencies of Russia 10.9 42.0 72.1 72.9 58.3 256.2 14 funds from outside investors) I have wanted to be involved aggregate public expenditure in the electricity regarding the siting of generation facilities at in the construction of new sector over the past decades. the Urengoyskaya TPP in the Tyumen Region The funds raised by WGC-3, WGC-5 and and Serovskaya TPP in the Sverdlovsk Region. Sources of Finance for Investment Programmes of Grid Companies and OAO “UES power plants and major TGC-5 will be used to implement investment The investment programme also includes IGM SO-CDA”, billions of RUB projects to modernize power projects—construction of new and moder- projects on the sites of the Shchekinskaya nization of the existing generation capacity. TPP (Tula Region), Petrovskaya TPP (Moscow equipment. Last year saw Region), and the TPP in the neighbourhood of 2006 2007 2008 2009 2010 TOTAL % the launch of numerous new Investment Guarantee Mechanism the city of Syktyvkar. RAO “UES of Russia” and projects. Today, these plans In light of the need to ensure investments in OAO “UES SO-CDA” are considering a list of Own funds 69 90 83 100 141 483 37 the electricity industry during the transitional pumped storage power plants (PSPPs) and Charges for technological connection 5 59 75 66 48 253 19 are viewed as feasible not only period, the Russian Federation Government, coal-fired TPPs with an aggregate installed to power grids by its Resolution No. 738 of 7 December 2005, capacity of 25 thousand MW, whose construc- by sector workers, but also by Proceeds from asset sales — 37 111 56 80 284 22 the heads of regional govern- approved the use of the investment guarantee tion may be feasible only within the framework mechanism (IGM) as an instrument to stimu- of the IGM. Federal budget — 25 24 48 — 97 7 ments late investments during the transitional pe- Raised funds 11 28 45 29 25 138 11 riod which provides additional guarantees and incentives to investors. Such a mechanism is Other (including VAT recovery, capital lease) — 8 13 15 20 56 4 intended as a measure to safeguard investors from most market risks. Under the IGM, investors are guaranteed a certain return on their investments in the construction of new capacity in Russia by setting a special fee for the services aimed at the creation Boris Vainzikher, of the long-term technological reserve of ca- Member of the Management Board, pacity (similar to the capacity fee) under a long- Technical Director, RAO “UES of Russia” term agreement with OAO “UES SO-CDA”. Andrey Dementyev, Deputy Head of the Russian Federation Ministry of Industry and Energy: “We are impressed with the re- Funds Contributed by the Federal Energy Grid (UNEG), and cash. The Russian In order for energy companies to meet the sumers. In order to regulate the technical Government to Increase the Rus- Federation paid RUB22.48 billion in cash for eligibility requirements and benefit from the connection process, the Russian Federation sults of the first IPO completed sian Federation’s Stake in OAO “UES the additional shares in FGC in accordance Kyoto Protocol mechanisms, the companies Government adopted Resolution No. 861, dat- by WGC-5. I’m not only speaking FGC”, OAO “UES SO-CDA”, and OAO with the Federal Law On the Federal Budget are required to estimate their greenhouse ed 27 December 2004, approving the Rules for of the amount of money raised, “HydroWGC” for Year 2007. emissions and make the appropriate regis- Technical Connection of Energy Consuming To implement their investment programmes, As a result of the share issue, the Russian ter of emissions. For an investment project to Devices (Energy Units) of Legal and Natural but also by the investor pool, the electricity infrastructure companies need- Federation, through the Federal Agency for be structured as a JI project, special project Persons to Power Grids. Pursuant the Con- which includes foreign energy ed government support in the form of capital Federal Property Management, now holds documentation must be produced in the PIN nection Rules, the Federal Tariffs Service of companies, Russian financial contributions to OAO “UES FGC”, OAO “UES a 12.44 percent of OAO “UES FGC”, and the and PDD format and verified by an indepen- Russia approved its Methodological Guidance SO-CDA”, OAO “HydroWGC”. The amount of stake held by RAO “UES of Russia” declined to dent entity accredited by the UN, and receive for Determining the Amount of the Fee for organizations, Russian energy such contributions is determined in accor- 87.56 percent. the relevant approvals on the national and Connection to Power Grids. 2006 saw conti- companies, and international dance with Federal Laws No. 35-FZ On the It is planned that the deficit of the Invest- international levels. nued work to improve the legal framework institutional investors. The 2006 saw the Electric Power Industry and No. 36-FZ On ment Programmes of OAO “UES FGC” and RAO “UES of Russia” has put in place the for technical connections, and on 27 March Specific Features of Functioning of Electric OAO “HydroWGC” will be eliminated after necessary infrastructure and methodology 2007 some amendments were made to the “pilot” IPO demonstrated that establishment Power Industry During the Transitional Period, the sale of the shares in 5 thermal WGCs and which will facilitate carbon reduction finance Resolution which provided that the connection major investors are beginning to of HydroWGC, Europe’s which provide that the state must hold at least 13 TGCs (i.e. all companies except for WGC-5 in investment projects. The work is coordi- fee must necessarily include an investment develop their financial strategies largest company producing 75 percent plus one share in OAO “UES FGC” and TGC-5, which will have been spun off from nated by a dedicated wholly-owned subsidiary component. and OAO “UES SO-CDA”, and at least 50 per- RAO “UES of Russia” by that time within the first of RAO “UES of Russia”, Energy Carbon Fund. It is expected that, in 2006-2010, the connec- with regard to the prospects electricity using renewable cent in OAO “HydroWGC”. Another factor de- reorganization phase) owned by the state during Standards have been produced for the prepa- tion fee receipts will make over RUB252 billion. of the development of the energy sources. We launched termining the amount of capital contributions the final phase of RAO UES reorganization. ration of JI projects and detailed assessment These receipts will be used to finance the is the amount provided the companies’ invest- of greenhouse gas emissions at RAO UES investment programmes in distribution and Russian energy sector. We can the construction of the Greenhouse Emissions ment programmes. entities. Preparations are well underway to transmission grids. already see that the sector is Boguchanskaya HPP with RAO “UES of Russia” submitted to the Rus- Trading System implement the Kyoto Protocol mechanisms: turning into an efficient business the design capacity sian Federation Ministry of Industry and En- One of the sources of investment in the elec- greenhouse to date emissions inventories ergy a proposal that the Russian Federation tricity industry is the use of the joint imple- have been prepared for 125 energy facilities. before our eyes“. of 3,000 MW. This project acquire shares in OAO “UES FGC”, OAO “UES mentation (JI) mechanism provided by Article The Energy Carbon Fund, together with is the largest one in Russia’s SO-CDA”, OAO “HydroWGC” in 2007-2010: 6 of the Kyoto Protocol to the UN Framework the RAO UES energy companies, has started electricity industry over the RUB91.78 billion worth of shares in OAO “UES Convention on Climate Change. An invest- drafting documentation for the first priority Izvestia newspaper, FGC”, RUB5.22 billion worth of shares in OAO ment project being implemented as a JI pro- projects in the PIN and PDD formats, and is in 21 December 2006 past decade “UES SO-CDA”, and RUB23.0 billion worth ject is intended to generate greenhouse gas the process of negotiations with the potential of shares in OAO “HydroWGC”. reductions which may be sold to an interested ERU buyers. Currently, documentation is be- On 20 March 2007, OAO “UES FGC” complet- buyer. ing prepared for 20 investment projects. ed its additional share issue. The RUB80 billion In 2006, the RAO UES Investment Pro- share issue was registered with the securities gramme was reviewed to determine whether Payment for Connection regulator on 21 March 2006. The shares were certain projects could be implemented as of New Users to Power Grids issued by private placement to RAO “UES of JI projects. The potential greenhouse gas re- One of the sources of finance for the invest- Vyacheslav Sinyugin, Russia” and the Russian Federation. ductions are estimated at 25.6 million tonnes ment projects in the power grids, especially in Member of the Management Board, In return for the additional shares in FGC, of CO2, which may bring over EUR180 million the distribution networks, is the fee charged Managing Director, RAO “UES of Russia”; RAO “UES of Russia” transferred its shares in in funds from carbon reduction projects. to new consumers for grid connection. In Chairman of the Management Board, the transmission (trunk grid) companies, net- 2004-2006, the legal framework was created OAO “HydroWGC” work facilities relating to the Unified National for charging the connection fee to new con- Electricity And Heat Markets

Wholesale Electricity Market ANNUAL REPORT OF RAO “UES OF RUSSIA”

In 2006, the wholesale electricity (capacity) Electricity (Capacity) Market for the Transition- market in Russia had 249 participants, in- al Period and was divided into two segments: 2 0 0 6 cluding 146 subsidiaries and dependent com- the regulated segment, which included the panies of RAO “UES of Russia”: 216 partici- “deviations” market where electricity was pants in the price area of the European part bought and sold at the electricity tariffs of Russia and Urals (the first price area) and which take into account the capacity; 33 participants in the price area of Siberia (the the unregulated (free trading) segment, second price area). where insignificant volumes of electricity In January to August 2006, the wholesale were sold at unregulated prices (13.7 per- market operated in accordance with Rus- cent of the total amount of electricity sold sian Federation Government Resolution in the first price area and 3.2 percent in the No. 643 On the Rules for the Wholesale second price area).

10 Electricity And Heat Markets 79 ANNUAL REPORT OF RAO “UES OF RUSSIA” Prices in the Unregulated Segment Average Daily Prices for Electricity on the Day-Ahead Market, RUB/MWh* One of the key features of this market model consumers had the right to buy more elec- and Day-Ahead Market 900 was that the buyer who failed to purchase tri-city than suppliers could sell, and, on the electricity in the unregulated segment could The weighted average price of electricity other hand, those buyers who failed to pur- 800 turn to the regulated segment and purchase in the unregulated segment in January-August chase electricity in the free trading segment

700 the necessary amount of electricity at the tariff 2006 was RUB574.8 per MWh. In the European bought it in the regulated segment at their set by the Federal Tariffs Service of Russia. and Urals price area, the weighted ave-rage tariff for electricity taking into account the 600 On 31 August 2006, the Russian Federation electricity price was RUB582.1 per MWh, capacity. Thus, the price in the free trading

500 Government adopted its Resolution No. 529 while in the Siberian price area, which has segment was approximately the level of tar- On Improving the Operation of the Wholesale a high percentage of hydropower generation, iff average for all buyers of electricity taking 400 Electricity (Capacity) Market which became the weighted average price was RUB457.9 into account the capacity in 2006, which in the

300 effective on 1 September 2006. Pursuant to per MWh. European part of Russia and Urals stood at the Resolution, the regulated segment was In September-December 2006, the weight- RUB590.0 per MWh and in the Siberia at 200 transformed into a system of regulated con- ed average electricity price in the day-ahead RUB431.5 per MWh.

100 tracts, and the unregulated prices are set on market segment was RUB384.6 per MWh. After the new wholesale market model was the day-ahead market as a result of selection In the European and Urals price zone, the introduced, the unregulated market prices 0 by the Administrator of Trading System of weighted average price was RUB449.0 per were set according to the demand and supply 1 6 11 16 21 26 31 5 10 15 20 25 30 4 9 14 19 24 29 4 9 14 19 24 29 3 8 13 18 23 28 3 8 13 18 23 28 the price bids and offers submitted by buyers MWh, and in the Siberian price zone RUB122.4 from the market participants, both under un- July August September October November December and sellers for the full volumes of electricity per MWh. regulated bilateral contracts and under bids supply or purchase, taking into account the The lower unregulated price after the new and offers submitted by electricity buyers and 1ST PRICE AREA “EUROPE + URALS“: contracts made at unregulated prices. The wholesale electricity (capacity) market model sellers on the day-ahead market auctions and WEIGHTED AVERAGE ELECTRICITY PRICE deviations segment was transformed into was put in place is due to the fact that in the on the balancing market. WEIGHTED AVERAGE ELECTRICITY TARIFF a balancing market. free trading segment, on the one hand, the

2ND PRICE AREA “SIBERIA“:

WEIGHTED AVERAGE ELECTRICITY PRICE Weighted Average Prices Weighted Average Prices WEIGHTED AVERAGE ELECTRICITY TARIFF of the Day-Ahead Market, By Hour, RUB/MWh of the Day-Ahead Market, By Hour, RUB/MWh 1st Price Area 2nd Price Area

* H2 2006 600 250

500 200

400 150 300

100 200

50 100

0 0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 hour hour

WORKING DAYS: SEPTEMBER-DECEMBER WORKING DAYS: SEPTEMBER-DECEMBER

NON-WORKING DAYS: SEPTEMBER-DECEMBER NON-WORKING DAYS: SEPTEMBER-DECEMBER 80 Electricity And Heat Markets

The start of the electricity market liberalization is the major event among the significant ANNUAL REPORT OF RAO “UES OF RUSSIA” events which took place in the The unregulated prices on the wholesale compared to average prices indicate that 51.9 billion kWh of electricity in the unregu- Electricity Sales in Regulated Market Segment, market in September-December 2006 were there are some power grid bottlenecks, which lated market segment, or 82.3 percent of all million kWh Russian electricity industry 2 0 0 6 declining month on month: in September, makes it impossible to transmit the required electricity purchased by all participants of this in 2006. The market launch the average market price was RUB403.1 per amounts of electricity from the cheaper gen- wholesale market segment. At the same time, breathed life into the intended MWh, in October RUB401.2 per MWh, in No- erators based in the neighbouring regions. electricity supplies in the unregulated market Deliveries January – August 2006 vember RUB386.2 per MWh, and in December The same applies to the areas with relatively segment by the SDCs of RAO “UES of Russia” sector structure which, RUB354.5 per MWh. In the price area of the low prices. For instance, the electricity prices amounted to 46.7 billion kWh, which makes Suppliers: SDCs of RAO “UES of Russia” 329,468.5 whithout that, despite the European part of Russia and Urals, this de- in the republics located in the Northern Cau- 71.2 percent of the total electricity sales in the including imports 2,732.3 successful restructuring cline was due to the increase in gas delive- casus are significantly higher than the ave- segment. The SDCs of RAO “UES of Russia” ries at regulated prices to the thermal power rage prices in the 1st price area (28.3 percent accounted for 66.9 percent of the total elec- Other suppliers 167,466.0 of RAO “UES of Russia”, would plants in Q4 2006. In the price zone of Siberia, in September – December 2006). This was due tricity sales in the European and Urals price Total 496,934.5 remain a beautiful, but useless owing to the high water levels on the rivers, to the network constraints, as these republics area, and 62.0 percent in Siberia’s price area. the hydropower plants were able to increase are separated from the remaining regions of In the regulated segment, electricity sup- scheme. their electricity supply to the market, “forcing the Integrated Energy System of the Northern plies in both price areas, without taking into Electricity Purchases in Regulated Market Segment, out” the electricity generated by the thermal Caucasus. Meanwhile the Murmansk Region account the deviations segment, amounted to million kWh Izvestia newspaper, power plants, which resulted in significant has low prices (19.8 percent lower than the 497.0 billion kWh in January – August 2006, 21 December 2006 price reductions in the 2nd price area. weighted average prices in the 1st price area including 390.2 billion kWh in the first price During the period since the launch of the in September – December 2006), which are zone, 273.2 billion kWh of which was supplied Purchases January - August 2006 new market model on 1 September 2006, the shaped by the cheap electricity generated by by the SDCs of RAO “UES of Russia”. In the prices within the 24-hour cycle changed as fol- the hydropower plants and the Kolskaya NPP second price zone, the sales amounted to Buyers: SDCs of RAO “UES of Russia” 359,566.6 lows: during the minimum load hours (00:00 and the existence of network constrains which 106.8 billion kWh, including 56.3 billion kWh to 04:00 hours) were lower by 50 percent- limit the electricity transmission from the sold by the SDCs of RAO “UES of Russia”. Including for export 11,423.0 33 percent than the prices during the peak load generators to the neighbouring regions. The amount of electricity purchased in the Other buyers 133,778.5 hours (19:00 to 21:00 hours), which provided Thus, the operation of the new market regulated segment, without taking into ac- incentives to consumers to carry out energy model will create signals necessary to identify count the deviations sector, in January-Au- Total 493,345.1 saving measures and change their load pro- bottlenecks in the power grids and assess the gust 2006 made 493.3 billion kWh for both files. The incentives to cut energy consump- value of the existing constraints, and conse- price areas, including 390.5 billion kWh in the tion during the hours with the highest prices quently, evaluate the effectiveness of invest- first price area (SDCs of RAO “UES of Russia”: and, accordingly, the peak load in the energy ment projects in the transmission grids. 300.5 billion kWh). In the second price area, system are created not only for the wholesale the figure was 102.9 billion kWh, including market buyers, but also for consumers on Electricity Sales/Purchases in the 59.1 billion kWh worth of electricity purchased the retail market (except for households), for Unregulated and Regulated Markets, by the SDCs of RAO “UES of Russia”. which energy retail companies started to use, January – August 2006 The number of contracts made at unregu- effective in September 2006, the unregulated The electricity sales of the unregulated market lated prices in January – August 2006 was prices of the wholesale market for the calcu- segment in January – August 2006 amounted as follows: 409 contracts in the first price area, lation of the cost of electricity supplied. to 65.6 billion kWh (or 11.7 percent of the total including 407 contracts made by the SDCs The difference in prices set for different supplies without the deviations segment), in- of RAO “UES of Russia”; and 25 contracts in the regions suggests that the transmission ca- cluding 61.6 billion kWh in the first price zone second price area, including 24 contracts en- pability of the networks plays an important and 4.0 billion kWh in the second price zone. tered into by the SDCs of RAO “UES of Russia”. role in shaping the electricity prices on the Over the first eight months of 2006, the new market: higher prices in certain regions SDCs of RAO “UES of Russia” purchased 82 Electricity And Heat Markets

The state has drastically changed its approach to the reform of the electricity market, ANNUAL REPORT OF RAO “UES OF RUSSIA” say analysts of Aton invest- Results of RAO UES Energy Companies’ Operation in the Balancing Market, 2006 The amount of electricity to be sold under area (all of which were made with the partici- the trading schedule in September to De- pation of the SDCs of RAO “UES of Russia”), in- ment company. Currently, the 2 0 0 6 Deviations owing Deviations owing cember 2006 was 279.6 billion kWh, including cluding 62 contracts to secure the performance liberalization of the wholesale to “external initiative”* to “own initiative” 223.1 billion kWh in the first price area and of regulated contracts. electricity market is seen as the volume volume volume volume 56.4 billion kWh in the second price area. The Indicator Price zone increase reduction increase reduction SDCs of RAO “UES of Russia” accounted for Results of the Balancing Market main way for raising additional 185.5 billion kWh of that amount. According to the balancing market rules, the Deviations in generation investments in the sector. The In September - December 2006, the buy- production and consumption volumes as well Europe and Urals 2.3 2.2 0.6 0.6 government is inclined to raise Share of planned generation volume, % ing-in volumes in each hour of trading in as equilibrium prices for electricity on the Siberia 1.9 2.8 0.4 0.4 the first price area averaged 8.6 percent of balancing market are determined based on electricity tariffs rather than Cost, of which: the trading schedule for the generators, and the competitive selection of bids and offers subsidize consumers by setting Europe and Urals 0.0 2,842.4 0.0 2,942.5 in the second price area the figure was 14.5 submitted by participants and suppliers of the Liabilities (millions of RUB) lower prices. Analysts say Siberia 0.0 442.7 0.0 243.2 percent. The volume of trading at unregulated wholesale market with regulated consumption Europe and Urals 9,581.4 0.0 403.0 0.0 prices in Siberia was higher than the volume according to a procedure similar to the com- that RAO “UES of Russia” is the Claims (millions of RUB) Siberia 820.8 0.0 49.6 0.0 of unregulated trading in the first price area petitive selection of price bids and offers on the most liquid company whose because it is possible to generate more elec- day-ahead market. Deviations in consumption tricity on the HPPs in Siberia. In 2006, the production and consumption shares enable investors to take Europe and Urals 0.0 2.8 1.8 1.4 Share of planned consumption volume, % The amount of electricity purchased under deviation figures on the wholesale market part in the electricity market Siberia 0.0 0.0 0.9 1.2 regulated contracts schedule in September to were not more than 3 percent higher than the Cost, of which: December 2006 was 268.3 billion kWh, includ- target values. This suggests that the sector liberalization.

Europe and Urals 0.0 37.5 0.0 2,880.3 ing 201.1 billion kWh by the SDCs of RAO “UES participants have been able to adapt them- Liabilities (millions of RUB) of Russia”. The figure for the first price area selves adequately to the new rules of the Siberia 0.0 0.0 0.0 264.5 Vedomosti newspaper, Europe and Urals 0.0 0.0 6,827.7 0.0 was 212.8 billion kWh, and in the second price wholesale market. Claims (millions of RUB) 12 December 2006 Siberia 0.0 0.0 533.8 0.0 area 55.5 billion kWh. In each month, the volumes of electricity *deviations due to a cause which did not depend on the wholesale market participant and was caused by the purchased in excess of the volumes provided actions of other wholesale market participants, owners of the power grid facilities, the Administrator of Trading under the regulated contracts by the energy System or System Operator. retail companies, which sold the appropriate amounts at unregulated prices on the retail market, amounted, on the average (in Sep- Deliveries/Purchases of Electricity After the new wholesale market model was power plants do not produce electri-city in or- tember to December 2006), to 2.2 percent under Regulated Contracts and on the introduced on 1 September 2006, suppliers der to perform their obligations to buyers under of the trading schedule for purchases in the Day-Ahead Market of the Wholesale were given a possibility to buy in electricity regulated contracts but buy in electricity at un- first price area and 1.3 percent in the second Market (September – December 2006) to meet their electricity supply obligations to regulated prices from other power plants. The price area. In September – December 2006, 276.3 billion buyers under regulated contracts. amount of trading among the electricity produc- The numbers of unregulated contracts kWh of electricity was sold under regulated This arrangement facilitate a more efficient ers at unregulated prices currently exceeds the made on the day-ahead market in Septem- contracts, of which the SDCs of RAO “UES of use of generation capacity compared to the volume of electri-city purchased by electricity ber – December 2006 were as follows: 72 in Russia” accounted for 184.9 billion kWh. The previous market model. consumers. This means that, event with a low the first price area, of which 56 were made by amount of electricity sold was 218.0 billion The possibility of such buying-in between sup- level of market liberalization, a mechanism has the SDCs of RAO “UES of Russia”, including kWh in the first price area and 58.3 billion kWh pliers is one of the efficiency indicators charac- been put in place which allows to optimize the 9 contracts to secure the performance of in the second price area. terizing the wholesale market. The less efficient load for the entire volume of production. regulated contracts; 136 in the second price 84 Electricity And Heat Markets Electricity And Heat Markets 85

Retail Electricity Markets Heat Market ANNUAL REPORT OF RAO “UES OF RUSSIA”

On 31 August 2006, the Russian Federation based in their respective areas who request Industrial consumers account for the great- In 2006, the total productive supply of Structure of Effective Heat Supply, % Government adopted its Regulation No. 530 for such contracts to be made. er part of electricity consumption, 53.1 percent heat by RAO UES entities amounted to 2 0 0 6 On Approval of the Rules for the Operation of The emergence of market relationships of the total electricity supplies in 2006. 434.7 million Gcal. the Retail Electricity (Capacity) Markets Dur- in the sector is to lead to the development of Over the year, the share of electricity con- In 2006, no significant changes took place ing the Transitional Period, which became the competition on the retail electricity markets. sumed by households increased by 0.8 per- in the heat consumption structure in terms most important event of 2006 in the creation Besides the energy retail companies and centage points to 9.5 percent. of volume by consumer groups. The share of the intended structure of competitive retail unrestructured regional energos, in 2006 of industrial consumers grew 2.1 percentage electricity markets in Russia. The Regula- electricity on the wholesale market was pur- points to 27.5 percent. The share of residential tion established the principles of interaction chased by 67 market participants (qualifying utilities declined by 4.5 percentage points to among retail market entities during the tran- consumers and independent retailers). 43.1 percent. sitional period of the electricity reform. The volume of electricity delivered by the RAO According to these Rules, the regional re- UES energy retail companies to their own con- gulators assigned the status of guaranteeing sumers (without taking into account the power Heat Output by suppliers to all of RAO UES energy retail com- consumed to transport electricity) in 2006 grew RAO UES Energy Companies, 2006 panies and the unrestructured regional ener- 0.1 percent over 2005 to 607.1 billion kWh. gos (a total of 69 companies). The guarantee- The electricity deliveries did not change

ing suppliers are obliged to make a contract significantly by consumer groups compared IES million Gcal to supply or sell electricity with any consumer to 2005. Total for the 434.7 Holding Company

Structure of Effective Supply of Electricity, Center 129.2 By Consumer Groups of RAO UES Energy Retail Companies North-West 41.1

2005 2006 Volga area 47.1

Consumer groups billion kWh % billion kWh % South 6.9

TOTAL 606.2 100 607.1 100 Urals 124.3 Siberia 63.7 including: Far East of Russia 22.4 Industrial and equivalent consumers 327.9 54.0 322.5 53.1

Electric traction transport 36.4 6.0 36.6 6.0

Non-industrial consumers 59.9 10.0 62.9 10.4

Agribusiness consumers 13.9 2.3 13.3 2.2

Households 53.1 8.7 57.4 9.5

Cities/towns 9.6 1.6 9.4 1.5

Other electricity suppliers 105.4 17.4 104.9 17.3 Production Results

Generation ANNUAL REPORT OF RAO “UES OF RUSSIA”

At end-2006, the installed capacity of the on the list of regions suffering from capacity RAO UES power plants stood at 159.2 thou- shortages during peak load periods. After the 2 0 0 6 sand MW, an increase of 1.3 thousand MW commissioning of unit 4 at the Khabarovskaya over 2005. The installed capacity growth was CHPP-3, the plant’s installed capacity reached driven by the construction and commissioning 720 MW, which made it the largest cogenera- of new generating capacity. tion plant in Russia’s Far East. After power unit 2 was brought on line at In 2006, the combined installed capacity of the Severo-Zapadnaya CHPP, the plant’s elec- the WGC power plants amounted to 76 thou- trical capacity increased twofold to 900 MW. sand MW (or 47.7 percent of the total capacity This helped improve the reliability of power of the Holding Company’s plants) and the ca- supply to customers in Saint Petersburg and pacity of TGCs’ power plants stood at 50 thou- the surrounding Leningrad Region, which are sand MW, or 31.4 percent.

11 88 Production Results Production Results 89 ANNUAL REPORT OF RAO “UES OF RUSSIA”

Electricity and Heat Generation Structure: skaya TPP (by 18.5 percent), Ryazanskaya TPP Fuel Supply debts owed for fuel amounted to RUB6,536.4 Russian Federation Power Plants vs. RAO UES Power Plants (by 17.7 percent), Stavropolskaya TPP (by 14.4 In 2006, the RAO UES power plants purchased million, a decrease of RUB264.0 million, 2 0 0 6 percent), Krasnoyarskaya TPP-2 (by 17.6 per- fuel worth RUB344,373.7 million, including or 3.9 percent, compared to the year before. The cent), Gusinoozerskaya TPP (by 11.6 percent) RUB228,982.1 million worth of natural gas, debts owed for coal declined by RUB386.1 mil- Unit of measurement 2004 2005 2006 and Pechorskaya TPP (by 9.3 percent). RUB72,104.1 million of coal, and RUB43,287 million, while the RUB838.7 million debt owed to The heat output by the RAO UES enter- lion of fuel oil. the gas suppliers was paid off, and an advance Electricity generation in the Russian Federation billion kWh 931.9 953.1 995.6 prises in 2006 amounted to 477.8 million Gcal, Taking into account the repayment of previ- payment of RUB531.9 million was made. up 2.7 percent compared to 2005. The WGC ous years’ debts and the contracts made with As a measure to reduce its fuel costs, RAO including: power plants increased their heat generation fuel suppliers (mostly coal suppliers) on a de- UES companies continued to pursue their TPPs, Russian Federation billion kWh 609.4 629.2 664.1 by 3.7 percent, the TGC plants by 2.4 percent, ferred payment basis, the fuel payments totalled practices of competitive and regulated procure- and the AO-power plants that are not part RUB344,373.7 million, including RUB72,660.3 ment. Nearly all energy companies procured HPPs, Russian Federation billion kWh 177.8 174.4 175.0 of the WGCs or TGCs increased their heat million for coal, RUB415,394.9 million for fuel fuel oil and coal using a competitive process. NPPs, Russian Federation billion kWh 144.7 149.5 156.5 output by 3.6. percent. oil, and RUB230,572.7 million for natural gas. 2006 saw continued activities of the e-trading As at 1 January 2007, the Holding Company’s systems, B2B-energo.ru and TZS-Elektra.ru. Electricity generation by RAO UES power plants billion kWh 651.9 665.4 695.0

including:

RAO UES thermal power plants billion kWh 521.4 540.8 569.1 Fuel Deliveries to Power Plants in the Russian Federation and RAO UES Holding Company RAO UES hydropower plants billion kWh 130.5 124.6 125.9

Electricity generation by RAO UES power plants Growth % 70.0 69.8 69.8 as a percentage of total electricity output in Russia in absolute 2005 2006 terms % Electricity generation by RAO UES TPPs % 85.6 86.0 85.7 as a percentage of electricity output in Russia Gas, billion m3 Electricity generation by RAO UES HPPs % 73.4 71.4 71.9 as a percentage of electricity output in Russia Total for power plants in the Russian Federation 151.8 157.3 +5.5 3.6 Heat output in the Russian Federation million Gcal 1,434.4 1,436.0 1,459.0 including: Heat deliveries by RAO UES energy companies million Gcal 465.8 465.2 477.8 power plants of RAO UES Holding Company 142.6 148.1 +5.5 3.8 Heat output by RAO UES entities as a percentage % 32.5 32.4 32.7 of total heat production in Russia Coal, million tons

Total for power plants in the Russian Federation 116.8 120.8 +4.0 3.4

The amount of electricity generated in Rus- ximately the same level as in 2005. RAO UES In 2006, the WGC power plants increased including: sia in 2006 was 995.6 billion kWh, an increase thermal power plants generated 569.1 billion electricity output by 6.7 percent over 2005, power plants of RAO UES Holding Company 104.9 111.8 +6.9 6.6 of 4.5% compared to 2005. kWh in 2005, up 5.2 percent year-on-year. and the TGC plants’ output rose marginally Electricity generation by the Holding Com- The output of the Holding Company’s hydro by 0.4 percent. Fuel oil, ‘000 mt pany’s plants amounted to 695.0 billion kWh power plants rose by 1.0 percent to 125.9 bil- The following large thermal power plants Total for power plants in the Russian Federation 4.7 7.9 +3.2 68.1 in 2006, which represents an increase of 4.4 lion kWh. The modest increase in the HPP increased their generation in 2006 compared percent over 2005. The share of the RAO UES generation was due to the lower water inflow to 2005: Troitskaya TPP (by 82.3 percent), including: energy companies in the nation’s electricity in the major river basins in the European part Konakovskaya TPP (by 29.2 percent), Kirish- power plants of RAO UES Holding Company 4.6 7.5 +2.9 63.0 output was 69.8 percent, remaining at appro- of Russia in Q2 2006. skaya TPP (by 21.6 percent), Novocherkas- The power plants of RAO “UES of Russia” are operating at maximum loads. On 17 January, a historic peak Fuel Consumption Mix at the Holding Company’s TPPs in 2006 Fuel Inventories, Supplies, and Consumption at RAO "UES of Russia" Thermal Power Plants, % load of 14.6 million kW was Inventories Inventories Unit of as of as of recorded in the energy system Fuel measurement 31 dec 2005 Deliveries Consumption 31 dec 2006 of the European part of Rus- 3.4 0.6 Coal ‘000 mt 14,556 111,764 109,217 17,096 26 sia over the past 15 years. NATURAL GAS Fuel oil ‘000 mt 2,680 7,465 6,171 3,740 RAO UES chief executive has COAL warned that the load is likely Natural gas ‘000 m3 148,077 148,077 FUEL OIL to increase and “we should 2006 OTHER be prepared for their increase Fuel Prices (with VAT and Transportation Costs) tomorrow and on subsequent In my opinion, the 70 days”. main event of the year 2005 2006 2006/2005, % was the successful operation during the 2005-2006 autumn Coal, RUB/mt 658.7 720.9 109.4 Nezavisimaya Gazeta newspaper, 20 January 2006 and winter period of peak Fuel oil, RUB/mt 3,758.6 5,984.8 159.2 consumption, which was a Natural gas, RUB/’000 m3 1,388.4 1,550.7 111.7 reaching RUB6,783.7 per tonne in Q3 2006. The coal consumption in the European part of Average, % 118.3 major endurance test for The prices stopped growing in Q4 because of Russia rose 2.4 times. many energy companies. the relatively warm weather for the time of the In Q2-Q4 2006, special attention was paid During the period, we worked The part of the gas supplies were purchased The share of natural gas in the fuel con- year which led to lower fuel oil consumption. to purchasing the necessary amounts of fuel on the gas exchange from OAO “Gazprom”. The sumption mix of the RAO UES power plants In Q1 2006, the RAO UES power plants ex- and building up the required fuel stockpiles at in extremely adverse condi- savings generated by RAO UES entities in 2006 declined by 0.6 percent in 2006 over 2005 to perienced shortages of fuel after Gazprom the power plants by the start of the 2006-2007 tions caused by abnormally owing to competitive fuel procurement totalled 70 percent; the share of coal decreased by imposed restrictions on gas supply to power autumn-winter period. RUB1,543 million. 0.1 percent to 26 percent, while the fuel oil plants in the second half of January and first By the beginning of the autumn-win- low temperatures. And In 2006, gas supplies to the RAO UES power consumption grew 0.7 percent to 3.4 percent. half of February. At the same time, electric- ter period the fuel inventory targets had we worked well and without plants rose 3.8 percent over 2005. Indepen- In 2006, the prices of fuel supplied to the ity consumption in the European part of Rus- been raised. The fuel stockpiles held by the failures. I am proud dent gas suppliers accounted for 34.5 percent RAO UES power plants rose 18.3 percent sia during the period grew by 12.6 percent, RAO UES power plants totalled 2.9 million of the total gas supplies to the plants. compared to 2005: gas prices increased by while the electricity output by the thermal tonnes of fuel oil, 16.4 million tonnes of coal, of my colleagues who demon- The coal purchases by the RAO UES 11.7 percent, coal prices by 9.4 percent, and power plants of RAO “UES of Russia” in- which exceeded the targets by 13.9 percent and strated the highest level power plants in 2006 grew 6.6 percent fuel oil prices by 59.2 percent. The fuel oil creased by 16.9 percent and the heat output 15.0 percent, respectively. of professionalism in year-on-year terms. The purchases of prices surged in January and February 2006 by 22.0 percent. furnace fuel oil grew 63 percent due to the due to the increased domestic demand dri- In order to ensure uninterrupted power necessity to replace gas during the periods ven by the extremely cold weather and the supply and meet the increased electricity and Vladimir Avetisyan, of abnormally low temperatures in Janu- global oil price hikes. The fuel oil prices rose heat demand, RAO UES power plants started Member of the Management Board, ary-February 2006, when OAO “Gazprom” 35.3 percent month-on-month in February to burn standby fuels (fuel oil and coal). The Managing Director of RAO “UES of Russia”, imposed restrictions on gas deliveries to the to RUB6,305.5 per tonne. The fuel oil prices actual daily fuel oil consumption grew 12-fold Business Unit 2 power plants. continued climbing until September 2006, on average, and on some days even 20-fold. Electricity Transmission and Distribution

In 2006, the Holding Company’s power grids The key efficiency indicator for the mea- Electricity Supplies to Distribution Networks, were managed by RAO “UES of Russia” and sures to reduce commercial losses of electri- by Energy Areas, billion kWh OAO “UES FGC”. The companies operated city in the distribution networks is the number 2,476.8 thousand km of electricity lines, in- of violations revealed in the electricity settle-

cluding 122.2 thousand km of bulk transmis- ment system and the electricity consumption 0 50 100 150 200 sion (trunk grid) lines and transformer sub- without having concluded a contract. In 2006, stations of all voltages having a total capacity as many as 242 thousand violations by con- Center and north 162.4 of 562,766.67 MVA. sumers were discovered, and the electricity Caucasus iDC 157.8 In 2006, the consolidated electricity de- retailers made up acts for the return or pay- liveries from the UNEG networks to the dis- ment of 499 million kWh of electricity. tribution companies’ grids, unrestructured In 2006, RAO UES grid companies provided north-west 65.7 regional energos, and direct consumers on technological connection services to new users iDC 67.8 In 2006, trunk grid the wholesale electricity market amounted to amid the continued increase in consumer de- 433,531.2 million kWh. mand for capacity. The total amount of capacity urals and 230.0 companies were spun The distribution companies delivered connections in 2006 amounted to 2,859,940 kW. Volga iDC 218.4 off from the regional energos, 676,376 million kWh of electricity to consu- Connection fees were introduced in 41 re- mers in 2006. gions of the Russian Federation. The total and OAO “FGC UES” started 98.7 In 2006, significant reductions in electricity amount of connection charges in 2006 was siberia iDC to manage them. Thus, the losses were achieved in the networks of dif- in excess of RUB5 billion, which were invested 94.5 necessary conditions have ferent voltage levels. in the distribution grid facilities. OAO “UES FGC” was able to cut electri- oAo "southern grid 14.8 been put in place to create city losses in 2006 by 0.04 percentage points Company" 15.0 a comprehensive strategic, to 3.71 percent from 3.75 percent. This was made possible by the installation of advanced oAo "moscow united technological, organizational 68.3 metering equipment and improved perfor- electricity grid Company" and economical development 65.1 mance of personnel in the metering process, (moesk) of the country’s power grids. reconciliation and calculation of electricity oAo "moscow City electricity losses. 36.3 I think everybody has noticed In 2006, OAO “UES FGC” put into trial use Distribution Company" 34.5 that an automated electricity metering system (mgesk) (ASKUE) for the networks of 330 kV and more. By 2010, FGC will create an automated information and commercial metering system (AIIS KUE) for the UNEG facilities. 2006 The actual losses in the distribution grids 2005 amounted in 2006 to 8.69 percent, down from Andrey Rappoport, 10.02 percent in 2005, which demonstrates Member of the Management Board, that the loss-reduction measures in the sec- Managing Director, RAO “UES of Russia”; tor were quite effective. Chairman of the Management Board, OAO “UES FGC” 94 Production Results

For the past three years, the electricity industry in Russia Electricity Sales has been in the midst of revolu- ANNUAL REPORT OF RAO “UES OF RUSSIA” tionary events. The companies As of December 31, 2006, the following retail tional Period of the Electricity Reform (the The RAO UES energy retail units have been Electricity Consumer Mix Heat Consumer Mix which found themselves in an units operated in RAO UES Holding Company: Retail Market Rules) were adopted, the Hold- given the following tasks on the retail electric- of RAO "UES of Russia" of RAO "UES of Russia" 2 0 0 6 71 companies engaged in electricity sales, ing Company’s energy retail units have been ity market for 2007: Holding Company, % Holding Company, % unregulated marketplace have including 62 energy retail companies and translating the free (unregulated) prices to the to preserve the customer base and increase been learning to exist in a com- 9 regional energos which were not unbun- retail market. Pursuant to the requirements electricity sales; dled; of the Retail Market Rules, the RAO UES en- to complete the campaigns to bring the ex- 7.4 1 petitive environment. They now 30 companies engaged in heat sales, in- ergy retail companies took steps in 2006 to isting power supply agreements into line 10 have to compete for consumers 10.0 cluding 6 WGCs, 14 TGCs and 10 other renew the electricity supply contracts with with the new pricing rules which provide for by reducing the prices of their companies. customers. the translation of unregulated prices from 46.7 The level of payments for the electricity In order to raise the quality of services pro- the wholesale market; 11.1 20 services and offering more fa- supplied by the RAO UES retail units in 2006 vided, the energy retailers were working to to ensure successful participation in ten- vourable and convenient terms was 100 percent. Compared to 2005, there improve the systems for settlement with con- ders scheduled for June - September 2007 2006 2006 was an increase in electricity sales to indus- sumers. In the Belgorod Region, Perm Region, to obtain the status of a guaranteeing sup- of supply. They also have a trial consumers and utilities organizations. As the cities of Moscow and Saint Petersburg, plier, which will come into effect beginning 44 broad range of new incentives to of 1 January 2007, the consumers’ arrearage and other regions of Russia, the energy retail in 2008; seriously embrace management amounted to RUB21.9 billion. companies installed electronic terminals to to increase the market value of energy re- 25 The level of payments for heat by Hold- receive payments from household customers. tail companies. 24.8 innovation and business process ing Company’s customers in 2006 amounted In some regions, the energy retail compa- automation. to 99.8 percent, with the debt owed by cus- nies created call centers to handle customer tomers for the heat consumed standing at relations. RUB22.0 billion as of 1 January 2007. In connection with the upcoming reorgani- MANUFACTURING INDUSTRIES MANUFACTURING INDUSTRIES Company Secret magazine, In 2006, the RAO UES energy retail compa- zation of OAO RAO “UES of Russia” and the 23 October 2006 RESIDENTIAL UTILITIES RESIDENTIAL UTILITIES nies had contractual relationships with over transfer of its functions, inter alia, to SROs, 700 thousand industrial consumers (legal a decision was taken in 2006 to establish Non- HOUSEHOLDS HOUSEHOLDS entities) and 30 million individual customers profit Partnership of Guarantee Suppliers and TRANSPORT AND TELECOMS TRANSPORT AND TELECOMS (households). Energy Retail Companies (including the SDCs After the Rules for the Functioning of Re- of RAO “UES of Russia” and independent mar- OTHER CONSUMERS OTHER CONSUMERS tail Electricity Markets During the Transi- ket participants). Investment Activities 97 Investment Activities ANNUAL REPORT OF RAO “UES OF RUSSIA”

The investments in the fixed assets of RAO city of the Irganayskaya HPP was increased TiPP, the Malye HPPs in Dagestan, The new distribution facilities that came In the Leningrad Energy System, 53.7 km of UES companies totalled RUB160.3 billion by 146 MW after raising the dam level. and the Gelbakhskaya HPP. Modernization on line during the year included 2,055 km of the second circuit of the 330 kV line were built 2 0 0 6 in 2006, an increase of 36,2% over 2005. The key start-ups at the thermal pow- projects were implemented to replace the low-voltage lines and 1,527 MVA of transform- between the Leningradskaya and Vostoch- In 2006, 26 power units with an aggregate er plants included the commissioning of hydropower units at the Volzhskaya HPP and er capacity, and the projects to upgrade and naya Substations, which ensured uninter- capacity of 1,651.5 MW were put into operation po-wer unit 2 (450 MW) at the Severo- Kamskaya HPP. modernize distribution infrastructure involved rupted transit of electricity to customers in throughout the Holding Company. Of these, Zapadnaya CHPP, power unit 4 (180 MW) In 2003-2006, the Investment Programme 6,242 km of low-voltage lines and 3,918 MVA the northern and north-eastern parts of Saint 596 MW were financed by OAO RAO “UES of at the Khabarovskaya CHPP-3, power unit 2 of OAO RAO “UES of Russia” was divided of transformer capacity. Petersburg and the surrounding Leningrad Russia”. During the year, 14 generating units (180 MW) at the Chelyabiskaya CHPP-3, to create own investment programmes for Special emphasis was placed in 2006 on Region. The capacity of the 330 kV Vostoch- with a combined capacity of 1,262.7 MW were a 180 MW power unit at the Pravoberezhnaya OAO “UES FGC” and OAO “UES SO-CDA” (in the construction and overhaul of the power naya Substation was increased by 500 MVA, brought on line at the thermal power plants. CHPP of TGC-1, etc. 2003) and OAO “HydroWGC” (in 2006). grid facilities in the so-called “peak load ar- significantly improving the reliability of pow- The hydropower plants put on stream 94.8 MW In the hydropower sector, the projects com- In 2006, OAO “UES FGC” put into operation eas”—Moscow Region, Leningrad Region, er supply to consumers in the eastern and of new capacity. Some 148 MW of hydropower missioned included the Malaya Mezenskaya 640 km of new transmission lines, 4,124 MVA Tyumen Region, and Kuban. north-eastern parts of Saint Petersburg and units were replaced, and the available capa- of transformer capacity, and 1,200 Mvar of re- In the Moscow Energy System, 580 MVA of the Leningrad Region. active power. The amount of funds spent on transformer capacity was added to the 750 kV In the Tyumen Energy System, a capacity ex- the Investment Programme of OAO “UES FGC” Bely Rast Substation. As a result, 350 MW of pansion project was implemented at the 500 kV in 2006 totalled RUB36.2 billion, a 1.3-fold additional capacity was brought on stream in Kholmogorskaya Substation, increasing its increase over 2005. the North-Western power node of the Moscow capacity by 501 MVA and enhancing power The following new grid facilities became Energy System, an area which suffers from supply to the major oil and gas operations operational in 2006: 500 kV transmission line electricity shortages. Overhaul projects were in the Yamalo-Nenets Autonomous Okrug “Oznachennoe – Aluminievaya” with the 500 kV completed at three 220 kV substations (Gri- and the northern part of the Tyumen Region. Aluminievaya Substation; 220 kV transmission bovo, Radishchevo, Shmelyovo). This helped The capacity of the 220 kV Muravlenkovskaya line “Blagoveshchenskaya – Sirius”; 500 kV increase the transmission capability of the Substation rose by 125 MVA, a project which Zvezda Substation; 330 kV Frunzenskaya Sub- 220 kV lines and electricity deliveries into the improved the reliability of power to the oil and station; 330 kV Novgorodskaya-2 Substation; Moscow Energy System. gas fields. 220 kV transmission line “Volgodonskaya NPP – Salsk” and capacity extension project at the Investments in fixed assets by RAO UES 220 kV Salsk Substation; 500 kV transmission companies, billions of RUB* line “Gusinoozerskaya TPP – Petrovsk-Zabai- kalsky”, and 500 kV Khekhtsir Substation. The investments in the distribution networks grew 1.8-fold in 2006 to RUB41.7 billion 2006 160.3 from RUB23.3 billion. At some distribution 2005 117.7 companies, the investments increased three- to four-fold. The major regional distribution 2004 103.6 companies’ investment figures for 2006 were 2003 74.0 as follows: OAO “Moscow United Electric- ity Distribution Company”: RUB10.2 billion, 2002 57.0 OAO “Moscow City Electricity Distribution Company”: RUB3,95 billion, OAO “Lenenergo”: RUB2.9 billion, OAO “Tyumenenergo”: RUB3.2 *in current prices (including VAT). 12 billion, OAO “Kubanenergo”: RUB1.4 billion. Investment Activities 99

The amount of own funds spent by RAO Zelenchukskaya HPP Financing of the Investment Programme Projects of OAO RAO “UES of Russia”, “UES of Russia” on its investment programme (design capacity: 160 MW) OAO “UES FGC”, OAO “UES SO-CDA”, and OAO “HydroWGC”, billions of RUB in 2006 grew 6.3 percent compared to 2005 to The project to complete the water intake facil- RUB20.3 billion, of which RUB8.5 billion was ity at the Bolshoy Zelenchuk river has helped used to pay off its loan obligations. double the hydropower plant’s output without 2002 2003 2004 2005 2006 In 2007, the financing to be provided for the increasing its installed capacity. The facility investment programmes of OAO RAO “UES of was completed in December 2006. OAO RAO “UES of Russia” 22.3 20.4 23.9 25.2 3.1 Russia”, OAO “UES FGC”, OAO “UES SO-CDA”, OAO “UES FGC” – 11.5 21.3 28.3 34.0 and OAO “HydroWGC” will reach RUB175.4 Irganayskaya HPP billion. (design capacity: 800 MW) OAO “UES SO-CDA” – 0.5 1.3 1.4 1.5 OAO RAO “UES of Russia” will spend Two 200 MW generating units have been put OAO “HydroWGC” – – – – 27.8 RUB12 billion of own money on its 2007 In- into operation at the power plant. With the Our R&D teams have vestment Programme. reservoir level standing at 483 meters (the Total 22.3 32.4 46.5 54.9 66.4 The Company’s investment programme for top of the reservoir capacity allocated to joint demonstrated their 2006 focused on the priority projects in the use), the aggregate capacity of the units is ability to help implement Unified Energy System of Russia, including 214 MW. After the dam is filled and the res- Ivanovskaya TPP “UES SO-CDA” recommended the following the investment programme the facilities which were transferred to the ervoir level is elevated to 521 meters, the hy- (design capacity: 701.7 MW) sites for the installation of the Mobile GTPPs: control of OAO “HydroWGC” in H2 2006. draulic units will reach their design capacity, The project is intended to roll out serial pro- Rublevo 110 kV Substation (3 gas turbine units), of RAO “UES of Russia” by which will increase reliability of the power duction of GTE-110 gas turbine unit, the key Syrovo 110 kV Substation (2 gas turbine units), successfully competing and Bureyskaya HPP supply to consumers in the North Caucasus. element of PGU-325 combined-cycle gas Pushkino 110 kV Substation (3 gas turbine (design capacity: 2,000 MW) The target level of 521 meters is expected to turbines, which are intended to replace the units), and Daryino 110 kV Substation (2 gas winning 70% of the tenders The construction of this power plant will help be achieved in July 2007. 200-300 MW steam power units widely used turbine units). to procure design works ensure reliable and uninterrupted power to in the UES of Russia. Such modernization will The gas turbine units are to be installed held last year. I am also very customers in the Russian Far East and reduce Zaramagskie HPPs increase efficiency of generation units from on the sites of the existing substations, and the region’s dependence on the expensive fuel (design capacity: 352 MW) 35-38 percent to 51 percent and help reduce deliver power to buses of those substations. pleased that, in 2006, the staff that has to be transported to the area. The two When commissioned, the power plant will consumption of natural gas by 30% at each In 2007, it is planned that all ten units will of RAO “UES of Russia” and last hydropower units with the aggregate ca- supply more than half of the electricity upgraded unit. The first unit is scheduled be installed and brought on line. As of 1 March pacity of 667 MW are scheduled to go on line in requirements in North Ossetia. The power to become operational in 2007, and the 2007, two units were put into operation at the NPO “Saturn” completed their 2007, with the power plant reaching its design plant will be fully built in 2010. second in 2009. Daryino 110 kV Substation. fifteen-year work to launch capacity. series production of a 110 MW Chain of Nizhnechereksky HPPs Mobile GTPPs Boguchanskaya HPP (chain’s design capacity: 120 MW) (design capacity: 225 MW) gas turbine unit meeting the (design capacity: 3,000 MW) The Aushigerskaya HPP (60 MW) was brought In order to ensure reliable operation of the world’s best standards The construction of this hydro power plant on line in 2002. A project is now underway to Moscow Energy System during the winter will help meet the demand for electricity build the Sovet-skaya HPP. When the power peak load period of 2006-2007, RAO “UES of from the energy and industrial consumers based plant goes on line in 2008, it will help enhance Russia” decided to install ten mobile gas turin the Lower Angara region and help eliminate power supply in the North Caucasus energy bine power plants (GTPPs), 22.5 MW each, Vyacheslav Voronin, the winter peak energy shortfall in the area. system. near the substations of the Moscow Energy Member of the Management Board, The power plant is scheduled for commission- System which have the greatest load. Based Managing Director of RAO “UES of Russia”, ing in 2012. The first three hydropower units are on the balance loads recorded during the Services Business Unit expected to be brought on line in 2009. 2005-2006 autumn and winter period, OAO Company’s Finance

Financial Management and Financial Market Operations ANNUAL REPORT OF RAO “UES OF RUSSIA”

As before, in 2006, OAO RAO “UES of Russia” credit institutions which have the highest re- targeted the following priorities in its financial liability and enjoy excellent reputation on the 2 0 0 6 markets operations: idle cash management financial market. Banks were selected based and raising debt to finance its current opera- on their performance, with exposure limits set tions and investment projects. for each counterparty bank. The Company’s idle cash management poli- Depending on the maturities, the instru- cy seeks to achieve the maximum efficiency ments used for funds placement were bank of financial investments while optimizing the deposits and maintaining minimum ba- risk/return profile. The maximum return on lances on current accounts (for a term of financial investments was achieved by placing up to six months), bank promissory notes the Company’s available funds at the highest and transfer of funds into fiduciary manage- possible interest rates, equal to or above the ment (for a term of six months or more). average market rates, with Russia’s largest

13 Company’s Finance 103

The Company’s Financial Committee, created to secure the obligations of RAO UES subsi- control over the proper use of funds contri- Loans and Other Borrowings of OAO RAO “UES of Russia”* in 2004, is responsible for safeguarding the in- diaries is proof of the SDCs’ more stable finan- buted to the capitals of the SDCs in the pro- Amount in the Amount terests of the Company and its shareholders, cial position and their ability to independently cess of forming their intended structure. currency of outstanding, taking strategic decisions in implementing its raise debt, including by using new financing loan/debt, millions Loan/Debt millions of USD Date of receipt of RUB** activities, and approving exposure limits for structures. Company’s Credit Ratings counterparty banks. The Company’s own borrowings were raised The high credit quality and stable financial Ministry of Finance of the Russian 29 4 September 2000 411,637 Efficient liquidity management and optimi- to finance the Investment Programme of RAO position of OAO RAO “UES of Russia” are Federation (IBRD loan) zation of the idle cash placements structure “UES of Russia”. In Q1 2006, the Company confirmed by the ratings assigned to it by from an earnings perspective delivered good received a RUB4.5 billion in credit, and fully the leading Russian and international rating Promissory Notes issued by RAO “UES of Russia” results in 2006, bringing the same rate of re- repaid the debt in a timely manner, with the agencies. Balance of turn on these transactions as in 2005. obligations under the loans raised previously The current credit ratings of OAO RAO “UES Principal principal Promissory notes description (millions outstanding The focus of the Company’s debt policy performed ahead of schedule. of Russia” are high, which suggests that the and maturity Date of issue of RUB) millions of RUB The electricity reform in 2006 was on carrying out own borrow- In general, the Company’s debt portfolio by Company’s main performance indicators cor- ings, including by issuing promissory notes, end-2006 was characterized by an increase in respond to the level needed for full and timely Non-interest bearing promissory has entered its invest- notes payable on demand, but not August 2006 4,668.030 4,668.030 and providing sureties for its subsidiaries’ the outstanding bank loans as compared to performance by the Company of its financial earlier than 1 January 2007 ment phase. The investment borrowings. the opening balance. The bulk of the credit fa- obligations. By end-2006, the volume of sureties gran- cilities and loans are obligations on the Com- Non-interest bearing promissory August 2006- programme for RAO UES 3,058.965 3,058.965 ted fell by 76 percent compared to 2005 due to pany’s own interest-free promissory notes, notes payable on demand November 2006 companies has been approved timely repayment by the SDCs of their debt ob- which is why the Company does not have al- at about RUB3.1 trillion. ligations owed to the lenders. The significant most any debt servicing costs. These promis- Total 8,138.632 reduction in the amount of sureties granted sory notes were issued in order to maintain 34,000 MW of new generation * as at 31 December 2006 ** translation based on the exchange rate as at 31 December 2006 capacity is to come on line by Company's Bank Debt and Changes 2011. I am sure that, after our in Loan Portfolio, millions of RUB subsidiaries separate from Current Credit Ratings of OAO RAO “UES of Russia” RAO “UES of Russia”, they 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 will not lose the momentum 1 Jan 2007 Credit Ratings in the implementation of International National these major projects 1 Jan 2006 Rating Agency scale scale

1 Jan 2005 Standard & Poor’s* BB/Outlook Stable RuAA

Expert RA — A+

Moody’s Interfax Rating Agency — Aa3.ru OWN PROMISSORY NOTES RAO "UES OF RUSSIA" BONDS, SERIES P2

*The Company’s ratings were last updated in early February 2007. COMMERCIAL BANKS EBRD Sergey Dubinin, The previous ratings: international scale “B+/Evolving”, national scale “RuA+”. Member of Management Board, RUSSIAN MINISTRY OF FINANCE (IBRD LOAN 4181-RU) Financial Director, RAO “UES of Russia” 104 Company’s Finance Company’s Finance 105

Company’s Financial Performance ANNUAL REPORT OF RAO “UES OF RUSSIA”

Financial Highlights of OAO RAO “UES of Russia”, millions of RUB Revenues from Sales of Products and Services of OAO RAO "UES of Russia", % 2 0 0 6

Indicators 2004 2005 2006 2006/2005, % 2006/2005, (+;-) 3.7 2.6 1.6 0.6

14.6 13.8 22.9 Sales revenues* 42,057 32,579 40,297 123.7 7,718

Expenses* (cost of goods sold, selling and administrative 10,215 5,926 6,790 114.6 864 expenses)

Sales profit 31,842 26,653 33,507 125.7 6,854 2004 2005 2006 Sales profit/revenue, kopecks per RUB 0.76 0.82 0.83 101.6 0.01

Other income 97,265 80,184 768,939 959.0 688,755 18.1

including: 63.6 82.0 76.5

income from revaluation of financial investments — — 717,657 — —

Income from surplus cash investment 1,618 847 1,081 127.6 234

Other expenses 101,884 81,874 47,504 58.0 -34,370 SUBSCRIPTION FEE (SERVICES RELATING TO ORGANIZING DEVELOPMENT OF THE UES OF RUSSIA) EXPORTS including: INCOME FROM PARTICIPATION IN OTHER ENTITIES SALES OF OTHER GOODS, PRODUCTS, WORKS, AND SERVICES Debt and loans servicing 714 380 276 72.6 -104

Profit before taxes 27,223 24,964 754,942 3,024.1 729,978

Profit tax and other required payments 3,154 4,066 9,854 242.4 5,788

Income tax/revenue, kopecks per RUB 0.07 0.12 0.24 195.9 0.12 Sales Revenues and Profit of OAO RAO “UES of Russia”, millions of RUB Net (undistributed) profit 24,069 20,898 745,088 3,565.4 724,190

including: Net revenues from the sale of goods, products, works, and services Sales profit from share revaluation — — 717,657 — — Indicators 2004 2005 2006 2004 2005 2006 actual net profit 24,069 20,898 27,431 131.3 6,533 Total 42,057 32,579 40,297 31,842 26,653 33,507 * income and expenses for 2004 and 2005 were recalculated due to the changes in the Company’s accounting policies covering the income from investments. including:

Compared to 2005, the revenues genera- made or provided by the Company, trading and due to the revaluation of financial investments Subscription fee 26,764 26,723 30,818 23,534 22,845 25,656 ted by RAO “UES of Russia” from the sale of administrative expenses) during the reporting in subsidiaries whose shares are quoted on Income from participation in other entities 7,596 4,484 9,224 6,940 3,890 7,799 goods, products, works and services in 2006 year grew by RUB864 million (or 14.6 percent) two marketplaces, NP “RTS Stock Exchange” grew by RUB7,718 million, or 23.7 percent, to RUB6,790 million. and ZAO “MICEX Stock Exchange”. Exports 6,134 844 — 721 -103 — to RUB40,297 million. The expenses (cost of The dramatic increase in the net income of The services to organize the operation Sales of other goods, products, works, and services 1,563 528 255 647 21 52 goods, products, works, and services sold, OAO RAO “UES of Russia” during the year was and development of the UES of Russia in the 106 Company’s Finance

“Now investors will be able to see which segment of the electricity industry is more ANNUAL REPORT OF RAO “UES OF RUSSIA” attractive”, says Dmitry Skrya- Company’s accounted for 76.5 percent of the were reflected at their market value as of the companies accounted for 93.8 percent of the period increased by RUB7,110 million (or 76.8 The accounts receivable were down by total sales revenue, down 5.5 percentage end of the reporting year. The revaluation of Company’s total assets, whereas the share percent) to RUB16,363 million from RUB9,253 RUB12,851 million, or 26.5 percent, with the bin, an analyst with Aton In- 2 0 0 6 points compared to 2005; the share of income shares of RUB717,657 million is shown in the of the fixed assets and construction in prog- million, chiefly due to increased investments long-term receivables falling by RUB4,001 vestment Co. According to Mr. from participation in other businesses in- book value of investments in the subsidiaries ress was 0.6 percent, down from 3.6 percent in securities (promissory notes) of the subsid- million due to the termination of co-invest- Skryabin, the IFRS financial creased by 9.1 percentage points to 22.9 per- and dependent companies and other income at end-2005. The percentage of current assets iaries and dependent companies (by RUB4,825 ment agreements, and the short-term receiv- cent, while the share of revenues from other items of the Company for 2006. Because of to total assets fell by 12.6 percentage points million) and bank deposits (by RUB1,722 mil- ables decreasing by RUB8,850 million as a re- statements of RAO “UES of activities declined by 1 percentage point to 0.6 that, the other income items exceeded the to 4.9 percent as of 31 December 2006. lion). The short-term loans granted to energy sult of collection of old debts and repayment Russia” for 2006 suggest that percent of the total sales. The revenues from expenses by RUB721,435 million, and the The net assets of the Company increased companies fell by RUB1,035 million. Cash of non-interest bearing promissory notes. The the services relating to organizing the opera- Company’s net income surged to RUB745,088 in 2006 by RUB742,462 million (3.2-fold) and short-term financial investments as a accounts receivable as a percentage of the the power grids are the most tion and development of the UES climbed by million (taking into account the revaluation of to RUB1,073,496 million at end-2006. percentage of working capital rose by 15.2 working capital was down by 14.5 percentage attractive investment target. RUB4,095 million, or 15.3 percent; the income its shareholdings). The following changes took place in the percent to 30.8 percent. points. The analyst also notes that from participation in other entities increased The actual profit earned by OAO RAO “UES structure of fixed assets: by RUB4,740 million (105.7 percent), and the of Russia” in 2006, without taking into account the fixed assets and construction in process the distribution grids are more re-venue from other activities (lease, sale of the unrealized gains (the so-called “paper were reduced after they were transferred, Non-current Assets Structure Current Assets Structure profitable than the generation other goods, products and services) decreased profit”), amounted to RUB27,431 million, up as capital contributions, to the subsidiaries of OAO RAO "UES of Russia", % of OAO RAO "UES of Russia", % assets, which are popular with by RUB273 million. RUB6,533 million, or 31,3 percent, compared (current assets account for 0.7 percent of The Company’s total profit from sales in to the 2005 net profit. The net profit margin the total assets); strategic and portfolio inves- 2006 amounted to RUB33,507 million, up from for the reporting year rose 4 percentage points the share of investments in subsidiaries 0.5 0.2 1.2 1.0 0.7 5.8 tors alike. RUB26,653 million in 2005. The profit from over 2005, reaching 68.1 percent. and dependent companies was up 5.9 per- sales of services in 2006 totalled RUB25,656 The Company’s return on total assets centage points to 98.6 percent of the total million, which represents an increase of (ROTA) in 2006 made 10.6 percent (2005: assets; Vedomosti newspaper, RUB2,811 million, or 12.3 percent over 2005. 7.4 percent), and the return on equity (ROE) there was a decline in other long-term in- 25.0 30 August 2006 The profit from the participation in other com- increased to 8 percent from 6.5% in 2005. vestments, investments in other entities, panies amounted to RUB7,799 million (2005: and percentages of loans to subsidiaries. 2006 2006 RUB3,890 million). The profit from sales of Company’s Financial Profile The value of fixed assets and construc- other industrial and non-industrial goods, The Company’s current financial position is tion in progress fell by RUB5,521 million to works, and services was RUB52 million (as characterized by the following changes in the RUB6,647 million at end-2006. 98.6 67.0 compared to RUB21 million in 2005). key financial indicators. As of year-end, the value of long-term fi- The return on sales in 2006 stood at 83.2 ko- nancial investments grew by RUB757,935 pecks per RUB1 of sales revenue, an increase Assets million to RUB1,024,638 million. Of that of 1.3 kopecks (or 1.6 percent) over 2005. As of 31 December 2006, the Company’s amount, the value of investments in subsi- Over the reporting period, the income from investments in subsidiaries whose shares are diaries and dependent companies climbed INVESTMENTS IN SUBSIDIARIES idle cash management grew by RUB234 mil- traded on NP “RTS Stock Exchange” and ZAO by RUB758,297 million, or 15.7 percent (the AND DEPENDENT COMPANIES ACCOUNTS RECEIVABLE lion, or 27.6 percent from the year before. “MICEX Stock Exchange” were reflected at revaluation of shares to reflect the market CONSTRUCTION IN PROGRESS SHORT-TERM FINANCIAL INVESTMENTS The debt service expenses in 2006 de- their current market value (RUB717,657 mil- value of the subsidiaries traded on the RTS creased by RUB104 million, or 27.4 percent, lion), which resulted in more than a threefold and MICEX accounts for RUB717,657 million FIXED ASSETS CASH compared to 2005. increase (by RUB746,089 million) in the book of the increase). OTHER NON-CURRENT ASSETS WORK IN PROGRESS (INVENTORIES) In 2006, OAO RAO “UES of Russia” made value of assets owned by RAO “UES of Rus- The changes in the structure of current as- adjustments to the value of investments in sia”. As of the year-end, the Company’s total sets might be summed up as follows: OTHER CURRENT ASSETS the subsidiaries traded on the RTS and MICEX assets stood at RUB1,084,649 million. The Company’s quick assets (cash and Stock Exchanges. Those financial investments Investments in subsidiaries and dependent short-term investments) over the reporting 108 Company’s Finance Company’s Finance 109 ANNUAL REPORT OF RAO “UES OF RUSSIA”

The share of inventories changed insignifi- The following events had an effect on the the proceeds from the sale of promissory Debt Capital Structure of the Company, millions of RUB cantly by 0.1 percent to 1 percent. Company’s performance indicators: notes were used to refinance the bank 2 0 0 6 The share of Value Added Tax on purchas- in 2006, there was an increase in the Com- loan raised to acquire shares in OAO Percentage 31 DecEMber 31 DecEMber of total, as of es and other current assets declined from pany’s accounts payable, as RAO “UES of “Power Machines” and invested in financial indicator 2005 2006 31 December 2006 1.6 percent to 1.2 percent. Russia” issued non-interest bearing pro- instruments; missory notes payable on demand in order to the current assets declined due to the capi- Total accounts payable 6,519 10,210 100 Liabilities ensure that the funds paid as capital contri- talization of the loans granted to subsidia- including: In 2006, equity as a percentage of total liabili- butions to the subsidiaries are used for their ries and dependent companies. ties and equity of the Company increased by designated purpose in the course of forming All principal indicators characterizing Loans and bank facilities: 4,137 8,149 79.8 1.2 percentage points. The percentage of bank their ultimate corporate structures; the stability of the Company’s financial and short-term 3,740 7,727 75.7 loans and borrowings decreased by the same economic performance are within the opti- amount. mum range. long-term 397 422 4.1 The short-term liabilities accounted for Accounts payable: 2,382 2,061 20.1 a greater part of borrowed funds at 87.9 per- Liabilities and Equity Structure Borrowings Structure cent, whereas the long-term payables (includ- short-term 1,876 1,901 18.6 of OAO RAO "UES of Russia", % of OAO RAO "UES of Russia", % ing deferred tax liabilities) made 8.4 percent long-term 506 160 1.6 and long term debt and loans represented 3.7 percent of the total debt. 0.2 0.1 3.7 The increase in the total amount of bor- 0.8 4.1 Financial Ratios of the Company rowings in 2006 was due to the issuance by 8.4 RAO “UES of Russia” of non-interest bearing promissory notes payable on demand. 16.5 2005 2006 The short-term payables were down by RUB25 million compared to 2005 due to 2006 2006 Cash ratio 1.59 1.68 the increased amount of debt owed to other creditors). Quick ratio 5.45 3.08 As of 31 December 2006, OAO RAO “UES Current ratio 10.18 5.44 of Russia” had quick assets (cash and cash 98.9 67.3 equivalent) exceeding by 1.4 times the total Equity/Total Assets ratio 0.98 0.99 amount of borrowings, including the deferred Own funds ratio 0.44 0.38 taxes and short-term liabilities, and by 2 times the liabilities on loans and credits. This means that there is no risk of default EQUITY CAPITAL SHORT-TERM LOANS AND DEBT by OAO RAO “UES of Russia” on the loans and debt. SHORT-TERM ACCOUNTS PAYABLE SHORT-TERM ACCOUNTS PAYABLE

Analysis of the Company’s assets and liabili- OTHER LONG-TERM ACCOUNTS PAYABLE OTHER LONG-TERM ACCOUNTS PAYABLE AND DEFERRED TAX LIABILITIES ties suggests that OAO RAO “UES of Russia” AND DEFERRED TAX LIABILITIES has a satisfactory balance sheet structure and LONG-TERM LOANS AND DEBT OTHER SHORT-TERM LIABILITIES a steady financial position. OTHER LIABILITIES 110 Company’s Finance Company’s Finance 111

Auditor’s Report ANNUAL REPORT OF RAO “UES OF RUSSIA”

Assessment of the Auditor’s Report on About the Auditor Following is the audit opinion of ZAO the 2006 statutory financial (account- 2 0 0 6 ZAO “PricewaterhouseCoopers Audit” won “PricewaterhouseCoopers Audit” on the ing) statements of OAO RAO “UES of the tender for the audit of the financial state- results of their audit of the 2006 statutory Russia” prepared by ZAO “Pricewater- ments of RAO “UES of Russia” (the Company) financial (accounting) statements of RAO “UES houseCoopers Audit” for the period of 3 years starting from 2006; of Russia” (Company). Said statutory financial The Audit Committee under the Board of Di- the tender was held in accordance with the (accounting) statements are not included in rectors of RAO “UES of Russia” reviewed the requirements of Federal Law No. 94-FZ of 21 this Annual Report. Accordingly, references Company’s statutory financial (accounting) July 2005 “On the placement of orders for the in the audit opinion to the “Attached statutory statements for 2006, and discussed with the delivery of goods, works, services for state and financial (accounting) statements” and to Company’s management and auditors, ZAO municipal needs”. ZAO “Pricewaterhouse- the information contained in the “Notes to “PricewaterhouseCoopers Audit”, the audit Coopers Audit” was approved as the official statutory financial (accounting) statements” process, efficiency and effectiveness of the auditor of the Company and the RAO “UES of refers to the documents not included in this Company’s internal controls, as well as the Russia” Group for 2006 by the resolution of Annual Report. completeness and quality of the statutory the Annual General Meeting of Shareholders The audit opinion applies only to the 2006 financial statements. The Audit Committee dated 28 June 2006. statutory financial (accounting) statements also reviewed the Auditor’s Report on the stat- The total fee for services provided for the of RAO “UES of Russia” (Company) and utory financial (accounting) statements of the audit of the Company’s financial (accounting) notes thereto. Copies of this documents may Company for 2006. reports for 2006 prepared in accordance with be obtained in the principal offices of RAO Based on the information received during RAR and services provided for the audit of the “UES of Russia” or from the Internet site: the review of the Company’s statutory finan- financial statements of the Company for 2006 www.rao-ees.ru cial (accounting) statements and having dis- and the consolidated financial statements of cussed its preparation with the management the RAO “UES of Russia” Group for 2006 pre- and auditors of the Company, the Audit Com- pared in accordance with IFRS is RUB150.45 mittee recommends that the Board of Direc- million, including VAT. tors approve the statutory financial (accounting) statements of the Company for 2006 and the Auditor’s Report, and submit them for shareholder approval at the Annual General Meeting of shareholders of the Company.

Chairman of the Audit Committee under the Board of Directors of RAO “UES of Russia”

S. Remes 112 Company’s Finance Company’s Finance 113 ANNUAL REPORT OF RAO “UES OF RUSSIA” 2 0 0 6 114 Company’s Finance Company’s Finance 115

Statutory Financial Statements of OAO RAO “UES of Russia” ANNUAL REPORT OF RAO “UES OF RUSSIA” Balance Sheet of OAO RAO “UES of Russia”, as of 31 December 2006, millions of RUB Balance Sheet of OAO RAO “UES of Russia”, as of 31 December 2006, millions of RUB 2 0 0 6

1 january 2006 31 december 2006 1 january 2006 31 december 2006

ASSETS 338,560 1,084,649 EQUITY AND LIABILITIES 338,560 1,084,649

Intangible assets 2 2 Authorized capital 21,558 21,558

Treasury shares – – Fixed assets 5,902 1,586 Additional capital 97,842 91,758 Construction in progress 6,266 5,061 Legal reserve 3,234 3,234 Income-bearing investments in tangible assets 292 196 Targeted financing — — Long-term financial investments 266,703 1,024,638 Retained earnings of the previous years 208,266 211,521

Deferred tax assets — — Retained earnings of the reporting year — 745,088

Other non-current assets — — Borrowings and bank loans 397 422

Inventories 642 507 Deferred tax liabilities 786 806

Other long-term liabilities 506 160 Value Added Tax on goods purchased 971 621 Borrowings and bank loans 3,740 7,727 Accounts receivable (payment expected beyond 12 months of the reporting date) 25,972 21,971 Accounts payable 1,876 1,901 Accounts receivable (payments expected within 12 months of the reporting date) 22,553 13,703 Income payable to members (founders) 221 137 Short-term financial investments 7,302 13,295 Income of future periods 134 337

Cash 1,951 3,068 Reserves for future expenses and payments — —

Other current assets 4 1 Other current liabilities — —

The information presented above has been Loss Account presented above. The extracted “UES of Russia”, dated 29 December 2006. The extracted by RAO “UES of Russia” Manage- condensed financial statements should be summary of the Company’s accounting poli- ment from the full set of statutory financial read in conjunction with the full set of audited cies are set forth in the Explanatory note to the (accounting) statements. The Auditor’s Opinion statutory financial (accounting) statements. statutory financial (accounting) statements presented in the previous section was issued The Company’s statutory financial (account- of the Company for 2006. Copies of these docu- on the full set of statutory financial (accounting) statements for 2006 under the Russian ments are available on request from RAO “UES ing) statements (which are not included in this Accounting Standards are prepared in accor- of Russia” or may be viewed on the corporate document) and does not apply to the condensed dance with the Regulation on the Accounting website at www.rao-ees.ru. version of the Balance Sheet and Profit and Policies approved by Order No. 967 of OAO RAO 116 Company’s Finance Company’s Finance 117

STATEMENT OF OPINION of the Auditing Commission on the Results of Audit of the Operations of OAO RAO “UES of Russia” in 2006 ANNUAL REPORT OF RAO “UES OF RUSSIA”

Statement of Income of OAO RAO “UES of Russia”, millions of RUB The following has been found based on the results of the audit of the It should be highlighted that the quick ratio and current liquidity ra- Company’s financial and business operations in 2006: tios declined compared to 2005. 2 0 0 6 The analysis of the Company’s assets and liabilities demonstrates Indicator 2005 2006 1. The sales revenue amounted to RUB40,297 million. that OAO RAO “UES of Russia” has a satisfactory balance sheet struc- 2. Profit from the subscription fee amounted to RUB30,419 million. ture and a steady financial position. Income from and expenses on ordinary activities 3. The Company’s profit from sales amounted to RUB33,507 million. 4. Profit before taxes amounted to RUB754,942 million. Conclusions: Sales of goods, products, works, and services (less VAT, excise duties, and similar required pay- 32,579 40,297 ments) 5. The Company’s net profit to be distributed by shareholder resolution We have not found any instances of non-compliance with the consti- amounted to RUB745,088 million. tutive documents of RAO “UES of Russia”, resolutions of the General Cost of goods, products, work, and services sold (1,420) (563) 6. The shareholders’ equity of the Company amounted to RUB1,073,159 Meeting of shareholders, and meetings of the Board of Directors and Gross profit 31,159 39,734 million, or 98.94 percent of all of the Company’s funds, broken down the Management Board. as follows: The financial and business activities of OAO RAO “UES of Russia” Sales expenses (190) — authorized capital: RUB21,558 million; in 2006 was in compliance with the Russian Federation statutory ac- General business expenses (4,316) (6,227) additional capital: RUB91,758 million; counting and reporting requirements and the legal acts of the Russian legal reserve: RUB3,234 million; Federation governing the financial and business operations. Gross profit from sales 26,653 33,507 retained earnings of previous years: RUB211,521 million; The data contained in the statutory annual financial statements of Other income and expenses retained earnings of reporting period: RUB745,088 million. OAO RAO “UES of Russia” for 2006 are confirmed as true and correct, 7. The liabilities on the Company’s borrowings as of 31 December 2006 based on random selection of the original documents made available Interest receivable 847 1,081 amounted to RUB8,149 million. to the Auditing Commission. Interest payable (380) (276) 8. The Company’s non-current assets stood at RUB1,031,483 million. 9. The Company’s current assets amounted to RUB53,166 million. Other income 79,337 767,858 10. The accounts receivable amounted to RUB35,674 million at end- Other expenses (81,493) (47,228) 2006. 11. The short term investments as of the end of the reporting period Profit before taxes 24,964 754,942 amounted to RUB13,295 million. Income tax and other similar required payments (4,066) (9,854) 12. The current ratio in 2006 was 5.44 with the required value of >=2. The Return on Total Assets (ROTA) and Return on Equity (ROE) were Chairman of the Auditing Net income from operations 20,898 745,088 as follows: Commission of RAO “UES of Russia” Net (undistributed) income of the reporting period 20,898 745,088 ROTA stood at 10.6 percent at end-2006 (2005: 7.4 percent); ROE was 8.0 percent (2005: 6.5 percent). The net profit received during the reporting period amounted to RUB745,088 million, up RUB724,190 million compared to RUB20,898 million in 2005. M.S. Bystrov The sharp growth in the net profit was due to the adjustment made to the value of the Company’s financial investments (shares in the subsidiaries and dependent companies of OAO RAO “UES of Russia” whose shares are traded on the RTS and MICEX stock exchanges). However, that profit was not accompanied with any real growth of earnings. Payment of dividends for 2006 from “paper profit” would lead to adversely affect the financial position of OAO RAO “UES of Russia”. International Activities ANNUAL REPORT OF RAO “UES OF RUSSIA”

The strategic objectives of RAO “UES of Russia” attracting foreign investments in the de- in international cooperation are as follows: velopment and modernization of Russia’s 2 0 0 6 synchronizing the energy systems of Rus- electricity industry; sia, the CIS countries, and the Baltic Re- organizing cooperation in the domain of publics with the North and West European technical innovations, creation and attrac- energy pools; tion to Russia of new technologies; assistance in the creation and development promoting the development of competitive of a common European market for electri- trading in electricity and power equipment. city and capacity;

14 International Activities 121

Foreign Assets and Projects International Organizations EU-Russia Energy Dialogue. The energy assets located abroad, which The right to manage the 100% stake in Finland in Whose Activities RAO “UES West-East Energy Systems Intercon- are part of RAO UES Holding Company, are ZAO “Armenian Nuclear Power Plant” un- 100 percent shares in RAO NORDIC Oy, the of Russia” Participates nection. owned or managed by ZAO “INTER RAO UES” der a fiduciary arrangement. The plant’s company selling the electricity imported from RAO “UES of Russia” closely cooperates or is Integration of the energy systems of Russia, (60 percent of which is held by RAO “UES of installed capacity is 815 MW. The principal Russia on the Nordic wholesale electricity mar- a full or associated member of the following the CIS countries and the Baltic republics with Russia” and 40 percent by Rosenergoatom). line of business is electricity generation ket. The company is a participant of Nord Pool. international organizations: the North and West European energy pools is In the management of its foreign assets, and sales. World Energy Council (WEC); one of the key priorities for the Company. The the Company seeks to: Republic of Turkey Conseil Internationale des Grandes Re- project is being implemented jointly with the increase the capitalization of RAO UES en- Republic of Georgia 70 percent shares in TGR Enerji, a company seaux Electriques a Haute Tension Union for the Coordination of Transmission tities; 75 percent stake in AO “Telasi” (distribution engaged in wholesale electricity trading. (CIGRE); of Electricity (UCTE). improve its financial and production indica- company which owns the 0.4-110 kV net- World Economic Forum (WEF); In 2006, RAO “UES of Russia” and UCTE tors and increase the operational efficiency works and substations. The Company is en- Promising Projects European Union of the Electricity Industry - continued development of the Feasibility Study of the RAO UES companies; gaged in electricity distribution and sales); In 2006, RAO “UES of Russia” continued im- In 2006, our nego- EURELECTRIC; on the synchronous interconnection of UCTE expand the production and energy retail ac- 100% stake in OOO “Mtkvari Energetika” plementation of a number of investment pro- e8; and the UES of Russia and the energy systems tivities of the RAO UES entities; (the company owns power units 9 and 10 jects abroad. tiations with China on BALTREL - Baltic Ring Electricity Co-ope- of the CIS and Baltic states which operate in maintain parallel operation of the UES at the Tbilisskaya TPP, each having an in- large-scale exports of elec- ration Committee; parallel with the UES. In December 2006, the of Russia and the energy systems in the stalled capacity of 300 MW. The Company’s Tajikistan: tricity from Russia entered International Chamber of Commerce (ICC); draft Conceptual Report was prepared, which neighbouring countries; principal line of business is electricity gene- Construction of the Sangtuda HPP-1 Russo-British Chamber of Commerce states that the preliminary results of the work expand the export and import relationships ration and sales); The Sangtuda HPP-1 is part of the chain of hy- an implementation phase. (RBCC); done did not reveal any fundamental technical with different countries. The right to manage 100 percent shares in dropower plants located on the Vakhsh River A contract was signed to Electric Power Council of the Common- barriers to synchronous interconnection bet- AO “Khrami HPP I” and AO “Khrami HPP II” in the Republic of Tajikistan. The power plant’s wealth of Independent States (EPC CIS); ween the UES of Russia, the CIS and Baltics’ Foreign Power Assets Controlled By (to hydropower plants each having installed designed capacity is 670 MW (four turbines, develop the first phase of the International Commission on Large Dams energy systems and the UCTE. RAO “UES of Russia” or its Entities capacity of 110 MW. The company’s princi- 167.5 MW each). project. Furthermore, the (ICOLD/Commission Internationale des Republic of Armenia pal lines of business are electricity genera- As provided by the Agreement between work underway at the Parent Grandes Barrages, CIGB); 100 percent stake in ZAO “Armenia Electri- tion and sales). Tajikistan’s Government and the Russian Go- International Association of Hydraulic Re- city Grids” (the distribution company which vernment on the procedure for and conditions Company to develop social search (IAHR); owns the 0.4-110 kV networks and supplies Republic of Kazakhstan of shared participation in the construction of reporting, non-financial risk International Energy Agency (IEA); electricity to all consumers in Armenia and 50 percent shares in OAO “Ekibastuzskaya the Sangtuda HPP-1, RAO “UES of Russia” Edison Electric Institute (EEI). provides maintenance services for all over- TPP-2 Station” (which owns the Ekibastuzs- acts as the authorized organization on the Rus- management, customer rela- head and cable transmission lines, trans- kaya TPP-2 with 1,000 MW installed capacity sian side. On 15 December 2005, the Board of tionship management is also former substations, and distribution sta- (two units of 500 MW). The company’s princi- Directors of OAO “Sangtuda HPP-1” approved introduced at all RAO UES tions); pal lines of business are electricity generation the estimated cost of the project to complete 90 percent stake in ZAO “International and sales). the Sangtuda HPP-1 at USD598.87 million. subsidiaries Power Corporation” which operates the property of the Sevan-Razdansky chain of Republic of Moldova seven HPPs. The installed capacity of the 51 percent shares in ZAO “Moldavskaya TPP”, power plants is 560 MW. The Company’s the company which owns the Moldavskaya principal line of business is electricity gene- TPP with 2,520 MW installed capacity. The ration and sales; company’s principal lines of business are Leonid Drachevsky, electricity generation and sales. Deputy Chairman of the Management Board, RAO “UES of Russia” 122 International Activities

The electricity sector liber- Electricity Exports alization is creating new op- and Imports portunities for a synchronous ANNUAL REPORT OF RAO “UES OF RUSSIA” interconnection between Under the Memorandums signed by the China: Development of the Energy Sector in Beginning in 2006, the export and import op- Electricity Exports, Belarus Russian Government and the Tajikistan Go- the Russian Far East and Plans to Launch erations of RAO UES entities, all authority by Country (%) In 2006, the electricity supplies to this country the UES of Russia and the 2 0 0 6 vernment on taking a joint decision to issue Large-Scale Electricity Exports from Russia to perform export and import contracts and totalled 2,345.16 million kWh, a twofold de- European energy pool. The shares of OAO “Sangtuda HPP-1”, dated 6 De- Pursuant to the Agreement on Long-term Co- agreements was transferred to ZAO “INTER crease compared to 2005. potential of such interconnec- cember 2005 (as amended on 14 March 2006) operation signed in 2005, RAO “UES of Russia” RAO UES” (RAO “UES of Russia” holds a and 31 July 2006, the total amount of funds al- and State Power Grid Corporation of China 60 percent stake in this company, and Ros- Moldova tion is boosted by the common located for the project made USD297 million, signed on 21 March 2006, within the framework energoatom holds the remaining 40 percent). The electricity exports to the Republic of Mol- interest that Russia and EU’s which includes the following sources of funds: of the visit of Russian President Vladimir Putin dova in 2006 amounted to 402.82 million kWh, USD150 million in funds from the Russian to the People’s Republic of China, an Agree- Electricity Exports down 50 percent from the 2005 level. Such a energy companies and con- Federation budget for 2005 and 2006; ment on the comprehensive feasibility study In 2006, ZAO “INTER RAO UES” exported reduction in export volumes was due to the sumers have in improving the 2006 USD20 million to cancel the sovereign for the Project to increase electricity exports 20.5 billion kWh of electricity, down 1.6 bil- fact that Russia and Ukraine failed to reach an reliability of the energy supply debt owed by Tajikistan to the Russian from the Russian Federation to China. lion kWh compared to 2005. The decrease in agreement on the transit of Russian electri- Federation; Under the Agreement, the Project will be exports was in line with the resolutions taken city via Ukraine, which is why the agreement and diversifying sources of USD16.1 million in funds under the Invest- implemented in three phases, with the export by the Coordination Group of RAO “UES of was terminated effective June 2006. power, as well as by the avail- ment Programme of OAO RAO “UES of volume target set at 60 billion kWh annually. Russia” for the 2006-2007 autumn and winter ability of a well-developed grid Russia”; The first phase, scheduled for 2008-2012, preparations, which gave priority to electric- Kazakhstan USD110.2 million in funds under the Invest- will see an increase in cross-border electricity ity supplies to Russia’s internal market due In 2006, the exports of electricity to the north- infrastructure needed for the ment Programme of OAO “UES FGC”; supplies of excess electricity generated in the to the increased power consumption in the ern areas of Kazakhstan amounted to 1,868.81 interconnection and efficient USD950 thousand in funds provided by ZAO East IES of Russia. Electricity exports during country. In this connection, Russia reduced FINLAND 54% GEORGIA 3% million kWh, which is nearly the same level as “INTER RAO UES”. phase 1 will make 4.5 billion kWh per year. its electricity exports to Belarus, Azerbaijan, the year before. operational management BELARUS 11% MOLDOVA 2% The Tajikistani side is to transfer the con- During the second phase in 2012-2015, Georgia, and Moldova. in the synchronized energy struction in progress facilities of the Sangtuda 3,500 MW of new generation capacity will be The bulk of electricity exports in 2006 went KAZAKHSTAN 9% CHINA 2% Latvia pools of Russia and the CIS HPP-1 owned by it. In 2005-2006, Tajikistan built in the Far Eastern energy system, with to Finland (over 50 percent of Russia’s elec- In 2006, due to the lower water inflow on the LITHUANIA 7% MONGOLIA 1% contributed USD98 million worth of construc- exports scheduled to rise by 18 billion kWh to tricity exports), Belarus (about 11 percent), Daugava River and reduction in the output countries. tion in progress to the company. 22.5 billion kWh annually. Kazakhstan and Lithuania (9 percent and LATVIA 5% NORWAY 1% of Latvia’s HPPs, the demand for Russian 2006 saw the launch of construction and The third phase (after 2015) provides for a 7 percent, respectively). electricity in Latvia increased by 561.18 mil- AZERBAIJAN 4% Izvestia newspaper, installation works at all hydraulic facilities of further increase in electricity exports to China Electricity supplies to Norway and the lion kWh compared to 2005 reaching 1,086.34 21 December 2006 the Sangtuda HPP-1. On 15 December 2006, a by another 38 billion kWh. Electricity will be sup- northern areas of Finland from the dedicated million kWh. closure dam was completed across the Vakhsh plied by the coal-fired power plants built close hydrogenerators of the Borisoglebskaya HPP, River. The plant’s first hydroelectric unit is to coal basins. In addition, RAO “UES of Russia” Rayakoski HPP, and Kaitakoski HPP were Lithuania Electricity Exports scheduled to go on line in December 2007. will explore the possibility of exporting the elec- carried out under the cross-border trade ar- In 2006, the electricity exports from Russia to to the FSU Countries tricity generated by the newly-built HPPs. The rangements. Lithuania made 1,413.61 million kWh, up 801 plants’ installed capacity intended for electricity Azerbaijan million kWh on the year before. The increase exports will make 6,000-6,400 MW. The electricity exports to Azerbaijan in 2006 in the exports was due to the decommission- On 9 November 2006, the companies signed amounted 755 million kWh, down 247.29 mil- ing of one of the two power units at the Ig- a contract to supply electricity to China under lion kWh compared to 2005. nalina NPP and the emergency stoppage of the first phase of the Project and pursuant to turbine generator No. 3 at the nuclear power the Agreement on the principles of the Project Georgia plant in November and December 2006. implementation. In 2006, the electricity exports to Georgia totalled 570 million kWh, a decrease of 220 million kWh from 2005. 124 International Activities

Boris Titov, Chairman of the Delovaya Rossiya Association of Entrepreneurs: ANNUAL REPORT OF RAO “UES OF RUSSIA” Electricity Exports “RAO “UES of Russia” is Electricity Imports Electricity Imports by Country,% Ukraine the isolated border areas. In 2006, the elec- to the Non-FSU Countries In 2006, ZAO “INTER RAO UES” imported 5.12 Electricity imports from Ukraine’s energy sys- known to have assets abroad.

2 0 0 6 tricity exports from Russia to Mongolia made Finland billion kWh of electricity, a nearly 50 percent tem amounted to 498.11 million kWh, down Each megawatt generated by 174.22 million kWh, which is nearly the same In 2006, the electricity exports from Russia drop compared to 2005. 2,330.89 million kWh from the year before. as the year before. the RAO UES facilities will to Finland made 11,150.38 million kWh, up Such a decrease compared 2005 was due Such a decrease was due to the lack of a con- 290.38 million kWh on the year before. Such to the reduction in the electricity imports from tract the until November 2006. primarily work for the benefit China an increase was due to the performance of Kazakhstan, Lithuania, Ukraine, and Azerbai- In 2006, Russia increased its electricity de- of Russia. The Company is contractual obligations and the favourable jan. Kazakhstan accounts for over 70 percent Kazakhstan liveries to China to 522.91 million kWh, up situation on the Nord Pool market. of all electricity imports in Russia, Lithuania, Imports of electricity from Kazakhstan ensure obviously turning the import/ 30.98 million kWh compared to 2005. This was 2006 and Ukraine each account for approximately uninterrupted power supply to consumers in export balance in favour of made possible by the commissioning of the Mongolia 10 percent, and Azerbaijan has a 6 percent the areas of the Russian Federation border- cross-border 220 kV transmission line Bla- domestic consumers.” Mongolia’s electricity market is generally share. ing on Kazakhstan, and to supply cheaper goveshchenskaya — Sirius. well-balanced, and the electricity imported The reduction in imports was due to the electricity to the Russian market. Russia im- from Russia is chiefly used to meet the peak changes in the electricity prices which were ported 3,676.86 million kWh of electricity from Stroitelnaya Gazeta newspaper, demand and supply electricity to customers in unacceptable for Russia based on the energy Kazakhstan in 2006, down 182 million kWh 20 October 2006 tariffs and balances approved for 2006. compared to 2005.

Lithuania KAZAKHSTAN 72% Electricity imports from Lithuania are inten- LITHUANIA 10% ded for consumers in the Kaliningrad Region and ensure uninterrupted power supply in this UKRAINE 10% Electricity Exports, billions kWh area suffering from energy shortfalls. This also AZERBAIJAN 6% helps reduce the transit of Russian electricity via the energy systems of the Baltic Republics BELARUS 1% 0 5 10 15 20 25 and Belarus. Russia imported 507.41 million LATVIA 0.7% kWh of electricity from Lithuania in 2006, a fall 2006 5.942 14.590 of 2,446.59 million kWh compared to 2005. MONGOLIA 0.3%

2005 10.380 12.879

2004 6.607 12.173

2003 8.397 12.265

2002 8.799 9.562

NON-FSU COUNTRIES

FSU COUNTRIES Corporate Social Responsibility 127 Corporate Social Responsibility ANNUAL REPORT OF RAO “UES OF RUSSIA”

Corporate Social Responsibility: Un- In RAO “UES of Russia”, CSR is implement- (G3 Guidelines), AA1000AS audit standards, of cross-subsidies under various scenarios; In 2006, RAO “UES of Russia”, Delovaya derlying Principles and Implementa- ed through a non-financial risk management and ISAE 3000. The System provides for: differentiation of power consumption Rossiya, and OPORA Rossii business associa- 2 0 0 6 tion Framework system, which was completed in 2006. The identification and monitoring of non-finan- by various categories of households; tions entered into an Agreement to cooperate RAO “UES of Russia” consistently puts into its system incorporates international standards cial risks; consumer satisfaction with the perfor- on key issues in the energy industry, whereby business practice the principles of the Social and COSO-II risk management guidelines, risk optimization project management; mance of energy companies. a Tripartite Advisory Board was set up. There Charter of Russian Business that is predi- AA1000SES stakeholder engagement stan- information support and non-financial re- Non-financial risk management focused on: is also a standing task force dealing with so- cated on recognition of close ties between the dards, GRI guidelines for financial reporting porting; streamlining relationships with consum- cial and employment issues that consists of Company’s business interests and its eco- personnel training and professional deve- ers and establishing a conflict resolution representatives of RAO “UES of Russia”, All- nomic and social responsibility. lopment, including training of employees of framework; Russia Power Industry Trade Union, and As- subsidiaries and dependent companies of ensuring affordability of electricity and sociation of Energy Industry Employees. RAO “UES of Russia”. heating supply, including new consumer Public hearings on social responsibility and In 2006, RAO “UES of Russia” introduced connection to the distribution grids; corporate sustainability of RAO “UES of Rus- the Non-Financial Risks Management Con- improving the quality of power and heating sia” became a landmark event in the area of cept, Environment Policy Concept, Charity supply to health-care facilities as provided stakeholder relations in 2006. and Sponsorship Corporate Policy Concept. for in the Agreement signed by the Minis- In 2006, RAO “UES of Russia” published its For the purpose of ensuring successful im- try of Health Care and Social Development 2004-2005 Report on Social Responsibility and plementation of the Concepts, RAO “UES of of Russia, Rostekhnadzor, and RAO “UES Corporate Sustainability, which was audited by Russia” made certain changes to the existing of Russia”, which came into force in 2006; Ernst & Young. This was the first report by a corporate standards, including investment ac- enhancing environmental security of power Russian company prepared in accordance tivity standards, approved HSE programs and facilities including measures to be consid- with the G3 GRI Guidelines. initiatives on other issues of social concern, ered in the course of investment project de- The performance of RAO “UES of Russia” established a permanent framework for con- velopment and implementation; in the area of non-financial risk management flict prevention and resolution involving trade increasing efficiency of social partnership, and non-financial reporting was acknowl- unions, consumer protection agencies, busi- including control over performance of the edged in ratings and awards organized by in- ness associations, and other stakeholders. Industry Tariff Agreement; establishing ternational institutions. RAO UES subsidiaries and dependent a framework for social and employment companies are implementing the Company’s conflict resolution (in conjunction with the Promoting CSR Business Practices environmental and social initiatives and in- Power Industry Employers Association and in Subsidiary Energy Companies troducing a system for non-financial risk All-Russia Power Industry Trade Union); In 2006, three training courses on manage- management and non-financial reporting. enhancing information transparency of en- ment of non-financial risks and corporate so- ergy companies on environment and other cial reporting were developed and formed the Major Activities on matters of social concern. basis for six training events and workshops, Non-Financial Risk Optimization Establishment of the Customer Relations which were attended by representatives In 2006, the Company completed an analysis Management Headquarters at RAO “UES of over 70 energy companies of RAO UES of non-financial risks associated with the in- of Russia” was a systemic solution to man- Holding Company. vestment stage of RAO UES restructuring and agement of the entire range of non-financial Last year, RAO “UES of Russia” held its produced mid-term estimates that also cover risks associated with customer relations. Social Power Annual Awards for the second the post-reorganization period. Research and The principal goals of the CRM Headquarters time. 44 energy companies submitted over risk forecasting activities engaging leading are conflict resolution, control over perfor- 60 applications in six categories, including scientific and advisory centers covered: mance of subsidiaries, and ensuring efficient “Customer Servicing Quality”, “Occupational 15 forecasting implications of elimination feedback. Safety”, “Environmental and Charitable Pro- grammes”, etc. Pavel Rozhkov, Mission Head at the Paralympic Games: “RAO “UES of Russia” is the general sponsor of the Rus- SDCs of RAO “UES of Russia” implemented Plans and Priorities Environment Policy. Facilitating In 2006, there were meetings held with rep- a range of pilot projects on non-financial risk The priorities for RAO “UES of Russia” in cor- Energy Savings resentatives of WWF, All-Russia Nature Pro- sian national team. They gave management. Leveraging on the experience porate social responsibility in 2007 - 2008 are: The major lines of the Company’s Environ- tection Society, EColine, Greenpeace of Russia, our team 8.5 million rubles gained by RAO “UES of Russia”, seven gene- improving the quality of services delivered ment Policy for 2007-2008 were approved by a Russian Regional Environment Center, and before the Winter Games ration companies published their CSR bro- to customers of grid, distribution and gene- resolution by the Management Board of RAO ANO NERA to discuss various issues of envi- chures. ration companies; “UES of Russia” of 25 September 2006. ronment activities of RAO “UES of Russia”. in Turin, and thanks to them, In 2006, OAO RAO “UES of Russia” joined increasing the efficiency of non-financial The objective of the RAO UES environment As part of its environment management we had absolutely no difficul- two leading international associations deal- risk management, including environment policy is ensuring a due level of environmen- and environment audit activities, the Com- ing with social responsibilities issues - In- risks in the course investment project de- tal security, raising RAO UES energy company developed and approved a Framework ties purchasing special outfit ternational Business Leaders Forum (IBFL) velopment and implementation by RAO panies’ capitalization by ensuring reliable Program and Framework Regulation govern- and making preparations.” and Transparency Enhancement Association “UES of Russia” and its subsidiaries; and environment-friendly power generation, ing the procedure for environmental audit at (AccountAbility). Being an e8 member, the ensuring proper performance under the transmission, and distribution, and increas- RAO UES energy companies, as well as envi- Moskovskaya Pravda newspaper, Company takes part in the development of an Power Industry Tariff Agreement and other ing investment attractiveness of the energy ronment auditor certification systems for con- In 2006, people 4 July 2006 international standard for non-financial re- employer’s obligations; reducing the num- companies. formity with the corporate requirements. The stopped arguing porting in the energy industry, the GRI Electric ber of incidents resulting in occupational It is very important for the Company to take Company also started the implementation of whether the electricity sector Utility Sector Supplement. injuries; into account statements made by securities pilot projects to implement environment man- reform would be implement- To keep the public informed about the promoting the CSR policy of OAO RAO “UES market players and major banks concern- agement and audit systems in WGCs, TGCs, Company’s major activities and performance of Russia” in companies of the post-reform ing an environmentally responsible approach and IDCs. ed. The reform opponents in 2006, RAO “UES of Russia” participated sector structure. to corporate lending, the so called Equator In 2006, RAO “UES of Russia” and subsidi- lost their last hope. Politi- in the following industry events: The 2006 - 2007 Report on social responsi- Principles approved by major banks (banks aries carried out the first series of public Russia Power-2006; bility and corporate sustainability of RAO “UES account for 80 percent of total project finance hearings for the purpose of assessing envi- cians, officials, journalists, Hanover Trade Fair; of Russia” will be published in 2008 based on loans in emerging markets). ronmental implications of investment pro- and, importantly, ourselves, International Safety in Power Idustry-2006; a new non-financial reporting standard for In 2006, RAO “UES of Russia” put consider- jects. The objective of the hearings was both our staff, not only realized, Power Gen Europe-2006; electricity utilities (GRI Electric Utility Sector able efforts into implementation of conceptual to provide the public and environment orga- 8th Specialist Exhibition “Fuel”. “Power In- Supplement). In 2007, RAO “UES of Russia” documents of the Holding Company, such as nizations with objective information on the but also felt that we are dustry” within the framework of the Great periodically posts on its web-site information the Environment Policy of RAO “UES of Rus- projects and to obtain recommendations on on the home straight. Sur- Rivers-2006 Forum; brochures for various stakeholders, including sia” and the Program for Implementation of environment activities. 3rd Specialist Exhibition “Ecology in Power brochures on Non-Financial Risk Manage- RAO “UES of Russia” Environment Policy In response to a proposal presented by prisingly, it is getting more Industry - 2006”; ment, Consumer Relations, Public Hearings for 2006. The Company’s management ap- environmental organizations, RAO “UES of and more interesting IT in Power Industry exhibition and confer- for Assessing Investment Project Implications pointed corporate officers to take charge of Russia” supported the Program for Promo- to work here ence; for Environment, etc. environment activities in subsidiaries; there tion of Energy Efficiency and Efficient Use of Energy Asia-2006; were seven pilot energy companies identified Resources in the Public Sector and Utilities, International Industrial and Economic Fo- for the purpose of launching an environment which was implemented by non-for-profit rum “Russia United”; management and environment audit system; organizations. The Practical Guidelines for Reliability of UES of Russia exhibition and the Company invested a lot of time and effort Energy Savings posted on the Company’s conference; into the development of corporate regulations website were one of the deliverables of the 9th International Exhibition and Congress governing environment safety issues. above-mentioned program. “Energy Savings and Energy Efficiency”; Leonid Gozman, 8th International Specialist Exhibition “En- Member of the Management Board, ergy Savings - 2006”. RAO “UES of Russia” Appendix ANNUAL REPORT OF RAO “UES OF RUSSIA” 2 0 0 6

16 132 APPENDIX 1 2 0 0 6 ANNUAL REPORT OF RAO “UES OF RUSSIA” 133

Corporate Governance CORPORATE GOVERNANCE CODE REGULATION COMPLIANCE COMMENTS Code Compliance Report* Company’s Corporate Governance Practices

Board of Directors

The procedure for election of the Board of Directors of OAO RAO “UES of Russia” is set out in Section 11.2 of the Company Charter and Section 1.3 of the Regulation on the Board of Directors. The Revised Corporate Governance Code of OAO RAO “UES of Russia” was approved by the The Company should comply with the The current Board members were elected by cumulative voting procedure for electing and dismissing Yes at the AGM held 28 June 2006. The Board of Directors has Company’s Board of Directors on 26 May 2006. The Company monitors, on an ongoing basis, Board members. 15 members, two of which are simultaneously members of the compliance with the provisions of the Corporate Governance Code of RAO “UES of Russia”. Company’s Management Board. The Chairman of the Board of Directors was unanimously elected at the Board meeting of 28 July 2006 (Board Minutes No. 225).

The Company Charter should contain As provided by Section 11.2 of the Company Charter, members CORPORATE GOVERNANCE CODE REGULATION COMPLIANCE COMMENTS a provision that Board members may Yes of the Board of Directors of OAO RAO “UES of Russia” are elected be elected only by cumulative voting. by cumulative voting at a general shareholder meeting.

Corporate governance principles and structure There should be no restrictions as to the As provided by Section 11.2 of the Company Charter, persons number of times a person may be elected Yes elected members of the Board of Directors of OAO RAO “UES The main corporate governance principles are set out in the a Board member. of Russia” may be re-elected an unlimited number of times. Corporate Governance Code. The Management Board of RAO “UES of Russia” ensures compliance with these principles. Pursuant to the shareholder resolution adopted by the AGM Accountability. The Board of Directors of the Company The Board of Directors of the Company of RAO “UES of Russia” on 28 June 2006, the following directors is accountable to all shareholders in accordance with should have at least three independent Yes qualifying as independent were elected to the Board of Direc- Compliance with the corporate the applicable laws. directors. tors of the Company: Grigory Beryozkin; Andrey Bugrov; Kirill Yes governance principles. Fairness. The Company’s management bodies ensure pro- Seleznyov; and Seppo Remes. tection of shareholders’ rights and legitimate interests. Transparency. The Company discloses information about The Board of Directors of the Company Out of the 15 Board members, two are Company employees should have no more than 25 percent (Chairman of the Company’s Management Board Anatoly Chubais all material facts relating to its activities. Yes Responsibility. The Company recognizes the rights of executive directors that are simultane- and Deputy Chairman of the Management Board Yakov Urinson), of all stakeholders under the applicable laws. ously employees of the Company. which makes less than 25 percent. The Company should comply with The Company’s chief executive (Chairman of the Management the principle that the Company’s chief Board) is Anatoly Chubais. The Board meeting held 28 July 2006 Yes OAO RAO “UES of Russia” has approved the following executive may not hold the position (Board Minutes No. 225) elected Alexander Voloshin as Chairman bylaws: Charter, Regulation on the General Shareholders’ of the Board Chairman. of the Board of Directors. Meeting, Regulation on the Board of Directors; Regulation on Remuneration of Members of the Board of Directors for The Company has the following committees under the Board The Company’s Board of Directors should the Performance of their Duties and Reimbursement of Directors: Audit Committee, HR and Remunerations Commit- have the following Committees: Audit of their Expenses Relating to the Performance of their tee, Strategy and Reform Committee, and Appraisal Committee. The Company should have internal Committee, HR and Remunerations Com- Yes Functions as Board Members; Regulation on the Activities The Committees’ activities are governed by the approved regula- regulations governing activities mittee, Strategy and Reform Committee, of the Auditing Commission; Regulation on Remuneration tions. of its management and control Yes and Appraisal Committee. of Members of the Auditing Commission for the Perfor- bodies and their compliance with mance of their Duties and Reimbursement of their Expenses the applicable laws. Relating to Visits to the Company’s Facilities; Regulation The Board meeting held 28 July 2006 elected Seppo Remes on the Management Board. as Chairman of the Audit Committee. Mr. Remes is a member All these documents are in compliance with the Russian of the Company’s Board of Directors meeting the independence The Audit Committee and HR and Remu- statutory provisions. The most recent amendments to the requirements. nerations Committee should be headed Yes Company’s regulations were approved by the shareholders The Board meeting held 28 July 2006 elected Andrey Bugrov by independent directors. at the AGM of RAO “UES of Russia” held on 28 June 2006. as Chairman of the HR and Remunerations Committee. Mr. Bugrov is a member of the Company’s Board of Directors meeting the independence requirements.

The following bylaws and regulations governing the activi- On 28 July 2006, the Board of Directors of RAO “UES of Russia” ties of the Company’s management and control bodies may approved the tentative list of matters to be considered at the The Company should have an approved be viewed on the corporate website of RAO “UES of Russia”: Yes Board meetings in July 2006 to June 2007. Also, the Company’s schedule for holding Board meetings. Charter; Regulation on the General Shareholders’ Meet- Board of Directors approves Board meeting schedules for each ing; Regulation on the Board of Directors; Regulation on The regulations governing the quarter. Remuneration of Members of the Board of Directors for the activities of the Company’s management Yes Performance of their Duties and Reimbursement of their and control bodies should be available As provided by Section 7.2 of the Regulation on the Board Expenses Relating to the Performance of their Functions as on the corporate website. The Board of Directors of the Company of Directors of RAO “UES of Russia”, Board meetings are held Board Members; Regulation on the Activities of the Auditing should hold its meetings no less frequently Yes as needed, but no less frequently than once a quarter. Commission; Regulation on Remuneration of Members of the than once a quarter. In the second half of 2006, the Board of Directors held Auditing Commission for the Performance of their Duties and 15 meetings (Board Minutes No. 225-239). Reimbursement of their Expenses Relating to Visits to the Company’s Facilities; Regulation on the Management Board. The rules of procedure for the preparation for and holding The Company’s internal regulations should of Board meetings are set out in the Regulation on the Board set out the procedure for holding meetings Yes of Directors of RAO “UES of Russia” approved by the general of the Board of Directors of the Company. *H2 2006 shareholders’ meeting on 28 June 2002 (as amended). 134 APPENDIX 1 2 0 0 6 ANNUAL REPORT OF RAO “UES OF RUSSIA” 135

CORPORATE GOVERNANCE CODE REGULATION COMPLIANCE COMMENTS CORPORATE GOVERNANCE CODE REGULATION COMPLIANCE COMMENTS

Information on the amounts of remunera- The provisions concerning payment of remuneration The Company should comply with the The Company discloses information in the manner and within tion paid to the members of the Company’s to the Board members is set out in the Regulation on Remunera- information disclosure requirements, Yes the time frame required by the Russian securities laws, including Board of Directors is available to the gen- tion of Members of the Board of Directors for the Performance including through the Internet. publication on the website of RAO “UES of Russia”. eral public on the corporate website. Yes of their Duties and Reimbursement of their Expenses Relating to the Performance of their Functions as Board Members approved on 26 June 2002 (as amended), which may be viewed on General Meeting of Shareholders the corporate website. The procedure for notifying shareholders of a General Sharehold- No loans should be provided to Board During the reporting period, no loans were provided Yes er Meeting of RAO “UES of Russia” is set forth in Section members. to the members of the Board of Directors of the Company. Shareholders should receive notice 10.5 of the Company Charter. In H2 2006, the Company held of the General Shareholder Meeting Yes an Extraordinary General Meeting of shareholders. The notice The Board members should comply The members of the Board of Directors of RAO “UES of Russia” of the Company. of the EGM held on 6 December 2006 was published with their responsibilities set out in the Yes are in compliance with their obligations provided by Section on 26 September 2006 in the Izvestia newspaper and posted Company’s regulatory documents. 3 of the Regulation on the Board of Directors of the Company. on the website of RAO “UES of Russia”.

The procedure for making modifications to the agenda items of a Management Board and Chairman of the Management Board The procedure for making modifications General Shareholder Meeting of RAO “UES of Russia” is set forth to the agenda items of a General Share- Yes in Section 10.6 of the Company Charter. The Company received no holder Meeting should be complied with. As provided by Section 11 of the Company Charter and Section motions from its shareholders to modify the agenda items. 2 of the Regulation on the Management Board of RAO “UES of Russia”, Management Board members are nominated The Company shareholders should be by the Management Board Chairman and appointed by the Board given a possibility to review the list of per- Compliance with the procedure for elec- Pursuant to Section 10.4. of the Company Charter, the Company of Directors. During the reporting period, the Board of Directors sons entitled to participate in the General tion of the Chairman and members of the Yes makes the list of persons entitled to participate in the General of the Company approved the appointment of Victor Pauli Shareholder Meeting of the Company, be- Management Board. Shareholder Meeting available for review upon request of such as Management Board member on the nomination of the ginning on the date of notice of the General Yes persons, provided that they are entitled to at least 1 percent of Management Board Chairman (Board minutes No. 237, dated Shareholder Meeting and until the meeting votes. However, the document and mailing address details of the 8 December 2006). The procedure for the appointment of Victor is closed (in case of a physical meeting), individuals included on the list may not be provided without their Pauli was complied with. or until the closing date for receipt of bal- consent. lots (where the voting is conducted without Pursuant to Section 5 of the Regulation on the Management The rules of procedure for the activities of a physical meeting). Board of RAO “UES of Russia”, meetings of the Management the Management Board of the Company Yes Board are held according to the plan approved by the Manage- should be complied with. As provided by Article 52 of the Law On Joint Stock Companies, ment Board Chairman. shareholders of RAO “UES of Russia” will have 20 days before the General Shareholder Meeting, or 30 days, if the Meeting The system for incentivizing (remunerating) members The Company should have in place a sys- The Company shareholders should have agenda includes a proposal to reorganize the Company, to review of the Management Board was approved by the Board tem of remuneration of the Management Yes a possibility to review the documents relat- the documents relating to the General Meeting of Sharehold- of Directors of RAO “UES of Russia” (Board Minutes No. 172, Board approved by the Board of Directors. ing to the General Shareholder Meeting Yes ers through the Internet. RAO UES Order No. 29 of 23 January dated 25 June 2004, as amended). through electronic communications media, 2007 sets out the procedure for the publication of such informa- including the Internet. tion on the corporate website. The documents relating to the Members of the Management Board Extraordinary General Meeting of shareholders were published have an obligation to avoid any actions on the Company website in the Section “Shareholder and Investor that present a potential or actual conflict Relations”. between their interest and the interests Yes There were no violations during the second half of 2006. of the Company; if such conflict occurs, it should be disclosed to the Board of Direc- The General Shareholder Meeting must tors of the Company. be attended by the then current members The Extraordinary General Meeting of RAO “UES of Russia” of the Board of Directors, the Manage- of 6 December 2006 was held by postal vote (without a physical Yes ment Board, members of the executive meeting), which means that the directors, officers and auditors The members of the Management Board bodies, the Auditing Commission, and the were not expected to attend. should disclose to the Company any infor- Yes There were no violations during the second half of 2006. Company Auditors. mation regarding their business activities not related to the Company’s interests. Dividend Policy

Interaction between the Board of Directors and the executive bodies The current methodology used by RAO “UES of Russia” The Company should have an approved Yes in the calculation of dividends was approved by the Board During H2 2006, two quarterly reports on the activities Regulation on the Dividend Policy. The Management Board should report on of Directors on 28 January 2005 (Board Minutes No. 186). of the Management Board of the Company were submitted to the its activities to the Board of Directors of Yes Board of Directors, in Q2 and Q3 2006 (Board Minutes No. 225 the Company. of 28 August 2006 and No. 234 of 27 October 2006, respectively). Under Section 8.1. of the Charter of RAO “UES of Russia”, the Company may, once a year, decide on the dividend payment. The dividends are paid out of the Company’s net income for the Company Shareholders current year. The Company shareholders decide on payment of the annual dividends and the dividend amount to be paid The Company should comply with the on different classes of shares at the General Meeting as recom- procedure and time frame for dividend Yes Shareholder Rights, Protection of Shareholder Rights mended by the Board of Directors. payment. The AGM of RAO “UES of Russia” held on 28 June 2006 approved The Company provides information to shareholders the dividend payment amounts and set 1 December 2006 Observance of the shareholders’ right to in the manner and within the time frame required as the dividend payment deadline. Yes receive timely information. by the Russian laws, Charter and Regulation on the Information The Company paid the dividends to its shareholders by that Policy of RAO “UES of Russia”. deadline. 136 APPENDIX 1 2 0 0 6 ANNUAL REPORT OF RAO “UES OF RUSSIA” 137

CORPORATE GOVERNANCE CODE REGULATION COMPLIANCE COMMENTS CORPORATE GOVERNANCE CODE REGULATION COMPLIANCE COMMENTS

The Company should have an internal regula- The Regulation in the Activities of the Auditing Board Information Disclosure and Transparency tion approved by the shareholders which sets Yes of RAO “UES of Russia” was approved by the AGM held out the policies for the review of the Compa- on 22 June 2002. Information Disclosure Policies and Practices ny’s activities by the Auditing Commission.

The Company should ensure compliance On 23 June 2006, the Board of Directors of RAO “UES of Russia” The Company should have an approved with the regulation setting out the policies The Regulation on the Activities of the Auditing Commission Yes approved the Restated Regulation on Information Policy of the Yes Regulation on the Information Policy. for the review of the Company’s activities of the Company is being complied with. Company (Board Minutes No. 224). by the Auditing Commission.

The Company updates its website on a daily basis. Managers The Audit Committee under the Board of Directors of the Com- of RAO “UES of Russia” ensure information disclosure pursuant The Auditor’s Report should be reviewed pany will review the Company’s financial statements (accounts) Information disclosure to the Regulation on Information Policy and Order On implement- by the Audit Committee of the Company Yes Yes for 2006 and prepare its opinion of the Auditor’s report on these on the corporate website ing a new structure of the corporate website and ensuring regular before the report is submitted for approval statements prior to submitting its opinion to the General Share- disclosure of information on the activities of OAO RAO “UES of by the Company shareholders. holder Meeting scheduled for 27 June 2007. Russia” on its website.

Pursuant to the Regulation on Information Policy, RAO “UES Ownership Structure of Russia” regularly discloses information on the Company’s activities in its annual and quarterly reports. Order No. 739 of 23 October 2006 currently in effect governs the procedure for Pursuant to the Regulation on Information Policy, the Company Information disclosure in Annual Yes making available the information which is needed for the issuer’s The Company should disclose information endeavours to disclose information on the beneficial owners of and Quarterly reports. quarterly report. During the reporting period, the Company is- on the beneficial owners holding 5 or more Yes 5 or more percent of its voting shares based on the information sued quarterly issuer reports for Q2 and Q3 2006. The reports are percent of its voting shares. provided by the registered holders of the 5 or more percent published on the corporate website of RAO “UES of Russia” in the of the Company’s voting shares. Shareholder and Investor Relations section. Company Restructuring and Relationships with its Subsidiaries and Dependent Companies Availability of an English website. Yes The website of RAO “UES of Russia” has an English version.

Company Restructuring Availability of a document approved by the Board of Directors of the Company which regulates the use of the insider infor- The principal document setting out, at the corporate level, the mation (i.e. material information about At its meeting held 27 May 2005, the Board of Directors approved objectives and goals of the electricity industry reform and the the Company’s activities, its shares and the Procedure for the declaration of insider deals in securities concept for the Company reorganization is the Strategy Concept Yes other securities, and securities transac- of OAO RAO “UES of Russia” and its SDCs by the persons with of RAO “UES of Russia” for Years 2003-2008 “5+5”, which was tions which is not publicly available and access to insider information (Board Minutes No. 196). adopted by the Board of Directors on 29 May 2003. The Company should have an approved may have a material effect on the market Yes On 3 February 2006, the Board of Directors of RAO “UES of Rus- reorganization concept statement. value of the Company’s shares and other sia” unanimously approved the Supplement “Territorial Genera- securities). tion Companies to be Established on the Basis of the Assets of RAO UES Holding Company” to the Company’s Strategy Concept for Years 2003-2008, and on 26 February 2006, the Supplement Financial Statements “Wholesale Companies of the Electricity Market”.

The Company should maintain accounting In order to safeguard the rights and interests of the Company The Company prepares statutory financial statements records and prepare statutory financial shareholders, shares of the new companies created in the Yes in accordance with the Russian Accounting Standards statements (accounts) in accordance with process of the Company’s reorganization are distributed to its on a quarterly basis. the Russian Accounting Standards. shareholders pro rata to their holdings in compliance with the applicable Russian laws and regulations. The Company shareholders who do not take part in the voting or The Consolidated Interim Financial Statements of RAO UES vote against the reorganization are entitled to require the Com- Group for the six months ended 30 June 2006 were signed and The Company should ensure observance The Company should release its financial pany to purchase all or part of their shares, which provides an released on 5 December 2006. The Consolidated Financial State- of the rights of the Company’s sharehold- Yes statements (accounts) in accordance with Yes additional safeguard of shareholders’ rights in the course of the ments of RAO UES Group for the first nine months of 2006 and ers in the reorganization process. the IFRS. Company’s reorganization. Such shares are to be purchased at a for 2006 are under preparation as of the time this Annual Report price determined by the Board of Directors of RAO “UES of Rus- is being prepared. sia” with the involvement of an independent appraiser. The procedure for such share repurchase is established by the Federal Law On Joint Stock Companies and is set out in the notice Control of Business Activities of the General Shareholder Meeting of the Company circulated to the shareholders. The Company should have an internal The Regulation on Internal Control Procedures of RAO “UES of control policy approved by the Board Yes Russia” was approved by the Board of Directors on 16 March 2006 Principles and Practices of Relationships with the Subsidiaries and Dependent Companies of Directors setting out the internal control (Board Minutes No. 217). framework for the Company activities. The Board of Directors approved the Restated Procedure for The Company should have approved Rules The Company should have a dedicated inter- Interaction with Business Companies Whose Shares (Owner- The Company has dedicated departments in charge for the interaction with the Subsidiaries Yes nal control department to oversee compli- Yes ship Interests) are Held by RAO “UES of Russia” on 21 April 2006 of the internal control compliance. and Dependent Companies. ance with the Regulation on Internal Control. (Board Minutes No. 220). 138 APPENDIX 2 2 0 0 6 ANNUAL REPORT OF RAO “UES OF RUSSIA” 139

Information on Members of the Board of Directors, NAME BRIEF INFO POSITION

Director General, OOO “Mezhregiongaz”; member Management Board, Committees and Commissions under Born in 1974 of the Management Board, Head of the Marketing, Seleznev, Kirill Gennadyevich Education: University Gas and Liquid Hydrocarbons Processing Depart- the Board of Directors of RAO “UES of Russia” Citizenship: Russia ment, OAO “Gazprom”

Born in 1944 Deputy Chairman of the Management Board, Education: University, Urinson, Yakov Moiseyevich Head of the Corporate Center, Doctor of Economics, Professor RAO “UES of Russia” Citizenship: Russia

Born in 1955 Board of Directors of RAO “UES of Russia” Elected on 28 June 2006* Education: University, Candidate of Eco- Chairman of the Management Board, Chubais, Anatoly Borisovich* nomic Sciences, Associate Professor RAO “UES of Russia” Citizenship: Russia

NAME BRIEF INFO POSITION Born in 1960 Education: University, Chairman of the Supervisory Board, Yuzhanov, Ilya Arturovich Born in 1956 Candidate of Economic Sciences ZAO “NOMOS-BANK” Voloshin, Alexander Stalyevich Education: University Board Chairman Citizenship: Russia Citizenship: Russia

*owns 0.00195% shares in OAO RAO “UES of Russia” Born in 1957 Education: University, Deputy Board Chairman; Minister of Industry Khristenko, Victor Borisovich Doctor of Economics and Energy of the Russian Federation Committees and Commissions under the Board of Directors of RAO “UES of Russia”** Citizenship: Russia

Audit Committee. Committee members Born in 1972 Deputy Minister of Economic Development Androsov, Kirill Gennadyevich Education: University and Trade of the Russian Federation Committee Chairman, Citizenship: Russia Born in 1955 Senior Advisor, Finnish National Fund for Remes Juha Seppo Education: University, Research and Development (Sitra) under Born in 1966 Candidate of Economic Sciences the supervision of the Finnish Parliament Education: University, Berezkin, Grigory Viktorovich Chairman of the Board of Directors, ESN Group Candidate of Chemical Sciences Born in 1960 Citizenship: Russia Chairman of the Supervisory Board, Yuzhanov, Ilya Arturovich Education: University, ZAO “NOMOS-BANK” Candidate of Economic Sciences Born in 1952 Education: University, Managing Director, ZAO “Interros Holding Bugrov, Andrey Evgenyevich Candidate of Economic Sciences Company” Born in 1966 Citizenship: Russia Berezkin, Grigory Viktorovich Education: University, Chairman of the Board of Directors, ESN Group Candidate of Chemical Sciences Born in 1964 Minister of Economic Development and Trade Born in 1952 Gref, German Oskarovich Education: University Managing Director, ZAO “Interros Holding of the Russian Federation Bugrov, Andrey Evgenyevich Education: University, Citizenship: Russia Company” Candidate of Economic Sciences Born in 1967 Deputy Minister of Industry and Energy Dementyev, Andrey Vladimirovich Education: University Appraisal Committee . Committee members of the Russian Federation Citizenship: Russia Born in 1960 Committee Chairman, Head of the Directorate for Property Management Born in 1977 Yuzhanov, Ilya Arturovich Education: University, Chairman of the Supervisory Board, of Business Sector Organizations, Federal Agency Nikitin, Gleb Sergeyevich Education: University Candidate of Economic Sciences ZAO “NOMOS-BANK” for Federal Property Management of the Russian Citizenship: Russia Federation Born in 1960 Head of the Property Relations Department, Kosarev, Sergey Borisovich Education: University, Candidate of His- RAO “UES of Russia” Born in 1953 torical Sciences, Associate Professor Head of the Federal Energy Agency Oganesyan, Sergey Aramovich Education: University of the Russian Federation Citizenship: Russia Head of the Strategy Department of the Reform Born in 1975 Akhanov, Dmitry Sergeyevich Management Strategy, Head of the Project Imple- Education: University Born in 1955 mentation Center, RAO “UES of Russia” Education: University, Director, Sector Development Department Pushkareva, Olga Stanislavovna Candidate of Economic Sciences of the Government of the Russian Federation Born in 1949 Head of the Electricity Industry Directorate, Citizenship: Russia Buyanov, Mikhail Ivanovich Education: University, Federal Energy Agency of the Russian Federation Candidate of Technical Sciences Born in 1955 Senior Advisor, Finnish National Fund Education: University, Deputy Head of the Federal Agency for Manage- Remes Juha Seppo for Research and Development (Sitra) under Born in 1964 Candidate of Economic Sciences Bystrov, Maxim Sergeyevich ment of Special Economic Zones of the Russian the supervision of the Finnish Parliament Education: University Citizenship: Finland Federation

* positions held at the time of election **positions held by members of all the Committees and Commissions at the time of election 140 APPENDIX 2 2 0 0 6 ANNUAL REPORT OF RAO “UES OF RUSSIA” 141

NAME BRIEF INFO POSITION NAME BRIEF INFO POSITION

Deputy Head of Directorate, Head of Valuation Born in 1949 Head of the Electricity Industry Directorate, Fede- Division of the Directorate for Property Account- Buyanov, Mikhail Ivanovich Education: University, Born in 1964 ral Energy Agency of the Russian Federation Kaminsky, Alexey Vladimirovich ing, Analysis, Valuation, and Control of its Use, Candidate of Technical Sciences Education: University Federal Agency for Federal Property Management of the Russian Federation Corporate Governance and Shareholder Relations Born in 1973 Gabov, Andrey Vladimirovich Department [of the Corporate Center], Education: University, Candidate of Law Born in 1963 RAO “UES of Russia” Kats, Yury Iosifovich Director General, “ESN Energo” Education: University Born in 1977 Deputy Head of the Strategy Department, Kachay, Alexey Romanovich Education: University RAO “UES of Russia” Born in 1963 Head of Bookkeeping and Tax Accounting De- Makshakov, Sergey Vladimirovich Education: University, partment of the Corporate Center, RAO “UES of Born in 1973 Director of Investment Projects Division, Candidate of Economic Sciences Russia” Klekovkin, Anton Igorevich Education: University ZAO “Interros Holding Company” Born in 1973 Investment Manager, ZAO “Interros Holding Matvienko, Alexey Vasilyevich Deputy Head of Division for Restructuring of the Education: University Company” Electricity and Utilities Sector at the Department Born in 1981 Kurbatov ,Mikhail Yuryevich for State Regulation of Tariffs and Infrastructure Born in 1965 Deputy Director General, OAO “SUEK Holding Education: University Mironosetsky, Sergey Nikolaevich Reforms, Ministry of Economic Development and Education: University Company” Trade of the Russian Federation

Born in 1977 Deputy Director General for Corporate Born in 1965 Deputy Director General, OAO “SUEK Holding Mikhaylova, Elena Vladimirovna Mironosetsky, Sergey Nikolaevich Education: University and Property Relations, OOO “Mezhregiongaz” Education: University Company”

Deputy Director of the Budget Policy and Finance Born in 1967 Born in 1967, Nikulov, Alexander Evgenyevich Director General, ZAO “Promregion Holding” Myasnikov, Victor Mikhaylovich Department, Ministry of Industry and Energy Education: University Education: University of the Russian Federation Deputy Head of Directorate for Control and Born in 1977 Born in 1955 Pirozhenko Alexander Aleksandrovich Supervision in the Fuel and Power Sector, Federal Tabakova, Svetlana Alekseyevna President of the Russian Appraisers Association Education: University Education: University Antimonopoly Service of the Russian Federation Head of the Energy Division at the Sector Devel- Born in 1950 Born in 1955 Senior Advisor, Finnish National Fund for Redkin, Yury Vasilyevich opment Department, Government of the Russian Education: University Remes Juha Seppo Education: University, Research and Development (Sitra) under the Federation Candidate of Economic Sciences supervision of the Finnish Parliament Born in 1955 Senior Advisor, Finnish National Fund for Born in 1955 Rector of the Professional Appraisal Institute, Remes Juha Seppo Education: University, Research and Development (Sitra) under the Fedotova, Marina Alekseyevna Education: University, Prorector for Scientific Work, Financial Academy Candidate of Economic Sciences supervision of the Finnish Parliament Doctor of Economics, Professor under the Government of the Russian Federation Born in 1967 Romanovsky, Anatoly Anatolyevich Hermitage Capital Management Ltd Born in 1960 Education: University Member of the Management Board, Shkolnikov, Yury Viktorovich Education: University, NP “Russian Board of Appraisers” Candidate of Economic Sciences Born in 1968 Ryzhov, Sergey Vladimirovich Vice President, ZAO “ESN” Education: University HR and Remunerations Committee. Committee members Born in 1966 Managing Director, Corporate Finance Skribot Wolfgang Born in 1952 Committee Chairman, Education: University Department, ZAO “Gazprombank” Bugrov, Andrey Evgenyevich Education: University, Managing Director, ZAO “Interros Holding Born in 1972 Candidate of Economic Sciences Company” Slobodin, Mikhail Yuryevich Director General, ZAO “KES” Education: University Director General, OOO “Mezhregiongaz”; member Deputy Director of the Department for Structural Born in 1974 of the Management Board, Head of the Marketing, Born in 1971 Seleznev, Kirill Gennadyevich Sukhov, Alexey Albertovich and Tariff Policies in Natural Monopolies, Ministry Education: University Gas and Liquid Hydrocarbons Processing Education: University Department, OAO “Gazprom” of Industry and Energy of the Russian Federation

Born in 1966 Born in 1961 Member of the Management Board, Head of the Berezkin, Grigory Viktorovich Education: University, Chairman of the Board of Directors, ESN Group Udaltsov, Yury Arkadyevich Education: University, Reform Management Center, Candidate of Chemical Sciences Candidate of Physics and Mathematics RAO “UES of Russia”

Born in 1960 Strategy and Reform Committee. Committee members Chairman of the Supervisory Board, Yuzhanov, Ilya Arturovich Education: University, ZAO “NOMOS-BANK” Candidate of Economic Sciences Born in 1971 Committee Chairman, Herne David Education: University Managing Director, Halcyon Advisors Commission for Investments and Ensuring Fuel Supplies Needed for Investment Projects under the Board of Directors of RAO “UES of Russia” Head of the Strategy Department of the Reform Born in 1975 Akhanov, Dmitry Sergeyevich Management Strategy, Head of the Project Imple- Born in 1943 Education: University Zadernyuk, Andrey Fedorovich Technical Director, OAO “Mezhregionenergo” mentation Center, RAO “UES of Russia” Education: University

Born in 1977 Born in 1972 Director for Commerce, OOO “Energoauditcontrol Branis, Alexander Markovich Director, Prosperity Capital Abakumov, Alexey Mikhaylovich Education: University Education: University Engineering Center” 142 APPENDIX 2 2 0 0 6 ANNUAL REPORT OF RAO “UES OF RUSSIA” 143

NAME BRIEF INFO POSITION

Born in 1972 Abyzov, Mikhail Anatolyevich Chairman of Board of Directors, OOO “RUKOM” Education: University

Born in 1977 Branis, Alexander Markovich Director, Prosperity Capital Education: University

Deputy Head of the Federal Agency for Manage- Born in 1964 Bystrov, Maxim Sergeyevich ment of Special Economic Zones of the Russian Education: University Federation

Born in 1950 member of Management Board, Financial Dubinin, Sergey Konstantinovich Education: University, Director, RAO “UES of Russia” Doctor of Economics Management Board of RAO “UES of Russia”* Born in 1978 Advisor to Director General, Fedorov, Denis Vladimirovich Education: University, OOO “Mezhregiongaz” Candidate of Economic Sciences YEAR OF NAME POSITION RESPONSIBILITIES BIRTH EDUCATION Born in 1971 Herne David Managing Director, Halcyon Advisors Education: University Shaping the corporate policy and devel- University, Candidate Chubais, Anatoly Chairman of the Manage- opment strategy for OAO RAO “UES of 1955 of Economic Sciences, Borisovich** ment Board since 1998 Russia”; organizing its activities; govern- Born in 1966 Advisor to Chairman of Management Board Associate Professor Kazinets, Leonid Aleksandrovich ment relations Education: University of RAO “UES of Russia”

Director of the Department for Structural and Born in 1967 Corporate Center Kravchenko, Vyacheslav Mikhaylovich Tariff Policies in Natural Monopolies, Ministry Education: University of Industry and Energy of the Russian Federation Responsible for organizing the economic, Head of the Division for Restructuring of the Deputy Chairman of the production, information and techno- Electricity and Utilities Sector at the Department Management Board, Head Born in 1981 Urinson, logy processes, organization of capital University, Doctor Kurbatov, Mikhail Yuryevich for State Regulation of Tariffs and Infrastructure the Corporate Center; 1944 Education: University Yakov Moiseyevich management, formulation and imple- of Economics, Professor Reforms, Ministry of Economic Development member of the Manage- mentation of the Company’s economic, and Trade of the Russian Federation ment Board since 2000 financial, accounting, and HR policies Born in 1973 Director of Investment Projects Division, Klekovkin, Anton Igorevich Education: University, Master of Sciences ZAO “Interros Holding Company” Deputy Chairman of the Organization of the Company’s internal Born in 1974 Deputy Head of the Valuation Division, Federal Drachevsky, Management Board; and external relations, advancement of 1941 University Lebedinsky, Vladimir Igorevich Education: University, Agency for Federal Property Management Leonid Vadimovich member of the Manage- its interests in the public domain Candidate of Economic Sciences of the Russian Federation ment Board since 2004 in Russia and abroad

Born in 1965 Deputy Director General, OAO “SUEK Holding Mironosetsky, Sergey Nikolaevich Education: University Company” member of Management Responsible for organizing the dispatch- Board since 2004; Chair- University, Candidate Born in 1972 Chairman of the Board of Directors, Ayuev, Boris Ilyich*** ing and control functions in the Unified 1957 Nikitin, Daniil Nikolaevich man of the Management of Technical Sciences Education: University OOO “Power Management Consulting” Energy System of Russia Board, OAO “UES SO-CDA” Born in 1977 Chief Advisor of the Expert Directorate under Petrov, Dmitry Yuryevich Education: University, the President of the Russian Federation Vaynzikher, Boris member of Management Candidate of Economic Sciences Technical Director 1968 University Feliksovich**** Board since 2005 Born in 1974 Head of the Financial Policy Department, Pustoshilov, Pavel Petrovich Education: University RAO “UES of Russia” University, Candidate Gozman, member of Management Government and Community Relations Head of the Energy Division at the Sector Devel- 1950 of Psychological Scienc- Born in 1950 Leonid Yakovlevich Board since 2000 Officer Redkin, Yury Vasilyevich opment Department, Government of the Russian es, Associate Professor Education: University Federation Dubinin, Sergey member of Management University, Doctor Born in 1969 Chief Financial Officer 1950 Romanenkova, Yulia Vasilyevna Director General, ZAO “Russian Trust Company” Konstantinovich Board since 2001 of Economics Education: University

Born in 1968 Pauli, Victor Karlo- member of Management Deputy Technical Director, Chief Techni- Ryzhov, Sergey Vladimirovich Vice President, ZAO “ESN” 1950 University Education: University vich***** Board since 2006 cal Inspector Deputy Head of the Financial and Economic Di- Born in 1947 Rutenberg, Alexander Borisovich rectorate, Federal Energy Agency of the Russian University, Candidate Education: University Smirnov, member of Management Federation Legal support of the Company’s activities 1952 of Law, Doctor Pavel Stepanovich Board since 2001 of Economics Born in 1972 Skaterschikov, Sergey Sergeyevich President, OOO “Indexatlas” Education: University, MBA Trapeznikov, Andrey member of Management Implementation of the Company’s 1961 University Vladislavovich Board since 2000 common information policy Born in 1965 Senior Vice President for Strategy and Develop- Smelov, Eduard Yuryevich Education: University ment, ZAO “KES” *as of 31 December 2006 144 APPENDIX 2 2 0 0 6 ANNUAL REPORT OF RAO “UES OF RUSSIA” 145

Information on Stakes and Voting Shares Held by OAO RAO “UES of Russia” in Other Joint Stock Companies*

Percentage of voting YEAR OF Date of company’s Stake held by shares held by NAME POSITION RESPONSIBILITIES BIRTH EDUCATION Company name official registration OAO RAO “UES of Russia” OAO RAO “UES of Russia”

Reform Management Center Companies in which OAO RAO “UES of Russia” Holds 100% Voting Shares

Responsible for formulating and ensuring REGIONAL ENERGOS member of Management a common policy approach for restruc- University, Candidate Udaltsov, Board since 2004; Head turing the SDCs and creating the target 1961 of Physics Yury Arkadyevich of Reform Management sector structure Formulation of the Open Joint Stock Company for Power and Electrification and Mathematics 14.01.1994 100% 100% Center Company’s policy in the electricity market “Yantarenergo” liberalization process AO-POWER PLANTS The Management Board members in charge of the BUs are responsible for raising the operating efficiency at the Business Units (BUs) SDCs of RAO “UES of Russia”, completion of the SDC restructuring, ensuring reliable and secure supply of elec- Open Joint Stock Company “Ivanovskie CCGTs” 02.07.2004 100% 100% tricity and heat to customers, implementation of the Company’s investment programme.

Open Joint Stock Company Chikunov, member of Management Board since 2004; Managing Director 24.07.2006 100% 100% 1963 University “Mobile Gas Turbine Power Plants” Alexander Vasilyevich of RAO “UES of Russia”, Business Unit 1 Open Joint Stock Company “Sochinskaya TPP” 01.11.2002 100% 100% Avetisyan, member of Management Board since 2004; Managing Director 1958 University Vladimir Evgenyevich of RAO “UES of Russia”, Business Unit 2 Open Joint Stock Company “Federal Grid Company 25.06.2002 100% 100% of the Unified Energy System” (FGC) Voronin, Vyacheslav member of Management Board since 2000; Managing Director 1949 University Pavlovich****** of RAO “UES of Russia”, “Services” Business Unit ENERGY MANAGEMENT COMPANIES member of Management Board since 1998; Managing Director Rappoport, University, Candidate of RAO “UES of Russia”, “Networks” Business Unit; 1963 Open Joint Stock Company Andrey Natanovich of Sociological Sciences 02.08.2001 100% 100% Chairman of the Management Board, OAO “UES FGC” “Northern Energy Management Company”

member of Management Board since 2000; Managing Director Sinyugin, Vyacheslav University, Candidate Open Joint Stock Company “Middle-Volga of RAO “UES of Russia”, “Hydrogeneration” Business Unit; 1969 13.12.2000 100% 100% Yuryevich******* of Law Interregional Energy Management Company” Chairman of the Management Board, OAO “HydroWGC” Open Joint Stock Company “Southern Grid Company” 04.08.2006 100% 100% All members of the Management Board of RAO “UES of Russia” are citizens of the Russian Federation. Open Joint Stock Company 08.10.2002 100% 100% “Urals Energy Management Company” **owns 0.00195 percent of shares in RAO “UES of Russia” ***owns 0.0000124 percent of shares in RAO “UES of Russia” Open Joint Stock Company 16.07.2001 100% 100% ****owns 0.00003 percent of shares in RAO “UES of Russia” “Far Eastern Energy Management Company” *****owns 0.000044 percent of shares in RAO “UES of Russia” ******owns 0.000009 percent of shares in RAO “UES of Russia” *******owns 0.000092 percent of shares in RAO “UES of Russia” OPERATIONAL DISPATCHING COMPANIES

Open Joint Stock Company “Central Dispatch Administra- Information About Transactions Entered into Between Company and the Members of its Management Bodies tion of the Unified Energy System of the Russian Federa- 20.04.1993 100% 100% tion” In order to ensure disclosure of information about the transactions made by the members of the Board of Directors or the Management Board of OAO RAO “UES of Russia” (the “Company”) in accordance with the provisions of the Regulation on the Information Policy of the Company ap- Open Joint Stock Company “System Operator – Central 17.06.2002 100% 100% proved by the Board of Directors on 23 June 2006 (Board minutes No. 224), the Company has put in place arrangements to collect the relevant Dispatch Administration of the Unified Energy System” information by submitting request for disclosure to each member of the Board of Directors and Management Board of the Company. According to the information received from the directors and officers, no such transactions were made between 23 June 2006 and 31 March 2007. * as of 31 December 2006 146 APPENDIX 3 2 0 0 6 ANNUAL REPORT OF RAO “UES OF RUSSIA” 147

Percentage of voting Percentage of voting Date of company’s Stake held by shares held by Date of company’s Stake held by shares held by Company name official registration OAO RAO “UES of Russia” OAO RAO “UES of Russia” Company name official registration OAO RAO “UES of Russia” OAO RAO “UES of Russia”

SCIENTIFIC RESEARCH, DEVELOPMENT AND DESIGN COMPANIES Open Joint Stock Company “ChirkeiGESstroy” 06.03.1993 100% 100%

Open Joint Stock Company “All-Russian Combustion Open Joint Stock Company “Severovostokstroindustriya” 05.08.1993 100% 100% Engineering Research Institute Awarded Two Orders 07.12.1993 100% 100% of Red Banner of Labour” Open Joint Stock Company “Bureyagesstroy” 27.09.2000 100% 100%

Open Joint Stock Company “Scientific Research Institute 27.10.1993 100% 100% Closed Joint Stock Company for Economics of Electric Power Industry” 15.04.1996 100% 100% “Energodental” (subsidiary of RAO “UES of Russia”)

Open Joint Stock Company 29.10.2000 100% 100% “Institute of Corporate Governance” Open Joint Stock Company “Aviaenergo Airlines” 30.06.1994 100% 100%

Open Joint Stock Company Open Joint Stock Company “UES Center for Settlement 27.10.1993 100% 100% 07.10.1999 100% 100% “VNIPIenergoprom Association” of Accounts Receivable and Payable”

Open Joint Stock Company “Dedicated Design Bureau Open Joint Stock Company 14.12.1993 100% 100% 07.10.2005 100% 100% for Combustion Engineering Equipment VTI” “Electrification Exhibition Pavilion”

Closed Joint Stock Company Open Joint Stock Company “TsOTenergo” 12.10.1993 100% 100% 04.08.2005 100% 100% “Agency for Power Balance Forecasting”

Open Joint Stock Company 22.11.1993 100% 100% “G.M. Krzhizhanovsky Power Engineering Institute” REGIONAL GENERATION COMPANIES

Open Joint Stock Company “UES Engineering Center – Open Joint Stock Company 01.07.2005 100% 100% Gidroproekt, Lengidroproekt, Teploelektroproekt, 30.09.1993 100% 100% “Orenburg Heat Generation Company” ORGRES Firm”

REGIONAL RETAIL COMPANIES Open Joint Stock Company 17.07.2006 100% 100% “Energy Industry Science and Technology Center” Open Joint Stock Company 01.01.2005 100% 100% “Karelia Energy Retail Company” Open Joint Stock Company “CNII NPKenergo” 02.11.1993 100% 100%

Open Joint Stock Company Open Joint Stock Company “Scientific Research Institute 01.01.2005 100% 100% 10.06.1993 100% 100% “Chuvash Energy Retail Company” for High Voltage DC Transmission of Electricity” Open Joint Stock Company Open Joint Stock Company 10.11.1993 100% 100% 28.07.1999 100% 100% “Karachaevo-Cherkesskenergo” “Povolzhye Engineering Center for Energy Industry”

Open Joint Stock Company “Kalmenergosbyt” 28.10.2005 100% 100% Open Joint Stock Company 07.04.1993 100% 100% “Southern Power Engineering Center” Open Joint Stock Company “Orenburgenergosbyt” 01.07.2005 100% 100% Open Joint Stock Company “Urals Power Engineering Center – UralVNIPIEnergoprom, Uralselenergoproekt, Open Joint Stock Company 26.03.1993 100% 100% 01.07.2005 100% 100% UralTEP, UralORGRES, UralVTI, Uralenergosetproekt, “Tyumen Energy Retail Company” Chelyabenergosetproekt” Open Joint Stock Company “Altayenergosbyt” 06.07.2006 100% 100% Open Joint Stock Company “Siberian Scientific Research, Design and Development Institute for Power Engineering 12.07.1993 100% 100% Systems and Electric Power Grids” Open Joint Stock Company “Khakasenergosbyt” 01.07.2005 100% 100%

Open Joint Stock Company “Dalselenergoproekt Scientific WHOLESALE GENERATION COMPANIES 19.04.1993 100% 100% Research, Design, Development and Technology Institute” Open Joint Stock Company 26.12.2004 100% 100% CONSTRUCTION, SUPPLY AND SERVICE ORGANIZATIONS “Federal Hydrogeneration Company”

Open Joint Stock Company INTERREGIONAL DISTRIBUTION COMPANIES 17.05.1993 100% 100% “Main Computation Center for Energy Industry” Open Joint Stock Company “Center and North Open Joint Stock Company 17.12.2004 100% 100% 09.06.2001 100% 100% Caucasus Interregional Distribution Company” “Energostroisnabkomplekt UES” Open Joint Stock Company 23.12.2004 100% 100% Open Joint Stock Company “Volgaenergosnabkomplekt” 25.03.1993 100% 100% “North West Interregional Distribution Company”

Open Joint Stock Company for Power and Electrification Open Joint Stock Company 08.02.1993 100% 100% 28.02.2005 100% 100% “Sevkavgidroenergostroy” “Urals and Volga Interregional Distribution Company” 148 APPENDIX 3 2 0 0 6 ANNUAL REPORT OF RAO “UES OF RUSSIA” 149

Open Joint Stock Company WHOLESALE GENERATION COMPANIES 04.07.2005 100% 100% “Siberia Interregional Distribution System” Open Joint-Stock Company “Sixth Generation Company 17.03.2005 93.48% 93.48% DISTRIBUTION COMPANIES of Wholesale Electricity Market” (WGC-6)

Open Joint-Stock Company “First Generation Company 23.03.2005 91.68% 91.68% Open Joint Stock Company “Karelenergo” 28.04.1993 100% 100% of Wholesale Electricity Market” (WGC-1)

Open Joint Stock Company for Power and Electrification Open Joint-Stock Company “Fourth Generation Company 12.04.1993 100% 100% 04.03.2005 89.60% 89.60% of the Chuvash Republic “Chuvashenergo” of Wholesale Electricity Market” (WGC-4)

Open Joint Stock Company for Power and Electrification Open Joint-Stock Company “Second Generation Company 26.01.1993 100% 100% 09.03.2005 80.93% 80.93% “Orenburgenergo” of Wholesale Electricity Market” (WGC-2)

Open Joint-Stock Company “Fifth Generation Company Open Joint Stock Company for Power and Electrification 27.10.2004 75.03% 75.03% 12.03.1993 100% 100% of Wholesale Electricity Market” (WGC-5) “Tyumenenergo”

DISTRIBUTION COMPANIES Open Joint Stock Company for Power and Electrification 27.09.1993 100% 100% “Khakasenergo” Open Joint Stock Company “Kalmenergo” 03.02.1993 96.40% 96.40% TERRITORIAL GENERATION COMPANIES TERRITORIAL GENERATION COMPANIES Open Joint Stock Company 26.08.2005 100% 100% “Territorial Generation Company No. 11” Open Joint Stock Company 01.07.2005 81.56% 81.56% “Territorial Generation Company No. 10” Companies in which RAO “UES of Russia” Holds 75%-100% Voting Shares Companies in which RAO “UES of Russia” Holds 51%-75% Voting Shares

REGIONAL ENERGOS REGIONAL ENERGOS

Open Joint Stock Company for Power and Electrification 09.04.1993 98.68% 98.68% Altay Kray Open Joint Stock Company “Kamchatskenergo” 30.07.1993 54.66% 72.23% for Power and Electrification “Altayenergo”

AO-POWER PLANTS Open Joint Stock Company 13.04.1993 49.00% 64.39% for Power and Electrification “Magadanenergo” Open Joint Stock Company “Kaliningradskaya CHPP-2” 01.10.1998 90.90% 90.90% AO-POWER PLANTS Open Joint Stock Company “Shchekinskie PGU” 20.04.1998 85.58% 85.58% Open Joint Stock Company 22.02.1995 66.45% 66.45% Open Joint Stock Company for Power and electrification “Severo-Zapadnaya CHPP” (North-West CHPP) 24.02.1995 78.63% 78.63% “Kolyma Production and Energy Company” Open Joint Stock Company “KubanGRES” (Kuban TPP) 03.12.1997 60.53% 60.53% Open Joint Stock Company “Bureyskaya HPP” 14.04.1998 78.52% 78.52% Closed Joint Stock Company 01.12.1997 56.33% 56.33% “Luchegorsk Fuel and Energy Complex” (LuTEK) SCIENTIFIC RESEARCH, DEVELOPMENT AND DESIGN COMPANIES

Open Joint Stock Company “Experimentalnaya TPP” 19.06.2001 51.38% 51.38% Open Joint Stock Company 02.11.1993 99.77% 99.77% “North-Western Power Engineering Center” Open Joint Stock Company “Murmanskaya CHPP” 01.10.2005 49.20% 65.52%

Open Joint Stock Company 04.06.1993 99.02% 99.02% “Siberian Energy Science and Technology Center” CONSTRUCTION, SUPPLY AND SERVICE ORGANIZATIONS

CONSTRUCTION, SUPPLY AND SERVICE ORGANIZATIONS Open Joint Stock Company “Geotherm” 30.08.1994 71.61% 71.61%

Open Joint Stock Company “Test Bed of Ivanovskaya TPP” 04.11.2004 83.53% 83.53% Open Joint Stock Company “Tomskenergoremont” 31.03.2005 52.03% 52.03%

Open Joint Stock Company “Dalenergostroyindustria” 13.09.1999 76.64% 76.64% Open Joint Stock Company “Tomskelectrosetremont” 31.03.2005 52.03% 52.03%

Open Joint Stock Company “Tsentr Energetiki” 21.09.1992 75.03% 75.03% Open Joint Stock Company “Tver Energy Repair Company” 11.01.2005 49.00% 65.33% 150 APPENDIX 3 2 0 0 6 ANNUAL REPORT OF RAO “UES OF RUSSIA” 151

Open Joint Stock Regional Power and Electrification 01.03.1993 49.00% 65.29% Open Joint Stock Company “Marienergosbyt” 01.01.2005 64.44% 70.07% Company “Corporate Service Systems” Open Joint Stock Company for Power Open Joint Stock Company 09.04.1993 55.46% 55.79% 01.04.2005 49.00% 65.33% and Electrification “Samaraenergo” “Sverdlovsk Energy Service Company”

Open Joint Stock Company “Stavropolenergosbyt” 01.04.2005 55.13% 71.94% Open Joint Stock Company “Permenergospetsremont” 01.04.2005 49.00% 64.36%

Open Joint Stock Company 01.02.2005 53.14% 53.14% Open Joint Stock Company “Permenergoremont” 01.04.2005 49.00% 64.36% “Mordovia Energy Retail Company”

Open Joint Stock Company for Power and Electrification 29.08.1994 49.00% 65.33% Open Joint Stock Company “Kaluga Retail Company” 01.04.2004 52.25% 52.25% “Mobile Power Engineering” Open Joint Stock Company 31.03.2005 52.03% 59.88% Open Joint Stock Company “Energotekhkomplekt” 16.07.1993 49.00% 65.33% “Tomsk Energy Retail Company”

Open Joint Stock Company 01.02.2005 48.68% 59.26% Open Joint Stock Company “Krasnoyarksenergosbyt” 01.10.2005 51.75% 66.33% “Smolensk Energy Repair Company”

Open Joint Stock Company Open Joint Stock Company 10.06.1993 50.62% 57.81% 01.11.2006 47.39% 55.32% for Power and Electrification “Amurenergo” “South Yakutia Energy Company”

Open Joint Stock Company Open Joint Stock Company “Yarenergoremont-Holding” 22.11.2004 47.36% 59.81% 01.01.2005 49.66% 56.55% “Ivanovo Energy Retail Company”

Open Joint Stock Company “ATP Yarenergo-Holding” 22.11.2004 47.36% 59.81% Open Joint Stock Company 01.10.2005 49.20% 65.52% “Kolskaya Energy Retail Company” INSURANCE COMPANY Open Joint Stock Company 11.01.2005 49.01% 56.01% “Tambov Energy Retail Company” Open Joint Stock Company 13.09.2004 61.00% 61.00% “Energozashchita Insurance Broker” Open Joint Stock Company 31.08.2004 49.01% 65.35% “Voronezh Energy Retail Company” REGIONAL GENERATION COMPANIES

Open Joint Stock Company Open Joint Stock Company for Power and Electrification 01.04.2005 49.00% 62.86% 17.03.1993 52.03% 59.88% “Novgorod Energy Retail Company” “Tomskenergo” Open Joint Stock Company “Oryol Retail Company” 01.04.2005 49.00% 60.35% Open Joint Stock Company “Kurgan Generation Company” 01.07.2006 49.00% 53.81%

Open Joint Stock Company “Tver Energy Retail Company” 11.01.2005 49.00% 65.33% Open Joint Stock Company 03.08.2005 49.00% 60.39% “Omsk Electricity Generation Company” Open Joint Stock Company “Belgorod Retail Company” 01.10.2004 49.00% 65.29% Open Joint Stock Company 03.04.2006 49.00% 65.33% “Ulyanovsk Territorial Generation Company” Open Joint Stock Company 01.04.2005 49.00% 62.30% “Nizhny Novgorod Retail Company” Open Joint Stock Company 03.04.2006 48.50% 64.04% “Saratov Territorial Generation Company” Open Joint Stock Company 01.07.2006 49.00% 53.81% “Kurgan Energy Retail Company” Open Joint Stock Company 01.04.2006 42.82% 55.35% “Samara Territorial Generation Company” Open Joint Stock Company 01.01.2005 49.00% 55.39% “Udmurt Energy Retail Company” REGIONAL MANAGEMENT COMPANIES Open Joint Stock Company “Chelyabenergosbyt” 31.01.2005 49.00% 58.06% Closed Joint Stock Company for Development of Interna- 26.05.1997 60.00% 60.00% tional Electric Relations “INTER RAO UES” Open Joint Stock Company 01.01.2005 49.00% 60.21% “Penza Energy Retail Company” Open Joint Stock Company “Tyvaenergo-Holding” 01.10.2005 51.75% 66.33% Open Joint Stock Company “Chita Energy Retail Company” 30.12.2005 49.00% 62.16% Open Joint Stock Company 01.10.2005 49.00% 57.40% “North-West Energy Management Company” Open Joint Stock Company “Sverdlovenergosbyt” 01.04.2005 49,00% 65.33%

REGIONAL RETAIL COMPANIES Open Joint Stock Company “Perm Energy Retail Company” 01.04.2005 49.00% 64.36%

Kabardino-Balkaria Open Joint Stock Company for Power 11.12.1992 65.27% 65.27% and Electrification (“Kabbalkenergo”) Open Joint Stock Company “Kurskenergosbyt” 01.02.2005 49.00% 59.47% 152 APPENDIX 3 2 0 0 6 ANNUAL REPORT OF RAO “UES OF RUSSIA” 153

Open Joint Stock Company “Petersburg Retail Company” 01.10.2005 49.00% 57.40% Open Joint Stock Company “Krasnoyarskenergo” 21.04.1994 52.24% 52.24%

Open Joint Stock Company “Bryansk Retail Company” 01.10.2004 49.00% 65.22% Open Joint Stock Company “Tomsk Distribution Company” 31.03.2005 52.03% 59.88%

Open Joint Stock Company for Power Open Joint Stock Company “Kostroma Retail Company” 01.01.2005 49.00% 65.33% 01.04.2005 50.43% 64.61% and Electrification “Belgorodenergo” Open Joint Stock Company for Power 23.12.1992 49.00% 65.33% Open Joint Stock Company for Power and Electrification “Ulyanovskenergo” 12.03.1993 49.85% 60.51% and Electrification “Smolenskenergo” Open Joint Stock Company “Dalenergo” 07.04.1993 48.99% 65.33% Open Joint Stock Company for Power 13.01.1993 49.66% 56.55% and Electrification “Ivenergo” Open Joint Stock Company “Volgogradenergosbyt” 01.01.2005 48.99% 61.33% Open Joint Stock Company for Power 10.02.1993 49.27% 65.53% Open Joint Stock Company “Smolenskenergosbyt” 01.02.2005 48.68% 59.26% and Electrification “Kolenergo”

Open Joint Stock Company for Power Open Joint Stock Company for Power 07.05.1993 48.48% 60.21% 24.06.1993 49.27% 61.48% and Electrification “Khabarovskenergo” and Electrification “Volgogradenergo”

Open Joint Stock Company for Power Open Joint Stock Company “Energosbyt Rostovenergo” 11.01.2005 48.43% 62.76% 30.12.1992 49.01% 56.01% and Electrification “Tambovenergo”

Open Joint Stock Company for Power Open Joint Stock Company for Power 05.03.1993 48.36% 64.04% 11.12.1992 49.01% 65.35% and Electrification “Saratovenergo” and Electrification “Voronezhenergo”

Open Joint Stock Company “Kirovenergosbyt” 01.05.2005 48.17% 63.96% Open Joint Stock Company for Power 15.02.1993 49.01% 65.34% and Electrification “Sverdlovenergo” Open Joint Stock Company “Yakutskenergo” 08.06.1994 47.39% 55.32% Open Joint Stock Company for Power 25.01.1993 49.00% 62.86% and Electrification “Novgorodenergo” WHOLESALE GENERATION COMPANIES Open Joint Stock Company for Power 26.11.1992 49.00% 60.35% Open Joint-Stock Company “Third Generation Company and Electrification “Oryolenergo” 23.11.2004 59.72% 59.72% of Wholesale Electricity Market” (WGC-3) Open Joint Stock Company 11.08.1993 49.00% 65.33% TRANSMISSION (TRUNK GRID) COMPANIES “Tver Energy System” (Tverenergo)

Open Joint Stock Company Nizhny Novgorod Open Joint Stock Company 01.04.2006 55.03% 55.35% 19.08.1993 49.00% 62.30% “Samara Transmission Company” for Power and Electrification “Nizhnovenergo”

Open Joint Stock Company Open Joint Stock Company for Power 03.04.2006 53.13% 64.04% 16.04.1993 49.00% 55.39% “Saratov Transmission Company” and Electrification “Udmurtenergo”

Open Joint Stock Company “Kurgan Trunk Grid Company” 01.07.2006 49.00% 53.81% Open Joint Stock Company for Power and Electrification “Chelyabenergo” 18.02.1993 49.00% 58.06%

Open Joint Stock Company “Chita Trunk Grids” 30.12.2005 49.00% 62.16% Open Joint Stock Company for Power 12.11.1992 49.00% 60.21% and Electrification “Penzaenergo” DISTRIBUTION COMPANIES Open Joint Stock Company for Power Open Joint Stock Company and Electrification “Chitaenergo” 10.02.1993 49.00% 62.16% 01.08.2001 67.34% 67.34% “Caucasus Energy Management Company” Open Joint Stock Company for Power Open Joint Stock Company for Power 02.11.1993 49.00% 59.05% 25.02.1993 64.44% 70.07% and Electrification “Arkhenergo” and Electrification “Marienergo” Open Joint Stock Company for Power Open Joint Stock Company for Power 21.12.1992 49.00% 64.36% 22.01.1993 56.01% 56.01% and Electrification “Permenergo” and Electrification “Lenenergo” Open Joint Stock Company for Power 16.02.1993 49.00% 59.47% Open Joint Stock Company “Stavropolenergo” 01.02.1993 55.13% 71.94% and Electrification “Kurskenergo”

Open Joint Stock Company “Mordovenergo” 15.01.1993 53.14% 53.14% Open Joint Stock Company “Bryanskenergo” 26.02.1993 49.00% 65.22%

Open Joint Stock Company for Power Open Joint Stock Company for Power 20.01.1993 52.25% 52.25% 28.01.1993 49.00% 65.33% and Electrification “Kalugaenergo” and Electrification “Kostromaenergo” 154 APPENDIX 3 2 0 0 6 ANNUAL REPORT OF RAO “UES OF RUSSIA” 155

Open Joint Stock Company Open Joint Stock Company “Mosteplosetenergoremont” 03.04.2006 49.00% 65.33% 01.04.2005 50.90% 50.90% “Ulyanovsk Distribution Company” Open Joint Stock Company “Mosenergosetstroy” 01.04.2005 50.90% 50.90% Open Joint Stock Company 03.04.2006 48.50% 64.04% “Saratov Distribution Company” Joint Stock Company 09.09.1996 50.00% 50.00% “United Energy System GruzRosenergo” Open Joint Stock Company “Rostovenergo” 13.04.1993 48.43% 62.76%

Open Joint Stock Company “Diagnostics for Hydraulic, Yaroslavl Open Joint Stock Company for Power 09.07.1993 49.11% 49.11% 11.01.1993 47.36% 59.81% Electrical and Other Critical Facilities” and Electrification “Yarenergo”

Open Joint Stock Company “Yugenegosnabsbyt Special- Open Joint Stock Company 25.12.1992 49.02% 49.02% 01.04.2006 43.21% 55.35% ized Components and Equipment Supply Administration” “Samara Distribution Company”

Open Joint Stock Company 01.04.2005 49.00% 49,00% TERRITORIAL GENERATION COMPANIES “Nizhny Novgorod Energy Repair Company”

Open Joint Stock Company Open Joint Stock Company 22.03.2005 64.83% 64.83% 01.01.2005 49.00% 49.00% “Territorial Generation Company No. 5” “Penza Energy Repair Company”

Open Joint Stock Company Closed Joint Stock Company 27.04.2005 61.85% 61.85% 13.04.1994 49.00% 49.00% “Territorial Generation Company No. 6” “North East Energy Company”

Open Joint Stock Company Open Joint Stock Company 01.07.2005 56.92% 56.92% 02.02.2006 49.00% 49.00% “Yeniseyskaya Territorial Generation Company (TGC-13)” “UES Energy Construction Complex”

Open Joint Stock Company 25.03.2005 55.67% 55.67% Open Joint Stock Company “Central Design Bureau “Territorial Generation Company No. 1” for Modernization and Repair of Power Generating 02.02.1993 49.00% 49.00% Equipment at Power Plants” Companies in which OAO RAO “UES of Russia” Holds 25%-51% Voting Shares Open Joint Stock Company “Sibtekhenergo” – Engineering Firm for Adjustment and Improvement of Technology and 22.12.1992 48.99% 48.99% REGIONAL ENERGOS Operation of Electric Power Equipment of Enterprises and Systems” Open Joint Stock Company for Power 21.01.1997 49.00% 49.00% and Electrification “Ingushenergo” Joint Venture - closed joint stock company “Pontoel Inter- governmental Dispatch Center for Operational Dispatch 11.10.1994 40.00% 40.00% Open Joint Stock Company for Power and Coordination of Parallel Work of Energy Systems” 21.06.1993 49.00% 49.00% and Electrification “Sakhalinenergo” Open Joint Stock Company “Russian Communal Systems” 26.06.2003 25.00% 25.00% Chechen Republic power and electrification 17.02.1993 49.00% 49.00% open-type joint stock company “Grozenergo” REGIONAL GENERATION COMPANIES

AO-POWER PLANTS Open Joint Stock Company 01.07.2006 50.12% 50.35% “Komi Regional Generation Company” Open Joint Stock Company 08.04.2005 48.04% 48.04% “Pilot and Production Verkhne-Mutnovskaya GeoTPP” Open Joint Stock Company 14.06.2005 49.00% 49.00% “Norilsk-Taymyr Energy Company” Open Joint Stock Company “Zelenchuckskie HPPs” 10.03.1998 46.48% 46.48% Open Joint Stock Company “Kuban Generation Company” 01.07.2006 49.00% 49.00% MANAGEMENT ENERGY COMPANY Open Joint Stock Company 01.04.2005 49.00% 49.00% “Arkhangelsk Generation Company” Open Joint Stock Company 03.10.2005 50.00% 50.00% “Moscow Management Power Grid Company” Kuzbass Open Joint Stock Company for Power 30.12.1993 49.00% 49.00% and Electrification (“Kuzbassenergo”) SCIENTIFIC RESEARCH, DEVELOPMENT AND DESIGN COMPANIES

Open Joint Stock Company Open Joint Stock Company 02.11.2005 43.98% 43.98% 01.04.2005 50.90% 50.90% “North-Ossetia Hydrogeneration Company” “Specialized Design Bureau for Repair and Modernization”

REGIONAL MANAGEMENT COMPANIES CONSTRUCTION, SUPPLY AND SERVICE ORGANIZATIONS

Open Joint Stock Company Open Joint Stock Company 01.04.2005 50.90% 50.90% 01.04.2005 50.90% 50.90% “Moscow Heat Distribution Company” “Management Energy Company” 156 APPENDIX 3 2 0 0 6 ANNUAL REPORT OF RAO “UES OF RUSSIA” 157

Open Joint Stock Company Open Joint Stock Company 30.12.2005 46.80% 46.80% 01.04.2005 50.90% 50.90% “Buryatia Management Company” “Moscow City Electricity Distribution Company”

Open Joint Stock Company REGIONAL RETAIL COMPANIES 01.04.2005 50.90% 50.90% “Moscow United Electricity Distribution Company”

Open Joint Stock Company Open Joint Stock Company 01.07.2005 51.00% 51.00% 11.02.1993 50.11% 50.35% “Dagestan Energy Retail Company” “Komienergo Joint Stock Energy Company”

Open Joint Stock Company “Mosenergosbyt” 01.04.2005 50.90% 50.90% Open Joint Stock Company for Power 22.12.1992 49.02% 49.02% and Electrification “Lipetskenergo” Open Joint Stock Company “Komi Energy Retail Company” 01.07.2006 50.11% 50.35% Open Joint Stock Company “Vladimirenergo” 19.11.1992 49.00% 49.00% Open Joint Stock Company 11.01.2005 49.02% 49.02% “Lipetsk Energy Retail Company” Open Joint Stock Company for Power 05.02.1993 49.00% 49.00% and Electrification “Kurganenergo” Open Joint Stock Company for Power 28.04.1993 49.00% 49.00% and Electrification “Sevkavkazenergo” Open Joint Stock Company for Power 10.02.1993 49.00% 49.00% and Electrification “Vologdaenergo” Open Joint Stock Company 01.01.2005 49.00% 49.00% Open Joint Stock Company for Power “Vladimir Energy Retail Company” 14.12.1992 49.00% 49.00% and Electrification “Omskenergo” Open Joint Stock Company “Vologda Retail Company” 01.10.2005 49.00% 49.00% Open Joint Stock Company for Power 10.02.1993 49.00% 49.00% and Electrification of Kuban (“Kubanenergo”) Open Joint Stock Company 03.08.2005 49.00% 49.00% “Omsk Energy Retail Company” Open Joint Stock Company “Kuzbassenergo – 01.07.2006 49.00% 49.00% Regional Electricity Grid Company” Open Joint Stock Company 01.07.2006 49.00% 49.00% “Kuban Energy Retail Company” Open Joint Stock Company for Power 25.12.1992 49.00% 49.00% and Electrification “Tulenergo” Open Joint Stock Company “Arkhangelsk Retail Company” 01.04.2005 49.00% 49.00% Open Joint Stock Company for Power 26.10.1992 49.00% 49.00% Open Joint Stock Company and Electrification “Ryazanenergo 01.07.2006 49.00% 49.00% “Kuzbass Energy Retail Company” Open Joint Stock Company for Power 13.01.1993 49.00% 49.00% Open Joint Stock Company “Tula Retail Company” 01.04.2005 49.00% 49.00% and Electrification “Pskovenergo”

Open Joint Stock Company for Power Open Joint Stock Company 11.12.1992 48.66% 48.66% 11.01.2005 49.00% 49.00% and Electrification “Astrakhanenergo” “Ryazan Energy Retail Company”

Open Joint Stock Company for Power Open Joint Stock Company 30.11.1992 48.17% 48.17% 11.01.2005 48.66% 48.66% and Electrification “Kirovenergo” “Astrakhan Energy Retail Company”

Open Joint Stock Company for Power Open Joint Stock Company “Buryatenergosbyt” 24.05.1993 46.80% 46.80% 30.12.2005 46.80% 46.80% and Electrification “Buryatenergo”

TRANSMISSION (TRUNK GRID) COMPANIES TERRITORIAL GENERATION COMPANIES

Open Joint Stock Company Open Joint Stock Company for Power 01.07.2006 50.11% 50.35% 06.04.1993 50.90% 50.90% “Trunk Electricity Grid of the Komi Republic” and Electrification “Mosenergo”

Open Joint Stock Company Open Joint Stock “Kuban Trunk Grids” 01.09.2006 49.00% 49.00% 09.12.2004 50.03% 50.03% “Territorial Generation Company No. 9”

Open Joint Stock Company Open Joint Stock Company 01.07.2006 49.00% 49.00% 22.03.2005 50.01% 50.01% “Kuzbassenergo Trunk Electricity Grids” “Southern Generation Company - TGC-8”

Open Joint Stock Company Open Joint Stock Company 30.12.2005 46.80% 46.80% 07.12.2004 49.45% 49.45% “Buryatia Electricity Trunk Grids” “Territorial Generation Company No. 14”

Open Joint Stock Company DISTRIBUTION COMPANIES 19.04.2005 49.19% 49.99% “Territorial Generation Company No. 2”

Dagestan Open Joint Stock Company for Power Open Joint Stock Company 13.11.1992 51.00% 51.00% 20.04.2005 47.32% 50.02% and Electrification “Dagenergo” “Territorial Generation Company No. 4” 158 APPENDIX 3 2 0 0 6 ANNUAL REPORT OF RAO “UES OF RUSSIA” 159

Open Joint Stock Company “Energougol” Companies in which OAO RAO “UES of Russia” Holds under 25% of Voting Shares 03.10.1996 16.50% 16.50%

Open Joint Stock Company “Zarubezhenergostroy” 09.12.1992 9.51% 9.51% REGIONAL ENERGOS

Open Joint Stock Company 29.10.1992 8.78% 8.78% Open Joint Stock Company “Nurenergo” 04.12.2001 23.00% 23.00% “Trest Severovostokenergostroy”

Bashkiria Open Joint Stock Company for Power Open Joint Stock Company 02.11.1992 21.27% 22.29% 19.08.1993 2.30% 2.30% and Electrification “Bashkirenergo” “National Energy Export-Import Company”

AO-POWER PLANTS Open Joint Stock Company “Gazenergo” 08.01.1997 0.48% 0.48%

Open Joint Stock Company “Zapadno-Sibirskaya CHPP” Foreign Economic Closed Joint Stock Company 01.07.2006 22.97% 22.97% 27.07.1992 0.15% 0.15% (West Siberian CHPP) for Cooperation in Energy Industry “ASEN”

Open Joint Stock Company Open Joint Stock Company “Yuzhno-Kuzbasskaya TPP” 01.07.2006 22.97% 22.97% 05.07.1993 0.01% 0.01% “Moscow Communications Center of Energy Sector”

Open Joint Stock Company “Sulakenergo” 25.12.1998 12.38% 12.38% BANKING ORGANIZATIONS Open Joint Stock Company 09.08.1996 9.76% 9.76% “Noglikskaya Gas-Fired Power Plant” Open Joint Stock Company “Interbank Union – 18.08.1995 2.70% 2.70% Unified Electric Energy Complex” Open Joint Stock Company “Sangtuda HPP-1” 02.03.2005 4.12% 4.12% Open Joint Stock Company 20.08.1992 1.69% 1.69% “Commercial Bank “Evrositibank” Open Joint Stock Company “Zaramagskie HPPs” 10.05.2000 2.84% 2.84%

Joint Stock Commercial Investment Industry Open Joint Stock Company “Vilyuiskaya HPP-3” 27.07.1992 0.01% 0.01% 07.05.1999 1.90% 1.90% and Construction Bank “Stavropolye” (OAO)

Open Joint Stock Company “Krasnoyarskaya HPP” 07.10.1993 0.12% 0.12% INSURANCE COMPANIES

Open Joint Stock Company “Kamskaya HPP” 10.02.1993 1 share Open Joint Stock Company “Energogarant Insurance 28.08.1992 0.10% 0.10% Joint Stock Company” Open Joint Stock Company “Nizhegorodskaya HPP” 09.12.2003 1 share

REGIONAL GENERATION COMPANIES Open Joint Stock Company “Saratovskaya HPP” 05.12.2003 1 share

Open Joint Stock Company for Power Subsidiary Open Joint Stock Company 23.02.1993 14.18% 16.85% 28.01.1993 1 share and Electrification “Novosibirskenergo” “Upper Volga HPP Cascade”

Open Joint Stock Company “Cheboksarskaya HPP” 01.01.2005 1 share REGIONAL RETAIL COMPANIES

ENERGY MANAGEMENT COMPANY Open Joint Stock Company “Sibirenergo” 15.12.2006 14.18% 16.85%

Open Joint Stock Company TRANSMISSION (TRUNK GRID) COMPANIES 16.04.2001 0,67% 0,67% “HydroWGC Management Company” Open Joint Stock Company 01.07.2005 1 share SCIENTIFIC RESEARCH, DEVELOPMENT AND DESIGN COMPANIES “Khakass Transmission Company”

Open Joint Stock Company OAO “Engineering Center” 16.12.2005 14,18% 16,85% 01.10.2005 1 share “Orenburg Electricity Trunk Grids” Open Joint Stock Company “All-Russia Science 22.07.1993 1 share Open Joint Stock Company and Research Institute of Hydraulic Engineering” 01.09.2005 1 share “Tyumen Trunk Grid Company” Open Joint Stock Company “Scientific Research Institute 05.01.1994 1 share for Power Engineering Facilities” Open Joint Stock Company “Chuvash Trunk Grids” 01.09.2005 1 share

CONSTRUCTION, SUPPLY AND SERVICE ORGANIZATIONS Open Joint Stock “Karelian Trunk Grids” 01.09.2005 1 share

Open Joint Stock Company “Power Machines – ZTL, LMZ, 02.04.2003 22,43% 22,43% Electrosila, Energomashexport” Total Joint Stock Companies 298 160 APPENDIX 3 2 0 0 6 ANNUAL REPORT OF RAO “UES OF RUSSIA” 161

MEMBERSHIP OF OAO RAO “UES OF RUSSIA” IN NOT-FOR-PROFIT RAO UES Subsidiaries With Shares PARTNERSHIPS AND ORGANIZATIONS Traded on Stock Markets*

Currently, OAO RAO “UES of Russia” participates in the activities of 20 not-for-profit organizations, including 13 not-for-profit partnerships, 3 funds and foundations, 1 union, 1 association, and 2 not-for-profit entities.

OAO “RTS Stock Exchange” Not-for-profit Partnerships Class of ZAO MICEX Stock Company Name Shares** Exchange EXCHANGE MARKET CLASSICAL MARKET Non-profit Partnership “Administrator of Trading System of the Wholesale Not-for-profit Partnership “Energoremfond” Electricity Market of the Unified Energy System” Not-for-profit Partnership “Russian National Committee of the Conseil OAO “Astrakhanenergo” ord. ASRE ASREG ASRE Not-for-profit Partnership “Innovations in Energy Sector” Internationale des Grandes Reseaux Electriques a Haute Tension (CIGRE)

Not-for-profit Partnership “Corporate Educational and Research Center Not-for-Profit Partnership for Promoting Development of the Legal OAO “Astrakhan Energy Retail Company” ord. ASSB ASSBG ASSB of the Unified Energy System” Framework for the Fuel and Energy Industry “Energy Club of Russia”

Not-for-profit Partnership “Gas Market Coordinator” Not-for-profit Partnership of Guaranteeing Suppliers and Energy ord. ARHE ARHEG ARHE Retail Companies OAO “Arkhenergo” Non-profit Partnership “Moscow Stock Exchange” pref. ARHEP ARHEPG ARHEP Not-for-profit Partnership “Corporate Dispute Resolution Center” Not-for-profit Partnership “Association of Land and Real Property Owners and ord. ARGR ARGRG ARGR Investors” OAO “Arkhangelsk Generation Company” Not-for-profit Partnership “National Corporate Governance Council” pref. ARGRP ARGRPG ARGRP

Not-for-profit Partnership “Interregional Oil and Gas Complex Exchange” ord. ARSB ARSBG ARSB (NP “IOCE”) OAO “Arkhangelsk Retail Company” pref. ARSBP ARSBPG ARSBP

ord. – BEGYG BEGY OAO “Bashkirenergo” Funds and Foundations pref. – BEGYPG BEGYP

ord. BLRS BLRSG BLRS Non-governmental Pension Fund of the Electricity Industry OAO “Belgorodenergo” Not-for-profit Foundation “Global Energy” pref. BLRSP BLRSPG BLRSP

Not-for-profit Investment Environmental Organization “Energy Carbon Fund” ord. BLSB BLSBG BLSB OAO “Belgorod Retail Company” pref. BLSBP BLSBPG BLSBP

ord. BREN BRENG BREN Unions OAO “Bryanskenergo” pref. BRENP BRENPG BRENP All-Russia Industry Union of Energy Industry Employers ord. BNSB BNSBG BNSB OAO “Bryansk Retail Company” pref. BNSBP BNSBPG BNSBP

Associations OAO “Buryatenergosbyt” ord. BUSB BUSBG BUSB

OAO “Vladimirenergo” ord. VLEN VLENG VLEN Electricity Industry Association “Unified Electrical Power Complex Corporation” OAO “Vladimir Energy Retail Company” ord. VDSB VDSBG VDSB

ord. VGEN/VGEN1 VGENG VGEN OAO “Volgogradenergo” Other not-for-profit entities VGENP/ pref. VGENPG VGENP VGENP1 Edison Electric Institute, Inc. ord. VGSB VGSBG VGSB Non-governmental not-for-profit educational establishment OAO “Volgograd Energy Retail Company” “Institute for Management” pref. VGSBP VGSBPG VGSBP

*as at 31 March 2007 **ord. – ordinary shares; pref. – preferred shares 162 APPENDIX 4 2 0 0 6 ANNUAL REPORT OF RAO “UES OF RUSSIA” 163

OAO “RTS Stock Exchange” OAO “RTS Stock Exchange” Class of ZAO MICEX Stock Class of ZAO MICEX Stock Company Name Shares Exchange EXCHANGE MARKET CLASSICAL MARKET Company Name Shares Exchange EXCHANGE MARKET CLASSICAL MARKET

ord. – VOLGG VOLG ord. KTSB KTSBG KTSB OAO “Volzhskaya HPP” OAO “Kostroma Retail Company” pref. – VOLGPG VOLGP pref. KTSBP KTSBPG KTSBP

OAO “Vologdaenergo” ord. VOLE VOLEG VOLE ord. KRNG KRNGG KRNG OAO “Krasnoyarskenergo” pref. KRNGP KRNGPG KRNGP OAO “Vologda Retail Company” ord. VOSB VOSBG VOSB OAO “Krasnoyarskaya HPP” ord. KRSG KRSGG KRSG ord. VZEN VZENG VZEN OAO “Voronezhenergo” OAO “Kubanenergo” ord. KUBE KUBEG KUBE pref. VZENP VZENPG VZENP OAO “Kuzbassenergo” ord. KZBE KZBEG KZBE ord. VRSB VRSBG VRSB OAO “Voronezh Energy Retail Company” ord. – KRGEG KRGE pref. VRSBP VRSBPG VRSBP OAO “Kurganenergo” pref. – KRGEPG KRGEP ord. VOTG VOTGG VOTG ord. KUEN KUENG KUEN OAO “Votkinskaya HPP” pref. VOTGP – – OAO “Kurskenergo” pref. KUENP KUENPG KUENP pref. – VLGSPG VLGSP ord. KUSB KUSBG KUSB OAO “Dagenergo” ord. DGEN DGENG DGEN OAO “Kurskenergosbyt” pref. KUSBP KUSBPG KUSBP OAO “Dagestan Energy Retail Company” ord. DASB DASBG DASB ord. LSNG LSNGG LSNG OAO “Dagestan Regional Generation Company” ord. DAGR DAGRG DAGR OAO “Lenenergo” pref. LSNGP LSNGPG LSNGP ord. – VLGSG VLGS OAO “Zhigulevskaya HPP” OAO “Lipetskenergo” ord. LIEN LIENG LIEN pref. – VLGSPG VLGSP OAO “Lipetsk Energy Retail Company” ord. LPSB LPSBG LPSB OAO “Zagorskaya PSPP” ord. ZAGR ZAGRG ZAGR ord. – MAGEG MAGE ord. – ZYGSG ZYGS OAO “Magadanenergo” OAO “Zeyskaya HPP” pref. – MAGEPG MAGEP pref. – ZYGSPG ZYGSP ord. – MIENG MIEN ord. IVEN IVENG IVEN OAO “Marienergo” OAO “Ivenergo” pref. – MIENPG MIENP pref. IVENP IVENPG IVENP ord. MISB MISBG MISB ord. IVSB IVSBG IVSB OAO “Marienergosbyt” OAO “Ivanovo Energy Retail Company” pref. MISBP MISBPG MISBP pref. IVSBP IVSBPG IVSBP OAO “Mosenergo” ord. MSNG MSNGG MSNG OAO “Kalugaenergo” ord. KLEN KLENG KLEN OAO “Mosenergosbyt” ord. MSSB MSSBG MSSB OAO “Kaluga Retail Company” ord. KLSB KLSBG KLSB OAO “Moscow City Electricity Distribution Com- ord. MGSV MGRSG MGRS ord. RU0009100366 KIREG KIRE pany” OAO “Kirovenergo” OAO “Moscow United Electricity Grid Company” pref. RU0009100374 KIREPG KIREP ord. MSRS MSRSG MSRS (MOESK) ord. KISB KISBG KISB OAO “Kirovenergosbyt” OAO “Moscow Heat Distribution Company” ord. MSSV MSSVG MSSV pref. KISBP KISBPG KISBP OAO “Mordovenergo” ord. MREN MRENG MREN ord. KOLE KOLEG KOLE OAO “Kolenergo” OAO “Mordovia Energy Retail Company” ord. MRSB MRSBG MRSB pref. – KOLEPG KOLEP

ord. – KOSBG KOSB ord. – MUGSG MUGS OAO “Kolenergosbyt” OAO “Murmanskaya CHPP” pref. – KOSBPG KOSBP pref. – MUGSPG MUGSP

ord. KOEN KOENG KOEN ord. NNGE NNGEG NNGE OAO “Komienergo” OAO “Nizhnovenergo” pref. – KOENPG KOENP pref. NNGEP NNGEPG NNGEP

ord. KOSG KOSGG KOSG ord. NNSB NNSBG NNSB OAO “Kostromaenergo” OAO “Nizhny Novgorod Retail Company” pref. KOSGP KOSGPG KOSGP pref. NNSBP NNSBPG NNSBP 164 APPENDIX 4 2 0 0 6 ANNUAL REPORT OF RAO “UES OF RUSSIA” 165

ord. NGNR NGNRG NGNR ord. – SAGOG SAGO OAO “Novgorodenergo” OAO “Samaraenergo” pref. NGNRP NGNRPG NGNRP pref. – SAGOPG SAGOP

ord. NGSB NGSBG NGSB ord. – SAREG SARE OAO “Novgorod Energy Retail Company” OAO “Saratovenergo” pref. NGSBP NGSBPG NGSBP pref. – SAREPG SAREP

ord. – NVNGG NVNG ord. – SSHGG SSHG OAO “Novosibirskenergo” OAO “Sayano-Shushenskaya HPP” pref. – SSHGPG SSHGP pref. – NVNGPG NVNGP ord. SVER SVERG SVER OAO “WGC-1” ord. OGKA OGKAG OGKA OAO “Sverdlovenergo” pref. SVERP SVERPG SVERP OAO “WGC-2” ord. OGKB OGKBG OGKB ord. SVSB SVSBG SVSB OAO “WGC-3” ord. OGKC OGKCG OGKC OAO “Sverdlovenergosbyt” pref. SVSBP SVSBPG SVSBP OAO “WGC-4” ord. OGKD OGKDG OGKD ord. – SILMG SILM OAO “WGC-5” ord. OGKE OGKEG OGKE ord. SMOE SMOEG SMOE OAO “WGC-6” ord. OGKF OGKFG OGKF OAO “Smolenskenergo” pref. SMOEP SMOEPG SMOEP ord. OREN ORENG OREN ord. SMSB SMSBG SMSB OAO “Oryolenergo” pref. ORENP ORENPG ORENP OAO “Smolensk Energy Retail Company” pref. SMSBP SMSBPG SMSBP ord. ORSB ORSBG ORSB OAO “Oryolenergosbyt” ord. STRG STRGG STRG pref. ORSBP ORSBPG ORSBP OAO “Stavropolenergo” pref. STRGP STRGPG STRGP ord. – OMNGG OMNG OAO “Omskenergo” ord. – STGRG STGR pref. – OMNGPG OMNGP OAO “Stavropol Electricity Generation Company” pref. – STGRPG STGRP ord. – OMGRG OMGR OAO “Omsk Electricity Generation Company” ord. TAEN TAENG TAEN pref. – OMGRPG OMGRP OAO “Tambovenergo” pref. TAENP TAENPG TAENP ord. OMSB OMSBG OMSB OAO “Omskenegosbyt” ord. TASB TASBG TASB pref. OMSBP OMSBPG OMSBP OAO “Tambov Energy Retail Company” pref. TASBP TASBPG TASBP ord. PNZE PNZEG PNZE OAO “Penzaenergo” OAO “TGC-1” ord. TGKA TGKAG TGKA pref. PNZEP PNZEPG PNZEP ord. TGKB TGKBG TGKB ord. PZSB PZSBG PZSB OAO “TGC-2” OAO “Penza Energy Retail Company” pref. TGKBP TGKBPG TGKBP pref. PZSBP PZSBPG PZSBP ord. TGKD TGKDG TGKD ord. PMNG PMNGG PMNG OAO “TGC-4” OAO “Permenergo” pref. TGKDP TGKDPG TGKDP pref. PMNGP PMNGPG PMNGP OAO “TGC-5” ord. TGKE TGKEG TGKE ord. PMSB PMSBG PMSB OAO “Perm Energy Retail Company” OAO “TGC-6” ord. TGKF TGKFG TGKF pref. PMSBP PMSBPG PMSBP OAO “Southern Generation Company TGC-8” ord. TGKH TGKHG TGKH ord. – PBSBG PBSB OAO “Petersburg Retail Company” OAO “TGC-9” ord. TGKI TGKIG TGKI pref. – PBSBPG PBSBP OAO “TGC-13” ord. – TGKMG TGKM OAO “Pskovenergo” ord. PSEN PSENG PSEN TGKN/ TGKN–001D/ ord. RTSE RTSEG RTSE OAO “TGC-14” ord. TGKNG TGKN OAO “Rostovenergo” TGKN–002D/ pref. RTSEP RTSEPG RTSEP TGKN–003D

OAO “Ryazanenergo” ord. RZEN RZENG RZEN ord. TVRE TVREG TVRE OAO “Tverenergo” OAO “Ryazan Energy Retail Company” ord. RZSB RZSBG RZSB pref. TVREP TVREPG TVREP 166 APPENDIX 4 2 0 0 6 ANNUAL REPORT OF RAO “UES OF RUSSIA” 167

OAO “RTS Stock Exchange” Class of ZAO MICEX Stock Company Name Shares Exchange EXCHANGE MARKET CLASSICAL MARKET Financing of RAO UES Investment Programme ord. TVSB TVSBG TVSB OAO “Tver Energy Retail Company” Projects in 2006*, millions of RUB pref. TVSBP TVSBPG TVSBP

ord. TOME TOMEG TOME OAO “Tomskenergo” pref. – TOMEPG TOMEP

ord. TORS TORSG TORS OAO “Tomsk Distribution Company” pref. TORSP TORSPG TORSP

ord. TOSB TOSBG TOSB OAO “Tomsk Energy Retail Company” pref. TOSBP TOSBPG TOSBP Source(s) of Finance OAO “Tulenergo” ord. TLEN TLENG TLEN Funds Amount of designated for OAO “Tula Retail Company” ord. TLSB TLSBG TLSB Project name Financing investment Depreciation Budgetary funds

ord. UDME UDMEG UDME OAO “Udmurtenergo” pref. UDMEP UDMEPG UDMEP Total 23,245 20,284 1,147 1,814

ord. UDSB UDSBG UDSB THERMAL POWER PLANTS: 10,213 10,113 — 100 OAO “Udmurt Energy Retail Company” pref. UDSBP UDSBPG UDSBP Kaliningradskaya CHPP-2 5,052 4,952 — 100 ord. CHNG CHNGG CHNG OAO “Chelyabenergo” pref. CHNGP CHNGPG CHNGP Ivanovskie PGU 5,161 5,161 — — ord. CLSB CLSBG CLSB OAO “Chelyabenergosbyt” pref. CLSBP CLSBPG CLSBP HYDROELECTRIC POWER PLANTS: 9,798 8,651 1,147 —

ord. – CHIEG CHIE OAO “Chitaenergo” Bureyskaya HPP 4,427 3,294 1,133 — pref. – CHIEPG

ord. CHSB CHSBG CHSB Irganayskaya HPP 1,200 1,194 6 — OAO “Chita Energy Retail Company” pref. CHSBP CHSBPG CHSBP

ord. RTSB RTSBG RTSB Boguchanskaya HPP 2,664 2,664 — — OAO “Energosbyt Rostovenergo” pref. RTSBP RTSBPG RTSBP Zaramagskie HPPs 208 200 8 — OAO “Yakutskenergo” ord. YKEN YAENG YAEN

ord. YARE YAREG YARE Zelenchukskie HPPs 799 799 — — OAO “Yarenergo” pref. YAREP YAREPG YAREP Series of Nizhne-Cherekskie HPPs 200 200 — — ord. YRSB YRSBG YRSB (Sovetskaya HPP) OAO “Yaroslavl Retail Company” pref. YRSBP YRSBPG YRSBP Malaya Mezenskaya Tidal PP 300 300 — —

BUREYSKAYA HPP INPOUNDMENT AREAS 3,214 1,500 — 1,714

DESIGN & EXPLORATION WORK 20 20 — —

*according to List No.70-e/b, dated 3 December 2005, approved by the Administration of the Russian Federation Federal Tariff Service 168 APPENDIX 6 2 0 0 6 ANNUAL REPORT OF RAO “UES OF RUSSIA” 169

Information on Transactions Made by OAO RAO “UES of Russia” in 2006

In 2006, RAO “UES of Russia” did not enter into: operation of the power plants. The fee payable to the 25 September 2000, only to the extent of the principal Services Agreement between OAO RAO “UES of Russia” Service Provider is RUB4,400,000 (inclusive of VAT) (Board amount (without any fines or penalties accrued on the (as the Principal) and ZAO “APBE” (as the Service Provider”) any transactions with state-owned companies (state Minutes No. 218, dated 31 March 2006). Debtor’s debt) (Board Minutes No. 224, dated 23 June 2006). to prepare a report on the theme “Feasibility study for the unitary enterprises, joint-stock companies in which the Project of large-scale electricity exports to China based on government has a controlling interest (50 percent plus Services Contract between OAO RAO “UES of Russia” Cooperation Agreement between OAO “HydroWGC”, the analysis of the projected energy and capa-city balances one share) or a “golden share”; (as the Principal) and OAO “ENIN” (as the Service Provider) OAO RAO “UES of Russia”, OAO “RUSAL”, RUSAL Limi- in the power systems (IES) of Siberia and Far East of Russia to develop the target vision (strategy) for the development of ted, and RUSAL Energy Limited to provide joint (by for the period until 2020 and taking into account the influ- any transactions with the Company shareholders hold- Russia’s electricity industry for the period until 2030. The fee OAO “HydroWGC” and OAO “RUSAL”) financing, construc- ence of the Project on the cost and reliability of electricity ing 5 percent or more of the Company’s shares. payable to the Service Provider is RUB106,200,000 (inclusive tion and start of operation of the Boguchanskaya HPP, and generation and transmission in these energy systems. The of VAT) (Board Minutes No. 218, dated 31 March 2006). joint financing, construction, and operation of the Bogu- fee payable to the Service Provider is RUB35,400,000 (inclu- In 2006, RAO “UES of Russia” entered into the following chansk Aluminium Plant. The total amount of funds to be sive of VAT) (Board Minutes No. 225, dated 28 July 2006). interested party transactions. Supplementary Agreement to the Services Contract spent on the project (including by the parties) will be not No. 1-72-01/1062 of 4 August 2005 between more than USD3,274,000,000. The value of property (cash) Contract between OAO RAO “UES of Russia” (as the Princi- Information on the Interested Party Transactions Ap- OAO RAO “UES of Russia” and ZAO “APBE” extending to be transferred by OAO RAO “UES of Russia” under the pal) and OAO “VTI” (as the Service Provider) to conduct an in- proved by the General Shareholders’ Meeting of RAO the date of expiry of the Contract from 31 December 2005 transaction will be USD190,000,000. The first phase of the vestment feasibility study and prepare technical documenta- “UES of Russia” in 2006: to 31 December 2006, provided that the other essential Boguchanskaya HPP project and Boguchansk Aluminium tion required for the creation of a pilot hybrid power unit using terms and conditions of the Contract remain unchanged Plant is scheduled to be completed in Q4 2009 (Board Min- solid oxide fuel cells (SOFC) at VTI’s experimental CHPP. The Transaction (or a series of related transactions) (Board Minutes No. 218, dated 31 March 2006). utes No. 224, dated 23 June 2006). fee payable to the Service Provider is RUB2,900,000 (inclusive involving the acquisition by OAO RAO “UES of Russia” of of VAT) (Board Minutes No. 226, dated 17 August 2006). 37,004,950,730 additional shares in OAO “HydroWGC” at Services Contract between OAO RAO “UES of Russia” Share Purchase Agreement between OAO RAO “UES of RUB1.01 per share (approved by the AGM of 28 June 2006). (as the Principal) and ZAO “APBE” (as the Service Provider) Russia” (as the Buyer) and OAO “Sangtuda HPP-1” (as the Supplementary Agreement No. 1 to Services Contract to provide services included in the list of services to organize Seller) to purchase 2,383 shares in OAO “Sangtuda HPP-1” No. 5/06, dated 03 April 2006 , between OAO RAO “UES of Transaction (or a series of related transactions) the operation and development of the Unified Energy System worth a total of TJS7,249,086. The transaction amount is Russia” and OAO “ENIN” to develop the target vision (stra- involving the acquisition by OAO RAO “UES of Russia” of of Russia approved by Resolution of the Russian Federation RUB62,453,347. The Buyer may acquire a greater or lesser tegy) for the development of Russia’s electricity industry 67,019,241,788 additional shares in OAO “UES FGC” at Government No. 792, dated 30 December 2003. The fee pay- number of shares in Sangtuda HPP-1 depending on the for the period until 2030. The Supplementary Agreement RUB0.50 per share (approved by the AGM of 28 June 2006). able to the Service Provider is RUB157,039,000 (inclusive of TJS/RUB exchange rate published by the Russian Central identifies three phases of the Contract, and the other VAT) (Board Minutes No. 218, dated 31 March 2006). Bank (Board Minutes No. 225, dated 28 July 2006). essential terms and conditions of the Contract remain Transaction (or a series of related transactions) involving unchanged (Board Minutes No. 226, dated 17 August 2006). the acquisition by OAO RAO “UES of Russia” of 20,000,000,000 Share Purchase Agreement between OAO “Ulyanovsk- Contracts between OAO RAO “UES of Russia” (as the additional shares in OAO “UES FGC” at RUB0.50 per share energo (as the Seller) and OAO RAO “UES of Russia” Principal) and OAO “UES Engineering Center” (as the Agreement to assign the rights and obligations under (approved by the EGM of 6 December 2006). (as the Buyer) to sell 500,000,000 shares in OAO “Ulya- Service Provider) to carry out works (preparation of an Investment Agreement No. №00-(I)002939(02), dated 22 May novsk Trunk Grids” for a total value of RUB722,373,000 information memorandum on the fuel balance and qua- 1996, between OAO RAO “UES of Russia” and OAO “UES SO- Information on Interested Party Transactions Approved (Board Minutes No. 221, dated 11 May 2006). lity of different fuels in 2005; analysis of the consumption CDA” (Board Minutes No. 228, dated 19 September 2006). by the Board of Directors of RAO “UES of Russia” in 2006: of different fuels by power plants and boiler houses for Surety Agreement between OAO RAO “UES of Russia” (as the reporting year, by equipment categories; compilation Contract between OAO RAO “UES of Russia” (as the Services Contract between OAO RAO “UES of Russia” the Lender) and OAO “Russian Communal Systems” (as the of an electronic reference book “Technical and Economic Principal) and OAO “UES Engineering Center” (as the (as the Principal) and OAO “ENIN” (as the Service Pro- Surety) to secure the performance of obligations of OAO “Ud- Performance Indicators and Cost of Fuels by Type of Fuel Service Provider) to produce a feasibility study for the con- vider) to determine the rational combination of coals from murt Energy Retail Company” (as the Debtor) to the Lender (gas, fuel oil, coal)”, taking into account the restructuring struction and operation of the electric generation facility different coal fields to be burned by the power plants of arising under Contract to provide services included in the list and reorganization underway at OAO RAO “UES of Russia”. on the site of the Shchekinskaya TPP. The fee payable to RAO “UES of Russia” designed for the coals mined in the of services to organize the operation and development of the The fee payable to the Service Provider is RUB2,900,000 (in- the Service Provider is RUB3,000,000 (inclusive of VAT) Moscow Region in order to ensure reliable and efficient Unified Energy System of Russia, No. AP-U-8/3063, dated clusive of VAT) (Board Minutes No. 225, dated 28 July 2006). (Board Minutes No. 228, dated 19 September 2006). 170 APPENDIX 6 2 0 0 6 ANNUAL REPORT OF RAO “UES OF RUSSIA” 171

Partnership Agreement to carry out joint activities to the amount of the remuneration payable to the Fiduciary Accounting Standards and assets valuation under IFRS. gement) and OAO “TGC-10” (as the Fiduciary Manager), to design, construct, and commission power units No. 3 and Manager for 2006 (Board Minutes No. 235, dated The fee payable to the Agent is 0.05 percent of the agree- change the method used to calculate the amount of the No. 4 of the CHPP-27 of OAO “Mosenergo”, unit No. 8 of 20 November 2006). ment amount (RUB2,395,200), inclusive of VAT (Board remuneration payable to the Fiduciary Manager for 2006 the CHPP-26 of OAO “Mosenergo”, and unit No. 11 of the Minutes No. 237, dated 8 December 2006). (Board Minutes No. 238, dated 21 December 2006). CHPP-21 of OAO “Mosenergo”, and other facilities (subject Supplementary Agreement to Agreement for Fiduciary to prior written agreement of the partners), entered into Management of Shares in OAO “Perm Energy Retail Com- Agency Agreement between OAO RAO “UES of Rus- Supplementary Agreement to the Agreement for by OAO “Mosenergo”, OAO RAO “UES of Russia”, and pany” No. 109/1-DU, dated 20 April 2006, between sia” (as the Agent) and OAO “TGC-9” (as the Principal) to fiduciary management of shares in OAO “Vladimir Energy OAO “Gazprom” and/or its affiliates to be designated by OAO RAO “UES of Russia” (as the Management Settlor) arrange for the fixed assets revaluation under Russian Ac- Retail Company”, dated 25 November 2005, between OAO “Gazprom” in writing. OAO “Mosenergo” is to contrib- and OAO “TGC-9” (as the Fiduciary Manager). The Supple- counting Standards and assets valuation under IFRS. The OAO RAO “UES of Russia” (as the Settlor of Fiduciary Mana- ute not less than RUB37,000,000,000 and not more than mentary Agreement changes the method used to calculate fee payable to the Agent is 0.05 percent of the agreement gement) and OAO “TGC-6” (as the Fiduciary Manager), RUB60,000,000,000 in cash; OAO RAO “UES of Russia” is the amount of the remuneration payable to the Fiduciary amount (RUB2,963,200), inclusive of VAT (Board Minutes to change the method used to calculate the amount of the to contribute RUB1,000 in cash; the Strategic Investor is Manager for 2006 (Board Minutes No. 235, dated No. 237, dated 8 December 2006). remuneration payable to the Fiduciary Manager for 2006 to contribute RUB1,000 in cash (Board Minutes No. 234, 20 November 2006). (Board Minutes No. 238, dated 21 December 2006). dated 27 October 2006). Agency Agreement between OAO RAO “UES of Russia” Supplementary Agreement to Agreement for Fiduciary (as the Agent) and OAO “Mosenergo” (as the Principal) to Supplementary Agreement to the Agreement for fidu- Supplementary Agreement to Agreement for Fiduciary Management of Shares in OAO “Sverdlovenergosbyt” arrange for the fixed assets revaluation under Russian Ac- ciary management of shares in OAO “Penza Energy Retail Management of Shares in OAO “Kolskaya Energy Retail No. 109/2-DU, dated 20 April 2006, between OAO RAO “UES counting Standards and assets valuation under IFRS. The Company”, dated 25 November 2005, between OAO RAO Company” No. 101/2-DU, dated 20 April 2006, between of Russia” (as the Management Settlor) and OAO “TGC-9” fee payable to the Agent is 0.05 percent of the agreement “UES of Russia” (as the Settlor of Fiduciary Management) OAO RAO “UES of Russia” (as the Management Settlor) (as the Fiduciary Manager). The Supplementary Agreement amount (RUB6,496,300), inclusive of VAT (Board Minutes and OAO “TGC-6” (as the Fiduciary Manager), to change and OAO “TGC-1” (as the Fiduciary Manager). The Supple- changes the method used to calculate the amount of the No. 237, dated 8 December 2006). the method used to calculate the amount of the remu- mentary Agreement changes the method used to calculate remuneration payable to the Fiduciary Manager for 2006 neration payable to the Fiduciary Manager for 2006 (Board the amount of the remuneration payable to the Fiduciary (Board Minutes No. 235, dated 20 November 2006). Agency Agreement between OAO RAO “UES of Rus- Minutes No. 238, dated 21 December 2006). Manager for 2006 (Board Minutes No. 235, dated sia” (as the Agent) and OAO “WGC-6” (as the Principal) to 20 November 2006). Agreement for Fiduciary Management of Shares in arrange for the fixed assets revaluation under Russian Ac- Supplementary Agreement to the Agreement for fidu- OAO “Orenburgenergosbyt” between OAO RAO “UES of Rus- counting Standards and assets valuation under IFRS. The ciary management of shares in OAO “Mordovia Energy Supplementary Agreement to Agreement for Fiduciary sia” (as the Settlor of Fiduciary Management) and fee payable to the Agent is 0.05 percent of the agreement Retail Company”, dated 25 November 2005, between Management of Shares in OAO “Karelia Energy Retail OAO “Volzh-skaya TGC” (as the Fiduciary Manager) for a term amount (RUB3,544,800), inclusive of VAT (Board Minutes OAO RAO “UES of Russia” (as the Settlor of Fiduciary Company” No. 101/1-DU, dated 20 April 2006, between of one year after the creation of the parties’ rights and obliga- No. 237, dated 8 December 2006). Management) and OAO “TGC-6” (as the Fiduciary OAO RAO “UES of Russia” (as the Management Settlor) tions (Board Minutes No. 235, dated 20 November 2006). Manager), to change the method used to calculate and OAO “TGC-1” (as the Fiduciary Manager). The Supple- Supplementary Agreement to the Agreement for fidu- the amount of the remuneration payable to the Fiduciary mentary Agreement changes the method used to calculate Agency Agreement between OAO RAO “UES of Russia” ciary management of shares in four Interregional Trans- Manager for 2006 (Board Minutes No. 238, dated the amount of the remuneration payable to the Fiduciary (as the Agent) and OAO “WGC-3” (as the Principal) mission Companies No. 1-78/05-12, dated 1 December 21 December 2006). Manager for 2006 (Board Minutes No. 235, dated to arrange for the fixed assets revaluation under Russian 2005, between OAO RAO “UES of Russia” (as the Settlor of 20 November 2006). Accounting Standards and assets valuation under IFRS. Fiduciary Management) and OAO “UES FGC” (as the Fidu- Supplementary Agreement to the Agreement for fidu- The fee payable to the Agent is 0.05 percent of the ciary Manager) to extend the term of the Agreement for six ciary management of shares in OAO “Ivanovo Energy Retail Supplementary Agreement to Agreement for Fiduciary agreement amount (RUB3,327,500), inclusive of VAT months (Board Minutes No. 235, dated 8 December 2006). Company”, dated 25 November 2005, between OAO RAO Management of Shares in OAO “Petersburg Energy Retail (Board Minutes No. 237, dated 8 December 2006). “UES of Russia” (as the Settlor of Fiduciary Management) Company” No. 101/3-DU, dated 20 April 2006, between Supplementary Agreement to the Agreement for fidu- and OAO “TGC-6” (as the Fiduciary Manager), to change OAO RAO “UES of Russia” (as the Management Settlor) Agency Agreement between OAO RAO “UES of Russia” ciary management of shares in OAO “Tyumen Energy Retail the method used to calculate the amount of the remu- and OAO “TGC-1” (as the Fiduciary Manager). The Supple- (as the Agent) and OAO “TGC-1” (as the Principal) to Company”, dated 7 December 2005, between neration payable to the Fiduciary Manager for 2006 (Board mentary Agreement changes the method used to calculate arrange for the fixed assets revaluation under Russian OAO RAO “UES of Russia” (as the Settlor of Fiduciary Mana- Minutes No. 238, dated 21 December 2006). 172 APPENDIX 7 2 0 0 6 ANNUAL REPORT OF RAO “UES OF RUSSIA” 173

Company Bylaws*

DOCUMENT NAME KEY PROVISIONS DOCUMENT NAME KEY PROVISIONS

Regulation on the General Shareholder Meeting of OAO RAO “UES Regulation on the HR and Remunerations Committee under the of Russia” (approved by the Annual General Meeting of sharehold- The Regulation sets out the procedure for convocation, preparation, Board of Directors of RAO “UES of Russia” The Regulation establishes the Committee functions, status, ers of RAO “UES of Russia” held 28 June 2002, amended by the holding the General Shareholder Meeting of RAO “UES of Russia” (approved by the Board of Directors of OAO RAO “UES of Russia” and the procedure for its activities. Annual General Meeting of shareholders of RAO “UES of Russia” and tallying the votes. on 26 April 2005 (Board minutes No. 194) held 30 May 2003)

Regulation on the Board of Directors of OAO RAO “UES of Russia” Regulation on the Strategy and Reform Committee under the Board (approved by the Annual General Meeting of shareholders of Directors of OAO RAO “UES of Russia” The Regulation establishes the Committee functions, status, The Regulation sets out the functions and responsibilities of RAO “UES of Russia” held 28 June 2002, amended by the Annual (approved by the Board of Directors of OAO RAO “UES of Russia” and the procedure for its activities. of the Board of Directors of RAO “UES of Russia”. General Meetings of shareholders of RAO “UES of Russia” held on 8 September 2001 (Board minutes No. 101) 30 May 2003 and 28 June 2006) Regulation on the Commission for Investments and Ensuring Fuel Regulation on Remuneration of Members of the Board of Directors Deliveries Needed for Investment Projects under the Board The Regulation establishes the Committee functions, status, of RAO “UES of Russia” for the Performance of their Duties and of Directors of OAO RAO “UES of Russia” Reimbursement of their Expenses Relating to the Performance and the procedure for its activities. The Regulation sets out the criteria and procedure for (approved by the Board of Directors of OAO RAO “UES of Russia” of their Functions as Board Members remuneration the members of the Board of Directors on 9 February 2007 (Board minutes No. 242) (approved by the Annual General Meeting of shareholders of of RAO “UES of Russia”. RAO “UES of Russia” held 28 June 2002, amended by the Annual The Code is a set of corporate governance principles of RAO “UES Corporate Governance Code of RAO “UES of Russia” General Meetings of shareholders of RAO “UES of Russia” held of Russia” based on the Code of Corporate Conduct recommended (approved by the Board of Directors of RAO “UES of Russia” 30 May 2003 and 29 June 2005) by Russia’s Federal Service for Financial Markets and the Company on 26 May 2006 (Board minutes No. 222) bylaws, which are complied with by the Company Regulation on the Activities of the Auditing Commission of OAO RAO “UES of Russia” The Regulation sets out the functions and responsibilities Regulation on Internal Control Procedures of RAO “UES of Russia” (approved by the Annual General Meeting of shareholders of the Auditing Commission of the Company. The Regulation sets out the internal control rules (approved by the Board of Directors of RAO “UES of Russia” of RAO “UES of Russia” held 28 June 2002) for RAO “UES of Russia”. on 16 March 2006 (Board minutes No. 217) Regulation on Remuneration of Members of the Auditing Commis- sion for the Performance of their Duties and Reimbursement The Regulation sets out the rules and principles of information dis- of their Expenses Relating to Visits to the Company’s Facilities The Regulation sets out the criteria and procedure closure, list of information and documents required to be disclosed Regulation on Information Policy of OAO RAO “UES of Russia” (approved by the Annual General Meeting of shareholders of for remuneration of the members of the Auditing Board to shareholders, creditors, and potential investors, as well as to (approved by the Board of Directors of RAO “UES of Russia” RAO “UES of Russia” held 28 June 2002, amended by the Annual of RAO “UES of Russia”. securities industry members, government authorities and other on 23 June 2006 (Board minutes No. 224) General Meetings of shareholders of OAO RAO “UES of Russia” stakeholders, and determines the manner and timeframes for such held 30 May 2003 and 28 June 2006) disclosures and filings. Dividend Calculation Methodology of RAO “UES of Russia” The Methodology determines the criteria for the calculation (approved by the Board of Directors of RAO “UES of Russia” of dividends for the reporting year to be paid by the Company The Regulation imposes requirements on the persons who have on 25 April 2003 and 28 April 2003 (Board minutes No. 142) to the holders of its preferred and ordinary shares. Procedure for Declaration of Insider Deals in securities access to insider information, and sets out the procedure by which of OAO RAO “UES of Russia” and its SDCs by Persons with such persons are to give notice of their transactions in the securi- Regulation on the Management Board of OAO RAO “UES of Russia” Access to Insider Information. ties of the Company and its SDCs, the procedure for disclosure The Regulation sets out the timing and procedure for convoca- (approved by the Annual General Meeting of shareholders of RAO of information about the insider deals tion and holding meetings of the Management Board, the quorum “UES of Russia” held 28 June 2002, amended by the Annual Gen- requirements for such meetings, the procedure for resolutions eral Meetings of shareholders of OAO RAO “UES of Russia” held The Procedure governs the exercise by the Company of its rights as by the Management Board and implementation controls. 28 June 2006) shareholder in respect of its subsidiaries and dependent companies which rights are evidenced by shares or ownership interests in order Regulation on the Appraisal Committee under the Board to ensure effective participation of Company representatives in gen- Procedure for Interaction by OAO RAO “UES of Russia” with of Directors of RAO “UES of Russia” The Regulation establishes the Committee functions, status, eral meetings of shareholders, meetings of the Boards of Directors Business Companies Whose Shares (Ownership Interests) (approved by the Board of Directors of RAO “UES of Russia” and the procedure for its activities. and activities of the Auditing Commissions of its SDCs. The Proce- are Held by RAO “UES of Russia” on 30 July 2004 (Board minutes No. 173) dure further defines the general conditions of corporate interaction (approved by the Board of Directors of OAO RAO “UES of Russia” between the Company and its SDCs along the lines described in the on 21 April 2006 (Board minutes No. 220) Regulation on the Audit Committee under the Board of Directors document, such as corporate planning, organization and control of RAO “UES of Russia” The Regulation establishes the Committee functions, status, over corporate actions when SDCs’ management bo-dies are to (approved by the Board of Directors of RAO “UES of Russia” and the procedure for its activities. consider issues which require, under the Charter of RAO “UES on 14 December 2005 (Board minutes No. 210) of Russia”, to determine the Company’s stance on the issue.

*these documents are fully disclosed on the website of RAO “UES of Russia” in the Section “About the Company” > “Disclosure of Documents” 174 APPENDIX 8 2 0 0 6 ANNUAL REPORT OF RAO “UES OF RUSSIA” 175

Major Corporate Events in 2006* RAO “UES of Russia” and the Ministry of Foreign Affairs of The Board of Directors of RAO “UES of Russia” approves Russia sign an Agreement on Cooperation. the sale of the Company’s 47.36% stake in OAO “Yaroslavl Retail Company” through a public auction. 31 March OAO “TGC-5” completes its reorganization, after 28 April OAO “Vyatskaya Electricity and Heat Company”, OAO RAO “UES of Russia” is named a Laureate of IT OAO “Mari Regional Generation Company”, OAO “Udmurt Leader Awards 2006 in the category “Outstanding Contri- Territorial Generation Company”, and OAO “Chuvash bution to IT Development in Russia”. Generation Company” merge with and into OAO “TGC-5”. OAO “TGC-5” is the first generation company to have The FSFM of Russia registers new share issues completed the interregional consolidation. of OAO “TGC-9”. 1 January OAO “Yuzhnoe Yakutskenergo”, the subsidiary established The Board of Directors approves the Investment OAO “Volzhskaya Territorial Generation Company” as a result of spin-off of the Southern energy area Programme of RAO “UES of Russia” for 2007. 5 May (OAO “TGC-7”) starts operations. of OAO “Yakutskenergo”, completes its official registration. OAO “TGC-6” completes its reorganization, after the ad- This step is part of the process to restructure the energy 1 April ditional shares in OAO “TGC-6” are exchanged for shares The generation companies established in the course of systems in the Far East of Russia. Official registration is granted to OAO “Samara Territorial in OAO “Nizhny Novgorod Generation Company”, the energy sector reform start selling electricity on the Generation Company”, OAO “Samara Distribution Com- OAO “Ivanovo Generation Company”, OAO “Penza Genera- wholesale market. The companies are granted the status 26 February pany” and OAO “Samara Trunk Company”, the companies tion Company”, OAO “Vladimir Generation Company”, of direct participants of the wholesale market. The Board of Directors of RAO “UES of Russia” unani- spun off from the regional energo, OAO “Samaraenergo”. and OAO “Mordovia Heat Network Company”. mously approves the Supplement “Generation Companies 13 January of the Wholesale Electricity Market” to the Company’s 3 April 12 May RAO “UES of Russia” and OAO “Russian Railways” enter Strategy Concept for Years 2003-2008 “5+5. OAO “WGC-5” completes its reorganization through merger The FSFM of Russia registers the new share issues into an agreement on interaction and coordination of of OAO “Konakovskaya TPP” and OAO “Nevinnomysskaya of OAO “TGC-8”. information exchange to prevent and eliminate emergen- 1 March TPP” with and into WGC-5”. cies which cause power supply disruption to the railway The Global Finance Magazine releases its ranking of the 20 May infrastructure. “Best Companies in Russia”, naming RAO “UES of Russia” OAO “WGC-3” completes its reorganization through merger The first MW power unit with a capacity of 180 MW the country’s best electricity company for the year 2005. of OAO “Kostromskaya TPPK”, OAO “Cherepetskaya TPP”, of electricity and 260 Gcal/h of heat is brought on line 27 January OAO “Pechorskaya TPP”, OAO “Yuzhnouralskaya TPP”, at the Pravoberezhnaya CHPP in Saint Petersburg. RAO “UES of Russia” and Germany’s Association of the 2 March OAO “Kharanorskaya TPP”, and OAO “Gusinoozerskaya Electrical Engineering and Electronics Industry sign a RAO “UES of Russia” and Hungary’s MVM sign TPP” with and into WGC-3. 25 May Memorandum of Understanding on cooperation in develop- a Memorandum of Cooperation. RAO “UES of Russia” and the Moscow City Government ing supplies of advanced electric and electronic equipment. Official registration is granted to OAO “Saratov Territorial sign an Agreement on Cooperation in implementing top 15 March Generation Company”, OAO “Saratov Distribution Com- priority measures to construct and modernize electric 1 February RAO “UES of Russia” and the Russian Academy of Sci- pany” and OAO “Samara Trunk Company”, spun off from power facilities in the city of Moscow. OAO “Kalmenergosbyt”, a spin-off of OAO “Kalmenergo”, ences sign a Cooperation Agreement, which covers joint OAO “Saratovenergo”, and to OAO “Ulyanovsk Territorial starts operations. actions by RAO “UES of Russia” and the Academy to create Generation Company”, OAO “Ulyanovsk Distribution Com- 26 May the scientific and technological groundwork for the deve- pany”, spun off from OAO “Ulyanovskenergo”. The Board of Directors of RAO “UES of Russia” approves 3 February lopment of the Unified Energy System of Russia. the resolution to complete the establishment of the final The Board of Directors of RAO “UES of Russia” unani- 5 April corporate structure of OAO “TGC-1” through the merger mously approves the Supplement “Territorial Generation Simulation trading is launched on the wholesale electricity mar- The Grozny 330 kV substation becomes operational of OAO “Petersburg Generation Company”, OAO “Kolskaya Companies to be Established on the Basis of the Assets ket using a new trading model. It attracts over 150 participants, in the Republic of Chechnya. Generation Company”, OAO “Karelenergogeneratsiya”, and of RAO UES Holding Company” to the Company’s Strategy including about 100 subsidiaries of RAO “UES of Russia”. OAO “Apatitskaya CHPP” with OAO “TGC-1”; and later on, Concept for Years 2003-2008 “5+5”. 18 April transfer of shares in OAO “Murmanskaya CHPP” as pay- 21 March RAO “UES of Russia” and OAO “UES SO-CDA” approve ment for additional shares in TGC-1. 9 February RAO “UES of Russia” and China’s State Power Grid Corp. the List of five project sites for the construction of energy WGC-3 shares are admitted to trading on the trading sign Agreement on Feasibility Study for Sales of Russian facilities under the Guaranteed Investment Mechanism. The Board of Directors approves the merger of floors of NP “RTS Stock Exchange” and OAO “RTS Stock Electricity to China. OAO “TGC-10” and OAO “Chelyabinsk Generation Com- Exchange”. 21 April pany” with and into OAO “Tyumen Regional Generation 29 March The Board of Directors of RAO “UES of Russia” approves the Company”, which is subsequently renamed OAO “TGC-10”. 14 February RAO “UES of Russia” approves the List of 19 top priority merger of two regional generation companies – OAO “Omsk OAO “WGC-3” shares start trading on the trading floor sites for generation projects to go on line across the Generation Company” and OAO “Tomskenergo” – with and The Board of Directors approves the revised Corporate of ZAO “MICEX Stock Exchange. Unified Energy System of Russia. into OAO “TGC-11”. Governance Code of RAO “UES of Russia”. 176 APPENDIX 8 2 0 0 6 ANNUAL REPORT OF RAO “UES OF RUSSIA” 177

5 June OAO “Shaturskaya TPP-5”, OAO “Yaivinskaya TPP”, and 20 July 10 August OAO “WGC-2” and OAO “WGC-6” complete the exchange of OAO “Surgutskaya TPP-2” merge with and into WGC-4. Shares of OAO “ WGC-2”, OAO “TGC-5”, The FSFM of Russia registers the share placement reports their additional shares for shares in the AO-power plants and OAO “TGC-6” start trading on the trading floor filed by OAO “TGC-2”. held by RAO “UES of Russia” and minority shareholders. 6 July of NP “RTS Stock Exchange”. RAO “UES of Russia” holds a public auction to sell its 15 August 8 June 47.36 percent stake in OAO “Yaroslavl Retail Company”. Shares of OAO “WGC-5” start trading on the trading floor Shares of OAO “ WGC-6” and OAO “SGC TGC-8” start tra- The MICEX Stock Exchange names RAO “UES of Russia” of ZAO “MICEX Stock Exchange”. ding on the trading floors of NP “RTS Stock Exchange” the Best Stock Issuer. Official registration is granted to OAO “Altayenergosbyt” and OAO “RTS Stock Exchange”. spun off from OAO “Altayenergo”. The FSFM of Russia registers share placement reports 13 June of OAO “WGC-4”. Shares of OAO “WGC-4” start trading on the trading floor RAO “UES of Russia” and the Italian electricity company 7 July of OAO “RTS Stock Exchange”. ENEL sign a Memorandum of Cooperation. Shares in OAO “WGC-3” are included in the MICEX Quota- 27 July tion List “B”. The St.-Petersburg Government and RAO “UES of Rus- 24 August 23 June sia” sign an Agreement on carrying out priority measures Share issues of OAO “WGC-6” are registered with the The Board of Directors of RAO “UES of Russia” approves 11 July to build and modernize the electric power facilities in the FSFM of Russia. a list of pilot projects to issue WGC and TGC additional Shares of OAO “WGC-5” are included in the Quotation List Leningrad Energy System. shares intended to raise funds needed for the development “B” of NP “RTS Stock Exchange”. 29 August of thermal generation facilities. The list includes 28 July Additional shares of OAO “Southern Generation Company OAO “WGC-3”, OAO “WGC-4”, OAO “WGC-5”, OAO “Mosen- 12 July The Board of Directors approves the new share issue - TGC-8” start trading on the trading floor of ZAO “MICEX ergo”, and OAO “TGC-9”. Shares of OAO “TGC-6” start trading on the trading floor of OAO “WGC-5” in order to raise funds needed to develop Stock Exchange”. of ZAO “MICEX Stock Exchange”. the thermal generation. The Board of Directors of RAO “UES of Russia” approves 30 August the measures to complete the establishment of OAO Shares of OAO “TGC-4” are included in the Schedule The Board of Directors approves the final phase of estab- The 500 kV “Zvezda” substation is put into operation “TGC-14”, which comprises the generating assets of OAO of non-listed securities of ZAO “MICEX Stock Exchange”. lishment of OAO “Southern Generation Company TGC-8”, in the Kostroma Region. “Buryatgeneratsiya” and OAO “Chita Generation Company”. which envisages the merger of OAO “Kuban Generation 14 July Company” with and into OAO “SGC TGC-8”. The Board of Directors of OAO RAO “UES of Russia” The Board of Directors approves the revised Regulation on Shares of OAO “WGC-4” are included in the Schedule approves the restructuring plan for OAO “Tyvaenergo” Information Policy of RAO “UES of Russia”. of non-listed securities of OAO “RTS Stock Exchange”. 31 July according to the scenario different from the basic one. The Office of the Presidential Plenipotentiary in the Urals 28 June 17 July Federal District, the Tyumen Region Administration and The Board of Directors approves the new share issues RAO “UES of Russia” holds its Annual General Meeting. Official registration is granted to OAO “Energy Industry Sci- Administration of the and Yamalo-Nenets Autonomous Ok- by OAO “WGC-3”, OAO “WGC-4”, and OAO “TGC-9” to raise The shareholders approve the Annual Report, declare ence and Technology Center”. The company is established rug-Yugra, Administration of the Yamalo-Nenets Autono- funds needed to develop thermal generation. dividends, elect members of the Board of Directors, the as a result of consolidation of the following leading scien- mous Okrug, RAO “UES of Russia” sign an Agreement on Auditing Commission, and the Company Auditors, the tific, research and development institutes of the electricity carrying out priority measures to build and modernize the 1 September acquisition of additional shares in OAO “HydroWGC” and industry, OAO “VNIIE”, OAO “NIC VVA”, OAO “ROSEP”, and electric power facilities in the Tyumen Energy System. Pursuant to the Resolution of the Government of the OAO “UES FGC”, adopt amendments and additions to the OAO “SibNIIE”. Russian Federation of 31 August 2006, the new liberal- Company Charter and other bylaws. 2 August ized model for the wholesale and retail electricity markets Shares of OAO “ WGC-2”, OAO “TGC-5”, New shares of OAO “WGC-4” start trading on the trading (NWREM) is launched. 29 June and OAO “TGC-6” start trading on the trading floor floor of ZAO “MICEX Stock Exchange”. RAO UES subsidiaries OAO “Belgorodenergo” and OAO “Cor- of OAO “RTS Stock Exchange”. Official registration is granted to four transmission (trunk porate Service Systems” are the first Russian energy com- 3 August grid) companies, OAO “Kuban Transmission Grids”, panies to have obtained Certificates of Conformity of their 19 July The Russian Government approves the Investment OAO “Khabarovsk Transmission Grid Company”, Quality Management Systems to GOST R ISO 9001-2001 RAO “UES of Russia” holds a public auction to sell its Programme 2007 of OAO RAO “UES of Russia”. OAO “Yakutskaya Transmission Grid Company”, standard and international ISO 9001:2000 standard. 100% percent stake in OAO “Taymyrenergo”. and OAO “Amurskaya Transmission Grid Company”. 4 August 1 July Shares of OAO “WGC-5” start trading on the trading floor Official registration is granted to OAO “Southern Grid 5 September 13 new companies spun off from OAO “Komienergo”, of OAO “RTS Stock Exchange”. Company”. Official registration is granted to OAO “Primorskaya Trunk OAO “Kubanenergo”, OAO “Kuzbassenergo”, and Grid Company” spun off from OAO “Dalenergo”. OAO “Kurganenergo” register with the state authorities. Shares of OAO “WGC-5” start trading on the trading floor 7 August of ZAO “MICEX Stock Exchange”. RAO UES Management Board approves the RAO UES enti- 15 September OAO “WGC-4” completes reorganization after ties’ Investment Programme for 2006-2010. OAO “TGC-4” completes consolidation of its subsidiar- OAO “Bere-zovskaya TPP”, OAO “Smolenskaya TPP”, ies—OAO “Bryansk Generation Company”, OAO “Voronezh 178 APPENDIX 8 2 0 0 6 ANNUAL REPORT OF RAO “UES OF RUSSIA” 179

Generation Company”, OAO “Kaluga Generation Company”, 1 October 1 November 12 December OAO “Kursk Generation Company”, OAO “Lipetsk Genera- OAO “Altayenergosbyt”, the retail spin off of OAO “Altayen- The reorganization of OAO “TGC-1” is completed after the The 750 kV “Bely Rast” substation is put into operation in tion Company”, OAO “Oryol Generation Company”, ergo”, starts operations. merger of OAO “Petersburg Generation Company”, OAO “Kol- the Moscow Region. OAO “Priokskaya Territorial Generation Company”, skaya Generation Company”, OAO “Karelenergogeneratsiya”, OAO “Ryazan Heat Supply Company”, OAO “Smolensk 5 October and OAO “Apatitskaya CHPP” with and into OAO “TGC-1”. Chairman of the Management Board of RAO “UES of Rus- Generation Company”, OAO “Tambov Generation RAO “UES of Russia” and the European electricity and heat sia” Anatoly Chubais is named the winner of the Russian Company”, and OAO “Heat Energy Company”. generator “VGB PowerTech. e.V.” sign a Memorandum on 15 November Corporate Governance Leaders Awards in the category Cooperation in developing the market of bilateral contracts Shares of OAO “TGC-5” are included in the Quotation List “Best Corporate Manager” for the third year running. Shares of OAO “ TGC-9” start trading on the trading floor of to supply products, services and technologies. “B” of NP “RTS Stock Exchange”. NP “RTS Stock Exchange” and OAO “RTS Stock Exchange”. 14 December 12 October 20 November The Sverdlovsk Region Administration and RAO “UES of 22 September RAO “UES of Russia”, the Delovaya Rossiya Entrepreneur- The Moscow Region Administration and RAO “UES of Russia” sign an Agreement on Cooperation in implement- The first 146 MW power unit comes on line at the Irganays- ial Association (“Business Russia”) and OPORA Rossii Russia” sign an Agreement on cooperation in implementing capital investment projects to build and refurbish kaya HPP (Dagestan). Association sign an Agreement on Joint Action to Address ing capital investment projects to build and refurbish the electric power facilities in the region’s energy system Key Issues in the Electricity Sector. electric power facilities in the Moscow Region. for the period until 2011. 29 September The Board of Directors of RAO “UES of Russia” approved the 18 October 23 November 16 December “second tier” of projects to place additional shares in WGCs Shares of OAO “TGC-2” start trading on the trading floor RAO “UES of Russia” and Finland’s Fortum sign a Memo- Phase 3 of the Zelenchukskaya HPP is put into operation and TGCs in order to raise investments for the development of OAO “RTS Stock Exchange”. randum of Understanding on the implementation of the in the Karachay-Cherkessia Republic. of thermal generation facilities. The list of projects includes: Kyoto Protocol mechanisms in Russia. OAO “WGC-1”, OAO “WGC-2”, OAO “WGC-6”, OAO “TGC-1”, 24 October 18 December OAO “TGC-4”,OAO “TGC-5”, OAO “Volzhskaya TGC” (“TGC-7”), The Kamchatka Region Administration, RAO “UES of Rus- 29 November Unit 4 of the Khabarovskaya CHPP-3 comes on line. OAO “Southern Generation Company TGC-8”, OAO “TGC-10”, sia”, and OAO “FEEMC” sign an Agreement on cooperation The second generating unit of 450 MW is commissioned OAO “Kuzbassenergo” (“TGC-12”), and OAO “TGC-14”. in the development of the region’s electricity sector and at the Severo-Zapadnaya CHPP in Saint Petersburg. 25 December reducing its dependence on external fuel supplies. Power unit 2 is put into operation at the Chelyabinskaya The Bard of Directors approves the new share issue by Shares of OAO “WGC-4” are included in the Quotation List CHPP-3. OAO “Mosenergo” (TGC-3) to raise funds needed to develop 25 October “B” of NP “RTS Stock Exchange”. the thermal generation. The FSFM of Russia registers the share issues of OAO “Ty- The Chelyabinsk Region Administration and RAO “UES of vaenergosbyt”, the retail spin-off of OAO “Tyvaenergo”. 30 November Russia” sign an Agreement on Cooperation in implement- The Board of Directors approves the procedure for the re- RAO “UES of Russia” is awarded a Medal and Diploma of ing capital investment projects to build and refurbish the organization of OAO “TGC-9” through merger of OAO “Komi 27 October the International Exhibition and Congress “Energy Saving electric power facilities in the region’s energy system for Regional Generation Company” with and into TGC-9. The Board of Directors of RAO “UES of Russia” introduces 2006” “For environmental policy, innovation approach to the period until 2011. a lock-up period of 180 days after the new share offering the creation of the regulatory framework and the infra- OAO “WGC-1” completes its reorganization through of OAO “WGC-5” for the sale of the 25% plus one share in structure needed to implement an environmental manage- 26 December merger of its subsidiaries OAO “Nizhnevartovskaya TPP”, OAO “WGC-5” held by RAO “UES of Russia”. ment and environmental audit system”. The FSFM of Russia registers the new share issue OAO “Urengoiskaya TPP”, OAO “Iriklinskaya TPP”, of OAO “WGC-3”. OAO “Kirishskaya TPP”, and OAO “Permskaya TPP”. The Board approves the merger of OAO “Nizhny Novgorod 6 December Generation Company”, OAO “Penza Generation Company”, The Extraordinary General Meeting of shareholders of 27 December OAO “WGC-2” completes its reorganization through merger OAO “Mordovia Generation Company”, OAO “Mordovia Heat RAO “UES of Russia” approves the spin-off of OAO “WGC-5” The Nizhny Novgorod Region Administration and RAO “UES of OAO “Pskovskaya TPP”, OAO “Serovskaya TPP”, Network Company”, OAO “Ivanovo Generation Company”, and OAO “TGC-5” from RAO “UES of Russia” in the course of Russia” sign an Agreement on Cooperation in imple- OAO “Stavropolskaya TPP”, OAO “Surgutskaya TPP-1”, and OAO “Vladimir Generation Company with and into of the first phase of the Company’s reorganization. menting capital investment projects to build and refurbish and OAO “Troitskaya TPP” with and into OAO “WGC-2”. OAO “TGC-6”, which will bring the process to establish the the electric power facilities in the region’s energy system TGC-6 target structure to completion. 8 December for the period until 2012. OAO “WGC-6” completes reorganization through merger of The Board of Directors of RAO “UES of Russia” approves its subsidiaries OAO “TPP-24” (GRES-24), OAO “Kirishska- 30 October the revised Programme for the preparation and issuance Shares of OAO “TGC-1” start trading on the trading floor ya TPP”, OAO “Ryazanskaya TPP”, OAO “Novocherkasskaya RAO “UES of Russia” and Germany’s Association of the of additional shares in OAO “TGC-5” intended to raise of OAO “RTS Stock Exchange”. TPP”, OAO “Krasnoyarskaya TPP-2”, OAO “Cherepovets- Electrical Engineering and Electronics Industry (ZVEI) sign funds to finance the development of thermal generation. kaya TPP” with and into OAO “WGC-6”. a Memorandum on Cooperation in developing the market of bilateral supplies, standardization, and certification The Board of Directors of RAO “UES of Russia” approves OAO “TGC-14” completes establishment of its final corpo- of energy equipment. the final phase of establishment of OAO “SGC TGC-8” rate structure after the merger of its subsidiaries, through the merger of OAO “Kuban Generation Company” *all company news and corporate events can be found OAO “Buryatgeneratsiya” and OAO “Chita Generation with and into OAO “SGC TGC-8”. at RAO ”UES of Russia” web-site in the section ”Company News” Company”. 180 APPENDIX 9 2 0 0 6 ANNUAL REPORT OF RAO “UES OF RUSSIA” 181

Glossary

ABBREVIATIONS ABBREVIATIONS

ATS Non-Profit Partnership “Administrator of the Trading System of the UES Wholesale Electricity Market” (NP “ATS”) OAO “UES SO-CDA” OAO “System Operator-Central Dispatch Administration of the Unified Energy System”

AWP Autumn-winter period ord. Ordinary shares

CCGT Combined-cycle gas turbine PTL Power transmission line

CHPP Combined heat and power plant pref. Preferred shares

FTS Russian Federation Federal Tariffs Service RDA Regional Dispatch Administration

GC Regional Grid Company REC Regional Energy Commission

GeoTPP Geothermal power plant Regional Energo Open joint-stock regional power and electrification company

GTU (GTPP) Gas turbine unit (gas-turbine power plant) RGC Regional Generation Company

HPP Hydroelectric power plant SDCs Subsidiaries and Dependent Companies of OAO RAO “UES of Russia”

HV line High-voltage transmission line STC Science and Technology Center

IDA Integrated Dispatch Administration TC Transmission (trunk grid) company

IDC Interregional Distribution Company TGC Territorial Generation Company

IES Integrated Energy System TPP Thermal power plant

IGM Investment Guarantee Mechanism UES of Russia Unified Energy System of Russia

ITC Interregional Transmission Company WEM Wholesale Electricity Market

KPI Key performance indicators WEM FTS Competitive (free trading) segment of the Wholesale Electricity Market

NP Not-for-profit Partnership WEM RS Regulated segment of the Wholesale Electricity Market

NPP Nuclear power plant WGC Wholesale Generation Company

OAO “FGC” OAO “Federal Grid Company of the Unified Energy System” 182 APPENDIX 9 2 0 0 6 ANNUAL REPORT OF RAO “UES OF RUSSIA” 183

TERMS TERMS

Retail Heat Market The marketplace for heat (heat capacity) bringing together energy retailers and consumers. Backbone transmission lines A power transmission line with the highest voltage which ensures the required reliability and robustness of the energy system as a whole Subscription fee The fee charged for the services relating to the operation and development of the Unified Energy System of Russia Balancing market Segment of the wholesale electricity market where deviations between the actual and scheduled electricity demand/supply are traded. Target structure of the electricity The corporate structure of the electricity industry upon completion of key restructuring (i.e. cre- industry ation of all companies and their separation from OAO RAO “UES of Russia”, including measures Completion of reorganization A company is deemed to be reorganized upon state registration of the newly established legal to guarantee direct ownership of RAO UES shareholders in spin-off companies, increasing the entities (except for reorganization through merger). If a company merges with another company, state’s interest in OAO “UES FGC” and OAO “UES SO-CDA” to meet the requirements of the the former is deemed reorganized with effect from the date on which an entry is made Russian law, reduction of the state’s interest in generation companies (except for hydroppower in the Unified State Register of Legal Entities regarding termination of the merged company. and nuclear power plants), and ensuring that most generation companies are independent of each other. Cross-subsidization, cross-subsidies Setting energy tariffs (rates) below the economically efficient level for one group of consumers (subsidized consumers) owing to higher tariffs (rates) set for other consumer groups (subsidiz- Territorial Generation Company, TGC An open joint-stock company being established in the course of interregional integration of ing consumers). regional energos’ generating assets (regional generation companies), except for the generating assets to be transferred to WGCs. Deviations segment A system of relationships among wholesale market participants relating to electricity trading within the range of deviations in actual hourly generation/consumption of electricity from the Transmission (trunk grid) company, TC An open joint-stock company established as a result of a reorganization of a regional energo planned hourly generation/ consumption. involving the transfer of the regional energo’s power grid facilities related to the Unified National (All-Russia) Energy Grid. Distribution Company, DC An open joint-stock company established as a result of regional energos’ restructuring on the basis of power grid assets which do not belong to the Unified National (All-Russia) Energy Grid. Unified Energy System of Russia, UES All generation facilities and other property relating to generation (including co-generation of Russia of electricity and heat) and transmission of electricity in an environment of centralized Energy R&M/services company An enterprise whose core business is providing research and development services, repairs dispatching. and maintenance of equipment, buildings and structures used in the generation, transmission, dispatching, distribution, and retailing of electricity and heat. Unified National (All-Russia) Energy The system of power grids and other grid infrastructure facilities owned or otherwise held Free trading segment A segment of the wholesale market where part of electricity is traded at free (unregulated) Grid, UNEG (as provided by the applicable Russian laws) by electricity industry entities and ensuring reliable prices through bilateral purchase/sale contracts and through selection of price offers submitted power to customers, supporting the operation of the wholesale electricity market, and synchro- by buyers and sellers. nous operation of Russia’s energy system with those of other countries

Interregional Company A company to be created through consolidation of grid or generation companies established Wholesale Generation Company, WGC The generation company created on the basis of power plants pursuant to the Guidelines in the course of the electricity industry reform in the Russian Federation after the regional for Reforming the Electric Power Industry adopted by Resolution of the Russian Federation energos’ restructuring. Government No. 526 of 11 July 2001, Order of the Russian Federation Government No. 1254-r of 01 September 2003 (as amended by Order of the Russian Federation Government No. 367-r of 25 October 2004) Interregional Distribution Company, IDC An open joint-stock company to be created on a territorial basis to manage DCs.

Interregional Transmission Company, An open joint-stock company established pursuant to Order of the Russian Federation Govern- Wholesale Electricity (Capacity) Market, The marketplace for a special commodity, i.e. electricity (capacity), within the Unified Energy ITC ment No. 1939-r of 29 December 2003 and Resolution of the Board of Directors WECM System of Russia, which is part of Russia’s common economic space. The market participants of OAO RAO “UES of Russia” (Minute No. 125 dated 15 August 2002). are large electricity generators and customers that have the status of wholesale market participants. Market participants operate under the Wholesale Market Rules adopted by the Russian Federation Government pursuant to the Federal Law “On Electric Power Industry”. Price translation Settlement of retail electricity market trades at unregulated prices determined based The eligibility criteria for including electricity generators and consumers to the category of on the existing wholesale electricity prices. major generators or major consumers are set by the Government of the Russian Federation.

Regional Generation Company, RGC An open joint-stock company established as a result of a regional energo’s restructuring on the basis of generating assets not transferred to TGCs

Regulated sector of the wholesale A segment of the wholesale market where part of electricity and capacity is traded based at the electricity (capacity) market rates set by the federal authority for regulation of natural monopolies according to the Federal Law “On State Regulation of Electricity and Heat Tariffs in the Russian Federation” 184 APPENDIX 9 2 0 0 6 ANNUAL REPORT OF RAO “UES OF RUSSIA” 185

Contact Info

EDITORIAL ASSUMPTIONS IN THE ANNUAL REPORT Russian Power and Electrification Registrar: Open Joint-Stock Company “UES TERM Possible wording ZAO “STATUS Registration Company” of Russia” (RAO “UES of Russia”): Address: 109544, Moscow, ul. Dobrovolcheskaya 1/64 SDCs of OAO RAO “UES of Russia” SDCs of RAO “UES of Russia” Legal Address: 119526 Moscow, Tel.: +7 (495) 974-83-50, (495) 632-72-56 Energy entities of the Holding Company prospekt Verdnadskogo 101, bldg. 3 Holding Company’s enterprises www.rostatus.ru Undertakings of the Holding Company Mailing Address: 119526 Moscow, Subsidiaries of RAO “UES of Russia” prospekt Verdnadskogo 101, bldg. 3 www.rao-ees.ru Registrar Branches: Management Board of RAO “UES of Russia” Management Board of RAO “UES of Russia” Corporate Governance and Voronezh Branch: Oryol Branch: Board of Directors of OAO RAO “UES of Russia” Board of Directors of RAO “UES of Russia” Shareholder Relations Department Voronezh, ul. Feoktistova 6 Oryol, ul. Oktyabrskaya 35, Office 613 of the Corporate Center, RAO “UES of Tel.: +7 (4732) 53-13-54 tel.: +7 (4862) 47-57-70 Charter of OAO RAO “UES of Russia” Charter of RAO “UES of Russia”, Charter Russia”: Magnitogorsk Branch: Krasnodar Branch: OAO RAO “UES of Russia” Parent Company Shareholder Hotline Magnitogorsk, ul. Zavenyagina 9 Krasnodar, ul. Krasnoarmeyskaya 30/1, Company Mon-Fri, 13:00-16:00 Head Company Office 902 Tel.:+7 (495) 620-16-09 Tel.: +7 (3519) 25-60-22 Tel.: +7 (861) 274-88-85 e-mail: [email protected] Samara Branch: Kaluga Branch: COMPANY AUDITORS: Samara, ul. Galaktionovskaya 132, Kaluga, ul. Saltykova-Shchedrina 23, bldg. 412 ZAO “PricewaterhouseCoopers Audit” Office 3 Tel.: +7 (846) 332-41-77 Address: 115054 Moscow, Tel.: +7 (484) 256-43-06 UNITS OF MEASUREMENT Kosmodamianskaya naberezhnaya 52, Alekseyevka Branch: St. Petersburg Branch: Gcal Gigacalorie Unit of heat energy bldg. 5 Belgorod Region, Alekseyevka, ul. St. Petersburg, Vasilyevsky Island, Tel. +7 (495) 967-60-00 Frunze 2a Gcal/h Gigacalorie/hour Unit of heat power 4-liniya, 13, Liter A, Room 4-N FAX: +7 (495) 967-60-01 Tel.: +7 (47234) 3-25-18 Tel.: +7 (812) 703-56-63 www.pwc.com Hz Hertz Unit of frequency of the alternating electric Kemerovo Branch: current Kemerovo, pr. Sovetsky 27, Office 405 Depositary Banks: kV Kilovolt Unit of electric potential Tel.: +7 (3842) 49-60-64 Deutsche Bank Trust Company kVA Kilovolt-Ampere Unit of electrical load used in power Americas (ADR) engineering. 4 Albany Street, New York, USA www.db.com kWh Kilowatt-hour Unit of measurement of electric energy generated Bank of New York (GDR) 620 Avenue of the Americas, kW kilowatt Unit of electric power New York, 10011 www.bankofny.com MW megawatt Unit of electric power

t/h tonnes per hour Unit of steam output

tce Tonne of coal equivalent 186 APPENDIX 10 2 0 0 6 ANNUAL REPORT OF RAO “UES OF RUSSIA” 187

CONSTITUENT ADDRESS POSTAL ENTITY LIST OF SBERBANK BRANCHES ACTING AS RE-REGISTRATION BRANCH NAME CODE OF RUSSIA CITY/TOWN STREET NAME TELEPHONE NUMBER Cheremkhovo Branch of Sberbank 665413 Irkutsk Region Cheremkhovo ul. Nekrasova, 17 +7(39546) 5-24-94 AGENTS FOR SHARES OF OAO RAO “UES OF RUSSIA” No.2423

As a measure to provide ownership registration services to the shareholders in OAO RAO “UES of Russia” residing Ust-Kut Branch of Sberbank No.2425 665780 Irkutsk Region Ust-Kut ul. Kirova, 21A +7(39565) 5-19-28 in different regions of the Russian Federation, the Company’s Registrar, ZAO “STATUS Registration Company”, entered into ul. Parizhskoy Kom- Slyudyanka Branch of Sberbank No.2444 665900 Irkutsk Region Slyudyanka +7(39544) 5-16-43 a re-registration agency agreement with the Savings Bank of Russia (Sberbank). Under the agreement, over 300 Sberbank muny, 7 branches will act as drop agents to take instructions on behalf of the Registrar for entries to be made on the share register Angarskoe Branch of Sberbank No.7690 665835 Irkutsk Region Angarsk Mikrorayon 7, 25 +7(3951) 50-45-19 of OAO RAO “UES of Russia”. You may contact the Sberbank Branches listed below for all matters relating to re-registrations of securities and obtaining Ust-Ilimsk Branch of Sberbank No.7966 666686 Irkutsk Region Ust-Ilimsk prospekt Mira, 70 +7(39535) 9-00-14 account statements and extracts from the share register. Shelekhov Branch of Sberbank No.7990 666020 Irkutsk Region Shelekhov Kvartal 8, 16 +7(39510) 4-00-76 CONSTITUENT ADDRESS ul. Dekabrskikh POSTAL ENTITY City Branch of Sberbank No.8586 664007 Irkutsk Region Irkutsk +7(3952) 25-76-65 BRANCH NAME CODE OF RUSSIA CITY/TOWN STREET NUMBER TELEPHONE NUMBER Sobyty, 23A

Komsomolsky pros- Zakamensk Branch of Sberbank No.2433 671930 Burya Republic Zakamensk ul. Lenina, 25 +7(30137) 4-50-91 Altay Head Office of Sberbank 656038 Altay Kray Barnaul +7(3852) 39-94-90 pekt, 106A Selenginskoe Branch of Sberbank 671280 Burya Republic Gusinoozersk ul. Klyuchevskaya, 26 +7(30145) 4-59-24 Tsentralno-Chernozemny Head Office Voronezh No.2434 394006 Voronezh ul. 9-Yanvarya, 28 +7(4732) 72-72-57 of Sberbank Region Buryat Branch of Sberbank No.8601 670031 Burya Republic Ulan-Ude ul. Tereshkovoy, 3B +7(3012) 28-50-44 Belgorod Belgorod Branch No.8592 308600 Belgorod prospekt Lenina, 52 +7(4722) 32-69-39 Region Kyakhta Branch of Sberbank No.2439 671830 Burya Republic Kyakhta ul. Lenina, 52 +7(30142) 9-21-78

Lipetsk Branch No.8593 398600 Lipetsk Region Lipetsk ul. Pervomayskaya, 2 +7(4742) 42-17-10 Buryat Branch of Sberbank No.8601 670031 Burya Republic Ulan-Ude ul. Tereshkovoy, 3B +7(3012) 28-50-44

Tambov Branch No.8594 392036 Tambov Region Tambov ul. K. Marksa, 130 +7(4752) 79-05-34 Nerchinsk Branch of Sberbank No.4171 673400 Chita Region Nerchinsk ul. Sovetskaya, 26 +7(30242) 4-11-99

Oryol Branch No.8595 302028 Oryol Region Oryol ul. Brestskaya, 8 +7(4862) 77-72-63 Chernyshevsk Branch of Sberbank Cherny- 673460 Chita Region ul. Tsentralnaya, 23 +7(30265) 2-23-73 No.4175 shevsk Kursk Branch No.8596 305004 Kursk Region Kursk ul. Lenina, 67 +7(4712) 55-77-29 Borzya Branch of Sberbank No.4178 674600 Chita Region Borzya ul. Pushkina, 17 +7(30233) 3-16-53 Sverdlovsk Urals Head Office of Sberbank 620014 Ekaterinburg ul. Moskovskaya, 11 +7(3432) 69-52-04 ul. Imeni Poliny Region Chita Branch of Sberbank No.8600 672010 Chita Region Chita +7(3022) 33-60-29 Osipenko, 40 Chelyabinsk Chelyabinsk Branch of Sberbank No.8597 454048 Chelyabinsk ul. Entuziastov, 9A +7(3512) 67-14-23 Region Shilka Branch of Sberbank No.4181 673370 Chita Region Shilka ul. Lenina, 31 +7(30244) 2-25-69

Bashkortostan Petrovsk-Zabaykalsky Branch of Sber- Petrovsk- Bashkir Branch of Sberbank No.8598 450059 Ufa ul. Richarda Zorge, 5 +7(3472) 24-65-45 673005 Chita Region ul. Sportivnaya, 25 +7(30236) 2-15-70 Republic bank No.4190 Zabaykalsky

Kurgan Branch of Sberbank No.8599 640022 Kurgan Region Kurgan ul. Gogolya, 98 +7(3522) 48-96-88 Baley Branch of Sberbank No.4219 673450 Chita Region Baley ul. Sovetskaya, 42 +7(30232) 5-16-38

Krasnokamensk Branch of Sberbank Krasnoka- Baykal Head Office of Sberbank 664047 Irkutsk Region Irkutsk ul. Deputatskaya, 32 +7(3952) 25-41-57 674670 Chita Region prospekt Stroiteley +7(30245) 2-86-80 No.8005 mensk ul. Kommunistiche- Kirensk Branch of Sberbank No.687 666710 Irkutsk Region Kirensk +7(39568) 2-16-08 skaya, 2 Khilok Branch of Sberbank No.8091 673200 Chita Region Khilok ul. Lenina, 10 +7(30237) 2-16-60

Nizhneudinsk Branch of Sberbank Krasnoyarsk prospekt 665110 Irkutsk Region Nizhneudinsk ul. Oktyabrskaya, 68 +7(39517) 7-15-14 East Siberia Head Office of Sberbank 660028 Krasnoyarsk +7(3912) 59-80-55 No.2406 Kray Svobodny, 46

Republic of Bodaybo Branch of Sberbank No.587 666904 Irkutsk Region Bodaybo ul. Uritskogo, 32 +7(3952) 25-69-51 Abakan Branch No.8602 655017 Abakan ul. Pushkina, 165 +7(39022) 5-94-11 Khakassia Tayshetsk Branch of Sberbank No.2410 665008 Irkutsk Region Tayshet ul. Gagarina, 94 +7(39563) 2-04-33 Kyzyl Branch No.8591 667000 Republic of Tyva Kyzyl ul. Kochetova, 34A +7(39422) 3-59-33

Bratsk Branch of Sberbank No.2413 665708 Irkutsk Region Bratsk ul. Lenina, 7 +7(3953) 43-48-31 Severo-Vostochny Head Office Magadan 685000 Magadan ul. Pushkina, 11/11 +7(4132) 23-08-57 of Sberbank Region Nizhne-Ilimsk Branch of Sberbank Zheleznogo- 665653 Irkutsk Region Kvartal 6, 9 +7(39566) 3-29-40 No.2419 rsk-Ilimsky Magadan Susuman Branch of Sberbank No.7249 686314 Susuman ul. Bilibina, 3 +7(245) 2-16-53 Region Tulun Branch of Sberbank No.2420 665210 Irkutsk Region Tulun ul. Lenina, 5 +7(39530) 2-29-61 Chukotka Usolye-Si- Usolskoe Branch of Sberbank No.2421 665470 Irkutsk Region ul. Ordzhonikidze, 31 +7(39543) 6-32-34 Chaunskoe Branch of Sberbank No.7253 689400 Autonomous Pevek ul. Kuvaeva, 49 +7(42737) 4-19-30 birskoe Okrug 188 APPENDIX 10 2 0 0 6 ANNUAL REPORT OF RAO “UES OF RUSSIA” 189

CONSTITUENT ADDRESS CONSTITUENT ADDRESS POSTAL ENTITY POSTAL ENTITY BRANCH NAME CODE OF RUSSIA CITY/TOWN STREET NAME TELEPHONE NUMBER BRANCH NAME CODE OF RUSSIA CITY/TOWN STREET NAME TELEPHONE NUMBER

Chukotka Smolensk ul. Polka Normandi- Mikrorayon Vostoch- Smolensk Branch of Sberbank No.8609 214025 Smolensk +7(4812) 38-12-60 Bilibino Branch of Sberbank No.7820 689450 Autonomous Bilibino +7(42738) 2-45-14 Region ya-Neman, 23 ny, 1, bldg. 4 Okrug Nizhny Novgo- Nizhny Volgo-Vyatsky Head Office of Sberbank 603005 ul. Oktyabrskaya, 35 +7(8312) 17-98-61 Chukotka rod Region Novgorod Chukotka Branch of Sberbank No.8557 689000 Autonomous Anadyr ul. Beringa, 6 +7(42722) 2-17-01 Okrug Kirov Branch of Sberbank No.8612 610000 Kirov Region Kirov ul. Derendyaeva, 25 +7(8332) 65-13-22

Sakha (Yakutia) Bank Tatarstan Branch of Sberbank Tatarstan Aldanskoe Branch of Sberbank No.1049 678900 Republic, Al- Aldan ul. Lenina, 9 +7(41145) 3-69-03 420012 Kazan ul. Butlerova, 44 +7(8432) 64-61-00 No.8610 Republic dansky Ulus

Mari El Sakha (Yakutia) Mary El Branch of Sberbank No.8614 424000 Yoshkar-Ola ul. Pushkina, 30 +7(8362) 68-42-31 Srednekolymskoe Branch of Sberbank Republic, Sred- Republic 678790 ul. Yaroslavskogo, 26 +7(41156) 4-14-91 No.5034 Srednekolymsky nekolymsk Ulus Vladimire Branch of Sberbank No.8611 600015 Vladimir Region Vladimir prospekt Lenina, 36 +7(4922) 24-06-26

Sakha (Yakutia) Republic prospekt 70 let Yakutsk Branch of Sberbank No.8603 677027 Yakutsk ul. Oktyabrskaya, 17 +7(4112) 42-08-13 Mordovia Branch of Sberbank No.8589 430033 Saransk +7(8342) 29-58-25 Republic of Mordovia Oktyabrya, 86

Sakha (Yakutia) Chuvash Chuvash Branch of Sberbank No.8613 428000 Cheboksary prospekt Moskovsky, 3 +7(8352) 42-09-69 Vilyuysk Branch of Sberbank No.5037 678200 Republic, Vilyuysk ul. Oktyabrskaya, 7 +7(41132) 4-13-70 Republic Vilyuisky Ulus Novosibirsk Sakha (Yakutia) Siberia Head Office of Sberbank 630091 Novosibirsk prospekt Krasny, 46 +7(3832) 69-84-61 Region Nyurba Branch of Sberbank No.5038 678450 Republic, Ny- Nyurba ul. Lenina, 32/2 +7(41134) 2-24-87 urbinsky Ulus Kemerovo prospekt Kemerovo Branch of Sberbank No.8615 650066 Kemerovo +7(3842) 35-17-37 Region Oktyabrsky, 53 Sakha (Yakutia) Khangalasskoe Branch of Sberbank 678000 Republic, Khan- Pokrovsk ul. Ordzhonikidze, 14 +7(41144) 4-37-87 No.5043 galassky Ulus Tomsk Branch of Sberbank No.8616 634061 Tomsk Region Tomsk prospekt Frunze, 90/1 +7(3822) 26-13-99

Sakha (Yakutia) West Urals Head Office of Sberbank 614990 Perm Region Perm ul. Ordzhonikidze, 4 +7(3422) 10-26-33 Olekminsk Branch of Sberbank No.5044 678100 Republic, Olek- Olekminsk ul. Molodezhnaya, 10 +7(41138) 4-17-87 minsky Ulus GSP-1, Komi Branch No.8617 167981 Komi Republic Syktyvkar +7(8212) 21-68-57 ul. Sovetskaya, 18 Sakha (Yakutia) Lensk ranch of Sberbank No.5045 678144 Republic, Lensk ul. Lenina, 66 +7(41137) 4-11-27 Udmurt Re- Lensky Ulus Udmurt Branch No.8618 426057 Izhevsk ul. Krasnaya, 105 +7(3412) 48-95-39 public Sakha (Yakutia) Mirny Branch of Sberbank No.7800 678170 Republic, Mirny ul. Komsomolskaya,13 +7(41136) 4-20-93 Adygei Branch of Sberbank No.8620 385011 Adygei Republic Maykop ul. Dimitrova, 4/2 +7(87725) 3-93-00 Mirninsky Ulus Rostov- Rostov Branch No.5221 344 082 Rostov Region Per. Bratsky, 41 +7(863) 267-35-52 Sakha (Yakutia) na-Donu Republic, Neryungri Branch of Sberbank No.8155 678965 Neryungri ul. K. Marksa, 9 +7(41147) 4-69-80 Neryungrinsky Rostov- South-West Head Office of Sberbank 344006 Rostov Region ul. Pushkinskaya, 116 +7(8632) 67-07-59 District na-Donu

Petropav- Kamchatskaya Millerovo Branch No.275 346130 Rostov Region Millerovo Per. Gazetny, 5A +7(215) 3-07-67 Kamchatsk Branch of Sberbank No.8556 683031 lovsk- ul. Lukashevskogo, 2 +7(4152) 11-06-50 Region Kamchatsky Salskoe Branch of Sberbank No.0625 347630 Rostov Region Salsk ul. Kirova, 5 +7(86372) 3-24-99 Kamchatskaya Ust- ul. 60 let Kamchatsk Branch of Sberbank No.4196 684415 +7(41534) 2-05-78 Region Kamchatsk Oktyabrya, 29 Taganrog Branch of Sberbank No.1548 347900 Rostov Region Taganrog ul. Petrovskaya, 74 +7(8634) 61-36-86

ul. Bolshaya Andro- Novocherkassk Branch of Sberbank Novocher- Srednerussky Head Office of Sberbank 109544 Moscow Moscow +7(495) 785-45-10 346429 Rostov Region pr. Platovsky, 59B +7(86352) 2-18-05 nyevskaya, 8 No.1799 kassk

Tula Branch of Sberbank No.8604 300000 Tula Region Tula Pl. Chelyuskintsev, 1 +7(4872) 32-88-39 Novocherkassk Branch of Sberbank 346700 Rostov Region Aksay ul. Dzerzhinskogo, 1D +7(250) 5-81-82 No.1799 Bryansk Branch of Sberbank No.8605 241011 Bryansk Region Bryansk prospekt Lenina, 10B +7(4832) 66-06-92 Kamenk- Kamensk Branch of Sberbank No.1801 347800 Rostov Region ul. Lenina, 49 +7(265) 7-38-13 Ryazan Branch of Sberbank No.8606 390000 Ryazan Region Ryazan ul. Pozhalostina, 19 +7(4912) 21-59-53 Shakhtinsky

Tver Branch of Sberbank No.8607 170000 Tver Region Tver ul. Trekhsvyatskaya, 8 +7(4822) 49-09-53 M-Kurganskoe Branch of Sberbank No.1820 346970 Rostov Region M-Kurgan ul. Pobedy, 9 +7(86341) 3-21-40

Kaluga Branch of Sberbank No.8608 248003 Kaluga Region Kaluga ul. M. Gorkogo, 63 +7(4842) 79-79-71 Zernogradskoe Branch of Sberbank No.1824 347740 Rostov Region Zernograd ul. Lenina, 2 +7(8259) 3-28-02 190 APPENDIX 10 2 0 0 6 ANNUAL REPORT OF RAO “UES OF RUSSIA” 191

CONSTITUENT ADDRESS CONSTITUENT ADDRESS POSTAL ENTITY POSTAL ENTITY BRANCH NAME CODE OF RUSSIA CITY/TOWN STREET NAME TELEPHONE NUMBER BRANCH NAME CODE OF RUSSIA CITY/TOWN STREET NAME TELEPHONE NUMBER

Morozovskoe Branch of Sberbank No.1835 347210 Rostov Region Morozovsk ul. Podtelkova, 27 +7(86314) 4-12-84 Lazarevskoe Branch of Sberbank No.1849 354217 Krasnodar Kray Lazarevskoe ul. Pavlova, 87A +7(8622) 72-16-46

Bataysk Branch of Sberbank No.5154 346880 Rostov Region Bataysk ul. Rabochaya, 77 +7(254) 2-21-59 Krymsk Branch of Sberbank No.1850 353380 Krasnodar Kray Krymsk ul. Lenina, 217 +7(86131) 4-63-88

Bataysk Branch of Sberbank No.5154/026 346780 Rostov Region Azov ul. Leningradskaya, 61 +7(242) 4-48-58 Labinsk Branch of Sberbank No.1851 352500 Krasnodar Kray Labinsk ul. Konstantinova, 86 +7(86169) 2-79-03 Rodionovo-Nesvetayskoe Branch Novo- 346918 Rostov Region ul. Sadovaya, 34 +7(86369) 2-27-02 of Sberbank No.5190 shakhtinsk Predgornoe Branch of Sberbank No.1853 352690 Krasnodar Kray Apsheronsk ul. Klubnaya, 25 +7(86152) 2-27-42

Sloboda Ro- Rodionovo-Nesvetayskoe Branch Goryachy 346580 Rostov Region dionovo-Nes- ul. Pushkinskaya, 33 +7(86340) 3-11-89 Predgornoe Branch of Sberbank No.1853 353290 Krasnodar Kray ul. Lenina, 96 +7(86159) 4-30-62 of Sberbank No.5190 Klyuch vetayskaya Predgornoe Branch of Sberbank No.1853 352630 Krasnodar Kray Belorechensk ul. Gogolya, 51 +7(86155) 2-56-52 Rodionovo-Nesvetayskoe Branch 346350 Rostov Region Krasny Sulin ul. Zavodskaya, 1 +7(86367) 5-32-33 of Sberbank No.5190 Novokubansk Branch of Sberbank No.5213 352240 Krasnodar Kray Novokubansk ul. Pervomayskaya, 95 +7(86195) 3-29-99 Rodionovo-Nesvetayskoe Branch 347879 Rostov Region Gukovo ul. Shakhterskaya, 72 +7(86361) 3-21-90 of Sberbank No.5190 Povolzhsky Head Office of Sberbank 443011 Samara Region Samara ul. Novo-Sadovaya, 305 +7(8462) 98-19-37

Donetsk Branch of Sberbank No.7749 346330 Rostov Region Donetsk ul. Gorkogo, 60 +7(86368) 2-31-36 Volgograd ul. Kommunisti- Volgograd Branch of Sberbank No.8621 400005 Volgograd +7(8442) 74-20-91 Region cheskaya, 40 Volgodonsk Branch of Sberbank No.7931 347360 Rostov Region Volgodonsk ul. Koshevogo, 2 +7(86392) 3-38-82 Saratov Branch of Sberbank No.8622 410600 Saratov Region Saratov ul. Vavilova, 1/7 +7(8452) 50-82-03 Volgodonsk Branch of Sberbank No.7931 347320 Rostov Region Tsimlyansk ul. Lenina, 31/30 +7(86392) 6-21-30 Orenburg Orenburg Branch of Sberbank No.8623 461300 Orenburg ul. Volodarskogo, 16 +7(3532) 72-52-86 Belaya Kalitva Branch of Sberbank Belaya Region 347040 Rostov Region ul. Petrova, 48 +7(86313) 2-64-39 No.8273 Kalitva Penza Branch of Sberbank No.8624 440600 Penza Region Penza ul. Suvorova, 81 +7(8412) 42-98-98 ul. Gimnazi- Krasnodar Branch of Sberbank No.8619 350000 Krasnodar Kray Krasnodar +7(8612) 19-02-33 cheskaya, 65 Astrakhan Astrakhan Branch of Sberbank No.8625 414000 Astrakhan ul. Kirova, 41 +7(8512) 32-11-44 Region Novorossysk Branch of Sberbank No.68 353900 Krasnodar Kray Novorossysk ul. Sovetov, 14 +7(8617) 60-75-62 Ulyanovsk Ulyanovsk Branch of Sberbank No.8588 432700 Ulyanovsk ul. Engelsa, 15 +7(8422) 41-32-67 Kurganinsk Branch of Sberbank No.1584 352430 Krasnodar Kray Kurganinsk ul. Komsomolskaya, 79 +7(86147) 2-31-21 Region

ul. B. Khmelnitsk- Sankt-Peter- ul. Krasnogo Tek- Eysk Branch of Sberbank No.1798 353680 Krasnodar Kray Eysk +7(86132) 7-05-65 North West Head Office of Sberbank 191124 St. Petersburg +7(812) 329-86-53 ogo, 86 burg stilschika, 2

Kropotkinskoe Branch of Sberbank Kalinigrad prospekt 352380 Krasnodar Kray Kropotkin ul. Krasnaya, 144 +7(86138) 6-17-12 Kaliningrad Branch of Sberbank No.8626 236006 Kaliningrad +7(4112) 35-17-10 No.1586 Region Moskovsky, 24

Tikhoretsk Branch of Sberbank No.1802 352120 Krasnodar Kray Tikhoretsk ul. Oktyabrskaya, 22A +7(86196) 7-05-14 Murmansk Murmansk Branch of Sberbank No.8627 183038 Murmansk prospekt Lenina, 37 +7(8152) 28-03-78 Region ul. Oktyabrskaya, Temryuk Branch of Sberbank No.1803 353500 Krasnodar Kray Temryuk +7(86148) 5-37-23 137, bldg. 1 Karelian Repub- Karelian Branch of Sberbank No.8628 185035 Petrozavodsk ul. Antikaynena, 2 +7(8142) 71-94-10 Anapa Branch of Sberbank No.1804 353440 Krasnodar Kray Anapa ul. Lenina, 14 +7(86133) 4-54-16 lic

Tuapse Branch of Sberbank No.1805 352800 Krasnodar Kray Tuapse ul. K. Marksa, 36 +7(86167) 3-04-03 Novgorod Veliky Novgorod Branch of Sberbank No.8629 173025 prospekt Mira, 44/20 +7(81629) 8-62-30 Region Novgorod Central Branch of Sberbank No.1806 354000 Krasnodar Kray Sochi ul. Gorkogo, 36 +7(8622) 62-28-29 prospekt Pskov Branch of Sberbank No.8630 180000 Pskov Region Pskov +7(8112) 19-88-48 Gelendzhik Branch of Sberbank No.1807 353460 Krasnodar Kray Gelendzhik ul. Kirova, 56 +7(86141) 3-17-80 Oktyabrsky, 23/25

Pavlovskaya Branch of Sberbank No.1813 352040 Krasnodar Kray Pavlovskaya ul. Pushkina, 245 +7(86191) 5-44-98 Khabarovsk Far East Head Office of Sberbank 680011 Khabarovsk ul. Brestskaya, 4 +7(4212) 78-32-35 Kray Korenovsk Branch of Sberbank No.1814 353158 Krasnodar Kray Korenovsk ul. Krasnaya, 108 +7(86142) 4-54-84 Khabarovsk Nikolaevsk- Nikolaevsk Branch of Sberbank No.692 682460 ul. Kantera, 29 +7(2352) 2-37-64 Ust-Labinsk Branch of Sberbank No.1815 352330 Krasnodar Kray Ust-Labinsk ul. Krasnaya, 287A +7(86135) 4-13-42 Kray na-Amure

Sovetskaya Gavan Branch of Sberbank Khabarovsk Sovetskaya Timashevsk Branch of Sberbank No.1816 352700 Krasnodar Kray Timashevsk ul. Lenina, 154A +7(86130) 4-41-41 682880 Ploschad Pobedy, 7 +7(238) 4-46-32 No.4154 Kray Gavan Slavyansk- Slavyansk Branch of Sberbank No.1818 353560 Krasnodar Kray ul. Krasnaya, 68 +7(86146) 2-40-37 na-Kubani Komso- Khabarovsk Central Branch of Sberbank No.4205 681017 molsk-na- ul. Alleya Truda, 57/8 +7(27) 57-82-56 Kray Armavirskoe Branch of Sberbank No.1827 352931 Krasnodar Kray Armavir ul. Shaumyana, 6 +7(86137) 4-29-83 Amure 192 APPENDIX 10 2 0 0 6 ANNUAL REPORT OF RAO “UES OF RUSSIA” 193

CONSTITUENT ADDRESS CONSTITUENT ADDRESS POSTAL ENTITY POSTAL ENTITY BRANCH NAME CODE OF RUSSIA CITY/TOWN STREET NAME TELEPHONE NUMBER BRANCH NAME CODE OF RUSSIA CITY/TOWN STREET NAME TELEPHONE NUMBER

Khabarovsk Arkhangelskaya Chegdomyn Branch of Sberbank No.5529 682030 Chegdomyn ul. Tsentralnaya, 48 +7(249) 5-48-49 Velsk Branch of Sberbank No.4065 165150 Velsk ul. Dzerzhinskogo, 58 +7(81836) 6-16-32 Kray Region

Jewish Autono- ul. Sholom- Arkhangelskaya Birobidzhan Branch of Sberbank No.4157 682200 Birobidzhan +7(42622) 4-02-09 Kotlas Branch of Sberbank No.4090 165300 Kotlas ul. Kuznetsova, 16 +7(81837) 5-24-02 mous Region Aleykhema, 16 Region

Ussurysk Branch of Sberbank No.4140 69251 Primorsky Kray Ussurysk ul. Oktyabrskaya, 56 +7(4234) 32-29-40 Kotlas Branch of Sberbank No.4090 (dop. Arkhangelskaya 165651 Koryazhma ul. Kirova, 29 +7(81837) 3-01-63 Ofis) Region Spassk Branch of Sberbank No.4141 692245 Primorsky Kray Spassk-Dalny ul. Leninskaya, 42 +7(42352) 2-29-43 Severodvinsk Branch of Sberbank Arkhangelskaya 164501 Severodvinsk ul. Plyusnina, 11 +7(8184) 58-15-98 Dalnerechensk Branch of Sberbank Dalnerech- No.5494 Region 692100 Primorsky Kray ul. Lenina, 61 +7(42356) 2-20-66 No.4155 ensk Arkhangelskaya Novodvinsk Branch of Sberbank No.8218 164900 Novodvinsk ul. Sovetov, 7 +7(81852) 4-58-32 Arsenyev Branch of Sberbank No.7718 692337 Primorsky Kray Arsenyev ul. Leninskaya, 10B +7(42361) 4-46-62 Region

Nenets Autono- Nenets Branch of Sberbank No.1582 166000 Naryan-Mar ul. Lenina, 16 +7(81853) 4-24-43 Nakhodka Branch of Sberbank No.7151 692904 Primorsky Kray Nakhodka ul. Portovaya, 3 +7(4236) 67-90-41 mous Okrug

Primorskoe Branch of Sberbank No.8635 690950 Primorsky Kray Vladivostok ul. Semenovskaya, 22 +7(4232) 42-20-15 ul. Predtechens- Vologda Branch of Sberbank No.8638 160035 Vologda Region Vologda +7(8172) 72-83-17 kaya, 33 Sakhalinskaya Okha Branch of Sberbank No.4170 694460 Okha ul. Sovetskaya, 32 +7(42437) 2-36-79 Region Ivanovo Branch of Sberbank No.8639 153009 Ivanovo Region Ivanovo ul. Lezhnevskaya, 159 +7(4932) 24-03-46

Sakhalinskaya Kostroma Poronaysk Branch of Sberbank No.7311 694240 Poronaysk ul. Oktyabrskaya, 68 +7(42431) 5-08-83 Kostroma Branch of Sberbank No.8640 156005 Kostroma ul. Nikitskaya, 33 +7(4942) 39-03-49 Region Region

Sakhalinskaya Kurilsk Branch of Sberbank No.7320 694530 Kurilsk ul. Kurilskaya, 5 +7(42454) 4-21-70 North-Caucasus Bank 355035 Stavropol Kray Stavropol ul. Lenina, 361 +7(8652) 30-83-31 Region

Budennovsk Branch of Sberbank ul. Oktyabrskaya, Yuzhno-Sakhalinsk Branch of Sberbank Sakhalinskaya Yuzhno- 356800 Stavropol Kray Budennovsk +7(86559) 4-26-59 693020 ul. Amurskaya, 61 +7(4242) 77-11-49 No.1812 59/61 No.8567 Region Sakhalinsk

Amurskaya Blagodarny Branch of Sberbank No.1860 356420 Stavropol Kray Blagodarny ul. Sovetskaya, 363A +7(886549) 2-13-40 Svobodny Branch of Sberbank No.1456 676450 Svobodny ul. Lenina, 79 +7(41643) 2-57-08 Region Georgievsk Branch of Sberbank No.1811 357820 Stavropol Kray Georgievsk ul. Kalinina, 11 +7(87951) 2-87-96 Amurskaya ul. Krasnaya Tynda Branch of Sberbank No.3707 676080 Tynda +7(41656) 3-28-74 Region Presnya, 1 Kirovskoe Branch of Sberbank No.5231 357300 Stavropol Kray Novopavlovsk Pl. Lenina, – +7(87938) 2-26-74

Amurskaya Belogorskoe Branch of Sberbank No.4133 676850 Belogorsk ul. Lenina, 55 +7(41641) 2-33-22 Izobilny Branch of Sberbank No.1858 356140 Stavropol Kray Izobilny ul. Proletarskaya, 51 +7(86545) 2-48-53 Region Ipatovo Branch of Sberbank No.1856 356630 Stavropol Kray Ipatovo ul. Gagarina, 67a +7(865-42) 2-43-26 Amurskaya Zeyskoe Branch of Sberbank No.4159 676244 Zeya Mikrorayon Svetly, 55 +7(41658) 2-40-67 Region Nevinnomyssk Branch of Sberbank Nevinno- 357100 Stavropol Kray ul. Gagarina, 55 +7(86554) 3-91-69 No.1583 myssk Selemdzhinskoe Branch of Sberbank Amurskaya ul. Komso- 676560 Ekimchan +7(41646) 2-15-85 No.4163 Region molskaya, 16 Novoaleksandrovsk Branch of Sberbank Novoaleksan- 356000 Stavropol Kray Per. Shevchenko, 1 +7(86544) 3-10-08 No.1587 drovsk Blagoveschensk Branch of Sberbank Amurskaya Blagove- 675000 ul. Zeyskaya, 240 +7(4162) 59-50-14 No.8636 Region schensk Neftekumsk Branch of Sberbank prospekt 356880 Stavropol Kray Neftekumsk +7(86558) 3-64-57 North Head Office of Sberbank 150028 Yaroslavl Region Yaroslavl prospekt Oktyabrya, 8 +7(4852) 40-77-44 No.7908 Neftyanikov, 5

Arkhangelsk Branch of Sberbank Arkhangelskaya prospekt Petrovskoe Branch of Sberbank No.1859 356530 Stavropol Kray Svetlograd ul. Pushkina, 8 +7(86552) 3-49-66 163061 Arkhangelsk +7(8182) 65-66-51 No.8637 Region Lomonosova, 137 Pyatigorskoe Branch of Sberbank 357500 Stavropol Kray Pyatigorsk prospekt Kirova, 59 +7(87933) 2-12-35 Arkhangelskaya No.0030 Nyandoma Branch of Sberbank No.1552 164200 Nyandoma ul. Vokzalnaya, 11 +7(81838) 6-24-92 Region Sovetskoe Branch of Sberbank No.1872 357910 Stavropol Kray Zelenokumsk Pl. Lenina, 3 +7(86552) 6-46-69 Arkhangelskaya ul. Arkhangels- Onega Branch of Sberbank No.4059 164840 Onega +7(81839) 7-59-79 Region kaya, 10 Shpakovskoe Branch of Sberbank No.5230 356240 Stavropol Kray Mikhaylovsk ul. Lenina, 121 +7(86553) 6-09-91

Arkhangelskaya Onega Branch of Sberbank No.4059/066 164260 Plesetsk ul. Lenina, 27 +7(81832) 7-10-81 Dagestan Region Dagestan Branch of Sberbank No.8590 367000 Makhachkala ul. Korkmasova, 11A +7(8722) 67-60-86 Republic Arkhangelskaya Onega Branch of Sberbank No.4059/075 164170 Mirny ul. Lenina, 33 +7(81834) 5-04-46 Region Ingush Branch of Sberbank No.8633 366720 Ingush Republic Nazran ul. Moskovskaya, 27 +7(8732) 22-92-69 194 APPENDIX 10

CONSTITUENT ADDRESS POSTAL ENTITY BRANCH NAME CODE OF RUSSIA CITY/TOWN STREET NAME TELEPHONE NUMBER

Kabardino-Balkar Branch of Sberbank Kabardino- 360000 Nalchik ul. Khuranova, 9 +7(8662) 40-47-95 No.1861 Balkar Republic

Karachai-Cherkessk Branch of Sberbank Karachai-Cher- ul. Krasnoarmey- 369000 Cherkessk +7(87822) 5-32-94 No.8585 kess Republic skaya, 66

Kalmyk ul. Bratyev Kalmyk Branch of Sberbank No.8579 358000 Elista +7(84722) 2-78-54 Republic Alekhinykh, 29

Severo-Osetinskoe Branch of Sberbank North-Ossetian 362003 Vladikavkaz ul. Kotsoeva, 68 +7(8672) 53-25-54 No.8632 Alania Republic

ul. Marshala Omsk Branch of Sberbank No.8634 644024 Omsk Region Omsk +7(3812) 39-07-85 Zhukova, 4/1

Tyumen City Branch No.29 625048 Tyumen Region Tyumen ul. Melnikayte, 54 +7(3452) 36-12-13

Ishim Branch of Sberbank No.577 627750 Tyumen Region Ishim ul. Rokossovskogo, 15 +7(34551) 7-14-74

Zavodoukovsk Branch of Sberbank Zavodou- 627140 Tyumen Region ul. Glazunovskaya, 1 +7(34542) 6-02-26 No.7917 kovsk

West-Siberian Bank of Sberbank 625023 Tyumen Region Tyumen ul. Rizhskaya, 61 +7(3452) 41-98-77

Tobolsk Branch No.58 626150 Tyumen Region Tobolsk ul. Remezova, 124 +7(34511) 4-15-83

ul. Moskovsky Tyumen Branch of Sberbank No.5772 625008 Tyumen Region Tyumen +7(3452) 24-18-14 Trakt, 14A

Khanty-Mansiysk Branch of Sberbank Khanty-Man- 628011 KhMAO ul. Dzerzhinskogo, 16 +7(34671) 2-90-02 No.1791 sysk

Surgut Branch of Sberbank No.5940 628400 KhMAO Surgut ul. Dzerzhinskogo, 5 +7(3462) 23-03-47

Uray Branch No.7961 628285 KhMAO Uray ul. Lenina, 90 +7(34676) 2-63-72

Nefteyugansk Branch of Sberbank 628300 KhMAO Nefteyugansk Mikrorayon 1, 25 +7(3461) 22-65-82 No.7962

Nizhnevar- ul. Internatsional- Nizhnevartovsk Branch No.5939 628615 KhMAO +7(3466) 44-65-78 tovsk naya, 10

Sovetsky Branch of Sberbank No.7892 628240 KhMAO Sovetsky ul. Sovetskaya, 12A +7(34675) 3-39-65

Megion Branch of Sberbank No.8564 628680 KhMAO Megion ul. Neftyanikov, 33 +7(34663) 3-90-32

Kogalym Branch of Sberbank No.8413 628481 KhMAO Kogalym ul. Molodezhnaya, 18 +7(34667) 2-85-18

Nyagan Branch of Sberbank No.8448 628181 KhMAO Nyagan mkr 1, 33, blok 1 +7(34672) 5-45-58

Beloyarsky Branch of Sberbank No.8540 628162 KhMAO Beloyarsky mkr 3, 31 +7(34670) 2-21-92

Salekhard Branch of Sberbank No.1790 629008 KhMAO Salekhard ul. Respubliki, 41 +7(34922) 3-27-45

prospekt Nadym Branch of Sberbank No.8028 629730 YaNAO Nadym +7(34995) 3-73-18 Leningradsky, 11

Labytnangi Branch No.8291 629400 YaNAO Labytnangi ul. Pervomayskaya, 27 +7(34992) 5-77-02

Novy Urengoy Branch of Sberbank 629300 YaNAO Novy Urengoy mkr Mirny , 6 +7(34949) 7-37-62 No.8369

Noyabrsk OSB 629810 YaNAO Noyabrsk ul. Mira, 76 +7(3496) 35-43-57