Anatoly Chubais

Chief Executive Officer

RAO Unified Energy System of Russia

6th Annual Russian Economic Forum

3rd April 2003, London

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RAO UES of Russia is one of the biggest power companies in the world

Key data

* As of 2nd April 2003** Preliminary data

Generates 70% of all electricity output in Russia (617.4 bn. kWh)

Market capitalization – USD 5.4 bn. *

Sales volume in 2002 – USD 17 bn.**

632,000 employees

3.9

1.2 1.1 0.8 0.6 0.6 0.5 0.5 0.4 0.30246

USA Russia India Brazil

Russian power market is the fourth largest in the world

26.5% 8.4% 7.2% 5.7% 3.9% 3.7% 3.6% 3.5% 2.5% 2.2%% of global production

Bn. MWh

China Japan FRG France UKCanada

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5-year results of RAO UES of Russia

Key indicators 1998 2002Net profit (loss), USD billion

Share of cash collections, %**

Unauthorized cash flow, USD billion

Average length of wages in arrears, months

Generation of electrical power per employee, kWh

Number of AO-energoes subject to bankruptcy procedure

Number of former Soviet republics operating in parallel mode with the UES of Russia

Total duration of UES operation with violation of electrical power frequency standard, hrs

(18.1) 1.3*

17 102

10 14

21

3.7

977.1899.0

36

0

0

0

7.5 0

Mid-year 1998: new UES management team was put in place

* 2001 financial year** As percentage of total sales

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Competitive sectors

Natural

monopolies

Free price-setting Stimulating market

entry

Marketrules

Regulated

tariffs

Securing equal access to grids

Establishing the market infrastructure

GENERATION

SUPPLY

TRANSMISSION

DISTRIBUTION

DISPATCHING

Reform basics: separation of monopoly and competitive sectors

5

International trends of power sector development

Deregulation

Pri

vati

sati

on France (2000)

Hungary (1999)

Thailand (1996)

Italy (1999)

California (1995)Great Britain (1990)

Ukraine (1997)

Scandinavia (1992)

Private property

State property

Argentina(1990)

Brazil (1995)

SAR (2000)

Moldova (1999)

State Regulation

Competitive market

Russia (2001)

Kazakhstan (1998)

Tajikistan

Kyrgyzstan (2001)

Belarus (2002)

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Majority of regional Governors led by the Moscow

Mayor and influential presidents of republics

Conservatively-minded energy specialists and scientists

Certain foreign minority shareholders

RF Government

and RAO UES of Russia

Political aspects of the reform process

Historical opponents

On April 1st, 2003, the Law on the Electric Power Industry became effective

RF Government

and RAO UES of Russia

Current opponents

RF President and the RF Government are playing a key role at every stage of the reform

Influentialoligarch groups

The adviser tothe Russian President and the

Deputy Energy Minister, supported by certain senior

officials

Most Council of the Federation senators

Key political factions in the RF Duma (Fatherland,

People’s Deputy, Russian Regions, Agrarian Party of Russia, Yabloko,

The Communist Party of the RF)

Deputy Energy Minister

Two political factions in the State Duma: Yabloko (G. Yavlinsky), The

Communist Party of the RF (G. Zyuganov)

1

2

3

4

5

6

7

1

2

7

8

Russian business has entered the Russian power sector

Russian business…… accepted the concept of reforms in the power sector… started to believe that the reform will be carried out … has strategic rather than portfolio interests

New shareholders of the daughter companies have spent circa USD 800 million on acquisition of blocking minority stakes in AO-energoes:

June 2002 – 8; March 2003 – 40

RTS index

Common stock of RAO UES

Improvement in UES market capitalization in the last 6 months (%)

TotalUSD 1.5 billion

100

140

180

September October November December January February March

%

New shareholders of the mother company have spent circa USD 700 million on acquisition of approximately 10% stake of RAO UES of Russia

Foreign companies have not occupied strategic positions in the Russian power sector yet

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UES Reform: shareholders’ rights protected

Sale of assets of wholesale and regional generating companies

Methods of reforming RAO UES of Russia

Reorganizing through separation

Pro rata distribution of shares in the newly created companies (on both mother and daughter level)_______________________________________________

Article 4 of Federal Law ‘On Features of Electric Power Industry Operation during the Transition Period’ No. 36 as of March 26, 2003

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Electrical power industry reform

Restructuring of RAO UES of Russia

Creation of an electrical power market in Russia

Further management improvements

Improvement of corporate governance

Improvement of operational results

Business development

Expansion into municipal heat

Expansion into municipal power

Acquisition of power assets in CIS

Further steps: key elements of the strategy

Strategic management priorities in the three coming years include increasing the overall capitalization of RAO UES of Russia and of the newly created companies

The overall capitalization of the newly created companies is expected to be greater than that of RAO UES of Russia currently

Anatoly Chubais

Chief Executive Officer

RAO Unified Energy System of Russia

6th Annual Russian Economic Forum

3rd April 2003, London