Presentation by Vyacheslav Sinugin, Deputy Chief Executive Officer, RAO UES of Russiaon the 3d Annual European Conference Investing in

Russia and CIS

9 July 2002 London

2

1st stage is anti-crisis management

Sequence of measures for increasing the Holding efficiency and further

Russian power industry transformation

2nd stage

Wholesale market and it’s new

effective companies creation

Year 2001: The anti-crisis management period is finished, the switch to regular working regime is completed, the conception for further development is worked

out

1998 - 2001 2002-2004Present

The Holding environment

The three year results and the middle-term strategy of the Holding development

3

1998 20011st stage

The financial performance improvement

Solving the non-payments problem

Increasing efficiency of the Corporate

Governance

The main results of 1998 – 2001

4

The international audit made by Pricewaterhouse Coopers: 41,7 billion rubles of the net profit in 2001

In 2000 the Group for the first time obtained operation revenue profit 7.9 billion rubles and net

profit 1 billion rubles.

Net profit of the Group, billion rubles

-500

-100

0

50

- 11.9

- 532.3

1998 1999 1.0

2000

41.7

2001

* The figures have been calculated taking into account the purchasing power of ruble as of December 31, 2001

Results: 1998-2001

5

Cost reduction structure of the Holding in 2001

9%

6% 3%

4%

2% 1%

16%

20%

35%

4%

Fuel balance -

Fuel rate Fuel - other

Refurbishment Wages Non-core services

Management expenditures Property surplus

Non-core

Others

Cost reduction

programs stimulate

management of

companies to reach

greater final results

thanks to the targeted

cost reduction

12.3 billion rubles have been earned on the implementation of the Cost Reduction Program in the Holding in 2001

Results: 1998-2001

6

0

1

2

3

4

5

6

7

8

9

0

2

3

6

7

9

10

11

12

13

14

15

0

20

40

60

80

100

120

Q2 Q41998

Q2 Q41999

Q2 Q42000

Q2 Q42001

112

1722

48 92

101

1998 1999 2000

20001000

300040005000600070008000 7891

3154

0

104

96

Q12002

%

Mln. Euro

Total losses of RAO UESR on the cause of non-payments and barter, mln. euros

(according to Deutsche Bank estimates)

% cash payments for electric power supplied

Solving the Non-payments Problem in RAO UESR: 1998 - 2001

Results: 1998-2001

7

1998 - 2002 2002 - 2004Present

World tendencies of power sector

development Russian economy growth Low tariffs Assets worn out Restructuring of energy sector in

Russia

The Holding environment

8

Competition

complete liberalization of electric power

sector

State monopoly

Price liberalization

Non-discriminatory access to gridPrivate

investments

1990s: World trends in electric power sector

Russia (2001)

France (2000)

Hungary (1999)Tailand (1996)

Italy (1999)

Great Britain (1990)

Ukraine (1997)

Skandinavia (1992)

EU Directive (1996)

Argentina (1990)

Brazil (1995)

SAR (2000)

Greece (2000)

Kazakhstan (1998)

Moldova (1999)

California (1995)

Environment

9

Environment

Tendency of Last Years - Increase in Russian Power Consumption

1074 10621002

945

856 840 828 813 809832 863

800850900950

100010501100

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Bln. kW/h In 1999, for the first time after the crisis

power consumption went up by 2,8 % or 22,9 bln. kWh

Energy Consumption

880875

2002(forecast)2001

10

Environment

2002(forecast)

Bln. kWt. h.

2001

600

650 628,7 634,2 RAO “UES of Russia” electricity production

growth

2002(forecast)

2001

400

500 401,3 501,0 Bln. rub.

602,0

2003(forecast)

Operation incomes of

RAO “UES of Russia”

The program

of costs decrease

2003(forecast)

20012000

1014

2,0

12,3 Bln. Rub. 9,7

2002(forecast)

The forecast of the most important Holding activities

635,2 602,2 622,8

11

Negative factors and measures to increase capitalization of RAO UES of Russia

Negative trends on international financial markets

0

1

2

3

4

5

6

7

8

9

State regulation: in a number of cases tariffs do not cover costs or set low profitability for

energy companies

Parliamental delaying of consideration of laws on the Russian electricity reforms and the law which will allow foreign investors to own more

than 25% shares of RAO UES of Russia are additional factors of unstability

Court appeals in order to change decisions of regulating power sector

Appeals to the President and Government, laws lobbing in Parliament

Factors influencing negative Holding capitalization Measures for capitalization growth

Environment

12

2002 20042 nd stage

Holding efficiency growth Holding restructuring according to

governmental Decrees and laws on the Russian electricity reforms

Private investments attraction

The RAO «UES of Russia» tasks for 2002 - 2004

13

2002

Russian Federation

RAO «UES of Russia»

48 %52 %

Minor shareholders

АО-energy

Basic variant of restructuring

Wholesale generative companies

Electricity production

Generation, LV grids, sales of thermal and

electricity energy

Federal Grid Company

HV Grids

Trade System Administrator

Exchange

System Operator

Dispatching

RAO “UES of Russia”: the reform in 2002Prospect: 2002-2004. Russian power sector reform

14

Regional projects: basic model for the 1st stage

Prospect: 2002-2004. Russian power sector reform

Basic model for reforming AO-energo was approved by the UES Board of Directors on 6.03.2002

AO-ENERGO

GENERATION

GRIDS

SALES GRIDS GENERATION SALES

MANAGEMENT COMPANY

1 phase: AO-energo shareholders while Holding restructuring get the proportional quantity of newly created companies

2 phase: companies enlargement in generation and grids

15

1

4

0

1

2

5

6

7

8

Prospect: 2002-2004. Russian power sector reform

Key Decisions on Power Companies Reforming are Made in Cooperation with Minority Shareholders

1

4

0

1

2

5

7

8

is functioning within corporate procedures

47

14

15

Reforming Committee under UESR’s Board of

Directors Board of Directors of

RAO UESR

Project application preparation

UESR’s Project Committee

reflects the position of the Government as a company’s

shareholder

Governmental Commission on

Russian Power Sector reforming

General Shareholders’

Meeting

The Evaluation Committee is functioning under the Board of Directors. The Committee has chosen Deloitte & Touche to elaborate the common methods for evaluating power

companies business performance

Minority shareholders Boards of

Directors of power companies

16

Prospect: 2002-2004. Investments

Short-term Investment Program «5000 МWt»:Projects for 2002

Pskov CPS, + 215 MWt

North-West TPS (CCGT), + 450 MWt

Transaction goal - to attract a strategic investor to complete the 2nd power generating unit

Transaction type: tender for 25% +1 share with an option for other 25%

Transaction goal - to attract a strategic investor

Transaction type: tender for 25%+1 share with gradual increase of investor share in the capital up

to 51%

17

Conclusions

Three years of stress-management are in the past

The Russian Government is planning to accomplish the power sector reform,

during which the effective business companies should be created

The top management of “RAO UES of Russia” is preparing the program of

measures to increase the Holding activities efficiency in 2002 - 2004

THANK YOU FOR ATTENTION