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RAO UES of Russia : Investment Stage of the Reform. Anatoly Chubais Chairman of the Management Board RAO “UES of Russia”. 9 th Russian Economic Forum London 24.04.200 6. Electric Power Industry: New Trends. Load of UES of Russia : Approaching a new consumption maximum.

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RAO UES of Russia:

Investment Stage of the Reform

Anatoly Chubais

Chairman of the Management Board RAO “UES of Russia”

9thRussian Economic Forum

London

24.04.2006


Electric Power Industry: New Trends

Load of UES of Russia: Approaching a new consumption maximum

Source: RAO UES of Russia

Maximum Load of Russian Power Plants

160.1

153.1

157

150

148.3

143.5

144.7

142

141.6

Thsd MW

139.1

138.6

136.5

135.3

134.1

133.5

133.4

130.3

125

100

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006


Regional Energy Systems : Exceeding the consumption maximum of the Soviet period

180

Source: RAO UES of Russia

2006vs. 1990, %

170

1990 = 100%

160

160

150

140

130

124

121

120

115

110

110

108

110

106

105

104

102

100

Udmurtia

Tyumen

Kuban

Moscow

Astrakhan

Karelia

Dagestan

Vologda

Belgorod

Leningrad

Kaliningrad

Russian power industry needs badly

full scale long term investments

On March 28, 2006 the list of top-priority projects for 19 400 MW was approved.


Investments and the Reform

Electric Power Industry Reform: adjusting tactics while keeping strategy intact

The main initial target of the Reform is

to launch the investment process

Key Components of the Reform: Completion Status

Reform Components

% of completion

Year of Completion

1. Split-up of vertically-integrated companies and separation of power generation from grids

90%

2006

70%

2007

2. Consolidation of trunk grids and consolidation of the dispatching vertical

3. Setting up generation companies (WGCs and TGCs)

70%

2007

4. Development of a markets system (for electric power, capacity, and ancillary services).

70%

2007

The target of the Reform is not subject to change. The tactics for Reform completion require adjustment

Main Point of Adjustment:

Large-scale investments during the final stage of the Reform

rather than upon completion of the Reform.


Investments and the Reform

The Finishing Line was close …

but had to be pushed two years further along the road

FINISH

FINISH

2006

2007

2007

2008

Investment section of the road

2005

2006


Investment Deployment Concept

Investments:

Concept, sourcesandobjects, volumes

Reform Concept

Investment Deployment Concept

Competitive sectors

(primarily –

thermal power

generation)

Private investments

Monopolistic sectors

Budget

investments

Annual volumes of investments in RAO UES of Russia:2005-2006– about$5 bn, by 2008-2009 – about$15 bn.


Project

financing

Direct private

investments

in local projects

Investment

guarantee

mechanism

Additional share issue

of WGCs and TGCs

Privateplacement

Publicplacement

Thermal power generation - a top priority object for investments

2/3 of electric power generation in Russia

Investment Deployment Concept

Thermal Power Generation:

Mechanisms to attract investments


Selection of project consultants is starting as well asmeetings with potential investors.

Special conference for investors into above projects is planned for June 2006.

New Companies: Top-priorityProjects

Additional Share Issue of WGCs and TGCs

Long list of generation companies – top candidates for additional issue and placement of shares has been reviewed and approved by RAO UES management board

In all cases,placement of additionally issued shares is a tool for attracting investments in preselected projects with total capacity of

6,700 MW

WGC-3, WGC-4, WGC-5, TGC-1, TGC-3, TGC-5, TGC-8, TGC-9, TGC-10

3-4 companies selected from the approved list

of candidates will comprise a short list to make a decision

on additional issue and placement of shares.

June 2006: RAO UES Board of Directors is expected

tomake a relevant decision on 3-4 companies

to undergo share issue.

The logic and sequence of actions

was proposed by management andpreliminarily approved by the Board of Directors.

It is up to the Russian Government to make key decision.


New Companies: Top-priorityProjects

Additional Share Issue of WGCsand TGCs:

Timeline

2006

'01-03

'04

'05

'06

'07

'08

'09

'10-12

Implementation of pilot projects

  • Preparation and approval of the top candidates list

  • Selection of consultants

  • Consultations with potential investors

  • Negotiations with shareholders

Selection of 3 to 4 pilotWGCsandTGCsfromthe top candidates list and approval of their share placement plans

Preparation for share placement


$ bln

WGC5

Prior to trading estimates

Current Mcap

4.0

  • Installed Capacity – 8,672 MW

  • (5.53% of overall RAO UES’ installed capacity)

3.0

2.39

2.0

1.5

0.962

1.0

0.9

  • Shares are traded on RTS, MICEX

  • GDRs will be traded on London and Frankfurt stock exchanges

Independent Appraiser’s evaluation

Analyst evaluation (min/max)

14 Sep. 05

(1st trading day)

Current Mcap

19 Apr. 06

New Companies: Top-priorityProjects

WGC-5:

Example of preparedness for share placement

Sources: MICEX; analysts reports (Aton, TroikaDialog, RenCap, MegatrustOil)


Reorganization of RAO UES of Russia:

Pro rata principle for protection of shareholder rights

RAO UES of Russia

Shareholders Meeting (in 2008)

Shareholders Meeting (before the end of 2006)…

  • Spin-off of 1-2 generation companies

  • from the following candidates:

  • WGC-3, WGC-5, TGC-5

  • Reorganization of RAO UES of Russiaby wayofsplit-up;

  • Pro rata distribution of the Company’s assetsamong shareholders;

  • Transfer of functions to the Government andinfrastructural entities of the energy industry


“The train departs in 2006-2008 . . .

. . . and the best seats are in the first car!”


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