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Presentation by Vyacheslav Sinugin, Deputy Chief Executive Officer, RAO UES of Russia on the 3d Annual European Conference Investing in Russia and CIS PowerPoint PPT Presentation


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Presentation by Vyacheslav Sinugin, Deputy Chief Executive Officer, RAO UES of Russia on the 3d Annual European Conference Investing in Russia and CIS. 9 Ju ly 200 2. London.

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

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Presentation by vyacheslav sinugin deputy chief executive officer rao ues of russia on the 3d annual european conference investing in russia and cis

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


Presentation by vyacheslav sinugin deputy chief executive officer rao ues of russia on the 3d annual european conference investing in russia and cis

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

Present

1998 - 2001

2002-2004

1st stage is anti-crisis management

Sequence of measures for increasing the Holding efficiencyand further Russian power industry transformation

2nd stage

Wholesale market and it’s new effective companies creation

The Holding environment

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


Presentation by vyacheslav sinugin deputy chief executive officer rao ues of russia on the 3d annual european conference investing in russia and cis

The main results of 1998 – 2001

1998

1st stage

2001

  • The financial performance improvement

  • Solving the non-payments problem

  • Increasing efficiency of the Corporate

    Governance


Presentation by vyacheslav sinugin deputy chief executive officer rao ues of russia on the 3d annual european conference investing in russia and cis

Results: 1998-2001

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

Net profit of the Group, billion rubles

41.7

50

1.0

1998

1999

0

2001

2000

- 11.9

-100

-500

In 2000 the Group for the first time obtained operation revenue profit 7.9 billion rubles and net profit 1 billion rubles.

- 532.3

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


Presentation by vyacheslav sinugin deputy chief executive officer rao ues of russia on the 3d annual european conference investing in russia and cis

Results: 1998-2001

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

Cost reduction structure of the Holding in 2001

Cost reduction programs stimulate management of companies to reach greater final results thanks to the targeted cost reduction

6%

3%

Fuel balance

-

2%

1%

Fuel rate

4%

Fuel - other

35%

4%

Refurbishment

Wages

Non-core services

Management expenditures

16%

Property surplus

Non-core

20%

9%

Others


Presentation by vyacheslav sinugin deputy chief executive officer rao ues of russia on the 3d annual european conference investing in russia and cis

Results: 1998-2001

Solving the Non-payments Problem in

RAO UESR: 1998 - 2001

Total losses of

RAO UESR on the cause of non-payments and barter, mln. euros (according to Deutsche Bank estimates)

%

112

104

101

120

15

14

Mln. Euro

100

7891

13

8000

12

96

80

11

7000

9

48

92

10

8

6000

60

7

22

5000

6

40

17

5

4000

4

20

3

3154

3000

2

0

1

Q2

Q4

Q2

Q4

Q2

Q4

Q2

Q4

Q1

2000

0

2002

1998

1999

2000

2001

1000

0

9

% cash payments for

electric power supplied

7

6

3

1998

1999

2000

2

0


Presentation by vyacheslav sinugin deputy chief executive officer rao ues of russia on the 3d annual european conference investing in russia and cis

The Holding environment

1998 - 2002

Present

2002 - 2004

  • World tendencies of power sector

    development

  • Russian economy growth

  • Low tariffs

  • Assets worn out

  • Restructuring of energy sector in Russia


Presentation by vyacheslav sinugin deputy chief executive officer rao ues of russia on the 3d annual european conference investing in russia and cis

Great Britain (1990)

Argentina (1990)

Hungary (1999)

Skandinavia (1992)

Tailand (1996)

Brazil (1995)

Environment

1990s: World trends in electric power sector

complete liberalization of electric power sector

California (1995)

Kazakhstan (1998)

Italy (1999)

Competition

EU Directive (1996)

Price liberalization

Russia (2001)

Moldova (1999)

Ukraine (1997)

State monopoly

Greece (2000)

France (2000)

SAR (2000)

Non-discriminatory access to grid

Private investments


Presentation by vyacheslav sinugin deputy chief executive officer rao ues of russia on the 3d annual european conference investing in russia and cis

Environment

Tendency of Last Years - Increase in Russian Power Consumption

Energy Consumption

In 1999, for the first time after the crisis power consumption went up by 2,8 % or 22,9 bln. kWh

Bln. kW/h

1074

1062

1100

1002

1050

1000

945

950

880

875

863

856

900

832

840

828

813

809

850

800

2001

2002(forecast)

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000


Presentation by vyacheslav sinugin deputy chief executive officer rao ues of russia on the 3d annual european conference investing in russia and cis

Environment

The forecast of the most important Holding activities

Bln. kWt. h.

635,2

634,2

RAO “UES of Russia” electricity production growth

628,7

650

622,8

602,2

600

602,0

2001

2002

(forecast)

2003

(forecast)

501,0

500

Bln. rub.

401,3

Operation incomes of RAO “UES of Russia”

400

2001

2002

(forecast)

2003

(forecast)

12,3

14

Bln. Rub.

9,7

The program of costs decrease

10

2,0

2000

2001

2002

(forecast)


Presentation by vyacheslav sinugin deputy chief executive officer rao ues of russia on the 3d annual european conference investing in russia and cis

Environment

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

Factors influencing negative Holding capitalization

Measures for capitalization growth

9

8

7

6

5

4

3

2

1

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

Court appeals in order to change decisions of regulating power sector

0

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

Appeals to the President and Government, laws lobbing in Parliament

Negative trends on international financial markets


Presentation by vyacheslav sinugin deputy chief executive officer rao ues of russia on the 3d annual european conference investing in russia and cis

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

2002

2 nd stage

2004

  • Holding efficiency growth

  • Holding restructuringaccording to governmental Decrees and laws on the Russian electricity reforms

  • Private investments attraction


Rao ues of russia the reform in 2002

Wholesale generative companies

Trade System Administrator

Electricity production

Exchange

RAO “UES of Russia”: the reform in 2002

Prospect: 2002-2004. Russian power sector reform

2002

Minor shareholders

Russian Federation

52 %

48 %

RAO «UES of Russia»

АО-energy

Basic variant of restructuring

System Operator

Federal Grid Company

Generation, LV grids,sales of thermal and electricity energy

HV Grids

Dispatching


Presentation by vyacheslav sinugin deputy chief executive officer rao ues of russia on the 3d annual european conference investing in russia and cis

Prospect: 2002-2004. Russian power sector reform

Regional projects: basic model for the 1st stage

Basic model for reforming AO-energo was approved

by the UES Board of Directors on 6.03.2002

AO-ENERGO

MANAGEMENT COMPANY

GENERATION

GRIDS

GRIDS

GENERATION

SALES

SALES

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

2 phase:companies enlargement in generation and grids


Presentation by vyacheslav sinugin deputy chief executive officer rao ues of russia on the 3d annual european conference investing in russia and cis

Prospect: 2002-2004. Russian power sector reform

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

Project application preparation

General Shareholders’ Meeting

15

47

14

Minority

shareholders

UESR’s Project Committee

is functioning within corporate procedures

Boards of Directors of power companies

8

8

7

7

6

5

5

Governmental Commission on Russian Power Sector reforming

2

2

4

4

1

1

Reforming Committee under UESR’s Board of Directors

1

1

reflects the position of the Government as a company’s shareholder

0

0

Board of Directors of RAO UESR

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


Presentation by vyacheslav sinugin deputy chief executive officer rao ues of russia on the 3d annual european conference investing in russia and cis

Prospect: 2002-2004. Investments

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

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%

Pskov CPS, + 215 MWt

Transaction goal - toattract a strategic investor

Transaction type: tender for 25%+1 share with gradual increase of investor share in the capital up to 51%


Presentation by vyacheslav sinugin deputy chief executive officer rao ues of russia on the 3d annual european conference investing in russia and cis

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


Presentation by vyacheslav sinugin deputy chief executive officer rao ues of russia on the 3d annual european conference investing in russia and cis

THANK YOU FOR ATTENTION


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