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Unified Energy System

May 27, 2005

RAO UES Board of Directors holds its regular meeting

Moscow, 27 May 2005. The Chairman of the Management Board of RAO "UES of Russia" Anatoly Chubais made a report to the Board of Directors on the blackout in the Moscow energy system on 24-25 May 2005 and the measures taken to eliminate its consequences.

Anatoly Chubais said that a Task Force formed at RAO "UES of Russia" was conducting an investigation into the causes of the power outage at the Chagino substation which triggered a cascade effect. According to the commission given to it, the task force is to complete its work and produce a report within two weeks.

The Board of Directors of RAO "UES of Russia" commissioned the Management Board Chairman to present the findings of the investigation into the blackout causes to the Board of Directors.

The Board of Directors gave a favourable assessment of the efforts made by dispatch operators and technical staff of OAO "Mosenergo" and OAO "UES System Operator-Central Dispatch Administration" to stop the blackout cascade and to eliminate its consequences in the shortest possible timeframe. Thanks to the competent efforts of the personnel and the failure prevention automation, it was possible to prevent massive physical destruction of energy equipment. These were the major factors that helped promptly eliminate the consequences of the power failure and restore power to consumers. The Management Board Chairman Anatoly Chubais emphasized that the outage development had been stopped in 2 hours and 20 minutes. By 18:00 hours, the energy companies had restored power to all vital social facilities in the city of Moscow included in the list made by the Moscow City Government. At 12:00 hours on 26 May, the System Operator had removed all restrictions on the power supply to consumers. By 18:30 hours on 26 May, power had been fully restored to all customers.

The Board of Directors commissioned the Management Board to take steps to minimize the possibility of outages in other areas of the country.

During the summer repair season and preparation for the 2005/2006 autumn-winter peak load, enterprises of RAO "UES of Russia" are to pay special attention to the comprehensive audit and repairs of the power grid and dispatching equipment.

* * *

The Board of Directors of RAO "UES of Russia" considered the issue of the target and transitional models of operation of thermal wholesale generation companies (thermal WGCs).

The Board of Directors approved the target model for the operation of thermal WGCs as unified operating companies, which will be created through merger of AO-power plants relating to the particular thermal WGC with that WGC. Preparations for the merger of AO-power plants with and into the WGCs are expected to commence in parallel with the actions to consolidate the WGCs via a share exchange.

The Board of Directors also approved the transitional model for the operation of thermal WGCs providing for the transfer to the WGCs of the right to dispose of the electricity (capacity) produced with the generating equipment of the AO-power plants to be included in the respective WGC. Such transfer would be effected on the basis of agency agreements between the thermal WGCs and AO-power plants providing for the sale of electricity (capacity) generated by the AO-power plants on the wholesale market.

To ensure effective formation of the governance structure at AO-power plants within the respective WGCs, the transitional model also provides that the CEO powers of the AO-power plants expected to merge with the thermal WGCs are to be transferred to the WGC concerned. Before that, the Director General of the corresponding thermal WGC may be appointed Director General of the corresponding AO-power plants.

The basic plan for establishment of WGCs was approved by the Board of Directors of RAO "UES of Russia" on 29 September 2003. According to that plan, the WGCs are to be formed using the following procedure:

  • at the first phase, the WGCs will be established as wholly-owned subsidiaries of RAO "UES of Russia". The latter will make contributions to the WGCs' share capital in form of the AO-power plants' property and shares;
  • at the second phase, RAO "UES of Russia" will contribute its shares in AO-power plants spun off from the regional energos as consideration for shares in the WGCs.
  • The thermal WGCs are to consolidate their subsidiary power plants by inviting minority shareholders of those power plants to exchange their shares for WGC shares.

By now, all six thermal WGCs to be established pursuant to Direction of the Russian Government No. 1254-r of 1 September 2003 have been created. Thus, the first phase of establishment of the thermal WGCs is complete, and measures are underway to prepare for the implementation of the second phase and consolidate their subsidiaries via a share exchange.

* * *

The Board of Directors of RAO "UES of Russia" considered the questions relating to the conduct of the Annual General Meeting of the Company.

The Board of Directors approved the draft Annual Report, and the annual financial statements of the Company for 2004, and decided to submit them for shareholder approval at the AGM of RAO "UES of Russia".

Pursuant to Article 56 (1) of the Federal Law "On Joint Stock Companies", the Board of Directors assigned the functions of the AGM Counting Commission to the Company's Registrar, OAO "Status Registration Company", Moscow.

Having considered the question of the AGM working bodies, the Board of Directors of RAO "UES of Russia" approved the appointment of the AGM Presidium consisting of the members of the Company's Board of Directors and the AGM Secretariat consisting of the members of the Company's executive staff.

The AGM of RAO "UES of Russia" will be held on 29 June 2005 in the Zelenograd Palace of Culture located in the administrative district of Zelenograd, Moscow, Russia. Record date: The list of persons entitled under the laws of the Russian Federation to take part in the AGM of RAO "UES of Russia" will be made as at 10 May 2005.

* * *

The Board of Directors of RAO "UES of Russia" resolved to complete the formation of OAO "Territorial Generation Company No. 8" (OAO "TGC-8")* through merger of OAO "Astrakhan Regional Generation Company", OAO "Volzhskaya Generation Company", OAO "Rostov Generation Company", OAO "Dagestan Thermal Generation Company", and OAO "Stavropol Thermal Generation Company" with and into OAO "TGC-8".

The Board of Directors instructed the Management Board to ensure the exercise of rights of the RGC shareholders consenting to the procedure for the establishment of OAO "TGC-8", both the previously approved ones and the proposed ones, with regard to the acquisition by the shareholders of shares in OAO "TGC-8" on the agreed terms within the agreed timeframe.

The procedure for the transfer of the generation assets of OAO "Kubanenergo" to OAO "TGC-8" will be considered after the Board of Directors determines the timing for its restructuring.

The Management Board of RAO "UES of Russia" was commissioned to submit for consideration by the Board of Directors, no later than October 2005, the matters relating to the reorganization of OAO "TGC-8" through merger of regional generation companies with and into OAO "TGC-8".

* OAO "TGC-8" was registered on 22 March 2005 with the Inspectorate of the Federal Tax Service of Russia for the Kirovsky District, city of Astrakhan. As at the time of establishment, the charter capital of OAO "TGC-8" was RUB 10 million and was divided into 1 billion ordinary shares. Victor Gvozdev was elected Director General of the Company.

The resolution to establish OAO "TGC-8" as a wholly-owned subsidiary of RAO "UES of Russia" was approved by the Board of Directors of RAO "UES of Russia" at its meeting on 29 October 2004.

The Board of Directors of RAO "UES of Russia" approved the lease by OAO "TGC-8" of the generating assets owned by OAO "Astrakhan Regional Generation Company", OAO "Volzhskaya Generation Company", OAO "Kubanenergo" (and, after its reorganization, the generating assets of OAO "Kuban Generation Company"), OAO "Rostov Generation Company", the Kaspiyskaya CHPP and Makhachkalinskaya CHPP of OAO "Dagestan Thermal Generation Company", and the Kislovodskaya CHPP of OAO "Stavropol Thermal Generation Company".

In accordance with the schedule for the establishment of OAO "TGC-8", the Company will start its operations on 1 July 2005, with the process to be completed by 1 May 2006.

* * *

The Board of Directors of RAO "UES of Russia" deemed it advisable to complete the establishment of OAO "TGC-9"* through merger of OAO "Perm Generation Company" and OAO "Sverdlovsk Generation Company" with and into OAO "TGC-9", which will be followed by contribution of shares in the generation company to be spun off from OAO "Komienergo" as payment for the additional issue of shares in OAO "TGC-9".

The Board approved the lease by OAO "TGC-9" of the property from OAO "Komienergo" used for the generation of electricity and heat, and for heat distribution. Before that, the lease of the generating assets to OAO "TGC-9" was backed by the minority shareholders of OAO "Komienergo".

The Management Board of RAO "UES of Russia" was commissioned to submit for consideration by the Board of Directors, no later than September 2005, the matters relating to the merger of OAO "Perm Generation Company" and OAO "Sverdlovsk Generation Company" with and into OAO "TGC-9".

The Board of Directors instructed the Company's representatives on the Board of Directors OAO "Komienergo" to vote at the Board meeting FOR the adoption of the following agenda of the general meeting of shareholders of OAO "Komienergo": "Approval of the interested party transaction".

* OAO "TGC-9" was registered on 9 December 2004 with the Inspectorate of the Ministry for Taxes and Levies of Russia for the Sverdlovsky District, city of Perm. The Director General of the Company is Valery Rodin. At the time of establishment, the charter capital of OAO "TGC-9" was RUB4.2 million and was divided into 1.4 billion ordinary shares.

The resolution to establish OAO "TGC-9" as a wholly-owned subsidiary of RAO "UES of Russia" was approved by the Board of Directors of RAO "UES of Russia" on 3 September 2004.

* * *

The Board of Directors of RAO "UES of Russia" approved the restructuring plan of OAO "Komienergo" in accordance with the "basic" scenario, which provides for spin-off the following companies from OAO "Komienergo" (with the current ownership structure preserved):

  • OAO "Komi Regional Generation Company";
  • OAO "Electricity Transmission Network of the Republic of Komi", to which the power grid facilities of OAO " Komienergo" relating to the Unified National Electricity Grid (UNEG) are to be transferred in accordance with the separation balance sheet, as well as funds in an amount necessary to compensate for the expenses;
  • OAO "Komi Energy Retail Company";

According to the restructuring plan, the power distribution networks that are not part of the UNEG will remain the property of OAO "Komienergo".

In this connection, the Board approved the establishment in 2005 of a branch of OAO "UES System Operator-Central Dispatch Administration" on the basis of the Regional Dispatch Administration (RDA) of OAO "Komienergo", with the functions of control of the networks of 110 kV and less to be allocated between OAO "UES SO-CDA" and OAO "Komienergo".

Under the restructuring plan, an agreement is to be made in 2005 between OAO "Komienergo" and OAO "Center ITC" on the use of the UNEG facilities owned by OAO "Komienergo" until the spin-off of OAO "Electricity Transmission Network of the Republic of Komi" [from OAO "Komienergo"].

The plan provides for the transfer, with effect from 2006, of the UNEG facilities owned by OAO "Komienergo" for use to OAO "UES Federal Grid Company", establishment of a transmission tariff for OAO "UES FGC", and merger of OAO "Electricity Transmission Network of the Republic of Komi" with and into OAO "Center ITC".

The Board instructed the representatives of RAO "UES of Russia" to vote FOR the approval of the items of business of board meetings and shareholder meeting of OAO "Komienergo" and shareholder meetings of the newly established companies, so as to ensure implementation of the reorganization plan of OAO "Komienergo".

This resolution of the Board of Directors would come into force upon signature of the Agreement between OAO RAO "UES of Russia", the Government of the Republic of Komi, and OAO "Komienergo" on the energy company's restructuring.

* * *

The Board of Directors of RAO "UES of Russia" considered the issue of use of the proceeds from the sale of the Company's assets and noted the proposals made by the management of RAO "UES of Russia". The Board of Directors instructed the Management Board to further refine these recommendations and submit them for consideration by the Board of Directors together with the issue of lifting the moratorium on the sale of core assets.

The Board of Directors of RAO "UES of Russia" considered the question of the possibility of consolidation of OAO "HydroWGC" and its subsidiary power plants via a share exchange before the reorganization of OAO RAO "UES of Russia". The Board of Directors noted the report presented to it on the possible ways of such consolidation.

The Board of Directors instructed the Management Board to explore the possible models for participation of the Russian Federation in the authorized capital of OAO "HydroWGC" and submit this issue for repeated consideration by the Board.

* * *

The Board of Directors of RAO "UES of Russia" approved the list of individual key performance indicators (KPI) for the top managers (members of the Management Board) of RAO "UES of Russia" for the year 2005. The Board charged the Chairman of the Management Board of RAO "UES of Russia" Anatoly Chubais with approval of the KPI values by 27 June 2005.

At the Board meeting held 28 December 2004, the Board of Directors of RAO "UES of Russia" approved the list of individual KPIs for the top managers (members of the Management Board) for 2004, and gave the Management Board the task of hiring a consulting firm with the appropriate expertise to produce recommendations on improving the KPI system for top managers of RAO "UES of Russia" for 2005.

The analysis performed by independent experts confirmed that the existing system of KPIs for top managers of RAO "UES of Russia" is, on the whole, balanced and needs only some changes and adjustments so as to more fully cover their key functions.

In particular, the ROTA (return on total assets) in 2005 was replaced with ROE (return on equity). Moreover, in order to include in the KPI system some one-time tasks that are not part of the functions routinely performed by the members of the Management Board and not expressed in the KPIs, the indicator of "Absence of unfulfilled control instructions of the Chairman of the Management Board of RAO "UES of Russia", and orders and resolutions of the Management Board of RAO "UES of Russia".

The Holding Company's KPI system is based on the principle of decomposition of goals, under which the achievement of the KPI by the SDCs of RAO "UES of Russia" ensures the achievement of the KPIs by the Business Units. The latter, in their turn, support the KPIs common for the members of the Management Board of RAO "UES of Russia". The approved individual key performance indicators for the members of the Management Board, including those that are not heads of the Business Units, complete the implementation of the goal decomposition principle.

* * *

The Board of Directors of RAO "UES of Russia", performing the functions of the AGM of OAO "UES System Operator-Central Dispatch Administration"*, approved the Annual Report, the annual financial statements, the profit and loss account for 2004, and the profit allocation based on the results of the previous financial year.

The net profit of OAO "UES SO-CDA" in FY2004 was RUB1,422 million. The Board resolved to allocate the net profit as follows: RUB47.682 million to the Reserve Fund, RUB1,359 million to the Accumulation Fund, and RUB15 million for the dividend payment. The dividends on ordinary shares of OAO "UES SO-CDA" are to be paid at a rate of RUB0.0151093 per share of RUB1 par value by July 27, 2005.

The Board of Directors of RAO "UES of Russia" elected the Board of Directors of OAO "UES SO-CDA" consisting of:

1 Victor Khristenko Minister of Industry and Energy of the Russian Federation
2 Boris Ayuyev Member of the Management Board, RAO "UES of Russia"; Chairman of the Management Board of OAO "UES SO-CDA"
3 Alexander Voloshin Chairman of the Board of Directors, RAO "UES of Russia"
4 German Gref Minister of Economic Development and Trade of the Russian Federation
5 Sergey Ivanov First Deputy Director General, "Rosenergoatom"
6 Dmitry Ponomarev Chairman of the Management Board, NP "ATS"
7 Andrey Rappoport Member of the Management Board, Managing Director, RAO "UES of Russia" (Networks Business Unit); Chairman of the Management Board, OAO "UES FGC"
8 Yury Udaltsov Member of the Management Board, Head of the Reform Management Center, RAO "UES of Russia"
9 Anatoly Chubais Chairman of the Management Board, RAO "UES of Russia"

 The Board of Directors of RAO "UES of Russia" also elected the Auditing Commission of OAO "UES System Operator-Central Dispatch Administration" consisting of:

1

Andrey Gabov

Head of Corporate Department of the Corporate Center, RAO "UES of Russia"

2

Lyudmila Matyunina

First Deputy Head of the Internal Audit Department of the Corporate Center, RAO "UES of Russia"

3

Victor Myasnikov

Head of Financial and Economic Examination Section of the Financial Control and Audit Department, Ministry of Industry and Energy of Russia

4

Nadezhda Petelina

Leading Expert of the Accounting and Reporting Department, OAO "UES System Operator-Central Dispatch Administration"

5

Igor Repin

Deputy Executive Director, Investor Protection Association

 The Board of Directors of RAO "UES of Russia" approved the appointment of ZAO "PricewaterhouseCoopers Audit" as Auditors of OAO "UES System Operator-Central Dispatch Administration" for the year 2005.

* Under the Charter of OAO "UES System Operator-Central Dispatch Administration", resolutions on matters relating to the competence of a General Meeting of shareholders are taken by the Board of Directors of RAO "UES of Russia" during the period when RAO "UES of Russia" holds 100% of the voting shares in OAO "UES SO-CDA".

 * * *

The Board of Directors approved the Procedure for the declaration of insider deals in securities of RAO "UES of Russia" and its SDCs by persons having access to insider information.

The draft Procedure was first considered by the Board of Directors at its meeting held 28 January 2005, and was revised, in accordance with the Board resolution, by the Audit Committee with the involvement of interested members of the Board of Directors.

This document contains definitions of the notions of "insider dealing" and "insider information", and the procedure for notifying the Audit Committee under the Board of Directors of RAO "UES of Russia" of any transactions made by insiders.

The Procedure establishes the filing of notices as a way of disclosure of insider deals. Thus, insiders are required to declare to the Audit Committee all deals in securities issued by RAO "UES of Russia" and its SDCs within three days after the end of the calendar month in which the deal was made.

The previous version of the Procedure used the permission-based principle of making transactions, when insiders were required to obtain the relevant permission 5 days before making a securities trade.

The Procedure requires that insiders declare their deals in securities of RAO "UES of Russia" and its SDCs in the event that they transfer their securities into trust or in the event that a trade is made by a legal entity in which the insider is a chief executive officer.

The Board of Directors of RAO "UES of Russia" commissioned the Management Board to ensure implementation of the basic principles laid down by the Procedure at the SDCs of RAO "UES of Russia".

 

 

 

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