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Unified Energy System

September 30, 2005

RAO UES Board of Directors holds its regular meeting

Moscow, 30 September 2005. The Board of Directors of RAO "UES of Russia" received and noted a report on the preparations at RAO UES companies for the 2005-2006 winter period.

Within the framework of the repair campaign and the Company's Action Plan to improve the reliability of the UES of Russia, by 1 September 2005, repair work had been completed at the turbines of RAO UES thermal power plants having an aggregate capacity of 17,931 MW, at power boilers with an aggregate output of 77,295 t/h, and at hot water boilers with a steam output of 4,776 Gcal/h; 353.55 km of heating networks had been replaced. At the Holding Company's hydropower plants, repairs of 762 generators had been completed by 1 August 2005.

As part of the winter preparations, the power grid companies of RAO "UES of Russia" carried out vegetation management on transmission line rights-of-way having an area of more than 12,000 hectares. Also, the companies' repair crews replaced 17,295 insulators on transmission lines and 3,452 conductor spacers. All scheduled work was completed to replace lightning protection cables, repair the 110-750 kV autotransformers, shunt reactors and compressors.

The dispatch personnel of the branches of OAO "UES SO-CDA", the UES System Operator, was regularly trained for emergency response. In August 2005 alone, there were over 400 drills with 875 dispatchers taking part.

Thus, the enterprises of RAO "UES of Russia" are simultaneously working on ensuring the current and future reliability of the Unified Energy System of Russia.

The work is ahead of schedule in one of the key areas of winter preparations—building stockpiles of fuel, which was ensured by stable supplies of fuel to power plants. As of 1 September 2005, the fuel stockpiles at RAO UES enterprises amounted to 14,495,300 tonnes of coal (117.8% of the target) and 2, 645,800 tonnes of fuel oil (115.9% of the target).

At the same time, the Board of Directors of RAO "UES of Russia" stated that the prices of fuel, services, material resources and equipment were growing at a faster rate than the heat and electricity tariffs. Compared to 1 October 2004, fuel oil prices increased by 51%, natural gas prices by 19%, whereas the average selling price of electricity grew at a lower-than-inflation rate for a second consecutive year. For instance, in 2004, the average selling price of electricity rose by 11.4% compared to an inflation rate of 11.7%; in 2005, the average electricity price is expected to rise by 9.2%, while the inflation rate, according to experts' estimates, will be in excess of 10%.

As one of the principal concerns in winter preparations is stockpiling sufficient fuel stocks, energy companies are forced to re-direct funds from other budget items.

Because of the surge in fuel prices and non-payments by certain groups of electricity and heat consumers, the Kyzylskaya CHPP of OAO "Tyvaenergo" and the Yuzhnoe Southern Power Grid Enterprise (PES) of OAO "Kamchatskenergo" still have fuel problems. These plants are expected to accumulate the necessary fuel inventories in early October 2005.

Timely and high-quality repairs and stockpiling of the required fuel stocks are the key parameters used in assessing energy companies' winter preparations for the purpose of issuing winter readiness certificates. Over the past four years, all companies of RAO "UES of Russia" have been able to obtain winter preparedness certificates in due time and ensure reliable and uninterrupted power supply to consumers throughout the autumn/winter period.

The Board of Directors of RAO "UES of Russia" gave the Management Board of the Company the task to ensure implementation of all planned measures required for fail-free operation of the Holding Company's entities during the 2005-2006 autumn-winter period.

* * *

The Board of Directors noted the information on the investment program of RAO "UES of Russia" for the year 2006.

By now, the draft investment programme 2006 of RAO "UES of Russia" has been agreed with the Ministry of Industry and Energy, the Ministry of Economic Development and Trade, and the Federal Tariffs Service of Russia.

In 2006, OAO RAO "UES of Russia" plans to allocate RUB20.8 billion in funds for its capital investment programme, including RUB18.1 billion in funds earmarked for investment and RUB2.7 billion in borrowed funds.

The financing of the Company's investment programme 2006-2007 will focus on the start-up facilities of the Bureyskaya HPP, Irganayskaya HPP, Zelenchukskaya HPP, and Ivanovskaya TPP.

In 2006, the Company plans to spend RUB3.3 billion for its own account and RUB1.9 billion in borrowed funds to raise the dam at the Bureyskaya HPP to the target height of 265 meters (and on the left bank to the height of 248 m). Besides, the Company is considering the possibility of project financing in completion of Units 5 and 6 of the plant. The funding of the works to prepare the inundation area, including the project to move the 29.5 km stretch of the railroad linking Izvestkovaya and Chegdomyn railway stations, will amount to RUB1.5 billion in 2006 and RUB6.2 billion in 2007 (the projects are financed jointly with OAO "Russian Railways" on a parity basis, and by the federal authorities).

In order to increase the capacity of the operational hydropower units of the Irganayskaya HPP, in 2006 work will continue to raise the plant's dam to the planned height of 551 m. RUB1.2 billion in funds will be allocated for this project.

To complete the water intake facilities at the Zelenchukskaya HPP, which will raise the plant's electricity output twofold without increasing its installed capacity, the Company will allocate RUB1.1 billion in 2006 (RUB0.8 billion for its own account and RUB0.3 billion in borrowings).

In 2006, RUB5.2 billion in earmarked funds will be allocated for the project to build the Ivanovskaya TPP, which will be equipped with the first Russian-made PGU-325 combined-cycle gas turbines.

In order to prevent environmental and technological disasters and preserve the facilities of the Nizhne-Cherekskie HPPs and Zaramagskie HPPs, RUB0.2 billion will be allocated in 2006 for each of the power plants.

In 2006, RUB4.9 billion will be earmarked for the Kaliningradskaya CHPP-2 to enable it to repay the loans raised for the construction of the power plant.

The project to build the Boguchanskaya HPP was initially intended to be funded through project finance. However, due to the limited investment possibilities of OAO "HydroWGC" (pending decision regarding the investment component of the tariff for OAO "HydroWGC"), RAO "UES of Russia" requests the Russian Government to allocate an additional RUB2.7 billion in earmarked investment funds for 2006.

Implementation of the joint project between Russia and Tajikistan to complete the construction of the Sangtuda HPP-1 will be financed with RUB0.5 billion of borrowed funds in 2006. The work to complete the Sangtuda HPP-1 will be financed through the investment programme of OAO "UES FGC" and with funds borrowed by this company.

Besides, the investment programme provides for further development of non-conventional energy technologies. In 2006, it is planned to spend RUB0.3 billion on the construction of the Malaya Mezenskaya Tidal Power Plant with orthogonal hydraulic units of up to 10 MW.

To complete the construction work planned for 2006, the companies implementing the projects will need to raise RUB2.7 billion in borrowings.

The amount of funds earmarked by OAO RAO "UES of Russia" for investment for 2007 is not yet known, as the Government of Russia has not taken a decision on that.

After OAO RAO "UES of Russia" is reorganized, the current mechanism used for forming the investment programme within the subscription (service) fee is to be replaced with other forms of organizing the investment process, i.e. by providing investment guarantees and including the project completion costs in the tariff of OAO "HydroWGC".

* * *

The Board of Directors of RAO "UES of Russia" approved the target model of operation of OAO "HydroWGC".*

The target model provides for the establishment of an Operating Company on the basis of OAO "HydroWGC", which will manage its hydropower plant branches, perform corporate governance functions at its subsidiaries established to engage in new businesses, and implement investment projects. The stake held by the Federal Government in the Operating Company after the reorganization of RAO "UES of Russia" must be not less than 50% plus 1 share.

The Operating Company will consolidate the hydropower plants' financial and production resources, which will increase the value and investment potential of OAO "HydroWGC".

The Operating Company will be established in several phases. At the first phase, the hydropower companies will merge with and into OAO "HydroWGC". The second phase will see contribution of the federally-owned assets to the authorized capital of OAO "HydroWGC" in exchange for additional shares in the company. At the next phase, the remaining subsidiaries and dependent companies of OAO "HydroWGC" will be reorganized, with as many HPPs as possible merging with and into OAO "HydroWGC", provided that the Russian Federation holds at least 50% plus 1 share in the authorized capital of OAO "HydroWGC" after the reorganization of OAO RAO "UES of Russia".

This condition may be met by contributing money or additional assets owned by the Russian Federation to the authorized capital of OAO "HydroWGC". In this connection, the Board of Directors of RAO "UES of Russia" instructed the Management Board of RAO "UES of Russia" to prepare, together with the relevant ministries and agencies of the Russian Federation, by 1 December 2005, proposals regarding the mechanisms for contributing the additional assets owned by the Russian Federation to the authorized capital of OAO "HydroWGC" in order to preserve the state's interest in the company after the reorganization of RAO "UES of Russia" at the level of at least 50% plus 1 share.

* Currently, OAO "HydroWGC" is a holding company owning shares in fifteen AO-HPPs, including OAO "Boguchanskaya HPP" (64.22%), OAO "Bureyskaya HPP" (15.91%), OAO "Volzhskaya HPP" (83.31%), OAO "Votkinskaya HPP" (59.84%), OAO "Zhigulevskaya HPP" (84.11%), OAO "Zaramagskie HPPs" (77.45%), OAO "Zeyskaya HPP" (56.39%), OAO "Zelenchukskie HPPs" (97.29%), OAO "KabbalkGES" (50.34%), OAO "Kamskaya HPP" (100% minus 1 share), OAO "Cascade of Upper-Volzhsky HPPs" (100% minus 1 share), OAO "Nizhegorodskaya HPP" (100% minus 1 share), OAO "Saratovskaya HPP" (100% minus 1 share), OAO "Sulakenergo" (53.62%), OAO "Sayano-Shushenskaya HPP Named after Neporozhny" (78.8%), and one management company, OAO "HydroWGC Management Company" (formerly OAO "VoGEK Management Company", 100% minus 1 share).

Pursuant to Directive of the Russian Government No. 1254-r dated 1 September 2003, by the time the establishment of OAO "HydroWGC" is completed, which is scheduled to take place in 2006, the following assets are to be contributed to the authorized capital of OAO "HydroWGC": shares of the HPP companies spun off from some regional energos (OAO "Cheboksarskaya HPP", OAO "Dagestan Regional Generation Company", OAO "Zagorskaya PSPP" OAO "Stavropol Electricity Generation Company"), and the additionally issued shares of OAO "Bureyskaya HPP", OAO "Sulakenergo", OAO "Zaramagskie HPP", the property of the Novosibirskaya HPP, and some other property.

* * *

The Board of Directors of RAO "UES of Russia" considered the questions of reorganization of OAO "TGC-9"* relating to the completing the formation of the intended industry structure.

The Board of Directors deemed it advisable to reorganize OAO "TGC-9" through merger of OAO "Perm Generation Company" and OAO "Sverdlovsk Generation Company" with and into OAO "TGC-9". The Board of Directors instructed the representatives of RAO "UES of Russia" on the Boards of Directors of OAO "TGC-9", OAO "Perm Generation Company", and OAO "Sverdlovsk Generation Company" to vote FOR the inclusion of the relevant items of business on the agenda of the companies' shareholder meetings and approval of the agreements of merger of the regional generation companies with and into OAO "TGC-9".

In addition, RAO UES representatives at the shareholder meeting of OAO "TGC-9" were instructed to vote FOR the following resolution on the item "On determining the number, par value, categories (types) of additional shares of OAO "TGC-9" authorized for issuance and the rights carried by such shares":

"[BE IT RESOLVED] that the maximum number of additional shares OAO "TGC-9" is authorized to issue be 4,826,943,529,970 ordinary shares, par value RUB0.003 each worth a total of RUB14,480,830,589.91. The [additional] ordinary shares authorized for issuance by OAO "TGC-9" grant their owners the rights provided by the Charter of the Company."

Also, the Board of Directors instructed the representatives of RAO "UES of Russia" at the shareholder meeting of OAO "TGC-9" to vote FOR increasing the authorized capital of the Company through issuance of additional ordinary shares of the Company which will be exchanged for ordinary and Type A preferred shares in OAO "Perm Generation Company" and OAO "Sverdlovsk Generation Company", the companies being merged with and into OAO "TGC-9" in accordance with the procedure provided by the Merger Agreement.

The Board of Directors of RAO "UES of Russia" set the following share exchange ratios: The following amounts of shares will be exchanged for one share in OAO "TGC-9":

 - 1/2885 of an ordinary share in OAO "Sverdlovsk Generation Company" of RUB8.6036 par value;

 - 1/2640 of a Type A preferred share in OAO "Sverdlovsk Generation Company" of RUB8.6036 par value;

 - 1/61325 of an ordinary share in OAO "Perm Generation Company" of RUB100 par value;

 - 1/56112 of a Type A preferred share in OAO "Perm Generation Company" of RUB100 par value.

 

By now, OAO "TGC-9" has leased the generation assets of the Sverdlovsk and Perm energy systems, carried out all required corporate procedures, and has been engaged in operations since 1 April 2005.

At the current phase of TGC-9 establishment, it is planned that the company will be reorganized through merger of OAO "Sverdlovsk Generation Company" and OAO "Perm Generation Company" with OAO "TGC-9". Later on, the shares of the generation company to be spun off from OAO "Komienergo" will be paid as consideration for additional shares in OAO "TGC-9".

The Board of Directors also noted the information that the generation facilities of OAO "Komienergo" will be integrated into OAO "TGC-9" after the functional separation of OAO "Komienergo".

* OAO "TGC-9" was registered with the state authorities on 9 December 2004 in the city of Perm. At the time of establishment, the authorized capital of OAO "TGC-9" was RUB4.2 million and was divided into 1.4 billion ordinary shares. The share issue and share placement reports was registered by the FSFM of Russia on 17 March 2005. The Director General of OAO "TGC-9" is Valery Rodin.

* * *

The Board of Directors of RAO "UES of Russia" approved the proposed additions to the model for establishment of OAO "Territorial Generation Company No. 10" (OAO "TGC-10").

Previously, at its meeting held 29 October 2004, the Board of Directors of RAO "UES of Russia" took a resolution providing for the creation of OAO "TGC-10", an operating company using lease arrangements, by establishing of a wholly-owned subsidiary of RAO "UES of Russia", with OAO "Tyumen Regional Generation Company", OAO "Chelyabinsk Generation Company", and OAO "Kurganenergo" (and, after the latter is reorganized, OAO "Kurgan Generation Company") taking stakes in OAO "TGC-10".

The additions to the scheme for establishment of OAO "TGC-10" provide for the merger, at the first stage, of OAO "Tyumen Regional Generation Company" and OAO "TGC-10" with and into OAO "Chelyabinsk Generation Company", and, at the second stage, the merger of OAO "Kurgan Generation Company" (the company to be spun off from OAO "Kurganenergo") with OAO "Chelyabinsk Generation Company". Upon completion of the mergers, OAO "Chelyabinsk Generation Company" will change its name for OAO "TGC-10".

Until the mergers are completed, it is planned to transfer the powers of the one-man executive body (CEO) of OAO "Tyumen Regional Generation Company", OAO "Chelyabinsk Generation Company", and OAO "Kurgan Generation Company" to OAO "TGC-10".

In the event that the minority shareholders of OAO "Chelyabinsk Generation Company" do not approve the merger of OAO "Tyumen Regional Generation Company" and OAO "TGC-10" with and into OAO "Chelyabinsk Generation Company", OAO "TGC-10" will issue additional shares of OAO "TGC-10" to be exchanged for shares in OAO "Tyumen Regional Generation Company", OAO "Chelyabinsk Generation Company" and OAO "Kurgan Generation Company". The Board of Directors of RAO "UES of Russia" will take additional decisions on the terms and conditions of the additional share issue of OAO "TGC-10".

The proposed model for the establishment of OAO "TGC-10" is in full compliance with the reform concept and helps minimize the cost of TGC-10 establishment, and ensures equal rights to shareholders in all companies taking part in the integration process in accordance with their stake in the companies' capital.

OAO "TGC-10" was registered on 30 March 2005 by the Inspectorate of the Federal Tax Service of Russia for the Traktorozavodsky District, city of Chelyabinsk. The share issue and share placement report of OAO "TGC-10" was registered by the FSFM of Russia on 23 May 2005. The authorized capital of OAO "TGC-10" is RUB10 million and has by now been fully paid in cash.

The generating and heating grid assets of OAO "Tyumen Regional Generation Company", OAO "Chelyabinsk Generation Company", and OAO "Kurganenergo" (after the reorganization of OAO "Kurganenergo", the generating and heating grid assets of OAO "Kurgan Generation Company") will be transferred to OAO "TGC-10".

The resolution to establish OAO "TGC-10" as a wholly-owned subsidiary of OAO RAO "UES of Russia" was approved by the Board of Directors of RAO "UES of Russia" on 29 October 2004.

* * *

The Board of Directors of RAO "UES of Russia" considered the question of "pilot" programmes to dispose of shares in energy retail companies (ERC)* established as a result of reorganization of the regional energy companies.

The Board of Directors approved the following types of "pilot" programmes:

 - transfer of ERC shares into trust within projects implemented jointly with regional administrations on the terms similar to the terms of the contract of trust management by TGCs of RGC shares taking into account resolutions of the Board of Directors of RAO "UES of Russia" (not more than 3 projects);

 - transfer of ERC shares into trust of WGCs on the terms similar to the terms of the contract of trust management by a WGC of RGC shares taking into account resolutions of the Board of Directors of RAO "UES of Russia" (1 project);

 - transfer of ERC shares into trust to independent retail companies on the terms similar to the terms of the contract of trust management by a TGC of RGC shares taking into account resolutions of the Board of Directors of RAO "UES of Russia" (at least 5 projects);

 - sale of ERC shares in a public auction (1 project).

 

The Board of Directors of RAO "UES of Russia" stated that the disposal of ERC shares is to be implemented subject to support from the regional authorities.

The Board of Directors took a decision that the "pilot" projects providing for the transfer of ERC shares into trust may set less strict terms than those stated in the trust contract between RAO "UES of Russia" and the TGC concerned. Specifically, the trustee is required to provide guarantees of performance by the ERC of its obligations to infrastructure entitles, electricity suppliers participating in the wholesale and retail electricity markets, energy grid companies, and preserve the customer base of the retail company.

The trust contract relating to a "pilot" project will remain in effect for one 1 year. In the event that the trustee fails to fulfil the terms of the contract, the contract may be unanimously terminated by RAO "UES of Russia" prior to its expiry.

In the event that positive results are achieved by the administration of ERC shares, upon expiration of the contract, it may be prolonged; also, a question may be considered on the sale of shares of these companies. In the latter case, it is advisable to analyze the possibility of granting the trustee a pre-emptive right to purchase shares in the energy retail company.

If a resolution is taken to sell shares of the ERC concerned through a pubic auction, the winner will be the bidder that offers the highest price. It is contemplated that subsidiaries and dependent companies of RAO "UES of Russia" may not participate in the auction, and the shares will be offered for sale only to unaffiliated companies.

The Board of Directors approved the list of ERCs whose shares are to be divested and instructed the Management Board of RAO "UES of Russia" to implement the "pilot" projects, including the sale of one energy retail company.

The following energy retail companies were included in the list of companies to be involved in the "pilot" projects to dispose of ERC shares:

 - OAO "Kaluga Retail Company";

 - OAO "Tambov Energy Retail Company";

 - the energy retail company to be established as a result of restructuring of OAO "Krasnoyarskenergo" (OAO "Krasnoyarskenergosbyt");

 - the energy retail company to be established as a result of restructuring of OAO "Vologdaenergo" (OAO "Vologda Retail Company");

 - OAO "Novgorod Energy Retail Company";

 - OAO "Energosbyt Rostovenergo";

 - OAO "Udmurt Energy Retail Company";

 - OAO "Chelyabenergosbyt";

 - OAO "Nizhny Novgorod Retail Company";

 - OAO "Yaroslavl Retail Company".

 

* The resolution of the Board of Directors of RAO "UES of Russia" of 24 June 2005 provides for the transfer of shares in energy retail companies established as a result of regional energos' restructuring into trust to the respective TGCs (in accordance with the latter's territorial configuration) as a basic approach to management of energy retail companies during the transition period. The Board of Directors also resolved that not more than 10 projects might be implemented using other scenarios for disposal of energy retail companies' shares subject to separate resolutions by the Board of Directors of RAO "UES of Russia".

** The Board of Directors of RAO "UES of Russia" approved the principal terms and conditions of the agreement with TGCs on trust management of shares in ERCs spun off from regional energos at the Board of Directors meeting held 1 July 2005.

* * *

The Board of Directors of RAO "UES of Russia", performing the functions of an EGM of OAO "WGC-3"*, approved the agreement of merger of OAO "Kostromskaya TPP", OAO "Pechorskaya TPP", OAO "Gusinoozerskaya TPP", OAO "Kharanorskaya TPP", OAO "Cherepetskaya TPP", OAO "Yuzhnouralskaya TPP" with and into OAO "WGC-3" as part of the reorganization of the wholesale generation company.

By now, the first stage of the process to establish OAO "WGC-3" has been completed by contributing the shares in OAO "Kostromskaya TPP", OAO "Pechorskaya TPP", OAO "Gusinoozerskaya TPP", OAO "Kharanorskaya TPP", and OAO "Cherepetskaya TPP" owned by RAO "UES of Russia" to the authorized capital of OAO "WGC-3".

At the final stage of the establishment of OAO "WGC-3", OAO "Yuzhnouralskaya TPP", a company spun off from OAO "Chelyabenergo", will merge with and into OAO "WGC-3" and the latter's subsidiaries will exchange their shares for WGC-3 shares.

It is planned to exchange the shares of the subsidiaries—OAO "Kostromskaya TPP", OAO "Pechorskaya TPP", OAO "Cherepetskaya TPP", and OAO "Yuzhnouralskaya TPP"—owned by minority shareholders of these power plants for additional shares in OAO "WGC-3".

On 24 June 2005, the Board of Directors of RAO "UES of Russia" determined the stance of RAO UES representatives at the shareholder meeting of OAO "WGC-3" on the matters relating to merger of the AO-power plants that are part of the configuration of WGC-3 with and into said wholesale generation company.

In view of the fact, today the Board of Directors of RAO "UES of Russia", performing the function of EGM of OAO "WGC-3", resolved to reorganize OAO "WGC-3" through merger of AO-power plants with and into WGC-3, and to increase the authorized capital of OAO "WGC-3" through placement of 14,144,629,100 additional ordinary shares of RUB1 par value. These shares will be exchanged for shares in AO-power plants owned by RAO "UES of Russia" (OAO "Yuzhnouralskaya TPP") and minority shareholders of the AO-power plants being merged with and into OAO "WGC-3".

One additional ordinary share of OAO "WGC-3" may be exchanged for:**

 - 2.755713 ordinary shares and 2.755713 Type A preferred shares of OAO "Yuzhnouralskaya TPP";

 - 0.002047 ordinary share in OAO "Kharanorskaya TPP";

 - 0.000319 ordinary share in OAO "Gusinoozerskaya TPP";

 - 0.164781 ordinary share in OAO "Kostromskaya TPP";

 - 0.290781 ordinary share in OAO "Pechorskaya TPP".

 - 0.000252 ordinary share in OAO "Cherepetskaya TPP".

 

If such calculation results in a fractional number of shares, the number of shares is to be rounded [up or down] in accordance with the generally accepted rules. If, as a result of such rounding, a shareholder is not entitled to receive any shares, such shareholder will receive one ordinary share in OAO "WGC-3".

It is planned to complete the share exchange and consolidation of subsidiaries of OAO "WGC-3" by the end of Q4 2005; the merger of the subsidiary power plants with and into OAO "WGC-3" is scheduled for the end of Q1 2006.

* The decision on the establishment by RAO "UES of Russia" of OAO "WGC-5" as a wholly-owned subsidiary was taken by the Board of Directors at its meeting held 1 October 2004. The state registration of OAO "WGC-3" was effected on 24 November 2004 by Interdistrict Inspectorate No. 2 of the Ministry of Taxes and Levies of Russia for the Republic of Buryatia. Maxim Kuznetsov was appointed Director General of OAO "WGC-3".

Pursuant to Order of the Government of the Russian Federation No. 1254-? of 1 September 2003, the following companies were included in OAO "WGC-3": OAO "Kostromskaya TPP", OAO "Pechorskaya TPP", OAO "Gusinoozerskaya TPP", OAO "Kharanorskaya TPP" OAO "Cherepetskaya TPP", and OAO "Yuzhnouralskaya TPP".

** For the purpose of determining the market value of shares of the subsidiary power plants and shares of OAO "WGC-3", the Company hired a consortium of appraisal firms consisting of ZAO "Rossiyskaya Otsenka" ("Russian Appraisal") and OOO "Expert Consulting Group" accredited with OAO RAO "UES of Russia".

As a result of the tender, the Company selected a consortium of investment banks, ZAO "United Financial Group" and OOO "Deutsche Bank", to determine the share exchange and conversion ratios that would be fair for shareholders, taking into account the results of the share valuation by the consortium of appraisal firms, and to hold negotiations with the participating shareholders on the share exchange and merger of AO-power plants.

* * *

The Board of Directors of RAO "UES of Russia" took a number of decisions aimed at implementation of the second phase of establishment of OAO "WGC-3" and OAO "WGC-5", [the wholesale generation companies].

By now, the first phase of establishment of both wholesale generation companies, OAO "WGC-3" and OAO "WGC-5", has been completed, including the payment of the shares and property of federal power plants owned by RAO "UES of Russia" as contribution to the WGCs' capital.

Also, on 12 September 2005, OAO "WGC-5" exchanged its shares for shares in OAO "Konakovskaya TPP" owned by the power plant's minority shareholders. This share exchange of OAO "WGC-5" was effected as part of the second phase of WGC-3 establishment. The second phase of establishment of OAO "WGC-3", which includes share exchange and consolidation of the power plants spun off from regional energos, is scheduled for December 2005.

The target model in which the thermal Wholesale Generation Companies will become unified operational companies is to be achieved by merger of AO-power plants with and into the respective WGC. As a result of such merger, all rights and obligations of the power plants will be transferred to the WGCs in accordance with deeds of transfer. Resolutions on the reorganization of the power plants are expected to be taken by general meetings of the AO-power plants of OAO "WGC-3" in November 2005.

The Board of Directors of RAO "UES of Russia" stated that the preparations for the power plant's merger with the WGC are to start simultaneously with the start of the share exchange process at the WGC and its subsidiaries. In the process, the power plants that are part of OAO "WGC-3" and OAO "WGC-5" will carry out a comprehensive review of their assets and prepare deeds of transfer.

Simultaneously with resolutions to reorganize the companies through merger, the AO-power plants are expected to pass resolutions to increase the authorized capitals through capitalization of the power plants' capital surplus and increase of the par value of their shares.

Such measures are needed to improve the WGC's balance sheet after the merger, which is due to the current merger accounting rules provided by the Russian Accounting Standards. Thus, the capital surpluses of the AO-power plants are to be aggregated, with a considerable capital surplus emerging at the WGC as a result of the merger.

In this connection, the Board of Directors instructed the representatives of RAO "UES of Russia" on the Boards of Directors of the WGC to vote FOR increasing the authorized capitals of OAO "Konakovskaya TPP" and OAO "Nevinnomysskaya TPP", which are part of the OAO "WGC-6", and OAO "Kostromskaya TPP", OAO "Cherepetskaya TPP", OAO "Gusinoozerskaya TPP", OAO "Pechorskaya TPP", and OAO "Yuzhnouralskaya TPP", which are part of OAO "WGC-3", by increasing the par value of their shares.

As a result of the increase, the authorized capitals of the AO-power plants will be as follows:

 

For OAO "WGC-5":

Name of TPP

Capital surplus (Rubles)

Authorized capital (before capital increase, Rubles)

Authorized capital (after capital increase, Rubles)

OAO "Gusinoozerskaya TPP"1

3,215,082,000

460232

2,826,192,665.6

OAO "Kostromskaya TPP"

2,863,153,000

1385547545

4,248,642,991.988

OAO "Pechorskaya TPP"2

1,630,007,000

1028662103

2,564,968,953 ,8305

OAO "Cherepetskaya TPP"

550,245,000

232368080

782,575,281.6

OAO "Yuzhnouralskaya TPP"

1,241,477,000

605726689.7

1,846,915,742.958

OAO "Kharanorskaya TPP"

-

-

-

Total

9,499,964

1 due to the restriction established by Article 28 (5) of the Federal Law On Joint-Stock Companies, the authorized capital may be increased by a maximum amount of RUB2,826,269,000.
2 due to the restriction established by Article 28 (5) of the Federal Law On Joint-Stock Companies, the authorized capital may be increased by a maximum amount of RUB1,536,309,000.

 

For OAO "WGC-5":

Name of HPP

Capital surplus (thousands of Rubles)

Authorized capital (before capital increase, Rubles)

Authorized capital (after capital increase, Rubles)

OAO "Konakovskaya TPP"

911,814

404,023,023

1,315,822,181.3064

OAO "Nevinnomysskaya TPP"

876,732

436,70,1,690

1,313,432,736.8778

Total:

1,788,546

* * *

The Board of Directors of RAO "UES of Russia" considered and largely approved the terms of the tender for the right to purchase the 25% stake plus one share in OAO "Severo-Zapadnaya CHPP" ("North-West CHPP") from ZAO "Inter RAO UES".

The Board of Directors instructed the Management Board of RAO "UES of Russia" to finalize the terms of the tender and submit them for approval by the Board of Directors. The tender for the right to purchase the 25% stake plus one share in OAO "Severo-Zapadnaya CHPP" from ZAO "Inter RAO UES" is to be held before 1 October 2006. The tender will be organized by ZAO "Inter RAO UES".

Earlier, at the Board meeting of RAO "UES of Russia" held 26 April 2005, the Board of Directors approved the scheme proposed by the Management Board of the Company under which ZAO "Inter RAO UES" is to provide RUB3.5 billion in funds for the construction of the second power unit of OAO "Severo-Zapadnaya CHPP".

According to this scheme approved by the Board of Directors of RAO "UES of Russia", at the first phase of the project, in order to minimize the risks and reduce the cost of construction, ZAO "Inter RAO UES" will purchase a 25% stake plus one share worth over RUB2.71 billion in the third additional issue of shares in OAO "Severo-Zapadnaya CHPP" and raise at least RUB0.8 billion in external finance.

Also, under this arrangement, ZAO "Inter RAO UES" is obligated to sell the acquired shareholding in OAO "Severo-Zapadnaya CHPP" to any third party in the period between 1 January 2007 and 31 December 2012.

Under the resolution of the Board of Directors of RAO "UES of Russia", bids for the tender for the right to purchase from ZAO "Inter RAO UES" the shareholding in OAO "Severo-Zapadnaya CHPP" may be submitted by legal persons of any organizational form, financial and industry groups, special partnerships, except for persons affiliated with ZAO "Inter RAO UES".

The tender winner will be the bidder that offers the highest price for the shareholding in OAO "Severo-Zapadnaya CHPP".

* * *

The Board of Directors of RAO "UES of Russia" approved the service contract between RAO "UES of Russia" and ZAO "Agentstvo po prognozirovaniyu balansov v elektroenergetike" (ZAO "Agency for Power Balance Forecasting", ZAO "APBF").

The Agency was established pursuant to the resolution of the Board of Directors of RAO "UES of Russia" of 26 April 2005 and registered with the state authorities on 4 August 2005.

The principal goal of the Agency is to create an effective system to forecast operations and development of the electricity industry based on the market principles, and ensuring continuity in the performance of functions and development of the UES of Russia after the completion of the electricity reform and reorganization of RAO "UES of Russia".

The Agency will be engaged in the preparation of short-, medium-, and long-term power balance forecasts, supplying the federal and regional authorities and electricity sector entities with information needed to ensure that timely decisions are taken in the area of technological, tariff, investment, and fuel policies.

The Agency will focus on the activities currently undertaken by RAO "UES of Russia" which relate to the preparation of power balance forecasts, coordination of investment efforts of participants of the wholesale electricity market, and analysis of operations of the UES of Russia.

The Chairman of the Agency's Board of Directors is Yakov Urinson, Deputy Chairman of the Management Board and Head of the Corporate Center of RAO "UES of Russia". Alexey Sannikov, Head of Electricity Sector Regulation at the Federal Tariff Service, is the Deputy Chairman of the APBF Board of Directors. Igor Kozhukhovsky, Head of Economic Policy Department of the Corporate Center of RAO "UES of Russia", is Director General of the Agency.

* * *

The Board of Directors of RAO "UES of Russia" approved the combination by Yakov Urinson, Deputy Chairman of the Management Board and Head of the Corporate Center of RAO "UES of Russia", of his position with membership on the Board of Directors of OAO "Russian Communal Systems" (RKS).

The shareholder meeting of OAO "RKS", which will elect a new Board of Directors of the company, is scheduled to take place on 3 October 2005. RAO "UES of Russia" has nominated Yakov Urinson, Nikolay Brusnikin, Head of Project Group for Monitoring of Housing and Communal Sector of the Corporate Center of RAO "UES of Russia", and Alexander Chistyakov, First Deputy Chairman of the Management Board of OAO "UES FGC", as candidates for the Board of Directors of OAO "RKS".

* * *

The Board of Directors of RAO "UES of Russia" approved the appointment of Alexey Maslov, Director for Assets and Investments Management of OAO "UES FGC" as member of the Management Board of OAO "UES FGC".

Pursuant to the Charters of RAO "UES of Russia" and OAO "UES FGC", members of the Management Board of OAO "UES FGC" are appointed subject to approval of the Board of Directors of RAO "UES of Russia".

 

 

 

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