Moscow, 25 February 2005. At its regular meeting held today, the Board of Directors of RAO "UES of Russia" approved the decision to establish an operating company, OAO "TGC-2", using lease arrangements, which is to be followed by a merger of the regional generation companies created as a result of regional energos' reorganization with and into OAO "TGC-2".

At the first stage, the Company will be established as a wholly-owned subsidiary of RAO "UES of Russia", and later on, shares in OAO "TGC-2" will be offered to all shareholders of the regional generation companies (RGCs) which lease out their generating assets to OAO "TGC-2". The stakes [in TGC-2] offered to RGC shareholders will be determined by comparing the value of their assets leased to OAO "TGC-2".

The authorized capital of OAO "TGC-2" at the time of establishment will be RUB10 million and will be divided into 1 billion ordinary shares.

The Board of Directors approved the lease to OAO "TGC-2" of the generating assets of OAO "Arkhenergo", which will be transferred as a result of spin-off to OAO "Arkhangelsk Generation Company", the generating assets of OAO "Vologdaenergo", which will be transferred to OAO "Vologodskaya CHPP", the [generating] assets of OAO "Kostroma Generation Company", the generating assets of OAO "Novgorodenergo", which will be transferred to OAO "Novgorod Generation Company", the assets of OAO "Tver Generation Company", and the assets of OAO "Yaroslavl Energy Company".

The Board of Directors decided to complete the establishment of OAO "TGC-2" through merger of OAO "Arkhangelsk Generation Company", OAO "Kostroma Generation Company", OAO "Novgorod Generation Company", OAO "Tver Generation Company", OAO "Yaroslavl Energy Company" with and into OAO "TGC-2". Afterwards, shares in OAO "Vologodskaya CHPP" will be paid as consideration for additional share issue of OAO "TGC-2".

The matters relating to the target structure of TGC-2 will be considered by the Board of Directors of RAO "UES of Russia" not later than September 2005.

In accordance with the schedule for the establishment of TGC-2, the Company will start its operations in September 2005, with the process to be completed in the fourth quarter of 2006.

* * *

The Board of Directors approved the plan for the establishment of OAO "TGC-4" providing for use of lease arrangements, creation of a group of companies, and their subsequent merger with and into OAO "TGC-4".

At the first stage, the operating company, OAO "TGC-4" will be established as a wholly-owned subsidiary of RAO "UES of Russia", and later on, shares in OAO "TGC-4" will be offered to all shareholders of the regional generation companies (RGCs) which lease out their generating assets to OAO "TGC-4". The authorized capital of OAO "TGC-4" will be RUB10 million and will be divided into 1 billion ordinary shares.

Simultaneously with the operating company, it is planned to create another wholly-owned subsidiary, OAO "Priokskaya Investment Company".

Contributions to its authorized capital will be made by RAO "UES of Russia" in form of shares held by RAO UES in the following companies: OAO "Heat Energy Company", OAO "Bryansk Generation Company", OAO "Voronezh Generation Company", OAO "Kaluga Generation Company", OAO "Kursk Generation Company", OAO "Lipetsk Generation Company", OAO "Oryol Generation Company", OAO "Ryazan Heat Supply Company", OAO "Smolensk Generation Company", OAO "Tambov Generation Company", OAO "Priokskaya Territorial Generation Company".

The performance of CEO functions at the RGCs and OAO "Priokskaya Investment Company" will be transferred to OAO "TGC-4" so as to create a single management system.

In order to achieve the target structure of OAO "TGC-4", RAO "UES of Russia" will initiate reorganization of the RGCs, OAO "Priokskaya Investment Company" and their merger with and into OAO "TGC-4". As a result, an operating company will be established, which will own assets of the RGCs that merged with OAO "TGC-4" and shares in the RGCs which did not merge with it.

Shareholders in the RGCs that did not merge with OAO "TGC-4" will be invited to exchange their RGC shares for shares in OAO "TGC-4". For that purpose, RAO "UES of Russia" will arrange for an additional issue of TGC-4 shares to be exchanged for shares in the RGCs concerned. An opportunity to purchase shares in OAO "TGC-4" will be offered to all shareholders in the RGCs that did not merge with OAO "TGC-4", except those shareholders who voted against or abstained from voting on the resolution to reorganize the RGC concerned.

The Board of Directors of RAO "UES of Russia" approved the lease of assets of OAO "Heat Energy Company", OAO "Bryansk Generation Company", OAO "Voronezh Generation Company", OAO "Kaluga Generation Company", OAO "Kursk Generation Company", OAO "Lipetsk Generation Company", generating assets of OAO "Orelenergo" (after the reorganization, assets of OAO "Oryol Generation Company"), assets of OAO "Ryazan Heat Supply Company", OAO "Smolensk Generation Company", OAO "Tambov Generation Company", generating assets of OAO "Tulenergo" (after reorganization, assets of OAO "Priokskaya Territorial Generation Company") to OAO "TGC-4".

Representatives of RAO "UES of Russia" on the Boards of Directors of the RGCs and OAO "Priokskaya Investment Company" were instructed to vote at the Board meetings and general meetings of shareholders of OAO "TGC-4", OAO "Priokskaya Investment Company", and the RTCs FOR the approval of the resolutions required to transfer the powers of the companies' CEOs to OAO "TGC-4".

The Management Board of RAO "UES of Russia" is to submit for consideration by the Company's Board of Directors the questions relating to shaping the target structure of OAO "TGC-4" within five months after the state registration of all RGCs, which is scheduled to be completed in April 2005.

The Board of Directors also commissioned the Management Board of RAO "UES of Russia" to hold additional negotiations on the TGC-4 formation procedure with minority shareholders of RAO UES subsidiaries whose generating assets will be transferred to the TGC.

In accordance with the schedule for the establishment of OAO "TGC-4", the company will start its operations in September 2005, with the establishment process to be completed in the second quarter of 2006.

* * *

The Board of Directors of RAO "UES of Russia" approved the establishment of the operating company, OAO "TGC-6", using lease arrangement, which will be followed by a merger of the regional generation companies (RGCs), which were formed as a result of regional energos' reorganization, with and into OAO "TGC-6".

At the first stage, OAO "TGC-6" will be established as a wholly-owned subsidiary of RAO "UES of Russia", and later on, shares in OAO "TGC-6" will be offered to all shareholders in the RGCs which lease out their generating assets to OAO "TGC-6". The authorized capital of OAO "TGC-6" will be RUB10 million and will be divided into 1 billion ordinary shares.

The Board of Directors has approved the plan for the establishment of OAO "TGC-6" providing for:

• the lease of the property used for electricity and heat generation and transmission of heat owned by OAO "Ivanovo Generation Company", OAO "Vladimir Generation Company", OAO "Penza Generation Company", OAO "Nizhny Novgorod Generation Company", OAO "Mordovia Generation Company" to OAO "TGC-6";
• increasing the authorized capital of OAO "TGC-6" through issuance of additional shares. Consideration for these additional shares will be paid in shares of OAO "Ivanovo Generation Company", OAO "Vladimir Generation Company", OAO "Penza Generation Company", OAO "Nizhny Novgorod Generation Company", OAO "Mordovia Generation Company", and OAO "Mordovia Heat Network Company". As provided by the Company's Charter, 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-6";
• subsequent merger of OAO "Ivanovo Generation Company", OAO "Vladimir Generation Company", OAO "Penza Generation Company", OAO "Nizhny Novgorod Generation Company", OAO "Mordovia Generation Company" with and into OAO "TGC-6". As provided by the Company's Charter, the Board of Directors of RAO "UES of Russia" will take additional decisions on the terms and conditions of merger of said RGCs with and into OAO "TGC-6".

A final resolution on the companies' merger with and into OAO "TGC-6" is to be taken by a general meeting of shareholders of OAO "TGC-6", with account taken of the results of the RGCs' shareholder meetings.

Minority shareholders in the RGCs that did not merge with OAO "TGC-6" will be invited to exchange their RGC shares for additional shares in OAO "TGC-6". As this takes place, the CEO functions of the RGCs concerned will be transferred to OAO "TGC-6".

In accordance with the schedule for the establishment of OAO "TGC-6", the company will start its operations in August 2005, with the establishment process to be completed in the first quarter of 2006.

The Board of Directors instructed representatives of RAO "UES of Russia" on the Boards of Directors of OAO "Ivanovo Generation Company", OAO "Vladimir Generation Company", OAO "Penza Generation Company", OAO "Nizhny Novgorod Generation Company", OAO "Mordovia Generation Company" to vote FOR the approval of the following item of business to be considered by general meetings of shareholders of these Companies: "Approval of the interested party transactions".

* * *

The Board of Directors of RAO "UES of Russia" deemed it advisable for representatives of the Federal executive agencies to sit on the Boards of Directors of each Interregional Distribution Company (IDC).

The Board of Directors instructed the Management Board of RAO "UES of Russia" to submit an invitation to the Russian Government to name the authorities' representatives who will serve as members of the Boards of Directors of IDCs.

The RAO UES Board of Directors also considered it necessary for government representatives to sit on the Boards of Directors of the Territorial Generation Companies (TGCs). The Management Board was permitted to take decisions on including government officials on the TGC Boards of Directors depending on whether such participation is advisable.

The Board of Directors of RAO "UES of Russia" deemed it necessary to have permanent representatives of the Antimonopoly Service taking part in the Boards of Directors at each IDC and TGC. Such representatives would attend Board meetings as observers with a deliberative vote. The Board of Directors instructed the Management Board to:

• invite the Federal Antimonopoly Service (FAS) of Russia to nominate its candidates to sit as observers at Board meetings of the companies;
• ensure participation of FAS representatives by adding the relevant provisions to the documents regulating Board activities at IDCs and TGCs.

The Board resolved that government representatives on the Boards of Directors will take part in their activities without receiving remuneration.

* * *

The Board of Directors of RAO "UES of Russia" adopted the restructuring plan of OAO "Kurganenergo". The energy company will be restructured in accordance with the basic scenario through spin-off of the following companies (with the current ownership structure preserved):

• OAO "Kurgan Generation Company";
• OAO "Kurgan Energy Retail Company";
• OAO "Kurgan Trunk Grid Company", which will own the power grid facilities that are part of the Unified National (All-Russia) Power Grid (UNPG).

Under the plan, the power distribution networks that are not part of the UNPG are to remain the property of OAO "Kurganenergo".

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

The Board of Directors of RAO "UES of Russia" also adopted the restructuring plan of OAO "Kalmenergo". As OAO "Kalmenergo" does not have its own heat or electricity generation facilities, or heat networks, the energy company's restructuring plan provides for the unbundling of its energy retail and power network businesses by establishing a wholly owned subsidiary of RAO "UES of Russia", OAO "Kalmenergosbyt".

The authorized capital of the newly established company will be RUB150,000 and will be divided into 300,000 ordinary shares, par value RUB0.50 per share. Consideration for the Company's shares is to be paid in form of money within one month after the state registration of the Company.

According to the approved plan, OAO "Kalmenergosbyt" will lease from OAO "Kalmenergo" the assets needed for its core activities, with option to buy. In due course, OAO "Kalmenergosbyt" will become a guarantee supplier in the Republic of Kalmykia and will purchase electricity on the wholesale market and resell it to consumers.

The Board of Directors of RAO "UES of Russia" also invited the Federal Agency for Federal Property Management (the second shareholder in OAO "Kalmenergo" holding a 3.6% interest) to acquire a similar interest in the new energy retail company.

The power grid assets will be owned by OAO "Kalmenergo". At the same time, the Board of Directors approved the transfer of the UNPG-related power grid facilities of OAO "Kalmenergo" as consideration for the additional shares in the Interregional Transmission Company on the terms and conditions determined by the Management Board of RAO "UES of Russia".

* * *

The Board of Directors of RAO "UES of Russia" approved changes to the procedure for the separation of the UNPG-related power grid facilities owned by regional energos.

The Board of Directors revoked Items 2.1. and 2.2. of its resolution of 15 August 2002* establishing the procedure for consolidation and establishment of interregional grid companies based on the regional energos' trunk grids and approved the new procedure for separating the UNPG facilities owned by regional energos.

The new procedure provides for:

• the spin-off of a transmission company (TC) in the course of regional energo's reorganization;
• the transfer to the TC, under a separation balance sheet, the regional energo's power grid facilities that are part of the UNPG and the money needed to compensate the expenses;
• the transfer, with effect from 2006, of the UNPG facilities owned by the TC for operation to OAO "UES Federal Grid Company" (OAO "FGC"), with the transmission tariff to be set for OAO "FGC". In 2005, the facilities will be used by OAO "Center ITC";
• contribution of the shares held by RAO "UES of Russia" in the TCs set up in the course of regional energos' reorganization (100% minus one share for wholly-owned subsidiaries of RAO "UES of Russia") to the authorized capital of OAO "FGC";
• merger of all TCs spun off from regional energos with one Interregional Transmission Company (ITC), accompanied with a merger of the other six ITCs with and into that ITC.

Such procedure for separation of the UNPG-related power grid facilities will ensure that the TC shares are contributed to the authorized capital of OAO "FGC".

The Board of Directors directed that the amount of subscription fee for utilization should be determined on the basis of the following principle: owners of the UNPG facilities (regional energos or TCs) will receive from the lessee the amount of the economic profit which they would have received if they had not leased out their facilities.

The Board resolved that the new procedure for separation of UNPG facilities will enter into force after the matters pertaining to taxation of lease arrangements are agreed with the Ministry of Finance.

The Board of Directors commissioned the Management Board to prepare and submit proposals to the tariff regulation authorities to ensure equal return on capital to the owners of the UNPG facilities and uniform approach to the valuation of the UNPG assets.

• creation of ITCs with the participation of regional energos;
• ensuring that all shareholders of regional energos acquire stakes in ITCs;
• transfer of the ITC shares held by RAO "UES of Russia" to OAO "FGC".

* * *

The Board of Directors of RAO "UES of Russia" considered the question of separation of heating distribution assets in the process of regional energos' restructuring and creation of TGCs, and noted the information that it would not be practical in all cases to separate the heating network assets of regional energos and TGCs from the companies' heat generation assets.

On the instruction of the Board of Directors, the Management Board analyzed the positive and negative consequences of such separation. It was found that there is no potential for the development of competition (i.e. competition among heat suppliers using the same heating grid) in all centralized heating systems in various regions of Russia, except for a few cities. The ten largest cities in Russian have a theoretical possibility of creating competition among heat suppliers. However, this possibility is limited by the available grid facilities, considerable costs of repairing heating network, installing heat exchangers, creating a dispatching system, organizing the supply of heat through one network, etc.

The Board of Directors noted that the ownership of regional energos' heating network assets was taken into account when preparing regional energos' restructuring plans, which are subject to approval of the Board of Directors of RAO "UES of Russia". Decisions on each restructuring plan are taken on a case-by-case basis. The basic plan for regional energos' restructuring provides for the spin-off of a single company owning heating networks and heat generation assets. In some regional energos, such as OAO "Mosenergo" and OAO "Belgorodenergo", the heating network assets are to be spun off into a separate company, which will create the conditions needed for their integration with the municipal heating network facilities. The procedure for such spin-off will be determined on a case-by-case basis.

Thus, according to the Board of Directors, in each particular case the configuration of heating network assets, their integration with other owners' assets, ownership or spin-off of the heating network assets should be considered separately, and the decisions should be taken on a case-by-case basis. The use of a common organization principle or business model for a heating network company in all cities of Russia is impractical and does not take into account the peculiarities of most regions.

* * *

The Board of Directors of RAO "UES of Russia" approved the steps taken by the Management Board of RAO "UES of Russia" to prepare for the launch of a transitional wholesale electricity market in the IES of Siberia.

The creation in the IES of Siberia of a separate price zone of the wholesale electricity (capacity) market for the transition period is scheduled for 1 April 2005, provided that the Government of the Russian Federation adopts amendments to Order No. 643 "On Wholesale Market Rules". Its rules will be similar to those of the Urals-European zone, taking into account the peculiarities of the Siberian area.

The key peculiarities of the IES of Siberia are its generation mix (hydropower accounts for over 50% of the total output of electricity in the IES of Siberia, and Siberian HPPs have a greater capacity compared to the local TPPs and much lower electricity generation cost) and an underdeveloped network of links, including those connecting the Siberian energy area with the IES of East and Urals.

The model for a transitional wholesale electricity market proposed for the IES of Siberia takes into consideration the above peculiarities and makes it possible to balance the use of various kinds of Siberia's generation facilities in the competitive market segment. It is expected that wholesale market participants will be allowed to sell different percentage of electricity in the competitive segment: thermal power plants will be permitted to sell 5% of the electricity produced with the installed (working) capacity of their generating equipment, and for hydropower plants the figure will be 2% of the volume planned in the preliminary dispatch schedule (provided that there are no idle discharges at the particular HPP). Such arrangement will give thermal power plants a real opportunity to take part in the competitive market segment.

Buyers may purchase up to 15% of their planned hourly consumption in the free trading segment (provided that there is no threat of idle discharge at the hydropower plant concerned).

However, the proposed model includes an economic mechanism to encourage the reduction of the load at the higher-cost thermal power plants of the regional energos and while increasing the load of the more economical hydropower plants during flood periods, when HPPs operate in a forced mode. In such periods, HPPs will be allowed to sell in the free trade segment up to 15% of their generation volume according to the preliminary dispatch schedule. Because of that, buyers in the competitive segment, including regional energos, whose thermal power plants will have a lower load during the period, will have an opportunity to buy electricity at lower prices. Thus, participants of Siberia's wholesale market may receive additional income and use fuel and water resources more efficiently.

The UES System Operator-CDA is authorized to announce a regime of possibility of idle discharge at hydropower plants during which special conditions for the wholesale electricity market will be established in the IES of Siberia.

The price zone in the IES of Siberia will function separately from the Urals-European price zone: settlements both in the deviations segment and the free trade segment will be effected independently by the Administrator of the Trading System (NP "ATS").

* * *

The Board of Directors approved some amendments to the Terms and Conditions for the Conclusion and Implementation of Stock Purchase Plans by Senior Executives and Employees of RAO "UES of Russia".

Originally, the document was adopted by the Board of Directors of RAO "UES of Russia" on 25 June 2004. It is intended to incentivize the Company employees to efficiently implement the programme of the electricity industry reform and increase the capitalization of OAO RAO "UES of Russia". Based on the results of the first stage of implementation of the Programme for incentivizing employees, share option contracts were made with top managers and employees of RAO "UES of Russia".

The amendments approved by the Board of Directors provide, among other things, that employees of ROA UES subsidiaries, OAO "FGC" and OAO "UES SO-CDA", should take part in the Programme.

Activities of these companies increase capitalization and ensure liquidity of shares of the companies established in the process of RAO UES restructuring. Besides, prior to the establishment of OAO "FGC" and OAO "UES SO-CDA", most of the above companies' staff were employed in the executive administration of OAO RAO "UES of Russia".

Certain changes were made to the terms and conditions for the Company's top managers taking part in the Programme in connection with the appointment of Leonid Drachevsky as member of the Management Board of RAO "UES of Russia" and Deputy Chairman of the Management Board in September 2004.

* * *

The Board of Directors noted the interim report presented by the Audit Committee.

The Board of Directors recommended that the Management Board explore the possibility of:

• RAO UES subsidiaries and dependent companies (first of all, OAO "FGC" and ZAO "Inter RAO UES") preparing, with effect from 2006, their IFRS financial statements without using any outsourced services.
• creating a single controlling service under the Audit Committee or as part of the Company's executive administration. The terms of reference of such Service should include analysis of effectiveness of internal controls, business processes, coordination and synchronization of various internal control systems, and preparation of recommendations to the Company's management based on the results of such analysis. Furthermore, the Service will endeavour to ensure prompt response to comments and suggestions of the Audit Committee and the Company's Independent Auditors, to prepare proposals and subsequent implementation of an advanced risk management system in the companies established in the course of the reform.
• beginning in 2006, the list of the key efficiency figures of the Company and its SDCs will include the indicator "Promptness and adequacy of response to auditors' comments and suggestions made in their letters to the senior management or in auditors' qualified reports.

The Management Board of RAO "UES of Russia" was instructed to analyze these recommendations and present the results of analysis in April 2005.

* * *

The Board of Directors of RAO "UES of Russia" commissioned its representatives on the Board of Directors of OAO "Bureyskaya HPP" to vote FOR the adoption of the following item of business to be considered by EGM of the Company:

• Approval of the cost sharing agreement between RAO "UES of Russia" and OAO "Bureyskaya HPP" to finance the construction of the fourth hydropower unit at the Bureyskaya HPP, which agreement constitutes an interested party transaction.

The construction of Bureyskaya HPP is financed with the investment allocations of RAO "UES of Russia". Under the Agreement, in 2005 RAO "UES of Russia" will invest up to RUB5.85 billion in the project, and RUB2.46 will be invested by OAO "Bureyskaya HPP".

As RAO "UES of Russia" owns over 20% of voting shares in OAO "Bureyskaya HPP", and the transaction involves property worth over 2% of the book value of assets of OAO "Bureyskaya HPP", the agreement in question is considered to be an interested party transaction, as provided by Article 81 of the Federal Law On Joint Stock Companies.

The Board of Directors of RAO "UES of Russia" instructed its representatives on the Board of Directors of OAO "Energozashchita Insurance Broker"* to vote FOR the approval of the following item of business to be considered at the EGM of shareholders of the Company:

• On the Introduction of Amendments and Additions to the Charter of the Company.

At the time of establishment of OAO "Energozashchita Insurance Broker", RAO "UES of Russia", which holds a 61% interest in the Company, and the British insurance company JLT RISK SOLUTIONS, which bought 39% of the Company's shares in a tender (14% ordinary and 25% preferred shares), agreed that the British company would hold less than 20% of the Company's voting shares.

In order to ensure such allocation of shares, the parties decided to convert 25,000 preferred shares of OAO "Energozashchita Insurance Broker" into cumulative preferred shares, with the decision on dividend payment on such shares to be taken in at least 10 years.

As provided in the Standards for Securities Issuance and Registration of Prospectuses approved by the FCSM of the Russian Federation of 17 December 2003, preferred shares may not be converted into preferred shares of other types, unless the possibility of and procedure for such conversion are provided by the Company's Charter.

In this connection, the relevant amendments are to be made into the Charter of OAO "Energozashchita Insurance Broker". Other amendments concern the change of the Company's place of business.

* In order to implement the priority actions provided in the concept for insurance coverage of the risks of energy companies, the Board of Directors of RAO "UES of Russia" resolved on 12 March 2004 to establish OAO "Energozashchita Insurance Broker".

* * *

The Board of Directors adopted the Regulation on the Selection of Auditor for the Parent Company and the Group of RAO "UES of Russia".

The Board of Directors decided to organize a tender to select an Auditor for the Parent Company, Group, subsidiaries and dependent companies (SDCs) of RAO "UES of Russia" which produce financial statements in accordance with the Russian Accounting Standards (RAS) and the International Financial Reporting Standards (IFRS) for 2005, within 45 days after publication of an invitation of bids.

The Auditor will conduct audits and give opinions on the RAS and IFRS financial statements prepared by the Parent Company, OAO RAO "UES of Russia", the consolidated IFRS financials of RAO "UES of Russia" Group, and RAS and IFRS consolidated financial statements of the most important RAO UES subsidiaries (the already existing companies and the ones to be established in 2005, Wholesale Generation Companies (WGCs), Territorial Generation Companies (TGCs), and Interregional Distribution Companies (IDCs).

Under the Regulation, changes will be made to the make-up of the Auditor's services. In particular, the scope of work done for the SDCs will be reduced (there will be no audits of the SDCs' consolidated financial statements in accordance with the IFRS for 6 and 9 months, and such financials will not be prepared; some SDCs, e.g., some regional energos and TPPs which prepared IFRS financial statements for 2003-2004, will not be obliged to do that in 2005, as their figures will be included in the consolidated IFRS financial statements of the new business entities— WGCs, TGCs, and IDCs). This will bring the preparation of IFRS financial statements at RAO UES Group into line with its target structure for the near term, and reduce time and costs needed to disclose information on the termination of activities of regional energos.

The Management Board of RAO "UES of Russia" was instructed to arrange implementation of this Regulation at the SDCs and ensure that meetings of shareholders and Boards of Directors of the SDCs take decisions required to select and appoint auditors in accordance with the Regulation on the Selection of Auditors for the SDCs of RAO UES Group.