Moscow, 24 December 2004. At the Board meeting of RAO "UES of Russia" held today, the Board of Directors approved the establishment by RAO "UES of Russia" of a wholly-owned subsidiary, OAO "Federal Hydrogeneration Company" (hereinafter "Hydro-WGC") on the following terms and conditions:

• the authorized capital of OAO "Hydro-WGC" will be RUB103,951,322,702 divided into registered ordinary shares of RUB1 (one Ruble) par value;
• the period for payment of the shares: [the payment for the shares shall be made] within three months after the date of state registration of OAO "Hydro-WGC";
• form of payment for the shares: [the consideration for the shares is to be paid] in property whose money value is RUB103,849,527,702.47 and in cash in the amount of RUB101,794,999.53.

At the first stage, shares of the following subsidiaries and dependent companies held by RAO "UES of Russia" will be transferred to OAO "Hydro-WGC": OAO "Volzhskaya HPP", OAO "Zhigulevskaya HPP", OAO "Votkinskaya HPP", OAO "Sayano-Shushenskaya HPP", OAO "Zeyskaya HPP", OAO "Boguchanskaya HPP", OAO "Bureyskaya HPP", OAO "Zaramagskie HPPs", OAO "Zelenchukskie HPPs", OAO "KabbalkHPP", OAO "Sulakenergo", OAO "Nizhegorodskaya HPP", OAO "Saratovskaya HPP", OAO "Kamskaya HPP", OAO "Upper-Volga HPP Cascade", and the management company, OAO "Volga Hydroelectric Cascade Management Company" ("UK VoGEK").

The Board of Directors of RAO "UES of Russia" commissioned the Management Board of the Company, within the framework of the second stage of OAO "Hydro-WGC" creation, to ensure that the establishment of OAO "Hydro-WGC" is completed by the end of 2006 (this will involve transfer of OAO "Cheboksarskaya HPP", OAO "Dagestan Regional Generation Company", OAO "Zagorskaya Pumped Storage HPP", OAO "Stavropol Electricity Generation Company", the property of Novosibirskaya HPP, additional share issues of OAO "Bureyskaya HPP", OAO "Zaramagskie HPPs", OAO "Sulakenergo", and shares (or additional shares) in the joint-stock companies established on the basis of property of hydropower plants (including projects in process) owned by the SDCs of RAO "UES of Russia", and other property to be transferred OAO "Hydro-WGC" in exchange for additional shares in OAO "Hydro-WGC".

The Board of Directors instructed the Management Board to explore the possibility of merger of OAO "Hydro-WGC" and AO-power plants prior to reorganization of RAO "UES of Russia", with the matter to be put on the agenda of the Board meeting of RAO "UES of Russia" in Q2 2005.

* * *

The Board of Directors of RAO "UES of Russia" approved the establishment by RAO "UES of Russia" of a wholly owned subsidiary, OAO "First Generation Company of the Wholesale Electricity Market" ("OAO "WGC-1"), on the following terms and conditions:

• the authorized capital of OAO "WGC-1" will be RUB17,252,039,909 divided into registered ordinary shares of RUB1 (one Ruble) par value;
• form of payment for the shares: - [the consideration for the shares is to be paid] in property whose money value is RUB17,203,519,973.46 (of which RUB13,522,713,973.46 is the value of the property of OAO "Permskaya TPP" and RUB3,680,806,000 is the value of the property of Verkhne-Tagilskaya TPP), and RUB48,519,935.54 will be contributed in cash. The market value of shares in OAO "Permskaya TPP" and of the property of Verkhne-Tagilskaya TPP has been determined by a consortium of appraisers accredited by RAO "UES of Russia". The Board approved the market value of the shares in OAO "Permskaya TPP" and the property of Verkhne-Tagilskaya TPP.

At the second stage of establishment of OAO "WGC-1", the following power plants spun off from regional energos will be transferred to WGC-1: OAO "Nizhnevartovskaya TPP" (spun off from OAO "Tyumenenergo"), OAO "Urengoyskaya TPP" (spun off from OAO "Tyumenenergo"), OAO "Iriklinskaya TPP" (spun off from OAO "Orenburgenergo"), and OAO "TPP-4" (spun off from OAO "Mosenergo"). OAO "WGC-1" will then offer the minority shareholders in the WGC subsidiaries to exchange their shares for additional shares in OAO "WGC-1".

* * *

The Board of Directors of RAO "UES of Russia" unanimously approved the establishment by OAO RAO "UES of Russia" of a wholly owned subsidiary, OAO "Second Generation Company of the Wholesale Electricity Market: ("OAO "WGC-2"), on the following terms and conditions:

• the authorized capital of OAO "WGC-2" will be RUB10,769,803,935 divided into registered ordinary shares of RUB1 (one Ruble) par value;
• form of payment for the shares: [the consideration for the shares is to be paid] in property whose money value is RUB10,748,728,935 (of which RUB802,075,000 is the value of property of OAO "Pskovskaya TPP", RUB3,410,940,000 is the value of OAO "Stavropolskaya TPP", RUB6,535,713,935 is the value of OAO "Troitskaya TPP"), and RUB21,075,000 in cash. The market value of shares in OAO "Pskovskaya TPP", OAO "Troitskaya TPP" and OAO "Stavropolskaya TPP" held by OAO RAO "UES of Russia" was determined by a consortium of appraisers accredited by RAO "UES of Russia". The Board of Directors approved the market value of the shares in OAO "Pskovskaya TPP", OAO "Troitskaya TPP" and OAO "Stavropolskaya TPP".

At the second stage, the following power plants spun off from the regional energos will be transferred to WGC-2: OAO "Surgutskaya TPP-1" (OAO "Tyumenenergo"), OAO "Serovskaya TPP" (OAO "Sverdlovenergo"). OAO "WGC-2" will then offer the minority shareholders of the WGC subsidiaries to exchange their shares for additional shares in OAO "WGC-2".

* * *

The Board of Directors of RAO "UES of Russia" unanimously approved the establishment by OAO RAO "UES of Russia" of a wholly owned subsidiary, OAO "Sixth Generation Company of the Wholesale Electricity Market: ("OAO "WGC-6"), on the following terms and conditions:

• the authorized capital of OAO "WGC-6" will be RUB23,008,616,898 divided into registered ordinary shares of RUB1 (one Ruble) par value;
• form of payment for the shares: [the consideration for the shares is to be paid] in property whose money value is RUB22,987,541,897 (of which RUB5,907,705,975 is the value of property of OAO "Ryazanskaya TPP", RUB7,011,356,968 is the value of OAO "Kirishskaya TPP", RUB6,481,224,971 is the value of OAO "Novocherkasskaya TPP", and RUB3,587,253,982.01 is the value of OAO "Krasnoyarskaya VTPP-2"), and RUB21,075,000.44 in cash. The market value of shares in OAO "Ryazanskaya TPP", OAO "Kirishskaya TPP" and OAO "Novocherkasskaya TPP", and OAO "Stavropolskaya TPP" held by OAO RAO "UES of Russia" has been determined by a consortium of appraisers accredited by RAO "UES of Russia". The Board of Directors approved the market value of the shares in OAO "Ryazanskaya TPP", OAO "Kirishskaya TPP" and OAO "Novocherkasskaya TPP", and OAO "Stavropolskaya TPP".

At the second stage, the following power plants spun off from the regional energos will be transferred to WGC-6: OAO "TPP-24" (spun off from OAO "Mosenergo"), OAO "Cherepovetskaya TPP" (spun off from OAO "Vologdaenergo"). OAO "WGC-6" will then offer the minority shareholders of the WGC subsidiaries to exchange their shares for additional shares in OAO "WGC-6".

* * *

The Board of Directors of RAO "UES of Russia" deemed it advisable for the Board of Directors to perform the functions of shareholders' meetings of all WGCs during the period when the WGCs are established as wholly-owned subsidiaries of RAO "UES of Russia".

This resolution was taken in view of the importance of WGCs for the creation of competitive wholesale electricity market and ensuring that the generation companies are established and operate in a transparent manner.

Currently, under the Charter of RAO "UES of Russia", the powers of shareholders' meetings of RAO UES wholly-owned subsidiaries are exercised by the Management Board of RAO "UES of Russia", with the exception of shareholder meetings of OAO "UES SO-CDA" and OAO "UES FGC", whose powers are exercised by the Board of Directors of RAO "UES of Russia".

In this connection, the Board of Directors commissioned the Management Board of RAO "UES of Russia" to draft the relevant amendments to the Company's Charter and ensure that the necessary corporate steps are taken to amend the WGCs' Charters as provided by the Russian laws and the rules and regulations of RAO "UES of Russia".

The resolution to transfer the performance of the functions of WGC shareholders' meetings to the Board of Directors of RAO "UES of Russia" is in compliance with the provisions of the Russian corporate laws. Under the Federal Law "On Joint-Stock Companies", in a company where all voting shares are held by one shareholder, decisions on matters referred to the competence of a shareholders' meeting shall be taken solely by that shareholder. The Law does not identify the management body under whose competence that matter falls.

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OAO "Hydro-WGC" is to be established pursuant to Order of the Russian Government No. 1254-r dated 01 September 2003 (as amended on 25 October 2004).

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The Board of Directors of RAO "UES of Russia" approved the creation by RAO "UES of Russia" of an operating company, OAO "TGC-5", using leasing arrangements.

In accordance with the configuration of Territorial Generation Companies approved by the Board of Directors of RAO "UES of Russia" on 23 April 2004, OAO "WGC-5" is to be established on the basis of the generation assets of OAO "Marienergo", OAO "Kirovenergo", OAO "Udmurtenergo" and OAO "Chuvashenergo"

At the first stage, OAO "WGC-5" will be established as a wholly-owned subsidiary of RAO "UES of Russia", following which shareholders in OAO "Marienergo", OAO "Kirovenergo", OAO "Udmurtenergo" wishing to acquire shares in OAO "WGC-5" may do so. The authorized capital of OAO "TGC-5" at the time of establishment will be RUB10 million and will be divided into 1 billion ordinary shares.

The Board approved the lease of the generation assets of the following companies to OAO "TGC-5": OAO "Marienergo" (the assets of OAO "Mariy Regional Generation Company" after the reorganization of OAO "Astrakhanenergo"), OAO "Kirovenergo" (the assets of OAO "Vyatka Electricity and Heat [Generation] Company" after the reorganization of OAO "Kirovenergo"), OAO "Udmurtenergo" (the assets of OAO "Udmurt Territorial Generation Company" after the reorganization of OAO "Udmurtenergo"), and OAO "Chuvashenergo" (the assets of OAO "Chuvash Generation Company" after the reorganization of OAO "Chuvashenergo").

Subject to consent of the minority shareholders, the formation of OAO "WGC-5" will be completed through merger of the regional generation companies (RGCs) spun off from OAO "Marienergo", OAO "Kirovenergo", OAO "Udmurtenergo", and OAO "Chuvashenergo".

OAO "TGC-5" is to start operations in the second quarter of 2005. According to the preliminary schedule, general meetings of shareholders in the RGCs and OAO "WGC-5" to discuss the companies' reorganization will be held in August 2005, and the joint shareholders' meeting of OAO "TGC-5" and the RGCs is scheduled to be held in February 2006.

If a shareholder meeting of any of the RGCs does not approve the resolution on the merger with and into OAO "TGC-5", RAO "UES of Russia" will contribute its shares to such RGC in consideration for the additional shares to be issued by OAO "TGC-5".

The Board of Directors gave the Management Board of the Company a task to have an independent appraiser determine of the market value of shares in OAO "Mariy Regional Generation Company", OAO "Vyatka Electricity and Heat [Generation] Company", OAO "Udmurt Territorial Generation Company", and OAO "Chuvash Generation Company" for the purpose of determining the ratios to be used in the conversion (exchange) of these companies' shares into (for) shares in OAO "TGC-5".

The Management Board is also required to submit for consideration by the Board of Directors of RAO "UES of Russia", not later than July 2005, [information on] the matters relating to the merger of OAO "Mariy Regional Generation Company", OAO "Vyatka Electricity and Heat [Generation] Company", OAO "Udmurt Territorial Generation Company", and OAO "Chuvash Generation Company" with and into OAO "TGC-5".

The Board of Directors instructed representatives of RAO "UES of Russia" on the Boards of Directors of the companies whose generation assets are planned to be used as a basis for the creation of OAO "TGC-8" to vote FOR the approval of the agenda of shareholder meetings including the item "Approval of interested party transactions"*.

Resolution on the establishment of OAO "TGC-8" using leasing arrangements was approved by the Board of Directors of RAO "UES of Russia" on 29 October 2004. Simultaneously, the Board approved the lease of the generation assets of the following companies to OAO "TGC-8": OAO "Astrakhanenergo" (after the reorganization of OAO "Astrakhanenergo", the generation assets of OAO "Astrakhan Regional Generation Company"), OAO "Volgogradenergo" (after the reorganization of OAO "Volgogradenergo", the generation assets of OAO "Volzhskaya Generation Company"), OAO "Kubanenergo" (after the reorganization of OAO "Kubanenergo", the generation assets of OAO "Kuban Generation Company"), OAO "Rostovenergo" (after the reorganization of OAO "Rostovenergo", the generation assets of OAO "Rostov Generation Company"), Kaspiyskaya CHPP and Makhachkalinskaya CHPP of OAO "Dagenergo" (after the reorganization of OAO "Dagenergo", the generation assets of OAO "Dagestan Heat Generation Company"), and Kislovodskaya CHPP of OAO "Stavropolenergo" (after the reorganization of OAO "Stavropolenergo", the generation assets of OAO "Stavropol Heat Generation Company").

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* At the meeting held on 29 October, the Board of Directors of RAO "UES of Russia" instructed the Management Board to hold additional consultations with the Federal Antimonopoly Service on the lease agreement and submit the matter for re-consideration by the Board of Directors.

* * *

The Board of Directors of RAO "UES of Russia" made amendments to the restructuring plan of OAO "Kolenergo" approved by the Board on 30 July 2004.

The changes to the restructuring plan of OAO "Kolenergo" were made taking into account the stance taken by the Government of Murmansk Region. Specifically, it is envisaged that Murmanskaya CHPP and Apatitskaya CHPP will be spun off from OAO "Kolenergo" as independent joint-stock companies, with their [current] equity ownership structure preserved.

The spin-off of OAO "Murmanskaya CHPP" and OAO "Apatitskaya CHPP" will help separate heat and electricity generation, which will pave the way for the elimination of cross-subsidization and creation of [favourable] conditions for investments and/or integration with the region's heat suppliers.

The Board deemed it impractical to spin off OAO "Kolskaya Energy Management Company" as contemplated by the previously approved restructuring plan. This is due to the fact that by the time OAO "Kolenergo" is reorganized, the interregional companies (IDCs and TGCs) will have been formed, and the companies spun off from OAO "Kolenergo" will be transferred to these interregional companies. In this connection, the management functions of the companies formed in the course of restructuring of OAO "Kolenergo" will be transferred to the interregional companies immediately after the completion of reorganization of OAO "Kolenergo".

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

The Board of Directors of RAO "UES of Russia" invalidated its decision of 30 July 2004 on bringing the restructuring plan of OAO "Kolenergo" into conformity with the basic plan.

* * *

The Board of Directors approved the changes to the list of CHPPs supplying power to single consumers (hereinafter the "single-consumer CHPPs")* contained in the Concept of RAO "UES of Russia" Strategy for 2003- 2008. Board of Directors of RAO "UES of Russia" ("5+5"). The need to update the list of single-consumer CHPPs was due to the change in the pattern of heat supply by the CHPPs of the Holding Company that took place in 2003-2004.

As a result of analysis of heat supply by the Holding Company's thermal power plants, a list was drawn up of power plants supplying power to a single consumer and meeting the criteria stated in the Concept of RAO "UES of Russia" Strategy for 2003- 2008 ("5+5"). The list of such CHPPs includes the following power plants with the overall installed capacity of about 2,489 MW. Novgorodskaya CHPP-20 (OAO "Novgorodenergo"), Kargalinskaya CHPP (OAO "Orenburgenergo"), Novomoskovskaya TPP (OAO "Tulenergo), Bogoslovskaya CHPP (OAO "Sverdlovenergo"), Volgogradskaya CHPP-3 (OAO "Volgogradenergo"), Tobolskaya CHPP (OAO "Tyumenenergo"), Krasnogorskaya CHPP (OAO "Sverdlovenergo"), Pervomayskaya CHPP (OAO "Tulenergo"), Bereznikovskaya CHPP-4 (OAO "Permenergo"), Novokuybyshevskaya CHPP-2 (OAO "Samaraenergo"). That is, Kaluzhskaya CHPP-1 and Argayashskaya CHPP have been removed from the from the original list, and Pervomayskaya CHPP, Krasnogorskaya CHPP, Bereznikovskaya CHPP and Novokuybyshevskaya CHPP have been included.

The Board of Directors of RAO "UES of Russia" gave the Management Board the task to update the strategy for the single consumer CHPPs, including the possibility of splitting off such CHPPs and other power plants in the course of establishment of TGCs, with consideration for advisability of preserving their configuration.

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In the restructuring of regional energos, a special approach is to be taken to such CHPPs, including their split-off in the process of territorial generation companies. Such split-off is necessary due to the risk of loss of value of the single-consumer CHPPs or, in some cases, vice versa, the possibility for shareholders of RAO "UES of Russia", its subsidiaries and dependent companies to receive additional income if such special approach is taken in respect of the single-consumer CHPPs.

* * *

The Board of Directors noted information on the settlement of debts owed by OAO "Kamchatskenergo" for the fuel imported in 1996-1998.

In accordance with the order of the Russian Government of 10 February 2003, RAO "UES of Russia" fully settled the overdue debt owed to OAO "Rosneft Oil Company" and foreign creditors with the funds included for this purpose in the Company's subscription fee for 2003- 2004.

The expenses of RAO "UES of Russia" on payments to creditors amounted to RUB4.07 billion. The economic benefit from the settlement of debt of OAO "Kamchatskenergo" to the above creditors made USD153.2 million (exclusive of the additional penalties awarded by foreign courts for daily delay in payment from the date of these court rulings).

* * *

The Board of Directors considered some questions relating to sale of the Company's property to OAO "UES FGC".

The Management Board entrusted OAO "UES FGC" with the functions of construction and operation of the telecommunication infrastructure of the electricity industry to meet its technological needs and to support the functioning of the energy market. In this connection, the Management Board took a decision on 15 April 2002 to transfer the telecommunication assets owned by RAO "UES of Russia" to OAO "UES FGC". In November 2004, RAO "UES of Russia" approved the schedule for the sale of power network and some other assets of RAO "UES of Russia" to OAO "UES FGC".

In this connection, the Board of Directors approved the sale by RAO "UES of Russia" of its telecommunication facilities to OAO "UES FGC" at a price of RUB6,244,300 determined in accordance with market valuation report prepared by the independent appraiser OOO "Lair" (the book value of the assets is RUB5,399,150).

The Board of Directors has also approved the sale by RAO "UES of Russia" of 10,059 ordinary shares in OAO "MUS Energetiki" to OAO "UES FGC" at a price of RUB19,997,292 determined by the independent appraiser, OOO "Lair" (the book value of 100% shares is RUB503,000).

The Board of Directors approved the change of the Company's interest in OAO "MUS Energetiki" from 100% to 0.01% as a result of this transaction.

The Board of Directors of RAO "UES of Russia" instructed its representatives on the Board of Directors of OAO "UES FGC" to vote FOR the purchase of shares in OAO "MUS Energetiki" disposed of by RAO "UES of Russia" under the sale contract.

The Board of Directors approved the sale by RAO "UES of Russia" to OAO "UES FGC" of the network assets held by branches of RAO "UES of Russia"—North-Western Interconnected Power Grids (IPG), Siberian IPG, Eastern IPG, Central IPG, Urals IPG, and Volga IPG.

The price of the power grid assets being sold by RAO "UES of Russia" to OAO "UES FGC" has been set based on the market value of RUB2,030,693,568.89 determined by an independent appraiser (book value of the property is RUB1,115,890.02). The consideration for the property must be paid in cash not later than 14 days after the date on which the deed of conveyance are signed.

The Board of Directors of RAO "UES of Russia" approved the sale by RAO "UES of Russia" to OAO "UES FGC" of the property owned by the Representative Office of RAO "UES of Russia" relating to the management of joint-stock companies in the Volga area of Russia. Such a decision was made in connection with the liquidation of the Representative Office currently underway, and the fact that its property is required for the operations of OAO "UES FGC" branch, Volga IPG.

The Board of Directors set the price of the property being sold to be equal to the market value of RUB2,550,226 determined by an independent appraiser (the book value of the property is RUB1,420,718). The Board of Directors resolved that the payment for the property should be made in cash within 14 days after the date of signature of conveyance deeds.

* * *

The Board of Directors of RAO "UES of Russia" approved the Company joining Non-profit Partnership "Russian National Committee of the International Council on Large High-Voltage Electricity Systems" (NP "RNC CIGRE") on the following terms and conditions:

• the amount of the partner's initial contribution should be up to EUR20,000 in Ruble equivalent at the exchange rate established by the Central Bank of Russia as at the payment date;
• form of payment of the initial contribution: cash;
• the initial contribution is to be paid within 3 months after the date of signature by RAO "UES of Russia" of the Partnership Agreement.

The International Council on Large High-Voltage Electricity Systems (CIGRE) was established in 1921. It is the largest international non-governmental organization in the electricity industry. Today, among CIGRE members there are 70 countries, including Russia, which joined this organization in 1923.

CIGRE is engaged in exploring the most effective ways to develop the electricity industry, addressing technical, economic, administrative and legal issues of the sector, primarily, studying the principal operational characteristics of modern large electricity systems and developing a strategy for their integration. CIGRE has 16 Study Committees and a big number of Working Groups. The areas covered by these Committees and Groups include all aspects of functioning and development of energy systems and markets.

Russia's interests in the CIGRE are represented by the Russian National Committee of CIGRE (RNC CIGRE) which, until recently, did not have a separate legal personality. The leading participant of RNC CIGRE was RAO "UES of Russia", which paid most of the membership dues to CIGRE and organized participation of Russia's representatives in CIGRE activities.

In 2004, RNC CIGRE was officially established and registered as a non-profit partnership, which made it possible for companies to become partners of RNC CIGRE upon conclusion of a partnership agreement, and to evenly allocate the duty of payment of the membership fees to the CIGRE Central Office and other expenses of RNC CIGRE among the members of the non-profit partnership. Besides RAO "UES of Russia", partnership agreements are expected to be signed by OAO "UES SO-CDA" and OAO "UES FGC".

Entry by RAO "UES of Russia" into the non-property partnership will enable it to take part in the work of CIGRE and use the opportunities offered by this organization to hold meetings, establish contacts, exchange ideas and information with the leading producers, managers, experts and specialists of power generating and power marketing companies from all over the world.

Getting access to the most up-to-date information, RAO "UES of Russia" will become an owner of unique data in the specialist fields of knowledge, which will contribute to the development of the entire electric power sector in Russia. One more advantage of participation in CIGRE activities is the possibility to directly influence the international strategy in the energy sector through CIGRE channels and achieve the goals relating to the Company's development and take part in international activities in the electricity industry.  

* * *

The Board of Directors resolved to liquidate the territorial separate subdivisions (branches) of OAO RAO "UES of Russia":

• Central Interconnected Power Grids;
• North-Western Interconnected Power Grids;
• Southern Interconnected Power Grids;
• Volga Interconnected Power Grids;
• Urals Interconnected Power Grids;
• Siberian Interconnected Power Grids;
• Eastern Interconnected Power Grids.

These entities will be removed from the list of Representative Offices, Branches and other separate subdivisions of RAO "UES of Russia" (Appendix No. 1 to the Company's Charter).

In order to ensure reliable operation, efficient use, and centralized control of the trunk power grids that are part of the Unified Energy System of Russia, the Board of Directors of OAO "UES FGC" resolved to establish its own branches on the basis of the RAO UES territorial subdivisions (Interconnected Power Grids) to perform similar functions. In 2002, the following branches of OAO "UES FGC" were established and registered with the authorities: Central Backbone Transmission Grids (BTG), North-Western BTG, Volga BTG, Southern BTG, Urals BTG, Siberian BTG, and Eastern BTG.

As RAO "UES of Russia" transferred part of the grid assets owned by the IPG Branches to OAO "UES FGC" as contribution to its authorized capital and is currently planning to sell the remaining part of their property to FGC, the activities of the RAO UES branches were stopped as these subdivisions are no longer necessary.

The Board of Directors of RAO "UES of Russia" instructed the Company's representatives on the Board of Directors of OAO "Konakovskaya TPP" to vote for the establishment of OAO "Motor Transport Enterprise of Konakovskaya TPP" on the following terms and conditions:

• the authorized capital of OAO "Motor Transport Enterprise of Konakovskaya TPP" will be RUB12.03 million, and will be divided into 12,030 ordinary shares of RUB1 par value;
• OAO "Konakovskaya TPP" will hold a 100% stake in the authorized capital of OAO "Motor Transport Enterprise of Konakovskaya TPP";
• form of payment for the shares: consideration in form of property worth RUB11.03 million based on the valuation by an independent appraiser and RUB1 million in cash.

The Board of Directors instructed the representatives of RAO "UES of Russia" on the Board of Directors of OAO "Sochinskaya TPP" to vote for the approval of the following items of business on the agenda of the EGM of OAO "Sochinskaya TPP":

1. Approval of the number, par value, category (class) of the shares OAO "Sochinskaya TPP" is authorized to issue in addition to the outstanding shares ("further authorized shares"), and the rights carried by such [additional] shares:
2. Approval of amendments to the Charter of OAO "Sochinskaya TPP" in connection with the increase in the number of further authorized shares;
3. Increase of the authorized capital of OAO "Sochinskaya TPP" through issuance of additional shares.

The Board instructed the representatives of RAO "UES of Russia" to vote at the EGM of OAO "Sochinskaya TPP" FOR the approval of the following resolution on the item of business: "Approval of the number, par value, category (class) of the shares OAO "Sochinskaya TPP" is authorized to issue in addition to the outstanding shares ("further authorized shares"), and the rights carried by such [additional] shares": [BE IT RESOLVED]:

• that the maximum number of additional ordinary shares OAO "Sochinskaya TPP" is authorized to issue be 3,794,751 shares, par value RUB1,000 per share, for a total amount of RUB3,794,751,000;
• that the [additional] ordinary shares authorized for issuance by OAO "Sochinskaya TPP" grant their owners the rights provided by the Charter of OAO "Sochinskaya TPP".

The Board instructed the representatives of RAO "UES of Russia" to vote at the EGM of OAO "Sochinskaya TPP" FOR the approval of the following resolution on the item of business: "Approval of amendments to the Charter of OAO "Sochinskaya TPP" in connection with the increase in the number of further authorized shares": [BE IT RESOLVED]:

• that the authorized capital of OAO "Sochinskaya TPP" be increased through issuance of 3,794,751 additional ordinary shares, par value RUB1,000 per share, for a total value of RUB3,794,751,000. The shares are to be placed through closed subscription (private placement) to RAO "UES of Russia".
• that the placement price of the additional shares be the price determined by the Board of Directors of OAO "Sochinskaya TPP", but not less than their par value;
• that the consideration for the shares be paid in cash;
• that the shares be paid in full at the time of placement.

OAO "Sochinskaya TPP" is a wholly-owned subsidiary of RAO "UES of Russia" with the authorized capital of RUB1 billion. The additional share issue is designed to raise funds to finance the construction of the Sochinskaya TPP.

Payment for the newly issued shares will be made in cash from the investments of RAO "UES of Russia" under the partnership agreement and the supplementary agreement thereto in the amount of RUB1,454,384,000 and the funds allocated for investment in the project in 2005 in the amount of RUB2,606 million.

After this share issue, RAO "UES of Russia" will retain its 100% interest in OAO "Sochinskaya TPP".

The Board of Directors of RAO "UES of Russia" set the price of the 3,794,751 ordinary shares in OAO "Sochinskaya TPP" to be purchased by RAO "UES of Russia" as equal to the market value determined by an independent appraiser, RUB1,070 per share, with the total value of the shares making RUB4,060,383,570.

The Board approved the purchase by RAO "UES of Russia" of the 3 794 751 ordinary shares in OAO "Sochinskaya TPP" at RUB1,070 per share for a total value of RUB4,060,383,570.

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The Board of Directors instructed the representatives of RAO "UES of Russia" on the Board of Directors of OAO "Ivenergo" to vote FOR the participation of OAO "Ivenergo" in Non-profit Educational Institution "Ivanovo Training Center" (NOU "Ivanovo Training Center") on the following terms and conditions:

• OAO "Ivenergo" will transfer property for operating management;
• OAO "Ivenergo" shall retain its right of ownership to the property being transferred.
• the net book value of the property of OAO "Ivenergo" being transferred is RUB67,964.39.

The plan to establish NOU "Ivanovo Training Center" has been drafted on the basis of provisions of the RAO UES Reorganization Concept envisaging separation of non-core businesses into separate entities capable of operating in a market environment through spin-off or establishment of independent enterprises on the basis of regional energos' assets.

NOU "Ivanovo Training Center" will provide high-quality professional training to the energy companies' personnel in the amount necessary for the companies to work in a market environment.

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The Board of Directors instructed the representatives of RAO "UES of Russia" on the Board of Directors of OAO "Kabbalkenergo" to vote FOR the approval of the following agenda of the EGM of the Company:

"Approval of Supplementary Agreement No. 1 to the Partnership Agreement of 23 April 2004 between RAO "UES of Russia" and OAO "Kabbalkenergo", which constitutes an interested party transaction."

Under said Partnership Agreement, the parties will make investments in the construction of the Sovetskaya HPP in the Cascade of Nizhne-Cherekskie HPPs.

Supplementary Agreement No. 1 determines the amount of investments to be made by the parties in the construction of this facility in 2005:

• RAO "UES of Russia": up to RUB250 million as provided by the draft investment programme for capital construction projects financed under the Investment Programme 2005 of RAO "UES of Russia";
• OAO "Kabbalkenergo": up to 24.3 million.

The designed capacity of the Sovetskaya HPP is 60 MW. The construction of the power plant is scheduled to be completed in 2007.

The Board of Directors instructed the representatives of RAO "UES of Russia" on the Board of Directors of OAO "Tyumenenergo" to vote FOR the sale by OAO "Tyumenenergo" of property used for the generation, transmission, dispatching, and distribution of electricity and heat on the following terms and conditions:

• the net book value of the property to be sold is RUB23,648,299;
• the market value of the property determined on the basis of the report prepared by the independent appraiser OAO "AKF "Top-Audit" is RUB24,816,000;
• the selling price shall not be lower than the price determined by the independent appraiser;
• the procedure and deadline for payment: [The payment shall be made] in cash within 15 (fifteen) days after the date on which the contract is signed. The payment is to be made by bank transfer to the account of OAO "Tyumenenergo".

In the course of separation of regional energos by lines of business, OAO "UES SO-CDA" prepared a list of property required for the operation of its RDA branches, including Tyumen RDA. On 28 May 2004, the Property Commission of RAO "UES of Russia" approved the performance by OAO "UES SO-CDA" of leasing transactions with the right of repurchase and purchase/sale of property.

The list of property of OAO "Tyumenenergo" necessary for the activities of OAO "UES SO-CDA" to be repurchased in 2004 was approved by the Management Board of RAO "UES of Russia" on 4 November 2004.

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The Board of Directors noted the information on the measures to attract Russian and foreign private investments into the country's energy industry.

Among potential investors in the Russian energy sector considered by RAO "UES of Russia" are portfolio investors, finance and credit institutions, and strategic investors.

The principal conditions for attracting portfolio investors are increased liquidity of RAO UES securities, increased value of the Company for shareholders, and acceptable rate of return on the shares of the Holding Company's entities.

In the implementation of the reform, a large number of companies will be established which may become attractive for portfolio investors. These include large generation companies (WGCs, TGCs) and grid companies (FGC, IDCs).

As one of the key aspects of the companies' attractiveness for portfolio investors is their future liquidity, it is necessary to determine what plans and possibilities these companies have with respect to entering stock markets.

The following steps may be regarded as measures to maintain liquidity of the would-be companies' shares:

• After the companies' consolidation, their shares are to be listed on Russian stock exchanges ("List B");
• Market makers are to be designated to promote the companies' shares on the market;
• Establishment of a Level I depositary receipts program;
• Raising the listing of the companies' shares on the Russian exchanges to A1;
• Listing on international stock exchanges (LSE) and placement of additional shares;
• Implementation of the best corporate governance standards:
• Involvement of independent directors;
• Creation of the Audit, Appraisal, and Remuneration Committees under the Board of Directors;
• Development of the Corporate Governance Code and the Regulation on Information Policy;
• Development of an internal audit procedure;
• Approval of the dividend policy;
• Preparation of IFRS financial statements beginning with the first year of a company's existence;
• Active communication of the Company's executives with investors: regular roadshows and conference calls;
• Obtaining a credit rating and corporate governance rating not earlier than one year after the establishment of the company;
• Development of a three-year business plan and an investment memorandum;
• Development of a benchmarking system or system of key performance indicators (KPI), etc.

One of the ways to finance capital construction or modernization of energy facilities is borrowing. In 2004-2005, a total of RUB31 billion in loans are planned to be raised throughout the Holding Company.

The principal and interest payments will be made from the investment budget of RAO "UES of Russia" earmarked for future periods as well as cash flows as a result of sale of electricity produced by the power generating units put into operation. One of the key factors influencing credit institutions in the grant of loans is the provision by RAO "UES of Russia" of surety to secure the loans.

In 2003, RAO "UES of Russia" together with its subsidiaries and dependent companies (SDCs) started to implement commercial standalone projects in the area of power generation which will help significantly reduce fuel consumption and ensure reliable power in different parts of Russia. Among such projects is the construction of GTU-CHPP "Luch" in the city of Belgorod and modernization of power generating unit No. 3 at the Dzerzhinskaya CHPP.

If loans are raised to fund SDCs' projects, the key factors considered by banks before the grant of a loan will be changes in the electricity tariffs, the borrower's financial position, the amount of funds needed to complete the construction project, and the borrower's good credit history.

Special mention should be made of the loans extended by international financial institutions—European Bank for Reconstruction and Development (EBRD) and the International Bank for Reconstruction and Development (IBRD).

The ratification by the Russian Federation on 5 November 2004 of the Kyoto Protocol to the UN Framework Convention on Climate Change also opens up additional possibilities to raise international investments in the electricity industry.

According to the optimistic scenario of the Energy Carbon Fund, by 2012 the Holding Company's carbon supply may amount to:

• for joint projects: over USD500 million;
• for emissions trading: over USD700 million.

In this connection, the SDCs should prioritize those investment projects that will help achieve maximum fuel savings and reduce emissions.

Over the past few years, proactive efforts have been made to involve strategic investors—both foreign (E.ON, AES, Transelektro, etc.) and Russian ones (largest fuel suppliers and electricity consumers, such as Gazprom, LUKoil, Rosneft, TNK, RUSAL, SUAL, etc.)—in projects to build power plants.

The experience of cooperation with strategic investors suggests that the important factors influencing investment decisions is the investor's assessment of the possible and potential risks inherent in the project in which investments are made, and the probability of occurrence of such risks.

In order to crease favourable conditions for attracting Russian and foreign investors in the country's electricity industry, it is necessary to ensure transparency of the reform process, a system of state regulation and operation of the competitive electricity market, and a system of special measures used during the transition period for the industry.

During the transition period of the electric power industry reform, the price signals are distorted and do not encourage investors to invest. In this connection, it is necessary to create one more additional instrument for reducing risks, viz. a system which would guarantee that investors' price risks on projects would be covered and that investors would receive a specific internal rate of return, taking into account the peculiarities of Russia's electric power industry.

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The Board of Directors also approved its work plan for Q1 2005.