Moscow, 22 May. The Deputy Chairman of the Management Board of RAO "UES of Russia" Vyacheslav Voronin made the following Statement in connection with approval by the Russian Government of the ENERGY STRATEGY OF RUSSIA FOR THE PERIOD UNTIL 2020.

RAO "UES of Russia" acclaims the approval of the Energy Strategy of Russia for the period until 2020. This Document includes important provisions which ensure steady development of the electricity industry in the course of energy reform and transition to market in its non-monopoly sectors.

In particular, the revised Strategy states that high rates of GDP growth (6% or more annually) may be achieved with lower rates of increase in electricity production. This is confirmed by the fact that energy consumption increased 2.3% in 2000-2001 compared to the relatively high GDP growth rate of 7%. As a result, the proposed level of energy consumption takes into account the structural changes in the national economy and the energy conservation policy being planned. The Strategy states that energy consumption in 2020 is anticipated at 1,290 billion kWh (compared to 1,545 billion kWh in the previous version of the Energy Strategy). The lower anticipated level of electricity production will help relieve the problem of the need to increase the generating capacities, reduce the volume of fuel required for power plants, and decrease the need for investments in the development of the electricity sector.

The Energy Strategy approved by the Russian Government provides for an increase in heat and electricity tariffs so as to ensure extended reproduction in the electricity sector. The Strategy also calls for elimination of cross-subsidization and ensuring differentiation of tariffs depending on daily and seasonal load patterns. Such measures are practised world-wide, as electricity generation costs at the expensive peak load generating facilities exceed several times the generation costs of the baseload NPPs and TPPs.

The Strategy also points out that one of the major factors affecting electricity rates is price of natural gas. As is stated in the Strategy, domestic gas prices must be consistently increased to a level which will ensure the development of gas industry. In order to boost competitiveness of coal-fired power plants compared to gas-fired ones, the gas price must be 1.6-2.0 times higher than the coal price. Such price correlation will help reduce the share of gas in the mix of fuels used by TPPs.

The Strategy focuses on the issues of Russia's hydraulic potential, whose rate of use currently amounts to 15%. As fossil fuel production costs keep growing, which means that fuel prices are to increase substantially, it is necessary to ensure development and maximum efficient use of hydropower, environmentally safe and renewable source of electricity. Consequently, power generation at HPPs must increase from the current 160 billion kWh to 180 billion kWh in 2010 and 215 billion kWh in 2020, and in the long term, to 350 billion kWh owing to construction of new HPPs.

The Strategy states that one of the strategic goals set before the electricity industry is development of interconnected transmission lines of 500-1,150 kV in order to enhance reliability of synchronous operation of the IES of Siberia and the energy systems located in the European part of Russia. This will help avoid the costly transportation of coal from Kuzbass and Kansk-Achinsk Coal Basin by using local TPPs and transmitting the additional electricity to the UES of Russia.

In the context of movement towards a more integrated pan-European power market, liberalization of the electricity sector in Europe, and expansion of the area covered by synchronous operation of EU members' energy systems, measures are contemplated to organize synchronous operation of the UES of Russia and the energy systems of the European countries. These measures are expected to ensure equal access for Russia to the European electricity markets, promote development of trade relations and will lead to major advantages and a qualitatively new level of cooperation in the electricity industry.

To sum up, the approval of the Energy Strategy of Russia for the period until 2020 sets the direction for development of the electricity sector and related industries. RAO "UES of Russia" and companies working in other sectors of the fuel and energy industry will rely on the Strategy when developing their key policies for the near term.