Moscow. 28 September 2007. The Board of Directors of RAO "UES of Russia" considered matters relating to the preparation for the EGM of the Company's shareholders scheduled for 26 October 2007, which will decide on the reorganization of RAO "UES of Russia".
In particular, the Board approved the composition of the EGM Presidium, which will comprise all members of the RAO UES Board of Directors. The Board also named the following persons as members of the EGM Secretariat:
||Chairman of the EGM Secretariat|
Head of Corporate Governance and Shareholder Relations Department, RAO "UES of Russia"
||Head of Strategy Department, RAO "UES of Russia" |
||Head of Records Management Directorate, RAO "UES of Russia" |
||Executive Secretary of the Management Board, RAO "UES of Russia" |
||Head of Property Relations Regulation Department, RAO "UES of Russia" |
||Head of Bookkeeping and Tax Accounting Department, RAO "UES of Russia" |
||Head of Corporate Finance and Budget Department, RAO "UES of Russia" |
||Executive Secretary of the Board of Directors, RAO "UES of Russia" |
||First Deputy Head of Corporate Governance and Shareholder Relations Department, RAO "UES of Russia" |
||Head of division at the Corporate Governance and Shareholder Relations Department, RAO "UES of Russia" |
||Deputy Managing Director of Business Unit 1, RAO "UES of Russia" |
||Head of Corporate Governance Department, OAO "UES FGC"|
||Deputy Managing Director of Hydro Generation Business Unit, RAO "UES of Russia" |
||Deputy Managing Director of Business Unit 2, RAO "UES of Russia" |
||Deputy Managing Director of Services Business Unit, RAO "UES of Russia" |
The EGM, which will consider the Company's final reorganization, will be held by absentee vote. Record date: The list of shareholders entitled to participate in the meeting will be made as at 23 August 2007.Holders of the Company's preferred shares are entitled to vote on all items of business on the EGM agenda.
The model for the final (second) phase of the reorganization of RAO "UES of Russia" provides that the restructuring of the energy company's assets will be completed by 1 July 2008, with all companies of the ultimate sector structure (FGC, System Operator, WGCs, TGCs, etc.) to be separated from RAO "UES of Russia", and the Parent Company, RAO "UES of Russia", will cease its activities.
The key principle of the Company's final reorganization is that the assets of RAO "UES of Russia" are to be distributed pro rata among the shareholders. This means that, as a result of the Company's reorganization, the minority shareholders of RAO "UES of Russia" will receive shares in FGC, HydroWGC, IDC Holding, OAO "RAO Energy Systems of the East", INTER RAO UES, 5 WGCs and 13 TGCs, pro rata to their respective interests in the capital of the Parent Company.
RAO "UES of Russia" and ZAO "Status Registration Company" have set up a hotline for shareholders to ask questions on all questions relating to the final phase of the Company's reorganization and participation in the EGM.
RAO UES Shareholder Hotline: +7 (495) 727-12-65 (10:00 to 17:00), +7 (495) 620-16-09 (13:00 to 16:00).
The Board of Directors of RAO "UES of Russia" approved adjustments to its previous resolutions relating to the sale of the Company's shareholding in OAO "TGC-4" attributable to the "government stake".
On 27 April 2007, the Board of Directors approved the sale of 349,373,251,618 ordinary shares, RUB0.01 par value (25.02% of the TGC-4 authorized capital), simultaneously with the additional share offering which will be used to construct and modernize the company's generation facilities.
Taking into account the results of reallocation of shares among the state and special HoldCos approved by the Board of Directors on 27 July 2007, the amount of the "government stake" in TGC-4 was changed to 448,073,145,367 ordinary shares ( 32.08% of the TGC-4 current authorized capital).
The "government stake" shares owned by RAO "UES of Russia" will be sold together with the new share offering of TGC-4. As resolved by the Board of Directors, the per share price at which the "government stake" shares will be sold must not be lower than the per share price of the new share offering.
At today's meeting, the Board of Directors resolved that if the TGC-4 Board approves the issuance of additional shares to financial investors, the procedure for the sale of the "government stake" will be determined by the Board of Directors of RAO "UES of Russia".
If the additional share issue is purchased by a strategic investor, the "government stake" shares will be offered to that investor at the price equal to the price of the new offering.
The share sale will be subject to an agreement among TGC-4, ZAO "Center for Financial Settlements", and NP "ATS" providing for the supply of new capacity to the wholesale market.
The investor will not become the owner of the shares purchased by it until the shares are paid in full and a shareholder agreement is approved and executed by RAO "UES of Russia". The investor will be able to make suggestions regarding the agreement. which should be submitted within 30 days of the execution of the share purchase agreement, and must be approved by RAO "UES of Russia" and the Ministry of Economic Development and Trade of Russia.
The Management Board of RAO "UES of Russia" was instructed to provide for a deferral of payment of the "government stake" shares.
The Board approved the reduction in the Company's interest in OAO "TGC-4" from 47.32 percent to at least 10.73 percent after the new share offering and the simultaneous sale of the "government stake". Previously, it was expected that the stake in TGC-4 held by RAO "UES of Russia" would decline to no less than 16.26 percent.
The Board of Directors instructed the Management Board of RAO "UES of Russia" to take steps to ensure that the cash proceeds from the sale of the "government stake" in TGC-4 are transferred to OAO "State Holding". These funds will be used to finance the Federal Grid Company's investment programme.
By way of reminder, the maximum amount the TGC-4 new share offering will be 586 billion ordinary shares of RUB0.01 par value (41.96% of the TGC-4 authorized capital before the offering and 29.55% of the TGC-4 capital after the offering). The new shares will be sold by open subscription. The offering price for the additional shares of OAO "TGC-4" will be determined by the company's board of directors taking into account the recommendations given by the banks acting as financial advisors and upon review of the bids received from the potential strategic investors.
The Board of Directors of RAO "UES of Russia" reviewed and approved the framework terms of agreements for connection of the generation facilities to be built under the WGCs' and TGCs' investment programmes to power grids.
These terms take into account the new principles of electricity industry operation created in the course of the sector reform. In particular, they provide for standardizing the timeframes for completing certain connection phases, from calculating the connection charge and developing a scheme for power supply to drafting and obtaining approval of the project documentation, building power grid facilities and completing the connection. This will give investors broader possibilities for short- and long-term planning, and identify the parties' responsibilities under the agreement already made.
The framework terms approved by the Board of Directors also provide that if FGC fails to comply with the timeframe for technological connection it would have to pay a penalty of 2% of the contractual amount for each month of delay, but not more than 25% of the entire amount under the contract, and compensate for any losses not covered by the penalty to the extent of the actual damages awarded by court.
In parallel with formalizing the terms of such connection agreements, the connection charges will be standardized both in terms of rates and in terms of expenses used as a basis for calculation of the rates. The existing regulations do not contain any principles for calculating connection charges for generation companies which take into account the construction and modernization costs for power grid facilities from the boundaries of the corresponding power plants to the corresponding power grid facilities).
The concept that the Management Board of RAO "UES of Russia" presented to the Board of Directors provides that the technological connection charge will be calculated as the product of the total length of the power lines and the statutory rate per kilometre, and the relevant scale-up factors which take into account the conditions of construction and other expenses. The rates charged for the construction of 1 km of lines of the relevant voltage class and coefficients which take into account the conditions of construction, the rates for the fixed costs are to be set by the regulatory body in accordance with the guidance given by the Federal Tariffs Service of Russia.
Agreements for the connection of new generation facilities to the general purpose power grid as well as capacity supply agreements and some other documents will form the framework for the implementation of a large-scale investment programme in the electricity industry.
Moreover, a standard connection agreement will make it possible to prevent a conflict of interest relating to the possibility of FGC owning "government stake" shares in certain WGCs and TGC.
This conflict may arise in connection with the peculiarities of financing the FGC investment programme. According to the RAO UES reorganization scheme, this task will be solved by selling the "government stake" shares in WGCs and TGCs owned by RAO "UES of Russia". It is planned that the proceeds from the sale will be transferred to FGC and HydroWGC under a separation balance sheet. The process is expected to be completed by 1 July 2008. If this does not happen, part of the "government stake" shares in WGCs and TGCs will be transferred to FGC, which will have to handle the sale of such unsold shares independently.
If FGC receives shares in some generation companies, it may be interested in increasing their value before the share sale. One of the ways to raise the companies' market capitalization is to implement their investment programmes and ensure the connection of their new generation facilities to the Unified National Energy Grid (UNEG).
In such a situation, the conflict of interest may be prevented by establishing formal relations among FGC and the generation companies on equal terms for all WGCs and TGCs.
The Board of Directors instructed the Management Board, by 31 October, to finalize the model connection agreement based on the framework terms, approve it and submit it to for approval to the relevant ministries and government agencies
The Management Board was also instructed to prepare for the next Board meeting its suggestions regarding the allocation of funds for the FGC investment programme for 2008-2010 to new generation facilities of WGCs and TGCs included in the agreements for the supply of capacity.
The Board also charged the Management Board of RAO "UES of Russia" to produce, by 1 November 2007, its proposals on the procedure for determining standard timeframes for the design, construction and modernization of power grid facilities to ensure generation connection.
The Management Board is to prepare by 1 November 2007 and submit to the relevant ministries and agencies its proposals on determining the connection rates, and by 1 December 2007 its proposals on the procedure for interaction among the generation companies, the network entity, "System Operator" in the connection process.
The Management Board was also instructed to ensure that agreements for connection of generation facilities to power grids are made by year-end 2007 and to coordinate their terms with the timings for the launch of new generation facilities provided by the WGCs' and TGCs' investment programmes.
Also, the Board of Directors gave the Management Board a task to submit its proposals on the creation of a corporate mechanism which prohibits the grid companies' and System Operator's managers from holding shares in generation companies as a measure to avoid conflict of interests.