Moscow. 28 June 2003. – The Board of Directors elected A. Voloshin, Head of Administration of the Russian President, as its Chairman. Deputy Chairman of the Russian Government V. Khristenko was elected Deputy Chairman of the Board.

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The Board of Directors of RAO "UES of Russia", executing the functions of the Annual General Meeting of OAO "Federal Grid Company" (FGC), has approved the FGC Annual Report for the year 2002, the annual financial statements and profit and loss statement for the year 2002.

The FGC reported a net loss of RUB1.81 billion last year. Such loss was due to the depreciation charged to the real property facilities, the ownership of which is subject to state registration, since FGC started to use these facilities after they had been received from the founder as capital contribution. The indicated loss wasn’t suffered from the current business activities of the Company, but constitutes loss reflected in financial accounts, since the depreciation charged had no source for clearing off.

The Board has also resolved to pass the dividend on the FGC's ordinary shares in respect of 2002.

The Board of Directors of RAO "UES of Russia" has elected the FGC Board of Directors consisting of:

The Board of Directors of RAO "UES of Russia" also elected the FGC Audit Commission consisting of:

The Board of Directors has approved the appointment of "Top-Audit" firm as FGC's independent auditors and adopted amendments and additions to the Company's Charter.

OAO "UES FGC" was established in 2002 as a wholly-owned subsidiary of RAO "UES of Russia" within the framework of the energy sector reform.

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The Board of Directors of RAO "UES of Russia", executing the functions of the Annual General Meeting of OAO "UES System Operator-Central Dispatch Administration" (SO-CDA), has approved the SO-CDA Annual Report for the year 2002, the annual financial statements and profit and loss statement for the year 2002.

The Board of Directors has approved the loss of OAO "UES SO-CDA" for FY2002 in the amount of RUB17.77 million. The loss was suffered due to delay in legalizing the contractual relations between Tatenergo, Bashenergo and Irkutskenergo with OAO “UES SO-CDA”.

As the SO-CDA's share capital has not been fully paid, the Board of Directors has resolved to pass the dividend on the Company's ordinary shares in respect of 2002.

The Board of Directors of RAO "UES of Russia" has elected the Board of Directors of OAO "UES SO-CDA" consisting of:

The Board of Directors of RAO "UES of Russia" has also elected the Audit Commission of OAO "UES SO-CDA" consisting of:

The Board of Directors has approved the appointment of OOO Audit Company "Nalogovoe Byuro" ("Tax Bureau") as Independent Auditor of OAO "UES SO-CDA" for the year 2003, and adopted amendments and additions to the Charter of the Company.

OAO "UES SO-CDA" was established in 2001 as a wholly-owned subsidiary of RAO "UES of Russia" within the framework of the energy sector reform.

The Board of Directors has unanimously approved OAO "Karelenergo" restructuring plan and taken the following resolutions:

- to approve the establishment by OAO "Karelenergo", together with OAO "TsNII NPKenergo", of OAO "Karelenergoremont" and OAO "Karelelectrosetremont". The stake held by OAO "Karelenergo" in both of the newly established companies is to be 100% minus 1 share, whereas the stake of OAO "TsNII NPKenergo" is to be 1 share, par value to be not more than 1% of the authorized capital.

- to approve that OAO "Karelenergo" transfer its power grid facilities which are part of the Unified National Power Grid (UNPG), and make a cash payment as consideration for the additional shares in North-West Interregional Transmission Company (North-West ITC) pursuant to the decision of the Board of Directors of RAO "UES of Russia" of 15 August 2002, and pay in full for the additional shares in North-West ITC being acquired by OAO "Karelenergo", prior to approval of the resolution to reorganize OAO "Karelenergo"

- to approve that the restructuring of OAO "Karelenergo" be carried out through spin-off of the following companies (while preserving the current capital structure):

• OAO "Karelenergo Management Company" based on the executive units of OAO "Karelenergo";
• OAO "Karelenergogeneratsia Generation Company";
• OAO "Karelian Energy Distribution Company";
• OAO "Karelian Backbone Grids", with shares in North-West ITC as its only asset;

- that the following companies delegate the performance of functions of their one-man management bodies (i.e. Directors General) to OAO "Karelenergo Management Company":

• OAO "Karelenergo";
• OAO "Karelian Power Distribution Company";
• OAO "Karelenergogeneratsia Generation Company".

The Board of Directors has pointed out that, in the event that OAO "Karelenergo" fails to transfer the UNPG-related power grid facilities as consideration for the additional shares in North-West ITC before the decision to reorganize the Company is taken, OAO "Karelenergo" is to spin off OAO "Karelian Backbone Grids" in the course of restructuring, and the UNPG-related power grid facilities are to be transferred to said spin-off company in accordance with the separation balance sheet.

At the same time, the power distribution networks that are not part of the UNPG must remain the property of OAO "Karelenergo".

During the preliminary stage, which is scheduled to be completed in autumn 2003, two subsidiary companies are to be established, OAO "Karelenergoremont" and OAO "Karelenergosetremont". These companies will be engaged in businesses that are non-core for the energy company and will subsequently be disposed of.

Also, the RDA property is to be transferred, for a consideration, to OAO "UES SO-CDA".

At the first stage, which is scheduled to be completed in autumn 2004, OAO "Karelenergo" will be reorganized through spin-off, with shares in the spin-off companies to be distributed pro rata among the shareholders in OAO "Karelenergo".

The second stage, expected to be completed in early 2006, will see interregional integration of companies separated from regional energos:

• OAO "Karelian Backbone Grids" is to merge with OAO "North-West ITC", or shares in OAO "North-West ITC" are to be transferred to RAO "UES of Russia" by some other method determined by the Board of Directors of RAO "UES of Russia".
• OAO "Karelenergo (the grid company) is to be integrated with the distribution grid companies within the North-West Integrated Energy Systems (IES).
• OAO "Karelenergogeneratsia Generation Company" is to merge with the generating company located in Murmansk Region.
• OAO "Karelenergo Management Company" is to stop performing the functions of the one-man executive body (Director General) of OAO "Karelenergo", OAO "Karelenergogeneratsia Generation Company", and OAO "Karelian Energy Distribution Company".

The restructuring plan of OAO "Karelenergo" is in compliance with the basic plan of regional energos' restructuring, it has been approved by the Restructuring Committee of the Board of Directors of RAO "UES of Russia", and by the Working Group for considering the restructuring plans with the Electricity Reform Commission of the Russian Government. The Board of Directors has also signed an agreement with the Government of Karelia Republic on the restructuring of the regional energo.

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The Board of Directors has approved the draft of OAO "Marienergo" restructuring plan and taken the following resolutions:

- to approve the establishment by OAO "Marienergo" of a wholly-owned subsidiary, OAO "Marienergoremont";

- to approve that OAO "Marienergo" transfer its power grid facilities which are part of the Unified National Power Grid (UNPG), and make a cash payment as consideration for the additional shares in Volga Interregional Transmission Company (Volga ITC) pursuant to the decision of the Board of Directors of RAO "UES of Russia" of 15 August 2002, and pay in full for the additional shares in Volga ITC being acquired by OAO "Marienergo", prior to approval of the resolution to reorganize OAO "Marienergo";

- to approve that the restructuring of OAO "Marienergo" be carried out through spin-off of the following companies (while preserving the current capital structure):

• OAO "Mari Regional Management Company";
• OAO "Mari Regional Generation Company";
• OAO "Marienergosbyt";
• OAO "Mari Backbone Grids", with shares in Volga ITC as its only asset;

- to approve that following companies delegate the performance of functions of their one-man management bodies (i.e. Directors General) to OAO "Marienergo Management Company":

• OAO "Marienergo";
• OAO "Mari Regional Generation Company";
• OAO "Marienergosbyt";

The Board of Directors has pointed out that in the event that OAO "Marienergo" fails to transfer the UNPG-related power grid facilities as consideration for the additional shares in Volga ITC before the decision to reorganize the Company is taken, then OAO "Marienergo" is to spin off OAO "Mari Backbone Grids" in the course of restructuring, and the UNPG-related power grid facilities are to be transferred to said spin-off company in accordance with the separation balance sheet.

At the same time, the power distribution networks that are not part of the UNPG must remain the property of OAO "Marienergo".

The first stage of restructuring envisages divestment of the following units from OAO "Marienergo": a regional dispatch authority, backbone power grids, and power grid facilities; establishment of wholly-owned subsidiaries of OAO "Marienergo", - OAO "Motor Transport Enterprise" and OAO "Energoremont"; the following companies are to be spun off from OAO "Marienergo", with shares in the newly established companies to be distributed pro rata among the Company's shareholders: OAO "Mari Regional Generating Company", OAO "Mari Regional Management Company", OAO "Marienergosbyt", and OAO "Mari Backbone Grids".

The second stage will see establishment of interregional generation companies and power grid companies.

The proposed plan is in compliance with the basic plan of regional energos' restructuring. It has been approved by the Government of the Republic, the largest minority shareholder, and the Restructuring Committee of the Board of Directors of RAO "UES of Russia".

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The Board of Directors has approved the draft of OAO "Mordovenergo" restructuring plan and taken the following resolutions:

- to approve the establishment by OAO "Mordovenergo" of a wholly-owned subsidiary, OAO "Mordovenergoremont";

- to approve that OAO "Mordovenergo" transfer its power grid facilities which are part of the Unified National Power Grid (UNPG), and make a cash payment as consideration for the additional shares in Volga Interregional Transmission Company (Volga ITC) pursuant to the decision of the Board of Directors of RAO "UES of Russia" of 15 August 2002, and pay in full for the additional shares in Volga ITC being acquired by OAO "Mordovenergo" prior to approval of the resolution to reorganize OAO "Mordovenergo";

- to approve that the restructuring of OAO "Mordovenergo" be carried out through spin-off of the following companies (while preserving the current capital structure):

• OAO "Mordovian Energy Management Company";
• OAO "Mordovian Generating Company",
• OAO "Mordovian Heat Network Company";
• OAO "Mordovian Power Distribution Company";
• OAO "Mordovian Backbone Grid Company", with shares in Volga ITC as its only asset;

- to approve that the functions of the one-man management bodies (i.e. Directors General) of the following companies be transferred to OAO "Mordovian Energy Management Company":

• OAO "Mordovian Generating Company",
• OAO "Mordovian Heat Network Company";
• OAO "Mordovian Power Distribution Company";
• OAO "Mordovenergo".

The Board of Directors has pointed out that, in the event that OAO "Mordovenergo" fails to transfer the UNPG-related power grid facilities as consideration for the additional shares in Volga ITC before the decision to reorganize the Company is taken, OAO "Mordovenergo" is to spin off OAO "Morodovian Backbone Grid Company" in the course of restructuring, and the UNPG-related power grid facilities are to be transferred to said spin-off company in accordance with the separation balance sheet.

At the same time, the power distribution networks that are not part of the UNPG must remain the property of OAO "Mordovenergo".

At the first stage of restructuring (which is scheduled to be completed by 1 October 2003), the property and functions of the RDA of OAO "Mordovenergo" are to be transferred to OAO "UES SO-CDA"; OAO "Mordovenergo" is to acquire a stake in OAO "Volga Interregional Transmission Company" (OAO "Volga ITC"); an energy repair and maintenance company, OAO "Mordovenergoremont", is to be established; non-core assets of OAO "Mordovenergo" are to be disposed of; OAO "Mordovenergo" is to acquire a stake in OAO "SaranskTeploTrans"; OAO "Mordovenergo" is to become participant of the competitive wholesale electricity market (5-15%).

The second stage (Q4 2003 – Q4 2004) will see restructuring of OAO "Mordovenergo" through spin-off of companies by the line of business with pro rata distribution of shares in the following companies among the shareholders in OAO "Mordovenergo": OAO "Mordovian Energy Management Company", OAO "Mordovian Generating Company", OAO "Mordovian Heat Network Company", OAO "Mordovian Power Distribution Company", OAO "Mordovian Backbone Grid Company".

The restructuring plan of OAO "Mordovenergo" is in compliance with the basic plan of regional energos' restructuring, it has been approved by the Restructuring Committee of the Board of Directors of RAO "UES of Russia", and by the Working Group for considering the restructuring plans with the Electricity Reform Commission of the Russian Government, and has been consented to by most minority shareholders and by the Government of Mordovian Republic.

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The Board of Directors has unanimously approved the draft of OAO "Nizhnovenergo" restructuring plan and taken the following resolutions:

- to approve the establishment by OAO "Nizhnovenergo" of wholly-owned subsidiaries: OAO "Energoremont", OAO "Energospetsremont", and OAO "Engineering Center";

- to approve that OAO "Nizhnovenergo" transfer its power grid facilities which are part of the Unified National Power Grid (UNPG), and make a cash payment as consideration of the additional shares in Central Interregional Transmission Company (Central ITC) pursuant to the decision of the Board of Directors of RAO "UES of Russia" of 15 August 2002, and pay in full for the additional shares in Central ITC being acquired by OAO "Nizhnovenergo, prior to approval of the resolution to reorganize OAO "Nizhnovenergo";

- to approve that the restructuring of OAO "Nizhnovenergo" be carried out through spin-off of the following companies (while preserving the current capital structure):

• OAO "Nizhny Novgorod Management Energy Company";
• OAO "Nizhny Novgorod Generation Company";
• OAO "Nizhny Novgorod Distribution Company";
• OAO "Nizhny Novgorod Backbone Grid Company", with shares in Central ITC as its only asset;

- in the course of restructuring of OAO "Nizhnovenergo", its stake in OAO "Dzerzhinskaya CHPP" is to be transferred to OAO "Nizhny Novgorod Generation Company".

- to approve that the functions of the one-man management bodies (i.e. Directors General) of the following companies be transferred to OAO "Nizhny Novgorod Energy Management Company":

• OAO "Nizhny Novgorod Generation Company";
• OAO "Nizhny Novgorod Distribution Company";
• OAO "Nizhnovenergo".

The Board of Directors has pointed out that in the event that OAO "Nizhnovenergo" fails to transfer the UNPG-related power grid facilities as consideration for the additional shares in Central ITC before the decision to reorganize the Company is taken, then OAO "Nizhnovenergo" is to spin off OAO "Nizhny Novgorod Backbone Grid Company" in the course of restructuring, and the UNPG-related power grid facilities are to be transferred to said spin-off company in accordance with the separation balance sheet.

At the same time, the power distribution networks that are not part of the UNPG must remain the property of OAO "Nizhnovenergo".

At the first stage, which is to be completed by Q3 2003, the RDA of OAO "Nizhnovenergo" are to be transferred to OAO "UES SO-CDA"; the backbone power grids (BPGs) of OAO "Nizhnovenergo" are to be handed over to OAO "UES FGC"; OAO "Dzerzhinskaya CHPP" and some wholly-owned subsidiaries are to be established: repair companies OAO "Energoremont", OAO "Energospetsremont", OAO "Engineering Center", a maintenance company OAO "Transenergoservis", and some other non-core enterprises.

The second stage (Q4 2003 – Q4 2004) will see restructuring of OAO "Nizhnovenergo" through spin-off of companies by the line of business with pro rata distribution of shares in the new companies among shareholders of OAO "Nizhnovenergo": OAO "Nizhny Novgorod Generation Company", OAO "Nizhny Novgorod Backbone Grid Company", holding shares of ITC, OAO "Nizhny Novgorod Management Energy Company", OAO "Nizhnovenergo", OAO "Nizhny Novgorod Distribution Company".

The restructuring plan of OAO "Nizhnovenergo" is in compliance with the basic plan of regional energos' restructuring; it has been approved by the Restructuring Committee of the Board of Directors of RAO "UES of Russia", by the Working Group for considering the restructuring plans with the Electricity Reform Commission of the Russian Government, and has been consented to by a consolidated group of minority shareholders and by the administration of Nizhny Novgorod Region.

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The Board of Directors has approved the draft of OAO "Penzaenergo" restructuring plan and taken the following resolutions:

- to approve the establishment by OAO "Penzaenergo" of a wholly-owned subsidiary, OAO "Penzaenergoremont";

- to approve that OAO "Penzaenergo" transfer its power grid facilities which are part of the Unified National (All-Russia) Power Grid (UNPG), and make a cash payment as consideration of the additional shares in Volga Interregional Transmission Company (Volga ITC) pursuant to the decision of the Board of Directors of RAO "UES of Russia" of 15 August 2002, and pay in full for the additional shares in Volga ITC being acquired by OAO "Penzaenergo", prior to approval of the resolution to reorganize OAO "Penzaenergo";

- to approve that the restructuring of OAO "Penzaenergo" be carried out through spin-off of the following companies (while preserving the current capital structure):

OAO "Penza Energy Management Company";

• OAO "Penza Regional Generation Company";
• OAO "Penza Heat Network Company";
• OAO "Penza Power Distribution Company";
• OAO "Penza Backbone Grid Company", with shares in Volga ITC as its only asset;

- to approve that the following companies delegate the performance of functions of their one-man management bodies (i.e. Directors General) to OAO "Penza Energy Management Company":

• OAO "Penzaenergo";
• OAO "Penza Regional Generation Company";
• OAO "Penza Heat Network Company";
• OAO "Penza Power Distribution Company".

The Board of Directors has pointed out that in the event that OAO "Penzaenergo" fails to transfer the UNPG-related power grid facilities as consideration for the additional shares in Volga ITC before the decision to reorganize the Company is taken, OAO "Penzaenergo" is to spin off OAO "Penza Backbone Grid Company" in the course of restructuring, and the UNPG-related power grid facilities are to be transferred to said spin-off company in accordance with the separation balance sheet.

At the same time, the power distribution networks that are not part of the UNPG must remain the property of OAO "Penzaenergo".

At the first stage (which is to be completed by 1 January 2005), a wholly-owned subsidiary, OAO "Penzaneregoremont", is to be established on the basis of a repair unit of OAO "Penzaenergo"; the power grid facilities that are part of the UNPG are to be divested in accordance with the procedure and within the timeframe established by the Board of Directors of RAO "UES of Russia" and the Board of Directors of OAO "Penzaenergo"; OAO "Penzaenergo" is to be reorganized, with shares in the newly established core-business companies to be distributed pro-rata among the Company's shareholders; the new companies will become participants of the heat and electricity market of Penza Region; the facilities required for operational dispatch management will be sold to OAO "UES SO-CDA".

The second stage (2005-2006) will see interregional integration of companies by line of business in accordance with the RAO "UES of Russia" policies: territorial power generation companies will be established, distribution grid companies will be consolidated on an interregional basis (restructured OAO "Penzaenergo").

The restructuring plan of OAO "Penzaenergo" is in compliance with the basic plan of regional energos' restructuring. It has been approved by the Restructuring Committee of the Board of Directors of RAO "UES of Russia", and by the Working Group for considering the restructuring plans with the Electricity Reform Commission of the Russian Government.

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The Board of Directors has approved the draft of OAO "Chuvashenergo" restructuring plan and taken the following resolutions:

- to approve that OAO "Chuvashenergo", together with OAO "TsNII NPKenergo", establish the following subsidiaries: OAO "Chuvashergoremont", OAO "Chuvashelectrosetremont", OAO "Chuvashenergospetsremont". The stake held by OAO "Chuvashenergo" in the newly established companies makes 100% minus one share, whereas the stake of OAO "TsNII NPKenergo" is 1 share, par value to be not more than 1% of the authorized capital.

- to approve that OAO "Chuvashenergo" transfer its power grid facilities which are part of the Unified National (All-Russia) Power Grid (UNPG), and make a cash payment as consideration for the additional shares in Volga Interregional Transmission Company (Volga ITC) pursuant to the decision of the Board of Directors of RAO "UES of Russia" of 15 August 2002, and pay in full for the additional shares in Volga ITC being acquired by OAO "Chuvashenergo", prior to approval of the resolution to reorganize OAO "Chuvashenergo";

- to approve that the restructuring of OAO "Chuvashenergo" be carried out through spin-off of the following companies (while preserving the current capital structure):

• OAO "Chuvash Management Company" based on the executive units of OAO "Chuvashenergo";
• OAO "Chuvash Generation Company";
• OAO "Cheboksarskaya HPP";
• OAO "Chuvash Power Distribution Company";
• OAO "Chuvash Backbone Grids", with shares in Volga ITC as its only asset;

- to approve that following companies delegate the performance of functions of their one-man management bodies (i.e. Directors General) to OAO "Chuvash Management Company":

• OAO "Chuvash Generation Company";
• OAO "Chuvashenergo"
• OAO "Chuvash Power Distribution Company";
• OAO "Cheboksarskaya HPP" (until the power plant is transferred to the WGC).

The Board of Directors has pointed out that, in the event that OAO "Chuvashenergo" fails to transfer the UNPG-related power grid facilities as consideration for the additional shares in Volga ITC before the decision to reorganize the Company is taken, OAO "Chuvashenergo" is to spin off OAO "Chuvash Backbone Grids" in the course of restructuring, and the UNPG-related power grid facilities are to be transferred to said spin-off company in accordance with the separation balance sheet.

At the same time, the power distribution networks that are not part of the UNPG must remain the property of OAO "Chuvashenergo".

During the preliminary stage, which is scheduled to be completed in autumn 2003, subsidiary companies are planned to be established. These companies will be engaged in businesses that are non-core for the energy company and will subsequently be disposed of.

Also, in the event that OAO "Volga ITC" is established prior to completion of OAO "Chuvashenergo" restructuring, the latter is to transfer its power grid facilities as consideration for the additional shares in OAO "Volga ITC".

During the preliminary stage, the RDA property will be transferred, for a consideration, to OAO "UES SO-CDA".

At the first stage, which is scheduled to be completed in autumn 2004, OAO "Chuvashenergo" will be reorganized through spin off; shares in the spin-off companies are to be distributed pro-rata among the shareholders in OAO "Chuvashenergo".

The second stage, which is expected to be completed in the early 2006, will see interregional integration of the companies separated from the regional energo:

The restructuring plan of OAO "Chuvashenergo" is in compliance with the basic plan of regional energos' restructuring; it has been approved by the Restructuring Committee of the Board of Directors of RAO "UES of Russia", by the Working Group for considering the restructuring plans with the Electricity Reform Commission of the Russian Government, and has been consented to by the regional authorities.

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The Board of Directors has noted the progress report on the project to modernize the 3^rd generating unit at Dzerzhinskaya CHPP. The project envisages installation of a V94.2 gas turbine and 150 MW generator produced by Siemens AG and JV "Interturbo", a Russian-made steam turbine of 42-45 MW, a 320 t/h waste heat boiler. The project is being financed with the RUB2,300m loan extended by ZAO "GUTA-BANK".

The Board of Directors has approved the financing through the issue of a bond issue of OAO “Dzerzhinskaya CHPP”. The decision on the terms of the bond issue will be taken by the Board of Directors of RAO “UES of Russia” by poll vote.

OAO "Dzerzhinskaya CHPP" was established in 1998 to implement a project to modernize power generating unit No. 3.

The authorized capital of OAO "Dzerzhinskaya CHPP" is RUB1,397 million. OAO "Nizhnovenergo" owns 100% shares in OAO "Dzerzhinskaya CHPP".

The market value of the 75%+2 shares in OAO "Dzerzhinskaya CHPP" is RUB1,413 million. The market value of the shareholding has been determined by OOO "Top-Audit".

The project envisages modernization of the 3^rd generating unit at Dzerzhinskaya CHPP (currently, the plant's installed capacity is 435 MW) by installing a 150 MW combined-cycle gas turbine (CCGT) manufactured by Siemens, a Russian-made steam turbine of 42-45 MW capacity, and a 320 t/h waste heat boiler. The modernization is being carried out in the plant's main building and uses its existing engineering networks and systems. The old equipment of the generating unit has been dismantled. The site has been cleared, and the foundation of the gas-turbine unit installed in 1995 has been rebuilt. 195 MW capacity is scheduled to be put into operation in August 2004.

After the modernization project is completed, the annual output of Dzerzhinskaya CHPP is anticipated at 3.2 billion kWh of electricity and 3.1 million Gcal of heat. The specific fuel consumption rate for the electricity produced with the new equipment will decrease 30% compared to the equipment currently used at Dzerzhinskaya CHPP.

The project targets to reduce the power plant's dependence on heat consumers, raise electricity sales, ensure uninterrupted supply of electricity and heat to Dzerzhinsky District in the long-term, boost efficiency and improve environment through using advanced technologies.

In order to secure an optimum project financing arrangement, RAO "UES of Russia" and OAO "Nizhnovenergo" held a tender to select bids from credit institutions and investment companies relating to organization of a bond issue for OAO "Dzerzhinskaya CHPP" against pledge provided by OAO "Nizhnovenergo". The contract was awarded to ZAO "GUTA-Bank", whose bid contained the lowest cost of financing.

The Board of Directors has broadly approved the Regulation on the Audit Committee of the Board of Directors of RAO "UES of Russia" and elected Board member Seppo Remes as Committee Chairman.

The Board has given the Committee Chairman a task to finalize the draft Regulation on the Audit Committee, taking into account the results of its discussion, to prepare a draft Procedure for the Committee's work, and to submit these documents and nominations for the Committee for the Board's approval.

The purpose of the Audit Committee of the Board of Directors of RAO "UES of Russia" ("Committee") is to improve the corporate governance standards in the Company.

The Committee is an advisory and consultative body set up to:

• nominate independent auditors, evaluate their expertise and quality of work, and decide whether they meet the criteria of independence;
• oversee the performance of annual independent audit of the consolidated financial statements and accounting records of the Company ("Financials");
• control the preparation of Financials by the Company's executive bodies, and the objectivity of these Financials;
• oversee the work of the Company's internal control systems in the area of accounting and finance, and the activities of the internal audit service;
• monitor the Company's systems used to control compliance with the legal and normative acts.

The Committee is accountable to the Board of Directors. The Committee's activities are governed by the Regulation on the Audit Committee and the Procedures.

Resolutions on this item of business are to be approved by a simple majority of votes cast by the Board members present at a Board meeting.

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The Board of Directors of RAO "UES of Russia" has adopted amendments and additions to the Regulation on the Restructuring Committee of the Board.

The Restructuring Committee was established by the Board of Directors of RAO "UES of Russia" on 31 September 2001 as an advisory and consultative body with the Board of Directors of the Company, whose resolutions are to be taken by a simple majority of votes and are of an advisory nature.

Pursuant to the Regulation on the Restructuring Committee, the Committee shall consist of: 9 members, with the following break-down: 3 representatives from the Federal authorities, 2 representatives from minority shareholders, 2 from expert organizations, and 2 from the management of RAO "UES of Russia". The individual appointments of the Committee members are subject to the Board's approval.

Currently, the Committee consists of the following members: D. Herne, Director, Halcyon Advisors (Committee Chairman); V. Kleiner, Director Corporate Research, Hermitage Capital Management; A. Kolesnikov, member of the Management Board of RAO "UES of Russia"; N. Kolesnikov, Senior Banker, EBRD; V. Milov, Director of the Fund "Fuel and Energy Complex Strategic Research", ex-Deputy Minister of Energy of the Russian Federation; S. Remes, Director, Vostok-Energy Company; V. Sinyugin, Deputy Chairman of the Management Board, RAO "UES of Russia"; A. Tikhonov, Head of Department, Ministry of Property Relations of the Russian Federation; A. Sharonov, First Deputy Minister of Economic Development and Trade of the Russian Federation.

Over the last month, several proposals have been submitted to the Board of Directors of the Company for the attention of the Board Chairman. These proposals call for the following changes in the Committee composition:

- proposal from the Ministry of Energy: the Ministry requests that V.V. Petrochenko be put on the Board instead of V.S. Milov, the Ministry's current representative on the Committee, who is leaving his job at the Ministry.

- proposal from the Ministry of Antimonopoly Policy: the Ministry requests that Deputy Minister A.N. Golomolzin be put on the Committee;

- proposal from Board member D.D. Geovanice, requesting to include him on the Committee;

- proposal from Board member A.I. Melnichenko, requesting to put S.Yu. Arkhipov, Deputy Director General of ZAO "MDM Group", on the Committee.

In order to meet these requests, the Board of Directors has increased the number of Committee members to 13 persons, with the following quotas for representatives of various interest groups:

- state representatives – 4 members (one from each of the Ministries: Ministry of Property Relations of the Russian Federation, Ministry of Economic Development and Trade of the Russian Federation, Ministry of Energy of the Russian Federation, Ministry of Antimonopoly Policy and Entrepreneurship Support of the Russian Federation);

- representatives from minority shareholders and potential strategic investors – 4 members;

- representatives from the Company's Management Board – 2 members;

- representatives from expert organizations – 3 members.

The Board has included on the Committee the nominees proposed by the shareholders. The Board has also decided to create the position of Committee Chairman. The Board member Seppo Remes has been appointed to serve in this capacity.

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In full correspondence with the Basic Principles for Performing Transactions with the Securities of RAO “UES of Russia” and its SDCs’ by the Members of the Management Board and Board of Directors of RAO “UES of Russia”, Deputy Chairman of the Management Board Vyacheslav Sinyugin appealed to the Board for preliminary approval of his transaction which constitutes in purchase of shares in RAO “UES of Russia”.

The Board of Directors gave preliminary approval to the indicated transaction.

Members of the Board were informed that all members of the Management Board of RAO “UES of Russia”, as well as 13 out of 15 members of Board of Directors signed the personal obligation to adhere to the Basic Principles. Two members of the Board of Directors gave a reasonable explanation of their refuse to sign under the Basic Principles.

As we have previously reported, on 28 April 2003 the Board of Directors approved the Basic Principles for Performing Transactions with the Securities of RAO “UES of Russia” and its SDCs’ by the Members of the Management Board and Board of Directors of RAO “UES of Russia”, and recommended to the members of the Management Board and the Board of Directors to sign under the Basic Principles as a personal obligation to comply with them.

The Basic Principles, in particular, establish that, during the term of office of members of the Company's management bodies and after the expiry of the term of office (employment) at the Company, the persons that are or were members of the Company's management bodies shall be obliged to keep confidential any information that is not publicly available (i.e. confidential information for official use only and information that constitutes a business secret) which may be obtained or created by them in connection with their activities (work) at the Company.

The notion of information that is not publicly available with reference to the Company's activities, as well as the composition of such information, the documenting procedure, conditions and rules for information processing, categories of information by level of access and access procedure, procedures for protection, and rules for handling documents in the process of their copying and distribution shall be determined by the resolution of the Board of Directors of the Company.

The Basic Principles also state that members of the Company's management bodies do not have the right to make, directly or indirectly, any transactions in securities, including shares, convertible shares, options, bonds, and derivative securities of the Company and the business companies in which the Company has stakes, using internal information about the Company or the businesses in which the Company has stakes (hereinafter referred to as "insider information").Members of the Company's management bodies must not provide insider information (whether by "giving tips" or otherwise) to any other parties that use it for performance of transactions (deals) in securities, regardless of whether or not such person is affiliated to them.

Members of the management bodies must not try to "play on the market" [i.e. profit from the market moves] by making transactions simultaneously with official release by the Company (pursuant to requirements of the Charter, Bylaws and resolutions of the Company's management bodies) of information or within an established period after its official publication.

Persons that are in possession of insider information must refrain from making any transactions (deals) in securities for at least one trading day after its official publication.

To ensure compliance in practice with the requirements of the Basic Principles, the following procedures for prior approval of (agreement to) transactions (deals) and subsequent notification about the performed transactions (deals) are introduced:

- within 5 days prior to the performance of transactions (deals) in securities of the Company or businesses in which the Company has stakes, members of the Company's management bodies are obliged to apply to the Board's Audit Committee (the body controlling compliance with the rules), which must, within 4 days after such application, inform the relevant person of approval of (or refusal to approve) the performance of the intended transaction (deal) in securities.

- members of the management bodies must notify the Audit Committee of the Board of Directors of the effected transaction (deal), the performance of which has been previously approved, within 24 hours after the performance of said transaction (deal).

The Basic Principles state that the signing and submission to the Board's Audit Committee of [documents containing] information about securities of the Company (or business entities in which the Company has stakes), owned by the candidate shall be a precondition for employment of all new members of the Company's Management Board.

Members of the Board of Directors must notify the Audit Committee about their shareholdings in the Company (or businesses in which the Company has stakes) not later than 10 days after their election to the Board of Directors of the Company.

Members of the management bodies must refrain from performance of transactions (deals) in securities of the Company during certain "periods of prohibition" of transactions (deals) in securities of the Company or businesses in which the Company has stakes.