Moscow, 28 March. – The Board of Directors of RAO "UES of Russia" has resolved to hold an Annual General Meeting of shareholders of the Company on 30 May 2003 in the "Zelenograd" Palace of Culture located in Zelenograd, Moscow.
The change in the AGM venue (the previous AGMs were held in Konakovo, Tver Region) is due to the requirements of the FCSM Resolution pursuant to which a general meeting of shareholders must be held in an [urban or rural] settlement where the company's principal offices are located. Zelenograd, which is one of Moscow's administrative districts, has been chosen for reasons of value for money (the Palace of Culture "Zelenograd" has a spacious hall and can be leased at an affordable price), and availability of convenient transportation facilities.
The Board of Directors of RAO "UES of Russia" has resolved that the following items be included on the agenda of the Company's AGM: approval of the Company's annual report for 2002, the annual financial statements, including the profit and loss account, and profit and loss allocation based on the financial year results; approval of amendments and additions to the Charter of RAO "UES of Russia" proposed by the Company's Board of Directors and shareholder groups; approval of amendments and additions to the regulations of RAO "UES of Russia" governing the activities of its management bodies; approval of the appointment of the Auditor; election of members of the Company's Board of Directors and Audit Committee.
The Board of Directors has fixed 14 April 2003 as the record date for making a list of persons entitled under the Russian laws to participate in the AGM. Holders of preferred shares are not entitled to vote at the AGM.
The Board has approved the text of Notice of Annual General Meeting of Shareholders, which will be published in the "Izvestiya" newspaper, and the list of information materials to be provided to shareholders in connection with the AGM.
The Board of Directors has approved that Mr. Rumiantsev, Deputy Chairman of NP "ATS" Management Board for payments and finance, be included on the list of nominees to the Audit Board of RAO "UES of Russia".
The Board of Directors has approved the outline of the 2002 Annual Report and instructed the Management Board to prepare the draft Report for the next Board meeting.
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The Board of Directors has taken into consideration the revised financial plan (budget) of RAO "UES of Russia" for 2003 presented by the Management Board.
It has been noted that the Company's revised financial plan for the current financial year has been developed in pursuance of the Russian Government's resolution, with account taken of the decisions taken by the Government regarding the level of electricity tariffs in 2003.
The draft financial plan, which was reviewed at the Board meeting held 6 November 2002, was based on the anticipated increase in the then current subscription fee to RUB95.1 per thousand kWh, i.e. by 24.8%.
The revised budget takes into account the new rate of subscription fee charged for the services of RAO "UES of Russia" (RUB85.35 per thousand kWh) as approved by the Resolution of the FEC of Russia, and the anticipated investments totalling RUB23.551 billion.
As OAO "UES SO-CDA" now independently charges fees for its services, the 2003 financial plan of RAO "UES of Russia" does not cover its activities. Expenditure for maintenance and development of power grid facilities have been included in the financial plan of RAO "UES of Russia" as payment for the services of OAO "UES FGC".
The revenues of RAO "UES of Russia" in 2003 are expected to come from payments for administering the operation and development of the UES of Russia (subscription fee), from electricity export sales, and other activities. The total revenues, taking into account the collection of past due receivables for the previous years, dividends from the SDCs, and other earnings, have been approved at RUB73.252 billion.
The projected expenses of RAO "UES of Russia" for 2003 have been calculated based on the analysis of production programs and objectives, schedules and volumes of repair and maintenance operations on electric transmission facilities, capital construction projects, restructuring of RAO "UES of Russia", and other production tasks under the existing contracts and contracts in negotiation.
Total expenses of RAO "UES of Russia" for 2003, taking into account the repair and maintenance expenses for power grid facilities (fees for the services of OAO "UES FGC"), have been set at RUB75.823 billion.
The revised financial plan (budget) of RAO "UES of Russia" for 2003 has a deficit of RUB 2.571 billion.
The Board of Directors has instructed the Management Board to continue implementing program on lowering the costs, increasing the profits, as well as other measures which aim at set-up of non-deficit budget.
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The Board has approved the participation of RAO "UES of Russia" in Non-Profit Partnership (NP) "Corporate Educational and Scientific Center of Unified Energy System".
The Non-Profit Partnership's founders are RAO "UES of Russia" and the Moscow Energy Institute (Technical University).
In the discussion of this question, it was noted that the power reform calls for changes in the personnel policy of newly established energy companies. The changes underway have led to an increase in the number of personnel needing training and the emergence of new training domains, such as training of commercial dispatchers, trading staff for the competitive market, engineering staff for combined-cycle gas plants, etc.
The Non-Profit Partnership will be established as an independent legal person to handle these and some other tasks. This is part of the Program to reform the training, retraining, and professional development system for the personnel of RAO "UES of Russia".
The training services will be provided to energy enterprises and organizations, including enterprises of the nuclear power industry and fuel and energy sector, both in Russia and the CIS countries. It is anticipated that about 17 thousand people will need professional training or retraining in 2003-2004, while over 37 thousand will need professional development.
The equipment required for the Center will be provided under the Program to reform the training, retraining, and professional development system for RAO UES personnel by the members of the Non-Profit Partnership as an in-kind contribution. More equipment will be purchased with the Partnership's funds received from operations. The Center will make allocations for development purposes. However, in the first year these funds will not be sufficient to ensure the necessary start-up investments amounting to RUB8.06 million, which may be granted as special-purpose contributions. To ensure the Partnership's activities, the founders will hand over to it the building at 13 Krasnokazarmennaya Street, Bld. 2, Moscow, for a term of 20 years. In its second year, the Center will ensure full self-financing and create financial reserves required for expansion.
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The Board has unanimously approved the work done in 2001-2002 to implement procurement practices for capital construction, reconstruction and overhaul projects of RAO "UES of Russia" using both competitive and approved out-of-competition methods, and decided to continue with the program in the year 2003. *
The Board has also decided to include in the corporate procedures a system for controlling the competitive and approved out-of-competition procurement of goods, work, and services in the subsidiary and dependent regional energos and AO-power plants, and to put the issue on the agendas of the Boards of Directors of the respective subsidiary and dependent companies (SDCs).
The Board has instructed the Management Board to take measures for the increase of responsibility of SDCs’ management in the procurement of competitive goods, work and services.
The Board has reviewed the report on the work of OAO "UES Energostroysnabkomplekt". The company was established in 2001 to manage central supply of materials and equipment for construction and overhaul projects in the energy sector.
* The information on the procurement activities of RAO “UES of Russia” and SDCs’ is to follow from RAO “UES of Russia” Media Department.
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By two-thirds votes of those attending the meeting, the Board has deemed it advisable for RAO "UES of Russia" to acquire a stake in an open joint-stock company specializing in housing and utility services.
It was noted that, according to the State Statistics Committee, the cost of housing and utility services provided in 2002 amounted to RUB 554 billion. In 2002, the housing and utilities industry accounted for 5% of the GDP, an increase of 1%. The annual production of heat energy is 990 million Gcal. There are 3,919 housing and utility enterprises in Russia, which have 1.5 million employees.
Today, the housing and utility industry is in a deep systemic crisis. The depreciation of fixed assets is estimated at 60% to 80%. The fixed asset depreciation charges included in the tariff no longer cover the investment outlays needed even for simple reproduction. Out of 196,800 km of heating and steam networks, 39,300 km (20%) are in need of replacement. Process losses of electricity in the existing networks exceed the permissible threshold, making about 18%, while commercial losses average 30%. Water loss rate is about 25%, with 45% of consumed water no longer meeting sanitary standards. Since the beginning of the heating season, there have been heating failures in 65 urban settlements, with 333,057 people affected by heating problems. According to the Russian Ministry of Emergencies, the failures were due to equipment wear (46%), human failure or low professional level (28%), lack of finance (14%). The preparedness for winter at housing and utility companies in 2002 was 76% (based on availability of winter preparedness passports).
The receivables of housing and utility companies total in excess of RUB 179 billion, while their payables amount to RUB 269.7 billion. 63.3% of housing and utility companies operate at a loss. However, only 1,500 companies (less than a half) took the opportunity to restructure their debts to the federal budget in 2002. The arrears in wages to housing industry workers amount to RUB3.7 billion; some regions of Russia, such as Kamchatka Region and the Republic of North Ossetia, have wage arrears of 6-8 months. Underfunding of the industry in some areas comes to 30-40%.
Households do not fully pay for the services provided, while the housing and utility companies lack the mechanisms to recover amounts not paid by the residential consumers. These losses are not compensated from the budget, nor are the companies allowed to include them in the tariff. As a result, the companies use funds allocated for restoration of fixed assets to settle the current payments, and do not have sources of funds to pay off the amounts due to the budget, suppliers, and personnel. This means that the industry is unprofitable.
Restructuring of RAO "UES of Russia" not accompanied with reform of the housing and utility sector will not allow to increase efficiency of the heating and electricity industry, as electricity enterprises are connected with the housing and utility industry by virtue of single technological process, and the technological and economic situation of the facilities of the latter is much worse than that of the facilities of the Holding. The housing and utility industry accounts for 15%-35% of sales of electricity produced by RAO "UES of Russia", and 45% of heat sales.
As of 1 March 2003, the debts owed to the enterprises of the Holding Company by housing utilities for electricity and heat were in excess of RUB 40.4 billion, which constitutes over 55% of subscribers’ indebtedness to RAO “UES of Russia” enterprises.
A major factor determining the success of mass reforms in the housing and utility industry is participation of efficient business operators. This helps attract investments in the industry and ensure skilled management.
The main goals of the project proposed by RAO "UES of Russia" are to establish an efficient company specializing in housing services, to create a competitive environment in the area of management and operation services in the sector; and to gain experience in synchronizing the reforms in the energy industry at macro- and micro-level.
The project involves the establishment of an open joint-stock company with the capital of RUB1 billion. The Company is expected to boost efficiency in the industry, reducing the administrative and operational expenses by 20-30%.
The Company will specialize in heat generation, heat transmission, water supply, sewage, gas supply (gas distribution), electricity and heat sale services, resource saving, engineering services, technological and energy audit and consulting.
In 2003-2004, pilot projects are expected to be implemented in Chelyabinsk Region, Perm Region, Murmansk Region, Nizhny Novgorod Region, Volgograd Region, Saratov Region, Orenburg Region, Kirov Region, Rostov Region, Omsk Region, and Novgorod Region.
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The Board has established an Audit Committee of the Board of Directors, and requested the Board members A. Lebedev and L. Melamed to develop a regulation on the Committee. The draft Regulation and nominations to the Committee will be considered in June this year. Besides, the Board has decided to hear, based on the percentage-of-completion method, the report of the Company Auditor, "PricewaterhouseCoopers Audit", on the results of the audit of RAO UES 2002 financials.
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RAO “UES of Russia” CEO Anatoly Chubais proposed, and the Board of Directors agreed to hold a special meeting to hear the information on the concepts of the Company’s restructuring strategy (5+5 Program).