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Unified Energy System

October 28, 2005

RAO UES Board of Directors holds its regular meeting

Moscow, 28 October 2005. The Board of Directors of RAO "UES of Russia" noted the information on the progress in implementing measures aimed at preventing emergency situations in the UES of Russia and the steps taken by the Company's management to the Programme of actions to increase reliability of the UES of Russia.*

The Board noted that the entities of RAO "UES of Russia" had made adjustments, as part of the Programme, to their repair and investment programmes for 2005 by increasing the amount of work intended to raise the reliability of energy facilities and ensure fail-safe operation of the UES during the 2005-2006 autumn-winter period.

In 2005, RAO "UES of Russia" earmarked an additional amount of RUB1.5 billion (this amount includes the money received from the sale of the REN-TV channel) to finance the top-priority measures to increase reliability in the Moscow and St.-Petersburg energy areas alone.

Pursuant to the order of RAO "UES of Russia" of 29 September 2005, the Company created the UES Reliability Headquarters to control measures aimed at implementing the Programme of Actions to Increase Reliability of the UES of Russia by all entities of the Holding Company. Boris Vainzikher, member of the Management Board and Technical Director of RAO "UES of Russia", was appointed Head of the HQ.

The key objectives of the HQ are as follows:

 - implementation of a common technological policy at the Company;

 - ensuring efficient implementation of the steps provided by the Programme;

 - control and assessment of work of the subsidiaries' technical managers;

 - ensuring reliable operation of equipment and work of the staff in emergencies and near-emergencies.

Besides, the HQ will develop plans for certain arrangements within the Programme and oversee their fulfilment.

The Boards of Directors of the SDCs of RAO "UES of Russia" have started forming Reliability Committees intended to control the implementation of the Programme in the respective locations. Such Committees will be primarily created in the interregional companies established as a result of restructuring of RAO "UES of Russia" (WGCs and TGCs).

The Committees will be given a task to produce and present recommendations (conclusions) to the Boards of Directors on the following aspects:

 - preparation and presentation of quarterly reports to the Boards of Directors of the companies on the state of the plant and equipment and the quality of equipment use in the company;

 - expert examination of investment programmes and plans of energy facilities repairs, analysis of their fulfilment from the perspective of ensuring overall reliability;

 - assessment of the completeness and adequacy of measures taken to address the consequences of failures and major technological breakdowns, and control over such measures;

 - control and assessment of the activities of the company's technical units with respect to ensuring comprehensive reliability of grid and generating equipment and installations, ensuring normal state of plant assets, and communicating the information on the anticipated risks to operational reliability.

A Comprehensive Plan of UES Development until 2030 is currently being developed. This plan is intended to implement strategic measures aimed at ensuring all-round reliability of the UES of Russia.

A strategic priority in such measures will be strengthening the role of consumers in ensuring the reliability of the UES of Russia: creation of financial and economic mechanisms which guarantee unconditional connection of consumers, provided that reliable connection mechanisms are in place.

The Board of Directors instructed the Management Board of RAO "UES of Russia" to ensure that all measures envisaged in the Programme of Actions to Increase Reliability of the UES of Russia are successfully implemented, and to present an interim report in mid-2006.


* The Programme of Actions to Increase the Reliability of the UES of Russia was developed in accordance with the Guidelines of the Action Plan to Increase Reliability of the UES of Russia as approved by the Board of Directors of the Company on 24 June 2005 and adopted by the Management Board of RAO "UES of Russia" on 29 August 2005.

* * *

The Board of Directors of RAO "UES of Russia" approved the list of measures and timeframe for the preparation and sale of shares in OAO "Taymyrenergo".*

Earlier, on 2 September 2005, the Board of Directors decided that it would be advisable to sell 100% shares of the energy company in a public auction. The Management Board was instructed to draft the list of measures to be taken for the sale of Taymyrenergo shares.

The list submitted for consideration by the Board of Directors includes the following key activities:

 - determining the market value of shares of OAO "Taymyrenergo" and obtaining approval of the valuation report by the Appraisal Committee under the Board of Directors of RAO "UES of Russia" and the state financial supervisory authority in accordance with the resolution of the Board of Directors of RAO "UES of Russia";

 - obtaining the approvals required by the law to sell Taymyrenergo shares;

 - engaging an Agent to arrange and conduct a public auction.

Pursuant to the resolution of the Board of Directors of RAO "UES of Russia", all steps to arrange the sale of shares in OAO "Taymyrenergo" are planned to be completed by 31 March 2006.


* OAO "Taymyrenergo" is a wholly-owned subsidiary of RAO "UES of Russia". Pursuant to the resolution of the Board of Directors of RAO "UES of Russia" of 25 June 2004, OAO "Taymyrenergo" is classified as an energy system with limited competition. Such energy systems may be reorganized using scenarios different from the "basic" restructuring plan. This is due to the peculiarities of the Norilsk isolated energy area: the local energy system does not have any links to the country's power grid; another factor is that OAO "Norilsk Nickel MMC" consumes 97% of the electricity generated by OAO "Taymyrenergo". Besides, OAO "Norilsk Nickel MMC" has its own generation and power grid facilities.

* * *

The Board of Directors of RAO "UES of Russia" resolved to increase the authorized capital of its wholly-owned subsidiary, OAO "HydroWGC" through issuance of 120 billion additional ordinary shares of RUB1 par value.

The shares will be placed through closed subscription to RAO "UES of Russia" and the Russian Federation at a price of RUB1.01 per share.*

Pursuant to Order of the Russian Government No. 1254-? of 1 September 2003 and the resolution of the Board of Directors of RAO "UES of Russia" of 24 December 2004, payment for the additional shares in OAO "HydroWGC" will be made in shares of the companies established as a result of regional energos' reorganization (OAO "Cheboksarskaya HPP", OAO "Dagestan Regional Generation Company", OAO "Zagorskaya PSPP", OAO "Stavropol Electricity Generation Company"); shares (additional shares) of the companies established on the basis of facilities of hydropower plants (including uncompleted projects) owned by subsidiaries or dependent companies of RAO "UES of Russia"; the property of the Novosibirskaya HPP, additional share issues of OAO "Bureyskaya HPP", OAO "Zaramagskie HPPs", OAO "Sulakenergo", OAO "Zelenchuskie HPPs", and other property to be transferred to OAO "HydroWGC".

The transfer of the property owned by the Russian Federation as payment for the additional shares in OAO "HydroWGC" is due to the requirement that the state preserve its control over OAO "HydroWGC" after the reorganization of RAO "UES of Russia".** The assets that may be used as payment for HydroWGC shares include shares in energy companies, hydraulic energy facilities, movable and immovable property used for electricity generation and sale, and other movable and immovable property needed for ordinary business activities of OAO "HydroWGC" but not directly related to the generation and sale of electricity.

The list of specific property transferred by RAO "UES of Russia" and the Russian Federation as consideration for the additional shares in OAO "HydroWGC" will be made after the state registration of the additional share issue of OAO "HydroWGC" by separate resolutions of the Board of Directors of RAO "UES of Russia" (as concerns the property of RAO "UES of Russia") and the Russian Government (as concerns the property of the Russian Federation). The additional shares of OAO "HydroWGC" may be paid for in money.

As provided by the Federal Law On Joint Stock Companies, the money value of the property used as consideration is to be determined by the Board of Directors of OAO "HydroWGC". The market value of the property to be used as consideration for the additional shares in OAO "HydroWGC" by RAO "UES of Russia" will be determined by an independent appraiser to be selected from among the entities accredited with the Appraisal Committee under the Board of Directors of RAO "UES of Russia". In order to determine the value of the property to be transferred by the Russian Federation, an independent appraiser will be engaged from among the entities accredited with the Russian Federal Property Management Agency.

Upon completion of the appraisal of property to be paid as consideration for the additional shares in OAO "HydroWGC", the Board of Directors of RAO "UES of Russia" will review the updated details of the HydroWGC share issue.

The Board of Directors of RAO "UES of Russia" stated that it would be necessary to engage an investment bank to oversee the additional share issue of OAO "HydroWGC" and confirm the fairness of the issue terms.


* Pursuant to the resolution of the Board of Directors of OAO "HydroWGC" of 4 August 2005, OOO "TOP-AUDIT Audit and Consulting Firm" was selected as appraiser to determine the market value of shares of OAO "HydroWGC". According to the independent appraiser's valuation report approved by the Appraisal Committee under the Board of Directors of RAO "UES of Russia" on 13 October 2005, the market value of ordinary shares of OAO "HydroWGC" is RUB1.01 per share.

** On 30 September 2005, the Board of Directors of RAO "UES of Russia" approved the target model for the functioning of OAO "HydroWGC" as an operating company which will run its hydropower plant subsidiaries (new subsidiaries of OAO "HydroWGC" are to be created in order to organize new operations and implement investment projects). The state will hold at least 50% plus one share in the Company's authorized capital. As the operating company's establishment progresses (with its subsidiaries and dependent companies (SDCs) merging with and into HydroWGC), the stake held by the Russian Federation in the Company's authorized capital will decline, as minority shareholders hold significant interests in some of the SDCs expected to merge with and into the Company. Thus, the transfer of the assets owned by the Russian Federation as consideration for the additional shares in OAO "HydroWGC" will be necessary to avoid the reduction of the state's interest in the Company to less than the controlling interest.

* * *

The Board of Directors of RAO "UES of Russia" approved changes to the model for establishment of OAO "TGC-2", which will accelerate the formation of the target structure of the Company.

The plan for the formation of OAO "TGC-2" was approved by the Board of Directors of RAO "UES of Russia" 25 February 2005. Under the plan, OAO "TGC-2" is to be established through merger of OAO "Arkhangelsk Generation Company", OAO "Kostroma Generation Company", OAO "Novgorod Generation Company", OAO "Tver Generation Company", OAO "Yaroslavl Energy Company" with and into OAO "TGC-2". Afterwards, shares in OAO "Vologodskaya CHPP" will be paid as consideration for additional shares issue of OAO "TGC-2".

By now, the regional generation companies (RGCs) included in the OAO "TGC-2" , including OAO "Vologodskaya CHPP", have completed their state registration. In this connection, RAO "UES of Russia" took a decision, in agreement with minority shareholders of all RGCs, to adjust the previously approved model for the formation of TGC-2.

The Board of Directors decided that, under the new model, the priority scenario for the formation of the intended structure of OAO "TGC-2" would be simultaneous merger of all RGCs, including OAO "Vologodskaya CHPP", with and into OAO "TGC-2".

This model makes it possible to shorten the time needed to consolidate OAO "TGC-2" [and its subsidiaries] into a single operating company

At the same time, the Board of Directors of RAO "UES of Russia" envisaged that, in the event that one or several RGCs do not approve their merger with and into OAO "TGC-2", OAO "TGC-2" will issue additional shares for the purpose of exchange for shares in such RGC(s).

The Management Board of RAO "UES of Russia" was commissioned to submit for consideration by the Board of Directors, no later than December 2005, the matters relating to the reorganization of OAO "TGC-2" through merger of regional generation companies with and into OAO "TGC-2".


OAO "TGC-2" was registered with the Inspectorate of the Federal Tax Service of Russia for Leninsky District, city of Yaroslavl, on 19 April 2005. The share issue and share placement report of OAO "TGC-2" was registered by the FSFM of Russia on 14 May 2005. The authorized capital of the Company is RUB10 million. The Company's Director General is Vasily Nesvetaylov.

OAO "TGC-2" will receive the generating assets of OAO "Arkhangelsk Generation Company", OAO "Kostroma Generation Company", OAO "Novgorod Generation Company", OAO "Tver Generation Company", OAO "Yaroslavl Energy Company", and OAO "Vologodskaya CHPP".

The resolution to establish OAO "TGC-2" as a wholly-owned subsidiary of RAO "UES of Russia" was approved by the Board of Directors of RAO "UES of Russia" at the meeting held on 25 February 2005.

* * *

The Board of Directors of RAO "UES of Russia" approved the steps to be taken to complete the formation of OAO "TGC-5"* in its target structure.

The Board of Directors approved the merger of OAO "Vyatskaya Electricity and Heat Company", OAO "Mari Regional Generation Company", OAO "Udmurt Territorial Generation Company", and OAO "Chuvashia Generation Company" with and into OAO "TGC-5".

The preferred scenario for the formation of the target structure of OAO "TGC-5" will be merger of all of the above regional generation companies (RGCs) with and into OAO "TGC-5". At the same time, the Board of Directors of RAO "UES of Russia" envisaged that in the event that shareholder meetings of all of the RGCs concerned, except for OAO "Mari Regional Generation Company", approve their merger with and into OAO "TGC-5", OAO "TGC-5" will be reorganized through merger of OAO "Vyatskaya Electricity and Heat Company", OAO "Udmurt Territorial Generation Company", OAO "Chuvashia Generation Company" with and into OAO "TGC-5". In such a case, upon completion of the merger, OAO "TGC-5" will issue additional shares for the purpose of exchange for shares in OAO "Mari Regional Generation Company" held by shareholders who support the reorganization of OAO "Mari Regional Generation Company" or do not participate in the general shareholder meeting considering the item.

It was decided that reorganization of OAO "TGC-5" would be unadvisable if shareholder meetings of OAO "Vyatskaya Electricity and Heat Company" or OAO "Udmurt Territorial Generation Company" do not approve the merger. In that event, OAO "TGC-5" will issue additional shares which will be exchanged for shares in OAO "Vyatskaya Electricity and Heat Company", OAO "Mari Regional Generation Company", OAO "Udmurt Territorial Generation Company", and OAO "Chuvashia Generation Company" owned by shareholders who vote FOR or do not participate in the general shareholder meeting on the issue of reorganization.

After the shareholder meetings of the companies merging with OAO "TGC-5", the Management Board of RAO "UES of Russia", performing the functions of a general shareholder meeting of OAO "TGC-5", will take resolutions relating to the Company's reorganization.

The Board of Directors instructed representatives of RAO "UES of Russia" on the RGCs' Boards of Directors to vote FOR the submission to shareholder meetings of OAO "Vyatskaya Electricity and Heat Company", OAO "Mari Regional Generation Company", OAO "Udmurt Territorial Generation Company", and OAO "Chuvashia Generation Company" of the matters relating to the companies' merger with and into OAO "TGC-5". The RAO UESR representatives were also instructed to vote FOR the approval of such resolutions at the RGCs' shareholder meetings.

The representatives of RAO "UES of Russia" at the shareholder meeting of OAO "TGC-5" were directed to vote for the approval of the maximum number of shares that OAO "TGC-5" is authorized to issue in addition to those outstanding ("declared shares") at 899,519,637,712 registered ordinary shares, par value RUB0.01 each, worth a total of RUB8,995,196,377.12, and for increasing the authorized capital of OAO "TGC-5" through issuance of the same number of additional shares. Method of placement: shares in the merging companies will be converted into the additional shares of the surviving company, OAO "TGC-5".

The Board of Directors of RAO "UES of Russia" approved the ratios for conversion of the regional generation companies merging with and into OAO "TGC-5": The following quantities of shares will be converted into one additionally issued share of OAO "TGC-5":

 - 0.007853 of an ordinary share in OAO "Vyatskaya Electricity and Heat Company", par value RUB1.1 [per share];

 - 0.008571 of a Type A preferred share in OAO "Vyatskaya Electricity and Heat Company", par value RUB1.1 [per share];

 - 0.001724 of an ordinary share in OAO "Mari Regional Generation Company", par value RUB9.9 [per share];

 - 0.001882 of a Type A preferred share in OAO "Mari Regional Generation Company", par value RUB9.9 [per share];

 - 0.000871 of an ordinary share in OAO "Udmurt Territorial Generation Company", par value RUB12.4 [per share];

 - 0.000951 of a Type A preferred share in OAO "Udmurt Territorial Generation Company", par value RUB12.4 [per share];

 - 0.002935 of an ordinary share in OAO "Chuvashia Generation Company", par value RUB3.2 [per share].

If such calculation results in a fractional number of shares, the number of shares is to be rounded [up or down] in accordance with the generally accepted rules. If as a result of such rounding off a shareholder is not entitled to receive any shares, such shareholder will receive one ordinary share in OAO "TGC-5".

Apart from that, the Board of Directors decided to change the stake held by RAO "UES of Russia" in OAO "TGC-5" through sale of all shares in OAO "TGC-5" that came into possession of OAO "TGC-5" as a result of non-payment of the shares at the time of the Company's establishment.

The right to purchase such shares in OAO "TGC-5" will be granted to shareholders of OAO "Vyatskaya Electricity and Heat Company", OAO "Mari Regional Generation Company", OAO "Udmurt Territorial Generation Company", provided that a decision is taken to reorganize OAO "TGC-5" and the respective RGC.

The number of shares that RGC shareholders will be entitled to purchase will be determined using the ratios for conversion of RGC shares into shares of OAO "TGC-5" in the course of reorganization.


* OAO "Territorial Generation Company No. 5" (OAO "TGC-5") was registered with the Inspectorate of the Federal Tax Service of the Russia for Leninsky District, city of Cheboksary, on 22 March 2005. The Director General of OAO "TGC-5" is Vladimir Lebedev.

The resolution to establish OAO "TGC-5" as a wholly-owned subsidiary of RAO "UES of Russia" was approved by the Board of Directors of RAO "UES of Russia" on 24 December 2004. At the time of establishment, the authorized capital of OAO "TGC-5" was RUB10 million and was divided into 1 billion ordinary shares. RAO "UES of Russia" paid 63% of the authorized capital of OAO "TGC-5" with cash, and 37% of shares not paid for at the time of establishment are in possession of OAO "TGC-5".

OAO "TGC-5" is carrying out operations with leased assets. On 1 July 2005, OAO "TGC-5" leased the generation assets from OAO "Vyatskaya Electricity and Heat Company" (spun off fro OAO "Kirovenergo"), OAO "Mari Regional Generation Company" (spun off from OAO "Marienergo"), OAO "Udmurt Territorial Generation Company" (spun off from OAO "Udmurtenergo"), and OAO "Chuvashia Generation Company" (spun off from OAO "Chuvashenergo"). The revenue of OAO "TGC-5" from the sale of heat and electricity in H2 2005 will amount to RUB4.7 billion.

* * *

The Board of Directors of RAO "UES of Russia" took a number of decisions aimed at completing the formation of the target structure of OAO "TGC-8".*

The Board of Directors resolved that reorganization of OAO "TGC-8" is to be carried out through merger of OAO "Astrakhan Regional Generation Company", OAO "Volzhskaya Generation Company", OAO "Dagestan Heat Generation Company", OAO "Rostov Generation Company", OAO "Stavropol Heat Generation Company". Afterwards, shares of the generation company to be spun off from OAO "Kubanenergo" will be paid as consideration for additional shares in OAO "TGC-8".

The merger will be effected only if the shareholders in most of the above regional generation companies (RGCs) approve the RGCs' merger with and into OAO "TGC-8".

If the shareholder meetings at most of the RGCs do not approve the companies' merger with and into OAO "TGC-8", the target structure of the latter is to be created in form of a holding company. In that case, OAO "Territorial Generation Company No. 8" (OAO "TGC-8") will be established. At the first stage, RAO "UES of Russia" will contribute to the authorized capital of OAO "TGC-8" its shares in OAO "Astrakhan Regional Generation Company", OAO "Volzhskaya Generation Company", OAO "Dagestan Heat Generation Company", OAO "Rostov Generation Company", OAO "Stavropol Heat Generation Company", and OAO "TGC-8". At the second stage, RAO "UES of Russia" will contribute its shares in the generation company to be spun off from OAO "Kubanenergo".

The Board of Directors of RAO "UES of Russia" decided that, in the event that OAO "TGC-8" is created, RAO "UES of Russia" will be the only founder of the company. The company's authorized capital will be RUB6,440,004,201.37 and will be divided into 644,000,420,137 ordinary shares of RUB0.01 par value. Payment for these shares will be made with [the following property:] 376,601,013 ordinary shares of OAO "Astrakhan Regional Generation Company" of RUB0.9 par value; 2,687,246,448 ordinary shares of OAO "Dagestan Heat Generation Company" of RUB0.034 par value; 196,004,484 ordinary shares of OAO "Volzhskaya Generation Company" of RUB0.5 par value; 1,963,512,684 ordinary shares of OAO "Rostov Generation Company" of RUB1.23 par value; 618,011,052 ordinary shares of OAO "Stavropol Heat Generation Company" of RUB0.06; and 500,000,100 ordinary shares of OAO "TGC-8" of RUB0.01 par value.

If shareholders of most of the companies approve the reorganization, the RGCs whose shareholders approve the reorganization will merge with and into OAO "TGC-8". The general shareholder meeting of OAO "TGC-8" must take decisions required to increase the authorized capital of OAO "TGC-8" through placement of additional shares to those RGCs whose shareholder meetings do not approve the merger. Payment for such additional shares will be made in shares of RGCs owned by RAO "UES of Russia" and minority shareholders that support the RGC's reorganization or did not participate in voting on that issue.

If the shareholder meeting of OAO "TGC-8" does not approve the increase of the authorized capital of the Company, the intended structure of OAO "TGC-8" is to be formed through creation of a holding group.

The Board of Directors of RAO "UES of Russia" approved the ratios for conversion of shares of the merging RGCs. The following amounts of shares will be converted into one share in OAO "TGC-8":

 - 1/78.350 of an ordinary share and 1/67.459 of a Type A preferred share of OAO "Rostov Generation Company", par value RUB1.23 [per share];

 - 1/306.548 of an ordinary share in OAO "Astrakhan Regional Generation Company", par value RUB9.9 [per share];

 - 1/6.469 of an ordinary share and 1/5.570 of a Type A preferred share of OAO "Stavropol Heat Generation Company", par value RUB0.06 [per share];

 - 1/5.644 of an ordinary share in OAO "Dagestan Heat Generation Company", par value RUB0.034 each;

 - 1/11,559.118 of an ordinary share and 1/11,342.400 of a Type A preferred share of OAO "Volzhskaya Generation Company", par value RUB0.5 [per share];

If such calculation results in a fractional number of shares, the number of shares is to be rounded [up or down] in accordance with the generally accepted rules. If as a result of such rounding off a shareholder is not entitled to receive any shares, such shareholder will receive one ordinary share in OAO "TGC-8". .

The Board of Directors instructed representatives of RAO "UES of Russia" on the Boards of Directors of OAO "TGC-8" and the RGCs, and at the joint general meeting of shareholders of the companies being reorganized to vote FOR the approval of all resolutions required to complete the creation of the target structure of OAO "TGC-8".

Also, the Board of Directors of RAO "UES of Russia" agreed to the name change of OAO "TGC-8" for OAO "Southern Generation Company – TGC-8".


* OAO "TGC-8" was registered with the state authorities on 22 March 2005 in the city of Astrakhan. The share issue and share placement report of OAO "TGC-8" was registered by the FSFM of Russia on 19 May 2005.

As at the time of establishment, the authorized capital of the Company was RUB10 million and was divided into 1 billion ordinary shares. Victor Gvozdev was elected Director General of OAO "TGC-8".

OAO "TGC-8" will include the generation assets of OAO "Astrakhan Regional Generation Company", OAO "Volzhskaya Generation Company", OAO "Dagestan Heat Generation Company", OAO "Rostov Generation Company", OAO "Stavropol Heat Generation Company", and the generation company to be spun off from OAO "Kubanenergo".

** The ratios were calculated on the basis of the market value of shares of the merging companies determined by the investment bank "United Financial Group" with the involvement of independent appraisers, ZAO "Ernst & Young Valuation LLC", ZAO "ENPI Consult", OAO "International Appraisal Center".

* * *

The Board of Directors approved the conclusions of contracts between RAO "UES of Russia" and OAO "TGC-6" for trust management of ordinary shares in OAO "Petersburg Retail Company", OAO "Karelia Energy Retail Company", and OAO "Kolskaya Energy Retail Company".*

The transfer of shares in Energy Retail Companies (ERCs) for trust management to Territorial Generation Companies (TGCs) is due to the need to ensure financial stability of the ERCs and increasing their efficiency during the transition period.

The trust management contracts between RAO "UES of Russia" and OAO "TGC-1" will be made for a term of one year. RAO "UES of Russia" will transfer to the trustee, OAO "TGC-1", the entire set of rights granted by ownership of ERC shares. The trust administration is carried out in the interests of RAO "UES of Russia" and concerns only the exercise of rights attached to shares. These contracts constitute interested party transactions.

The amount of remuneration and amount of each trust administration contracts to be made between RAO "UES of Russia" and OAO "TGC-1" is equal to 100% of the amount of dividends accrued on all ERC shares transferred by RAO "UES of Russia" into trust administration. The amount of remuneration will be determined based on the number of calendar days in a period for which dividends are declared (become payable) when the trust administration of ERC shares was actually carried out.

The fee charged for the services of trust administrator on each of the contracts to be made may not be 2% or more of the book value of assets of RAO "UES of Russia" according to the financial statements as of 1 October 2005.


* The resolution of the Board of Directors of RAO "UES of Russia" of 24 June 2005 provides for the transfer of shares in energy retail companies established as a result of regional energos' restructuring into trust to the respective TGCs (in accordance with the latter's territorial configuration) for a term of 1 year as a basic approach to management of energy retail companies during the transition period.

The principal terms and conditions of the contract with TGC on trust administration of shares as approved by the Board of Directors of RAO "UES of Russia" on 1 July 2005, include determining the requirements to the trust administrator as concerns the collection of payments and performance of obligations to pay for electricity and infrastructure services; the amount and terms of payment of remuneration to the trust administrator; and the term of the contract.

* * *

The Board of Directors of RAO "UES of Russia", performing the functions of the EGM of OAO "WGC-3", approved the payment of dividends on WGC-3 shares for the first nine months of 2005.

The dividend amount will be RUB0.0132895 per ordinary share of RUB1 par value. The dividends are to be paid within 60 days after approval of this resolution.

Previously, at the Board meeting of RAO "UES of Russia" held 29 July 2005, the Board of Directors took a number of resolutions designed to ensure receipt of dividend payments from WGCs, TGCs, RGCs, and AO-power plants. In particular, after interim dividends for the first six or nine months of 2005 are approved by shareholder meetings of AO-power plants comprising the WGCs, this matter is to be submitted for consideration by the Boards of Directors or general shareholder meetings of the WGCs concerned.

The Board of Directors of RAO "UES of Russia" also approved the Restated Charter of OAO "WGC-3". At the Board meeting held on 4 April 2005, the Board of Directors of RAO "UES of Russia" resolved to make standard amendments to the Charters of its SDCs, including the Charters of the WGCs, TGCs, and IDCs.

Amendments to the Charter of OAO "WGC-3" are necessary to improve the corporate governance system and optimize the allocation of competencies between the Board of Directors and the Company's management bodies. Some matters, including the approval of securities issuer's quarterly reports, are to be transferred from the Board of Directors to the executive bodies of OAO "WGC-3". The responsibilities to be transferred to the Board of Directors include procurement management; confirmation of nominees to arrange securities issuance; approval of target values of the Key Performance Indicators (KPIs) for OAO "WGC-3", etc.

In order to bring the provisions of the Charter of OAO "WGC-3" into accordance with the provisions of the Federal Law On Joint Stock Companies and to optimize the corporate events, amendments will be made to the procedure for conduct of shareholder meetings of the wholly-owned subsidiaries of OAO "WGC-3".

The Board of Directors of RAO "UES of Russia" approved a number of specific amendments to the Charter of OAO "WGC-3", including those relating to the amount of allocations to the company's reserve fund and the procedure for holding a general shareholder meeting of the company.


* The decision on the establishment by RAO "UES of Russia" of OAO "WGC-5" as a wholly-owned subsidiary was taken by the Board of Directors at its meeting held 1 October 2004. The state registration of OAO "WGC-3" was effected on 24 November 2004 by Interdistrict Inspectorate No. 2 of the Ministry of Taxes and Levies of Russia for the Republic of Buryatia. Maxim Kuznetsov was appointed Director General of OAO "WGC-3".

Pursuant to Order of the Government of the Russian Federation No. 1254-? of 1 September 2003, the following companies were included in OAO "WGC-3": OAO "Kostromskaya TPP", OAO "Pechorskaya TPP", OAO "Gusinoozerskaya TPP", OAO "Kharanorskaya TPP" OAO "Cherepetskaya TPP", and OAO "Yuzhnouralskaya TPP".

By now, the first stage of the process to establish OAO "WGC-3" has been completed by contributing the shares in OAO "Kostromskaya TPP", OAO "Pechorskaya TPP", OAO "Gusinoozerskaya TPP", OAO "Kharanorskaya TPP", and OAO "Cherepetskaya TPP" owned by RAO "UES of Russia" to the authorized capital of OAO "WGC-3".

At the final stage of the establishment of OAO "WGC-3", OAO "Yuzhnouralskaya TPP" to be spun off from OAO "Chelyabenergo" will merge with and into OAO "WGC-3" and the latter's subsidiaries will exchange their shares for WGC-3 shares. At the meeting of the Board of Directors of RAO "UES of Russia" held 30 September 2005 took the resolutions required to complete the formation of the target structure of OAO "WGC-3".

* * *

The Board of Directors of RAO "UES of Russia", performing the functions of EGM of OAO "WGC-6" approved the Restated Charter of OAO "WGC-6".*

The amendments to the Charter include changes to the procedure for the preparation and conduct of the general shareholder meeting of the WGC, and the list of issues within the competence of the WGC's Board of Directors, Management Board, and Director General.

The Restated Charter of OAO "WGC-6" sets the amount of mandatory annual allocations to the reserve fund at 5% of the Company's net profit until the reserve fund reaches the required amount.


* On 3 March 2005, the Management Board of RAO "UES of Russia" resolved that it would be necessary to make standard amendments and additions to the Charters of the SDCs of RAO "UES of Russia", including the Charters of WGCs, TGCs, and IDCs.

On 4 April 2005, the Board of Directors of RAO "UES of Russia" instructed the representatives of RAO "UES of Russia" to vote FOR including the item "Approval of amendments and additions to the Charter of the Company (Approval of the Restated Charter of the Company)" on the agenda of shareholder meetings of the SDCs.

* * *

The Board of Directors took a number of resolutions aimed at ensuring successful implementation of the second phase of formation of WGC-1, WGC-2, and WGC-4.

By now, the first phase of creation of these WGCs has been completed by contributing the shares and property of the federal power plants owned by RAO "UES of Russia" to the authorized capitals of the WGCs. The second phase of the WGC establishment provides for the transfer of the AO-power plants spun off from the regional energos, and consolidation of subsidiaries through share exchange.

The target model for thermal WGCs provides for the establishment of WGCs as unified operational companies through merger of AO-power plants with and into the respective WGC. As a result of such merger, all rights and obligations of the power plants will be transferred to the WGCs in accordance with deeds of transfer. Resolutions on the reorganization of AO-power plants through merger with the respective WGC are expected to be taken by general meetings of the AO-power plants in March 2006.

Preparations for the merger of AO-power plants with and into the WGCs are to commence in parallel with the actions to consolidate the WGCs via a share exchange. In the process, the AO-power plants that are part of the WGCs, will carry out a comprehensive review of their assets and prepare deeds of transfer.

As part of the preparations for the reorganization of the AO-power plants, resolutions are expected to be approved to increase the authorized capitals of AO-power plants through capitalization of the power plants' additional capital and increase of the par value of the outstanding shares. Such measures are needed to improve the WGC's balance sheet structure after the merger, which is due to the current merger accounting rules provided by the Russian Accounting Standards. Thus, the additional capitals of the AO-power plants are to be aggregated, with a considerable additional capital emerging at the WGC as a result of the merger.

In this connection, the Board of Directors of RAO "UES of Russia" instructed RAO UES representatives to vote FOR the increase of the authorized capitals of OAO "Permskaya TPP", OAO "Nizhnevartovskaya TPP", OAO "Urengoyskaya TPP", OAO "Iriklinskaya TPP", OAO "GRES-4" (OAO "TPP-4", Kashirskaya TPP), relating to OAO "WGC-1"; OAO "Pskovskaya TPP", OAO "Stavropolskaya TPP", OAO "Troitskaya TPP", OAO "Surgutskaya TPP-1", OAO "Serovskaya TPP", relating to OAO "WGC-2"; and OAO "Berezovskaya TPP-1", OAO "GRES-5" (Shaturskaya TPP-5"), OAO "Smolenskaya TPP", OAO "Yaivinskaya TPP", OAO "Surgutskaya TPP-2", relating to OAO "WGC-4".

* * *

The Board of Directors of RAO "UES of Russia" instructed RAO UES representatives at [the meeting of] the Board of Directors and shareholder meeting of OAO "Kaliningradskaya CHPP-2"* to vote FOR increasing the authorized capital of the power plant through issuance of additional shares on the following terms:

- the maximum number of additional shares OAO "Kaliningradskaya CHPP-2" is authorized to issue in addition to the outstanding shares is 314,260,204 ordinary shares, par value RUB10 each, worth a total of RUB3,142,602,040. The additional shares are to be placed through closed subscription to RAO "UES of Russia" and the Federal Property Management Agency. The placement price determined by the Board of Directors of OAO "Kaliningradskaya CHPP-2" on the basis of the valuation report prepared by OOO "DISTAN", an independent appraiser, is RUB21.56. The shares are to be fully paid in cash at the time of placement.

The issuance of additional shares are intended to raise funds from the federal budget and the budget of RAO "UES of Russia" to finance the construction of the Kaliningradskaya CHPP-2 in accordance with the List of Capital Construction Projects in Electricity Industry for 2005-2006.

The Board of Directors approved the purchase by RAO "UES of Russia" of 30,621,986 additional ordinary shares in OAO "Kaliningradskaya CHPP-2" valued at RUB6,675,450,018.16.


* The Kaliningradskaya CHPP-2 is an advanced combined-cycle power plant being built in the Kaliningrad Region in order to ensure the energy independence of this enclave of Russia. Recently, the first generating unit with installed capacity of 450 MW has been put into operation. The designed capacity of the plant's two 450 MW units will make 900 MW.

RAO "UES of Russia" holds 91.3% shares in OAO "Kaliningradskaya CHPP-2". Other shareholders in the company are OAO "Yantarenergo" (0.9%) and the Russian Federation represented by the Federal Property Management Agency (7.8%).

* * *

The Board of Directors of RAO "UES of Russia" noted the report on the activities of the Management Board of the Company in Q3 2005.

The Board of Directors approved the Management Board's work plan for the next quarter and approved the Q3 2005 securities issuer report of the Company.

* * *

On the proposal of the Ministry of Industry and Energy of Russia, the Board of Directors of RAO "UES of Russia" resolved to change the membership of the Valuation Committee under the Board of Directors by including the following member in the Committee: Victor Myasnikov, Head of Financial and Economic Analysis Unit of the Financial Control and Audit Department of the Ministry of Industry and Energy of the Russian Federation.

* * *

The Board of Directors of RAO "UES of Russia" approved the credit agreement between the OAO "Vneshtorgbank" and RAO "UES of Russia", which constitutes an interested party transaction.*

The borrowed funds will be used to finance the purchase of shares in OAO "Power Machines".**

As a result of negotiations with banks on the terms of financing the acquisition of a stake in OAO "Power Machines", OAO "Vneshtorgbank" was selected as the creditor that offered the best terms.


* The credit agreement between OAO "Vneshtorgbank" and RAO "UES of Russia" is a transaction in which Andrey Sharonov, Deputy Minister of Economic Development and Trade of Russia, has an interest, as he is simultaneously a member of the Board of Directors of RAO "UES of Russia" and the Supervisory Board of OAO "Vneshtorgbank".

** On 4 October 2005, the Board of Directors of RAO "UES of Russia" approved the acquisition of 22.43% shares in OAO "Power Machines" from Interros Co. The purchase will be primarily funded with borrowed funds.

* * *

The Board of Directors of RAO "UES of Russia" approved the measures required to complete the formation of OAO "TGC-6".*

The Board of Directors approved the reorganization of OAO "TGC-6" through merger of OAO "Nizhny Novgorod Generation Company", OAO "Penza Generation Company", OAO "Mordovia Generation Company", OAO "Ivanovo Generation Company", and OAO "Vladimir Generation Company" with and into OAO "TGC-6".

In the event that the resolution on the merger with and into OAO "TGC-6" is not taken by a general shareholder meeting of one of the merging RGCs, after the reorganization is completed, OAO "TGC-6" will issue additional shares, which will be exchanged for shares in OAO "Mordovia Heat Network Company" and the RGC whose shareholders do not approve the merger.

Reorganization of OAO "TGC-6" is deemed unadvisable if shareholder meetings of two or more RGCs do not approve the merger [with and into OAO "TGC-6"]. In that case, OAO "TGC-6" will issue additional shares which will be exchanged for shares in OAO "Mordovia Heat Network Company" and all RGCs.

After the shareholder meetings of the companies merging with OAO "TGC-6", the Management Board of RAO "UES of Russia", performing the functions of a general shareholder meeting of OAO "TGC-6", will take resolutions relating to the Company's reorganization.

The Board of Directors instructed RAO UES representatives on the Boards of Directors of the RGCs to vote FOR inclusion of the issues relating to their merger with and into OAO "TGC-6" and approval of the Merger Agreement on the agenda of the companies' shareholder meetings. The RAO UESR representatives were also instructed to vote FOR the approval of such resolutions at the RGCs' shareholder meetings.

The representatives of RAO "UES of Russia" at the general shareholder meeting of OAO "TGC-6" were instructed to vote FOR the reorganization of the Company through merger of the generation companies with and into OAO "TGC-6", approval of the Merger Agreement, and increase of the authorized capital of OAO "TGC-6" through issuance of 1.5 trillion additional ordinary shares, RUB0.01 par value, worth a total of RUB 15 billion. Method of placement: shares in the merging companies will be converted into the additional shares of the surviving company, OAO "TGC-6".

The right to acquire these shares in OAO "TGC-6" will be granted to shareholders of OAO "Nizhny Novgorod Generation Company", OAO "Penza Generation Company", OAO "Mordovia Generation Company", OAO "Ivanovo Generation Company", OAO "Vladimir Generation Company", and OAO "Mordovia Heat Network Company".

The Board of Directors of RAO "UES of Russia" approved the ratios for conversion** of the regional generation companies merging with and into OAO "TGC-6". The following quantities of shares will be converted into one additionally issued share of OAO "TGC-6":

 - 0.000010443 of an ordinary share and 0.000011403 of a Type A preferred share of OAO "Nizhny Novgorod Generation Company", par value RUB554.48 [per share];

 - 0.000853526 of an ordinary share and 0.000932001 of a Type A preferred share of OAO "Penza Generation Company", par value RUB4.5 [per share];

 - 0.000138476 of an ordinary share in OAO "Vladimir Generation Company", par value RUB132.53 [per share].

 - 0.005055393 of an ordinary share and 0.005520193 of a Type A preferred share of OAO "Ivanovo Generation Company", par value RUB1.3 [per share];

 - 0.011378204 of an ordinary share in OAO "Mordovia Generation Company", par value RUB0.83 [per share].

If such calculation results in a fractional number of shares, the number of shares is to be rounded [up or down] in accordance with the generally accepted rules. If, as a result of such rounding, a shareholder is not entitled to receive any shares, such shareholder will receive one ordinary share in OAO "TGC-6".


* OAO "Territorial Generation Company No. 6" (OAO "TGC-6") was registered with the Inspectorate of the Federal Tax Service of the Russia for Kanavinsky District, city of Nizhny Novgorod, on 27 April 2005. The share issue and share placement report of OAO "TGC-6" was registered by the FSFM of Russia on 4 August 2005. The authorized capital of OAO "TGC-6" is RUB10 million, and is divided into 1 billion ordinary shares. The Director General of OAO "TGC-6" is Vladimir Privalov.

The establishment by RAO "UES of Russia" of OAO "TGC-6" as a wholly-owned operating company, and the subsequent merger of the regional generation companies (OAO "Nizhny Novgorod Generation Company", OAO "Vladimir Generation Company", OAO "Penza Generation Company", OAO "Ivanovo Generation Company", and OAO "Mordovia Generation Company") with and into OAO "TGC-6", and transfer of shares in OAO "Mordovia Heat Network Company" as consideration for additional shares in OAO "TGC-6", was approved by the Board of Directors of RAO "UES of Russia" at the meeting held 25 February 2005.

** The conversion ratios were calculated on the basis of the report on the market valuation of shares in the merging companies prepared by the investment bank OAO "Alfa-Bank" with the participation of a consortium of independent appraisers: ZAO "Central Financial and Appraisal Company" and OOO "Institute for Appraisal of Property and Financial Activity".

* * *

The Board of Directors of RAO "UES of Russia" considered the procedure for allocation of money proceeds from the sale of the Company's plant assets and long-term financial investments.

The Board of Directors approved the following order of allocation of the money proceeds from the sale of core assets:

 - full payment of taxes and other mandatory payments arising as a result of the asset sale;

 - full payment of the expenses incurred in the sale of assets, including the expenses for their appraisal, holding of auctions, etc.

The money proceeds less the above expenses will be used to finance the expenses approved by the Board of Directors of RAO "UES of Russia", such as investments in legal persons' authorized capitals; expenses for the repair, modernization and re-equipment of the core assets of RAO "UES of Russia" and its SDCs; for scientific, research, and development work; for loans and/or debt raised for the purposes, etc. The Board of Directors of RAO "UES of Russia" will take resolutions on the use of such funds on an annual basis.

The Board of Directors of RAO "UES of Russia" stated that when taking resolutions on the use of proceeds from the sale of core assets to finance expenses, it is necessary to be guided by the strategic goal of raising the capitalization of the Company.

The Board of Directors also decided to reconsider this matter in a year and to hear a report of the Management Board of RAO "UES of Russia" on the results of the implementation of the procedure for allocation of money proceeds. The Board of Directors also commissioned the Audit Committee under the Board of Directors to prepare and submit for consideration by the Board an independent assessment report on effectiveness of the investment projects financed with funds not included in the earmarked investment allocations of RAO "UES of Russia".

The Board of Directors of RAO "UES of Russia" resolved that, where a transaction is related to the disposal or possibility of disposal of shares or stakes in entities engaged in the core business activities (regardless of the number of such shares or stakes), and property that is a core asset with a book value of over RUB15 million, the Management Board of RAO "UES of Russia" will submit the resolution on such transaction for prior approval by the Board of Directors of the Company.

As the two reasons* for the introduction of the moratorium on the sale of core assets of RAO "UES of Russia" have been eliminated, the Board of Directors made a decision to terminate the moratorium.


* The moratorium on the sale of core assets was introduced in 2002 and applied to the sale of core assets of RAO "UES of Russia" and those of its subsidiaries, and on the grant of options to purchase such assets, until the Company develops a mechanism for fair valuation of the assets and procedures for distribution of proceeds from the sale of such assets. The Methodology and Guidance for Appraisal of the Business and/or Assets of OAO RAO "UES of Russia" and the SDCs of RAO "UES of Russia" was approved by the Board of Directors of RAO "UES of Russia" on 20 February 2004. Today, the Board of Directors approved the procedure for the distribution of the income from the sale of assets.

 

 

 

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