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October 7, 2003

Interaction Agreements on the Moscow and Moscow Region Power Complex Restructuring signed

RAO UES, the Moscow Government, AO MOSENERGO and the Moscow Regional Energy Commission signed the Interaction Agreement on the Moscow Power Complex Restructuring.

RAO UES's chairman of the board Anatoly Chubais, Moscow mayor Yuri Luzhkov, AO MOSENERGO's general director Arkady Yevstafyev and the Moscow REC's chairman Valery Shantsev all signed the agreement.

In addition, RAO UES, the Moscow Region Government, AO MOSENERGO and the Energy Commission of the Moscow Region (ECMR) signed the Interaction Agreement on the Moscow Region Power Complex Restructuring. The agreement was signed by RAO UES's chairman of the board Anatoly Chubais, the Moscow Region's Governor Boris Gromov, AO MOSENERGO's general director Arkady Yevstafyev and the ECMR's chairman Yevgeny Chicherov. The Moscow Region Government approved the agreement.

RAO UES and AO MOSENERGO's boards of directors are expected to review these agreements at their next scheduled meetings. The agreements will take force as soon as all parties approved them.

The agreements say that promoting competition in the retail power market encourages companies to cut costs, upgrade power equipment and as for consumers to choose alternative power suppliers. The both documents outline main objectives for reforming the Moscow and Moscow Region power complex, which is to ensure the reliable and sustainable, uninterrupted and affordable power supply for consumers. These agreements also provide for gradual elimination of cross-subsidies between various groups of customers of electricity and heat in Moscow in Moscow and the region. The agreements envisage mechanisms for improving efficiency of the power system and promoting the growth of economy in the region.

The documents oblige all parties to take measures to increase the transparency of reforms in the Moscow region power sector. The market reforms will be introduced gradually, to respect property rights and legal interests of all market participants.

The Agreements also establish rules for restructuring AO MOSENERGO.

AO MOSENERGO will be reformed in accordance with the basic restructuring scenario (set in RAO UES reform strategy called "5+5"), the decision of the Governmental Commission for Restructuring the Power Sector and decisions of RAO UES's board of directors. In the process o restructuring, RAO UES will be divided into four generation companies, a municipal and regional distribution companies, a heating grid operator, a marketing company, a management company, a high-voltage grid operator, as well as companies, which will be engaged in construction, design, repairs and other service operations. The reformed AO MOSENERGO will retain all remaining assets, including 17 heat-generating facilities. The regional dispatch functions will be passed over to the Central Dispatch. High-voltage grids will be transferred to the Central MMSK. In accordance with Order No. 1254r of the Russian Government of September 1, 2003, the four generation companies that will be set up on the basis of some AO MOSENERGO's generation assets (GRES-4, GRES-5, GRES-24, Zagorsk GAES) will be included in wholesale generation companies (OGKs).

The parties to the agreement (RAO UES, AO MOSENERGO, Moscow region administration and ECMR) agreed to merge at the second stage of the reform the regional grid company with assets and facilities of the electric grid assets in the Moscow region. If the independent appraisal shows that the regional assets, which are contributed to the charter capital of the regional grid company are sufficient, the Moscow region will have the right to increase its stake in the charter capital to 51%.

All transactions involving AO MOSENERGO's assets and the property of new companies will be carried out in compliance with the current legislation, corporate rules and RAO UES and AO MOSENERGO's charters, after independent expert evaluation and appraisal of assets by a renown international appraiser based on common appraisal methods.

While assuming the mutual obligations under these agreements, the parties proceed from the need of the open dialog between RAO UES and AO MOSENERGO shareholders in order to generate schemes and mechanisms aimed at retaining and increasing the shareholder value.

At present, the restructuring projects are being fine-tuned and have not been reviewed by either RAO UES or AO MOSENERGO's boards.

The joint actions aimed at fulfilling the agreements will be coordinated by special multilateral working groups for the restructuring of the power systems in Moscow and Moscow region, as well as reforming AO MOSENERGO with the help from RAO UES, AO MOSENERGO's minority shareholders and representatives, the Moscow Government and REC, as well as the Government of the Moscow Region and ECMR.

These are not first agreements between power companies and regional authorities aimed at the restructuring of power entities in Russia. At present, RAO UES and AO-energos signed 37 similar agreements with local administrations.





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