Moscow. 4 October 2003. The entities of RAO "UES of Russia" have completed their preparations for the 2003/2004 autumn-winter period.

Repairs. The pre-winter maintenance at RAO UES entities is being carried out in accordance with the plan. As at 1 October, scheduled maintenance was completed at turbines with an aggregate capacity of 28,351 MW (96% of the target), at power boilers with an aggregate output of 120,988 t/h (97%), and at hot water boilers with a steam output of 8,888 Gcal/h (100%); 602.2 km of heating grids were repaired (109% of the plan). The repair and maintenance efforts are the most effective in the following energy systems: "Tverenergo", "OAO Kostromaenergo", "Dalenergo", "Udmurtenergo", and "Novgorodenergo".

Fuel. As of 1 October 2002, fuel oil inventories at RAO UES power plants were 3,298 thousand tons, or 108.7% of the target figure, whereas the coal inventories were 22,768.9 thousand tons (103.5% of the target). The gas supplies are delivered ahead of schedule, reaching 101.2 billion cbm (or 102.9% of the target) in the first 9 months of 2003. The fuel supplies in the energy systems that caused serious concerns in the previous years in that respect, are also in excess of the target: "Khabarovskenergo" – 1,036.3 thousand tons of coal (105.7%) and 88.6 thousand tons of fuel oil (147.7%), "Sakhalinenergo" – 120.9 thousand tons of coal (100.8%) and 3.1 thousand tons of fuel oil (103.3%), "Kamchatskenergo" – 57.1 thousand tons of fuel oil (103.8%), "Dalenergo" – 510.6 thousand tons of coal (102.1%) and 25.2 thousand tons of fuel oil (100.8%).

Electricity Distribution. The key condition for adequate preparation of RAO UES entities for winter is timely and full payment by consumers of the heat and electricity bills. In the first 8 months of 2003, the average level of payments collection throughout the Holding made 101%, with the aggregate accounts receivable declining from RUB 75.83 to RUB 71.53 billion. However, the consumer payment collection rates remain low in the following energy systems: for heat supplies: "Kurganenergo", where the collection rate for heat supplies is 61%, "Ulyanovskenergo" (78%), "Tomskenergo" (85%), "Amurenergo" (88%); for electricity supplies: "Ingushenergo", where the only 69% of current electricity payments has been collected, "Karachaevo-Cherkessenergo" (87%), and "Sakhalinenergo" (94%).

As before, the main categories of non-paying consumers are entities of the housing and utility sector (the debts owed by them are in excess of RUB30.95 billion) and wholesale resellers (RUB 22.3 billion) controlled by the local authorities. Because of the non-payments by these consumers at the height of winter preparations, RAO UES companies are forced to reduce energy supplies to such consumers to the level of their effective demand.

Housing and Public Utility Services. RAO "UES of Russia" is seriously concerned about the state of winter preparations in the housing and utilities sector, in view of the fact that RAO UES entities supply heat to over 30% consumers in the country, and it is housing and utility companies that have to bear the burden of fuel supply. The current state of energy companies in the housing and utilities sector raises doubts as to whether they are ready to independently produce heat or receive heat from regional energos. According to Russia's State Construction Committee (Gosstroy), the depreciation of fixed assets in the residential utilities sector is currently estimated at 60-80%, the engineering equipment is depreciated by 73%, and the depreciation of networks is 65%. The depreciation increases by 5-7% annually. Due to the state of disrepair in the residential distribution networks, up to 60% of heat, 18% of electricity, and 25% of water does not reach the end consumer.

As of the beginning of October, preparation of boiler plants in the housing and utilities sector for the coming winter was 84.8% complete, and scheduled replacement of old heating networks was 61.3% complete. Coal inventories at the entities of the housing and utilities sector throughout the country are 54.6%, and fuel oil inventories are 52% of the target. The areas of most concern for RAO "UES of Russia" in the hosing and utilities sector are the Republic of Altay, Republic of Khakassia, and Arkhangelsk Region, Kirov Region, Ivanovo Region, and Kostroma Region.

In order to stabilize the situation and ensure uninterrupted operation of the energy entities in the housing and utilities sector during the autumn-winter period, a working group of RAO "UES of Russia" and Gosstroy has been established on the initiative of RAO "UES of Russia". Under the joint program of RAO "UES of Russia" and Gosstroy, more stringent requirements will be imposed on issuance of "winter readiness certificates" to the entities in the housing and utility sector, joint emergency response training will be organized for the staff of the housing and utilities sector and energy companies of RAO "UES of Russia"; regional energos will render assistance in recovery in case of accidents at the residential energy facilities.

"Russian Communal Systems". Seeking to improve the quality of services provided to households and promote competition in the housing and utilities sector, RAO "UES of Russia" together with Gazprombank, Evrofinance Bank, Evrazholding, Interros, Kuzbassrazrezugol, and Renova, established OAO "Russian Communal Systems" ("RKS") in May 2003 (RAO "UES of Russia" holds a 25% stake in the Company). OAO "RKS" will generate heat and electricity using leased generating facilities, distribute electricity and heat to end consumers, ensure quality water and gas supply, and operate sewage systems. OAO "RKS" will also provide electricity, heat, gas, and water distribution services, sewage services, work to develop advanced accounting and billing systems in the housing and utility sector, and implement resource saving technologies.

The model to reform the housing and utilities sector proposed by OAO "RKS" is now being discussed in 37 regions of Russia; cooperation agreements to provide residential utility services have been signed between OAO "RKS" and regional and municipal authorities in 26 regions. 21 subsidiaries of OAO "RKS" have been founded to implement these agreements.

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