Moscow, 26 September 2003. - At its regular meeting held today, the Board of Directors of RAO "UES of Russia" reviewed the progress report on the preparations underway in the Holding's energy companies for the 2003/2004 autumn-winter peak load. The Board of Directors stated that the current level of preparedness of the energy companies of RAO "UES of Russia" for the forthcoming autumn-winter season will make it possible to ensure reliable electricity and heat supply to industries and households.

It was pointed to the fact that the Unified Energy System (UES) of Russia has maintained stable performance in 2003. The Company's subsidiaries have been able to ensure reliable electricity supply to industries and households in the Russian Federation and have fulfilled their obligations under electricity export contracts. The Unified Energy System of Russia has operated at the standard electrical frequency prescribed by the federal standard (GOST) 100% of the calendar time.

Electricity consumption in the Russian Federation increased in the first 8 months of 2003 year-on-year by 4.6% to 574.9 TWh. During the 8 first months of the current year, Russia's power plants generated 579.9 TWh of electricity, up 4.8%, the power plants of RAO "UES of Russia" increasing generation by 5.9% to 457.8 TWh. The heat production by the companies of RAO "UES of Russia" totalled 333.6 million Gcal (103.5% of the target, and 105.9% year-on-year).

Fuel supplies to the power plants of RAO "UES of Russia" have remained stable throughout the first 8 months of 2003. The share of coal in the fuel balance of RAO UES power plants increased in the first 8 months of 2003 1.2% in year-on-year terms to 27.7%, whereas the share of fuel oil grew 0.5% to 4.8%. The share of gas declined by 1.7% to 67.0%.

The number of energy companies in crisis/turnaround management is decreasing. In 2003, 10 energy companies have stopped operating in crisis/turnaround mode. The Crisis Committee of RAO "UES of Russia" currently retains control only over OAO "Kamchatskenergo", OAO "Sakhalinenergo", and OAO "Khabarovskenergo".

Meanwhile, the status of preparations for the heating season at the housing and public utilities is rather serious. The status of preparations for the heating season in some areas of the Russian Federation causes serious concerns. As at 1 September 2003, only 31% of funds needed for the heating season preparation have been supplied throughout Russia. The preparedness of boilers in the housing sector is 69%, heating networks - 76%; only 48% of old heating networks have been replaced; the coal inventories stand at 44% of the target, whereas liquid fuel inventories make 54% of the target.

In order to ensure reliable electricity supply to consumers, RAO "UES of Russia" has signed a cooperation agreement with Russia's State Construction Committee ("Gosstroy"). A working group consisting of representatives from RAO "UES of Russia" and Gosstroy has been set up to prepare a joint action plan. In particular, joint action is taken to check the winter preparedness of housing and public utility entities, repair and maintenance schedules are being worked out and agreed, contingency planning is underway to ensure elimination of the possible technical failures in the heating and electricity grids. The energy companies of RAO "UES of Russia" (in particular, OAO "Kurskenergo", OAO "Saratovenergo", OAO "Tverenergo") are rendering assistance to entities of the housing and public utilities sector in technological testing of power equipment.

As at 1 September 2003, within the project of OAO "Russian Communal Systems", agreements have been signed with heads of the following constituent territories of the Russian Federation and municipalities: Republic of Udmurtia, Chuvash Republic, Altay Kray, Tver Region, Rostov Region, Smolensk Region, Tambov Region, Kaluga Region, Voronezh Region, Volgograd Region, Kostroma Region, Sverdlov Region, Oryol Region, Arkhangelsk Region, Saratov Region, Kursk Region, Orenburg Region, Vladimir Region, Tula Region, Amurskaya Region, Perm Region, Lipetsk Region, the cities of Vladivostok (Primorsky Kray), Kirovo-Chepetsk and Kirov (Kirov Region), Tomsk (Tomsk Region), Rostov (Yaroslavl Region), and Blagoveschensk (Amurskaya Region).

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The Board of Directors has reviewed the progress report of Deputy Chairman of the Management Board Sergey Dubinin on the implementation of the Holding's investment program in H1 2003 and preparation of the draft investment program of RAO "UES of Russia" for 2004. The Board also considered the options for raising funds needed to complete the generation projects under construction by the deadlines established by the Russian Government and the Company's orders.

It was noted that the FEC of Russia had approved the Investment Program of RAO "UES of Russia" (including OAO "UES FGC" and OAO "UES SO-CDA") for 2003 for the key construction projects and facilities, envisaging RUB23.5 billion in allocations. This investment program has been approved by the Russian Government and ratified by the FEC of Russia. It covers investments in generating and power grid facilities, and arrangements to prepare the market infrastructure for the launch of the market.

In connection with the establishment of OAO "UES FGC" and introduction of independent tariffs for OAO "UES FGC" and OAO "UES SO-CDA", these companies have been given an opportunity to invest according to their own investment programs. These Companies' investment programs envisage additional funding in the amount of RUB4.4 billion for the entities scheduled for re-equipment and renewal, establishment of a corporate telecommunications network at OAO "UES FGC", and construction of Severo-Zapadnaya CHPP.

According to the Companies' investment programs, RUB14.4 billion in funds have been allocated to projects to build generating capacities. For the purposes of market infrastructure development, RUB0.52 billion in funds have been committed to the upgrade of hardware and software of the System Operator of OAO "UES SO-CDA" and integrated dispatch administrations (IDAs), as well as the creation of an automated commercial electricity metering system. Total investments in power grid facilities will make RUB10 billion, including RUB2.3 in funds earmarked for the re-equipment and renewal of the facilities. RUB1.2 billion in funds have been committed for the reconstruction of energy facilities in the Republic of Chechnya.

In 2003, the planned investments in regional energos and AO-power plants amounted to RUB50.6 billion and RUB5.5 billion, respectively.

Compared to 2002, there has been a significant increase in investments throughout RAO UES Holding in accordance with the Companies' approved investment programs. In 2003, about 2,118.3 MW of turbine capacity is planned to be put into service throughout the RAO UES Holding, compared to 640 MW in 2002, with commissioning of 431.2 MW to be funded by RAO "UES of Russia" (compared 146.7 MW in 2002), and the rest of the turbine capacity construction (1,687.1 MW) to be financed with the regional energos' own funds.

In H1 2003, all projects scheduled for completion have been put into operation. In April 2003, two 25-MW power generating units were commissioned at Mutnovskaya Geothermal Power Plant; on 30 June, the first hydroelectric generator of 185 MW capacity was put into operation at Bureyskaya HPP; in June, a diesel power plant (DPP) was put into service in the settlement of Deputatsky, with a diesel generator 1-6 of 9.8 MW capacity.

Implementation of investments in construction projects, especially in key projects, continued to grow in H1 2003. Implementation of the Holding's investment programs in H1 2003 grew year-on-year by 43%. The RAO UES investment program implemented to date made RUB11.4 billion, or 71% of the annual target.

In H1 2003, the energy companies of RAO "UES of Russia" commissioned steam boilers of aggregate capacity of 15 Gcal/h, 265.2 km of transmission lines of 35kV and above, and 14.3 km of heating networks.

Based on the ceiling for the tariff growth in 2004 recommended by the FEC of Russia, RAO "UES of Russia" estimated the aggregate amount of investments to be made by RAO "UES of Russia", OAO "UES FGC" and OAO "UES SO-CDA" at RUB29.23 billion. The amount of investments to be made according to the investment program of RAO "UES of Russia" is estimated at RUB15.1 billion, with the respective figures for OAO "UES FGC" and OAO "UES SO-CDA" estimated at RUB13.4 billion and RUB0.73 billion.

Due to a shortfall in investment resources available to RAO "UES of Russia", OAO "UES FGC", and OAO "UES SO-CDA" compared to the volumes planned by the Companies to ensure timely completion of the capital construction projects, it is necessary to raise loans against surety of RAO "UES of Russia", the latter being a source of funds for the Companies' investment programs.

Currently, work is underway at regional energos and AO-power plants to prepare investment programs for 2004. These programs will be submitted for approval, respectively, to the Regional Energy Commissions and the FEC of Russia.

In September - October 2003, the Government of the Russian Federation plans to hold negotiations to agree on the ceiling tariffs for RAO "UES of Russia", OAO "UES FGC" and OAO "UES SO-CDA" for a three-year term, from 2004 through 2006. This involves talks to agree on and approval of the Companies' investment programs for the relevant period, which will create favourable conditions for the Companies to raise loans needed for their investment programs.

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The Board of Directors has noted the report on the work being done by the Management Board of RAO "UES of Russia" to complete the generation projects under construction, with funding to be generated from the earmarked investment resources and borrowed funds, including funds raised by RAO "UES of Russia".

The projects referred to this category are: Kaliningradskaya CHPP-2, Sochinskaya TPP, Ivanovskaya TPP, Severo-Zapadnaya CHPP, Bureyskaya HPP, Irganayskaya HPP, Boguchanskaya HPP, Chain of Nizhne-Chereksky HPPs, Zelenchuksky HPPs, Ust-Srednekanskaya HPP, and Zaramagsky HPPs.

The Board of Directors gave the Company's Management Board the task to draft an investment program of the Company for completion of generation projects, indicating sources of funds and evaluation of economic efficiency of the projects being implemented.

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The Board heard the issue of establishment of wholesale generation companies (WGCs) through consolidation of regional generation companies to be implemented through exchange of shares (without setting up groups controlled by holding companies during the transition period).

The Board resolved that WGCs are to be established in two stages. At the first stage, WGCs will be created on the basis of power plants' facilities and shares in federal AO-power plants owned by RAO "UES of Russia". At the second stage, AO-power plants spun off from regional energos will merge with and into WGCs, and the establishment of WGCs will thus be completed.

The Board of Directors deems that the "basic" scenario for the establishment of WGCs a priority. This plan envisages:

- that, at the first stage, WGCs will be established as wholly-owned subsidiaries of RAO "UES of Russia", with contributions to their share capital made in form of AO-power plants' property and shares;

- at the second stage, RAO "UES of Russia" will contribute shares in AO-power plants spun off from regional energos as consideration for shares in WGCs;

- consolidation ("transition to single share") of heat WGCs through share exchange using a common appraisal method.

The WGCs to be established on the basis hydrogeneration assets will be consolidated subject to compliance with the requirements of the Federal Law "On Peculiarities of Functioning of the Electricity Industry during the Transition Period".

The Board of Directors charged the Management Board of RAO "UES of Russia" with the task to draft a plan to establish a WGC on the basis of one AO-power plant forming a WGC, and subsequently consolidate AO-power plants, with shares in AO-power plants to be exchanged for WGC shares. The proposals are to be submitted for consideration of the Board of Directors of the Company within two months.

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The Board of Directors has approved the Draft Restructuring Plan for OAO "Chelyabenergo", which complies with the basic plan and resolved as follows:

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

- OAO "Chelyabinsk Management Energy Company";

- OAO "Chelyabinsk Generation Company";

- OAO "Yuzhouralskaya TPP";

- OAO "Chelyabenergosbyt";

- OAO "Chelyabinsk Trunk Grids", a joint-stock company whose only asset is shares in Urals ITC;

- to approve the establishment by OAO "Chelyabenergo" of wholly-owned subsidiaries: OAO "Chelyabenergoremont", OAO "Chelyabenergospetsremont", OAO "Engineering and Diagnostic Center", OAO "Autotransport Enterprise", OAO "Chelyabelectrosetremont", NP "Therapeutic Complex", and NP "Training and Education Center";

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

- OAO "Chelyabenergo";

- OAO "Chelyabinsk Generation Company";

- OAO "Chelyabenergosbyt";

- OAO "Yuzhnouralskaya TPP", prior to its transfer to the corresponding wholesale generation company;

The Board of Directors has resolved that the power distribution networks that are not part of the Unified National (All-Russian) Power Grid (UNPG) remain the property of OAO "Chelyabenergo".

The Board has approved the principle of pro-rata distribution of shares in Urals ITC owned by OAO "Chelyabinsk Trunk Grids" among its shareholders using the procedure of liquidation of OAO "Chelyabinsk Trunk Grids" or its merger with and into Urals ITC.

The restructuring of OAO "Chelyabenergo" is to be carried out in several stages.

Before the launch of reorganization, it is planned to transfer the operational dispatch functions, which are currently performed by the RDA of OAO "Chelyabenergo", to the branch of OAO "UES SO-CDA"; to found wholly-owned subsidiaries of OAO "Chelyabenergo": OAO "Chelyabenergoremont", OAO "Chelyabenergospetsremont", OAO "Autotransport Enterprise", OAO "Engineering and Diagnostic Center", OAO "Chelyabelectrosetremont", and non-profit partnerships NP "Therapeutic Complex" and NP "Training and Education Center"; to transfer the trunk grid facilities that are part of the UNPG as consideration for the additional shares in Urals ITC.

At the first stage of OAO "Chelyabenergo" restructuring, companies engaged in core activities will be separated from the regional energo.

The second stage will see interregional integration of the established companies, including merger of the Regional Grid Company of OAO "Chelyabenergo" with and into Urals ITC, integration of OAO "Chelyabinsk Generation Company" with the GCs of the adjoining regions within the TGC, and subsequent merger of OAO "Yuzhnouralskaya TPP" into WGC-3.

The restructuring plan of OAO "Chelyabenergo" has been consented to by the Chelyabinsk Region Administration, the key minority shareholders and approved by the Restructuring and Strategy Committee of the Board of Directors of RAO "UES of Russia" and the Working Group for the review of restructuring plans under the Energy Reform Commission of the Russian Government.

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The Board of Directors has approved the Draft Restructuring Plan for OAO "Smolenskenergo", which complies with the basic plan and resolved as follows:

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

- OAO "Smolensk Management Energy Company";

- OAO "Smolensk Generation Company";

- OAO "Smolenskaya TPP";

- OAO "Smolenskenergosbyt";

- OAO "Smolensk Trunk Power Grids", with shares in Center ITC as its only asset;

- to approve the establishment by OAO "Smolenskenergo" of a wholly-owned subsidiary, OAO "Smolenskenergoremont";

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

OAO "Smolenskenergo";

OAO "Smolenskenergosbyt";

OAO "Smolenskaya TPP", prior to its transfer to the wholesale generation company;

OAO "Smolensk Generation Company";

The Board of Directors also resolved that the power distribution networks that are not part of the UNPG are to remain the property of OAO "Smolenskenergo".

The Board has approved the principle of pro-rata distribution of shares in Central ITC owned by OAO "Smolensk Trunk Power Grids" among its shareholders using the procedure of liquidation of OAO "Smolensk Trunk Power Grids" or its merger with and into Central ITC.

The restructuring of OAO "Smolenskenergo" is to be carried out in several stages. During the preliminary stage, a wholly-owned subsidiary, OAO "Smolenskenergoremont" is to be established. The company will be engaged in a business that is non-core for the energy company and will subsequently be disposed of. Also, in the event that OAO "Central ITC" is established prior to completion of OAO "Smolenskenergo" restructuring, the latter is to transfer its power grid facilities as consideration for the additional shares in OAO "Central ITC". Also, the RDA property will be transferred, for value, to OAO "UES SO-CDA".

At the first stage, OAO "Smolenskenergo" will be reorganized through spin-off; shares in the spin-off companies are to be distributed pro-rata among shareholders in OAO "Smolenskenergo".

The second stage will see interregional integration of the companies separated from regional energos:

The restructuring plan of OAO "Smolenskenergo" has been consented to by the Smolensk Region Administration and approved by the Restructuring and Strategy Committee of the Board of Directors of RAO "UES of Russia" and the Working Group for the review of restructuring plans under the Energy Reform Commission of the Russian Government.

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The Board of Directors has approved amendments to the resolutions of the Board of Directors of RAO "UES of Russia" on the restructuring plan of OAO "Rostovenergo" of 21 June 2003 to bring it into conformity with the basic restructuring plan and the adopted normative acts.

The Board resolved as follows:

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

- OAO "Rostov Generation Company",

- OAO "Energosbyt Rostovenergo";

- OAO "Rostovenergo Management Company";

- OAO "Rostovenergo Trunk Grid Company", with shares in South ITC as its only asset;

- to approve the establishment by OAO "Rostovenergo" of the following wholly-owned subsidiaries: OAO "Rostov Energy Repairs Enterprise", OAO "Rostov Energy Installation Enterprise", OAO "Rostov Energy Repair and Construction Enterprise", and OAO "Rostov Energy Autotransport Enterprise";

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

- OAO "Rostov Generation Company",

- OAO "Energosbyt Rostovenergo";

- OAO "Rostovenergo";

The Board of Directors has also consented to the proposal that the power distribution networks that are not part of the UNPG are to remain the property of OAO "Rostovenergo".

The Board has approved the principle of pro-rata distribution of shares in South ITC owned by OAO "Rostovenergo Trunk Grid Company" among its shareholders using the procedure of liquidation of OAO "Rostovenergo Trunk Grid Company" or its merger with and into South ITC.

The restructuring of OAO "Rostovenergo" is to be carried out in several stages. During the preliminary stage, subsidiary companies are planned to be established. These should be companies engaged in businesses that are non-core for the energy company and are to be subsequently disposed of. Also, the RDA property will be transferred, for a consideration, to OAO "UES SO-CDA".

At the first stage, OAO "Rostovenergo" will be reorganized through spin-off; shares in the spin-off companies are to be distributed pro-rata among shareholders in the regional energo.

The second stage will see interregional integration of the companies separated from regional energos:

The restructuring plan of OAO "Rostovenergo" has been consented to by the Rostov Region Administration, key shareholders, and approved by the Restructuring and Strategy Committee of the Board of Directors of RAO "UES of Russia" and the Working Group for the review of restructuring plans with the Energy Reform Commission of the Russian Government.

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The Board of Directors has approved amendments to the resolutions of the Board of Directors of RAO "UES of Russia" on the reorganization plan of OAO "Belgorodenergo" of 21 June 2003. The amendments cover the procedure for the transfer of assets that are part of the Unified National Power Grid as consideration for shares in Central ITC.

The Board resolved as follows:

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

- OAO "Power Grid Company" (OAO "PGC");

- OAO "Heat Energy Company" (OAO "HEC");

- OAO "Belgorod Distribution Company";

- OAO "Belgorod Trunk Grid Company", with shares in Central ITC as its only asset;

- to approve the establishment by OAO "Belgorodenergo" of a wholly-owned subsidiary, OAO "EnergoInfoSvyaz";

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

- OAO "Power Grid Company" (OAO "PGC");

- OAO "Heat Energy Company" (OAO "HEC");

- OAO "Belgorod Distribution Company";

- OAO "Belgorod Heat Energy Company";

- to approve the transfer of the power grid facilities owned by OAO "Belgorodenergo" which are part of the Unified National Power Grid (UNPG), and the disbursement of funds in payment 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 full payment of the additional shares in Central ITC being acquired by OAO "Belgorodenergo" prior to approval of the resolution to reorganize OAO "Belgorodenergo".

In the event that OAO "Belgorodenergo" fails to transfer the UNPG-related power grid facilities as consideration for the additional shares in Central ITC before the decision is taken to reorganize OAO "Belgorodenergo", OAO "Belgorod Trunk Grid Company" are to be spun off from OAO "Belgorodenergo" 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.

The Board has approved the principle of pro-rata distribution of shares in Central ITC owned by OAO "Belgorod Trunk Grid Company" among its shareholders using the procedure of liquidation of OAO "Belgorod Trunk Grid Company" or its merger with and into Central ITC.

The reorganization plan of OAO "Belgorod" is now being implemented. To date, the operational dispatch functions performed by the branch of OAO "Belgorodenergo", Regional Dispatch Administration, to the branch of OAO "UES SO-CDA". The following wholly-owned subsidiaries of OAO "Belgorodenergo" have been founded: OAO "Belgorodenergoremont", OAO "Belgorod Power Grid Company", and OAO "Belgorod Heat Energy Company".

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The Board approved participation of RAO "UES of Russia" in the tender to privatize the electricity distribution networks of the Republic of Bulgaria and instructed the Company's Management Board to select a company of the RAO UES Group to take part in this tender on the conditions determined by the Bulgarian Government.

It was noted that Bulgaria plans to privatize seven of its distribution networks. Stolichna, Sofia oblast, Pleven, Plovdiv, Stara Zagora, Varna, and Gorna Orjahovica. Privatization will be carried out through tendering process. An official announcement of the privatization launch is expected in September 2003. The Bulgarian Government's privatization advisor is BNP Paribas.

Today, the Government of the Republic of Bulgaria is the sole owner of shares in all distribution companies offered for sale. 67% stakes in the companies will be offered for sale. The seven companies will be grouped in three lots; potential buyers may bid for all of the three lots, but buy only one. All companies put up for sale at the tender are both profitable and creditworthy.

RAO "UES of Russia" has reviewed the information available on the companies and the market situation in Bulgaria. The main arguments in favour of RAO "UES of Russia" participating in the privatization tender are as follows:

- growth in the companies' capitalization as Bulgaria nears EU entry;

- liberalization of the Bulgarian electricity market scheduled for 2007 will offer more business opportunities;

- possibility of working in the UCTE zone, from which the UES of Russia is separated;

- a potential for increase in the companies' sales and improvement of their financial results.

RAO "UES of Russia" has received offers from companies wishing to consult RAO UES on the tender, which include Societe General and ABN AMRO banks, and a Bulgarian consulting group FOREM Consulting.

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The Board of Directors of RAO "UES of Russia" has approved the terms for holding a competitive tender to select a management company to run ZAO "Severo-Zapadnaya CHPP".*

Under the terms of the tender, an international energy company may participate in the tender, provided that it operates in several countries, has a turnover of at least USD5 billion, over 5 thousand MWh of installed capacity (whether owned or held in trust), with a credit rating not lower than BBB- according to S&P and Fitch, and not lower than Baa3 according to Moody's.

Besides, the Board has decided that the management company may not simultaneously act as manager and creditor, and may not obtain ownership of Severo-Zapadnaya CHPP, whether by itself or through its affiliated persons, within 5 years.

The Board of Directors gave the Management Board of RAO "UES of Russia the task to arrange a tender to select a management company to run ZAO "Severo-Zapadnaya CHPP" in accordance with the approved selection criteria. The Management Board has also been given a task to prepare the material terms and conditions of the contract to run Severo-Zapadnaya CHPP and submit them for approval of the Board of Directors.

The decision to hand over control of ZAO "Severo-Zapadnaya CHPP" to a management company subject to a competitive tender was taken by the Board of Directors on August 29, 2003.

Investment Bank JP Morgan acts as counsel to RAO "UES of Russia" on the organization of the tender.

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The Board of Directors has heard a report on the efforts to de-privatize OAO "Sayano-Shushenskaya HPP" taken by the Chairman of the Government of Khakassia Republic.

The Board of Directors has unanimously resolved to instruct the Management Board to ensure protection of interests of shareholders in OAO "Sayano-Shushenskaya HPP" and RAO "UES of Russia".

^* Severo-Zapadnaya CHPP is located near St.-Petersburg in the north-west of Russia. The power plant is equipped with modern combined cycle generators and is the most technically advanced thermal power plant in Russia. The first generating unit with installed capacity of 450 MW was put into operation in December 2000. Completion of the second generating unit with 450 MW installed capacity is scheduled for 2005.

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