Moscow. 29 August. – The Board of Directors reviewed the issue of execution of Federal Law "On Financial Rehabilitation of Agricultural Producers" No. 83-FZ of 9 July 2002 and Resolution of the Russian Government No. 52 of 30 January 2003. This was due to the need for regional energos to unconditionally comply with the requirements of the Law. There have recently been attempts made by the regional authorities to compel some UES daughter companies to restructure the debts of the agricultural enterprises under the conditions violating the federal legislation. There are cases when agricultural producers have been included in restructuring programs which do not provide, pursuant to the Law, for 100% payment of all current liabilities for at least 3 months prior to the signing of a Debt Restructuring Agreement. However, in some regions, restructuring programs were set up for agricultural producers in respect of which there were bankruptcy cases filed in courts.

Analysis of economic consequences for energy companies of the restructuring terms established by the Law has shown that if any postponement of payment or possibility of payment by instalments for a term of 9-10 years is allowed (this group includes about 50% of all program participants), entities of RAO "UES of Russia" will suffer losses of up to RUB 5.4 billion.

In this connection, RAO "UES of Russia" circulated an information letter to regional energos instructing them to strictly comply with all provisions of the Federal Law when signing restructuring agreements.

The Board of Directors charged the Management Board of RAO "UES of Russia" with the task of taking the necessary measures to ensure participation of regional energos in the debt restructuring program of agricultural producers and complying with the terms of normative acts adopted to implement the Federal Law "On Financial Restructuring Of Agricultural Producers".

The Board of Directors instructed RAO UES representatives on the Boards of Directors of the Company's subsidiaries, in the event that regional energos refuse to participate in the restructuring programs on the approved terms, to bring up the issue of strict compliance with the requirements of the normative acts implementing the Law at Board meetings of the respective SDCs.

The Board of Directors recommended that the Board Chairman of RAO "UES of Russia" submit:

- a request to heads of regional authorities to consider the possibility of compensating for the losses incurred by regional energos in connection with the execution of the Federal Law according to the Decree #226 of the Russian Government;

- proposals to the Government to prepare a draft Resolution of the Russian Government on compensation of losses suffered by natural monopolies' entities due to the execution of the Federal Law "On Financial Restructuring of Agricultural Producers"

***

The Board of Directors of RAO "UES of Russia" unanimously approved the reorganization plans for OAO "Vologdaenergo", OAO "Arkhenergo", OAO "Kostromaenergo" managed by OAO "Northern Energy Management Company" and resolved:

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

• OAO "Arkhangelsk Generation Company";
• OAO "Arkhangelsk Distribution Company";
• OAO "Arkhangelsk Trunk Grids", with shares in North-West ITC as its only asset;

- to approve the transfer of functions of the one-man management bodies (i.e. Directors General) of the following companies:

• OAO "Akhenergo";
• OAO "Arkhangelsk Generation Company";
• OAO "Arkhangelsk Distribution Company";
• OAO "Vologdaenergo";
• OAO "Cherepovetskaya TPP", prior to the transfer of Cherepovetskaya TPP to the generation company of the wholesale electricity market;
• OAO "Vologodskaya CHPP";
• OAO "Vologda Distribution Company";
• OAO "Kostromaenergo";
• OAO "Kostroma Generation Company";
• OAO "Kostroma Distribution Company".

- to approve that the reorganization of OAO "Vologdaenergo" be carried out through spin-off of the following companies (while preserving the current capital structure):

• OAO "Cherepovetskaya TPP";
• OAO "Vologodskaya CHPP";
• OAO "Vologda Distribution Company";
• OAO "Vologda Trunk Grids", with shares in North-West ITC as its only asset;

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

• OAO "Kostroma Generation Company";
• OAO "Kostroma Distribution Company";
• OAO "Kostroma Trunk Grids", with shares in Central ITC as its only asset;

- to approve the establishment by OAO "Arkhenergo" of wholly-owned subsidiaries, OAO "Arkhenergoremont", OAO "Arkhangelsksetremont"; the establishment by OAO "Vologdaenergo" of wholly-owned subsidiaries OAO "Energoremont" and OAO "Vologdasetremont"; the establishment by OAO "Kostromaenergo" of OAO "Kostromaenergospetsremont" and OAO "Kostromasetremont";

The UES Board of Directors approved:

- the transfer of the power grid facilities owned by OAO "Vologdaenergo" and OAO "Kostromaenergo" which are part of the Unified National Power Grid (UNPG), and the disbursement of funds sufficient to cover the costs involved in placement of additional shares, including payment of the securities transactions tax, as consideration for 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 "Vologdaenergo" and OAO "Kostromaenergo" prior to approval of the resolution to reorganize OAO "Vologdaenergo" and OAO "Kostromaenergo";

- the transfer of the power grid facilities owned by OAO "Arkhenergo" which are part of the Unified National Power Grid (UNPG), and the disbursement of funds sufficient to cover the costs involved in placement of additional shares, including payment of the securities transactions tax, as consideration for shares in North-West Interregional Transmission Company (North-West 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 North-West ITC being acquired by OAO "Arkhenergo" prior to approval of the resolution to reorganize OAO "Arkhenergo";

- the pro-rata distribution of shares in Central ITC owned by OAO "Vologda Trunk Grids" and OAO "Kostroma Trunk Grids" among their shareholders using the procedure of liquidation of OAO "Vologda Trunk Grids" and OAO "Kostroma Trunk Grids" or their merger with and into Central ITC;

- the pro-rata distribution of shares in North-West ITC held by OAO "Arkhangelsk Trunk Grids" among the latter's shareholders using the procedure of liquidation of OAO "Arkhangelsk Trunk Grids" or its merger with and into North-West ITC;

- that the power distribution networks that are not part of the unified national (all-Russian) power grid remain the property of OAO "Arkhenergo", OAO "Vologdaenergo", OAO "Kostromaenergo".

The Board resolved to instruct RAO UES representatives to vote for the approval of all items of business at board meetings and shareholder meetings of OAO "Arkhenergo", OAO "Vologdaenergo", and OAO "Kostromaenergo", and of shareholder meetings of the newly established companies, so as to ensure implementation of the reorganization plans of OAO "Arkhenergo", OAO "Vologdaenergo" and OAO "Kostromaenergo".

The restructuring plan of the regional energos run by OAO "Northern Energy Management Company" are in compliance with the basic plan of regional energos' reorganization previously approved by the Board of Directors of RAO "UES of Russia".

***

The Board of Directors has unanimously approved the Restructuring Plan of OAO "Volgogradenergo", which is in compliance with the basic reorganization plan, and resolved as follows:

- to approve that the reorganization of OAO "Volgogradenergo" be carried out through spin-off of the following companies (while preserving the current capital structure):

• - OAO "Volga-Don Energy Complex Management Company" (OAO "VDEC MC");
• - OAO "Volzhskaya Generating Company" (OAO "Volzhskaya GC");
• OAO "Volgogradenergosbyt";
• - OAO "Volgograd Trunk Grids" (OAO "VTG"), with shares in Central ITC as its only asset;

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

• - OAO "Volzhskaya Generation Company";
• - OAO "Volgogradenergosbyt";
• - OAO "Volgogradenergo";

- to approve the establishment by OAO "Volgogradenergo" of wholly-owned subsidiaries: OAO "Volgogradenergoservis" and OAO "Volgogradsetremont";

- to approve the transfer of the power grid facilities owned by OAO "Volgogradenergo" which are part of the Unified National Power Grid (UNPG), and the disbursement of funds sufficient to cover the costs involved in placement of additional shares, including payment of the securities transactions tax, as consideration for shares in Central Interregional Transmission Company (Center ITC), and full payment of the additional shares in Central ITC to be acquired by OAO "Volgogradenergo" prior to approval of the resolution to reorganize OAO "Volgogradenergo".

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

The Board of Directors also resolved that the power distribution networks that are not part of The Unified National (all-Russian) Power Grid (UNPG) remain the property of OAO "Volgogradenergo";

The Board resolved to instruct RAO UES representatives to vote for the approval of all items of business of board meetings and shareholder meeting of OAO "Volgogradenergo" and shareholder meetings of the newly established companies, so as to ensure implementation of the reorganization plan of OAO "Volgogradenergo".

The Board of Directors has unanimously approved the Reorganization Plan of OAO "Ryazanenergo", which is in compliance with the basic reorganization plan, and resolved as follows:

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

• OAO "Ryazan Management Company";
• OAO "Ryazan Heating Company";
• OAO "Ryazan Energy Distribution Company";
• OAO "Ryazan Trunk Grids", with shares in Center ITC as its only asset;

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

• OAO "Ryazan Heating Company";
• OAO "Ryazan Energy Distribution Company";
• OAO "Ryazanenergo".

- to approve the establishment by OAO "Ryazanenergo" of wholly-owned subsidiaries: OAO "Hotel Business", OAO "Seti Energoremont", and OAO "Ryazanenergoremont";

- to approve the transfer of the power grid facilities owned by OAO "Ryazanenergo" which are part of the Unified National Power Grid (UNPG), and the disbursement of funds sufficient to cover the costs involved in placement of additional shares, including payment of the securities transactions tax, as consideration for shares in Central Interregional Transmission Company (Center 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 to be acquired by OAO "Ryazanenergo" prior to approval of the resolution to reorganize OAO "Ryazanenergo".

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

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 "Volgogradenergo";

The Board resolved to instruct RAO UES representatives to vote for the approval of all items of business of board meetings and shareholder meeting of OAO "Ryazanenergo" and shareholder meetings of the newly established companies, so as to ensure implementation of OAO "Ryazanenergo" reorganization plan.

***

The Board of Directors has approved the Restructuring Plan of OAO "Tambovenergo", which is in compliance with the basic reorganization plan, and resolved as follows:

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

• OAO "Tambovenergo Management Company";
• OAO "Tambov Generation Company";
• OAO "Tambovenergosbyt";
• OAO "Tambov Trunk Power Grids", with shares in Center ITC as its only asset;

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

• OAO "Tambov Generation Company";
• OAO "Tambovenergosbyt";
• OAO "Tambovenergo".

- to approve the establishment by OAO "Tambovenergo" of wholly-owned subsidiaries: OAO "Energetik Sanatorium", OAO "Tambovenergospetsremont", and OAO "Tambovelectrosetservis";

- to approve the transfer of the power grid facilities owned by OAO "Tambovenergo" which are part of the UNPG, and the disbursement of funds sufficient to cover the costs involved in placement of additional shares, including payment of the securities transactions tax, as consideration for shares in Center ITC, and full payment of the additional shares in Center ITC to be acquired by OAO "Tambovenergo" prior to approval of the resolution to reorganize OAO "Tambovenergo".

The UES Board of Directors approved the pro-rata distribution of shares in Center ITC owned by OAO "Tambov Trunk Grids" among the latter's shareholders using the procedure of liquidation of OAO "Tambov Trunk Grids" or its merger with and into Center ITC.

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 "Tambovenergo";

The Board resolved to instruct RAO UES representatives to vote for the approval of all items of business of board meetings and shareholder meeting of OAO "Tambovenergo" and shareholder meetings of the newly established companies, so as to ensure implementation of the reorganization plan of OAO "Tambovenergo".

***

The Board of Directors has approved the Restructuring Plan of OAO "Tverenergo", which is in compliance with the basic reorganization plan, and resolved as follows:

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

• OAO "Tver Management Energy Company" (OAO "TUEK");
• OAO "Tver Generation Company";
• OAO "Tver Energy Distribution Company";
• - OAO "Tver Trunk Grids" (OAO "TTG"), with shares in Center ITC as its only asset;
• OAO "Tver Energy Repair Company", with shares in OAO "Tverenergoremont" as its only asset;

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

• OAO "Tver Generation Company";
• OAO "Tver Energy Distribution Company";
• OAO "Tverenergo".

- to approve the establishment by OAO "Tverenergo" of wholly-owned subsidiaries: OAO "Tverenergoremont", OAO "Tverenergo", and NOU "Tver Training and Production Center";

- to approve the transfer of the power grid facilities owned by OAO "Tverenergo" which are part of the UNPG, and the disbursement of funds sufficient to cover the costs involved in issuance of additional shares, including payment of the securities transactions tax, as consideration for shares in Center ITC, and full payment of the additional shares in Center ITC to be acquired by OAO "Tverenergo" prior to approval of the resolution to reorganize OAO "Tverenergo".

The UES Board of Directors approved the pro-rata distribution of shares in Center ITC owned by OAO "Tver Trunk Grids" among the latter's shareholders using the procedure of liquidation of OAO "Tver Trunk Grids" or its merger with and into Center ITC.

The Board of Directors also resolved that the power distribution networks that are not part of the Unified National (all-Russian) Power Grid (UNPG) remain the property of OAO "Tverenergo";

The Board resolved to instruct RAO UES representatives to vote for the approval of all items of business of board meetings and shareholder meeting of OAO "Tverenergo" and shareholder meetings of the newly established companies, so as to ensure implementation of the reorganization plan of OAO "Tverenergo".

***

The Board of Directors made amendments to the previously approved reorganization plan of OAO "Ivenergo". The amendments to the plan are due to the separation of the Company's repair units and establishment of wholly-owned subsidiaries, OAO "Ivenergoremont" and OAO "Ivanovosetremont".

The amended reorganization plan of OAO "Ivenergo" envisages:

- Reorganization of OAO "Ivenenergo" through spin-off of the following companies (while preserving the current capital structure):

• OAO "Ivanovo Generation Company";
• OAO "Ivanovo Energy Distribution Company";
• OAO "Ivanovo Trunk Grids", with shares in Center ITC as its only asset;

- the transfer of functions of the one-man management bodies (i.e. Directors General) of the following companies to OAO "Ivanovo Energy Management Company":

• OAO "Ivanovo Generation Company";
• OAO "Ivanovo Energy Distribution Company";
• OAO "Ivenergo".
• The establishment by OAO "Ivenergo" of wholly-owned subsidiaries: OAO "Ivenergoremont" and OAO "Ivanovosetremont".
• The transfer of the power grid facilities owned by OAO "Ivenergo" which are part of the UNPG, and the disbursement of funds sufficient to cover the costs involved in placement of additional shares, including payment of the securities transactions tax, as consideration for shares in Central Interregional Transmission Company (Center 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 "Ivenergo" prior to approval of the resolution to reorganize OAO "Ivenergo".

The Board of Directors decided to submit for the approval by shareholders of OAO "Ivenergo" two alternative methods for establishing OAO "Ivanovo Management Energy Company":

1. establishment of the management company as a wholly-owned subsidiary of RAO "UES of Russia";

2. establishment of the management company through spin-off, while preserving the share capital structure.

The reorganization plan envisages pro-rata distribution of shares in Center ITC owned by OAO "Ivanovo Trunk Grids" among its shareholders using the procedure of liquidation of OAO "Ivanovo Trunk Grids" or its merger with and into Central ITC.

The plan also provides that the power distribution networks that are not part of the unified national (all-Russian) power grid shall remain the property of OAO "Ivenergo".

The Board resolved to instruct RAO UES representatives to vote for the approval of all items of business of board meetings and shareholder meeting of OAO "Ivenergo" and shareholder meetings of the newly established companies, so as to ensure implementation of the reorganization plan of OAO "Ivenergo".

The resolution of the Board of Directors of RAO "UES of Russia" on the reorganization plan of OAO "Ivenergo" (Minutes No. 120 of 14 June 2003) became inoperative.

***

The Board of Directors reviewed the report by Deputy Chairman of the Management Board of RAO "UES of Russia" Yakov Urinson on the cost management efforts undertaken by the Holding's entities, and on the frequency and format of reporting to the Board.

The speaker stated that the current cost-based system of state tariff regulation does not provide an incentive for companies to cut costs. However, in the absence of real market incentives, RAO "UES of Russia" has been working to manage the costs of its subsidiaries and dependent companies since 2000. The costs management programs are developed by all regional energos and AO-power plants that are part of the RAO UES Holding.

In 2002, as a result of implementation of the cost management programs, the companies of the Holding reduced their costs by RUB14.5 billion (an increase of RUB2.2 billion from 2001), which makes 2.8% of the commercial output and 4.4% of the commercial output less the "irreducible" expenses. Such Irreducible expenses include depreciation, taxes, subscription fee, cost of energy bought on the FOREM less network losses. The effect of the cost reduction measures taken by the Holding's energy companies in 2002 totalled RUB11.1 billion.

In accordance with the cost management programs in place, the cost reduction target for 2003 is RUB17.6 billion, which makes 4.4% of the commercial output and 5.2% of the commercial output less irreducible expenses, with the following break-down:

• salaries and wages – RUB5.5 billion (compared to RUB1.2 billion in 2002);
• fuel – RUB4.2 billion (compared to RUB5.3 billion in 2002);
• repairs and supplies – RUB3.0 billion (compared to RUB3.5 billion in 2002);
• reduction of energy losses – RUB2.5 billion (compared to RUB2.1 billion in 2002);
• maintenance of non-core entities – RUB1.0 billion (RUB1.0 billion in 2002);
• other (non-production services) – RUB1.4 billion (compared to RUB1.5 billion in 2002).

According to reported data, the actual costs reduction achieved by Holding's SDCs in H1 2003 totalled RUB7.8 billion, or 2.7% of commercial output.

Regional energos and AO-power plants have drafted their costs management programs for 2004. The cost reduction target is RUB10.5 billion. The effect of the cost reduction measures to be taken in 2004 is expected to be RUB7.2 billion. Additional cost savings of RUB6.5 billion are anticipated in 2004 as a result of measures taken in 2002-2003.

The issue of cost reduction at the Holding's entities was reviewed by the Board of Directors of RAO "UES of Russia" at its meeting held in November 2002. Upon review of the issue, RAO UES management took a series of decisions aimed to increase efficiency of the costs management process:

- The Board toughened the requirements to quality and level of cost reduction tasks when reviewing SDCs' costs management programs for 2003. The targets for costs reduction for regional energos were set at 6-8%, for AO-power plants at 7-10% of the approved tariff base.

- Changes were made to the "Rules for the formation, co-ordination, approval, and control over energy companies' costs management programs (new items were added in the section covering reduction of costs of fuel, raw materials and supplies, repairs, a new section ("Reduction in Condensation Generation") was introduced, etc.).

- The first phase of the Cost Reduction project was completed at OAO "Konakovskaya TPP". This project was initiated in order to conduct an in-depth analysis of energy companies' costs and develop benchmarking mechanisms. The cost reduction measures developed by the task group resulted in additional savings of RUB106 million in 2003-2004 (RUB239.4 million according to the principal costs management program of Konakovskaya TPP for 2003), whereas the capital investments made RUB27 million. The positive results of the task group's activities at OAO "Konakovskaya TPP" will be used by other companies of the Holding. The second phase of the Cost Reduction project has been underway since July 2003 at OAO "Permenergo".

- "Procedural Regulations and System of Cost Benchmarks for Subsidiaries and Dependent Companies" have been developed (Phase 1 of the project). Recommendations for implementing benchmarking at SDCs (Phase 2) will be communicated to the Holding's SDCs in Q4 this year.

***

The Board of Directors of RAO "UES of Russia" reviewed the information on the costs reduction effort undertaken in the Holding and instructed the Management Board of the Company to:

- ensure elaboration of the Holding's costs management programs for 2004 (accompanied by the assessment of the potential costs reduction in view of the restrictions established for energy tariffs for 2004-2006) to be submitted for the approval at the meeting of the UES Board of Directors in December 2002.

- develop and submit for the Board approval in Q4 2003 a standard regulation on incentivizing personnel to cut costs;

- to finalize the format for reporting on the progress achieved as a result of costs management programs taking into account the comments made by the Board.

***

The Board approved the Regulation, Rules and Procedure for Interaction of the Audit Committee established pursuant to the decision of the general shareholders' meeting held in May 2003. The Audit Committee works under the Board of Directors and is accountable to it. The purpose of the Audit Committee is to improve the corporate governance standards in the Company.

The Committee is an advisory and consultative body set up to: nominate independent auditors, evaluate their expertise and quality of work, and decide whether they meet the criteria of independence; oversee the performance of annual independent audit of the consolidated financial statements and accounting records of the Company; control the preparation of Financials by the Company's executive bodies, and the objectivity of these Financials; oversee the work of the Company's internal control systems in the area of accounting and finance, and the activities of the internal audit service.

The Board of Directors appointed the following 5 members to the Audit Committee: Seppo Remes, Audit Committee Chairman, - Executive President of Vostok Nafta Investment, member of the Board of Directors of RAO "UES of Russia"; Sergey Kosarev, Deputy Minister of Property Relations of the Russian Federation, member of the Board of Directors of RAO "UES of Russia"; Alexander Kazakov, member of the Federation Council of the Russian Federation, member of the Board of Directors of RAO "UES of Russia"; Alexander Kirsanov, Project Manager, "Eurosibenergo"; representative of the member of the Board of Directors of RAO "UES of Russia" D. Geovanis; Sergey Skaterschikov, Managing Director, Index Atlas LTD; expert member of the Committee.

***

The Board of Directors approved the proposal made by the Management Board of RAO "UES of Russia" to employ a management company to run ZAO "Severo-Zapadnaya CHPP", and instructed the Management Board to elaborate criteria for selecting such a company.

The tasks the management company is expected to accomplish are as follows:

- to increase efficiency of technical and economic operations of the property complex of Severo-Zapadnaya CHPP;

- to prepare ZAO "Severo-Zapadnaya CHPP" to working in market environment, including organization of business processes and personnel training;

- to submit suggestions for funding the final stage of the project to construct the second generation unit and heating main of ZAO "Severo-Zapadnaya CHPP" and obtain approval from RAO "UES of Russia" with respect of the terms and conditions of that plan;

ZAO "Severo-Zapadnaya CHPP" currently needs USD227 million in funds to complete the construction of the second generation unit of 450 MW, including USD27 million to construct the heating main to Primorsky District of St.-Petersburg***. In the earmarked investment funds allocated by RAO "UES of Russia" from the subscription fee, no such investment funds are earmarked for 2003-2004.

The management company that wins the contract will establish a subsidiary under Russian jurisdiction or a joint-venture under Russian jurisdiction, with at least 50% interest in it.

The contract between the management company and ZAO "Severo-Zapadnaya CHPP" on the transfer of powers of the one-man executive body is expected to be signed in December 2003 – January 2004.

In the event that an internationally recognized energy company is employed as such management company, the following goals will be achieved:

1. Potential foreign investors will gain experience of running a Russian energy entity, which is a prerequisite for attracting foreign investment in Russian energy industry.
2. RAO "UES of Russia" will gain real experience in working with an internationally recognized energy company that operates in the Russian energy sector.
3. The efforts to arrange exports of Russian electricity to Western Europe and synchronize the energy systems of Russia and Europe will gain momentum.
4. A new major player (players) will appear on the power generation market, which will help work over the mechanism for reducing the conflict of interests connected with the affiliation among the participants of the generation market being established.
5. We will acquire unique experience of cost reduction from internationally recognized energy companies.

*** The problems of heat supply from Severo-Zapadnaya CHPP to Primorsky District of St.-Petersburg have been discussed, on various occasions, with officials from the federal and regional authorities, executives from the TEC, and representatives from the Energy Committee of the St.-Petersburg City Administration.

Over the past few years, the heat load in Primorsky District grew to 1,305 Gcal/h in 2001 from 1,082 Gcal/h in 1997. The installed capacity of heat generators currently totals 1,411.8 Gcal/h, which exceeds the current consumption by 106.8 Gcal/h. Construction norms and specifications for heating require a reserve of 126 Gcal/h to ensure reliable heat supply. In the areas covered by Kolomyazhskaya and Primorskaya boiler plants the deficit is 51.8 Gcal/h, and the request for another 230 Gcal/h of heat load has been rejected.

Taking into account the urban development prospects for the period until 2010, the heating system load in Primorsky District will grow to 1,682 Gcal/h, which will require an increase in the capacity of heating facilities of over 600 Gcal/h.

Construction of an 11.2 km-long heating main from North-West CHPP to Primorskaya boiler plant, [construction of] a heat exchange facility and pump station at Primorskaya boiler plant, and upgrade of Primorskaya boiler plant so that it can work as a closed heat-supply system, without increasing the boiler plant's capacity, will make it possible to increase generation by 600 Gcal/h. The project is to be implemented in 2003 – 2006. The cost of the project is USD30 million.

***

The Board of Directors approved the proposal for RAO "UES of Russia" to join Non-profit Partnership "National Carbon Accord". The entrance fee of RUB1 million will be paid in cash within one month after joining the Partnership.

Non-profit Partnership "National Carbon Accord" was established on 23 July 2003. The goal of the Partnership is to organize a market for socially responsible and ecological investments in order to increase energy efficiency, environmental safety and sustainable development of the Partnership members and the Russian Federation as a whole. The resolution to establish Partnership "National Carbon Accord" was taken at the meeting held by the head of Economic Division of the Russian President, which was attended by representatives from all interested ministries and departments. The meeting unanimously backed the intention of the Russian Federation to ratify the Kyoto Protocol* ,

Among the members of the Partnership are OOO "Metallenergofinance" (subsidiary of ZAO "EVRAZHOLDING"), NIEO "Energy Carbon Fund", OOO "RUSAL-Management Company", ZAO "Innovation and Technology Center "Vneshnauchpribor", OOO "Investment Company "EvroEnergoSberezhenie", ZAO AKB "CentroCredit", ZAO "Joint-Stock Bank "Project Finance Bank", FGUP "Rusecotrans", ZAO "Finako-Grupp".

OAO "Gazprom", ZAO "MDM Group", ZAO AB "Gazprombank", and FGUP "Rusecotrans" intend to join the Partnership.

***

The Board has approved that RAO "UES of Russia" provide a surety (aval) in respect of the promissory notes ("veksels") with an aggregate value of RUB2,449,607,223.94 issued by OAO "Bureyskaya HPP".

In February 2000, the Ministry of Railways of the Russian Federation and RAO "UES of Russia" concluded a General Agreement for financing the construction of Bureyskaya HPP.

The funding was provided pursuant to a loan contract whereunder the loan amount was credited to the account of OAO "Bureyskaya HPP" with AKB "Transkreditbank", and pursuant to a suretyship contract in respect of that loan entered into by the Ministry of Railways of Russia and the Bank. OAO "Bureyskaya HPP" pledged to the Ministry of Railways RUB1,565 million of non-interest bearing promissory notes (veksels) of OAO "Bureyskaya HPP", at par value, with maturities between August 2007 and February 2013. The promissory notes were avalized by RAO "UES of Russia".

The debt owed by Bureyskaya HPP to OAO "Transkreditbank" was repaid by the Ministry of Railways as the guarantor. Currently, the debt owed by OAO "Bureyskaya HPP" to the Ministry of Railways of Russia makes, according to reconciliation reports, RUB1,471 million.

According to the terms of the General Agreement between RAO "UES of Russia" and the Ministry of Railways of Russia, the funding was provided by the latter on commercial terms, for a fixed term, and subject to repayment. OAO "Bureyskaya HPP" was expected to repay the debt by supplying electricity at cost. In the event that the debt is repaid in money, the amount of money to be returned is to be calculated as a Ruble equivalent of the debt expressed in US dollars (USD51.7 million).

The Ministry of Railways of Russia requested that RAO "UES of Russia" repay the debt in the amount of RUB2,570,829 thousand.

RAO "UES of Russia" had talks on restructuring the debt owed to the Ministry of Railways. As a result, the amount of debt owed as at June 20, 2003 was determined to be RUB1,570,293,452.86. RAO "UES of Russia" suggests that the debt owed by OAO "Bureyskaya HPP", including the annual interest due for the use of funds, be repaid by issuing to the Ministry of Railways, or any third party designated by the Ministry, promissory notes (veksels) of OAO "Bureyskaya HPP" avalized by RAO "UES of Russia".

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 The Board of Directors postponed the examination of possible amendments to the previously approved reorganization plans of the regional energos in Tula Region, Oryol Region, Kaluga Region, and Bryansk Region (Minutes No. 116 of 14 May 2002).