Moscow, 3 February 2006. The Board of Directors of RAO "UES of Russia" unanimously approved the Supplement "Territorial Generation Companies to be Established from the Assets of RAO UESR Holding Company" to the Company's Strategy Concept for Years 2003-2008 "5+5".*

The amendments made to some parts of the Strategy Concept reflect the ongoing processes to create the intended structure of the electricity industry, which called for adjustments to be made to the document with respect to certain reform aspects. Also, the Supplement puts together all resolutions previously adopted by the Board of Directors of RAO "UES of Russia" on the issues and projects relating to Territorial Generation Companies (TGCs) designed to build the intended TGC structure.

The Supplement covers the principles for TGC creation, as well as the procedures and principal stages needed to achieve the intended pattern of TGCs' operation.

In particular, the Supplement states that the TGCs will be created from regional energos' generation assets, taking into account the maximum permissible level of enlargement of generation companies which does not hamper free pricing on the competitive wholesale electricity market.

Under the Supplement, the intended TGC model provides for the establishment of TGCs as unified operational companies through merger of regional generation companies (RGCs) with and into the respective TGC.

The final stage of the process to establish a TGC as a unified operational company is, in most cases, merger of RGCs with and into the TGC. In order that the new companies can start operations sooner, the plans for the creation of some TGCs provide for intermediate steps, such as the lease by the TGCs of the RGCs' generation facilities, and the transfer of the CEO's functions from RGCs to the respective TGCs.

The Supplement provides that, depending on the pace of TGC establishment, the companies may raise additional funding for their development, including issues of additional shares. The proceeds from such share issues are to be used, as a matter of priority, to implement key capital investment projects, in particular those seeking to increase the working capacity of the existing generation assets and to put new equipment into operation. As a result of the additional share issues, the stake held by RAO "UES of Russia" in each TGC will be at least 25% +1 voting share during the period until the reorganization of RAO "UES of Russia" is completed, and the intended sector structure is finally established.

As TGC shares start trading on stock exchanges, the companies will endeavour to increase their transparency and openness in relationships with shareholders and investors, and to boost liquidity of TGC shares. These measures are expected to make TGC shares, at some point in the future, one of the most attractive energy assets for investors.

It is expected that the state's interest in the TGCs will gradually decrease (including through reducing the dominant share held by RAO "UES of Russia" in the TGCs), and the TGCs may be transformed into fully private companies.

Also, the Supplement contains a description of the TGC configuration, stating the approximate timings for the final establishment of TGCs and floatation of their shares on stock exchanges.

* The Strategy Concept of RAO "UES of Russia" for Years 2003-2008 "5+5" was adopted at RAO UESR Board meeting held 23 May 2003. The document was intended to serve as a guideline for implementing measures within the electricity reform.

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The Board of Directors of RAO "UES of Russia" heard and noted a report on the measures designed to create a capacity market within the transitional wholesale market.

The Board members stated that the establishment of a capacity market is an integral part of the Russian electricity reform and the efforts seeking to create competition on the wholesale electricity capacity market (OREM). in the course of the transition to the target model of the wholesale market, the capacity trading principles will undergo a gradual transformation.

Today, the electricity and capacity tariffs on the wholesale market are set by the Federal Tariff Service based on the division of power plants' costs into fixed and variable ones. Fixed costs include, among other things, costs relating to keeping generating equipment available for electricity production, equipment maintenance and upgrade. Variable costs depend on the amount of electricity generated and basically reflect fuel costs.

At present, buyers on the wholesale market pay for the electricity using a one-part tariff, which takes into account both the cost of electricity and the cost of capacity. This tariff is set by the Federal Tariff Service on the basis of the electricity and capacity volumes requested by the consumer to be included in the forecast balances of electricity generation and consumption. If the maximum consumption requested by a wholesale market buyer is different from its actual consumption, no penalties (additional payments) will be imposed on such consumer.

It is proposed that, after the regulated contracts model is introduced in 2006, the wholesale market buyers will purchase electricity and capacity separately. The amount of capacity purchased by a wholesale market participant under such regulated contracts will be proportional to the consumption during the peak load hours in the system as reflected in the aggregate forecast balances of electricity generation and consumption for 2006 approved by the Federal Tariff Service of Russia. Payments for electricity and capacity will correspond to the payments provided for by the forecast balances. It is proposed that no penalties be imposed on buyers in the event that the actual consumption is different from the amounts requested to be included in the forecast balances for 2006.

Besides, the Wholesale Market Rules should be changed to include the notion of "capacity quality". This parameter will reflect the "degree of availability" of the generating facilities to produce electricity and take part in the regulation of frequency and voltage. Capacity quality will be controlled by the Administrator of Trading System (ATS) on the basis of its own information, as well as data received from the System Operator. If the capacity quality gets worse, the buyers' liabilities to pay for capacity will be reduced.

In 2007, the amount of capacity that suppliers sell under regulated contracts is expected to be reduced. The capacity not sold under regulated contracts will be sold through a competitive procedure for the year ahead. The first year-ahead capacity auction is expected to be held at year-end 2006.

Also, 2007 will see the launch of the consumption control and management system which makes consumers responsible for planning their electricity consumption during the peak load hours as stated before the beginning of the year and incorporated in the forecast balances prepared by the Federal Tariff Service. Beginning in 2010, it is planned to start trading capacity sold in a long-term auction three years ahead.

The Board members noted that long-term capacity trading based on competitive principles will assure, in the longer term, that sufficient generation capacity is in place in the energy system, and that it is achieved in a most economically efficient and effective way. Contractual obligations three years ahead will promote attracting investments in modernizing the existing and building new generating facilities.

In order to implement the changes in the capacity market within the transitional wholesale market that are planned for 2006, it is necessary to adopt some regulations, in particular, a Resolution of the Russian Government on amending the Rules of the Wholesale Market of the Transitional Period and the Procedure for Determining the Capacity Quality; approve schedules for settlement of accounts among wholesale market participants for the purposes of capacity trading, and implement a capacity quality control system. In order to implement the changes planned for 2007, it is necessary that the Russian Government adopt the Capacity Market Rules, and to develop the Rules for Holding Year-Ahead Capacity Auctions and the Rules for Holding Long-Term Capacity Auctions.

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The Board of Directors of RAO "UES of Russia" reviewed the issue of establishment of OAO "TGC-4".*

In order to protect minority shareholders of the RGCs comprising TGC-4, the Board of Directors of RAO "UES of Russia" resolved that decisions on the spin-off of the Novomoskovskaya TPP would only be possible after the merger of OAO "Priokskaya Territorial Generation Company" with and into OAO "TGC-4" is completed, and the new management bodies of OAO "TGC-4" are created.

OAO "Novomoskovskaya TPP" is a power plant captive to a single consumer, OAO "Novomoskovsk Azot". As provided by the Strategy Concept of RAO "UES of Russia" (5+5) for 2003-2008, such captive power plants may be divested using mechanisms different from the basic scenario for spinning off companies and assets from RAO "UES of Russia".**

The spin-off of the power plant in question, which is part of OAO "Priokskaya Territorial Generation Company", prior to the latter's merger with TGC-4, may result in the value of said generation company falling below the value determined earlier for the purpose of its merger with and into OAO "TGC-4".

The Board resolved that, in the process of establishment of Territorial Generation Companies (TGCs), the RGCs' core assets should not be encumbered or divested during the period when share exchange ratios are determined until RGCs are merged with the respective TGCs.

* OAO "TGC-4" was registered on 20 April 2005 with the Inspectorate of the Federal Tax Service of Russia for the city of Tambov. The share issue and share placement report of OAO "TGC-4" were registered with the FSFM of Russia on 20 June 2005.

The authorized capital of the Company is RUB10 million. Gennady Kochetkov was elected Director General of the Company.

OAO "TGC-4" will comprise the heat generation assets of OAO "Heat Energy Company", generation assets of OAO "Bryansk Generation Company", OAO "Voronezh Generation Company", OAO "Kaluga Generation Company", OAO "Kursk Generation Company", OAO "Lipetsk Generation Company", OAO "Oryol Generation Company", OAO "Ryazan Heat Supply Company", OAO "Smolensk Generation Company", OAO "Tambov Generation Company", OAO "Priokskaya Territorial Generation Company".

The plan for establishment of OAO "TGC-4" was approved by the Board of Directors of RAO "UES of Russia" at its meeting held 25 February 2005. At its meeting held 25 November 2005, the Board of Directors made changes to the plan, which will reduce the time needed to achieve the intended structure of the company, and approved the share conversion ratios for the RGCs merging with and into OAO "TGC-4".

** On 23 April 2004, the Board of Directors determined the procedure for the spin-off of power plants supplying power to a single consumer. A resolution on the spin off of a captive power plant is to be taken after comparison of the alternatives available for the power plant:

 - establishment of a general partnership by the power plant and the captive consumer;

 - lease out of the power plant;

 - sale of the power plant;

 - transfer of the power plant into fiduciary management;

 - conclusion of a long-term contract to supply power.

ZAO "EuroChem", the owner of OAO "Novomoskovsk Azot", which is the captive consumer of the power supplied by the Novomoskovskaya TPP, has expressed interest in acquiring 100% shares in OAO "Novomoskovskaya TPP".

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The Board of Directors of RAO "UES of Russia" instructed the Company's representatives on the Board of Directors of OAO "Kaluga Retail Company" to vote for the inclusion of the following item on the agenda of EGM of OAO "Kaluga Retail Company":

 - Approval of the contract for purchase of property between OAO "Kaluga Retail Company" and OAO "Kaluga Communal Systems"**, which constitutes an interested party transaction.***

The transaction involves [the purchase of] four heating boiler houses with an aggregate capacity of 58 MW, which were put into operation by OAO "Kaluga Communal Systems" in 2004. The boiler houses to be purchased [by OAO "Kaluga Retail Company"] are in good technical condition.

The transaction amount, determined [on the basis of the valuation performed by] an independent appraiser, OOO "Lair", is RUB129.897 million. OAO "Kaluga Retail Company" will finance the purchase with borrowed funds.

As a result of the transaction, OAO "Kaluga Retail Company" will join the district heating business in the Kaluga Region, and have prospects of co-founding, together with the Kaluga City Administration, of an enterprise engaged in district heating and electricity distribution in the city of Kaluga.

The district heating business will help, among other things, diversify and optimize the retail company's financial activities, making the company more attractive for investors thanks to its improved financial profile (increase in equity, revenues, and stronger financial independence)

* OAO "Kaluga Retail Company" was established on 1 April 2004 as a result of reorganization of OAO "Kalugaenergo". It is primarily engaged in the purchase of electricity on the wholesale market and resale to retail consumers in the Kaluga Region. RAO "UES of Russia" holds a 52.25% interest in OAO "Kaluga Retail Company".

** OAO "Kaluga Communal Systems" was established in 2003 as wholly-owned subsidiary of OAO "Russian Communal Systems" (RCS).

*** Under the Federal Law On Joint-Stock Companies, the contract to purchase the four boiler houses is an interested party transaction for OAO "Kaluga Retail Company", as RAO "UES of Russia" controls over 20% voting shares in OAO "Kaluga Retail Company" and owns, together with its related party, OAO "Russian Communal Systems", over 20% voting shares in OAO "Kaluga Communal Systems".

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The Board of Directors of RAO "UES of Russia" determined the positions of the Company's representatives on the items of business to be considered by shareholder meetings and Board meetings of subsidiaries and dependent companies of RAO "UES of Russia".

Specifically, the Board of Directors instructed the representatives of RAO "UES of Russia" in OAO "Karelenergo", OAO "Chelyabenergo", and OAO "Penzaenergo" to vote for the inclusion on the agenda of the companies' EGMs of the item "On the transfer of powers of the One-man executive body (CEO) to the Interregional Distribution Companies (from OAO "Karelenergo" to OAO "North-West IDC", from OAO "Chelyabenergo" and OAO "Penzaenergo" to OAO "Urals and Volga IDC").

OAO "Karelenergo", OAO "Chelyabenergo" and OAO "Penzaenergo", which retained ownership of the distribution grids in the course of reorganization, were included by RAO "UES of Russia" and OAO "UES FGC" in the list of "pilot" Distribution Companies (DCs) in which the CEO functions are to be transferred to the respective IDCs. These steps are designed to improve efficiency of management in the companies. They will offer additional possibilities for resolving standard problems in the area of management, economy, finance, pricing, and improve the RGCs' transparency.

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The Board of Directors of RAO "UES of Russia" instructed the Company's representatives at OAO "Kabbalkenergo" to vote for the inclusion on the EGM agenda of the proposal to approve a supplementary agreement to the general partnership contract ("shared participation contract"), which constitutes an interested party transaction.

Under the contract, RAO "UES of Russia" and OAO "Kabbalkenergo" are to make joint investment in the project to build the Sovetskaya HPP of the Nizhne-Chereksky series of HPPs. The supplementary agreement to the contract provides that RAO "UES of Russia" will invest RUB200 million in funds in the Sovetskaya HPP project in 2006.

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The Board of Directors instructed RAO UESR representatives on the Board of Directors of OAO "Mosenergosbyt" to approve the acquisition by Mosenergosbyt of the independent energy retail company, ZAO "Electroinvest ME", which supplies electricity to consumers in Moscow and the Moscow Region. The transaction amount is RUB10.7 million. The purchase of a controlling stake in ZAO "Electroinvest ME" will enable OAO "Mosenergosbyt" to meet its electricity sales targets in Moscow and the Moscow Region, implement uniform service standards meeting the requirements of RAO "UES of Russia", and take steps to reduce the receivables.

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The Board of Directors instructed the representatives of RAO "UES of Russia" on the Board of Directors of OAO "Kolymaenergo" to vote FOR the proposal to increase the company's authorized capital through issuance of additional ordinary shares worth a total of RUB1,274 million. The shares are expected to be issued to the Russian Federation.

The capital increase is intended to raise federal funds to finance the construction of the Ust-Srednekanskaya HPP and to capitalize the contribution made by OAO "Kolymaenergo" into the plant construction.

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The Board of Directors of RAO "UES of Russia" noted the report on the activities of the Management Board of the Company in Q4 2005 and approved the work plan for Q1 2006.

The Board of Directors also approved the securities issuer's quarterly report of RAO "UES of Russia" for Q4 2005.