Moscow, 25 December 2006. The Chelyabinsk Region Government and RAO "UES of Russia", with the participation of Presidential Plenipotentiary Representative to the Urals Federal District, have signed an Agreement on Cooperation in implementing capital investment projects to build and refurbish the electric power facilities in the region's energy system until 2011.

The Agreement was signed by Chelyabinsk Region Governor Pyotr Sumin and Chairman of the Management Board of RAO "UES of Russia" Anatoly Chubais.

Over the past few years, the Chelyabinsk energy system, which embraces the city of Chelyabinsk and the surrounding region, has seen a rapid growth in energy consumption at a rate of 6-7% annually. During the first eleven months of this year, the energy use grew more than 7% compared to the same period last year. Such an increase in power consumption was chiefly due to the strong growth of the region's economy, in particular, in the ferrous and non-ferrous industries, machine building and metal working industries, and rail transport, as well as high energy use in the utilities and residential sectors.

The Agreement is designed to improve the reliability of electricity supply to consumers, increase the network throughput capacity, create the conditions for new user connections to power grids and increase the capacity available for users already connected, prevent power shortages amid growing electricity consumption in the regional energy system.

The Agreement provides for the overall development of the generation and grid facilities in the Chelyabinsk Region and the use of state-of-the art technologies. In particular, it includes investment projects to build and modernize 1,125 MW of generating capacity by 2011 and a further 225 MW in 2012, construct different voltage substations with 1,973 MVA of transformer capacity by 2011 and 250 MVA in 2012, about 900 km of bulk transmission lines and substations with 676 MVA of transformer capacity, and about 100 km of lines in the region's distribution networks.

Within the framework of the top priority measures provided by the Agreement, OAO "TGC-10" has commissioned into operation the second power unit of 180 MW at the Chelyabinskaya CHPP-3 and will build a third combined-cycle unit of 220 MW at the power plant in 2010. OAO "WGC-3" will build two 225 MW coal-fired power units at the Yuzhnouralskaya TPP in 2011 and 2012. OAO "WGC-2" is to bring on line a 500 MW pulverized-coal fired generation unit (unit No. 10) at the Troitskaya TPP.

As a measure to further develop the facilities of the Unified National Energy Grid in the Chelyabinsk Energy System, OAO "Federal Grid Company" plans, in particular, to build a high-voltage transmission line of 500 kV in the territories of the Kurgan Region and Chelyabinsk Region between the Kurgan Substation and Kozyrevo Substation; construct a 500 kV line between the Troitskaya TPP and the Privalovskaya Substation to transmit the power generated by power unit 10 at the Troitskaya TPP. In order to enhance reliability of power supplies to the region's consumers and connect the new facilities of OAO "Ashinsky Metallurgical Plant" to the power grid, it is planned to build the AMET Substation of 500/220/110 kV with the 500 kV lines to the Kropachevo Substation and the Ufimskaya Substation; to install a second 500/110 kV autotransformer at the 500 kV Privalovskaya Substation in order to prevent capacity shortage in the Kropachevo-Zlatoustovsky energy node during the periods when the major power equipment will be under repair.

The amount of funds needed to finance the capital investment projects under the Agreement is estimated at over RUB61.2 billion, of which RUB39.4 billion will be spent to expand generation capacity and RUB21.8 billion will be invested in the power grid facilities.

The projects will be financed with own resources and borrowings of RAO UES companies operating in the Chelyabinsk Region, including the proceeds from additional share offerings by generation companies, connection charges for grid companies, allocations from the federal and regional budgets, off-budget sources, and private investments.

The Agreement sets forth an understanding between the Chelyabinsk Region Government and RAO "UES of Russia" in respect of financing the top priority capital investment projects.

Under the Agreement, the Chelyabinsk Region Government will make annual adjustments to the electricity and transmission tariffs for the companies implementing energy system development projects, taking into account the sources needed to finance these projects, including the cost of services and repayment of the money borrowed to fund them.

Also, to ensure that the projects are financed properly, the region's government will explore the possibility of setting an economically justified grid connection fee for new consumers.

The Chelyabinsk Region Government and RAO "UES of Russia" will prepare a forecast of electricity consumption and electricity load growth by power grid node for the period until 2020, which will include the location and timing of the planned connection of the region's major energy users to the of public power grids. This forecast will be used as a basis for the concept statement for the development of the region's electricity sector, with a focus on burning local coals, and a new long-term Master Plan for the expansion of power grids and generation capacity in the Chelyabinsk Energy System.