Moscow, 19 February 2008. Vologda Region Governor Vyacheslav Pozgalev and RAO UES Management Board Chairman Anatoly Chubais have signed a Cooperation Agreement designed to develop the Vologda Region's energy system and ensure reliable power supply to customers.

The region's energy system is experiencing shortage of generation capacity which is covered by power flows from the neighbouring energy systems. Most of the region's energy consumption is concentrated in the Vologda and Cherepovets energy nodes, which have major steel and chemical operations. Currently, power to the Vologda and Cherepovets energy node is supplied from the three key facilities, the Cherepovetskaya TPP, and the Cherepovetskaya and Vologodskaya Substations (500 kV).

In the next few years, a number of major power-intensive projects will be implemented in the Vologda Region. Among them are a capacity expansion project at the Severstal steel mill, creation of a special economic zone, Sheksna, a project to modernize the fertilizers production at OAO Ammofos, and projects to develop high value-added wood processing. Significant capacity will be required to implement a regional pilot project under the Priority National Project "Affordable and Comfortable Housing for Russian Citizens". New generation and grid capacity is needed to accommodate the region's rapid industrial and social development.

According to forecasts, electricity consumption in the region will grow 1.6-1.8-fold by 2015 to 22.4 billion kWh (minimum growth scenario) or 24.9 billion kWh (maximum growth scenario) from 14.05 billion kWh in 2006.

The measure designed to address the energy deficit in the region is the construction of power unit 4 (330 MW) at the Cherepovetskaya TPP owned by WGC-6, which is scheduled to go on line in 2011, and a combined-cycle power units (95 MW) at the Vologodskaya CHPP of TGC-2 (scheduled to become operational in 2010). Moreover, it is planned to bring on line about 200 MW of generation capacity under the Vologda Region Government. The project will be financed with the funds raised from investors (Krasavinskaya GT-CHPP, OAO "Sokolsky Pulp and Paper Mill", and Sheksna Special Economic Zone (OEZ)).

The Agreement provides for the construction and modernization of the region's power grid infrastructure. In the bulk transmission grids sector, modernization projects will be implemented at the Belozerskaya Substation (750 kV), with the construction of a 220 kV outdoor switchgear, and at the Cherepovetskaya and Vologodskaya Substations (500 kV); and Zasheksninskaya, Vologda-Yuzhnaya, Sokol, and Rostilova substations (220 kV). Also, it is planned to build Sheksna substations (220 kV). To accommodate the overall modernization of the Cherepovetskaya Substation, the following 220 kV power transmission lines will be built: "Poshekhonye – GPP-1 – Belozerskaya Substation", "Pervomayskaya – RPP-1 – Belozerskaya Substation", and "Energia-3 - Belozerskaya Substation". Energy supply to the Sheksna economic zone will be ensured by two new 220 kV transmission lines — "Belozerskaya – Sheksna" and "Vologodskaya – Sheksna", as well as the 220 kV transmission line "Vologodskaya – Sokol".

In the region's distribution system, it is planned that transformer substations will be built with an aggregate capacity of 562 MVA and 345 km of transmission lines under 110 kV.

Under the Agreement, the total amount of funds to be spent on the projects in the Vologda Region will be in excess of RUB54 billion, of which RUB21.3 billion and RUB32.7 billion will be invested in the power generation sector and grid infrastructure, respectively.