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Unified Energy System

December 25, 2003

RAO UES Audit Committee holds its December meeting

Moscow, 25 December. At its regular meeting held today, the Audit Committee of the Board of Directors of RAO "UES of Russia" considered the results of the review performed by the Committee with respect to the system for working capital financing at RAO "UES of Russia" and the system for organizing IAS audits in the subsidiaries and dependent companies (SDCs) of RAO "UES of Russia".

Upon review of the working capital financing system at RAO UES, which ensures RUB130 billion in borrowings throughout RAO UES Holding annually (and approximately the same amount needed to repay such debt), the Audit Committee recommended that the Management Board of RAO "UES of Russia" should look into the possibility of revising the existing system of decentralized borrowing. As at 1 October 2003, the SDCs were responsible for 92% of the total debt owed by RAO UES Holding. 90 companies of RAO UES holding are borrowers under loan agreements. The creation of a centralized borrowing system at the Holding will result in lower cost of raising and servicing debt throughout RAO "UES of Russia".

Besides that, the Audit Committee has analysed the system for auditing SDCs' financial statements according to the IAS. In view of the fact that RAO UES management plans to increase the number of SDCs to be audited according to the IAS from 17 companies in 2003 to about 40 in 2004, the Committee has approved the package of recommendations to improve the IAS auditing process at the SDCs. The Committee has also recommended that the management of RAO "UES of Russia" should work out and approve, as soon as possible, the "Accounting Policies for preparing IAS financial statements at RAO "UES of Russia" and its SDCs" and publish the principles for the selection of auditors performing IAS audits and criteria for the selection of SDCs which will have their IAS financial statements audited by independent auditors. The Committee suggested creating a mechanism to enable auditors and SDCs' top executives to promptly inform the Audit Committee (via a Hot Line) about all serious difficulties in preparing IAS financials.

The Audit Committee of the Board of Directors of RAO "UES of Russia" was established on 29 August 2003 pursuant to the resolution of the Board of Directors of RAO "UES of Russia". The Committee consists of the following members: Seppo Remes (Committee Chairman; Executive President, Vostok Nafta Investment Ltd.), Sergey Kosarev (Deputy Minister of Property Relations of the Russian Federation), Aleksandr Kazakov (Member of the Federation Council of the Russian Federation), Alexander Kirsanov (Project Manager, "Eurosibenergo"; representative of the member of the Board of Directors of RAO "UES of Russia" D. Geovanis), and Sergey Skatershchikov (Managing Director, IndexAtlas Ltd.)





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