Moscow, 25 April. The Board decided to approve, as a basis for further work, the draft Annual Report of the Company and submit it for consideration by the AGM.
The Board unanimously decided to submit for approval by the AGM of the Company's shareholders the amendments and additions to the Charter, which have been proposed and approved by the Board of Directors on 28 February 2003 (see the publication on the corporate web-site: www.rao-ees.ru), two sets of amendments proposed by minority shareholders, and proposals from the Ministry of Economic Development and Trade of the Russian Federation.
The amendments proposed by the Board of Directors are based on the results of generalized practice of applying the "Procedure for interaction of RAO "UES of Russia" with business entities whose shares (interests) are owned by RAO "UES of Russia"". They are intended to increase shareholder control over the activities of the SDCs' management throughout the restructuring period.
In particular, the text of amendments no longer contains information on the specific amount and categories of transactions to be performed, as these are to be determined by the Procedure for interaction of RAO "UES of Russia" with business entities whose shares (interests) are owned by the Company. In addition, in the sub-paragraph of the Charter regulating transactions performed by RAO "UES of Russia" in a certain category of assets there has been deleted the indication of the specific value (amount) of UES property involved in such transactions. Instead, there has been inserted a reference to a special procedure determined by the Board in accordance with the current Charter of RAO "UES of Russia" (incorporating the proposed amendments).
Such approach is more flexible and will allow the Board of Directors to more promptly take the necessary decisions based on common practice and the Procedures (without approval by RAO UES shareholders of amendments to the Charter). The Board of Directors of RAO "UES of Russia" may, upon request of shareholders, tighten or loosen these requirements.
In particular, the proposals made by minority shareholders include the following: increased role of the Parent Company's Board of Directors with respect to its SDCs and the companies that are dependent in relation to the SDCs; increased control by the Company's Board of Directors over transactions in the Company's assets; defining more precisely the procedure for work of the Board of Directors and the rights of Board members; establishment of several new Committees (concerned with improving corporate governance and settling corporate conflicts; audit; strategic planning; appointments and compensations); establishing a quota for independent directors on the Board; regulation of the auditor's activities; mandatory publication of certain documents of the Company on its corporate web-site.
The Ministry of Economic Development and Trade of the Russian Federation recommended an adjustment to the Charter of RAO "UES of Russia" relating to the procedure for selection of the Company Auditor (i.e., the Board of Directors is to recommend the shareholders to approve the appointment of the Auditor selected through a competitive procurement process).
The Board unanimously decided to submit for approval by the AGM of shareholders the amendments and additions to the Regulation on the Board of Directors of the Company, the Regulation on the general meeting of the Company's shareholders, the Regulation on payment of compensation to the members of the Board of Directors of the Company for the performance of their duties and reimbursement of their expenses involved in the performance of their functions as members of the Board of Directors, which had been proposed by the Board of Directors.
In particular, pursuant to these amendments, during the Boad's vote, account will be taken of written statements submitted by the Board members absent from a Board meeting, which are sent by mail, fax, or e-mail. Documents relating to a Board meeting must be circulated to the Board members 20 days before the Meeting instead of 5 days, as was the case previously.
It is also proposed to include in the Regulation on payment of compensation to members of the Board of Directors a provision on the possibility of liability insurance for Board members, as provided by the laws in force, and reimbursement of any reasonable legal or litigation costs incurred by Board members in the court proceedings in connection with performance of their duties.
The Board unanimously recommended the AGM of shareholders to approve the appointment of ZAO KPMG as Auditor of the Company's financial statements for 2003 prepared in accordance with the Russian Accounting Standards (RAS) and International Accounting Standards (IAS). The Auditor was selected by the Board's Audit Committee through a public tender.
The Board approved the form and text of the ballots to be used for voting at the AGM, and the voting instructions, authorizing the Company's Registrar, OAO Moscow Central Depository, to perform the functions of the Counting Commission at the AGM.
The Board approved the composition of the AGM Presidium comprising the members of the Board of Directors of RAO "UES of Russia" and the composition of the AGM Secretariat.
* * *
The Board of Directors approved the procedure for calculation of dividends paid by RAO "UES of Russia".
In the discussion of this question, it was noted that the basic principles underlying this method are as follows:
- compliance of the dividend calculation and payment practices used by the Company with the laws of the Russian Federation;
- observance of shareholders' interests;
- maintenance of the required level of financial and technical state of the Company and ensuring its development;
- consideration of the need to increase the Company's investment attractiveness;
- use of the principle of differentiating the amount of dividends paid depending on the values of some key criteria;
- insurance of transparency of the mechanisms used for determining the amount of dividends paid to shareholders and senior managers.
Dividends are to be paid from the Company's net profit (i.e. after-tax profit);
The amount of preferred dividend is to be calculated in accordance with the provisions of the Federal Law "On joint-stock companies" and the Charter of RAO "UES of Russia". The amount of ordinary dividend is calculated using the EBITDA (earnings before interest, taxes, depreciation, and amortization).
* * *
The Board of Directors approved that RAO "UES of Russia" provide a surety to the Savings Bank of Russia in respect of fulfilment by OAO "Bureyskaya HPP" of its liabilities under an agreement on non-revolving line of credit. The Credit Agreement between OAO "Bureyskaya HPP" and the Savings Bank of Russia for the amount of RUB711 million at 15% interest per annum to be paid back on 15 June 2004 was made in March 2003.
The Board also approved the issuance by RAO "UES of Russia" RUB765,258,310 of promissory notes to be pledged as collateral under the above Agreement.
The Agreement with the Savings Bank of Russia on the extension of a RUB717 million credit line against suretyship of RAO "UES of Russia" and collateral of promissory notes of RAO "UES of Russia" was necessary to ensure the launch of the first start-up complex of Bureyskaya HPP in 2003.
* * *
The Board of Directors has approved the series of transactions between RAO "UES of Russia" and OAO "UES FGC" involving the assignment to OAO "UES FGC" of claims to suppliers and contractors under contracts of capital construction, reconstruction, and re-equipment. The Board of Directors also approved the list of contracts of capital construction, reconstruction, and re-equipment, and approved the list of such contracts whereunder claims are to be assigned
The Board determined that the subject of the series of transactions involving the assignment of rights should be the rights of claim of RAO "UES of Russia" to suppliers and contractors under contracts of capital construction, reconstruction, and re-equipment valued at not more than RUB1.25 billion.
The claims of RAO "UES of Russia" to suppliers and contractors under the contracts of capital construction, reconstruction, and re-equipment assigned to OAO "UES FGC" are to be evaluated based on the book value of advances paid by RAO "UES of Russia" under said contracts, determined in accordance with the accounting records as at the date of such transaction.
To facilitate implementation of this decision, the Board approved the issuance by OAO "UES FGC" of promissory notes worth up to RUB1,250,000,000. The payment period of the promissory notes corresponds to that of non-interest-bearing promissory notes, provided that OAO "UES FGC" ("Drawer") issues non-interest-bearing notes in favour of RAO "UES of Russia" ("Drawee") for the corresponding amount payable "in three months after the date of issue".
The Board of Directors of RAO "UES of Russia" determined the money value of the Company's property contributed to the capital of OAO "UES FGC" at RUB3,259,538,450, based on the appraisal of market value of property given in the addenda to the Report on Evaluation of Assets of RAO "UES of Russia" prepared by the Consortium of Appraisers.
The Board of Directors noted the list of construction projects in progress included in the property contributed by RAO "UES of Russia" to the authorized capital of OAO "UES FGC".
The Board set the price of repair and maintenance services for the backbone grids of RAO "UES of Russia" in Q2 2003 at not more than RUB412,508,252, and the price for the services to ensure reliable operation and development of the backbone grid facilities and their use for transmission of electricity and capacity through the backbone grids among entities within the Unified Energy System of Russia for Q2 2003 at RUB4,673,906,688.
The Board also approved the agreements to provide said services.
* * *
The Board of Directors of RAO "UES of Russia" approved the purchase by RAO "UES of Russia" of 5,370,000 additional ordinary shares in OAO "Bureyskaya HPP", par value RUB10 per share for the total amount of RUB53,700,000.
It was noted that the EGM of OAO "Bureyskaya HPP" held in July 2002 approved the resolution to increase the company's authorized capital through issuance of 102,800,000 additional ordinary shares, par value RUB10 per share, for a total value of RUB1,028,000,000. The new issue is to be distributed through open subscription.
On 29 November 2002, the Board of Directors of RAO "UES of Russia" decided to acquire 67,000,000 shares in OAO "Bureyskaya HPP" for the amount of RUB670 million.
The Federal Law "On the Federal Budget for Y2002" envisaged allocation of RUB358 million in funds for the construction of the Bureyskaya HPP. However, certain changes were made to the program of state investments for 2002. As a result, the Ministry of Property Relations of Russia acquired 30,430,000 shares of this issue for the amount of RUB304.3 million instead of the previously planned 35,800,000 shares worth RUB358 million. As a result, OAO "Bureyskaya HPP" had 5,370,000 shares worth RUB53.7 million that remained unplaced.
The capital construction plan of RAO "UES of Russia" for 2003 envisages RUB7 billion in investments for the construction of Bureyskaya HPP. The shares in OAO "Bureyskaya HPP" will be purchased with the part of the investment resources allocated for the construction of Bureyskaya HPP in 2003 under the capital construction plan.
It was noted that it would be advisable for RAO "UES of Russia" to acquire these shares as it would make it possible to capitalize the investment resources of RAO "UES of Russia" allocated for the construction of Bureyskaya HPP in 2003.
As a result of acquisition the shares by RAO "UES of Russia", the Company's stake in OAO "Bureyskaya HPP" will grow from 64.71% to 65.2059%.
* * *
The Board of Directors approved the Company's participation in the Interregional Sectoral Association of Employers in the Energy Industry (MOORE).
Besides RAO "UES of Russia", among the founders of the Association are OAO "BGRES-1" and the Power Industry's Research and Production Foundation.
Establishment of MOORE is due to the enactment of the Labour Code of the Russian Federation, Federal Law "On Associations of Employers", and the need to implement a coordinated sectoral policy in the sphere of social and labour relations.
The mission of the Association of power industry employers is to promote business development in the electricity industry through representing and protecting the interests of employers in the social, labour, economic and other spheres in their relations with trade unions, state authorities, local authorities, and developing and carrying out a socially responsible policy of organizations participating in the Association.
As new members join the Association, it is planned, pursuant to the Law "On Employers' Associations", to transform the Association into All-Russian Sectoral Association of Power Industry Employers.
* * *
The Board of Directors approved the draft agreement on the transfer to NP "ATS" of the following functions of RAO "UES of Russia" relating to the organization of operation and development of FOREM:
- arrangement of agreements on FOREM and control of their performance;
- participation together with RAO "UES of Russia" and ZAO "CDR FOREM" in calculating the planned balances of electricity and capacity and cost balances of electricity and capacity on FOREM;
- ensuring reliability and accessibility of information about FOREM operations for all FOREM participants;
- analyzing the work of FOREM and releasing the results of such analysis to all FOREM participants;
The functions shall be transferred if the following material conditions are met:
- effectiveness of the provisions directly connected with the transfer of part of the functions from RAO "UES of Russia" to NP "ATS" is to be restricted to the period during which, according to the statutes, said functions are to be performed by RAO "UES of Russia".
the functions shall be transferred to NP "ATS" on condition that ZAO "CDR FOREM" retains all of its current statutory functions connected with the operational management of FOREM's regulated sector;
- RAO "UES of Russia" is to have authority to control performance of the functions being transferred;
- NP "ATS" shall be obliged to include at least 50% of representatives from RAO "UES of Russia" on the Supervisory Board of ZAO "CDR FOREM" for a term until 31 December 2003;
- payment of the services provided by NP "ATS" and ZAO "CDR FOREM" shall be made in accordance with the procedure established by the FEC of Russia, subject to mandatory approval of NP "ATS" budget and ZAO "CDR FOREM" budget by their respective Supervisory Boards.
- NP "ATS" shall be obliged to provide, on a quarterly basis, reports on performance of the functions delegated to them under the agreement and on their plans to improve the performance of those functions;
- in the event that NP "ATS" fails to fulfil its obligations under the agreement, RAO "UES of Russia" is entitled to rescind said agreement within 3 days, sending a notice to that effect to NP "ATS".
In January 2003, the Board of Directors approved the interested party transaction involving the transfer to NP "ATS" of part of the functions of RAO "UES of Russia" connected with organization of FOREM operations and development.
* * *
The Board reviewed, on a preliminary basis, the Basic Principles for performance by members of the Board of Directors and Management Board of RAO "UES of Russia" of transactions in shares in RAO "UES of Russia" and its subsidiaries and dependent companies (SDCs). These Principles have been developed by the Company's management together with the investment advisers, Alfa-Bank and Merrill Lynch, and Scadden, Arps law firm, for the purposes of improving corporate governance at the Company and enhancing its business image.
The development and approval of such document resulted from the analysis of the market for shares of RAO "UES of Russia" and those of its SDCs and the need to increase responsibility of RAO UES management bodies for insider trading in shares of the Parent Company and its SDCs.
Specifically, according to the Basic Principles, members of the Board of Directors and the Management Board will not have the right to make, directly or indirectly, any transactions in shares of the Company and its SDCs using insider information. Moreover, members of the Company's management bodies must not provide insider information to any other parties, including their affiliated persons. This document regulates the procedure for using insider information by members of the Board of Directors and the Management Board. The Principles propose to introduce procedures requiring prior approval of transactions in RAO UES and SDCs' shares made by members of the Board of Directors and the Management Board, to be followed by notification about the performed transactions through the Audit Committee of the Board of Directors of RAO "UES of Russia". In accordance with the Principles, members of the Company's management bodies are required to make a personal undertaking to the Company (in writing) to comply with the provisions of the Principles.
The Board members noted, that such regulatory documents are used in most of the world's major companies having a high level of corporate governance.
The Board members will review the Basic Principles for performance by members of the Board of Directors and Management Board of RAO "UES of Russia" of transactions in shares in RAO "UES of Russia" and its subsidiaries and dependent companies (SDCs) at the next Board meeting.
* * *
As some items on the agenda were not considered, the Board of Directors decided to continue the Meeting and take decisions on those items before the end of April 2003.