Moscow. 31 July 2006. RAO "UES of Russia" signed an Agreement on carrying out priority measures to build and modernize the electric power facilities in the Tyumen Energy System*.

The Agreement was signed by Presidential Plenipotentiary Representative to the Ural Federal District Vladimir Latyshev, Tyumen Region Governor Vladimir Yakushev, Government Chairman of the Khanty-Mansiysk Autonomous Okrug-Yugra Alexander Filipenko, Governor of the Yamalo-Nenets Autonomous Okrug Yuri Neyolov, and Chairman of the Management Board of RAO "UES of Russia" Anatoly Chubais.

The official signing ceremony was also attended by members of the Management Board of RAO "UES of Russia", chief executives of oil and gas companies, and Directors General of SDCs of RAO "UES of Russia" operating in the Tyumen Region.

Over the past few years, the power consumption in the Tyumen region has been increasing by 5-9% annually. The increase in power consumption was chiefly due to the rapid economic growth and increase in the energy intensity per product unit in the oil and gas sector in the Khanty-Mansiysk and Yamalo-Nenets Autonomous Okrugs. In the winter of 2005-2006, the all-time record peak load of 1990 was exceeded by 15.2%. This year, in the first half-year alone, the energy use grew almost 10% on the same period last year.

In some parts of the Tyumen energy system, the transmission lines operate at the peak of their capacity. Because power plants are repairing their large generating equipment, the energy consumption in the Tyumen Region is greater than the generating capacity, which means that the region's energy system experiences a deficit of energy instead of working with a surplus.

The signed Agreement is designed to increase the network capacity, create the conditions needed for connecting new customers to the power grids, increase the capacity of the existing consumers, and prevent power shortages as electricity consumption in the Tyumen region grows. This will ensure a reliable energy supply to consumers and cover the electricity demand of the rapidly growing oil and gas companies operating in the area of the Tyumen energy system.

The Agreement provides for the construction of over 3,700 MW of generation capacity, 10,700 MVA of transformer capacity in the bulk transmission grids and over 7,900 MVA of transformer capacity in the distribution networks of the region, both through new construction and modernization of the existing substations in all voltage classes. Also, 5,680 km of new transmission lines will be built.

The cost of projects to be implemented under the Agreement is estimated at RUB211 billion, of which RUB115 billion will be used to expand generation capacity and RUB96 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 Tyumen Region, including the funds raised through issuance and placement of additional shares in generation companies, allocations from the federal budget, regional budgets, and off-budget sources. Several projects are to be implemented using a tender process and the guaranteed investments mechanism.

The measures designed to develop the Tyumen energy system will be financed by oil and gas companies operating in the Khanty-Mansiysk and Yamalo-Nenets Autonomous Okrugs, which account for more than 80 percent of the total electricity consumption. RAO "UES of Russia", OAO "Gazprom Neft", OAO "Surgutneftegas", and OAO "TNK-BP" signed agreements including list of priority measures to improve the reliability of power supply to customers and their development. Similar agreements are expected to be signed by OOO "LUKOil-West Siberia", OAO "Rosneft Oil Company", and OAO "Slavneft-Megionneftegas".

The Agreement constitutes an understanding between RAO "UES of Russia", the Heads of the Tyumen Region, and the Khanty-Mansiysk and Yamalo-Nenets Autonomous Okrugs in respect of financing of the top priority measures to build and modernize the electric power facilities in the Tyumen Energy System.

Under the document, the regional authorities in the Tyumen Region and the Khanty-Mansiysk and Yamalo-Nenets Autonomous Okrugs will make annual adjustments to their heat and electricity tariffs for the companies involved in the projects aimed at developing the Tyumen Energy System taking into account the sources needed to finance the measures designed to develop and modernize the energy facilities, including the cost of services and repayment of the money borrowed to fund the projects.

Also, to ensure that the projects are financed, the regional Government are to explore the possibility of setting an economically justified connection fee for the city's power grids.

Moreover, the authorities in the Tyumen region and the Khanty-Mansiysk and Yamalo-Nenets Autonomous Okrugs and RAO "UES of Russia" will prepare a forecast of growth of electricity consumption and electricity loads by power grid nodes for the period until 2020. Taking into account this forecast, under the Development Programme for the UES of Russia, a long-term sector development programme will be prepared for the Tyumen region and the Khanty-Mansiysk and Yamalo-Nenets Autonomous Okrugs.