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Unified Energy System

May 20, 2005

The Board of Directors of OAO "HydroWGC" holds its regular meeting

Moscow, 20 May 2005. At its regular meeting, the Board of Directors of OAO "HydroWGC" chaired by Victor Khristenko, Minister of Industry and Energy of the Russian Federation, considered the priorities of the Company's development and the issue of determining the Company's position on the items of business to be considered by the Board meetings of the Company's subsidiaries and dependent companies (SDCs).

The Board of Directors of OAO "HydroWGC" noted the information on the mechanisms of formation and implementation of the Company's Investment Programme for 2006, and instructed the Company's Management Board to draft proposals on the formation of the 2007-2010 Investment Programme.

Under the Charter of OAO "HydroWGC", one of the Company's objectives is the elaboration and implementation of a corporate strategy in the area of investments and raising capital for addressing the system-wide goals of hydro energy development. There is a number of objective factors that make the hydropower sector different from other sectors of the electricity industry. These factors shape the approaches to the formation of the investment programme for OAO "HydroWGC". These, in particular, target to:

  • higher degree of fixed capital depreciation;
  • considerable amount of uncompleted projects (concentrated mainly in the Caucasia and the Far East);
  • higher capital intensity of investment projects (compared to other kinds of power generation) and with the longer periods needed for their implementation and payback;
  • lower coefficient of use of installed capacity (about 50% at hydropower plants compared to 80% or more at thermal power plants and nuclear power plants).
  • efficiency of uncompleted generation projects that have a high degree of availability;
  • presence of circumstances (primarily those relating to safety) which prevent the suspension of the hydropower construction projects;
  • a very long lifecycle of hydrogenation facilities and the specific risks connected with it.

The Board of Directors noted the concept of the Target Model for the functioning of OAO "HydroWGC". The Concept provides for the establishment of a group of companies comprising the parent company, OAO "HydroWGC" (one of whose shareholders is the Russian Federation), and the subsidiary, Operational Company, which will run hydropower plants and carry out corporate management of its subsidiaries set up for the purpose of organizing new lines of business and implement investment projects.

The Board of Directors considered the matters relating to the improvement of the Company's sales operations and announced centralization of sales at its subsidiaries and dependent companies (AO-power plants) as a priority for OAO "HydroWGC".

This process involves the following:

  • stepwise transfer of the electricity (capacity) sales function to OAO "HydroWGC" from its SDCs (AO-power plants);
  • OAO "HydroWGC" becoming a participant of the wholesale electricity market.

The Company's Management Board was instructed to draft and submit for consideration by the Board of Directors, within 2005, a plan for the establishment of a subsidiary of OAO "HydroWGC" specialized in electricity retailing. Further, the Board of Directors gave the Management Board a task to minimize, in the process of trading and consideration of draft regulations, the volumes and duration of regulated and reduced rate contracts for OAO "HydroWGC" (or its SDCs) which provide for the supply of electricity (capacity) and services, and to maximize the sales on the market and in the consumer segments which have the biggest potential for sales growth.

The Board of Directors of OAO "HydroWGC" charged the Chairman of the Management Board of OAO "HydroWGC" Vyacheslav Sinyugin with the task of ensuring the preparation of IFRS financial statements of the Company for 2005 and, in the future, to create a division within the Company's governance system responsible for the preparation of IFRS financials.

The Concept of Medium-Term Development of Accounting and Reporting in the Russian Federation approved by Order of the Ministry of Finance of Russia No. 180 of 1 July 2004 provides for the mandatory transition to the IFRS in 2004-2007 in the preparation of consolidated financial statements by socially important business entities whose commercial activities involve, directly or indirectly, funds provided by an unlimited number of people: open joint stock companies and other organizations who have securities (being) issued to the public and/or publicly traded; financial organizations handling funds of private individuals and legal entities; and other organizations).

The transition of OAO "HydroWGC" to the IFRS is designed to raise of the Company's market capitalization, pave the way for the Company to enter foreign capital markets and lower the cost of capital. Moreover, information from the financial statements prepared in accordance with the IFRS may be used in managerial decision-making and for the purpose of reducing the information risk.

The Board of Directors of OAO "HydroWGC" instructed the Company's representatives on the Board of Directors of OAO "Volzhskaya HPP" to vote FOR the item of business "On dividend payment for 1st quarter of 2005" to be included on the agenda of the AGM of shareholders of OAO "Volzhskaya HES".

 

 

 

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