Moscow. 20 November 2006. The Moscow Region Government and RAO "UES of Russia" have entered into an Agreement on interaction in the implementation of investment projects to construct and upgrade the power facilities in the Moscow Region. The Agreement was signed by the Moscow Region Government Boris Gromov and Chairman of RAO UES Management Board Anatoly Chubais.

Over the past few years, the Moscow energy system, which embraces the city of Moscow and the Moscow Region, has seen a rapid growth of power consumption at an annual rate of 4.5%. During the first ten months of this year, the energy use grew almost 6% compared to the same period last year. This was due to increased growth of the regional economy and the high rates of electricity consumption by households and public utilities. The Moscow energy system is the oldest one in Russia, and its generation and network facilities are badly deteriorated and are in need of replacement.

The Agreement to implement investment projects for the period until 2013 seeks to improve the reliability of electricity supply to consumer, increase the network capacity, create the conditions for new user connections to power grids and increase the capacity for the users already connected, thus preventing power shortages as electricity consumption grows in the Moscow Region.

Under the Agreement, projects will be implemented to build and upgrade about 4,300 MW of generating capacity, substations of varying voltages with a combined transformer capacity of 2,229 MVA, and 150 km of transmission lines in the bulk power grids, as well as substations with a transformer capacity of 7,156 MVA and 590.8 km of lines in the regional distribution system.

The Agreement focuses on temporary deployment of mobile gas turbine power stations (MGTPS) in the Moscow Region to ensure the system's reliability during peak load periods. MGTPSs are planned to be located in the West and North-West parts of the energy system where the overload in tie substations and power grids reaches maximum levels. In particular, 8 such stations are to be deployed in the Moscow Region at the substations of Daryino, Pavshino, Peredeltsy and Barvikha. Under the Resolution adopted by the Moscow City Government in October, two such stations will be temporarily deployed at the Rublevo substation in Moscow.

MGTPS installed at five most overloaded substations in the Moscow energy system will help lower the risk of power failures and cut energy use restrictions during the peak load hours.

The cost of projects to be implemented under the Agreement is estimated at around RUB180 billion, of which RUB125 billion will be used to expand generation capacity and RUB55 billion will be invested in power grid facilities.

As the power facilities in the Moscow Region and the city of Moscow are interconnected and comprise the Moscow energy system, some investment projects envisaged by the Agreement are also included in the Agreement entered into between RAO "UES of Russia" and the Moscow City Government on 25 May 2006. The list of power construction and upgrade projects includes projects to bring online 2,306 MW of generating capacity worth a total of RUB54 billion and 1,729 MVA of transformer capacity. Also, it is planned to build 150 km of lines of the Unified National Energy Grid (RUB15 billion).

The projects will be financed with own resources and borrowings of RAO UES companies operating in the Moscow Region, including the proceeds from additional share issues by generation companies, connection charges for grid companies, allocations from the federal budget and regional budgets, off-budget sources, and private investments.

The Agreement constitutes an understanding between the Moscow Region Government and RAO "UES of Russia" in respect of financing of priority projects.

According to the document, the Moscow Region Government will adjust, on an annual basis, the electricity and transmission tariffs for companies involved in the projects designed to develop the energy system, taking into account the need to finance those projects, including the cost of services and repayment of the borrowings raised to finance for these purposes.

Also, to ensure that the projects are financed properly, the Moscow Region Government will explore the possibility of setting an economically justified network connection fee for new electricity consumers.

Moreover, the Moscow Region Government and RAO "UES of Russia" will produce a forecast of growth in electricity consumption and electricity loads by power grid nodes in the Moscow Region until 2020. The forecast will include information on the planned location and timing for connection the region's major energy users to public power grids. The forecast will be serve as a basis for a new long-term master plan to develop power grids and generation capacity in the Moscow Region.

The Agreement also provides that the companies implementing investment projects in the Moscow region will be given green light in obtaining land plots and land use permits for power construction sites.