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Unified Energy System

September 17, 2003

RAO "UES of Russia" preparing energy projects in NIS

Moscow. 17 September. RAO "UES of Russia" is preparing to launch several energy projects in the ex-Soviet Union countries. These projects involve expansion of electricity exports and operation of local energy entities.

The cross-border energy projects in the CIS countries and the Baltics became feasible after RAO "UES of Russia" succeeded in establishing a single energy area in the territory of the former USSR. Today, the Unified Energy System of Russia operates parallel with the energy systems of the 14 former Soviet Republics, a thing that did not exist even in the USSR era. This makes it possible to dramatically increase the reliability of our countries' energy systems and to maintain a high level of quality (frequency) of electricity based on common technical standards.

In 2003, RAO "UES of Russia" enhanced the activities of its subsidiaries directly operating on the foreign markets. This will enable the Company to switch from wholesale electricity sales to foreign energy companies to supplying electricity to end consumers. The subsidiaries of RAO "UES of Russia" will act both as retail resellers of Russian electricity and as organizers of electricity supplies to third countries, export to which directly from Russia is inefficient due to high electricity transit tariffs.

Georgia. One of RAO "UES of Russia" entities has completed the purchase of shares in Georgian companies owning some power facilities in that country. These include a 75% stake in AO "AES Telasi" (Tbilisi power grid company), 100% stake in OOO "AES Mtkvari" (units No. 9 and 10 of Tbilisskaya TPP), 50% stake in OOO "AES Transenergy" (company engaged in electricity exports), and rights to manage two hydroelectric power plants owned by AO "Khramesi". Upon completion of the deal with AES, RAO "UES of Russia" will control 20% of Georgia's generating capacities and 35% of electricity supplies to the Republic's consumers. The Company will also have an opportunity to expand its electricity exports to Turkey.

RAO "UES of Russia" is also considering the possibility of obtaining the right to manage Georgia's hydroelectric plant, Inguri HPP, which is in urgent need of rehabilitation.

Besides, RAO "UES of Russia" is looking into the possibility of restoring the chain of Perepadny HPPs and Sukhumi HPP in Abkhasia. These power plants will require USD30-33 million in investments, with the payback period ranging between 4 and 6 years. According to experts' estimates, resumption of operation at these power plants will make it possible to supply electricity to Georgia, thus helping decrease the energy deficit in the Republic, and export electricity to Turkey and Azerbaijan.

Armenia. RAO "UES of Russia" is actively working to acquire equity stakes in or obtain rights for RAO UES Holding entities to manage some power facilities in the Republic, specifically, Razdanskaya TPP, Armenian NPP, and five hydroelectric plants that are part of Sevar-Razdansky HPP Chain. Besides, RAO "UES of Russia" is looking into the possibility of taking a long-term lease of the cross-border power transmission lines linking Armenia with Georgia, Iran and Turkey (all of them are HV lines of 220 kV). These transmission lines will make it possible to sell excess electricity from Armenia's energy system to other countries.

Moldova. RAO "UES of Russia" intends to take part in the privatization of Moldavskaya TPP. Subsequent upgrade of this power plant will make it possible to export up to 5 TWh of electricity to Romania and Bulgaria. This project will require USD30 million in investments; the project payback period is 6 years. In mid-October 2003, talks are to be held with the Governments of Transdniestrian Moldavian Republic and the Republic of Moldova regarding privatization of Moldavskaya TPP.

Ukraine RAO "UES of Russia" is also considering participation in the privatization of Republic's regional energy distributors. Relations with Ukraine offer many business opportunities not only in bilateral export-import operations and electricity transit, but also in implementing joint projects to export electricity to European countries.

Belarus. The top priority for RAO "UES of Russia" is increase in exports of electricity from Berezovskaya TPP located in the Republic, which currently supplies power to Poland. Implementation of this project will help increase current electricity supplies by 1.5 times. Given the current market situation in Poland, the investments will pay back within one year of operation. RAO "UES of Russia" is also considering the possibility of taking a lease of Berezovskaya TPP (the whole power plant or some of its units) and upgrade its power units to increase capacity.

Tajikistan and Kirghizia. In August this year, RAO "UES of Russia" launched a project to arrange electricity supplies from Tajikistan and Kirghizia to Russia via the energy systems of Uzbekistan and Kazakhstan. RAO "UES of Russia" has succeeded in solving the key technical problems connected with electricity transmission and arranging the relations among dispatch departments in these countries with "UES System Operator Central Dispatch Authority", a wholly-owned subsidiary of RAO "UES of Russia", and ensured mutually beneficial commercial terms for electricity transit via Kazakhstan and Uzbekistan's power grids. Cheap electricity generated at Tajikistan and Kirghizia's HPPs and imported into Russia will help improve the cost balance of the Federal Wholesale Electricity Market.

In order to ensure reliable electricity supplies, RAO "UES of Russia" plans to assist in completion of the construction project at Sangtudinskaya HPP in Tajikistan. RAO "UES of Russia" is preparing a feasibility study for the completion of the project. The Integration Committee of the Eurasian Economic Community (EURASEC) is taking an active part in the implementation of these projects.

Kazakhstan. RAO "UES of Russia" is carrying out several projects in Kazakhstan, which primarily involve mutual supplies and transit of electricity. Besides, RAO "UES of Russia" is working to establish a joint Russia-Kazakhstan venture based on the facilities of Ekibastuz TPP-2. The project implementation is complicated by the fact that Kazakhstan's Government still has not approved the previously agreed procedure for settlement of mutual property and debt liabilities. Such settlement would make it possible to repay Kazakhstan's debts for the period 1992 1997 and complete the establishment of the JV by the end of September 2003 (as was provided by the Plan signed by the Ministry of Energy and Mineral Resources of Kazakhstan).


Electricity exports to CIS countries are viewed by RAO "UES of Russia" as a priority in its foreign economic activities and one of sources of funds for the Company's operation and implementation of investment projects.

Over the past 3 years (2000-2002), electricity exports from Russian to the energy systems of former USSR countries and beyond increased by 28% to 16.68 TWh from 13.05 TWh. Exports to the CIS countries declined to 7.39 TWh from 8.56 TWh. This is due to the fact that RAO "UES of Russia" has cut electricity exports to the level of actual payment. For the same reason, the annual electricity exports by RAO "UES of Russia" to the former Soviet Union republics fell in terms of value from USD141.4 million in 2000 to USD117.4 million in 2002, whereas the overall export volumes during the same period grew to USD292.7 million from USD212.3 million.

In H1 2003, RAO "UES of Russia" and ZAO "Inter RAO UES" (subsidiary of RAO "UES of Russia" and "Rosenergoatom" Concern) increased electricity exports in year-on-year terms by 33.6% to 9.5 TWh. The electricity revenues increased 86.7% compared to H1 2002, reaching USD236 million.

Electricity exports to the former Soviet Union countries increased 20.5% to 3.4 TWh, with sales revenues growing 24.9%.

The key condition for Russian electricity exports is full payment for all supplies. Payments for the electricity supplied in H1 2003 under export contracts were made in full compliance with the terms and conditions of the contracts.





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