Moscow, 29 February 2008. At its regular meeting held today, the Board of Directors of RAO "UES of Russia" approved the date, venue, and time for the Company's last AGM.
Like in the previous years, the AGM will be held on 28 May 2008 at 11:00 Moscow time in the Zelenograd Palace of Culture, located in the Zelenograd Administrative Okrug of Moscow.
This resolution was taken pursuant to the Regulation on Additional Requirements to the Procedure for Preparation, Convocation and Conduct of a General Meeting of Shareholders approved by the FCSM of Russia of 31 May 2002, and owing to the optimum combination of price and quality of the premises rented for the AGM.
Record date: The list of persons entitled under the laws of the Russian Federation to take part in the AGM will be made as at 15 April 2008.
As provided by Article 5.6 of the Company's Charter, both holders of ordinary shares and type A preferred shares are entitled to attend the AGM and vote on all items on the agenda.
This information was disclosed in the Interfax newswire at 14:01 hours on 29 February 2008 in accordance with the requirements of Russia's FSFM as a notice of material fact and information which may materially affect the cost of the issuer's securities.
The Board of Directors of RAO "UES of Russia" considered the proposals relating to the disposal of the Company's shares tendered for repurchase by its shareholders.
Some shareholders of RAO "UES of Russia" who voted against, or did not take part in the vote on, the Company's reorganization at the EGM held 26 October 2007 tendered their shares to the Company for repurchase.
At its meeting of 14 December 2007, the Board approved the Report on the results of repurchase of the shares tendered for repurchase by such shareholders.
On 9 January 2008, RAO "UES of Russia" completed the payment of RUB101.853 billion for the shares repurchased from the shareholders. On that date, the Company started selling the shares on the OTC market pursuant to the Board's decision of 27 December 2007.
As provided by the decision, the shares are to be sold at an average weighted price of RAO UES shares on the MICEX Stock Exchange over the previous three calendar weeks, but not lower than the repurchase price, RUB32.15 per ordinary share and RUB29.44 per preferred share. The minimum quantity of shares to be sold to one buyer will be 10 million shares.
To date, RAO "UES of Russia" has entered into two Share Purchase Agreements for 1,371,680,000 ordinary shares worth a total of RUB44 billion. This makes approximately 43% of the total number of shares repurchased from the shareholders.
The number of Treasury shares intended for sale is 1,425,616,335 ordinary shares and 404,885,193 preferred shares.
Due to the ongoing liquidity pressures on the global financial markets and their influence on the Russian securities market there is a chance that these shares will not be sold in full at an acceptable price before the Company's reorganization is completed.
In order to hedge against these risks, the RAO UES Management Board presented its proposals regarding the disposal of the Treasury shares at today's Board meeting.
Specifically, it was stated that cancellation of any remaining Treasury shares in the course of RAO UES merger with FGC is not advisable due to some significant drawbacks of this option. The key flaw is that if the shares are cancelled, FGC and HydroWGC would not receive additional funds which might be used to finance their investment programmes.
The Board of Directors approved the option under which RAO "UES of Russia" will sell the Treasury shares that remain unsold on 1 June 2008 will be sold to special purpose companies.
The Board also stated that the key goal set for the Company is to sell all of its Treasury shares by 1 June 2008, so the proposed solution is intended as a backup.
As resolved by the Board, RAO "UES of Russia" will establish two wholly-owned subsidiaries, OOO "Energy Industry Index – UES FGC" and "Energy Industry Index – HydroWGC", each with an authorized capital of RUB10 million. These companies will purchase from RAO "UES of Russia" all of the Treasury shares that are not sold, in proportions of 74.9% and 25.1% , respectively. The terms of sale and share price for these companies will be the same as are in effect today.
Before 1 June, RAO "UES of Russia" will hold a tender to select a management company which will manage and coordinate the sale of the Company's shares transferred to OOO "Energy Industry Index – UES FGC" and OOO "Energy Industry Index – HydroWGC".
The Management Board of RAO "UES of Russia" will submit the terms of the tender and the material terms and conditions of the agreement with the management company for review to the Board of Directors in April 2008.
After the Company's reorganization is completed, the special purpose companies will be transferred to the interim HoldCos, which will merge with and into FGC and HydroWGC. In this way, the proceeds from the sale of the Company's Treasury shares, as well as the funds previously received from the sale of the shares, will be used to finance the investment programmes of FGC and HydroWGC.
In connection with the potential conflict of interest relating to the possibility of FGC owning shares in thermal generation companies (TGCs), the Board of Directors of RAO "UES of Russia" approved the modification of the Basic Terms for connection to the power grids of generation facilities to be created as a result of the WGCs' and TGCs' investment programmes.
The Basic Terms were approved by the Board of Directors of RAO "UES of Russia" at the meeting of 29 September 2007. They take into account the principles of operation of the electricity industry which emerged in the course of the sector reform. Specifically, the Basic Terms set standard timeframes for some phases of grid connection and provide that FGC may be held liable if it fails to comply with these timeframes. The Basic Terms were used as a basis for a standard connection agreement approved by the Management Board of RAO "UES of Russia" on 6 November 2007.
Instead of the "preliminary connection charge", the Board of Directors introduced the notion of "preliminary technical solution". Based on that solution, FGC will propose the amount of connection charge, negotiate it with the generation company and submit it to the regulatory authority for approval within 15 business days.
The modifications provide that the first annex to the connection agreement will include the generation company's proposals on the voltage class, tie stations for each voltage class, number of connection points and breakdown of capacity by voltage class.
The Board of Directors instructed the Management Board to ensure that FGC enters into connection agreements with all WGCs and TGCs according to their applications.
The Board noted that the possibility of occurrence of the above conflict of interest described has been practically eliminated. WGC-5 and TGC-5 were spun off during the first phase of RAO UES reorganization and FGC does not own shares in these companies. The state-owned stake in WGC-3 was purchased by the company's strategic shareholder, OAO "Norilsk Nickel MMC". Shares of WGC-2 and WGC-6, as a result of redistribution among the special purpose HoldCos, were transferred to OAO "Centrenergoholding".
The state-owned stake in Yeniseyskaya TGC-13 was transferred to OAO "HydroWGC State Holding". This means that even if these shares are not sold after the RAO UES reorganization is completed, they will be transferred to OAO "HydroWGC".
The state-owned stakes in WGC-4, TGC-1, South Generation Company TGC-8, and TGC-8 were sold simultaneously with the additional offerings of the companies' shares to strategic investors, and the state-owned shares in Mosenergo (TGC-3) were sold to the Moscow City Government.
For all other thermal generation companies, the RAO UES Management Board has approved an updated schedule for selling the state-owned stakes. According to the schedule, all state-owned shares are planned to be sold before the completion of the second phase of RAO UES reorganization.
Besides the sale of the shares in the thermal generation companies attributable to the government, the key factor that will help avoid the conflict of interests is the provision of the Federal Law On the Peculiarities of Functioning of the Electricity Industry During the Transitional Period which prohibits any affiliation of FGC with the WGCs and TGCs after 1 July 2008.
Among the initiatives intended to prevent the conflict of interests is the fact that representatives of NP "Soviet Rynka" ("Market Council") on the FGC Board of Directors. Charter amendments to that effect will be submitted for shareholder approval at the EGM of FGC scheduled for 11 March 2008. The AGM of FGC, which will elect new members of the Board of Directors, will be held on 30 June 2008.
Moreover, work is currently underway to create a Strategy Committee of the FGC Board, which will include representatives of energy market participants. The Board of Directors instructed the Management Board of RAO "UES of Russia to submit the reviewed draft of the Regulations on the Strategy Committee to the FGC Board of Directors not later than in March 2008, and to invite nominations for the Committee. It is expected that the FGC Strategy Committee will be formed in April 2008.
The functions of the Committee will include preliminary review of the matters submitted to the Board of Directors which relate to measures and programmes for the development of the Unified National Energy Grid (UNEG) and grid connection, as well as processes relating to ensuring efficient functioning of the wholesale electricity market and power grids management. The Committee will also be responsible for controlling the implementation of investment projects in the power grids and some other matters.