RAO UES of Russia Investment Stage of the

RAO UES of Russia: Investment Stage of the Reform Anatoly Chubais Chairman of the Management Board RAO “UES of Russia” 9 th Russian Economic Forum London 24. 04. 2006

Electric Power Industry: New Trends Load of UES of Russia: Approaching a new consumption maximum Source: RAO UES of Russia Maximum Load of Russian Power Plants 160. 1 153. 1 157 Thsd MW 150 125 148. 3 144. 7 136. 5 134. 1 139. 1 135. 3 130. 3 142 138. 6 141. 6 143. 5 133. 4 133. 5 100 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2

Regional Energy Systems : Exceeding the consumption maximum of the Soviet period 180 Source: RAO UES of Russia 2006 vs. 1990, % 1990 = 100% 170 160 150 140 130 124 121 120 110 106 105 104 102 110 108 115 110 D ag es ta n w os co gr in al in M ad en um Ty K Le ni ng ra d an st ra kh A an K ub d ro el go B K ar el ia a gd lo Vo U dm ur tia 100 Russian power industry needs badly full scale long term investments On March 28, 2006 the list of top-priority projects for 19 400 MW was approved. 3

Investments and the Reform Electric Power Industry Reform: adjusting tactics while keeping strategy intact The main initial target of the Reform is to launch the investment process Key Components of the Reform: Completion Status Reform Components % of completion Year of Completion 1. Split-up of vertically-integrated companies and separation of power generation from grids 2. Consolidation of trunk grids and consolidation of the dispatching vertical 90% 2006 70% 2007 3. Setting up generation companies (WGCs and TGCs) 4. Development of a markets system (for electric power, capacity, and ancillary services). 70% 2007 The target of the Reform is not subject to change. The tactics for Reform completion require adjustment Main Point of Adjustment: Large-scale investments during the final stage of the Reform rather than upon completion of the Reform. 4

Investments and the Reform The Finishing Line was close … but had to be pushed two years further along the road FINISH 2007 2008 2006 2007 Investment section of the road 2005 2006 5

Investment Deployment Concept Investments: Concept, sources and objects, volumes Reform Concept Investment Deployment Concept Private investments Budget investments Competitive sectors (primarily – thermal power generation) Monopolistic sectors Annual volumes of investments in RAO UES of Russia: 2005 -2006 – about $5 bn, by 2008 -2009 – about $15 bn. 6

Investment Deployment Concept Thermal Power Generation: Mechanisms to attract investments Additional share issue of WGCs and TGCs Private placement Investment guarantee mechanism Direct private investments in local projects Project financing Public placement Thermal power generation - a top priority object for investments 2/3 of electric power generation in Russia 7

New Companies: Top-priority Projects Additional Share Issue of WGCs and TGCs Long list of generation companies – top candidates for additional issue and placement of shares has been reviewed and approved by RAO UES management board WGC-3, WGC-4, WGC-5, TGC-1, TGC-3, TGC-5, TGC-8, TGC-9, TGC-10 Selection of project consultants is starting as well as meetings with potential investors. Special conference for investors into above projects is planned for June 2006. 3 -4 companies selected from the approved list of candidates will comprise a short list to make a decision on additional issue and placement of shares. In all cases, placement of additionally issued shares is a tool for attracting investments in preselected projects with total capacity of 6, 700 MW June 2006: RAO UES Board of Directors is expected to make a relevant decision on 3 -4 companies to undergo share issue. The logic and sequence of actions was proposed by management and preliminarily approved by the Board of Directors. It is up to the Russian Government to make key decision. 8

New Companies: Top-priority Projects Additional Share Issue of WGCs and TGCs: Timeline 2006 '01 -03 '04 '05 • Preparation and approval of the top candidates list • Selection of consultants • Consultations with potential investors '06 '07 Selection of 3 to 4 pilot WGCs and TGCs from the top candidates list and approval of their share placement plans '08 '09 Preparation for share placement '10 -12 Implementation of pilot projects • Negotiations with shareholders 9

New Companies: Top-priority Projects WGC-5: Example of preparedness for share placement Sources: MICEX; analysts reports (Aton, Troika. Dialog, Ren. Cap, Megatrust. Oil) WGC 5 $ bln 4. 0 Prior to trading estimates Current Mcap 3. 0 • Installed Capacity – 8, 672 MW (5. 53% of overall RAO UES’ installed capacity) 2. 39 2. 0 1. 5 0. 962 0. 9 • Shares are traded on RTS, MICEX • GDRs will be traded on London and Frankfurt stock exchanges Independent Appraiser’s evaluation Analyst evaluation (min/max) 14 Sep. 05 (1 st trading day) Current Mcap 19 Apr. 06 10

Reorganization of RAO UES of Russia: Pro rata principle for protection of shareholder rights RAO UES of Russia Shareholders Meeting (before the end of 2006)… • Spin-off of 1 -2 generation companies from the following candidates: WGC-3, WGC-5, TGC-5 Shareholders Meeting (in 2008) • Reorganization of RAO UES of Russia by way of split-up; • Pro rata distribution of the Company’s assets among shareholders; • Transfer of functions to the Government and infrastructural entities of the energy industry 11

“The train departs in 2006 -2008. . . and the best seats are in the first car!” 12