RAO UES of Russia The energy of the

RAO «UES of Russia» : The energy of the reform Speech of the Chairman of the Management Board of RAO «UES of Russia» A. Chubais RUSSIA POST ELECTIONS: GREAT EXPECTATIONS VIII ANNUAL INVESTOR CONFERENCE Moscow, Russia 22. 06. 2004

Overview of Russia and Russian Electricity Sector Russia: 4 th Largest Power Producer in the World in 2003 TWh 5, 000 4, 000 3, 000 2, 000 1, 000 0 3, 864 1, 472 1, 033 889 US China Japan Russia 25. 0% 9. 5% 6. 7% 5. 7% % of World Total 588 580 Canada Germany 3. 8% 3. 7% 577 546 383 328 India France UK Brazil 3. 7% 3. 5% 2. 1% Source: IEA Positive Consumption Trend TWh 1, 750 1, 545 1, 500 1, 250 1, 135 1, 073 1, 000 750 Optimistic Scenario 1, 315 1990 841 828 813 809 1995 1996 1997 1998 832 1999 863 875 879 2000 2001 Source: Energy Recearch Institut, Russian Academy of Sciences 2002 889 2003 897 2004 945 1, 100 1, 200 1, 020 911 2005 2010 2015 2020 Pessimistic Scenario 2

RAO “UES of Russia” Today: Operating Highlights The World’s Ten Largest Electricity Companies (2003) Key Facts • Except for nuclear capacity and several large independent generators, UES controls the electricity industry in Russia 72% of Russia’s installed generation capacity 69% of Russia’s electricity output 32% of Russia’s heat production 96% of Russia’s power transmission lines Company Home-base Capacity (GW) RAO UES Russia >156 SPCC China 151 EDF France 121 TEPCO Japan 59 E. ON Germany 54 SUEZ France 49 ENEL Italy 45 RWE Germany 43 USA 42 South Africa 42 AEP ESKOM Source: RAO “UES of Russia”, IEA 3

Russian Electricity Sector: Today’s Structure Government Russian Federation Minority Shareholders of the Parent Company Independent AO-Energos: Ros. Energo. Atom 52% 10 Nuclear Stations 100% 48% RAO UES of Russia From 50 to 100% Irkutskenergo Tatenergo From 49% to 100% Bashkirenergo 73 Regional Power Companies - AO-Energos 44 Federal Power Federal Stations Transmission Grid System (incl. 8 power & Dispatching Operator Company Generation Supply station Services Distribution under Grids Construction) 4

RAO “UES of Russia” Today: Key Financial Data US$ m 9 months ended 30 Sept 2001 9 months ended 30 Sept 2002 9 months ended 30 Sept 2003 Revenue 8, 474 10, 328 13, 720 Net Profit 909 669 543 EBITDA 1, 070 1, 494 2, 720 EBITDA Margin 12. 6% 14. 5% 19. 8% Operational Margin 1. 2% 0. 6% 8. 9% Net Margin 10. 7% 6. 5% 4% Fixed Assets 24, 201 25, 834 29, 293 Shareholder Equity 14, 404 16, 730 19, 733 2002: Revenue – $15, 83 bn 2003 (Forecast Data): Revenue – around $19, 6 bn 5

Growth of the market capitalisation of RAO «UES of Russia» (RTS data) In the recent two years the stocks of RAO «UES of Russia» were largely outperforming the Russian securities market as a whole Capitalisation of RAO «UES of Russia» RTS Index Apr-Jun 2003 Jul-Sep 2003 Oct-Dec 2003 Jan-Mar 2004 /20 Jan-Mar 2003 /06 Oct-Dec 2002 04 Adoption of a package of laws on electricity industry 08 02 /09 /20 02 440% 420% 400% 380% 360% 340% 320% 300% 280% 260% 240% 220% 200% 180% 160% 140% 120% 100% 80% 6

Power sector reform after adoption of a package of laws: restructuring of RAO «UES of Russia» Results Ÿ Approval of a configuration of Wholesale Generation Companies; Plans Ÿ Establishment of new market participants: - Ÿ Approval of a configuration of Territorial Generation Companies; - Ÿ Approval of a configuration of Interregional - Distribution Companies and Interregional Transmission Companies; ! Sale of thermal WGCs and TGCs to private Ÿ Approval of the corporate strategy concept (“ 5+5”); Ÿ Ongoing consolidation of transmission and operational control assets (within AO “Federal Grid Company” and AO “System Operator”); investors; Ÿ Completion of the restructuring of AO-Energos: by the end of 2004, 40 AO-Energos will have held restructuring shareholders meetings); Ÿ Completion of the consolidation of transmission and operational control assets; Ÿ Attracting initernationally recognized strategic investors into the Russian power sector Ÿ Adoption of restructuring decisions by 30 AOEnergos. Restructuring of the first utility (“Kalugaenergo”) has been completed; Ÿ Ongoing spin-off of repair and maintenance businesses; Ÿ A management company for AO “North-West CHPP” (an international consortium involving ENEL and ESN Energo) has been chosen through a public tender procedure. 10 wholesale generation companies (WGCs), Up to 20 territorial generation companies (TGCs) 5 interregional distribution companies (IDCs); 7

Power sector reform after adoption of a package of laws: formation of the market Results Plans Ÿ Implementation of the current model of the Ÿ Since November 2003, electricity trading sessions have been going on in the competitive sector 5 -15 Ÿ Within the first 7 months of its operation, the trading competitive wholesale electricity market throughout the Russian territory (with the exception of isolated power systems and the Far East) exchange of the Non-Commercial Partnership «ATS» became one the ten largest specialized trading exchanges of the world by trading volumes Ÿ Development of a new target model of the Ÿ The free sector of the market represents some 8% of the Ÿ Establishment of regional liberalized retail total electricity generation and consumption in European Russia and Urals market (subject to the elimination of the cross subsidisation practices) 8

Power sector reform: formation of the market Volume and price dynamics in the competitive sector of the wholesale market 522 1327 2616 160 493 140 3781 508, 8 4383 3987 490, 85 2022 498, 93 477, 79 500 481, 44 483 400 431, 43 100 393, 59 80 276, 94 264, 25 300 Trading volume 60 251, 95 40 Price in the competitive sector 20 Price in the regulated sector 0 600 462, 2 120 Mln. k. Wt. h 3580 November Source: NP ATS December January February March April May June (15 days) Rub/MWt. h 180 200 100 9

Improvement of management The new organizational structure of RAO UES of Russia must stimulate the reform progress in the electric power sector of Russia Management Board Corporate Center SO-CDU Reform Business Management Unit Center 1 Thermal WGCs (3), TGCs (8), Corresponding Regional Energos Business Unit 2 Thermal WGCs (3), TGCs (6), Corresponding Regional Energos Business Unit «Grids» Business Unit «Hydro Generation» Federal Grid Сompany, IDCs, Export-import, Foreign assets Hydro WGCs (4), Hydro Power Stations under construction Business Unit «Service» Repair and Service Companies 10

Participation in assets management, Export Results Plans Ÿ Expansion of the geographical scope of exports, Ÿ In addition to the traditional exports, RAO «UES of Russia» has launched a new stage of its strategy abroad based on the acquisition of foreign assets. The company has acquired energy assets in Georgia and Armenia. attraction of investments into the exportoriented core business development projects. Ÿ Participation in assets management or acquisition or foreign assets in the CIS area (Moldova, Ukraine, Kazakhstan, Kyrgyzstan, Tadjikistan) and foreign countries (Slovakia, Bulgaria, Poland, Romania, Turkey). Synchronization of the electricity systems of Russia and European countries. ŸThe Union for the Co-ordination of Transmission of ŸApproval of the key parameters of Electricity (UCTE) has prepared draft Terms of Reference for the development of a Feasibility Study of the synchronization project. the Feasibility Study of synchronous interconnection by the European Commission. 11

RAO “UES of Russia” Restructuring: Terms and Quality «OK, Mr. Chubais, I agree that a quality of your reform is more important than its terms… But… Time is money, isn’t it? !» 12

RAO “UES of Russia” Restructuring: Wholesale Generation Companies (WGC) • I stage: Wholesale Generation Companies are set up as 100 % daughter companies of RAO UES (based on the assets and stocks of federal power plants belonging to RAO UES) July-August, 2004: setting up of Wholesale Generation Companies №№ 1, 2, 4, 5, 6 • 2 stage: Auctions to sell out Wholesale Thermal Power Generation Companies Auctioning mechanism should be approved by the Russian Government 13

RAO “UES of Russia” Restructuring: Territorial Generation Companies (TGC) • April 2004: RAO UES Directors Board has endorsed the scheme of the Territorial Generation Companies being established on the basis of the rented generation equipment of AO-Energos. • Based on this scheme Territorial Generation Companies №№ 9 and 14 will be set up. • It is planned that Territorial Generation Companies №№ 9 and 14 will start operating since 01. 2005. • Territorial Generation Companies №№ 9 and 14 could be sold to investors after their formation has been completed (2006). 14

Breach of time schedule of setting up electric power competitive market in Russia Setting up and further splitting off WGCs and TGCs– the biggest actors on the future electric power competitive market in Russia - + 02. 12. 2004: Time to make a choice 15

THANK YOU FOR YOUR ATTENTION 16