1. VYACHESLAV SINYUGIN Deputy CEO Unified Energy Systems of Russia 15 November 2002 Boston

2. 2 Agenda n UES Highlights n Reform - Rationale and Status n Dialogue with Shareholders n Next Steps

3. UES Highlights

4. 4 * As of 14 November 2002 Highlights Key Data Russia - 4th Largest Power Market in the World 26.5%8.4%7.2%5.7%3.9%3.7%3.6%3.5%2.5%2.2% % of World Total Bn MWh UES n One of the world's largest electric utility companies n 407 thermal and hydro power plants n 2,7 mln km of power transmission lines n 646,000 employees n 627 bn kWh of electricity generated; 72% of the overall generation in Russia n 53% state-owned

5. 5 Rb Bn * Provisional Data Russian rouble as of June 30th, 2002 IAS 1H02: Revenues 188 217 231 IAS 1H02: Operating and Net Profit Rb Bn.

6. Reform - Rationale and Status

7. 7 Global Experience in the Electric Power Sector Complete Liberalization of Electric Power Sector State monopoly Russia (2001) France (2000) Hungary (1999) Thailand (1996) Italy (1999) Great Britain (1990) Ukraine (1997) Scandinavia (1992) EU Directive (1996) Argentina (1990) Brazil (1995) SAR (2000) Greece (2000) Kazakhstan (1998) Moldova (1999) California (1995) Competition Price Liberalization Non-discriminatory Access to Grid Private Investments

8. 8 Russia: The Context for Structural Reforms n The strong economic performance of the last three years sets the foundation for implementation of profound structural reforms designed to complete modernization of the Russian State n The current focus is on reforming natural monopolies n The reforms are unprecedented in scope n They will constitute one of the critical drivers in the economic modernization of Russia, and have significant impact on the energy sectors and economies of Eurasia n At the core, the reforms are driven by the development of new, market driven regulatory and operating regimes n The overriding objective is to unlock the significant potential of the current monopolies and create value for: n The consumers n The shareholders n The State n The reform of RAO UES is critical to the modernization of the Russian State

9. 9 Optimal Industry Structure n Create transparent and competitive market place n Improve overall economic efficiency of the system n Ensure financial viability of individual enterprises n Secure affordable end consumer electricity price Attractive Investment Profile n Encourage capex into areas where new build is required n Raise economic competition and quality through involvement of foreign strategic investors n Establish clear and effective regulatory framework n Enhance shareholder value of UES, while ensuring fair treatment of minority shareholders Social Considerations n Ensure smooth transition to a deregulated market with minimal price shocks n Ensure reliability of the new system Constraints Objectives Russian Reform : Incorporate the Best of Industry Experience

10. 10 Competitive sectors Natural monopolies +Liberalisation of price-setting +Stimulation of market participation Market rules Regulated tariffs +Securing equal access to grids +Establishment of market infrastructure GENERATION SUPPLY TRANSMISSION DISTRIBUTION Reform Basics: Separation of Monopolistic and Competitive Sectors

11. 11 Anticipated Timetable n Development of the legal framework n Revision of the market structure n Pilot test of the wholesale market n Set up of competitive electricity market in generation and supply n Attract private investments in various sectors of the industry 2001-20042004-20062006-2010 n Transmission tariff introduced n Distribution tariff introduced n Unregulated market (5-15%) n ISO tariff introduced n Government set tariffs remain for FGC, DistCos and heat only n Generation and supply are unregulated First PhaseSecond PhaseThird Phase Objectives Market Structure Tariffs n Federal Grid Company n Wholesale generation companies n Unbundled regional companies, consolidated by function n Federal Grid Company and regional distribution companies n Wholesale generation companies n Regional generation companies n Supply companies

12. 12 Package of draft laws on the Russian power sector reform has passed the 1st reading by the State Duma of the Russian Federation Federal Law «On the Electric Power Sector» Amendments to the Civil Code of the Russian Federation Amendments to the Federal Law «On Natural Monopolies» Federal Law «On putting into effect of the Federal Law «On the Electric Power Sector» Amendments to the Federal Law «On Energy Saving» October 9 th, 2002 Amendments to the Federal Law «On State Regulation of Electricity and Heat Tariffs» Amendments to the Federal Law «On State Regulation of Electricity and Heat Tariffs» Legislative Basis of the Reform n Separation of the Russian power sector into competitive (generation and supply) and monopolistic (transmission and dispatching) segments n The new structure of the wholesale and retail power markets, with an equilibrium price based on submitted bids n Guarantees for reliable electricity supplies, as well as insurance of the rights and concerns of minority shareholders and the State

13. 13 n Fair asset value of investment n Interest in selected assets n Increase value of holdings n Fair and transparent treatment n Liquidity n Corporate governance n No shocks for customers n Capital investment n Taxes n Elimination of subsidies n National interest in transmission n Low cost heat and electricity n Reliability n Subsidy for some customers n Strategic interest in selected assets Legitimate, but Diverse Interests of Key Stakeholders Significant Minorities in Subsidiaries Shareholders The State Customers

14. Dialogue with Shareholders

15. 15 Under management controlBeyond management control UES Stock Price Drivers in 2002 UES RTS index n Insufficient communication with shareholders regarding key principles of the restructuring n Premature consideration of asset sales in uncertain sector conditions n Modest operating performance and cost-cutting efforts n The final industry structure and the means of its regulation remain unclear n Prospects for restructuring have grown more vague due to the delay in approval of draft bills from June to autumn n A number of Duma deputies support the plan for grid nationalization Cents 8 12 16 20 24 01020304 05 0607 08 09 10 1112 01 02030405060708 09

16. 16 Seven Steps of Management for the Benefit of Minority Shareholders n Moratorium on sale of core assets and granting of options to purchase these assets until the mechanisms of fair valuation and proceeds distribution are established n No pledge of shares for loans n No asset transfers to Government other than at fair value n Pro-rata allocation of shares n Preservation of liquidity of shares at all levels throughout the process n Financial / operating results to remain a priority during restructuring n Substantial modification of the dividend policy for the benefit of shareholders

17. 17 1 4 5 6 10 11 12 13 November 99 104 109 114 119 124 129 134 139 144 149 Growth Rate, % 24 25 26 27 30 September 1 2 3 4 7 8 9 10 11 14 15 16 17 18 21 22 23 24 25 28 29 30 31 October UES of Russia Common Share Russian Trade System Index UES Stock Has Outperformed the Index Recently September 25 th, 2002 Presentation of the Seven Steps

18. Next Steps

19. 19 Next Steps n Restructuring n Power Sector Reform Laws - Second readingNovember 29 - Third readingDecember n Restructuring plan (“3+3”) - Task force to start the discussionNovember 22 - Board of directors to review the PlanDecember 29 n Operations n Government to discuss natural monopolies tariff-setting December n IAS FY2002 resultsQ2 2003