Power Industry Reform: expansion of investment opportunities London,October 12-13, 2005 Russia: going global Russian Trade and Investment Conference Vasily Zubakin, Board Member, OAO RAO «UES of Russia»

1 Table of Contents  Share of OAO RAO “UES of Russia” price dynamics  UES is undervalued  Structure of Russian Power Sector in 2008: Target sector model  Power Market Development  New Value Challenges: bringing new companies to the stock market  Investment opportunities

2 Share of OAO RAO “UES of Russia” price dynamics 21.40% (1)Приведен к цене акций РАО «ЕЭС» на начало периода % US cents (1) 18.7% 2

3 Reasons: UES is undervalued EV/Installed capacity, $/kW Enel Endesa Cemig RAO UES $/kW E.On CEZ Electrobras Complicated reform model Uncertainty regarding terms and rules for liberalization and operation of wholesale power market Uncertainty regarding government’s intentions to reduce control over generating assets Long period of anticipation of the launch of target companies on stock market

4 MonopoliesCompetitive Power Generation Target Power Sector Model Private shareholders Government FGC (Transmission) <25% >75% Other generating companies Independent Regional Energos Nuclear power generating company Hydro GenCo (1) Wholesale GenCos (6) Territorial GenCos (14) 51-60%<48% 75-85% 49-40% 25-15% >52% System operator <25% >75%>75% IDC (Distribution) (4) <48% >52% Competitive market FGC – Federal Grid Company IDC – Interregional Distribution Company > 49% Supply companies

5 Будущая стоимость энергетических активов Overall value of target companies will grow Factors of growth: ОГК-1, 2, 4ОГК-3ОГК-5 ОГК-6 ОГК-7 ОГК ТГК МРСК ТГК-14 ТГК-1,13 ТГК-4,6 ТГК-2, 5,8 ТГК-7,10 ТГК-3 ТГК-9 МРСК 1,2,3, RTS STOCK EXCHANGE Gradual liberalization of power market Effective management, cost- cutting, key performance indicators, motivation Boost of liquidity: listing on market, listing of ADRs and other derivatives on international markets. Effective IR. High standards of corporate governance

6 Investment opportunities (1) Required Capacity – Optimistic Scenario (2) Required Capacity – Pessimistic Scenario (3) Available Capacity TPP NPP HPP gW Required vs. Available Capacity in Russia Investments needs of electric power industry Before 2015 investments necessary for new construction, modernization and maintenance of existing assets amount to 48 – 65 billion US dollars: up to 20 billion dollars to modernize and increase the operating life of the existing assets 28 – 44 billion US dollars to commission new capacities

7 The goal is to attract investments into new capacities construction to cover the forecasted power deficit before the competitive power market starts functioning Investment guarantee mechanism Government identifies the area of the deficit Investor selection is competitive Requirements – Exclusively new modern equipment – Standards for efficiency, flexibility, environmental safety Investor’s compensation for technology reserve included in to the tariffs of System Operator – Central Dispatch Administration Consumer starts paying only after the object is commissioned Protection mechanism is effective for 10 years. Two-stage mechanism of investment repayment: –Construction investment repayment through payment for capacity reserve formation services –Payment for power generated at a price not higher than the set tariff The investor it is obliged to give after the conclusion of the contract financial guarantees for the period of construction and operation Investor’s obligations upon the agreement conclusion: –Financial guarantees for the period of construction and operation –Availability of all the power in the market Participation of the investor in the market –Adjustable contracts -only payment for electric power –do not participate in free bilateral contracts –do not participate on the market of capacity –participate in the market of system services in accordance with general practice Investments Power tariffs Ministries and agencies Guaranteed payments (investments repayment) System Operator Investors Customers Generation Bidding procedure Trade System Administrator Payment for electric power Federal Tariff Service Capacity Payments The organization of competitions Payment for electric power

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