1. Chief Executive Officer RAO “UES of Russia”
RAO UES Reform:
The Final Stage
Anatoly Chubais
Chief Executive Officer RAO “UES of Russia”
April 6-13, 2005
New York, London

2. RAO “UES of Russia” today
Table of Contents
RAO “UES of Russia” today
Reform: company transformation and market development
Conclusions

3. 1. RAO “UES of Russia” today

4. Russia: 4th Largest Power Producer in the world
RAO “UES of Russia” today
TWh %
Of World Total
24.9% 10.2% 6.8% 5.5% 3.7% 3.7% 3.5% 3.5% 2.4% 2.1%
Source: IEA

5. Length of transmission lines
RAO “UES of Russia” today
RAO “UES of Russia”
Leading role in Russia’s electricity industry
Installed capacity
RAO: 156m kW
Heat generation
RAO: 469m Gcal
RAO “UES of Russia”
Other 4%
96%
68%
32%
28%
72%
Length of transmission lines
RAO: 2,497 thousand km

6. RAO “UES of Russia” today
RAO “UES Russia”
RAO “UES of Russia” financial performance
US$m
(1)
(2)
Source: IAS Group financial results
(1) Excludes doubtful debtors expense
(2) As reported

7. RAO “UES of Russia” Market capitalization dynamics
RAO “UES of Russia” today
Market Cap, US$bn
+128.4%
+88.6%
During the last two years shares of RAO “UES of Russia”
outperformed broader RTS index by 40%
Source: Factset

8. RAO “UES of Russia” today EV/Installed capacity, $/kW
RAO “UES of Russia” Relative valuation
RAO “UES of Russia” today
2005 EV/EBITDA
EV/Installed capacity, $/kW
Average: 5.8x
Average: 984$/kW
Sources: Brokers’ Estimates, Bloomberg, companies reporting

9. 2. Reform: company transformation and market development

10. Finish is in sight
2007
FINISH
2006
2005

11. RAO “UES of Russia”
Reform basics
Company transformation
and market development
Reform Basics: Separation of Monopoly and Competitive Sectors
Competitive
sectors
Free price-setting
Stimulating market entry
Market rules
Generation
Sales
Monopolies
Securing equal access to grids
Establishing market infrastructure
Transmission
Distribution
Dispatching
Regulated tariffs

12. Company transformation and market development
Legislative base of reforms:
Key legislation,
Governmental
decrees
and
orders
July 2001 –
Government
Decree №526
«On reform of
Russia’s
power sector»
December 2004: Meeting of
Russian government.
Key decision
made:
preparation
for the unbundling of
RAO «UES
of Russia»
to be
completed
in 2006
March 2003:
Five laws on power
sector reform signed
by President Putin
and entered into
force (main– №35-FZ
«On the power sector»)

13. Company transformation and market development
Pre-reform Sector Structure
Russian Federation
Minority
Shareholders
of the Parent Company
Independent Regional
Energos:
RosEnergoAtom
10 Nuclear Plants
52%
48%
Irkutskenergo
Tatenergo
Bashkirenergo
RAO UES
High
Voltage
Grid +
Service
Central
Dispatch 32
Federal Power
Plants
73 Regional Energos
Generation
Transmission
& Distribution
Grids
Sales

14. Company transformation and market development Competitive Generation
Target sector model
Company transformation and market development
Monopolies
Competitive Generation
Private shareholders
Government
System operator
FGC
(Transmission)
<25%
>75%
Wholesale GenCos (6)
Hydro GenCo (1)
Territorial
GenCos (14)
<25%
51-60%
<48%
75-85%
Competitive market
>75%
49-40%
>52%
25-15%
IDC
(Distribution) (4)
<48%
Other generating companies
On the base of independent Regional Energos
Nuclear power generating company
>52%
FGC – Federal Grid Company
IDC – Inter-regional distribution grid company

15. Formation of new generation companies
Company transformation and market development
Regional Energos
Federal Power Plants
Generation Assets
(Regional GenCos)
Other assets: Grid, Dispatch, Sales, etc.
Territorial
GenCos
Wholesale
GenCos
HydroGenCo
Capacity of 22 GW
Annual sales at US$700m
Capacity ranges from 0.6 GW to 10.5 GW
Annual sales ranges from US$100m to US$1300m
Average capacity at 9 GW
Average annual sales at US$600m
6 of 14 registered
6 of 6 registered
Registered
Target Private Shareholder Stake: >50%
Target Government Stake: >50%
Unbundling completed and Regional GenCos registered in 35 regions
Unbundling continues in 25 regions
* Some of the assets contributed from Regional Energos

16. Market Progression Company transformation and market development
Fully Regulated Market
(prior to Nov 2003)
Status Quo
(Nov 2003 – 2005)
Transition Market
( )
Free Market
(from 2009)
Regulated Market
Regulated Market
Vesting Contracts
Competitive Market
List of participants (buyers and sellers) established by the government
Regulator or RAO UES matches buyers and sellers
Tariffs are regulated
List of participants (buyers and sellers) established by the government
Regulator or RAO UES matches buyers and sellers
Tariffs are regulated
Regulated bi-lateral (vesting) contracts introduced (for the next 3-5 years)
Initial electricity volume of 85% of total electricity volumes and decreasing
Full liberalization
Competitive Market (≥15%)
(Spot)
Voluntary for generators and purchasers
No price cap
Competitive Market (5 – 15%)
Free market segment trading 5 – 15% of electricity volumes
Self regulating trading floor - ATS
Price cap set by the Regulated Market
Regulated Market
Free market

17. The Reform Process Finishing line in sight Company transformation
and market development
The Reform Process
Finishing line in sight
2005
2006
2007
2008
Competitive
Market (5 – 15%)
Launch of vesting contracts and competitive market (spot)
Wholesale GenCos Formation
Territorial GenCos Formation
Private majority Wholesale GenCos
Private majority Territorial GenCos
RAO UES unbundling

18. 3. Conclusions

19. Investing in Russian Power Sector: Investment Vehicles and Timing
Conclusions
Investing in Russian Power Sector: Investment Vehicles and Timing
Currently/During Transition ( )
Post RAO UES Unbundling ( )
Vehicles
RAO UES/Regional GenCos/ Federal Plants
Wholesale and Territorial GenCos
Pros
Cons

20. Reform’s final stage: Lower risk investment
Conclusions
Reform’s final stage: Lower risk investment

21. RAO “UES of Russia” is committed to…
Conclusions
Reform of RAO “UES Russia”
On a Corporate Mission…
RAO “UES of Russia” is committed to…
… ensure a sustained GROWTH OF THE VALUE of its shares and the shares of the companies that will be established in the course of restructuring
… and increased efficiency and transparency of its operations as well as the operations of the companies established in the restructuring process
through a successful
implementation of the reform…

22. From the swamp to the firm ground
Conclusions
Russian Power Sector:
Key advantage for investors
Today, electric power assets are deep in the non-market environment ...
… By the end of 2006 they will be available amid competitive market conditions. :
From the swamp to the firm ground