PRESENTATION FOR INVESTORS

Unified Energy System of Russia

Contents

Overview of Russia and Russian Electricity Sector RAO UES of Russia TodayRAO UES of Russia Restructuring

3,8641,4721,03388958858057754638332801,0002,0003,0004,0005,000TWhUSChinaJapanRussiaCanadaGermanyIndiaFranceUKBrazilOverview of Russia and Russian Electricity Sector25.0%9.5%6.7%5.7%3.8%3.7%3.7%3.5%2.5%2.1%% of WorldTotalTWhSevere economic downturn in the 90s resulted in material over-capacity currently estimated at around 28%.

Chart

965

1073

841

828

813

809

832

863

995

1135

1315

1545

1985

1990

1995

1996

1997

1998

1999

2000

2005

2010

2015

2020

945

1,020

1,100

1,200

Data

TWh

Data

Data

1985965

19901,073

1995841

1996828

1997813

1998809

1999832

2000863

2005995

20101,135

20151,315

20201,545

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3864

1472

1033

889

588

580

577

546

383

328

US

China

Japan

Russia

Canada

Germany

India

France

UK

Brazil

Data

TWh

Data

Data

US3864

Chain1472

Japan1033

Russia889

Canada588

Germany580

India577

France546

UK383

Brazil328

Thermal68%Hydro21%Nuclear11%0123456(US$bn)HydroNuclearFossil Fuel2003E2004E2005E2006E3.03.85.25.8Total installed generation capacity of 214.5 GWAverage age exceeding 30 years60%-70% of thermal capacity is co-generationGas prices controlled by the government and are significantly lower than in the WestRussian government estimates that up to a half of total capacity needs to be replaced in the next 10 yearsDue to overcapacity, age of assets does not immediately pose a threat to continuity of supplyElectricity consumption in Russia is expected to grow at rates below GDP growth as the countrys economic structure is changing towards less energy intensive sectorsExcept for nuclear capacity and several large independent generators, UES controls the electricity industry in Russia72% of Russias installed generation capacity69% of Russias electricity output32% of Russias heat production96% of Russias power transmission linesBy Type(1)Overview of Russia and Russian Electricity Sector

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11

21

68

www

Thermal68%

Hydro21%

Nuclear11%

Data

www

Nuclear11

Hydro21

Thermal68

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0.40.81

0.611.3

0.81.21.8

1.051.82.2

0.623.2

2002E

2003E

2004E

2005E

2006E

2.3

3.0

3.8

5.2

5.8

Hydro

Nuclear

Fossil Fuel

(US$bn)

Data

HydroNuclearFossil Fuel

2002E011

2003E111

2004E112

2005E122

2006E123

Russian FederationMinorityShareholdersof the Parent CompanyRAO UES of Russia $13,667.7mFederal Grid Company

System Operator44 Federal Power Stations(inc 8 under construction)GenerationTransmission & Distribution GridsSupplyDispatching ServicesIndependent AO-Energos:Irkutskenergo$998mTatenergoBashkirenergo$354mNovosirbirskenergo $149mRosEnergoAtomGovernment9 Nuclear StationsLeningrad Nuclear Station73 Regional Power Companies - AO-Energos100%From 49% to 100%Structure of the SectorOverview of Russia and Russian Electricity Sector Listed AO-Energos Market Value ($m)

Mosenergo

2,321

Samaraenergo

385

Sverdlovenergo

225

Total

2,931

52%48%100%From 50 to 100%Ros Energo Atom10,3%UES72,4%Other17,3%

3

72.4

17.3

10.3

1

72.4

17.3

10.3

1

72.4

17.3

10.3

2

3

____________________Source: Ministry of Energy Presentation on the Energy Strategy(1)Optimistic scenario with Russian GDP growth 4.7%-5.2% annually until 2020European part of RussiaMaximum nuclear power plants developmentReplacement of steam power turbines by combined cycle unitsDevelopment of coal-fired power thermal plants in the Urals regionSiberiaCoal-fired thermal power plants and hydro energy developmentFar EastHydro power plantsCoal-fired plants and in some regions nuclear power plantsOverview of Russia and Russian Electricity SectorEnergy Strategy of Russia till 2020(1)Year 2003 900 TWhYear 2020(1) 1,375 TWhThermal62%Hydro16%Nuclear23%Thermal66%

Hydro17%Nuclear17%

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22.5

15.5

62

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Thermal62%

Hydro16%

Nuclear23%

Data

www

Nuclear22.5

Hydro15.5

Thermal62.0

RAO UES of Russia Today

RAO UES of Russia TodayKey FactsOne of the worlds largest power companiesServes the area of 17 million square kilometresComprised of 72 local AO-Energos (with primarily controlling interest), 32 federal power stations (inc 8 under construction), and a recently formed Federal Grid Company (FGC) and System Operator (SO)Installed capacity of 156 GW (72.4% of Russian electricity generation capacity in 2003)2.5 million km of power transmission linesEach of local AO-Energos is a vertical integrated company comprising regional generation, transmission, distribution and supply assetsThe largest employer in Russia with a number of employees reaching 577.6 thousand peopleHeat supplies in 2003 amounted to 468.8 million Gcal (32.4% of the total heat supplies in Russia)____________________Source: Annual Report 2002

RAO UES of Russia TodayOwnership Structure of AO-Energos

RAO UES of Russia Restructuring

RAO UES of Russia RestructuringResults achieved

Package of laws regarding the energy reform approved and came into effect in April 2003

Government resolution # 865-p of 27 June 2003 Action Plan for the Power Sector Reform for 2003-2005 approved

Government resolution # 1254-p on the Structure of Generation Companies in Wholesale Power Market signed on September 1, 2003

Government resolution # 643 On Rules and Regulations of the Wholesale Power Market during the Transition Period signed on October 24, 2003

Competitive wholesale power market launched with the first 5-15% spot market trades on November 1, 2003

Government resolution # 1939-p of December 29, 2003 Concerning Participation of the State in the Creation of Interregional Grid Companies approved

Seven Inter regional power distribution companies set up on February 26, 2004Reform

Objectives & ConstraintsOptimal Industrial StructureCreate transparent and competitive market placeImprove overall economic efficiency of the systemEnsure financial viability of individual enterprisesSecure affordable end consumer electricity priceAttractive Investment ProfileEncourage capex into areas where new build is requiredRaise economic competition and quality through involvement of foreign strategic investorsEstablish clear and effective regulatory frameworkEnhance shareholder value of UES, in the process ensuring fair treatment for minority shareholdersSocial ConsiderationsEnsure smooth transition to deregulated market with minimal price shocksEnsure durability of new systemConstraintsRestructuring of the industry is required in order to improve efficiency and attract investmentCompetitionEfficiencyDurabilityAttract capitalStrategicEquityDebtAppropriate retail priceSecurity of supplyObjectivesRAO UES of Russia Restructuring

RAO UES of Russia RestructuringCompetitive SectorsMarket rulesFree price-setting Stimulating to enter into market Regulated tariffsGenerationSalesSecuring equal access to gridsSetting up market infrastructureNatural MonopoliesTransmissionDistributionDispatching

Minorities to get direct access to UES assets by 2008RAO UES of Russia RestructuringMinority ShareholdersFGC1 IDC6 Thermal- Generation Based WGCs4 Hydro - Generation Based WGCsHolding of GSs, Isolated AO-EnergosSystem operatorTGCs< 25%48%

RAO UES of Russia Restructuring

Generation

Creation of circa 10 independent Wholesale GenCos (extraterritorial basis)

Would incorporate 44 federal generation power plants, inc. 8 under construction, currently directly owned by UES (some with minorities) and certain large regional generation facilities currently within AO-Energos

6 Thermal/4 Hydro

Creation of 20 independent Territorial GenCos

Would incorporate generation assets of 72 Energos and will be aggregated on a regional basis

Vertical integration will remain in certain areas where competitive market cannot be sustained

Supply

Creation of regulated guaranteeing suppliers

Will provide services for protected customers

RAO UES of Russia Restructuring

Transmission & Distribution

All backbone transmission assets will be aggregated into the Federal Grid Company (FGC)

Most of backbone transmission assets owned by UES directly

Remaining backbone transmission assets will be disaggregated from AO-Energos

Distribution will also be disaggregated from AO-Energos and horizontally integrated into

5 regional DistCos

Draft legislation requires a separation of Transmission and Distribution from generation and supply until 2005

Price regulation will be done primarily by Federal regulator

RAO UES of Russia Restructuring The 5+5 Strategy Concept was unanimously approved by the Board of Directors in May 2003System Operator established (centralized dispatching unit) Federal Grid Company establishedAO-Energo restructuring has begun 40 AO-Energos are under the restructuringApril 1, 2004 first unbundled companies were establishedMechanisms for the creation of wholesale generation companies are being developedCompetitive wholesale power market launched with the first 5-15% spot market trades on November 1, 2003 (Trading vol. 12.870 Mln.KWh, Average Price 264.20 Rub/MWh)

RAO UES of Russia RestructuringSetting up the legal and regulatory frameworkIn 2004, the following issues will continue to be addressedEstablishing of WGCs and TGCs Passing the Governmental decision on methods and schedule of WGCs separation (including the mechanism of auctions)Establishing of Interregional Distribution Companies (IDCs)Developing the monopoly regulation for the consolidated network companiesAmending the Rules of the wholesale market. Developing retail energy market rules Optimization of the management structure of UES

RAO UES of Russia RestructuringFactors that may affect Companys capitalization growth in 2004WGC separationTendering in competitive sector of wholesale electricity marketTariff policyReform at the regional levelTendering up to 15% of the wholesale electricity marketTariffs settings based on price cap principleRestructuring regional power companiesSale of the pilot WGC at auction(after the auction procedure is approved)