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

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

1. RAO “UES of Russia” today

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

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

RAO “UES of Russia” today RAO “UES Russia” 1999 - 2004 RAO “UES of Russia” financial performance US$m (1) (2) Source: IAS Group financial results (1) Excludes doubtful debtors expense (2) As reported

RAO “UES of Russia” Market capitalization dynamics RAO “UES of Russia” today Market Cap, US$bn +128.4% +88.6% 1.04.2003 1.04.2005 During the last two years shares of RAO “UES of Russia” outperformed broader RTS index by 40% Source: Factset

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

2. Reform: company transformation and market development

Finish is in sight 2007 FINISH 2006 2005

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

Company transformation and market development Legislative base of reforms: Key legislation, 2001-2004 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»)

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

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

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

Market Progression Company transformation and market development Fully Regulated Market (prior to Nov 2003) Status Quo (Nov 2003 – 2005) Transition Market (2006 - 2008) 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

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

3. Conclusions

Investing in Russian Power Sector: Investment Vehicles and Timing Conclusions Investing in Russian Power Sector: Investment Vehicles and Timing Currently/During Transition (2005-2006) Post RAO UES Unbundling (2007-2008) Vehicles RAO UES/Regional GenCos/ Federal Plants Wholesale and Territorial GenCos Pros Cons

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

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…

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. 2005-2006: From the swamp to the firm ground