29 September 2003, Moscow Anatoly Chubais Chief Executive Officer Unified Energy System of Russia Brunswick UBS Annual Investor Conference

Contents Company Priorities for future development Results Reform

3  Energy reform law package was approved and became effective  Company’s “5+5” Reform Strategy for was adopted  Action Plan for the Power Sector Reform for was approved by the government resolution # 865-p as of 27 June 2003  Resolution # 1254-p on the “Structure of Generation Companies in Wholesale Power Market” was signed by the Government 1 September 2003  Government resolution on rules and regulations of the transition wholesale power market is drafted  The “5+5” Strategy is launched  Business efficiency is improving, corporate governance is advancing  Company value has increased by a factor of four  Company shareholders’ membership changed Reform Company Results achieved

4 Results Seven Steps of the Management for the Benefit of Minority Shareholders (proclaimed 25 September 2002) 1.Moratorium on sale of core assets and granting options to purchase these assets until the mechanisms of fair valuation and proceeds distribution are established 2.No pledge of shares for loans 3.No asset transfers to Government other than at fair value 4.Pro-rata allocation of shares at all stages of the reform 5.Preservation of liquidity of shares at all levels throughout the restructuring 6.Financial / operating results to remain a priority during restructuring 7.Substantial modification of the dividend policy for the benefit of shareholders      will be ensured

Reform: results

6  Creation of a transparent and competitive market  Improving overall economic performance in the sector  Providing for financial stability of emerging companies  Making regulatory environment straightforward and efficient  Ensuring smooth transition to the liberalized market with minimum price fluctuations Competitive sectors Natural monopolies Reform Goals Energy reform package of laws was approved and came into effect Results On 26 March 2003, energy reform package was signed into law by the Russian President  Free price-setting  Stimulating market entry Market rules Regulated tariffs  Securing equal access to grids  Setting up market infrastructure  Generation  Sales  Transmission  Distribution  Dispatching Reform Basics: Separation of Monopoly and Competitive Sectors

7 Adoption of RAO UES “5+5” Strategy Concept for April May May Results The Draft Concept was developed in collaboration with the shareholders and consortium of Alfa-Bank and Merrill Lynch consultants The Concept was discussed by the Board of Directors’ special session and made available for public discussion Concept together with the Action Plan for the Power Sector reform for were presented at the meeting of the RF Government Commission on Energy Reform and were approved in principle Concept was reviewed by the Board of Directors The Concept was UNANIMOUSLY approved by the Board of Directors’ special session 8 April 2003

8 Concept of Company’s “5+5” Strategy for was adopted The “5+5” Strategy Concept was unanimously approved by the Board of Directors’ Special Session in May 2003  The System Operator was set up  The Federal Grid Company was set up  Mechanisms for creation of wholesale generation companies are being devised  Restructuring of regional power companies was launched Results Resolution of the RF Government “Action Plan during the 1st Stage of ElectricPower Industry Reform” # 1040-RF as of 3 August 2001

9 The Strategy provides for the following structural transformations be carried out by 2008 Minority Shareholders FGC Thermal generation- based WGCs Holding of guaranteed suppliers, isolated AO-energos System Operator About 20 TGCs Isolated AO-energos Guarantee suppliers <25% % <48% % 1 IDC’ Up to 5 IDC DC 1 DC N 49% 100% Hydro generation- based WGCs <48% Regional generation companies % FGC – Federal Grid Company (the Unified National Electricity Grid) IDC – Interregional Distribution Company IDC’ – a RAO UESR’s spin-off holding IDC’s shares DC – Distribution Company WGC – Wholesale Generation Company TGC – Territorial Generation Company Results “5+5” Strategy for is launched

Company performance

11  Auditing Committee was set up within the Board of Directors  “Basic Principles for Operations with Securities of RAO UES and its Daughter Companies by Members of Board of Directors and Management Board” were approved and are being adhered to  Company’s information policy is being revised  Optimizing and reducing cost:  Repair services are unbundled into independent businesses and subsidiary companies (planned cost reduction for RUB 3 billion)  Optimization of fuel cost (planned cost reduction for RUB 4.2 billion)  Optimization of the personnel structure and number of employees (planned cost reduction for RUB 5.5 billion)  Divestiture of non-core businesses (planned cost reduction for RUB 1 billion)  Developing new businesses:  Housing and communal sector  Former Soviet Union countries (Georgia, Armenia) Improvement of corporate governanceGrowth of business efficiency Business efficiency is increasing, corporate governance is improving Results

12 Company’s value has increased by a factor of four Results Market capitalization of RAO UES Russian Trading System index 100% 150% 200% 250% 300% 350% 400% 450%

13 Priorities for future development  Creation of power reform legal basis  Launch of the wholesale power market  Establishing and spinning off wholesale generation companies  AO-energos restructuring  Consolidation of HV AO-energos’ grids into the Federal Grid Company  Revision of tariff-setting principles  Improvement of corporate governance  Developing new cost-cutting programs  Elaboration and implementation of a market regulatory system for grid assets  Management system optimization Reform Company

Reform: Priorities for future development

15 Setting up rules and regulations for reforms in power industry Priorities for future development In 2003, it is intended to approve the following rules and regulations:  Rules and regulations for the transition market  On determining the federal authority’s mandate in regulating natural monopolies  Rules of non-discriminate access to grids, dispatching and Trading System Administrator (TSA) services  Program for changing state-regulated prices (tariffs) in power industry, including criteria and calculation procedure of return on invested capital  On elimination of cross-subsidization in power industry  Information disclosure standards for natural monopolies

16 Launching the wholesale power market  Adoption of RF Government Resolution on the ‘Rules and Regulations for the Transition Wholesale Power Market’ (setting, among other things, the launching date for the market)  Readiness of market participants in terms of rules and regulations, technology, and organization  Approval of documents on tariffs in the fluctuation sector and methods of setting up tariffs for TSA services  Elaboration and approval of rules and regulations concerning specifics of accounting for and taxation of market participants  Approval of TSA regulations and the contract system  The market model is based on nodal pricing  Trading at the spot market (the day-ahead market) and bilateral (direct) contracts are envisaged Priorities for future development Suggested date for launching a competitive sector at 5-15% of the wholesale power market – in October 2003; complete market liberalization – in 2006 What is necessary: Two most important issues of market operation have been settled:

17 Establishing and separation of wholesale generation companies (WGC)  Creation of new players in the competitive wholesale power market  Attraction of direct investment into generation  Increasing the share of State in the Federal Grid Company Considering the shareholders’ interests and maintaining the value of the Company Priorities for future development Goals of WGC separation Sale of WGC for cash Sale of WGC for RAO UES shares

18 Schedule Preparation of WGC for the auction  Establishing WGC and their management  Preparation of an information document Priorities for future development Establishing and separation of wholesale generation companies  Pilot WGC: late 2004  Discussion at the Board of Directors – November 2003  Completing WGC creation (2nd quarter 2004)  Approval of spinning-off (3rd quarter 2004)  Remaining WGCs –  Schedule is determined in many respects by the rate of AO-energos restructuring

19 Start-up of pilot AO-energos restructuring projects Restructuring in 30 AO-energos is expected to begin by the end of 2003 Major problems of AO-energos restructuring:  Difficulties in coordinating restructuring projects with minority shareholders who have controlling blocks in most of AO-energos  Organizational difficulties AO-energos restructuring 1 January 2005: restructuring of AO-energos by a clear majority Restructuring is completed Priorities for future development

20 Consolidation of HV AO-energo grids into the Federal Grid Company (FGC) Consolidation of HV AO-energo grids into FGC Elaboration and implementation of the market regulation system for grid assets  Preparation of a comprehensive technical foundation and preliminary discussions are in progress  The key issues are as follows:  Fair valuation of assets  Gradual introduction of the market- oriented rate of return on invested capital (ROI)  Introduction of incentives for increased efficiency and capital investment  Introduction of a new, market-oriented regulating system should not cause any price shocks Implementation of a fair system of grid asset regulation is a key element in adding value for RAO UES shareholders Consolidation of all HV grids into FGC and increasing the state share to 75% (primarily by divesting generation) is a key issue for RAO UES Priorities for future development  Consolidation of HV assets is a key component in the RAO UES strategy  To date, consolidation implies setting up and spinning off inter-regional HV grid companies  Envisaged and discussed are alternative scenarios for consolidation of HV assets into FGC  Increased state share is a necessary prerequisite for FGC spinning off

Company: Priorities for future development

22 Transformation procedures during reform Improving corporate governance Capitalization increase of the Company Priorities of RAO UES for future development Priorities for future development Upgrading Company performance and cost-cutting

23 Revision of tariff-setting principles Elimination of cost-base approach in pricing during the transition period until the market is fully liberalized Setting by the Government of tariff caps for each power system, and RAO UES as a whole for three years, taking into account inflation forecasts Draft resolution on setting maximum increases in power tariffs up to 2006 was submitted to the Government Motivation of AO-energos to cut cost and prepare to work in market conditions Suggested power tariff growth: 2004 – 13% 2005 – 9,5% 2006 – 6,5% Priorities for future development

24  Establishing an efficient system for distribution of authority between company management bodies  Setting up a Remuneration Committee within the Board of Directors  Approval of Company’s Information Policy  Elaboration of a Program for Improvement of Corporate Governance  Formulation of a RAO UES Code of Ethics  Members of the Board of Directors and Management Board should comply with the Basic Principles for Operations with Securities of RAO UES and its Daughter Companies  Members of the Board of Directors and Management Board are held responsible for damage to the Company and unauthorized disclosure Enhancing efficiency and transparency in RAO UES Holding companies Moving from the administrative governance system to corporate governance Moving to new quality of corporate governance Improvement of corporate governance Priorities for future development