Mosenergo June 2002 Mosenergo A Leader In The Russian Electricity Sector

Mosenergo June 2002 Contents  Mosenergo - A Leader In The Russian Electricity Sector  Mosenergo On The Verge Of Restructuring  Reforming Moscow’s Electricity Sector  Appendices

Mosenergo June 2002 Mosenergo - A Leader In The Russian Electricity Sector

Mosenergo June 2002 Russia’s Largest Regional Energo  By Electricity Production  By Heat Production  By Size Of Territory Served Mosenergo has an installed electricity capacity of 15,020 MW, or 7% of Russia’s total. In 2001, the company generated 71.4 billion kWh, or 8% of Russia’s total. Mosenergo is one of the largest heat producers in the world. The company has an installed heat capacity of 34,800 Gcal/h. In 2001, the company produced 69.1 million Gcal of heat, or nearly 5% of Russia’s total. Mosenergo supplies electricity & heat to the Moscow region, which has an area of 47,000 square metres and a population of 16 million people. The company serves in excess of 4 million customers.

Mosenergo June 2002 Russia’s Largest Regional Energo  By Composition & Asset Base Value  By Key Economic Indicators  Mosenergo’s asset base includes 21 power stations, including Russia’s only hydro pump station located in Zagorsk.  The company’s fixed assets are valued at US$ 3.2 billion.  The average life of the company’s generation assets is about 15 years, with an operational useful life of years.  In 2001, Mosenergo’s net revenues were US$1,487 million, including US$985 million from electricity sales and US$448 million from heat sales.

Mosenergo June 2002 Company Structure GENERAL DIRECTOR Electricity Generation Electricity Generation 3 Repair & Maintenance Units 3 Repair & Maintenance Units 10 Services Units 10 Services Units 8 Non-core Units 8 Non-core Units 12 Power Plants 12 Power Plants 13 Electricity Transmission Line Units 13 Electricity Transmission Line Units Heat Transmission Network Heat Transmission Network Electricity Supply

Mosenergo June 2002 Strong Reputation In The International Investment Community Depositary Receipts Foreign Loans Eurobonds The first Russian company to place ADRs in 1995, with total proceeds of US$22.5 million. In 1997, the company issued a 5-year eurobond in the amount of US$200 million. Mosenergo has met all its eurobond obligations. EBRD-MFK US$50 million loan for financing of construction of Zagorsk hydro pump station; maturity date – August International Audit International Credit Rating An international credit rating of B-/Stable outlook by Standard & Poor’s. Publication of annual US GAAP financials and independent audits since 1995, аs well as semi- annual unaudited financials.

Mosenergo June 2002 Shareholder Structure Mosenergo’s charter capital stands at RUB28,267,726,000 and includes 28,267,726,000 common shares Mosenergo has over 25,000 shareholders

Mosenergo June 2002 Mosenergo: On The Verge Of Restructuring

Mosenergo June 2002 Factors Affecting Business Results FactorWeightRelated To: Tariffs Inflation / Political Motives DemandLevel of Industrial Production Costs - Depreciation Charge Inflation/Company’s Need for New Equipment - FuelInflation/Regulated by FEC - Spare Parts, Repairs & Maintenance Inflation/Company’s Need for New Equipment - WagesTariff Agreement With Sector’s Trade Unions

Mosenergo June 2002 Tariff Forecasts TARIFF REFORM CREATION OF A UNIFIED TARIFF-SETTING UNIT TERMINATION OF CROSS-SUBSIDISATION CURRENT TARIFF-SETTING MECHANISM Setting of economically sound tariffs, stimulating the development of energy-saving technologies The Federal government implements tariff reform Removal of political influence on tariff setting REC’s expert group analyses the data & gives its conclusion to RECs RECs consider proposed tariff increases Residential tariffs are considered by Moscow City & Moscow Region Governments RECs approve tariff increases The company provides its costs data to the REC FORTHCOMING CHANGES

Mosenergo June 2002 Consumption Forecast Electricity Consumption ForecastHeat Consumption Forecast

Mosenergo June 2002 Cost Forecast 40.4% 17.8% 12.0% 11.5% 7.1% 11.2% Cost Structure Type of Costs Forecast Comments Fuel Gas tariff increases are regulated by FEC; Mosenergo strives to optimise its fuel balance by reducing losses Wage The company has controlled its wage Costs; staff reductions Materials & Spare Parts Contract prices; increase in share of purchases by tender Repair & Maintenance Price determined by tender Depreciation Equipment reaching end of useful life Other costs Cost control; cost optimisation

Mosenergo June 2002 Necessity For Restructuring  Fixed Assets Wearing Out: up to 50% wear-out level of key equipment  Insufficient Level of Investment: absence of private investment - lack of economic incentives  Cost-plus Price-setting Mechanism  Lack of cost reduction incentive as a result of absence of competition & current imperfect tariff-setting mechanism  Cross-subsidising

Mosenergo June 2002 Reform & Restructuring of the Moscow Region Electricity Sector

Mosenergo June 2002 Mosenergo’s Restructuring Strategy Strategic Goals 1.Create a high level of competitiveness in the electricity, capacity and services markets 2.Expand client base by attracting consumers from other regions 3.Create conditions that attract investment into the company, and insure investor profits 4.Ensure stable electricity and heat supplies to Moscow region consumers

Mosenergo June 2002 Implementing Restructuring Tariff Reform Necessary legal condition for Mosenergo’s re- organisation Protecting the rights & interests of Mosenergo minority shareholders Creating positive economic conditions for the split of Mosenergo into core companies KEY TASKS To Be Completed Prior To Launch Of Reforms Creating Asset Transfer Mechanism Eurobond Redemption Reaching an Agreement With Minority Shareholders Define the legal & economic conditions and the order of transferring Mosenergo’s assets

Mosenergo June 2002 Stages Of Restructuring OPTIMISATION (Preparatory) By 2003 REORGANISATION (Structural Changes) By 2004 INTEGRATION After 2004  Introduction of separate accounting by line of business  Selling (transfer) of social sector assets  Exiting non-core businesses  Registration of ownership rights  Decreasing payables & receivables  Elimination of non-core expenses  Implementing restructuring by way of separation of generation, supply, repair & maintenance, & services companies  Distribution of receivables & payables among the newly created companies  Participation in the formation of the Federal Grid Company  Organisation of the management process & creation of new economic relations  Participation of the newly created companies in the inter-regional integration  Participation in the formation of the structure of the System Operator

Mosenergo June 2002 Mosenergo Restructuring Model Generation Companies Moscow City Generation Company Moscow Region Generation Company Supply Companies Supply Company 1 (based on Energosbyt) Supply Company 2 Moscow Transmission Company Service Companies MosenergoremserviceMosenergoproyekt Assets To Be Included In Federal Grid Company Assets To Be Included In The Wholesale Gencos Non-core Companies (Agriculture, Trade, etc)

Mosenergo June 2002 Generation Restructuring UES % Minority Shareholders 49.13% Moscow City Generation Company Installed capacity 9,758.8 MW Moscow Region Generation Company Installed capacity 5,341 MW Separation with distribution of shares on a pro rata basis Separation with distribution of shares on a pro rata basis Separation with distribution of shares on a pro rata basis Assets to be included in wholesale gencos ?

Mosenergo June 2002 Restructuring of Supply & Transmission Businesses UES – 50.87% Minority Shareholders 49.13% Separation with distribution of shares on a pro rata basis Separation with distribution of shares on a pro rata basis Separation with distribution of shares on a pro rata basis Supply Company 1 To be formed based on Energosbyt’s assets & organisational structure Supply Company 2 Create competition conditions Transmission Company To be formed based on the transmission line assets (except for assets to be transferred to the FGC), heat network

Mosenergo June 2002 Summary Of Moscow Electricity System Restructuring  Creation of the Moscow retail electricity market infrastructure  Creation of economically efficient & financially stable energy companies, attractive for direct and portfolio investors  Creation of conditions for development of energy supply business in the region  Attract customers in a competitive market by offering them high quality products & services at lower prices  Retaining government, corporate, & administrative control over the functioning of the Moscow region energy sector  Growth in the market capitalisation of energy companies

Mosenergo June 2002 Timeline For Moscow Electricity System Restructuring MACROECONOMIC PARAMETERS STAGES OF RESTRUCTURING PREPARATORY REORGANISATION INTEGRATION

Mosenergo June 2002 Appendices

Mosenergo June 2002 Russia’s Largest Regional Energo Installed Electricity Capacity, MW ‘ % Electricity Production, kWh bln % Heat Production, Gcal mln 1, % Russia Total Mosenergo Gas Turbines – 4% Hydro Pump Stations – 8% Steam Turbines – 21% Thermal Power Plants – 67% Structure of Generation Assets

Mosenergo June 2002 Electricity Production & Supply Demand in the Moscow region has been growing in the past two years, thanks to increasing consumption in the industrial & residential sectors. Production & Supply Dynamics, kWh bln

Mosenergo June 2002 Heat Production & Supply Production & Supply Dynamics, Gcal mln

Mosenergo June 2002 Key Balance Sheet Figures US GAAP Consolidated Balance Sheet, US$ mln Non-current Assets Charter Capital Including: PP&E Long-term Liabilities Current Assets678502Current liabilities Including: Cash 4582 Including: Short-term Loans50218 Receivables503291Payables Inventories Total Assets Total Share Capital & Liabilities

Mosenergo June 2002 Key Cash Flow Statement Figures Cash Flow From Operating Activity84115 Cash Flow Used For Investment Activity (61)(165) Cash Flow From Financing Activity687 Increase In Cash2937 Cash Position At Beginning Of Period 1645 Cash Position At End Of Period4582 US GAPP Cash Flow Statement, US$ mln

Mosenergo June 2002 Key US GAAP Financial Results US GAAP Income Statement, US$ mln Revenues Operating Costs(958)(1347) Operating Income Pretax Profit5587 Net Profit (Loss)(3)9

Mosenergo June 2002 Financial Debt Rouble Debt Foreign Currency Loans Eurobonds  RUB300 million – loans from Russian banks  RUB2, million – other long-term loans Redemption date – December 2005  US$39.35 million. Redemption by 2009  EUR3.8 million. Redemption by August 2003  US$ million Redemption Date - October 2002 Mosenergo services its debt obligations fully & on time