Anatoly Chubais Chief Executive Officer RAO “Unified Energy System of Russia” Annual Conference for IG “Renaissance Capital” Investors 3 June 2003, Moscow

100% 120% 140% 160% 180% 200% 220% 240% 260% 280% 300% Since September 2002 capitalization of RAO “UES of Russia” has grown by three times Market capitalization of RAO “UES of Russia” RTS index Capitalization US$ bn. Capitalization US$ bn Capitalization increase factors 2

3  Russian political and business elite considerably changed their viewpoints on the power sector reforms at federal and regional levels  Russian business entered into RAO “UES of Russia”: both into the parent company and its daughter companies  Federal laws on the Russian power sector reform came into force  Company’s management fully abides by its “Seven Steps towards Shareholders” made public in September 2002  Financial and industrial performance of the Holding improved  The Concept of RAO UES “5+5” Reforming Strategy for was approved  Corporate ethics standards were adopted following management's proposal (Basic Principles for Operations with Securities by Members of the Board of Directors and Executive Board of RAO UES were approved on 29 April 2003) Corporate External

4 Majority of regional Governors led by the Moscow Mayor and influential presidents of republics Conservatively-minded energy specialists and scientists Some foreign minority shareholders RF Government and RAO “UES of Russia” Political and business elite changed their viewpoints on the reform process Historical opponents On April 1st, 2003, the Law on the Electric Power Industry became effective RF Government and RAO “UES of Russia” Current opponents RF President and the RF Government are playing a key role at every stage of the reform Influential oligarch groups Adviser to the Russian President and Deputy Energy Minister, supported by some senior officials Most senators in the Federation Council Key political factions in the RF Duma (Fatherland, People’s Deputy, Russian Regions, Agrarian Party of Russia, Yabloko, Communist Party of the RF) Deputy Energy Minister Two political factions in the State Duma: Yabloko (G. Yavlinsky), Communist Party of the RF (G. Zyuganov) Capitalization increase factors

5 Evaluation of the Ownership Structure of the Holding Basic investors:  MDM Group  SUAL Holding  YUKOS  Lukoil  Norilsky Nikel / INTERROS  NLMK  … blocking stake no blocking stake blocking stake (allegedly) Capitalization increase factors Results of the AGM of 30 May 2003: the Board of Directors sees considerable number of strategic investors and change in representation of portfolio investors  New shareholders of the mother company have invested circa USD 800 million into acquisition of approximately 10% stake of RAO “UES of Russia”  New shareholders of the daughter companies have invested circa USD 1.2 billion into acquisition of blocking stakes in over 30 AO- energoes In total about USD 2 billion

6 Financial and industrial performance in 2002 Capitalization increase factors Electricity generation per employee, thousand MWh\person Net proceeds Net profit Proceeds and profit of Holding*, RUB billion * Russian accounting standards

7 Cost reduction programs mean improvement of business efficiency  Separation of repairs and maintenance services and making them competitive  Optimization of fuel costs  Optimization of the personnel structure and number of employees  Sale of non-core businesses (target) RUB billion Trends for costs reduction Reducing electricity transmission losses 16% Non-core assets 10% Wages10% Other costs 9% Fuel34% Repairs and maintenance 21% Costs reduction structure in 2002 Capitalization increase factors

8 Adoption of the Concept of RAO UES “5+5” Strategy 8 April April May May The Draft Concept was elaborated in collaboration with the shareholders and consortium of Alfa-Bank and Merrill Lynch consultants The Concept was discussed by the Board of Directors, then made available at the official site of RAO UES for public discussion Concept together with the Action Plan for the Program of Power Sector Reforming for were presented at the meeting of the RF Government Commission on Energy Reform and were taken as a basis Concept was taken up with the Board of Directors The Concept was UNANIMOUSLY approved by the Board of Directors Capitalization increase factors

9 Increase of capitalization of RAO UES undoubtedly proves that the reform was accepted and supported by the business Adoption of the energy reform package of laws Reaction of the market to the changes in power industry Approval of the «5+5» Strategy Concept Improvement of financial and industrial performance of the Holding Russian business entering into power sector Adoption of corporate ethics standards Changing of the elite’s attitude towards the reform

10 Key prospects  Adopting appropriate standards and regulations (by-laws), including:  Launching a competitive 5 – 15% part of the wholesale electricity market  Launch of the “5+5” Strategy  Improving financial and industrial performance along with further cost reduction  Advance in corporate governance Corporate External  Action Plan for the Program of Power Sector Reforming for  Rules and regulations for the wholesale electricity market  List and structure of wholesale generating companies  Resolution on launching a transition period market  Rules and regulations for non-discriminatory access to the grid  Rules and regulations for the retail electricity markets in transition

11 Company’s mission RAO “UES of Russia”, acting for the benefit of its shareholders, seeks 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 through a successful implementation of the reform and increased efficiency and transparency of its operations as well as the operations of the companies established in the restructuring process Capitalization growth is top priority From the Concept of RAO UES “5+5” Strategy for , adopted by the Board of Directors on 29 May 2003

12 Reform Stages Initial stage of restructuring (pilot projects and second turn of AO-energos’ restructuring, launch and adjustment of the 5-15% market and a regulatory base) Completion of market infrastructure and of AO-energos’ restructuring Launch and functioning of liberalized market Transition period , 1 st stage 2004 – 2006, 2 nd stage 2006 – 2008, 3 rd stage Capitalization growth is top priority Final decision is to be made by the RF Government

13  Proportional allocation of shares is the shareholders’ right rather than duty The wholesale generating companies’ stakes belonging to RAO UES that are not demanded on the proportional exchange basis shall be auctioned  Consolidation of the newly created power market entities:  Setting up circa 20 territorial generating companies instead of 32  Establishment of 5 inter-regional distribution grid companies instead of 7  Transition to the unified share (where possible) in all the newly created market entities, except hydroelectric wholesale generating companies  Other shareholders of wholesale generating companies shall enjoy the right to put their shares up for auction jointly with wholesale generating companies’ shares owned by RAO UES  If one or several shareholders acquire control of a 30% stake and over of the newly created companies, the government or RAO UES shall support the right of any shareholder to sell shares for the same price “5+5” philosophy: transformations in the interests of shareholders Capitalization growth is top priority

14 New initiatives in the Company’s performance and corporate governance Company’s performance Corporate governance Capitalization growth is top priority  To advance corporate governance: Improving operation of the Board of Directors. Regulating the information policy. Developing standards of corporate ethics. Introducing corporate governance ratings and corporate audit system.  To toughen cost-reduction programs considerably and to revise their principles  To sell non-core assets  To plan for financial and economic indicators: To approve the financial and economic indicators in order to evaluate Company’s efficiency and make proper forecasts To reduce accounts preparing timeline To start setting up an integrated system of accounting, centralized asset and equipment maintenance investments management

15 Company’s tariff policy is being revised Our viewpoint Our proposals  Restrict electricity tariffs fluctuations by the inflation index, linking at the same time trends for electricity tariffs increase with the anticipated gas price rise  Eliminate the cost-base approach in pricing  With the marginal electricity tariffs growth being established for 2004, it is imperative that the following is set as well: Tariff caps for the next two years Tariffs differentiated by subjects of the Russian Federation Separately - for the population, due to the problem of cross subsidizing Capitalization growth is top priority

16 Advance in corporate governance Introduction of corporate governance ratings and corporate audit system  Setting up an efficient system for distribution of authority between management bodies of the companies  Increase in the number of independent directors  Establishing the list and scale of information disclosure, its schedule, methods and periods  Regulating the interaction of members of the Board of Directors and the Management Board with the public community Members of the Board of Directors and the Executive Board shall be obliged:  To comply with the principles of executing transactions with Company’s shares  To advise the Company Board of Directors on possessing the Company’s shares, as well as on a conflict of interests while executing transactions  To be liable for any damage to the Company and to be responsible for disclosure of confidential information Capitalization growth is top priority Improvement of operation of the Board of Directors Regulation of the information policy Progress of corporate ethics standards

17 Strategic priority of the management is to ensure further increase of capitalization Capitalization growth is top priority Company’s Mission is to ensure that the overall capitalization of the newly created companies is greater than that of RAO “UES of Russia” currently Launch of the “5+5” Strategy in the interests of shareholders Improvement of the Holding’s financial and industrial performance New positioning in the tariff policy Launch of a competitive 5 – 15% part of the wholesale electricity market Advance in corporate governance Management priorities for the nearest years