1. Organizational Structure of RAO UES Executive Administration During Reform Period 22 March 2004

2. 1 Governance System The new governance system must meet the following criteria: Managing different business lines within a single company Increasing efficiency of building new business lines through making executives personally responsible for the results (creation of new companies and increasing their efficiency; project-based approach to most aspects of the reform) Single center of responsibility to the outer world Need to organize new subdivisions within RAO UES executive administration to perform the functions of creating and running new lines of business. Governance System The new governance system must meet the following criteria: Managing different business lines within a single company Increasing efficiency of building new business lines through making executives personally responsible for the results (creation of new companies and increasing their efficiency; project-based approach to most aspects of the reform) Single center of responsibility to the outer world Need to organize new subdivisions within RAO UES executive administration to perform the functions of creating and running new lines of business. Governance System Creating a strict vertical subordination in the Holding's governance system Functional management of the vertically integrated business in a stable environment Governance System Creating a strict vertical subordination in the Holding's governance system Functional management of the vertically integrated business in a stable environment Key Goals 1998 – 20032004 – 2008 Significant improvement of the SDCs' financial and operational activities through implementing common principles for the SDCs' credit, accounting, sales, corporate, and production policies Implementing the Industry Reform Market liberalization Creation of new players in the energy sector Changing the governance system; further privatisation of the sector Increasing the efficiency of power companies Increasing the energy companies' investment attractiveness Ensuring reliable power supply to customers Completing the move from administrative governance system to the methods of corporate governance

3. 2 Finalizing the reform procedure, e.g., which assets are to be auctioned and when; which assets are to be transferred to which spin-off companies, etc. Preparing the SDCs and newly established (spin-off) companies for independent work (legal procedures, efforts to shape the processes, develop executives' skills, etc.) Development and implementation of a mechanism for the collaboration among companies in the value chain until they are transferred to new owners. Increasing operational efficiency (e.g., reduction of procurement, R&M costs, etc.) Enhancing the efficiency of the head office (e.g., conduct of an functional audit) Control over budgets, fuel inventories, repair periods and volumes, etc., Support from the viewpoint of investment process (as needed) Maximizing the shareholder value of all available assets. New goals in the context of reforms … and old priorities which may not be left unattended Successful implementation of the reform program according to schedule Increasing efficiency of assets Ensuring reliable work of the sector during the transition period Tasks set before RAO "UES of Russia"

4. 3 RAO "UES of Russia" to move to a new sector structure after 2008 The challenge lies in the unique scope and deadlines for the announced reforms. Unbundling of over 60 integrated regional energos currently engaged in electricity generation, transmission, distribution, and sales, to be followed by integration of the divided assets. Creation of over 100 new companies, recruiting managerial staff for these companies, and introduction of governance procedures. Transfer of ownership of over 90 GW of generating capacities Creation of a competitive wholesale market, and companies starting to work in a new environment Liquidation of a single operation administering the sector Defining a new tariff policy for all lines of business Creating of a new infrastructure and rules and regulations for the industry The challenge lies in the unique scope and deadlines for the announced reforms. Unbundling of over 60 integrated regional energos currently engaged in electricity generation, transmission, distribution, and sales, to be followed by integration of the divided assets. Creation of over 100 new companies, recruiting managerial staff for these companies, and introduction of governance procedures. Transfer of ownership of over 90 GW of generating capacities Creation of a competitive wholesale market, and companies starting to work in a new environment Liquidation of a single operation administering the sector Defining a new tariff policy for all lines of business Creating of a new infrastructure and rules and regulations for the industry RAO "UES of Russia" FGCIDC Thermal generation- based WGCs Hydrogenera- tion-based WGCs Holding of guaranteed suppliers, isolated regional energos System Operator Territorial Generation Companies 1 1 5 5 6 6 4 4 ~70 1 1 14–16

5. 4 Organization based on business units specialized by lines of business Reform Management Center to develop and implement the sector reform ExamplesComments RWE Enel Endesa Ontario Hydro Detroit Edison Pacific Gas and Electric Enel Endesa Single center of responsibility for a specific line of business Focus on the definite result (incl. efficiency) Executives bear personal responsibility Single center for controlling quality/compliance with deadlines for reform implementation Ensuring transparency of results/using the best experience Principal elements of governance: best international practices

6. 5 Corporate Center Reform Management Center Business Units FGC System Operator Other Central administrative functions of RAO "UES of Russia" Ensuring efficient interaction between RAO "UES of Russia" and shareholders, authorities, mass media, etc. Strategy and control (e.g., strategic planning, monitoring of financial performance Departments of RAO UES executive administration, which have their own budgets and responsibility for a specific line of business (FGC and SO have separate legal personalities, whereas others do not). Creation of new companies in line with the reform Control over activities of the newly established companies Spread of governance culture and standards, and principal business processes. Several project teams under common management; work to promote the reform Reform strategy and implementation Management Board Chairman of the Management Board Definition Functions

7. 6 *The organizational structure is to be further elaborated Head of Corporate Center Head of Investment Planning Unit Head of PR Division Head of GR Division Head of Security and Internal Audit Procurement Corporate finance Tax accounting Accounting and reporting Treasury Administrative Department Human Resource Management Logistics Department Corporate policy Head of Economic Planning Head of Capital Management Head of Legal Service Head of ITCFOHead of Administrative Department

8. 7 *The organizational structure is to be further elaborated **Work may organized on a project basis or full-time employment of some specialists ***Project teams will be formed by the RMC to accomplish particular tasks of the reform Key areas** Restructuring of the parent company Possibility of restructuring the regional energos/ isolated regional energos Targeted structures of interregional companies Program to restructure the repair and maintenance businesses Wholesale markets for the transition period Targeted wholesale market Retail market Restructuring methodology Unbundling of regional energos Procedures to establish new companies (TGCs, WGCs, IGC, etc.) and exercise control over the process of their establishment Holding auctions in respect of WGCs Main projects*** Strategy and target structure of the power industry Design and launch of the market Restructuring of the regional energos Establishment / control over the establishment of new companies Restructuring of the parent company; sale of assets Head of RMC Deputy Head of RMC

9. 8 Business Units The lines of business will be grouped into 6 business units Business Units –Carry out day-to-day control over the key aspects of the companies' activities (fuel inventories, etc.) to ensure uninterrupted operation –Determine efficiency targets for the companies under management and help improve their efficiency –Recruit key personnel for the newly established companies under their management –Work to build the governance structure for the new companies (management, managerial processes, etc.) System Operator FGC, IGC, foreign assets, and exports Hydro-WGCs 1, 2, 3, 4 Thermal WGCs 1, 2, 3; TGCs 7- 10, and regional energos 20-25 Thermal WGCs 4, 5, 6; TGCs 4-7, and regional energos 45-50 R&M, R&D, Construction Entities

10. 9 Top-managers' personal responsibility for the results in their business lines Concentration and specialization of units by line of business Corporate Center to focus on the performing their functions with the least costs Strengthening the Reform Management Center to ensure coordination of efforts to reform the sector