1. RAO UES of Russia: Towards Economy Of Growth Through Reform Of Energy Sector Presented by A. B. Chubais Chairman of the Board, RAO UES of Russia Brunswick UBS «Russia: Investing into Economy of Growth» September 28, 2004

2. 2 RAO UES of Russia: Growth Dynamics RAO UES of Russia provides for approximately 70% of power generation and consumption in Russia Source: RAO UES of Russia Nationwide energy consumption growth in Russia Increase in power generation by power plants comprising the RAO UES of Russia holding - Optimistic scenario: 1290 bln kWt.h towards 2020 (on average, 2,76% a year beginning from 1998 ) - Moderate scenario: 1110 bln kWt.h towards 2020 (on average, 1,54% a year beginning from 1998) Source: Energy strategy of Russia Forecast for further growth of energy consumption in Russia -2 0 1 2 3 4 199920002001200220032004 %

3. 3 RAO UES of Russia Group: Financial Showing For The Past Years (IAS) Mln$ -5 0 5 10 15 20 25 19992000200120022003 -15 -10 -5 10 15 20 25 0 5 19992000200120022003 EBITDA Revenues Income (loss) from operations EBITDA margin Operating margin % 8,015 - 0,87 0,4 20,14 2,2 4,2 5,06 - 11 20,1 10,9

4. 4 Corporate Center Reform Management Center Business Unit 1 Business Unit 2 Business Unit «Grids» Business Unit «Hydro Generation» Business Unit «Service» Management Board The new organizational structure of RAO UES of Russia must stimulate the reform progress in the electric power sector of Russia SO-CDUHydro WGCs (4), Hydro Power Stations under construction Thermal WGCs (3), TGCs (8), Corresponding Regional Energos Thermal WGCs (3), TGCs (6), Corresponding Regional Energos Repair and Service Companies Federal Grid Сompany, IDCs, Export-import, Foreign assets Improvement of Management: New Corporate Configuration of RAO UES time is pressing

5. 5 Bln Roubles time is pressing Profit before taxation: Results of 2003; Forecast and dynamics for 2004 Transition to a new management system based on Key Performance Indicators (KPI). Increase in motivation and personal responsibility of the company management (including the system of KPI-based bonuses and RAO UES share options). 2003 actual2004 planned (initial business plans of subsidiary companies) 23.9625.47 2004 planned (approved by the RAO UES Management Board on Sept 20, 2004) 38.34 (prior to establishment of business units) (updated 3 months into functioning of business units) New Corporate Configuration of RAO UES: Growth in Efficiency Planned effect from introduction of modern management techniques: 12,87

6. 6 Georgia: about 20% of generating plants and 35% of distribution facilities have been purchased or assumed under trust management; Armenia: Assets comprising about 85% of that country’s power generating facilities have been purchased or assumed under trust management; Kirghizia, Tadjikistan: Talks are unfolding about purchasing assets (completion of energy facilities). Kazakhstan: Consummation of a deal on purchase of a share in a large power plant. Purchase of Energy Assets in Other Countries time is pressing

7. 7 «Lesser Energy Business»: Results and Perspectives time is pressing JSC «RKS» Established in May 2003 Sales volume for the first year of operation: 14 billion roubles Net loss: 117 million roubles FactsPerspectives Concentration of the core business in 14 cities of Russia. Gradual expansion of core business geography (up to 30 cities). Increase in sales volume up to $1 billion in 2005. Chief objective: break-even business plan for 2005, generation of net profit starting from 2006.

8. 8 Growth and Investment Factors in RAO UES: Pros and Cons Slow pace of reform Reform as the key factor of a competitive energy market High potential of capitalization increase due to undervaluation of company stocks High-capacity and ever-growing consumption market Cross funding Risks associated with imperfect legislation on company restructuring + -

9. 9 ++ Establishment of new industry units Wholesale Generation Companies (WGC) Territorial Generation Companies (TGC) Establishment of Wholesale Generation Companies started: - Charter capital of «WGC-5» JSC comprises 29 407 170 459 roubles; - Initially, 100% of company shares remain in the ownership of RAO UES of Russia. - Shares are paid for by material assets and money (4 228 964 180 roubles). Establishment of Territorial Generation Companies started: - RAO UES of Russia establishes a 100% owned subsidiary joint-stock company (TGC) - Pays for 50%+1 shares of the new company’s charter capital. - Unpaid shares pass into the ownership of the TGC. - Shareholders of “Energo” joint-stock companies, except for RAO UES of Russia obtain the right of purchasing 50% - 1 shares at par value. Charter capital of «TGC-9» JSC: 4 200 000 roubles (generating assets of«Permenergo» and «Sverdlovskenergo» to be leased to the concern). Charter capital of «TGC-14»: 3 100 000 roubles (generating assets of «Buryatenergo» and «Chitaenergo» to be leased to the concern). Energy Sector Reform: Latest events

10. 10 + Creation and development of a competitive energy market Reform of regional energy systems Establishment of new industry units: Interregional Distribution Companies (IDC) Exchange floor of the trading system administrator (ATS): - Started operation on November 1, 2003. - Entered the Top 10 list of world’s largest energy exchanges. - Unites over 80 participant companies - Expected sales volume for 2004 – around $850M. - Functional division was initiated in 46 energy enterprises («Energos»). - Shareholders approved of the reform program in 32 energy systems. - Three new «Energo»-based companies completed state registration. Establishment of Interregional Distribution Companies started: - IDCs will be established as 100% owned subsidiary concerns of RAO UES of Russia. - Charter capitals of the IDCs will be paid for by shares of distribution grid companies, assigned at the time of restructuring the regional energy systems. - For transition period the IDC shares will be passed under trust management of the Federal Grid Company. Energy Sector Reform: Latest events +

11. 11 0 20 40 60 80 100 120 140 160 180 November December January February March April May June July August Mln KWt/h 100 200 300 400 500 600 Roubles/MWth Free trade volume Free market prices Regulated market prices 52213272616438337813580 493 490,85 508,8 498,93 393,59 431,43 477,79 481,44 276,94 264,25 251,95 39873844 494,40 3605 517,55 4217 491,47 * Forecasted volumes 200333,7 NEPOOL (USA) 10 (2004)45ATS (Russia)*9 (2004)56 EEX (Germany)*8 (2004)62AESO (Canada)*7 (2004)67GME (Italy)*6 2002104NYISO (USA)5 2003118Nord Pool (Scandinavia)4 2003119PJM (USA)3 (2004)184NEM (Australia)*2 2003229OMEL (Spain)1 # Mln MWth Total (forecast) for year Spot Market Free Market of Energy World Top 10 Exchange Floors Source: ATS Energy Market: A Positive Trend +

12. 12 RAO UES of Russia: Potential for Capitalization Increase Source: RAO UES of Russia based on IBES, Nelson, JCF estimates EV/EBITDA (2004 Forecast)Mcap/kW (Beginning of September of 2004) RAO UES Discount in relation to foreign companies’ EV/EBITDA average value – from 43% to 62% RAO UES capitalization per 1 KWt of installed capacity is several times lower than that of foreign energy companies + 0 1 2 3 4 5 6 7 8 7,5 2,9 5,9 6,56,6 0 116 538 160 473 940 100 200 300 400 500 600 700 800 900 1000 RAO UES CEMIG CEZ ENDESA E.ON RAO UES CEZ ENDESA E.ON CEMIG

13. 13 - + Cross funding Risks associated with imperfect reform legislation Slow pace of reform Elimination of cross funding within several years Elimination of conflict between corporate and legislative norms Quality of reform still preferred over pace of reform Making it legal by creating a system of action grants. Amending the legislation (Tax Code, Law on Joint-stock Companies, other legislative acts). Previous decisions on energy system reform and interregional framework of new companies are not to be reviewed. Removing the «Cons»

14. 14 New Initiative of RAO UES: Concept of «Managed Expansion» of the Energy Market Proposals Measures Transformation of the federal wholesale energy market (FOREM) into a system of bilateral agreements. Transfer of the entire regional power generation system to the FOREM Gradual reduction of the total contractual supply volumes through governmental decisions (within 3 to 5 years). Employment of bilateral agreements for protection of selected consumer groups Withholding from immediate transition to the target model of market and its substitution with managed expansion of the energy market. Controlling energy price upsurge risks. Smooth accommodation of consumers and producers to market conditions. Retaining control over energy supply to the two most vulnerable consumer groups: major energy-intensive industrial plants and the residential sector. Effects

15. 15 Thank you for your attention