1. RAO UES Reform: Investments, Market, Structural Transformation UBS Conference Moscow September 13, 2006

2. 2 This document is being presented to you solely for your information and may not be reproduced, further distributed to any other person, or published, in whole or in part, for any purpose. This document has been prepared by RAO UES (the Company) and comprises the written materials/slides that have been prepared solely for use at a presentation concerning the Company. The securities of the [Company and the] Company's subsidiaries have not been and will not be registered under the Securities Act of 1933 and may not be offered or sold in the United States except in reliance on an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933. This document does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any shares in the Company or the Company's subsidiaries, nor shall it or any part of it nor the fact of its distribution form the basis of, or be relied on in connection with, any contract or commitment whatsoever. This document is not an invitation nor is it intended to be an inducement to engage in investment activity for the purpose of Section 21 of the Financial Services and Markets Act 2000 of the United Kingdom («FSMA»). To the extent that this document does constitute an inducement to engage in any investment activity, it is directed only at (i) persons outside the United Kingdom; or (ii) persons who are investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) of the United Kingdom (the «Financial Promotion Order»); or (iii) persons who fall within Articles 49(2)(a) to (d) («high net worth companies etc.») of the Financial Promotion Order; and (iv) any other persons to whom this document for the purposes of Section 21 of FSMA can otherwise lawfully be made (all such persons together being referred to as «relevant persons»), and must not be acted on or relied upon by persons other than relevant persons. Any invitation or inducement to engage in any investment activity included within this document is available only to relevant persons and will be engaged in only with relevant persons. Anyone other than a relevant person must not rely on this document. DISCLAIMER

3. 3 Generation Transmission & Distribution Grids Sales 73 Regional Energos High Voltage Grids + Grid Service Central Dispatch 32 Federal Power Plants Russian Federation Minority Shareholders of the Parent Company 52% 48% RAO UES RAO UES: Pre-reform Structure

4. 4 MonopoliesCompetitive Power Generation Private shareholders Government FGC (Transmission) Wholesale GenCos (6) Territorial GenCos (14) Hydro GenCo (1) System operator IDC Holding (Distribution) Competitive market Central North- West Ural and Volga Siberia sales services FGC – Federal Grid Company ATS – Administrator of Trading System IDC – Inter-regional Distribution Company RAO UES Target Structure

5. 5 Source: RAO UES of Russia estimates Capacity balance 2006-2010: Two options Commissioning new capacity Deficit will already develop in 2007 by 2010 deficit will reach: In the European zone – 18,7 GW In Siberia – 2 GW In Far East – 0,8 GW will prevent future deficit Capacity needs dynamic (GW) Available capacity (GW) Capacity deficit (GW) With current capacity -21,5

6. 6 = What should be done? The only right answer Is to launch a large-scale long-term investment program

7. 7 Investments: Approach and Requirements Reform Concept Approach to Investment Sources Investments from state budget Private investments Competitive sectors of the industry (primarily thermal generation) Monopoly sectors of the industry Large-scale investments should be attracted during the final phase of the reform !! Investment

8. 8 New Power Construction Plan In 2006-2010 commissioning capacity will reach 21,500 MW (for reference, in 2001-2005 commissioned capacity amounted to 7,000 MW) It is planned to commission about 38,000 MW in 2011-2015 Capacity Commissioning Plan Investment Needs 1279 2059 3288 5062 9796 0 2000 4000 6000 8000 10000 20062007200820092010 thsd MW Investment Plan for 2006-2010: $81,5 billion (the largest investment program in Russia) Investment 6,8 15,5 18,6 19 21,6 0 5 10 15 20 25 20062007200820092010 Bn $

9. 9 Investment Investment in the Monopoly Sectors: Federal Budget Allocation starting from 2007 0,8 0,09 0,67 $ bn FGCSystem OperatorHydro GenCo 0,045 1,56 3,48 3 0 1 2 3 4 2006200720082009 $ bn

10. 10 RAB System: Incentive for Investments in Distribution Networks Cost-plus Regulatory Asset Base (RAB) Market-based ROI with allowance for industry risk No mechanisms to regulate the return on investments Economic incentives and responsibility for reliable provision of services to consumers 5-year setting Tariff indexation based on factors that are beyond the company control No mechanisms to regulate the reliability of services Short-term setting (1 year) Such risks are not acceptable for strategic investors Tariff is indexed only for inflation Investment Transition to the RAB system provides incentives for: growth of the debt for the long-term modernization and development projects growth of capitalization of distribution grids companies The Regulatory Asset Base (RAB) system operates in more than 20 countries, including UK, Germany, Sweden, Canada, etc. The RAB System is planed to be introduced in Russia in 2008

11. 11 Investments in Competitive Sectors: Basic Mechanisms Thermal generation is the most important investment target 2/3 of electricity generation in Russia Additional issue of shares in WGCs and TGCs Investments Guarantee Mechanism Direct private investments in local projects Private placement Public placement Investment Up to 460 billion roubles (>$17,5 billion) * * - 2006-2010

12. 12 11,853 31,715 $ bn Investment RAO UES of Russia Market capitalization dynamics Statement of the Ministry of industry and power on the free access of private investments into thermal generation Positive outcome of the meeting with President Putin on the investments in power sector Approve of the priority generating capacity projects Decision on the maximum tariff growth in 2007 – 10%. Government approve investment program for 2006-2010 BoD decision on the pilot projects for additional shares issues of WGC/TGC

13. 13 217 239 268 276 277 283 331 590 1095 * 1917 ** 0 500 1000 1500 2000 TGC-5WGC-2WGC-3RAO UES of Russia WGC-4WGC-5TGC-6TGC-3 (Mosenergo) Companies in emerging markets Companies in developed markets EV/IC (August 2006) Undervaluation of Generation Assets: Comparative Analysis * - Weighted average value for 10 companies from Brazil, the Czech Republic, China, India, Malaysia, and South Korea ** - Weighted average value for 11 companies from Spain, Finland, France, Germany, Italy, the United Kingdom, and the USA Investment Source: RAO UES of Russia estimates, company data

14. 14 EV/length (August 2006, weighted average) Undervaluation of Distribution Grid Assets: Comparative Analysis Investment Source: RAO UES of Russia estimates, company data 4699 4829 28849 0 5000 10000 15000 20000 25000 30000 RussiaEmerging markets Developed markets

15. 15 Power Market Liberalization Markets Competitive Market Model (launched on Sep. 1, 2006)  Spot market (no price cap)  Balancing market  New rules of the retail markets (wholesale competitive prices included into retail prices) Competitive Markets  One year long  Long- run (starting from 2007) Regulated Bilateral (Vesting) Contracts Projected for 2007 Ancillary Services Market Capacity Market Suppliers selected on a competitive basis Bilateral contracts Auction held by System Operator + + Starting from Sep.1, 2006 Mandatory and voluntary liberalization of power market

16. 16 Markets Mandatory sales under regulated contracts Voluntary liberalization (less electricity supplied under regulated contracts subject to a purchaser’s decision) Mandatory liberalization Annual consumption – 2007 5% 5 2007 + [5-15%] 2008 Annual consumption – 2006Annual consumption – 2007 200620072008… + around 75% (including new generation and new consumption) 95%90% Annually from 2008: Mandatory liberalization – at least 5% of the 2007 annual consumption Voluntary liberalization – at least 5% of the 2007 annual consumption. All new capacity and consumption commissioned after 2007go to the free market Sources to extend liberalization New generation and consumption 5-9% (next slide) Liberalised purchase of deltas (see next slide) Retrading (see next slide) 11-16% X%

17. 17 De facto liberalization of the market (based on the results from first 13 days in September): Purchase at spot prices of delta between day- ahead consumption and annual projections ~ 5% - 9% of total daily consumption Producers retrade regulated contracts’ energy at competitive spot prices – 11 - 16 % of total daily production TOTAL: Trading energy volumes at competitive spot market prices: 16 - 25% Regulated contracts– financial contracts (not physical!) Demand, supply and competitive price are formed by full production and consumption volumes Efficient allocation of resources price volume Market price Efficient plants Perform RC on their own + sell electric power over RC to “expensive” plants based on the market price «Expensive» plants It is more profitable to buy based on the market price than generate on their own in order to meet RC obligations Markets Sources to further extend liberalization +

18. 18 As a result of reorganization, shareholders of RAO UES will own WGC,TGC, FGC and IDC shares in proportion to the amount of their shares in RAO UES Structural Transformation Restructuring of RAO UES of Russia: Two Steps in the Final Phase First reorganization: pro-rata spin-off (2006 - 2007) Second reorganization: pro-rata unbundling (2007 - mid-2008) RAO UES Shareholders Meeting (November 30, 2006) RAO UES Shareholders Meeting (2008) Spin-off of two generation companies (WGC-5 and TGC-5) with pro-rata distribution of shares Reorganization of RAO UES of Russia through unbundling Pro-rata distribution of the company assets among shareholders Transfer of functions to the Government and infrastructural power industry entities 1 2