VYACHESLAV SINYUGIN Deputy CEO Unified Energy Systems of Russia

15 November 2002Boston

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Agenda

UES Highlights

Reform - Rationale and Status

Dialogue with Shareholders

Next Steps

UES Highlights

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3.9

1.2 1.1 0.8 0.6 0.6 0.5 0.5 0.4 0.3

0

1

2

3

4

5

US Chain Japan Russia Canada Germany India France UK Brazil

* As of 14 November 2002

HighlightsHighlights Key DataKey Data

Russia - 4th Largest Power Market in the WorldRussia - 4th Largest Power Market in the World

26.5% 8.4% 7.2% 5.7% 3.9% 3.7% 3.6% 3.5% 2.5% 2.2%% of World Total

Bn

MW

hUES

One of the world's largest electric utility companies

407 thermal and hydro power plants 2,7 mln km of power transmission lines 646,000 employees 627 bn kWh of electricity generated;

72% of the overall generation in Russia 53% state-owned

5

132

38

18

158

44

15

173

43

15

0

50

100

150

200

250

2000 1st Half 2001 1st Half 2002 1st Half

Power Sales Heat Sales Other Revenues

Rb Bn

* Provisional DataRussian rouble as of June 30th, 2002

IAS 1H02: Revenues

188217

231

IAS 1H02: Operating and Net Profit

Rb Bn.

Reform - Rationale and Status

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Global Experience in the Electric Power Sector

Complete Liberalization

of Electric Power Sector

State monopoly

Russia (2001)Russia (2001)

France (2000)France (2000)

Hungary (1999)Thailand (1996)

Italy (1999)Italy (1999)

Great Britain (1990)

Ukraine (1997)Ukraine (1997)

Scandinavia (1992)

EU Directive (1996)EU Directive (1996)

Argentina (1990)

Brazil (1995)Brazil (1995)

SAR (2000)SAR (2000)

Greece (2000)Greece (2000)

Kazakhstan (1998)Kazakhstan (1998)

Moldova (1999)Moldova (1999)

California (1995)

Competition Price Liberalization

Non-discriminatory Access to GridPrivate Investments

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Russia: The Context for Structural Reforms

The strong economic performance of the last three years sets the foundation for implementation of profound structural reforms designed to complete modernization of the Russian State

The current focus is on reforming natural monopolies

The reforms are unprecedented in scope

They will constitute one of the critical drivers in the economic modernization of Russia, and have significant impact on the energy sectors and economies of Eurasia

At the core, the reforms are driven by the development of new, market driven regulatory and operating regimes

The overriding objective is to unlock the significant potential of the current monopolies and create value for:

The consumers

The shareholders

The State

The reform of RAO UES is critical to the modernization of the Russian State

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Optimal Industry Structure

Create transparent and competitive market place Improve overall economic efficiency of the system Ensure financial viability of individual enterprises Secure affordable end consumer electricity price

Attractive Investment

Profile

Encourage capex into areas where new build is required

Raise economic competition and quality through involvement of foreign strategic investors

Establish clear and effective regulatory framework Enhance shareholder value of UES, while ensuring fair

treatment of minority shareholders

Social Considerations

Ensure smooth transition to a deregulated market with minimal price shocks

Ensure reliability of the new system

Co

nst

rain

tsC

on

stra

ints

Ob

ject

ives

Ob

ject

ives

Russian Reform : Incorporate the Best of Industry Experience

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Competitive sectors

Natural monopolies

Liberalisation of price-setting

Stimulation of market participation

Market rules

Regulated tariffs

Securing equal access to grids

Establishment of market infrastructure

GENERATIONSUPPLY

TRANSMISSIONDISTRIBUTION

Reform Basics: Separation of Monopolistic and Competitive Sectors

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Anticipated Timetable

Development of the legal Development of the legal frameworkframework

Revision of the market Revision of the market structurestructure

Pilot test of the wholesale Pilot test of the wholesale marketmarket

Set up of competitive Set up of competitive electricity market in electricity market in generation and generation and supplysupply

Attract private Attract private investments in various investments in various sectors of the industrysectors of the industry

2001-2004 2004-2006 2006-2010

Transmission tariff introducedTransmission tariff introduced Distribution tariff introducedDistribution tariff introduced Unregulated market (5-15%)Unregulated market (5-15%) ISO tariff introducedISO tariff introduced

Government set tariffs Government set tariffs remain for FGC, remain for FGC, DistCos and heat onlyDistCos and heat only

Generation and supply Generation and supply are unregulatedare unregulated

First Phase Second Phase Third Phase

Objectives

MarketStructure

Tariffs

Federal Grid CompanyFederal Grid Company Wholesale generation Wholesale generation

companiescompanies Unbundled regional Unbundled regional

companies, consolidated companies, consolidated by function by function

Federal Grid Company Federal Grid Company and regional and regional distribution companiesdistribution companies

Wholesale generation Wholesale generation companiescompanies

Regional generation Regional generation companiescompanies

Supply companiesSupply companies

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Package of draft laws on the Russian power sector reform has passed the 1st reading by the

State Duma of the Russian Federation

Federal Law Federal Law ««On theOn theElectric Power SectorElectric Power Sector»»

Amendments to the Civil Amendments to the Civil Code of the Russian Code of the Russian

FederationFederation

Amendments to the Federal Amendments to the Federal LawLaw « «On Natural On Natural

MonopoliesMonopolies»»

Federal LawFederal Law « «On putting into On putting into effect of the Federal Law effect of the Federal Law ««On the Electric Power On the Electric Power

SectorSector»»

Amendments to the Federal Amendments to the Federal Law Law ««On Energy SavingOn Energy Saving»»

October 9th, 2002

Amendments to the Federal Amendments to the Federal Law Law « «On State Regulation On State Regulation

of Electricity and Heat of Electricity and Heat TariffsTariffs»»

Legislative Basis of the Reform

Separation of the Russian power sector into competitive (generation and supply) and monopolistic (transmission and dispatching) segments

The new structure of the wholesale and retail power markets, with an equilibrium price based on submitted bids

Guarantees for reliable electricity supplies, as well as insurance of the rights and concerns of minority shareholders and the State

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Fair asset value of investment Interest in selected assets

Increase value of holdings Fair and transparent

treatment Liquidity Corporate governance

No shocks for customers Capital investment Taxes Elimination of subsidies National interest in

transmission

Low cost heat and electricity Reliability Subsidy for some customers Strategic interest in selected

assets

Legitimate, but Diverse Interests of Key Stakeholders

Significant Minorities in SubsidiariesSignificant Minorities in SubsidiariesShareholdersShareholders

The StateThe State CustomersCustomers

Dialogue with Shareholders

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Under management control Beyond management control

UES Stock Price Drivers in 2002

UES

RTS index

Insufficient communication with shareholders regarding key principles of the restructuring

Premature consideration of asset sales in uncertain sector conditions

Modest operating performance and cost-cutting efforts

The final industry structure and the means of its regulation remain unclear

Prospects for restructuring have grown more vague due to the delay in approval of draft bills from June to autumn

A number of Duma deputies support the plan for grid nationalization

Cents

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01 02 03 04 05 06 07 08 09 10 11 12 01 02 03 04 05 06 07 08 09

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Seven Steps of Management for the Benefit of Minority Shareholders

Moratorium on sale of core assets and granting of options to purchase these assets until the mechanisms of fair valuation and proceeds distribution are established

No pledge of shares for loans

No asset transfers to Government other than at fair value

Pro-rata allocation of shares

Preservation of liquidity of shares at all levels throughout the process

Financial / operating results to remain a priority during restructuring

Substantial modification of the dividend policy for the benefit of shareholders

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1 4 5 6 10 11 12 13 November

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109

114

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129

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139

144

149Growth Rate, %

24 25 26 27 30 September

1 2 3 4 7 8 9 10 11 14 15 16 17 18 21 22 23 24 25 28 29 30 31 October

UES of Russia Common Share

Russian Trade System Index

UES Stock Has Outperformed the Index Recently

September 25th, 2002Presentation of the Seven Steps

Next Steps

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Next Steps

Restructuring

Power Sector Reform Laws

Second reading November 29

Third reading December

Restructuring plan (“3+3”)

Task force to start the discussion November 22

Board of directors to review the Plan December 29

Operations

Government to discuss natural monopolies tariff-setting December

IAS FY2002 results Q2 2003