Сontents CORPORATE GOVERNANCE SYSTEM. OPERATION OF THE UES OF RUSSIA Generation 107 APPENDIX REGULATORY ENVIRONMENT AND MACROECONOMIC INDICATORS

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2 We are pleased to present the final Annual Report of RAO UES of Russia for 2007 The Report was approved by the Board of Directors of RAO UES of Russia on 25 April 2008 and submitted for approval to the Annual General Meeting of shareholders of RAO UES of Russia scheduled for 28 May 2008

3 Сontents 2007 CORPORATE MILESTONES 4 OPERATIONAL HIGHLIGHTS OF RAO UES OF RUSSIA 5 STATEMENT BY BOARD OF DIRECTORS CHAIRMAN OF RAO UES OF RUSSIA 6 STATEMENT BY MANAGEMENT BOARD CHAIRMAN OF RAO UES OF RUSSIA 8 COMPANY PROFILE. HISTORY OF THE REFORM 10 TEN YEARS OF THE REFORM: KEY EVENTS, HIGHLIGHTS, COMMENTS 14 SHARE CAPITAL OF OAO RAO UES OF RUSSIA CORPORATE GOVERNANCE SYSTEM Shareholders Meeting 35 Board of Directors 35 Management Board 37 Governance System 38 Business Planning and Cost Control 42 Dividend Policy REGULATORY ENVIRONMENT AND MACROECONOMIC INDICATORS Balance Generation and Consumption of Electricity 67 Factors Affecting Pricing in Electricity Industry 70 Electricity Tariffs 71 OPERATION OF THE UES OF RUSSIA OPERATIONAL RESULTS INTERNATIONAL ACTIVITIES Generation 107 Electricity Transmission and Distribution 110 International Cooperation 145 Foreign Assets and Projects 147 Electricity Exports and Imports APPENDIX RAO UES Corporate Governance Code Compliance Report for Information on Members of the Board of Directors, Management Board, Сommittees and Сommissions under the Board of Directors of RAO UES of Russia 169 Information on Stakes and Voting Shares Held by OAO RAO UES of Russia in Other Joint Stock Companies RAO UES subsidiaries with shares traded on stock markets 192 Report on Financing of the Projects under the Investment Programme of RAO UES of Russia 196 REFORMING THE COMPANY Objectives, Goals, and Phases of the Reform 47 Creation of the Sector s Intended Structure 52 Reorganization of OAO RAO UES of Russia 55 Development of Electricity Markets 57 OPERATIONAL RESULTS OF ELECTRICITY MARKETS Wholesale Electricity Market 75 Retail Electricity Markets 80 INVESTMENT ACTIVITIES Investment Programme 85 Sources of Investment 87 Results of Investment Activities 88 FINANCIAL RESULTS Company s Financial Results 113 Auditor s Report 120 Statutory Financial Statements of the Company 124 Demerger Balance Sheet of OAO RAO UES of Russia 126 ENVIRONMENTAL POLICY. CORPORATE SOCIAL RESPONSIBILITY Environmental Policy 153 Corporate Social Responsibility 155 Information on transactions made by OAO RAO UES of Russia in Company s Bylaws 202 Major Corporate Events in Glossary 213 List of Sberbank branches acting as re-registration agents for shares of RAO UES of Russia 218 Contact Information 232

4 2007 Corporate Milestones The first phase of reorganization of RAO UES of Russia is completed. Two generation companies OAO WGC-5 and OAO TGC-5 are spun off from the Company. The Company s shareholders receive shares in OAO TGC-5 and OAO WGC-5 in addition to their shares in RAO UES of Russia. At the Extraordinary General Meeting, shareholders of RAO UES of Russia approve key resolutions relating to the final phase of the Parent Company s reorganization. Pursuant to these resolutions, RAO UES of Russia dissolves on 1 July 2008, and its shareholders receive shares in 23 key energy companies. The consolidation process is completed at six thermal WGCs and fourteen TGCs. Shares of all the thermal generation companies created during the reform float on the securities market. Amendments are adopted to the electricity legislation which enable to complete the sector reform, create the legal framework for the operation of the companies of the post-reform sector structure to be spun off from OAO RAO UES of Russia, and ensure reliable operation of the UES of Russia and uninterrupted power supply to customers. The energy companies of RAO UES of Russia launch large-scale construction and modernization of their generation and network facilities envisaged by the Company s five-year investment programme. By 2011, 29,000 MW of generation capacity and about 70,000 km of transmission lines of different voltages are to be brought on line nationwide. The additional share offerings of 10 generation companies and the sale of the government stake shares in 7 WGCs and TGCs owned by RAO UES of Russia carried out in 2007 generate about RUB600 billion in direct private investments for the sector development. Government and corporate resolutions are taken to change the configuration of the interregional distribution companies. 12 IDCs are to be created in the distribution sector, which will be comparable in terms of assets value and will compete among themselves for investments. A schedule is set for the electricity market liberalization which provides for deregulation of electricity prices on the wholesale market by By end-2007, electricity deliveries at unregulated prices made about 20 percent of the total wholesale market deliveries. RAO UES of Russia continues its drive to divest its energy retail assets, selling its shareholdings in 22 companies through public auctions. RAO UES of Russia receives RUB13.2 billion in proceeds from the sale of ERC shares, which exceeds the target by one third, succeeding in bringing private strategic investors to these ERC. 4

5 Operational Highlights of OAO RAO UES of Russia and RAO UES of Russia Holding Company INDICATORS UNIT OF MEASUREMENT Installed capacity of RAO UES power plants million kw Electricity output by RAO UES energy companies billion kwh Heat output by RAO UES entities million Gcal Average annual headcount in RAO UES entities 000 persons Length of RAO UES transmission lines 000 km 2, , ,466.4* Total length of RAO UES bulk transmission lines of 220 kv and above 000 km Total length of RAO UES kv transmission lines 000 km Total length of RAO UES kv transmission lines 000 km 1, , ,843.6 Company s net revenues from sales of goods, products, works and services RUB mln 32,579 40,297 29,131 Company s earnings before taxes RUB mln 24, , ,284 Company s net income RUB mln 20, , ,827 Company s net income with no account of the revaluation of the financial investments in the subsidiaries traded on the RTS and MICEX stock exchanges RUB mln 20,898 27,431 28,782 Dividends per ordinary share of the Company RUB ** Dividends per preferred share of the Company RUB ** Holding Company s revenues from the sale of goods, products, works and services*** RUB mln 776, , ,671 Holding Company s earnings before taxes*** RUB mln 67,595 82, ,616 Holding Company s net income*** RUB mln 51,812 53,823 82,171 * comments in the Operational Results section ** submitted for shareholder approval at the AGM of RAO UES of Russia scheduled for 28 May 2008 *** consolidated RAS statements 5

6 Statement by Board of Directors Chairman of RAO UES of Russia Dear Shareholders! 2007 was the last reporting year for the Board of Directors and a year of the major decisions regarding the Company s reorganization. In mid- 2008, RAO UES of Russia will cease to exist. In 2007, RAO UES of Russia successfully completed the first phase of its reorganization and, as a result, two thermal generation companies, OAO WGC-5 and OAO TGC-5, were spun off from the Company. Shareholders of RAO UES of Russia received shares in OAO WGC-5 and OAO TGC-5 in proportion to their holdings in RAO UES of Russia. The model for the final phase of the Company s reorganization was approved by its shareholders at the Extraordinary General Meeting held on 26 October During the reporting year, the Board of Directors of RAO UES of Russia paid special attention to issues relating to the completion of the structural reform of RAO UES Holding Company and the implementation of the energy companies investment programmes. The Board of Directors thoroughly reviewed the five-year investment programmes of generation companies and sources of funding these programmes and took a major decision: all of the Company s thermal WGCs and TGCs are to issue additional shares before they spin off from RAO UES of Russia. Despite the liquidity crisis on the financial markets, 2007 was a successful year in terms of attracting private investments in the energy companies. Strategic investors came to the companies. The total amount of private investments raised through the issuance of additional shares in thermal generation companies in 2007 and Q amounted to RUB411.5 billion. In 2007, the Government took a decision to divest the generation companies by selling the Company s shares in WGCs and TGCs to private investors. All proceeds from the sale are to be used to finance the investment projects to develop the Unified National Energy Grid (UNEG) and hydropower generation facilities, which will remain under the government control. By the end of Q1 2008, about RUB338 billion was raised through the sale of the government stakes in the thermal generation companies. The Board of Directors approved the new the new IDC configuration, finalized the target model of OAO HydroWGC, approved the strategy for the sale of non-core assets of RAO UES of Russia and its subsidiaries, including the sale of its shares in repair and maintenance companies and scientific and research centres, and approved the schedule for auctions to sell the Company s shares in energy retail companies. We can say today that the structural reform has been a success. Establishment of all thermal wholesale generation companies six WGCs and fourteen TGCs was completed, and mid 2008 will see the completion of establishment of FGC, IDCs, and HydroWGC. All principal relevant resolutions have been approved. On 1 July 2008, the energy assets and isolated energy systems in the Far East of Russia will be consolidated into OAO RAO Energy Systems of the East, and foreign assets and some combined-cycle power plants will merge with and into OAO INTER RAO UES. Like in the previous years, an important role in the activities of the Board of Directors was played by the advisory bodies the Strategy and Reform Committee, the Audit Committee, and the Appraisal Committee, Human Resources and Remunerations Committee, and the Investments and Fuel Supply Commission. Prior to being considered by the Board of Directors, all important issues were reviewed by the relevant committees. At every phase of the reform, the Company s corporate governance had its key goal the creation in RAO UES of Russia and each of its subsidiaries of a balanced, harmonious, transparent system of relations between shareholders, the Board of Directors and managers. We can confidently state that all the results of the large-scale process of corporate restructuring mentioned above were achieved thanks to the support from shareholders of RAO UES of Russia. We highly appreciate the confidence and assistance both from the Company s key shareholders the state and strategic investors and from the minority shareholders. ALEXANDER VOLOSHIN 6

7 Statement by Management Board Chairman of RAO UES of Russia Dear Shareholders! We would like to present the last Annual Report in the history of RAO UES of Russia. As resolved by shareholders, the reorganization of RAO UES of Russia is to be completed by 1 July 2008, following which the Company will cease its operations. This resolution was backed by over percent of the shareholders who took part in the EGM held in October During the reporting period, the Management Board of RAO UES of Russia focused on completing the corporate restructuring and creation of the electricity markets. Special emphasis was placed on raising funds to finance the investment projects of RAO UES energy companies. In 2007, as a result of physical meetings and absentee votes, the Company s Management Board took decisions on 815 items of business. By May 2008, jointly with the Board of Directors and the management bodies of the RAO UES subsidiaries and dependent companies, we practically completed our many years work to establish new companies which will form the core of the post-reform sector structure six thermal wholesale generation companies (WGCs), HydroWGC, fourteen territorial generation companies (TGCs), Federal Grid Company, System Operator, and eleven interregional distribution companies (IDCs). Upon completion of the reorganization of RAO UES of Russia, three more energy companies, IDC Holding, RAO Energy Systems of the East, and OAO INTER RAO UES, will complete their formation process. The shareholders who approved the implementation of the final phase of the Company s reorganization will receive shares in 23 newly-established companies in proportion to their stakes in RAO UES of Russia. By acquiring stakes in the new generation companies, major Russian and foreign investors simultaneously became key players of the electricity market. The liberalized wholesale market created in September 2006, in just under two years of operation proved its efficiency. It gives clear price signals to customers and electricity producers and promptly responds to demand and supply fluctuations. Currently, about 20 percent of electricity on the wholesale market is sold at unregulated prices. In 2008, the launch of markets for capacity, system services, and derivative financial instruments will complete the creation of a fully-fledged system of electricity markets in Russia. The corporate restructuring and creation of the electricity market made it possible to achieve the key goal of the reform, viz. attraction of large-scale private investments to finance the development of Russia s electricity sector. As at end-q1 2008, RUB750 billion of private investments (including over RUB600 billion raised during the calendar year of 2007) were raised through the issuance and sale of shares in the thermal generation companies. These funds became the basis for the five-year investment programme of the RAO UES energy companies for the period until 2011, which is estimated at RUB3.4 trillion. Under the programme, it is planned to bring on line about 29 GW of new generation capacity, 70,000 km of power transmission lines, and substations with 100,000 MVA of transformer capacity. Over the last year, as a result of implementation of the Investment Programme, the installed capacity of the RAO UES power plants grew to 161,200 MW as a result of commissioning of new power units with an aggregate capacity of 2,000 MW at the Bureyskaya HPP, CHPP-27 of Mosenergo, Belgorodskaya CHPP, and mobile gas-turbine units. In 2008, we expect to put into service another 2,500 MW of turbine capacity, 14,000 km of power transmission lines, and 21,000 MVA of transformer capacity. The Master Plan for the Location of Energy Facilities until 2020 gives a detailed assessment of the short- and long-term sector development prospects. This document was developed by the Ministry of Industry and Energy of the Russian Federation with the participation of energy industry and academic research institutes and approved by the Russian Government in February The Master Plan is used as a basis for the energy companies five-year investment programmes. In the spring of 2008, the Company s Management Board approved a new investment programme for the period from 2008 to One of the key goals of the last year was to arrange the floatation of the companies comprising the intended sector structure, and primarily, generation companies, on the stock market. That task was successfully accomplished. In December 2007, the process was completed to consolidate the assets of all thermal generation companies and their shares were admitted to trading on stock exchanges. In February 2008, HydroWGC, which had completed the first phase of its consolidation in January 2008, became another major player on the stock market. We are convinced that the aggregate market capitalization of the energy companies comprising the intended (post-reform) sector structure will be greater than the current market value of RAO UES of Russia, which is confirmed by expert appraisals. According to the current consensus forecast of market analysts, as of March 2008, the potential for growth of the aggregate capitalization was at least 40%. During the reporting period, the Management Board paid a lot of attention to issues of transparency, social corporate responsibility, and environmental protection activities. The efforts made by the managers in these areas were highly appreciated. In 2007, RAO UES of Russia was named among Russia s top five most transparent companies in the Standard and Poor s Rating and received the highest international CSR rating among Russian companies in the Accountability Rating. Completing its activities, the Company s Management Board is confident that the future of the energy industry will be entrusted to safe hands. The new electricity industry created as a result of the large-scale reform will become the key driver for Russia s stable economic growth, development, and prosperity of the entire country. ANATOLY CHUBAIS 8 9

8 Company profile. History of the reform RAO UES of Russia was established in 1992 pursuant to Decrees of Russian President Boris Yeltsin No. 923, dated 15 August 1992, and No. 1334, dated 5 November The capital contributions to the Company were made in the form of property and shares of thermal and hydroelectric power plants, bulk transmission lines, dispatching control system, shares in regional energy companies, power sector research and development and construction businesses. Thus, before 2008 RAO UES entities owned 72 percent of installed capacity of all power plants in Russia and 96 percent of the total length of all electricity lines. For 15 years, the RAO UES energy companies generated at least 70 percent of Russia s electricity and a third of heat in the country. Since the Company s establishment, the key assets of RAO UES of Russia were consolidated in regional vertically integrated energy companies. 72 regional energos and AO-power plants were engaged in the generation, transmission and retailing of electricity and heat virtually in all constituent entities of the Russian Federation. Before 2000, the electricity payments collection rate was very low, not more than 85 percent, with less than 20 percent of that amount paid in cash and the rest settled using promissory notes, set-offs, or barter deals. At the beginning of 1998, the customers debt was in excess of RUB100 billion, which in turn led to a rapid increase in the RAO UES companies accounts payable. The lack of funds caused various problems in the energy companies operations: they experienced fuel shortages and wage arrears, all new construction projects were suspended, and repair operations were reduced. In 1998, Anatoly Chubais was appointed Chairman of the Management Board of RAO UES of Russia. The new managerial team that came to the Company included not only power engineers, but also economists, lawyers, and financial specialists, that is, experts needed for successful implementation of a turnaround plan. RAO UES of Russia embarked on a financial recovery programme. By 2000, the Company managed to ensure collection of 100 percent of electricity and heat payments from customers and to settle its tax debts and debts owed to suppliers. Within a very short timeframe, the Company managed to eliminate the imminent bankruptcies in some regional energos, pay wage arrears and stop the exodus of qualified personnel. At the same time, the only source of finance for the Company s investment activities were energy tariffs set by the state. Their level did not allow the energy companies to renovate their production facilities and build new power plants and grids. The electricity industry was faced with an increasing depreciation and retirement of plant and equipment. Despite all the problems, the RAO UES companies were able to supply power and avoid serious failures in electricity and heat supply. RAO UES of Russia initiated the restoration of parallel operation of the energy systems in the former Soviet Union republics, a measure designed to improve the energy systems reliability. Today, the UES of Russia runs in parallel with the energy systems in 12 FSU republics and exchanges electricity flows with the energy systems of Armenia, Norway, Finland, Poland, Slovakia, Hungary, Turkey, Iran, Afghanistan, Mongolia, and China. The project is nearing completion to produce a feasibility study on synchronous interconnection of the UCTE with the UES of Russia and the energy systems of the CIS countries and the Baltics which operate in parallel with the UES. An important role in restoring the parallel operation of the UES of Russia and the FSU energy systems was played by the CIS Electric Power Council, which consists of officials in charge of energy authorities in the CIS countries. Since 2000, the Council is chaired by Anatoly Chubais, Chairman of the Management Board of RAO UES of Russia. The economic growth in Russia which began in 2000 led to an increase in energy consumption. Electricity demand in Russia grew by 2 to 4 percent annually. During the period from 2000 to 2007 it increased by 15.7% from billion kwh to billion kwh. The question arose whether the electricity sector was capable of meeting the challenge of supplying the needs of the national economy. It became obvious that the sector was in need of largescale investments, including private investments. In order to attract private investors, it was necessary to implement a reform of the entire electricity industry. In 2000, RAO UES of Russia started consultations with the leading Russian and foreign experts, government autho-rities, members of the business community, and shareholders on the need for a structural reform, and the propower plants of RAO UES generated more than of Russia s electricity 10

9 cedure for its implementation. As a state prog-ramme, the reform was launched in 2003, when a federal legislative package was adopted which governed the restructuring in Russia s electricity sector. In the course of the reform, most of the regional energos were unbundled into generation, distribution, retailing and services companies. Eventually, these companies were consolidated to form interregional companies WGCs, TGCs, and IDCs and the regional energy retail companies started independent operations in their respective regions. Two principal infrastructure entities were created Federal Grid Company, which consolidated bulk transmission networks and the UNEG, and System Operator, responsible for the dispatching function in the UES of Russia saw the launch of a competitive trading segment on the Russian wholesale electricity market, a forerunner of the future full-scale competitive energy market. In less than a year, the Russian power exchange, which enabled RAO UES entities to practice and refine skills in a competitive environment, became one of ten world s major energy trading venues. In September 2006, new rules for the operation of the wholesale and retail electricity markets were introduced. This became a major milestone in the development of competition in the sector. These rule made it possible to switch to a system of regulated bilateral contracts between the seller and purchaser of electricity. The electricity volumes not covered by the quotas of regulated contracts started to be traded at unregulated prices. The share of the wholesale market s liberalization was passed on to the retail market. The electricity price liberalization continued and in 2008 every fifth kilowatt is purchased at competitive prices. By 2011, it is anticipated that all electricity, excluding electricity supplied to households, will be sold at market-based prices. The central idea of the reform was to enable private investors to operate in the competitive segments of the electricity industry while preserving public control over the sector infrastructure, which is a natural monopoly in nature. This idea began to be realized in when the generation companies started selling their shares. Some WGCs and TGCs have already completed offerings of additional shares among private investors. Simultaneously, the Russian Government gave its go-ahead to the sale of the government stake is an increase in Russia s energy consumption in shares in these companies held by RAO UES of Russia. Private investors came to the sector, with investments by the end of Q reaching RUB750 billion. Thus, the structural reform in the electricity industry and the launch of a competitive market paved the way for the final phase of the reform designed to attract investments. One of the major results of the reform was the adoption and implementation of a five-year investment programme for the RAO UES companies for the period from 2006 to 2010, which envisages the creation of 29,000 MW of new generation capacity and construction of 70,000 km of HV transmission lines. The total amount of funds for this programme is estimated at RUB3.4 trillion, the greater part of which is to come from private investors. Throughout the reform period, RAO UES of Russia remained a socially responsible company. A strong emphasis was placed on the social aspects of operations of the Parent Company and its subsidiaries, as well as the development of non-financial reporting in all RAO UES companies. As a result of these efforts, RAO UES of Russia moved up in the international and Russian CSR rankings. Environment protection was another area given special attention at RAO UES of Russia. Back in the 1990s, the Company had to face a number of environmental problems which emerged during the Soviet era. RAO UES of Russia is doing a great deal of work to modernize and upgrade the sector, improve fuel efficiency, develop renewable energy and introduce advanced energy technologies. In doing so, RAO UES of Russia is engaged in an ongoing dialogue with the Russian and international non-governmental environment protection organizations which provide valuable input relating to the Company s environmental policy. RAO UES of Russia was among the pioneers in implementing the Kyoto Protocol mechanisms in Russia. Long before the ratification of this global environmental document, RAO UES of Russia established an Energy Carbon Fund, an entity whose task was to create the necessary infrastructure and prepare for Kyoto Protocol-based projects. The Fund made a list of top priority projects to be implemented using the Kyoto Protocol mechanisms. In 2005, RAO UES of Russia entered, for the first time in 11

10 ANNUAL REPORT OF RAO UES OF RUSSIA 2007 Russia, into a contract for the sale of greenhouse gas emission reduction units with the Danish Environmental Protection Agency. The completion of the restructuring, creation of the companies comprising the intended (post-reform) sector structure, and the need to promote genuine competition in the generation and electricity retailing business makes the very existence of the Parent Company, RAO UES of Russia, redundant. The final phase of the reform envisages the reorganization of RAO UES of Russia. During the process, 23 energy companies of the intended sector structure will be spun off from OAO RAO UES of Russia, and the latter will cease to exist as a legal entity by 1 July This date is provided in special amendments to the Federal Law On the Electrical Power Industry. Moreover, an important set of amendments was made to the Law regarding the control structure for the electricity industry after the reorganization of RAO UES of Russia. This system will be based on two principles raising the efficiency of government control and selfregulation. A greater part of the functions relating to government control will be transferred to the Federal Energy Agency of the Russian Federation. This authority will need to streamline the system of state control of the electricity industry, taking into account the huge changes that have taken place in the sector. The Market Council is to become the basic element of the self-regulation in the electricity industry after the reorganization of RAO UES of Russia is completed. The Council will be created on the basis of NP Administrator of Trading System and will bring together representatives of all industry stakeholders involved generation, grid, energy retail, and dispatching companies, as well as major power consumers. By 2008, all necessary legislative and corporate resolutions had been taken for the performance of this step. By 1 July 2008, RAO UES of Russia will disappear from the country s economic landscape. It will be succeeded by OAO System Operator of the Unified Energy System, OAO Federal Grid Company of the Unified Energy System, OAO HydroWGC, six wholesale generation companies, 14 territorial generation companies, 12 interregional distribution companies, regional energy retail companies, OAO RAO Energy Systems of the East, and OAO INTER RAO UES. The fundamental changes that have taken place in the sector over the past 10 years were hailed by the investment community and stock market. By end-2007, the market capitalization of RAO UES of Russia was nearly USD50 billion compared to less than USD12 billion at end According when RAO UES of Russia dissolves, its shareholders will receive shares in energy companies to experts estimates, the total value of the energy companies to be spun off from RAO UES of Russia is at least 40 percent higher than the value of the Parent Company. This is actually a premium to the shareholders of RAO UES of Russia who believed in and backed the electricity reform and will become shareholders in the companies of the intended (post-reform) sector structure after RAO UES of Russia is reorganized. 12

11 COMPANY PROFILE. HISTORY OF THE REFORM RAO UES STRUCTURE AS OF 31 DECEMBER 2007 RAO UES GROUP RAO UES HOLDING COMPANY OAO RAO UES OF RUSSIA (THE PARENT COMPANY) EXECUTIVE ADMINISTRATION AND BRANCHES, REPRESENTATIVE OFFICES COMPANIES COMPRISING THE INTENDED (POST-REFORM) CORPORATE STRUCTURE % OAO SYSTEM OPERATOR OF THE UNIFIED ENERGY SYSTEM 69.66% BRANCHES: INTEGRATED DISPATCH ADMINISTRATIONS (IDAs) OAO FEDERAL GRID COMPANY OF THE UNIFIED ENERGY SYSTEM 89.81% BRANCHES: TERRITORIAL ISOLATED UNITS TRANSMISSION (TRUNK) GRIDS INTERREGIONAL DISTRIBUTION COMPANIES % OAO CENTER IDC, OAO CENTER AND PRIVOLZHYE IDC, OAO SOUTH IDC, OAO NORTH CAUCASUS IDC, OAO URALS IDC, OAO NORTH-WEST IDC, OAO SIBERIA IDC, OAO VOLGA IDC, OAO LENENERGO, OAO TYUMENENERGO, OAO MOESK, OAO FAR EASTERN DISTRIBUTION COMPANY * ZAO INTER RAO UES 60% WHOLESALE GENERATION COMPANIES % OAO WGC-1, OAO WGC-2, OAO WGC -3, OAO WGC-4, OAO WGC-6, OAO HYDROWGC TERRITORIAL GENERATION COMPANIES % OAO TGC-1, OAO TGC-2, OAO MOSENERGO (TGC-3), OAO TGC-4, OAO TGC-6, OAO VOLZHSKAYA TGC *, OAO SOUTH GENERATION COMPANY TGC-8,OAO TGC-9, OAO TGC-10, OAO TGC-11, OAO KUZBASSENERGO, OAO ENISEYSKAYA TGC (TGC-13), OAO TGC-14, OAO FAR EASTERN GENERATION COMPANY * REGIONAL ENERGOS % AO-POWER PLANTS 3-100% REGIONAL COMPANIES GENERATION COMPANIES 5 ENERGY RETAIL COMPANIES 48 DISTRIBUTION COMPANIES 55 OAO ULYANOVSK TRANSMISSION GRIDS % COMPANIES COMPRISING RAO UES GROUP OAO RUSSIAN COMMUNAL SYSTEMS, SCIENTIFIC RESEARCH, DEVELOPMENT AND DESIGN R&M, AND CONSTRUCTION COMPANIES, ZAO AGENCY FOR BALANCE FORECASTING IN THE ELECTRICITY INDUSTRY, NON-CORE COMPANIES * the Company s second-tier subsidiaries 13

12 Ten years of the reform: key events, highlights, comments 1998 Crisis Situation in the Energy Sector Ever since RAO UES of Russia Holding Company establishment, the energy companies had to operate in an environment of chronic non-payments from electricity and heat users, with the customers debt exceeding RUB100 billion at the beginning of the year. Cash payments accounted for a mere 17 percent of the total payments made in the sector. The energy companies accounts receivable were growing rapidly, with more than 20 companies hovering on the verge of bankruptcy. Salary and wages payments were on average three months in arrears. Anatoly Chubais Comes to RAO UES of Russia On 4 April 1998, the extraordinary general meeting of shareholders of RAO UES of Russia elected Anatoly Chubais to the Board of Directors of the Company on the nomination of the Russian Government, and on 30 April 1998, he was appointed Chairman of the Management Board of RAO UES of Russia. Turnaround Plan Adopted The new management team drafted and approved an Action Plan designed to improve efficiency and promote restructuring in the electricity industry in the Russian Federation. The first phase of the Plan provided for implementation of turnaround activities and sorting out the issues in the sector, while the second phase envisaged a market reform in the country s electricity industry. Shareholder Protection The discriminatory restriction prohibiting RAO UES subsidiaries minority shareholders from purchasing over 1 percent shares in the subsidiaries was removed from the subsidiaries charters. Energy Facilities Commissioning In 1998 and 2001, two hydropower units of 200 MW each were brought into service at the Irganayskaya HPP. The km long Itat-Barnaul transmission line was put into operation as part of the final phase of the project to built the 1,150 kv cross-system transit line linking Siberia, Kazakhstan and Urals Measures Taken to Address Non-Payments As a result of the measures taken by managers of RAO UES of Russia and its subsidiaries from mid-1998 to end-1999, the share of cash in energy payments rose to 49 from 17 percent, with the amount of taxes paid by the energy companies growing threefold to RUB625 million. Also, the Company managed to remove nearly USD1 billion from the shadow and nearly shadow settlements associated with barter transactions. The wage arrears fell by 2.5 times. The number of regions experiencing tremendous problems in terms of fuel supply declined by half. Budgeting Tools Implemented RAO UES of Russia started to prepare its financial statements in accordance with the IFRS and introduced a budgeting system. The Parent Company s practices began to be applied in its subsidiaries. Energy Facilities Commissioning Mosenergo brought power unit 1 at the GTU-CHPP into operation in the city of Electrostal. This was the first small gasturbine power plant to be built in Russia. The first hydroelectric power unit (80 MW) became operational at the Zelenchukskaya HPP. A GTU-25 was put into operation at the Bezymyanskaya CHPP, which is one of the oldest power plants in the Samara Energy System. This was Russia s first GTU unit built on the basis of a converted NK-37 aircraft engine Payment Discipline Improved The share of cash payments in the total payments exceeded 80 percent, and in Q3 and Q4 it was as high as 101 percent. An order was adopted to eliminate rolling blackouts. For the first time, RAO UES of Russia started to pay all of its federal taxes in cash. 14

13 Company Reorganization Launched On 4 April, during a meeting in the Kremlin, the Board of Directors of RAO UES of Russia stated that it was necessary to implement a reform in the electricity sector, and adopted the RAO UES of Russia Restructuring Concept. This triggered the start of corporate procedures designed to restructure the Company. Thus, even before adopting any official resolutions, the Russian Government made it clear that it backed the reform in the electricity industry. Parallel Operation of the UES and CIS Energy Systems Restored The Company succeeded in restoring largescale parallel operation of the UES of Russia and the energy systems of the CIS countries and the Baltic republics which stopped after the disintegration of the USSR. By year end, as many as 14 FSU countries (i.e. even more than during the Soviet era) were operating in a parallel mode. First Combined-Cycle Power Plant RAO UES of Russia brought on line the first power unit at the Severo-Zapadnaya CHPP (North-West), Russia s first power plant based on combined cycle technology. Energy Facilities Commissioning A dispatching control center with a projector dispatcher board was installed in the Moscow cable grid. This control center is one of the most advanced ones currently in operation in Russia. A 200 MW hydropower unit No. 6 at the Zagorskaya PSPP was put into service. The plant s installed capacity reached its design capacity of 1,200 MW Financial Recovery With the turnaround phase completed, the Holding Company s entities, for the first time in recent years, were able to operate without regional energy crises during the 2001/2002 autumn and winter period. From the beginning of the year, RAO UES of Russia completely eliminates non-cash forms of payment for electricity and heat. Government Approves Electricity Reform The Russian Government adopted Order No. 526 On Reforming the Electricity Industry in the Russian Federation, which made it possible to launch efforts aimed at reforming the sector. In this document the Government identified the key areas of the electricity reform for the first time. Administrator of Trading System Created Not-for-profit Partnership Administrator of the Trading System (ATS), the operator of the future liberalized energy market, was established pursuant to the Russian Government s resolution. The process was launched in the sector to create infrastructure for wholesale electricity trading. Energy Facilities Commissioning The second power unit was commissioned into operation at the Kharanorskaya TPP Basic Plan for Restructuring of Regional Energos Adopted RAO UES of Russia approved the basic plan for restructuring regional energos providing for functional unbundling of these vertically integrated energy companies by line of business. FGC and System Operator Established In the course of the reform, the Company established entities operating in the monopoly segments, Federal Grid Company (FGC), which would be responsible for ensuring reliable operation of the Unified National Electricity Grid (UNEG), and System Operator (SO), an entity that would be perform the dispatching function in the UES of Russia. The creation of these key infrastructure entities supporting reliable operation and development of the UES of Russia was the first practical step towards unbundling the operations into competitive and monopoly businesses. Energy Facilities Commissioning The Aushigerskaya HPP (60 MW), part of the Nizhnechereksky Cascade of HPPs, was brought into service. The world s first controlled reactor of 220 kv rated at 100 Mvar was built at the Chita 500 kv substation. The construction of the Vyborg-State Border 400 kv transmission line was completed. The Pskov-Yuzhnaya 330 kv substation was put into operation. 15

14 ANNUAL REPORT OF RAO UES OF RUSSIA 2007 The first and the second power units at the Mutnovskaya GeoPP-1 were connected to the grid. Today, the Mutnovskaya GeoTPP has a capacity of 50 MW and is one of the world s most advanced geothermal power plants. The second hydroelectric power unit (80 MW) became operational at the Zelenchukskaya HPP Russian President Signs into Law the Electricity Reform Package In March 2003, Russian President Vladimir Putin signed into law the legislative package on the electricity reform. These laws were to become an instrument in determining the path for the electric power sector development for decades ahead. For the first time, a systematic foundation was laid governing the key economic and technological issues of the sector s operation, the reform phases and mechanisms for the reform implementation. Electricity Market Launched 1 November saw the launch of an electricity market in Russia. Not-for-profit Partnership Administrator of the Trading System (ATS) held the first ever electricity trading session in the 5-15% competitive market segment. The Government adopted Resolution No. 643 approving the rules for the operation of the wholesale electricity (capacity) market during the transitional period. Reform Strategy Concept 5+5 In May, RAO UES of Russia approved its Reform Strategy Concept 5+5, the principal corporate document setting out in great detail all phases and aspects of the energy companies restructuring. Energy Facilities Commissioning Hydropower units No. 1 and 2 with an aggregate capacity of 370 MW were brought on line at the Bureyskaya HPP. The diesel power plant (DPP) in the settlement of Deputatsky and Eldikanskaya DPP with an aggregate capacity of 22.7 MW were put into service. The projects were implemented as part of the program to develop smaller energy projects in the Republic of Sakha. In the Khabarovsk Territory, a 6.7 km-long high-voltage crossing was built over the Amur River and Amur channel. The crossing with towers of up to 191 metres high and spans of up to 1620 metres is unique not only in Russia, but in the whole world Order No. 200 In order to strengthen a business-centric approach during the reform period, the Parent Company introduced a divisional management system. Changes were made to the structure of the executive administration, the Company created a Corporate Center, Reform Management Center, and five Business Units in charge of its subsidiaries. Establishment of the Companies of the Intended (Post-reform) Sector Structure Pursuant to resolutions of the Russian Federation, the process was launched to establish the companies that would comprise the intended (post-reform) structure of the electricity industry. The first WGCs, TGCs and IDCs were registered with the authorities. First Spin-Off by Lines of According to the Basic Restructuring Scenario On 1 April, the first regional energo, Kalugaenergo, was unbundled by spinning off its core operations. The next year and a half saw a large-scale process to restructure the regional energos. Energy Facilities Commissioning A 220 MW CCGT unit was brought on line at the Tyumenskaya CHPP-1. Two CCGT units with an aggregate capacity of 78 MW were put into operation at the Sochinskaya TPP. 16

15 TEN YEARS OF THE REFORM: KEY EVENTS, HIGHLIGHTS, COMMENTS The Primorskaya TPP-Khabarovskaya 500 kv transmission line and the Khekhtsir 500 kv substation became operational. The Pskov-Yuzhnaya 330 kv substation was put into service Sangtuda HPP-1 Construction Launched RAO UES of Russia started the construction of the Sangtuda HPP-1 in the Republic of Tajikistan. The project to complete the power plant s construction is Russia s largest investment project with the participation of Russian companies to be implemented in the territory of the CIS. Interregional Companies Formed Regional energos reorganization and registration of interregional companies was nearly completed. By year end, all 7 WGCs, 13 out of 14 TGCs, and 4 IDCs completed their registration with the authorities. In late 2005, WGC-5, the first wholesale generation company established in Russia, started to float on the stock market. Reorganization was completed in 47 regional energos. Measures to Improve Reliability RAO UES of Russia adopted a Programme of Actions to Improve Reliability of the UES of Russia. The long-term energy use forecasts prepared for the Programme were to play a major role in setting investment priorities for energy companies and formulating the paths for the development of the UES of Russia. Energy Facilities Commissioning The first 450 MW CCGT unit was brought on line at the Kaliningradskaya CHPP-2. As part of the modernization of the Ivanovskaya TPP, a project was launched to build a new power plant, OAO Ivanovskie PGU. The project provided for the installation of two Russian-made combined-cycle power units PGU-325 with an aggregate capacity of MW GOELRO-2 The Management Board of RAO UES of Russia adopted a five-year investment programme for RAO UES energy companies for the period from 2006 to 2010, which launched the investment phase of the Russian electricity reform. In half a year, the Investment Programme was revised upwards. New Market Model On 1 September, the Russian Government introduced new rules for the operation of the wholesale and retail electricity markets. Under the new model for the wholesale market, a transition was made to regulated bilateral contracts. All amounts of electricity not subject to quotas under such regulated contracts started trading at unregulated prices. Generation Companies Launch IPO Process WGC-5 completed the additional share offering on the stock market. As a result of the IPO, the company raised USD459 million in funds to finance its investment programme, and started the construction of new power units. Apart from WGC-5, the list of pilot projects to issue additional shares included WGC-3, WGC-4, Mosenergo, and TGC-9. Divestiture of Energy Retail Assets RAO UES of Russia completed the first sale of its shareholding in a regional energy retail company. The shares in Yaroslavl Energy Retail Company was sold through a public auction for RUB425.3 million. Shareholders Back the First Phase of Reorganization At the EGM of RAO UES of Russia, the shareholders approved the implementation of the first phase of the Parent Company s reorganization by spinning-off two generation companies, WGC-5 and TGC-5. Energy Facilities Commissioning The construction of Boguchanskaya HPP was resumed after an 11-year halt. The power plant s design capacity is 3,000 MW. 17

16 ANNUAL REPORT OF RAO UES OF RUSSIA 2007 The unique hydraulic unit was floated at the experimental Malaya Mezenskaya Tidal Power Plant (TiPP). The float-on module unit of the TiPP is equipped with a unique experimental 1,500 kw orthogonal hydraulic unit. The Grozny 330 kv substation went on line in the Republic of Chechnya. This substation is equipped with cutting-edge equipment and is one of the largest substations in the Northern Caucasia. The Gunibskaya HPP of 15 MW was commissioned into operation in the Republic of Dagestan. The first power unit with a capacity of 180 MW of electricity and 260 Gcal/h of heat was brought on line at the Pravoberezhnaya CHPP in Saint Petersburg. The third hydropower plant of the Chiryurtsky hydropower center, the Gelbakhskaya HPP, was brought into operation. A modern Sosva 220 kv switching station was brought on line in the Serovo-Bogoslovsky node of the Sverdlovsk Energy System. The Zvezda 500 kv substation became operational in the Kostroma Region, with 500 kv and 110 kv feeder lines. The Bely Rast substation of 750 kv was put into operation, the largest substation in the so-called Moscow Energy Ring. The second power unit (180 MW of electricity and 260 Gcal/h of heat) was put into pilot operation at the Chelyabisnakaya CHPP-3. The Agulskaya Malaya HPP was brought on line in the Republic of Dagestan. The power plant was built using a patented technology for the construction of small hydropower plants, Prometeus, which uses uniform hydropower equipment that can be operated automatically and does not need any operators. The fourth power unit of 180 MW was brought on line at the Khabarovskaya CHPP-3. The Amurskaya-Blagoveshchenskaya 220 kv transmission line and a 220 kv outdoor switchgear at the Blagoveshchenskaya Substation were built and put into service in the Russian territory. This project significantly improved the reliability of power supply to customers in the city of Blagoveshchensk and made possible additional electricity deliveries to the border areas of China Drive to Attract Massive Private Investments The additional share offerings carried out by 10 generation companies and the sale of the government stake shares in 6 WGCs and TGCs owned by RAO UES of Russia generated more than RUB600 billion in direct private investments for the sector development. RTS Index Book of Records RAO UES of Russia was included in the RTS Index Book of Records as the Most Liquid Security over the 12 years of existence of the RTS Index. Also, Standard&Poor s named RAO UES of Russia among the top five most Russian companies in terms of transparency. Establishment of WGCs and TGCs Completed The consolidation was completed at six thermal WGCs and fourteen TGCs. Shares of all the thermal generation companies were floated on the securities market. Reorganization of the Parent Company On 3 September 2007, the first phase of reorganization of RAO UES of Russia was completed, with two generation companies WGC-5 and TGC-5 spun off from the Company. At the EGM held on 26 October 2007, the shareholders of OAO RAO UES of Russia approved key resolutions relating to the final phase of the Parent Company s reorganization. 18

17 TEN YEARS OF THE REFORM: KEY EVENTS, HIGHLIGHTS, COMMENTS Market Liberalization A schedule was set for the electricity market liberalization which provides that electricity prices on the wholesale market would be deregulated by At end-2007, electricity deliveries at unregulated prices reached 20 percent of the total wholesale market deliveries. Energy Facilities Commissioning During the year, 10 mobile gas turbine units with an aggregate capacity of 225 MW were deployed and brought on line in the Moscow Region. Mosenergo put into operation a new 450 MW combined-cycle unit at the CHPP-27. The Novgorodskaya Substation was put into service. This was the first project to build a new 330 kv facility in the North- West of Russia. The Frunzenskaya Substation (330 kv) having a transformer capacity of 195 MVA was brought on line in the Belgorod power center. The Knyazhegubskaya Substation, the first substation built by FGC beyond the Arctic Circle, became operational. A new steam turbine with the capacity of 12 MW of electricity and 43 Gcal/h of heat was brought on line at the Chelyabisnakaya CHPP-3 owned by TGC-10. The System Operator inaugurated a unique computing center which does not have any parallels in Russia or Europe. According to the TPC-C test, the server has the best performance among Intel Xeon MP based servers designed for Microsoft SQL Server 2005 Database. The project was completed to build a unique transit transmission line Zarya- Barabinsk-Tavricheskaya. The line is unique in its great length (730 km). This grid facility is used for bulk transfer of electricity at 500 kv from Siberia via Urals to the European part of Russia. The GTU-CHPP was put into service on the site of the Belgorodskaya CHPP. The plant has two gas turbine power units 34.5 MW each. HydroWGC brought into pilot operation a 1 MW wind power plant in Kalmykia. The first phase of the Yemelino Substation (500 kv) went on line in the Sverdlovsk Region. This facility was constructed within a record short period of 9 months Master Plan for Location of Energy Facilities Adopted The Russian Government adopted the Master Plan for Location of Energy Facilities for the Period until The document was prepared taking into account the forecasts of energy use increase and plans for the location of new production and special facilities provided by the regional governments. Sangtuda HPP Comes on Line On 21 January, three months ahead of schedule, RAO UES of Russia brought on line the first hydropower unit of MW at the Sangtuda HPP. Russia agreed to accelerate the construction on the request of the government of Tajikistan in order to help reduce electricity shortages in the republic. RAO UES Subsidiaries Back the Final Phase of the Reorganization The Extraordinary General Meetings of shareholders held at all companies spun off from RAO UES of Russia approved the reorganization. Thus, the companies took all resolutions needed to complete the second (final) phase of RAO UES reorganization by 1 July The last, sixth hydropower unit was put into operation at the Bureyskaya HPP in Talakan, the Amurskaya Region. The Bureyskaya HPP became the largest hydropower plant in the Far East of Russia with 1,675 MW of installed capacity. 19

18 Share Capital of OAO RAO UES of Russia As at 31 December 2007, the share capital of OAO RAO UES of Russia amounted to RUB21,558,451,684, and was divided into 43,116,903,368 shares of RUB0.50 par value each, including 41,041,753,984 ordinary shares and 2,075,149,384 preferred shares. Of that amount, 139,989,946 shares were placed during the first issue in 1993, and further 42,976,913,422 shares were placed during the second issue which took place in On 17 June 2003 the FCSM of Russia issued Order No /r whereby the additional share issues of OAO RAO UES of Russia were consolidated: the issues of ordinary shares of OAO RAO UES of Russia were assigned a new state registration number, А, and the old state registration numbers, 73-1P-1553 of 18 August 1993, and MF of 16 October 1995, were cancelled; the issues of preferred shares of OAO RAO UES of Russia were assigned a new state registration number, А, and the old state registration numbers, 73-1P-1553 of 18 August 1993 and MF of 16 October 1995, were cancelled. Holders of the Company s ordinary shares have the following rights: to participate in person, or by proxy, in a General Meeting of shareholders and to vote on all matters reserved to the general meeting; to elect and be elected to the management and control management bodies and control bodies of the Company as provided by Russian laws and the Charter of the Company; to dispose of the shares held by them without the consent of other shareholders or the Company; to receive their share of the net profit (dividends) distributable among shareholders in accordance with the provisions of Russian laws and the Charter of the Company; to have access to the Company s documents as provided by Russian laws and the Charter of the Company; to require repurchase by the Company of all or some of their shares in the cases provided by Russian laws; the pre-emptive right to purchase, in the event that the Company issues through open subscription additional shares or securities convertible into shares, such shares or securities pro rata to the quantity of shares of the category (type) held by them; to receive part of the Company s property (liquidation value) pursuant to the procedure provided by Russian laws and the Charter of the Company; to exercise other rights provided by Russian laws, the Charter and decisions of the General Meeting of shareholders on the reserved matters. Type A preferred shares entitle their holders to a fixed annual dividend. The amount of dividend payable on each Type A preferred share makes 10 percent of the Company s full-year net income divided by the number of preferred shares, which make up 25 percent of the Company s authorized capital. If the dividend amount to be paid by the Company on each ordinary share in a particular year is greater than the dividend payable per Type A preferred share, the preferred dividend amount is to be increased to the amount of the ordinary dividend. Holders of Type A preferred shares are entitled to attend general shareholders meetings and vote on all matters reserved to such meetings, beginning from the meeting following the Annual Meeting of shareholders which, regardless of the reasons, decided not to pay dividends or decided to pay partial dividends on preferred shares of that type. The right of holders of Type A preferred shares to participate in General Meetings of shareholders shall terminate from the date of the first full dividend payment on such shares. Holders of Type A preferred shares have the right to attend the Company s General Meeting of shareholders and vote on the matters relating to reorganization and liquidation of the Company. Holders of Type A preferred shares acquire the right to vote if the Company s general meeting of shareholders is to consider amendment of the Company Charter restricting the rights of holders of Type A preferred shares and granting the holders of other types of preferred shares advantages in terms of dividend payment priority and/or liquidation value of shares. A decision to make such amendments shall be deemed taken if supported by at least three-quarters of the votes cast by the holders of voting shares present at the General Meeting of shareholders, except for the votes of holders of Type A preferred shares, and three-quarters of the votes cast by all holders of Type A preferred shares. The Company shareholders have a pre-emptive right to purchase additional shares of the Company offered through open subscription (public offering) and securities convertible into shares of the Company, pro rata to the number of shares of the type held by them. The shareholders of the Company who vote against or do not participate in the vote on the proposal of private placement of (closed subscription for) the Company s shares or securities convertible into shares of the Company, become entitled to a pre-emptive right to purchase additional shares and securities convertible into shares of the Company that are offered through private placement, pro rata to the number of shares of the type held by them. Such right does not extend to the placement of shares and other securities convertible into shares through closed subscription among the existing shareholders only if the shareholders can acquire a whole number of such shares or other securities convertible into shares in proportion to the number of shares of the type held by them. In the event of the Company s liquidation, the Company s property remaining after the 20

19 SHARE CAPITAL OF OAO RAO UES OF RUSSIA OWNERSHIP STRUCTURE OF OAO RAO "UES OF RUSSIA", % STATE LEGAL PERSONS AND NOMINEES 31 December December 2007 PRIVATE INDIVIDUALS RUSSIAN FEDERATION RESIDENT VS. NON-RESIDENT OWNERSHIP OF SHARES IN OAO RAO "UES OF RUSSIA", % RUSSIAN FEDERATION RESIDENT LEGAL PERSONS 5 October 2006* 23 August 2007* NON-RUSSIAN FEDERATION RESIDENT LEGAL PERSONS RUSSIAN FEDERATION RESIDENT PRIVATE INDIVIDUALS NON-RUSSIAN FEDERATION RESIDENT PRIVATE INDIVIDUALS * The record date for determining the persons entitled to take pert in EGMs of RAO "UES of Russia": 6 December 2006 and 26 October 2007 respectively. Nominee shareholder data is included. 21

20 ANNUAL REPORT OF RAO UES OF RUSSIA 2007 creditors claims are met is used for payments in the following order of priority: firstly, payments are to be made in respect of shares subject to redemption under Article 75 of the Federal Law On Joint Stock Companies; secondly, payments are made in respect of any accrued, but unpaid dividends on preferred shares and the liquidation value of preferred shares as provided in the Company Charter; and thirdly, the property is to be distributed among holders of ordinary shares and all types of preferred shares. The Company may authorize the issuance, in addition to the shares outstanding, of 6,467,535,504 (six billion four hundred and sixtyseven million five hundred and thirty-five thousand five hundred and four) ordinary shares, par value of RUB0.50 (fifty kopecks) each, worth a total of RUB3,233,767,752 (three billion two hundred and thirty-three million seven hundred and sixty-seven thousand seven hundred and fifty-two Rubles). The Company may issue additional shares only to the extent of the number of shares authorized for issuance. The state owns 22,715,371,537 shares, or 52.68% of all shares outstanding. MAJOR SHAREHOLDERS OF OAO RAO UES OF RUSSIA * Russian Federation through the Federal Agency for Federal Property Management NUMBER OF SHARES IN OAO RAO UES OF RUSSIA HELD BY THE STATE* ORDINARY SHARES SHARE, % OOO Depository and Corporate Technologies (as nominee) Not-for-profit Partnership The National Depository Center (as nominee) ING BANK (EURASIA) ZAO (as nominee) ZAO Depository Clearing Company (as nominee) * as of 31 December 2007 QUANTITY OF SECURITIES SHARE, % Owned by the state, total 22,569,848, including: Shares held by the Federal Agency for Federal Property Management Shares held by the regional property management authorities 22,569,834, , PREFERRED SHARES Owned by the state, total 145,523, including: Shares held by the Federal Agency for Federal Property Management 145,523, * as of 31 December