RAO UES Board of Directors Holds its Regular Meeting
Moscow. 18 January 2008. At its meeting held today, the Board of Directors of
RAO "UES of Russia" decided to create the Strategy Committee of the Board of
Directors of OAO "UES SO-CDA".
This decision was taken by the Board of Directors in the course of discussion of the
energy market participants' involvement in controlling the compliance by the System
Operator with the wholesale electricity market rules and regulations.
Currently, such control is exercised by NP "ATS" under an agreement made with
the System Operator pursuant to the provisions of the Federal Law On the Electricity
Industry. Under the agreement, the System Operator is required to periodically provide
detailed reports to ATS on the functioning of the Unified Energy System of Russia, and to
give argumented comments if ATS has issues with the data submitted.
The report on the control of the System Operator's activities is submitted on a
quarterly basis for review by the Supervisory Board of NP "ATS", which consists
of representatives of generation companies, energy retail companies, and electricity
consumers. A summary of such report is subsequently published. Another important element
of the control system is the participation of the ATS head in the System Operator's Board
Also, work is currently underway to finalize the Wholesale Electricity and Capacity
Market's rules designed to further formalize the load of power units by the criterion of
minimizing the electricity price for consumers.
The RAO UES Board of Directors noted that it is necessary to preserve the existing
mechanisms of control over the System Operator's activities by the market participants
after the RAO UES reorganization is completed.
Under the applicable Russian laws, the state is to secure a 100 percent stake in the
System Operator's capital after the electricity sector restructuring is completed. This
means that the System Operator's Board of Directors will be elected by the country's
energy-related ministries and agencies.
In this connection, the Board of Directors gave the RAO UES Management Board a task to
explore whether it would be possible for a representative of Non-profit Partnership
"Market Council" to take part in the System Operator's Board. NP "Market
Council" will be created on the basis of NP "ATS" to represent the
electricity industry's new participants.
Also, it is planned that a Strategy Committee will be created in the System Operator's
Board, which will comprise representatives of the state authorities, NP "ATS"
(NP "Market Council"), generation and grid companies, major power consumers,
System Operator management, experts and representatives of other organizations, if a
resolution to that effect is taken by the System Operator's Board of Directors.
The Strategy Committee will be responsible for providing recommendations for the System
Operator's Board of Directors and Management Board on a broad range of issues, including
those related to measures needed to develop the Unified Energy System of Russia
(electricity consumption growth forecasts, control of implementation of investment
projects in the sector, the launch of a system services market, etc.), as well as those
designed to improve the System Operator's activities (implementing innovations in the
System Operator's activities, information disclosure, analysis of proposals relating to
streamlining the internal workflows).
The Board of Directors instructed the Management Board of RAO "UES of Russia"
to initiate the corporate acts needed to create the Strategy Committee at the System
Operator, including the drafting of the Committee's rules and regulations and nominating
candidates for the Committee.
The Management Board of RAO "UES of Russia" was also given the task to submit
to the Company's Board of Directors, not later than April 2008, its proposals on the
establishment of a similar committee of the FGC's Board of Directors.
The Board of Directors postponed until its next meeting the review of the proposal on
the repurchase by the System Operator of its shares from RAO "UES of Russia" and
their subsequent cancellation.
The RAO UES Board resolved not to limit the number of additional shares to be issued by
OAO "TGC-2"* to the amount of funds needed to finance its investment programme
In September 2007, the Board approved the programme for the issuance of new shares by
OAO "TGC-2". Under the programme, the company was to raise RUB9 billion in funds
by selling up to 440,550,372,372,763 ordinary shares, RUB0.01 par value each (which makes
39.60 percent of the company's capital before the offering and 28.37 percent of its
capital after the offering).
The Board also approved simultaneous sale of 372,338,967,050 shares attributable to the
"government stake" (which makes 33.47 percent of the company's capital before
the offering). The price at which the "government stake" shares will be sold
must not be lower than the price of the new shares.
In the course of preparation for the issuance and sale of new TGC-2 shares, it became
clear that the strategic investors are interested in the proposed transactions. This makes
it possible to expect serious competition among the potential buyers willing to acquire a
majority stake in TGC-2. As a consequence, the offering price will be much higher than the
price used to calculate the parameters of the new share issue.
However, the high placement price accompanied with the limitation of the number of
additional shares to be issued to RUB9 billion will significantly reduce the number of
shares to be issued and, as a result, reduce the stake of a potential investor in the
company's capital. As a result of the strategic investors' interest in the
"government stake" in TGC-2 may decrease.
In order to maximize the price of the offering and share sale while preserving
competition among the strategic investors, the RAO UES Board today resolved not to limit
the number of additional shares to be issued by OAO "TGC-2" to the amount of
funds needed to finance its investment programme (RUB9 billion). This will significantly
boost competition in the course of the share issuance and maximize the price not only new
shares, but also of "the government stake" to be sold.
Importantly, TGC-2 shares in excess of the amount needed to raise RUB9 billion will be
sold to any investor which offers the highest price per share only if such increase in the
number of shares is needed for the investor to secure a maximum stake in TGC-2. The
maximum number of shares approved for issuance by the RAO UES Board remains
440,550,372,372,763 ordinary shares.
The RAO UES Board of Directors instructed the Management Board hold negotiations with
the TGC-2 minority shareholders 2 and the Ministry of Economic Development and Trade in
order to determine the maximum amount of new shares and "government shares" in
TGC-2 that may be purchased by the potential purchaser.
The additional share issuance and sale of the "government stake" is scheduled
to take place March 2008. The proceeds from the additional share issue will be used to
implement the company's investment projects: new capacity will be brought on line in all
areas were the company operates, primarily in the Vologda, Novgorod, and Yaroslavl energy
systems where the energy shortages are especially acute. The proceeds from the sale of the
government stake in TGC-2 will be used to finance the deficit of the FGC investment
After the sale of the "government stake and the share offering, RAO UES will hold
at least 11.38% of TGC-2.
* OAO "TGC-2" was formed pursuant to the decision of the Board of Directors
of 25 February 2005. The company was registered 19 April 2005. TGC-2 has under management
16 TPPs, 8 boiler plants, and 4 district heating network enterprises. The total installed
capacity of TGC-2's power plants is 2,423.5 MW of electricity and 12,156 Gcal/h of heat.
The Board of Directors approved that the auction to sell the 50.9% stake in OAO
"Mosenergosbyt" held by RAO "UES of Russia" be moved from May 2008 to
March 2008. In order to achieve better results selling the Mosenergosbyt stake, the shares
are to be sold in the 4th, not the 5th (final), series of auctions to sell shares in the
energy retail companies, as previously planned.
OAO "Mosenergosbyt" is Russia's largest energy retail company which supplies
electricity to more than 5 million customers in Moscow and the Moscow Region. In 2007, the
company's productive electricity supply was 78 billion kWh, with sales revenue exceeding
Mosenergosbyt has the highest market capitalization among the RAO UES energy retail
companies, with the capitalization in excess of RUB17 billion.
According to the Government's sector reform plan, RAO "UES of Russia" will
cease to exist on 1 July 2008. By that time, RAO UES is to sell its stakes in 52 energy
retail companies. 22 of them worth a total of RUB13 billion were sold in 2007. If any of
the stakes are not disposed of before 1 July 2008, they will be transferred to OAO
"RAO Energy Systems of the East" under a demerger balance sheet.
The Board instructed the Management Board to take steps needed to issue new shares in
OAO "TGC-14"* simultaneously with the sale of the government's stake in the
By 4 March 2008, the RAO UES Management Board is to ensure that TGC-14 holds an EGM to
approve the new share issues, specifically, resolutions regarding the number of additional
shares authorized for issuance and on the capital increase.
RAO UES hold negotiations with another major shareholder in TGC-14, OAO "Norilsk
Nickel Mining and Metallurgical Company" in order to arrange for the sale of the
companies' stakes as a single lot.
* OAO "TGC-14" supplies heat and electricity to consumers in the Chita Region
and the Republic of Buryatia. The plants comprising OAO "TGC-14" have an
aggregate installed capacity of 633 MW.
Currently, the TGC-14's authorized capital amounts to RUB777,945,609 and comprises
777,945,609,114 ordinary shares, RUB0.001 par value each.
On 18 January 2007, TGC-14 shares were admitted to trading as unlisted securities on
the RTS Stock Exchange, and on 26 January 2007, on the MICEX Stock Exchange. Since 8 June
2007, TGC-14 ordinary shares have been traded on the MICEX as List B securities.
The RAO "UES of Russia" Board of Directors made the decision to cease the
company’s participation in the planning and surveying institute Dalselenergoproekt.
The main activities of Dalselenergoproekt consist of research and development, planning
and surveying and design-engineering works in the field of heat and electric power. The
decision to sell 100% shares in the company was made as part of the RAO "UES of
Russia" strategy to cease participation in entities of the research and development
Thus, RAO "UES of Russia" shall sell 4 560 common and 1 520
privileged shares in Dalselenergoproekt through open auction. The starting price of the
auction shall be no less than the market price determined by an independent appraiser and
approved by the Appraisal Committee of the RAO "UES of Russia" Board of
The auction may be conducted only after receiving the corresponding authorization from
the RF Government, because shares in the institute were transferred to the authorized
capital of RAO "UES of Russia" upon the establishment of the company.
The Board of Directors approved the structure of the 2007 annual report to the annual
General Meeting of Shareholders of RAO "UES of Russia". It is baseв upon the
structure of last-years report, but contains a number of updates.
The RAO "UES of Russia" annual report of 2007 will as usual take into
consideration the priorities of the companies’ activities and major corporate events
related to the restructuring of the sector in 2007: entry of the head Company into the
final stage of the reorganization, development of the investment process, results of
wholesale and retail electric power markets functioning according to new rules; as well as
the recommendations of the Association of Investor Rights Protection and
Standard&Poor’s rating agency.
In terms of updates, the Key Company Events section shall reflect upon the main events
in the Holding Company’s activities over the last 10 years, as this report is to be the
last annual report in the history of RAO "UES of Russia".
Taking into consideration increasing world interest in the environmental safety issue
and the outstanding amount of works that RAO "UES of Russia" has conducted over
this past year in the field protecting the environment, the annual report will include a
new Environmental Policy section.
The Board of Directors made alterations to the previously approved Agreement of
Experimental TPP Shareholders*.
The said document was approved by the Board of Directors on July 22, 2007. RAO
"UES of Russia", the Ministry for Economic Development and Trade of the RF
(MEDT) and a strategic investor – EnergoAktiv – were to be parties to this agreement.
Subsequently RAO "UES of Russia" and the MEDT drew up a model Shareholder
Agreement, where the signatories are RAO "UES of Russia", System Operator and
the strategic investor. Thus the Board of Directors made the decision to substitute one of
the parties to the Agreement – METD – for System Operator.
Moreover, the Agreement stipulates that signatories must own at least 75% + 1 share in
the authorized capital of Experimental TPP in order to provide for a special majority in
the Plant’s Board of Directors and for the adoption of decisions necessary to implement
the investment program.
In this context, the Board of Directors approved the acquisition by System Operator of
7 shares in the Plant with a face value of 100 rubles from RAO "UES of Russia".
The selling price equals the market price determined on the basis of a conclusion of an
independent appraiser and totals 179,32 rubles per share. The total value of the
transaction shall be 1255,24 rubles.
As a result of this transaction System operator and the strategic investor shall
jointly own 75% + 1 share in Experimental TPP.
The Board of Directors approved the decrease of the RAO "UES of Russia"
(together with SGC TGC-8) stake in the authorized capital of Experimental TPP from no less
than 25% + 1 share to 25% – 1 share.
* OJSC Experimental TPP was established in 2001 г. on the basis of the
Nesvetay SDPP in order to create an efficient energy entity that disposes of production
capacities for the development of new technologies of burning solid fuel and the
subsequent recycling of wastes.
Capital assets for the modernization of Experimental TPP are being attracted
through the placement of the additional issue of shares in the Plant by means of a private
subscription in favor of the investor? As determined by the RAO "UES of Russia"
Board of Directors decision of June 23, 2006. The main characteristics of the placement
were approved by a decision of RAO "UES of Russia" Board of Directors on August
EnergoAktiv, a company that is part of the ESTAR Holding Company, won the
competitive procedure aimed at selecting an investor to implement the modernization
project of Experimental TPP. The selection procedure was conducted on the basis of a
decision of the Board of Directors of the Company of June 23, 2006. EnergoAktiv shall be
responsible for providing funding to a full extent of the Experimental TPP modernization
program and for the commissioning of the necessary capacities according to an agreed
The Board of Directors approved the decrease in the characteristics of the additional
issue of Kaliningrad CHPP-2 shares.
The decision to place additional shares through a private subscription in favor of the
Russian Federation to an amount of 41 854 475 shares par value 10 rubles was
made by the Extraordinary General Meeting of Kaliningrad CHPP-2 shareholders on July 26,
2007. Its’ goal was to attract funds out of the 2007-2008 federal budget to finance the
construction of a CHPP, pursuant to the Federal Target Investment Program.
At present 5 493 004 additional Kaliningrad CHPP-2 shares have been placed in
favor of the State to a sum of 55 million rubles, which is provided for by the 2007
Pursuant to the RAO "UES of Russia" reorganization scheme Kaliningrad CHPP-2
shall become part of the structure of one of the target companies – Inter RAO UES –
before April 30, 2008. Legislation stipulates that the placement of additional shares must
be completed as of this date. As it is not planned to provide federal budget funding for
this before April 30, 2008, the Board of Directors made the decision to limit the amount
of additionally-issued shares to the volume of shares already placed.
The Board of Directors commissioned RAO "UES of Russia" representatives to
the HydroWGC Board of Directors to approve the company’s participation in the Non-Profit
Partnership "Corporate Education and Science Centre of the Unified Energy
System" (NP "CESC UES").
The Partnership’s main form of activity is providing educational services in the
field of professional training and development of workers of electric power industry
entities and energy companies.
"CESC UES" is a corporate member of the Institute of Professional Accountants
and Auditors of Russia, which allows "CESC UES" to conduct accountant training
programs and issue certificates of a standard type.
As part of the interaction of RAO "UES of Russia" with the international
association of energy companies e8, "CESC UES" arranges trainee exchanges
between foreign energy companies and RAO "UES of Russia" businesses.
HydroWGC becoming a member of NP "CESC UES" will allow it to participate in
managing the Partnership and in its’ activities, as well as to use the potential of
existing regional centers to train and develop skilled workers for the hydroelectric power
industry on commission from HydroWGC.
The RAO "UES of Russia" Board of Directors reviewed a number of issues
related to the activities of FGC UES.
In particular, during the meeting the Board decided it wise to implement the proposed
mechanism of creating a competitive environment in the sector of technical servicing and
repair works of trunk power grids, as well as the engineering sector and the construction
of electric power grid facilities.
This mechanism was developed upon the commission of the RAO "UES of Russia"
Board of Directors of October 26, 2007. It proposes to create a competitive environment by
means of expanding the application by the FGC of competitive procedures for the selection
of suppliers of such services. For example, in 2008 at least 50% of the total volume of
FGC orders to conduct services on the repair and servicing of electric power grid
facilities shall be fulfilled through competitive selection procedures. In 2009 this
figure shall be at least 70%. Herewith, it is planned to set a minimum amount of services
that FGC must buy from external companies. It shall be set at 15% for 2008 and 20% for
The creation of a competitive environment in the engineering and electric power grid
facilities construction sector shall be achieved by means of setting key efficiency
indicators for open joint-stock company "Centre for Engineering and Managing
Construction of the Unified Energy System" *. These key indicators shall be aimed at
expanding the community of contractors and suppliers attracted, as well as at decreasing
the level of prices during purchase procedures.
* The decision to establish wholly-owned subsidiaries "Centre for Engineering and
Managing Construction of the Unified Energy System" (CEMC UES), "Specialized
Electric Power Grid Servicing Company of the UNPG" (Electrosetservice UNPG) and Main
Electric Power Grid Servicing Company of the UNPG (Glavsetservice UNPG) was made by the
FGC UES Board of Directors on November 14, 2007. Previously – on October 26, 2007 –
FGC UES participation in the listed companies was approved by the RAO "UES of
Russia" Board of Directors.
The RAO "UES of Russia" Board of Directors reviewed proposals submitted by
FGC UES on the possibilities of reducing affiliation between Federal Grid Company,
Electrosetservice, Glavsetservice and CEMC UES. The Board of Directors commissioned the
preparation of these proposals at its meeting on October 26, 2007.
Measures for the registration and formation of the specified companies are planned to
be completed in 2008, their positioning on the market is set for 2009. Taking this fact
into consideration, as well as the forecasted rates of development of competition in the
sector of technical servicing and repairs of trunk power grid facilities, the Board of
Directors pointed out the expediency to reduce affiliation of FGC and Glavsetservice
starting from 2010.
This in mind, the RAO "UES of Russia" Management Board has been commissioned
to ensure that all measures for the improvement of the management structure, increasing
the value of Glavsetservice and for the preparation of proposals on the mechanisms and
ways of alienating shares in the specified company, scheduled for 2008-2009 are conducted
before the completion of the final reorganization of the head company. These proposals
must account for the possibility of Glavsetservice downsizing in order to increase the
amount of participants of the market for technical servicing and repairs of trunk power
grid facilities. It is planned to address this issue in the 1 st quarter of 2009 at an FGC
Board of Directors meeting.
The RAO "UES of Russia" Management Board has also been commissioned to ensure
(before the completion of the reorganization of the head company) that the issue on the
expediency of decreasing affiliation between FGC and Electrosetservice is reviewed at an
FGC Board of Directors meeting in the 1st quarter of 2009.
It has been deemed inexpedient to reduce affiliation between FGC and CESC UES, since
the latter is being created as an ordering party of construction works for the FGC.
The RAO "UES of Russia" Board of Directors has commissioned the RAO "UES
of Russia" Management Board to refine upon the existing mechanisms of control over
Electrosetservice and Glavsetservice functioning in the 1st quarter of 2008, in
particular, by means of reviewing the results of their activities at "in
presentia" meetings of the FGC Board of Directors, approving business-plans for these
companies, setting key performance indicators and their target values. Moreover, the
Management Board has been commissioned to refine upon the mechanism of control over the
activities of CEMC UES activities and the implementation of investment programs by the
Based on the results of reviewing this issue the RAO "UES of Russia" Board of
Directors advised FGC to select 3 representatives of minority RAO "UES of
Russia" shareholders each to the Boards of Directors of Electrosetservice,
Glavsetservice and CEMC UES and 1 to 3 representatives of minority RAO "UES of
Russia" shareholders and FAS representatives – to their audit commissions. These
measures are aimed at increasing the control of FGC UES over the listed companies.