RAO UES Board of Directors Holds its Regular Meeting
Moscow, 23 May 2008. The Board of Directors of RAO "UES of
Russia" considered matters relating to the sale of shares transferred to OOO
"Energy Industry Index – UES FGC" and OOO "Energy Industry Index –
As a result of the reorganization, the RAO UES shares held by these
companies will be converted into shares of the companies of the intended sector structure.
For the sale of shares transferred to OOO "Energy Industry Index
– UES FGC" and OOO "Energy Industry Index – HydroWGC", the Board of
Directors of RAO "UES of Russia" resolved to invite at least four financial
institutions authorized to carry out brokerage activities. The potential candidates will
- banks which have long-term ratings not lower than the sovereign
rating assigned by Standard & Poor's, Fitch Ratings, or Moody's;
- major financial companies and investment banks which took part in the
share offerings of the companies comprising the intended sector structure;
- financial companies and commercial banks trading on stock exchanges
in RAO UES shares and listed shares in the companies of the intended post-reform sector
The Management Board of OAO RAO "UES of Russia" will
formulate a list of criteria for the selection of financial institutions, including: the
lowest brokerage fee; the volume of trading in equities of electricity companies;
availability of energy sector analytical divisions, etc. The maximum brokerage fee should
not exceed 0.15% of the daily volume of shares sold.
The shares in such companies will be sold at the market price, but not
lower than the minimum prices set for shares in each of the companies, taking into account
the costs incurred on repurchasing RAO UES shares.
The minimum price for listed shares of intended companies will be
determined as their average weighted price on the MICEX during the period from 19 February
2008 to 19 May 2008, with a 25% premium. For energy companies whose shares are not listed
on stock markets, the minimum price will be determined based on the fundamental value of
the shares as of 1 July 2008, with a 25% premium.
After 1 January 2009, OOO "Energy Industry Index – UES FGC"
and OOO "Energy Industry Index – HydroWGC", on the decision of the Board of
Directors of OAO "UES FGC" or OAO "HydroWGC", may review the
"lower threshold" of the price for the sale of shares acquired as a result of
the conversion of RAO UES shares. The exception will be the shares tendered under the
purchase offer made by strategic investors in the companies of the intended sector
structure. In respect of such shares, the Board of Directors of OAO "UES FGC" or
OAO "HydroWGC" may determine the selling price on a case-by-case basis.
The Board of Directors of OAO RAO "UES of Russia" instructed
the Management Board, by 20 June 2008, to select the financial institutions on a
competitive basis and to cause brokerage services agreements to be executed between such
institutions and OOO "Energy Industry Index – UES FGC" and OOO "Energy
Industry Index – HydroWGC" by 30 June 2008.
The financial institutions so engaged will need to provide monthly
reports on the progress made in the share sale to OAO "UES FGC" and OAO
*OOO "Energy Industry Index – UES FGC" and OOO "Energy
Industry Index – HydroWGC" are wholly owned subsidiaries of RAO "UES of
Russia" to which, as resolved by the Board of Directors on 9 February 2008, the
treasury shares repurchased from shareholders after the EGM of 26 October 2007 will be
sold in proportion of 74.9% to 25.1% which remain unsold as of 1 June 2008.
To date, RAO "UES of Russia" has entered into two Share
Purchase Agreements in respect of 1,354,510,000 ordinary shares worth a total of RUB44
billion (about 43% of the total amount of shares repurchased from shareholders).
Currently, RAO "UES of Russia" holds 1,442,786,335 ordinary shares and
404,885,193 preferred shares as Treasury shares intended for sale, worth approximately
The Board of Directors of RAO "UES of Russia" approved the
services agreements between RAO "UES of Russia" and OAO "UES SO"
(System Operator) as interested party transactions.
By 30 June 2008, System Operator undertakes to provide the following
services worth RUB210 million:
maintenance of a database on emergencies on generation and grid
companies, as well as major electricity users;
analysis of the results of energy companies and major consumers'
operation during the autumn and winter period;
preparation of reports of RAO "UES of Russia" in respect of
emergencies, industrial injuries, fires, and industrial safety, and submission of
information to the government control and oversight bodies intended for the preparation of
consolidated state reports on these issues;
control over the development and implementation of measures to
prevent accidents, fires, injuries, disruptions in the operation of equipment of energy
companies and major energy consumers;
preparation of proposals regarding amendment of the normative
characteristics of the generation and power grid facilities;
analysis and monitoring of the UES of Russia operation to detect
signs of possible power failures and to prevent such failures, etc.
The Board of Directors of RAO "UES of Russia" resolved to
unilaterally terminate the Share Purchase Agreement in respect of TGC-2 "government
stake" shares with Kores Invest if the latter does not make payment for the shares by
31 May 2008.
By way of reminder, upon review of the bids for the government stake in
TGC-2, the RAO UES Tender Commission on 14 March 2008 named Kores Invest the tender winner
with a RUB9.3 billion bid.
Kores Invest also purchased the additional shares issued by TGC-2 and
paid for these shares in full. These funds have already been allocated for the
implementation of the TGC-2 investment program.
Under the Share Purchase Agreement in respect of the shares in TGC-2,
Kores Invest was to pay for the "government stake" shares in TGC-2 by 8 May
2008. However, no payment has been paid for the shares. Accordingly, the shares are still
held by RAO "UES of Russia".
A notice requiring payment for the shares and the late penalties has
been sent to Kores Invest.
As resolved by the Board of Directors, if Kores Invest does not make
the payment due for the "government stake" shares in TGC-2 (including the late
penalties) by 31 May 2008, RAO "UES of Russia" will terminate the agreement with
Kores Invest and put up the shares for auction again.
In this case the RUB390 million earnest money paid by Kores Invest in
order to take part in the auction will be retained by RAO "UES of Russia".
If the TGC-2 "government stake" shares are put up for auction
again, the shares will be sold at a price not lower than RUB0.025 per share. This price
was offered by Kores Invest in the auction to sell off the TGC-2 shares and is equal to
the offering price per TGC-2 share.
If necessary, the new strategic investor will be granted a postponement
of payment for the shares until Q3 2009 (inclusive). The payment must be made in full not
later than 1 October 2009.
If the TGC-2 "government stake" shares are not sold until 1
July 2008, they will be transferred under the separation balance sheet to Federal Grid
The Board of Directors approved the withdrawal of RAO "UES of
Russia" from OAO "Electrification Exhibition Pavilion" by contributing the
company's shares to Not-for-profit Partnership "Innovations in the Electricity
In the pavilion owned by OAO "Electrification Exhibition
Pavilion", there are two administrative and trading/exhibition facilities in the
territory of the All-Russia Exhibition Center. Currently, RAO "UES of Russia"
uses the pavilions for holding exhibitions and presentations.
A priority for RAO "UES of Russia" in holding the shares in
OAO "Electrification Exhibition Pavilion" is to promote the interests of the
industry: ensuring that the pavilion is used for its core purpose and provide a venue for
holding meetings and a forum for exchange of opinions and ideas and disseminating
information on achievements in the electricity industry. This will help facilitate
interaction of energy industry participants with other industries.
After the reorganization of RAO "UES of Russia", a factor
which is to unify the energy sector's enterprises will be development of innovations and
joint efforts to address complex technological, commercial and social tasks. For that
purpose, it is proposed to create a permanent Innovation Center of the Electricity
Industry on the basis of the exhibition pavilion of the Exhibition Center. This Innovation
Center will become a center designed to inform energy companies and the general public of
the sector's achievements and goals.
Not-for-profit Partnership "Innovations in the Electricity
Industry" (INVEL) will be a natural venue for the creation of the Innovation Center,
formulate an innovation strategy, promote new projects and solutions in the sector, and
preserve the professional and communication unity in the energy sector. In this
connection, it is proposed that the shares in OAO "Electrification Exhibition
Center" be contributed to NP "INVEL" which will become a
The Board of Directors noted the Development Strategy Concept of OAO
"RAO ES of the East"* for 2008-2012 and approved the establishment of OAO
"RAO ES of the East" as a Holding Company which will manage its wholly owned
A prerequisite for the consolidation of OAO "RAO ES of the
East" is that the government should preserve no less than a controlling stake in OAO
"RAO ES of the East" after the consolidation of its subsidiaries via a share
exchange. In this connection, the Board of Directors instructed the Board of Directors of
RAO "UES of Russia" to have the Strategy Concept for OAO "RAO ES of the
East" approved by the federal executive authorities prior to the completion of the
reorganization in respect of the possibility and timing for such consolidation.
Besides the description of the intended structure of the Holding
Company, the Development Concept Strategy for OAO "RAO ES of the East" sets out
the goals and objectives for the company's development. The key objectives for the company
will be to ensure reliable and uninterrupted energy supply to customers in the Far East of
Russia, improving operational efficiency and financial stability of the Holding Company's
entities, meeting the solvent demand for electricity and heat, and ensuring long-term
capitalization growth of OAO "RAO ES of the East".
In order to achieve these goals, the Holding Company will implement a
number of strategic initiatives, including investment projects designed to eliminate or
prevent capacity deficit in certain areas of the Far Eastern Federal Okrug, optimize the
operational costs of the Holding Company's entities, and improve the HoldCo's investment
Currently, the Holding Company has prepared an investment program for
2008-2012 in the amount of RUB164.5 billion. The program will be financed with own and
borrowings of the subsidiaries of OAO "RAO ES of the East" and the funds
allocated from the federal budget under the Federal Designated Purpose Programs
"Economic and Social Development of the Far East and Transbaikalia for the Period
Furthermore, the Board of Directors cancelled its previous decision to
sell the shares in OAO "Peredvizhnaya Energetika" (Mobile Energy) and approved
the transfer of these shares to the Far East Holding Company under the separation balance
sheet. This resolution is due to the fact that the company owning the generation assets
with the total installed capacity of 200 MW has significant experience in implementing
projects to build and operate small capacity power plants in the adverse climate
conditions. This experience will be used in the implementation of local energy development
programs in the Republic of Sakha (Yakutia) and the Kamchatka Region.
* The Holding Company, OAO "RAO ES of the East", will be
established on 1 July 2008. The Holding Company will bring together the unbundled energy
companies of the UES of the East: OAO "Far Eastern Energy Company", OAO
"Far East Generation Company", and OAO "Far East Distribution
Company", as well as the isolated regional energos located in the Far East of Russia:
OAO "Sakhalinenergo", OAO "Kamchatskenergo", OAO
"Magadanenergo" and OAO "Yakutskenergo"; OAO "Peredvizhnaya
Energetika" (Mobile Energy), and other assets to be transferred by RAO "UES of
Russia" to the Holding under its separation balance sheet. The Holding Company will
accept most rights and obligations of RAO "UES of Russia" relating to the Far
East's electricity sector.
The Board of Directors considered matters relating to the operations of
OAO "East Energy Company".
In particular, the Board of Directors approved the Agreement on EEC's
accession to the Contract for the purchase and sale of electricity for the first phase of
the project to supply electricity from the Russian Federation to the People's Republic of
China, dated 9 November 2006, to the Agreement on the comprehensive preparation of the
feasibility study for the project to supply electricity from the Russian Federation to
China, dated 21 March 2006, and to the Agreement on the main principles of implementing
the project to supply electricity from the Russian Federation to China, dated 9 November
2006. Previously, these agreements were signed by RAO "UES of Russia" and State
Power Grid Corporation of China. EEC's accession to these agreements is proposed in
connection with the completion of the RAO UES reorganization.
The Board of Directors instructed the RAO UES representatives in the
management bodies of Federal Grid Company to vote for the company's participation in the
foundation of Not-for-profit Partnership "Russia-Europe Round Table". Institute
for Modern Development Foundation will be another co-founder of the not-for-profit
NP "Russia-Europe Round Table" will become a successor to the
secretariat of the Russian part of the EU-Russia Industrialists' Round Table (IRT) which
currently works under the aegis of RAO "UES of Russia".
The IRT's mission is to raise the EU-Russia economic cooperation to the
level of systemic partnership based on the WTO rules and facilitate a new treaty between
Russia and the EU instead of the current Partnership and Cooperation Treaty. Anatoly
Chubais, Chairman of the Management Board of RAO "UES of Russia", has been IRT
co-chair since 2000.
The objective of NP "Russia-Europe Round Table" will be to
prevent interruptions in the IRT's activities, loss of channels for interaction with the
European business community and loss of its unique experience after the reorganization of
RAO "UES of Russia".