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Unified Energy System

January 30, 2004

Board of Directors of RAO "UES of Russia" continued considering the regional energos' restructuring plans

 

Moscow, 30 January 2004. At its January meeting held today, the Board of Directors of RAO "UES of Russia" continued considering the regional energos' restructuring plans*. The Board approved the restructuring plan of OAO "Tomskenergo" envisaging:

  • restructuring of OAO "Tomskenergo", in accordance with the basic restructuring plan for regional energos, through spin-off of the following companies (while preserving the current capital structure): OAO "Tomsk Energy Management Company", OAO "Tomsk Distribution Company", OAO "Tomsk Energy Retail Company", OAO "Tomsk Trunk Grids", OAO "Tomskenergoremont", and OAO "Tomskelectrosetremont";
  • the establishment by OAO "Tomskenergo" of a wholly-owned subsidiary, OAO "Sotssfera";
  • the transfer of the power grid facilities owned by OAO "Tomskenergo", which are part of the Unified National Power Grid (UNPG), as consideration for the additional shares in Siberia Interregional Transmission Company (Siberia ITC);

The Board of Directors also resolved that the facilities used for electricity generation, as well as the heat generation and distribution facilities are to remain the property of OAO "Tomskenergo" Upon completion of the reorganization, OAO "Tomskenergo" will be a generation company with an installed electric capacity of 421 MW.

The Board of Directors approved the transfer of functions of the one-man management bodies (i.e. CEOs) of OAO "Tomsk Distribution Company", OAO "Tomsk Energy Retail Company", and OAO "Tomskenergo" to OAO "Tomsk Energy Management Company".

The Board instructed RAO UES representatives to vote FOR the approval of the items of business of Board meetings and shareholder meetings of OAO "Tomskenergo", and shareholder meetings of the newly established companies, that are required to ensure implementation of the reorganization plan of OAO "Tomskenergo".

* The Board of Directors has approved a total of 43 plans for reforming the regional energos.

***

 The Board of Directors of RAO "UES of Russia" reviewed the restructuring plan of OAO "Novgorodenergo" envisaging:

  • restructuring of OAO "Novgorodenergo", in accordance with the basic restructuring plan for regional energos, through spin-off of the following companies (while preserving the current capital structure): OAO "Novgorod Generation Company", OAO "Novgorod Retail Company", and OAO "Novgorod Energy Management Company";
  • establishment by OAO "Novgorodenergo" of wholly-owned subsidiaries: OAO "Novgorodenergoremont" and OAO "Novgorodelectrosetremont";

The Board of Directors has resolved that the power distribution networks that are not part of the Unified National Power Grid (UNPG) remain the property of OAO "Novgorodenergo". OAO "Novgorodenergo" does not own any trunk grids.

The Board of Directors approved the transfer of functions of the one-man management bodies (i.e. CEOs) of OAO "Novgorod Generation Company", OAO "Novgorod Retail Company", and OAO "Novgorodenergo" to OAO "Novgorod Energy Management Company".

The Board instructed RAO UES representatives to vote FOR the approval of the items of business of Board meetings and shareholder meetings of OAO "Novgorodenergo", and shareholder meetings of the newly established companies, that are required to ensure implementation of the reorganization plan of OAO "Novgorodenergo".

***

 The Board of Directors of RAO "UES of Russia" approved the restructuring plan of OAO "Mosenergo" envisaging:

  • restructuring of OAO "Mosenergo" through spin-off of the following companies (preserving the current capital structure): OAO "Energy Management Company", OAO "Trunk Grid Company", OAO "Moscow City Electricity Network Company", OAO "Moscow City Heating Network Company", OAO "Moscow Region Electricity Network Company", OAO "Mosenergosbyt", OAO "Specialized Design Bureau for Repair and Modernization", OAO "Mosteplosetenergoremont", OAO "Mosenergosetstroy", OAO "TPP-4", OAO "TPP-5", OAO "TPP-24", and OAO "Zagorskaya Pumped Storage Hydroelectric Plant (PSHP)".
  • establishment by OAO "Mosenergo" of the wholly-owned non-profit subsidiaries: OAO "Center for Personnel Training", OAO "Technical College", and OAO "Medsanchast";
  • establishment by OAO "Mosenergo" of the wholly-owned subsidiaries: OAO "Moskabelsetmontazh", OAO "Repair Plant for Electrotechnical Equipment", OAO "Central Repair and Engineering Plant", OAO "Moselectroremenergo", OAO "Mosenergonaladka", OAO "Mosenergoproekt", OAO "Specialized Design and Technology Bureau for High-Voltage and Cryogenic Equipment", OAO "Mosenergospetsremont", OAO "Moskabelenergoremont", OAO "Pilot Plant for Automation Equipment and Instruments", and subsequent sale of all shares in these companies;
  • the transfer of the power grid facilities owned by OAO "Mosenergo", which are part of the Unified National Power Grid (UNPG), as consideration for the additional shares in Center Interregional Transmission Company (Center ITC);
  • pro-rata distribution of shares in Center ITC held by OAO "Trunk Grid Company" among the latter's shareholders using the procedure of liquidation of OAO "Trunk Grid Company" or its merger with and into Center ITC.

The Board of Directors also resolved that the facilities used for electricity generation, except for the facilities to be transferred to the generating companies of the wholesale electricity market, are to remain the property of OAO "Mosenergo."

The Board of Directors approved the transfer of the functions of the one-man management bodies (i.e. CEOs) of the following companies to OAO "Energy Management Company": OAO "Mosenergo" (Moscow City Generation Company"), OAO "Moscow City Electricity Network Company", OAO "Moscow City Heating Network Company", OAO "Moscow Region Electricity Network Company", OAO "Mosenergosbyt", OAO "Specialized Design Bureau for Repair and Modernization", OAO "Mosteplosetenergoremont", OAO "Mosenergosetstroy".

The restructuring plan of OAO "Mosenergo" provides for the implementation of the provisions of the Agreement on Interaction in the Reforming of the Electric Energy System of the City of Moscow made by the Moscow City Government, the Regional Energy Commission (REC) of Moscow, RAO "UES of Russia", and OAO "Mosenergo", and the Agreement on Interaction in the Reforming of the Electric Energy System of Moscow Region, concluded by the Moscow Region Government, the REC of Moscow Region, RAO "UES of Russia", and OAO "Mosenergo".

These Agreements provide, among other things, that:

  • the City of Moscow is entitled to increase its stake in OAO "Moscow City Electricity Network Company" and OAO "Moscow City Heating Network Company" to 51% or more by taking up additional shares which may be issued by these companies.
  • Moscow Region is entitled to increase its stake in OAO "Moscow region Electricity Network Company" to 51% or more by taking up additional shares which may be issued by the company;
  • RAO "UES of Russia" will take steps so that its shareholders directly take up shares in OAO "Mosenergo Moscow City Generation Company" and OAO "Moscow Region Electricity Network Company".

In order to implement the provisions of the Agreement on Interaction in the Reforming of the Electric Energy System of the City of Moscow, before the issuance of additional shares in OAO "Moscow City Electricity Network Company" and OAO "Moscow City Heating Network Company", shareholders may exchange their holdings in these companies for shares held by the City of Moscow in other joint-stock companies established as a result of reorganization of OAO "Mosenergo".

The restructuring plan of OAO "Mosenergo" also provides for the development of programs for ADR holders for as many companies established in the course of restructuring of OAO "Mosenergo", as well obtaining ADR holders' consent to these programs, and ensuring their implementation.

The Board instructed RAO UES representatives to vote FOR the approval of the items of business of Board meetings and shareholder meeting of OAO "Mosenergo", and shareholder meetings of the newly established companies, that are required to ensure implementation of the reorganization plan of OAO "Mosenergo".

The Board of Directors also stated that the procedures for disposal of the shares held by RAO "UES of Russia" in OAO "Mosenergo Moscow City Generating Company", OAO "Moscow Region Electricity Network Company", OAO "Specialized Design Bureau for Repair and Modernization", OAO "Mosteplosetenergoremont", and OAO "Mosenergosetstroy" are to be established by the corresponding decisions of the Board of Directors of RAO "UES of Russia".

The position of the representatives of RAO "UES of Russia" regarding items of business of general shareholder meetings and Board meetings of OAO "Moscow City Electricity Network Company" and OAO "Moscow Region Electricity Network Company" to increase the authorized capitals of the joint-stock companies and placement of additional shares to the City of Moscow and the Moscow Region shall be determined by the corresponding decisions of the Board of Directors of RAO "UES of Russia", with account taken of the above Agreements.

***

The Board of Directors of RAO "UES of Russia" has reviewed a report on work of the Strategy and Reform Committee of the Board of Directors of RAO "UES of Russia".

The Committee was formed pursuant to the decision of the Board of Directors of 31 August 2001. Since 1 July 2003, the Committee has comprised 13 members, including 4 representatives from the State, 4 from minority shareholders and potential strategic investors, 2 from the Management Board of RAO "UES of Russia", and 3 from expert organizations.

The Committee is engaged in the analysis of proposals and working out recommendations for the Board of Directors of RAO "UES of Russia" on the matters relating to the development and implementation of the Holding's strategy and the restructuring of the Holding's entities.

From September 2001 to December 2003, the Strategy and Restructuring Committee held 40 meetings, at which it considered 51 regional energos' restructuring plans. The Committee re-examined six of the previously approved restructuring plans taking into account the amendments and additions made to these plans. As at 31 December 2003, the Board of Directors approved 40 of all regional energos' restructuring plans considered by the Committee.

The Board of Directors instructed the Management Board of RAO "UES of Russia" that all changes to the regional energos' restructuring plans already approved by the Board of Directors should be submitted for consideration of the Board of Directors only after they are considered by the Strategy and Restructuring Committee of the Board of Directors of RAO "UES of Russia".

Apart from the regional energos' restructuring plans, at its meetings held between September 2001 and December 2003, the Committee considered 25 issues relating to the development and implementation of the Holding's strategy, including the establishment of the Administrator of Trading System and System Operator for the wholesale electricity market, Wholesale Generation Companies (WGCs), interregional trunk companies (ITCs) formed on the basis of the regional energos' trunk grids, Heat Generation Companies (HGCs) co-founded by several regional energos, establishment of Federal Grid Company (FGC) and RAO UES participation in FGC, development of a uniform approach to appraisal of RAO UES and SDCs' assets to be used in the course of restructuring, etc.

The Board of Directors received and noted the interim report of the Audit Committee of the Board of Directors of RAO "UES of Russia".

The Board instructed the Management Board of RAO "UES of Russia" to prepare and submit for consideration of the Audit Committee by 31 March 2004 a draft of the Main Principles of Uniform Accounting Policies for the Preparation of IFRS Financial Statements, which are to be used in the preparation of consolidated financial statements at RAO "UES of Russia" and its subsidiaries and dependent companies (SDCs), and to submit the Document for approval to the Board of Directors as soon as it is considered by the Audit Committee.

The Board of Directors instructed the Management Board of RAO "UES of Russia" and the Audit Committee to submit their proposals on changing the make-up of the Tender Commission engaged in selection of an audit firm to conduct an annual required audit of RAO UES financial statements, so as to include at least two members of the Audit Committee in the Tender Commission.

The Board of Directors instructed the Management Board of RAO "UES of Russia" to study the cost-effectiveness of the existing practice of prepayment for fuel supplies and determine whether it would be possible to shift part of the burden of working capital financing from the Company's SDCs to fuel suppliers and/or create any other, more efficient system for short-term financing of fuel purchases.

The Audit Committee was formed by the Board of Directors of RAO "UES of Russia" on 29 August 2003. From 19 September 2003 to 30 January 2004, the Committee held six meetings.

The Committee consists of the following members: Seppo Remes (Committee Chairman; Executive President, Vostok Nafta Investment Ltd.), Sergey Kosarev (Deputy Chairman; Deputy Minister of Property Relations of the Russian Federation), Aleksandr Kazakov (Member of the Federation Council of the Russian Federation), Aleksandr Kirsanov (Project Manager, "Eurosibenergo"; representative of the member of the Board of Directors of RAO "UES of Russia" D. Geovanis), and Sergey Skaterschikov (Managing Director, IndexAtlas Ltd.).

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