Moscow, 2 March 2007. The Board of Directors of RAO "UES of Russia" has approved the basic structure for the second (final) phase of the Company's reorganization.

As resolved by the Board at its meetings held 28 July, 30 August, 22 September, and 27 October 2006, the Company reorganization is to be implemented in two phases.

During the first phase, two companies — OAO "WGC-5" and OAO "TGC-5"— will be spun off from RAO "UES of Russia" in 2007. At the EGM held 6 December 2006, RAO UES shareholders approved the Company's reorganization during the first phase by spin-off of OAO "WGC-5" and OAO "TGC-5", and set the share conversion ratios to be used for the exchange of shares in RAO UES for shares in TGC-5 and WGC-5.

The key reason why these two companies were selected was that they had completed their restructuring by the time of said resolution. After OAO "WGC-5" and OAO "TGC-5" are spun off from RAO "UES of Russia" and issue additional shares, the Government will hold at least 25 percent plus one share (i.e. a blocking stake) in these companies.

The model for the Company's final reorganization the Board approved today provides that, in 2007-2008, RAO "UES of Russia" will complete the restructuring of its assets, spin off all companies which will comprise the ultimate sector structure—OAO "UES FGC", OAO "UES SO-CDA", WGCs, TGCs, etc., following which the Parent Company, OAO RAO "UES of Russia", will cease its activity. As a result, RAO UES shareholders will receive shares in the spin off companies pro rata to their holdings of the Parent Company shares.

It is expected that the final reorganization of RAO "UES of Russia" will be implemented by spinning off "interim" companies which will simultaneously merge with and into the respective companies of the ultimate sector structure. To that end, similarly to the first phase of RAO UES reorganization, the Parent Company will spin off the "interim" companies owning shares in the entities comprising the ultimate sector structure; simultaneously, some of the spin-off companies will merge with and into the respective ultimate entities.

It is planned that, during the final reorganization phase, FGC and HydroWGC will raise funds needed to eliminate the deficit in their investment programmes, including by selling the Government's stakes in thermal generation companies. It was highlighted that it is necessary to ensure that the minority shareholders of RAO "UES of Russia" receive shares in all companies of the ultimate sector structure they are entitled to.

Specifically, shares in 5 thermal WGCs and 13 TGCs (i.e. all companies except for WGC-5 and TGC-5, which will have been spun off from RAO "UES of Russia" by that time in the first reorg phase) owned by the Government at the time of reorganization, will be transferred in the course of the spin-off to the "interim" companies provisionally called "State HoldCo" and "HydroWGC State HoldCo", which will, simultaneously with their establishment, merge with and into FGC and HydroWGC, respectively. The specific numbers of shares in the generation companies to be distributed to the two "interim" State HoldCos will be approved by the Board of Directors of RAO "UES of Russia", with a view to the need to eliminate the deficit in the FGC and HydroWGC investment programmes (taking into account the investment appropriations in the budget for the development of bulk transmission and hydropower generation).

The State HoldCo will also receive shares in FGC and the trunk (transmission) grid companies in the amount equal to the Government's stake in the capital of RAO "UES of Russia".

The Board of Directors decided that it is advisable to sell shares of particular thermal gencos (WGCs and TGCs) owned by the state HoldCo in accordance with the separation balance sheet. It will be done to eliminate the deficit of investments in FGC.

This means that, upon reorganization of RAO "UES of Russia", the Government will become a direct holder of at least 75 percent plus one share in FGC and a controlling stake in HydroWGC.

The shares in thermal WGCs, TGCs, and FGC the minority shareholders are entitled to will be spun off into 19 separate "interim" companies, each of which, simultaneously with such spin-off, will merge with the ultimate company whose shares it will hold.

Also, RAO "UES of Russia" will spin off the following holding companies, with shares in such companies to be distributed among all of the Company's shareholders pro rata to their holdings in RAO "UES of Russia":

• "System Operator", the entity owning shares in OAO "UES SO-CDA" (this HoldCo will simultaneously merge with OAO "UES SO-CDA");
• "Inter RAO UES Holding", the entity owning shares in ZAO "Inter RAO UES" and assets to be contributed to the capital of ZAO "Inter RAO UES" (this HoldCo will simultaneously merge with ZAO "Inter RAO UES");
• "HydroWGC Holding", the entity owning shares in OAO "HydroWGC";
• "IDC Holding", the entity owning shares in IDCs and distribution companies;
• "Far East and Islanded Power Systems Holding", the entity owning shares in OAO "Far East Energy Company", as well as shares in companies operating in the islanded power systems.

In addition to safeguarding the rights and interests of all RAO UES shareholders in taking shares in the ultimate sector structure companies, the above arrangement will ensure that the Government directly holds the stakes in FGC and HydroWGC required by the Russian legislation.

Moreover, such arrangement used in the second reorganization phase will help eliminate the deficit of investment resources needed for further development of the power grid and hydropower generation capacity through the sale by FGC and HydroWGC of the Government's stakes in the thermal generation companies.

The Board of Directors of RAO "UES of Russia" commissioned the Management Board to explore whether it is advisable for RAO "UES of Russia" to transfer the Government's shares in the thermal WGCs and TGCs to the HydroWGC Holding (a HoldCo to be spun off from RAO "UES of Russia"), which shares are expected to be sold to cover the investment deficit at HydroWGC, and to present its proposals regarding the ultimate structure of OAO "HydroWGC".

The Management Board of RAO "UES of Russia" is also required to submit its proposals at the next Board meeting on the possible configurations of RAO UES restructuring model, providing, among other things, for the disposal of shares in OAO "UES SO-CDA" prior to the completion of the final reorganization phase of RAO "UES of Russia", taking into account the legislative provisions. In addition, the Management Board's proposals should envisage the minority shareholders' right to alter the size of their shareholdings in the companies comprising the ultimate sector structure. The Company is to ensure that the minority shareholders receive pro rata stakes in such companies, and any possible changes in their stakes should be approved by RAO UES shareholders.

It’s planned to conduct EGM on RAO "UES of Russia" reorganization in September 2007, to complete the reorganization process – on 1 July 2008.