Moscow, 7 December 2004. The Management Board of RAO "UES of Russia" considered the question of the Company's participation in the hydrogeneration company of the wholesale electricity market (Hydro-WGC).

The creation of the Hydro-WGC is provided for by Order of the Russian Government No. 1254-r of 01 September 2003 (in the wording approved by Order of the Russian Government No. 1367-r of 25 October 2004).

The Management Board recommended that the Board of Directors of RAO "UES of Russia" approve the establishment of Open Joint-Stock Company "Federal Hydrogeneration Company" (OAO "Hydro-WGC"), with the following property to be transferred to said Company:

• at the first stage: shares of the subsidiaries of OAO RAO "UES of Russia": OAO "Volzhskaya HPP", OAO "Zhigulevskaya HPP", OAO "Votkinskaya HPP", OAO "Sayano-Shushenskaya HPP", OAO "Zeyskaya HPP", OAO "Bureyskaya HPP", OAO "Boguchanskaya HPP", OAO "Sulakenergo", OAO "Zelenchukskie HPPs", OAO "Zaramagskie HPPs", OAO "KabbalkHPP", OAO "Saratovskaya HPP", OAO "Nizhegorodskaya HPP", OAO "Kamskaya HPP", OAO "Kaskad VV HPP", and shares of the management company, OAO "UK VoGEK".
• at the second stage: the property of Novosibirskaya HPP, shares of OAO "Cheboksarskaya HPP", OAO "Dagestan Regional Generation Company", OAO "Zagorskaya PSHPP" (Pumped-Storage Hydroelectric Power Plant), OAO "Stavropolskaya Electricity Generation Company", other property to be transferred to OAO "Hydro-WGC" pursuant to Orders of the Russian Government No. 1254-r dated 1 September 2003 , and No. 1367-r dated 25 October 2004.

The establishment of OAO "Hydro-WGC" (including the second stage) is scheduled to be completed by the end of 2006. The management of RAO "UES of Russia" is looking into the possibility of consolidating OAO "Hydro-WGC" and AO-power plants.

The consolidation of the hydrogeneration assets of RAO "UES of Russia" is in compliance with the Law On Specific Features of Functioning of Electric Power Industry During the Transitional Period which provides for the preservation of the Government control over the greater part of the hydrogeneration assets. The creation of a single company based on the HPPs that are part of RAO "UES of Russia" Holding Company does not contravene the antimonopoly restrictions.

The aggregate capacity of the power plants of OAO "Federal Hydrogeneration Company" will be in excess of 22,000 MW. The creation of OAO "Hydro-WGC" will make it possible to:

• concentrate financial resources on top-priority projects, such as completion of the construction of Irganayskaya HPP, Zelenchuksie HPPs, Boguchanskaya HPP, and Bureyskaya HPP owing to centralized management of the HPPs' cash flows and raise external financing (investments and loans) on terms that are more favourable than those available to smaller companies;
• increase efficiency of hydroenergy as an instrument used to regulate the energy system's parameters, as it is large hydroelectric power plants that perform the function of real-time regulation of the frequency and capacity in Russia's energy system;
• increase the HPPs' efficiency in the performance of functions not relating to electricity generation, viz. flood control, land reclamation, regulation of ship flows and bioresources, etc.