The company’s restructuring draft was received by the Drafting Committee of RAO UES on March 29, 2002, which was in line with procedures established in Decree No. 526 of the Government of the Russian Federation of June 11, 2001, “On Reforming the Electric Utilities in the Russian Federation.” In accordance with this document each company was given the right to submit to RAO UES its own restructuring proposal taking into account both the interests of local utilities and the interests of the Russian energy system.

AO MOSENERGO’s proposals are based on the need to achieve the following goals:

• To shape the infrastructure of the retail market for electric energy within the Moscow energy system
• To stimulate the appearance of new players on the Moscow retail energy market, helping to develop free competition in the interests of electricity and heat consumers
• To optimize business practices in each new company created in place of AO MOSENERGO
• To increase the investment attractiveness of generation and grid companies through improving the transparency of corporate governance, cash flow management, and taking into account the subsequent interregional merger of new companies

In restructuring, the company aims to ensure the separation of monopolistic and competitive areas of activities by setting up specialized independent energy companies. During the process AO MOSENERGO’s priority is to ensure shareholder rights. This was reflected in the restructuring proposal with proportional distribution of shares of new companies to current shareholders. The company also proposes to participate in the allocation of assets for the Federal Grid Company, wholesale generating companies, the processes of interregional integration and mergers in the generation and grid business. AO MOSENERGO is ready to provide reliable, quality services for consumers, especially in the area of ensuring proper operation modes and dispatch services throughout the entire restructuring period. The company is also prepared to maintain and develop ways for improving the existing regional dispatch system.

Currently, AO MOSENERGO is in the first “optimization” stage of the company’s restructuring. According to the restructuring plan, this stage will lead to the organizational and economic optimization of production, finance and staff management in AO MOSENERGO. At this stage, settlements with creditors and the registration of titles on real estate property should also be completed.

During the second “restructuring” stage, AO MOSENERGO will be split into independent specialized energy companies (Moscow Generation Company, Moscow Grid Company, Moscow Supply Company, Moscow Heating Grids Company, Moscow Repairs and Maintenance Company), and the assets of the Federal Grid Company and the Wholesale Generating Company will be allocated. In the third “integration” stage, AO MOSENERGO will participate in the merger with generating companies from neighboring regions, while Moscow Grid Company will take part in the merger with regional grid companies within the zone of responsibilities of the Joint Dispatch Department (JDD). RAO UES will make the decisions—based on the feasibility of such projects—to merge grid and generating businesses.

The restructuring of the Moscow energy system should yield the following results:

1. Creation of the infrastructure of the Moscow retail energy market
2. Creation of economically efficient and financially reliable energy companies that would be attractive for direct and portfolio investors
3. Creation of conditions for developing the energy supply business in the region
4. Introduction of free competition aimed at winning consumers by way of offering better services at lower prices
5. Preservation of the state and corporate control over the functioning of regional energy system