Moscow. 26 November 2004. The Board of Directors of RAO "UES of Russia" unanimously approved the establishment by OAO RAO "UES of Russia" of a wholly-owned subsidiary, OAO "Fourth Generation Company of the Wholesale Electricity Market" ("OAO "WGC-4"), on the following terms and conditions:

• the charter capital of OAO "WGC-4" shall be RUB8,210,830,760 (eight billion two hundred and ten million eight hundred and thirty thousand seven hundred and sixty Rubles) divided into registered ordinary shares of RUB1 (one Ruble) par value;
• The payment for WGC-4 shares will be made in form of property (515,785,315 (five hundred and fifteen million seven hundred and eighty-five thousand three hundred and fifteen) shares of OAO "Berezovskaya TPP-1", par value RUB0.50 (50 kopecks) per share, which makes 100% minus one share) and cash in the amount of RUB20,500,000.88 (twenty million five hundred thousand Rubles eighty-eight kopecks). The cash for the creation of the charter capital of OAO "WGC-4" in the amount of RUB 20.5 million will be paid from the Company's budget.

Based on the reports presented by the independent appraiser and the Appraisal Committee and Strategy Committee of RAO UES Board of Directors, the Board determined the money value of the property to be contributed to the charter capital of OAO "WGC-4" at the first stage at RUB8,190,330,760.

At the second stage of the WGC-4 establishment, its charter capital will be increased; the payment for the additional shares will be made in shares of the power plants spun off from the regional energos: OAO "Yaivinskaya TPP" (currently part of OAO "Permenergo"), OAO "Smolenskaya TPP" (OAO "Smolenskenergo"), OAO "TPP-5" (OAO "Mosenergo"), and OAO "Surgutskaya TPP-2" (OAO "Tyumenenergo").

As previously resolved by the Board of Directors of RAO "UES of Russia", the Board of Directors of OAO "WGC-4" will include representatives of minority shareholders.

According to the preliminary schedule for the establishment of OAO "WGC-4" (taking into account the reorganization plans of the regional energos owning the power plants to be included into WGC-4), the establishment of WGC-4 as a single operating company will be completed in the first quarter of 2006.

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In accordance with this plan, at the time of establishment, WGC-4 will include Berezovskaya TPP-1, which is one of the five TPPs to be transferred to the WGC pursuant to the Resolution of the Russian Government No. 1254-r dated 01 September 2003.

***

The Board of Directors of RAO "UES of Russia" approved the co-founding by OAO "Kolenergo", OAO "Lenenergo", and OAO "Karelenergo" (or by the generating company, OAO "Karelenergogeneratsiya", if it is spun off [from OAO "Karelenergo"] before the establishment of OAO "TGC-1") of an operating company, OAO "TGC-1", using the leasing arrangements.

The charter capital of OAO "TGC-1" after the Company's registration will be RUB10 million and will be divided into 1 billion ordinary shares.

OAO "Karelenergo" will have a 12% interest in the charter capital of OAO "TGC-1", 25% will be held by OAO "Kolenergo", and 63% by OAO "Lenenergo". The stakes held by the co-founders were determined on the basis of comparison of the installed capacity, actual output of electricity and heat, and the replacement cost of the generating assets to be leased to OAO "TGC-1".

The Board approved the lease of the generating assets currently owned by OAO "Karelenergo", OAO "Lenenergo" and OAO "Kolenergo" (except for Murmanskaya CHPP and Apatitskaya CHPP) to OAO "TGC-1".

According to the preliminary schedule, TGC-1 will start working as an operating company using leasing arrangements in the second quarter of 2005. The establishment of TGC-1 will be completed in the first quarter of 2007 after the three Regional Generating Companies (RGCs) merge with and into TGC-1.

On the motion of I.Yu. Artemyev, Chief of the Federal Antimonopoly Service of Russia, the Board of Directors commissioned the Management Board of RAO "UES of Russia" to present a report to the Board meeting in Q1 2005 on the advisability and feasibility of splitting off of heating network assets in the course of regional energos' reorganization and establishment of TGCs.

The Board of Directors of RAO "UES of Russia" approved the creation by RAO "UES of Russia" of an operating company, OAO "TGC-13", using leasing arrangements, by establishing a wholly-owned subsidiary, with shareholders in OAO "Krasnoyarskenergo" subsequently becoming shareholders in OAO "TGC-13".

The charter capital of OAO "TGC-13" at the time of establishment will be RUB10 million and will be divided into 1 billion ordinary shares.

Within one month after the state registration of the company, OAO RAO "UES of Russia" will acquire for cash at least 50% plus one voting share in OAO "TGC-13". The rest of the shares will be owned by OAO "TGC-13" and subsequently offered to the minority shareholders of OAO "Krasnoyarskenergo" (the other energy company whose generating assets will be transferred to TGC-13—OAO "Khakasenergo"—is a wholly-owned subsidiary of RAO "UES of Russia").

The Board of Directors of RAO "UES of Russia" approved the lease of the generation and heating network assets owned by OAO "Krasnoyarskenergo" and OAO "Khakasenergo" to OAO "TGC-13".

The stakes of the regional energos in the charter capital of OAO "TGC-13" will be determined using the cost/performance factor of generation of the regional energo being leased out. This factor is to be calculated on the basis of the installed capacity and dependable capacity of the generating assets, the cost of electricity and heat produced by the regional energos' generation facilities, the value of the regional energos' generating and heating network assets being leased to OAO "TGC-13".

According to the preliminary schedule, TGC-13 will start working as an operating company set up using leasing arrangements in the second quarter of 2005. The establishment of TGC-13 will be completed in the second quarter of 2007 through merger of the two Regional Generating Companies (RGCs) with and into TGC-13.

***

The Board of Directors made amendments to its resolution of 28 June 2003 providing for the transfer of the powers of the one-man executive body (CEO) of OAO "Cheboksarskaya HPP" to the management organization, OAO "Volga Hydroenergy Cascade Management Company" (OAO "UK VoGEK"). This will help complete, in early 2005, the preparations for the creation of a constituent of the single hydro-WGC provided by Resolution of the Russian Government No. 1367-r of 25 October 2004.

Originally, according to the resolution of the Board of 28 June 2003, it was planned to transfer the powers of the CEO of OAO "Cheboksarskaya HPP" (until the power plant's merger into the WGC) to OAO "Chuvash Management Company".

OAO "UK VoGEK" was established in 2001 pursuant to the decision of the Board of Directors of RAO "UES of Russia". The management company's mission is to carry out interregional unification of the hydropower plants on the Rivers Volga and Kama based on the cascade principle, which will be followed by the transfer of the HPP to the hydro-WGC.

* * *

The Board of Directors of RAO "UES of Russia" considered and noted the proposals presented by the Company's management on the methods of addressing the cross-subsidization problem in the context of electricity sector restructuring. The Board commissioned the Management Board of RAO "UES of Russia" to prepare more detailed proposals concerning the cross-subsidization and submit them for consideration to the sectoral federal ministries and agencies.

The Board of Directors noted that the existence of cross-subsidization in the electricity industry hinders the sector reform, including the regional energos' reorganization and liberalization of the wholesale and retail electricity markets.

Today, the amount of cross-subsidization of households in Russia's electricity industry totals RUB60 billion, with the level of cross-subsidization differing by several times region by region.

In accordance with the comprehensive plan designed to eliminate cross-subsidization which was worked out by the Ministry of Economic Development and Trade of the Russian Federation and agreed to by the Russian Government, the amount of cross-subsidization is to be reduced in 2005 by:

• establishing a social norm of consumption determined based on the minimum household needs of the population; the consumption within such norm should be paid at reduced tariffs, whereas the remaining part of the consumed energy is to be paid at economically justified tariffs;
• abolishing the 0.7 reduction factor for the electricity tariff for urban households having installed electric cookers and rural population.

These measures will help reduce the overall amount of cross-subsidization to 30%. However, even such a reduced level of cross-subsidization in the context of electric industry reform is likely to cause some serious problems. With regional energos unbundling currently underway, it will be impossible to include the cross-subsidization component in the ultimate electricity tariffs.

A one-time liquidation of the cross-subsidization system is unacceptable as it may lead to a considerable increase in tariffs for households in many regions. In these circumstances, in order to ensure a stepwise reduction of cross-subsidization, it is necessary to create a new legitimate source for maintaining cross-subsidization until it is finally eliminated. According to the Company's management, a system of targeted support for households using budget funds may become such a source. However, in view of the scope of cross-subsidization—which covers most of Russia's population—the creation of such a mechanism will require a lot of time and expenses, which is contrary to the plans of the sector's intensive restructuring. In this connection, it appears advisable to switch to the specific subsidies system in the electricity industry after the tariffs for households are gradually increased and the number of subsidized consumers is reduced, i.e. in several years. Until the system of targeted support is introduced, the subsidization of population could be most effectively implemented by imposing a special targeted non-tax levy on the subsidizing consumers in addition to the economically justified tariffs for the purpose of supporting the reduced tariffs for households and some other categories of consumers.

Under the provisions of the civil legislation of the Russian Federation, such a non-tax levy may be introduced only by a federal law. The relevant amendments to the laws may be made only in 2005 and will enter into force not earlier than 1 January 2006. In this connection, the Company's management considers it necessary to designate a temporary source of funds to support the cross-subsidization system, which will make it possible to continue the implementation of the sector reform next year.

The Company's management presented to the Board of Directors its proposals concerning the creation of such a source of funding by shifting the cross-subsidization from the ultimate tariffs on the retail market to the regulated tariffs for electricity purchase on the wholesale market. In particular, this approach provides for the establishment of two separate tariffs for electricity purchase on the wholesale market in each region where the regional energo has been unbundled, namely:

• the subsidized tariff, i.e. a reduced tariff for electricity purchased in the amount necessary to meet the demand of the population within the established "social norm" for electricity consumption;
• the increased tariff for the remaining part of electricity purchased [on the wholesale market] which will be used for other consumers and the population to the extent exceeding the amount necessary to cover the social norm of consumption.

However, in some regions even the minimum tariff for the purchase of electricity on the wholesale market, which is several times lower than the market price, is not enough to maintain the cross-subsidization even at the minimum level. For such regions, the management of RAO "UES of Russia" suggests compensating the deficit of funds by establishing a uniform (average) tariff for distribution of electricity without differentiation by voltage. It would be possible to gradually return to the system of differentiation by voltage as the tariffs for households increase or as soon as a new legitimate source of subsidization is created.

The Board of Directors emphasized that, whichever mechanism is chosen to support and subsequently eliminate the cross-subsidization, the final tariffs for retail electricity consumers are to remain within the limits established by the Government.

* * *

The Board of Directors noted the information about the results and prospects of use of e-business systems in the procurement activities of OAO RAO "UES of Russia".

Wide use of e-business systems is necessary to increase the information content, objectiveness, transparency and responsiveness of procurement process. The use of new technologies in the organization of competitive procurement helps minimize the effect of the human factor, facilitate the development of competition, optimize prices, reduce procurement costs, and shorten the time required to find the necessary products, goods, and services.

There are several e-business systems in the electricity industry, including B2B-energo and TZS-electra. In the nine months of 2004, the number of participants in B2B-energo grew twofold to over 2,200. Over 900 auctions were held in this system, with the overall value of bids and offers exceeding RUB6 billion.

At the same time, there are a number of factors deterring the use of e-business systems in the electricity sector. These include insufficient market liquidity at the stage of its establishment, limited number of procurement specialists capable of working on e-trading floors, and passivity of some officers and specialists.

The Board of Directors praised the use of e-business systems in order to improve procurement at the Company and commissioned the Management Board of the Company to ensure further development of the e-marketplace for products, services, and technologies.

* * *

The Board of Directors approved the proposal to increase the Company's expenses on the participation in the Global Energy Foundation* to USD700,000 annually, which is due to the increase in the amount of the Foundation's international Global Energy Prize to USD1 million in 2005 and the launch of the Youth Program designed to give grants to young researchers.

The Foundation's primary goal is to promote research and development, and to encourage the world's leading specialists, international scientific institutions, government authorities and business entities in solving the vital scientific and technical problems in today's energy industry.

In 2002, the Foundation established the annual Global Energy Prize is the first prize in the global basic and applied sciences to be awarded for landmark discoveries and outstanding research work in the sphere of energy. Global Energy Prize is an independent international scientific award, which aims to increase the importance of scientific, engineering, and technical projects in the sphere of energy development and power generation, and to enhance the prestige of Russia and Russia's energy sector on the international arena. The Prize's founders are RAO "UES of Russia", OAO "Gazprom", and OAO "YUKOS" Oil Company.

* The participation of RAO "UES of Russia" in the Global Energy Foundation in the amount of USD600,000 was approved by the Board of Directors of the Company on 27 February 2002. The amount of the Global Energy Prize awarded in 2003 amounted to USD900,000, with the overall budget of the Foundation of USD1.8 million.

* * *

The Board of Directors of RAO "UES of Russia" resolved to terminate, with effect from 1 January 2005, the Agreement for the maintenance of the share register of OAO RAO "UES of Russia" with OAO "Moscow Central Depository" in connection with expiry of said Agreement and the Company's decision not to prolong it. The Board approved the appointment of ZAO "Status" as the Company's Registrar.

ZAO "Status" was selected by a dedicated Working Group of the Management Board through a competitive tender from among over 80 share registrars.

The Board of Directors authorized the Management Board to take all measures established by the laws of the Russian Federation to terminate the current agreement and make a new agreement, and to arrange for the transfer of the Company's share register to the successor Registrar, ZAO "Status".

* ZAO "Status" provides a wide range of services relating to corporate property of joint-stock companies. Currently, ZAO "Status" maintains share registers of companies located throughout Russia, including the following: ` OAO "Sberbank of Russia", OAO "Vneshtorgbank", OAO "Magnitogorsk Iron and Steel Works", OAO "Elektronika Bank", OAO "Interprogressbank", OAO "Narodny Fond", OAO "Tyazhmash", OAO "Gurievsky Metallurgical Plant", entities of the Wimm-Bill-Dann Group, EFko Group, Rusagro Group, etc.

The equity capital of ZAO "Status" is RUB64.3 million, and the amount of insurance coverage is RUB40 million.

* * *

The Board of Directors considered the matter of determining the voting recommendations for RAO UES representatives on the items of business of general meetings of shareholders and Board meetings of the subsidiaries and dependent companies of OAO RAO "UES of Russia".

The Board of Directors of RAO "UES of Russia" instructed its representatives on the Board of Directors of OAO "Volgogradenergo" to vote at the Board meeting FOR the approval of the following agenda of the EGM of Company's shareholders:

• Early termination of the powers and election of [new] members of the Board of Directors of OAO "Volgogradenergo".

The re-election of the Board of Directors of OAO "Volgogradenergo" was initiated in connection with the request by the member of the Board of Directors of OAO "Volgogradenergo", member of the Management Board of OAO RAO "UES of Russia" and Managing Director of OAO RAO "UES of Russia" (Business Unit "Networks") Anrdrey Rapporport to accept his resignation as the Board of Directors of OAO "Volgogradenergo".

The Board of Directors of RAO "UES of Russia" instructed its representatives on the Boards of Directors OAO "Ryazanskaya TPP" and OAO "CNII NPKenergo" to vote FOR the approval of the Company's participation in OAO "Novomichurinsk Motor Transport Enterprise" on the following terms and conditions:

• the charter capital of OAO "Novomichurinsk Motor Transport Enterprise": RUB22,112,522 (twenty-two million one hundred and twelve thousand five hundred and twenty-two Rubles).
• founders of OAO "Novomichurinsk Motor Transport Enterprise":

  • OAO "Ryazanskaya TPP" - RUB22,112,521 (twenty-two million one hundred and twelve thousand five hundred and one) shares;
  • OAO "CNII NPKenergo" – 1 (one) share;

• category, type, par value, and number of shares to be placed at the time of establishment of the company: 22,112,522 (twenty-two million one hundred and twelve thousand five hundred and twenty-two) registered ordinary shares, par value RUB1 (one Ruble) per share;
• procedure (term) for making payment for the shares: in accordance with the laws on joint-stock companies currently in effect;
• form of payment for the shares:
  • OAO "Ryazanskaya TPP": consideration in form of property valued at RUB22,112,521 (twenty-two million one hundred and twelve thousand five hundred and twenty-two Rubles). The market value has been determined by an independent appraiser.
  • OAO "CNII NPKenergo" – cash in the amount of RUB1 (one Ruble).

The Board of Directors instructed its representatives on the Board of Directors OAO "Khabarovskenergo" to vote at the Board Meeting FOR the approval of the Company's participation in OAO "Khabarovskelektrosetremont" on the following terms and conditions:

• the charter capital of OAO "Khabarovskelektrosetremont" is RUB18,081,000 (eighteen million eighty-one thousand Rubles);
• the stake held by OAO "Khabarovskenergo" in the charter capital of OAO "Khabarovskelektrosetremont": 100%;
• category, type, par value, and number of shares to be placed at the time of establishment of the company: 18, 081,000 (eighteen million eighty-one thousand ) registered ordinary shares, par value RUB1 (one Ruble) per share;
• procedure (term) for making payment for the shares: in accordance with the laws on joint-stock companies currently in effect;
• the shares shall be paid for in property whose market value has been determined by an independent appraiser at RUB18,081,000 (eighteen million eighty-one thousand Rubles).

The Board of Directors of RAO "UES of Russia" instructed its representatives on the Board of Directors OAO "Vladimirenergo" to vote at the Board meeting FOR the approval of the following resolution on the item of business "On the sale by OAO "Vladimirenergo" of property used for the electricity and heat generation, transmission, dispatching and distribution":

"To approve the sale of the steam turbine T-120-12,8 and auxiliary equipment owned by OAO "Vladimirenergo" on the following terms and conditions:

• book value of the property: RUB35,938,467.03 (thirty-five million nine hundred and thirty-eight thousand four hundred and sixty-seven Rubles three kopecks);
• the market value of the property determined by an independent appraise is RUB46,000,000,000 (forty-six million Rubles);
• method of sale: auction involving an accredited property disposal agent;
• selling price: at a price not lower than the price determined by the independent appraiser;
• The procedure and deadline for payment: [The payment shall be made] in cash prior to the transfer of ownership of the property, but not later than 14 days after the date on which the [sale] contract is signed.

This equipment has not been used in the production process and has been in the storehouse since the time of purchase.

The Board of Directors of RAO "UES of Russia" instructed its representatives on the Board of Directors OAO "Chelyabenergo" to vote at the Board meeting FOR the approval of the item of business "On the participation of OAO "Chelyabenergo" in the Non-profit pre-school educational institution "Ryzhiki" (NDOU "Ryzhiki")". The terms and conditions of the proposed transaction are as follows:

• OAO "Chelyabenergo" shall transfer to NDOU "Ryzhiki" cash in the amount of RUB972,979 (nine hundred and seventy-two thousand nine hundred and seventy-nine Rubles);
• OAO "Chelyabenergo" shall transfer to NDOU "Ryzhiki" property with the net depreciated value of RUB1,276,551 (one million two hundred and seventy-six thousand five hundred and fifty-one Ruble), which property will be administered by NDOU "Ryzhiki";
• OAO "Chelyabenergo" shall retain its right of ownership to the property being transferred.

The Board of Directors of RAO "UES of Russia" approved the agreement for the purchase of shares of OAO "Severo-Zapadnaya CHPP" entered into between OAO RAO "UES of Russia" and OAO "Severo-Zapadnaya CHPP", which constitutes an interested party transaction.

The Extraordinary General Meeting of shareholders of OAO "Severo-Zapadnaya CHPP" held on 20 October 2004 approved the decision to increase the Company's charter capital through issuance of additional 13,950,763 ordinary shares of RUB10 par value. The offering price is RUB650 per share.

The additional shares will be placed through open subscription, with the existing shareholders of OAO "Severo-Zapadnaya CHPP" entitled to the pre-emptive right to purchase the additional shares in proportion to the number of the Company's shares held by them.

Under the pre-emptive right, OAO RAO "UES of Russia" will purchase 8,569,745 additional shares in OAO "Severo-Zapadnaya CHPP", par value RUB10 each, for a total amount of RUB5,570,334,250.

The payment for the additional shares will be made in form of the generating property owned by OAO RAO "UES of Russia" (part of the first start-up complex of the Severo-Zapadnaya CHPP") valued at RUB5,570,334,250 in accordance with the report prepared by an independent appraiser, ZAO "Central Finance and Appraisal Company".

Currently, OAO RAO "UES of Russia" holds 61.43% shares in OAO "Severo-Zapadnaya CHPP". Other shareholders in OAO "Severo-Zapadnaya CHPP" are OAO "Lenenergo", OOO "Lentransgaz", State Property Management Committee of the city of St.-Petersburg, FGUP "VO Technopromexport", and EEEK Corporation.