GENERAL DESCRIPTION OF RAO "UES OF RUSSIA"

MEASURES TAKEN BY MANAGEMENT TO RESOLVE THE MAIN PROBLEMS FACED BY THE HOLDING COMPANY

DURING THE YEAR 2000 RAO "UES OF RUSSIA" MAINTAINED THE RELIABLE OPERATION OF THE UNIFIED ENERGY SYSTEM, ACHIEVED SUBSTANTIAL GROWTH IN THE OUTPUT OF ELECTRICAL ENERGY BY GENERATING COMPANIES WITHIN THE HOLDING COMPANY AND SATISFIED AN INCREASED DEMAND FOR ELECTRICITY

DURING THE PERIOD UNDER REVIEW THE PRODUCT-QUALITY INDICATORS FOR ELECTRICAL ENERGY WERE THE BEST ACHIEVED FOR THE LAST FIVE YEARS. During the twelve months of the year 2000 the Unified Energy System of Russia operated at the standard frequency of electric current for 99.94 per cent of the time. The average frequency of electric current in the Unified Energy System of Russia was 49.99 Hz. Throughout the entire final quarter of the year 2000 the Unified Energy System of Russia operated at the standard frequency of electric current, achieving a constant level of 50. 00 Hz. SPECIFIC FUEL CONSUMPTION in the generation of electricity fell by 0.4 g/kWh and in the generation of heat energy by 0. 2 g/Gcal, which is equivalent to a saving of 500, 000 tonnes of equivalent fuel. LOSSES in the power grids of RAO "UES of Russia" were reduced in 2000 to 3. 34 per cent of electricity supplied to the grid, as compared with 3.41 per cent in 1999. RAO "UES of Russia" has achieved one of its major goals, A FUNDAMENTAL IMPROVEMENT IN THE USE BY CONSUMERS OF CASH RESOURCES TO PAY FOR ELECTRICITY AND HEAT ENERGY. Throughout the year there was a positive trend towards payments for electricity and heat energy in cash: as compared with 1999 they more than doubled from 35 to 83 per cent of all payments. The highest level of payments in cash was reached in the third and fourth quarters of the year, when it was 101 per cent, including a figure of 108 per cent for September. Taking into account all forms of settlement, the level of payments made for electricity and heat energy by consumers reached 105 per cent (in 1999 it was 100 per cent). At the same time, the total amount due for payment in the year 2000 (327.7 billion roubles) increased by 38 per cent as compared with 1999 (236.8 billion roubles).

Preparations for the 2000/20001 autumn and winter period were distinguished by an increase in the consumption of electricity and increased pressure from creditors, primarily from suppliers of fuel, as well as an unfavourable fuel balance, compounded by inadequate supplies of gas and fuel oil and a sharply increased requirement for funds to pay for more expensive kinds of fuel. During the second and third quarters, increased exports of industrial fuel oil led to a reduction in supplies to electricity generating stations. In order to solve the FUEL SUPPLY PROBLEM and build up reserves of fuel at power stations RAO "UES of Russia" significantly improved the quality of payments made for fuel supplied to fossil-fuel power stations. The power generating companies paid 111 per cent of the total cost of fuel delivered to them (in 1999 they paid 95 per cent)and the level of payments for fuel made in cash rose to 83 per cent (in 1999 it was 34 per cent). The level of settlements of all forms for coal supplied rose to 104 per cent (in 1999 it was 98 per cent), for fuel oil the level of settlements it was 94 per cent (90 per cent in 1999) and for gas it was 122 per cent (95 per cent in 1999). At the same time the level of payments for coal made in cash increased from 30 to 73 per cent, for fuel oil from 30 to 68 per cent and for gas from 38 to 94 per cent. Indebtedness to companies supplying coal was reduced by 17 per cent and to suppliers of gas by 24 per cent.

The preparations made by the powergenerating companies for the 2000/2001 autumn and winter season were better organised than previously. Out of 793 power companies 783 (98.7 per cent) prepared in good time for the autumn and winter seasons and were awarded certificates of readiness. However, POWER SUPPLY CRISIS continued in a number of regions. The main causes of these crises are low stateregulated tariffs for electricity and non-payment by problem customers, primarily wholesale consumers and resellers of energy under the jurisdiction of local authorities. An extremely severe winter added to the difficulties already mentioned.

In the PRIMORIE TERRITORY the situation became critical at the beginning of the autumn and winter peak load period due to the failure to meet targets for the accumulation of fuel reserves at the Primorie State Regional Power Station and the electricity generating stations of AO “Dalenergo”. This situation arose because of a decline in the output of coal at the Luchegorsky and other open cast coal mines. Since 1999 the Primorie Territory has seen a substantial increase in electricity consumption, with a corresponding increase in output at fossil fuel power stations, which has increased the amount of coal which needs to be transported from the regions of Eastern Siberia and Zabaikalie. A reduction in deliveries of local coal, low tariffs for electricity set by the Regional Energy Commission, non-payment by customers under the jurisdiction of the local authorities and a deterioration in the financial status of power companies have had a negative impact on the operational reliability of the power stations in the Primorie Territory. A crisis management centre, set up in order to bring the situation under control, monitored supplies of fuel to the power stations of the Far Eastern Region round the clock. In February 2001 the situation was stabilised.

The CHECHEN REPUBLIC occupies a special place among the problem regions. In the year 2000 821.9 million roubles was spent on the restoration of the electric power sector, which had been reduced to ruins by military action. Of this sum 40 million roubles came from the reserve fund of the Government of the Russian Federation. As a result 1,179 km of power transmission lines and 62 110-135 kV electricity sub-stations were brought into operation. Electricity was supplied to 204 settlements. Three power-grid companies were created within the structure of AO “Grozenergo”. In the year 2000 the total consumption of electricity amounted to 495 million kWh and the highest level of power consumption during the peak evening hours reached 149 MV.