Business Planning

Integrated end-to-end business planning is implemented in 200 enterprises of the Holding Company.

Integrated business-planning is designed to streamline the production process, enhance costs control, and improve the quality of planning of final financial results. Currently, business planning is conducted in 200 subsidiaries and dependent companies of RAO "UES of Russia", which includes all regional energos, AO-power plants, and the power plants that are branches of RAO "UES of Russia".

In 2002, formation of business plans at regional energos and AO-power plants was carried out using a new model which employs a reduced number of control data and procedures. For instance, the quarterly coordination of performance reports in respect of business plans has been cancelled. Adjustment of the principal parameters of business plans may be performed once a year. In addition to the general consolidated parameters, the business plan now includes basic characteristics for such areas of regional energos' operations as marketing, production, investments, procurement management, HR management, capital management, and financial management. An important feature of the new model of business plan is that it has a section called "Performance Analysis and Targets". Analysis performed within this section makes it possible to define the main areas of activity for the SDCs' management for the planning period and set achievable goals. One of the accomplishments achieved in 2002 is the introduction of a procedure allowing the Committee for Economic Policy, Tarification and Business Planning of RAO "UES of Russia" to review the results of fulfilment of business plans. In 2002, the Committee examined the results of business plan fulfilment presented by several SDCs. Upon completion of the review, the activities of management bodies were assessed and recommendations for the future were given.

Structure of Business Plan in 2002
Sections of Business Plan	For each section
Analysis of business results and goal setting	Goals are set Target figures are defined Evaluation criteria are determined
Marketing
Production
Procurement management
HR management
Costs management
Investments
Property management
Financial management (generation, allocation, and use of profit)
Budgeting

The fulfilment of a business plan is assessed on the basis of return on total assets and an integrated indicator characterising the state of capital assets. The target return on total assets set for 2002 was 5% for the regional energos and AO-TPPs and 3% for AO-HPPs.

The values of these indicators determine the Company's worth, they are monitored by the shareholders and serve as a basis for awarding bonuses to SDCs' general directors.

Cost Management Programs play an important part in the implementation of business plans of the SDCs of RAO "UES of Russia". These Programs serve as guides for purposeful reduction of costs on main expense items and facilitate the achievement of high final results by the enterprises of the Holding Company.

In 2002, for the purpose of streamlining the cost reduction activities, the "Procedure for the Formation of Cost Management Programs by SDCs of OAO RAO "UES of Russia" was put into effect. The Procedure describes the new version of the Program, makes possible to account for savings resulting from measures taken in the previous years. This enhances the motivation to reduce costs even with the cost-based mechanism of tariff setting by using the provisions of Resolution of the Russian Government No. 226 dated 2 April 2002 "On Price Setting with Respect to Electrical And Heat Power". Pursuant to this document, the regulatory bodies, for two years after companies implement their cost reduction measures, should not exclude the resultant savings from the costs on which the tariffs are set.

Model of the Cost Reduction Program in 2002
Main areas of cost reduction	For each aspect of the Program
Fuel costs	Calculation of the costs of implementing cost reduction measures Calculation of targets for cost reduction Determination of economic benefits from implementation of cost reduction measures
Raw materials and staples
Repair costs
Labour costs
Costs of non-production services
Management expenses
Expenses for maintenance of excess property
Expenses for maintenance of non-core assets
Technical and commercial losses of electricity

The section "Energy Loss Reduction" is now treated as a separate aspect. Upon completing the analysis of the cost reduction programs for core lines of business, the following amendments were made to the approved Procedure: additional items were introduced in the sections covering reduction of fuel costs, cost of raw materials and staples, and repair costs; also, a new section called "Reduction of Generation in the Condensing Mode" was introduced.

The effort undertaken by the joint-stock companies in 2002 to implement their cost management programs resulted in cost reduction of RUB 14.5 billion, which makes 2.8% of their commercial output. On the whole, the SDCs of the Holding Company exceeded the targets by 30%.