Property management at RAO "UES of Russia" seeks to achieve an efficient assets structure while unconditionally protecting the interests of the Company's shareholders.

OAO RAO "UES of Russia" holds stakes in 251 companies. In 2002, the Company also owned trunk transmission lines, substations and facilities for system operation and control over generation and transmission (except for the assets contributed to the authorized capital of OAO "UES FGC" and OAO "UES SO-CDA"), 3 hydroelectric power plants with capacity of 300 MW and above each, 5 thermal power plants with capacity of 1,000 MW and above.

The companies whose shares are held by RAO "UES of Russia" include 73 regional energos and 41 AO-power plants, out of which 9 power plants are under construction, 6 energy management companies, 57 research and development institutes, and other infrastructure companies.

Property structure of OAO RAO "UES of Russia" as at 1 January 2003
Shares	OAO "CDA of UES of Russia"
	OAO " UES SO-CDA"
	OAO "UES FGC"
	Regional power and electrification open joint-stock companies (regional energos) (73)
	AO-power plants (41, including 9 under construction)
	AO-energy management companies (6)
	AO-research & development organizations and project design institutes (57)
	Commercial banks (7)
	Insurance joint-stock companies (2)
	Repair and maintenance, infrastructure, and other companies (62)
Backbone trunk lines	Backbone trunk transmission lines and substations of 220 kV and above that make up the Unified Backbone Grid of the Russian Federation, to the extent not transferred as contribution to the capital of OAO "UES FGC"
Property	5 power plants leased out to regional energos
	3 power plants that are branches of RAO "UES of Russia"
	Technological equipment for system operation and control, communications facilities, automation and IT equipment to the extent not transferred to the authorized capital of OAO "UES SO-CDA"
	Property of Severo-Zapadnaya CHPP leased out
	Principal production facilities of Nizhnevartovskaya TPP leased out

The changes in the structure of shareholdings of RAO "UES of Russia" that took place in 2002 were due to the following factors:

• establishment, pursuant to the resolution of the Board of Directors of OAO RAO "UES of Russia", of the following joint-stock companies: OAO "Federal Grid Company of the Unified Energy System", OAO "System Operator-Central Dispatch Administration of the Unified Energy System", OAO "Urals Energy Management Company", OAO "Sochinskaya CHPP", OAO "Kirishskaya TPP", OAO "Kharanorskaya TPP";
• purchase, pursuant to the resolution of the Board of Directors of OAO RAO "UES of Russia", of a stake in OAO "Joint-stock Insurance Company Leader".

Property structure of OAO RAO "UES of Russia", breakdown by stakes held by the Company in joint-stock companies (as at 1 January 2003)
RAO UES stake in companies, %	Companies, by lines of business	Number of companies
100%	Regional energos	9
	AO-power plants	13
	OAO "UES FGC"	1
	OAO "UES SO-CDA"	1
	AO-energy management companies	6
	AO-research & development organizations and project design institutes	55
	AO-construction, repair and maintenance, and others	21
49% - 100%	Regional energos	52
	AO-operational and dispatch management - OAO "UES SO-CDA"	1
	AO-power plants	21
	AO-research & development organizations and project design institutes	2
	AO-construction, repair and maintenance, and others	18
20% - 49%	Regional energos	11
	AO-power plants	7
	AO-construction, repair and maintenance, and others	31
under 20%	Regional energos	1
	AO-construction, repair and maintenance, and others	1
	Total	251

Information on the stakes held by OAO RAO "UES of Russia" in joint-stock companies is given in Appendix 3.

OAO RAO "UES of Russia" holds over 51% of voting shares in most of its subsidiaries and dependent companies (taking into account the right to vote at general meetings of shareholders acquired by holders of type "A" preferred shares after the resolution had been taken at the previous meetings based on Y2001 results to pass the dividend on preferred shares).

Percentage of voting shares in companies held by OAO RAO "UES of Russia"
OAO RAO "UES of Russia" shareholding	Number of companies	Percentage of total number of SDCs
under 25%	26	10
25% - 51%	63	25
51% - 75%	41	16
75% - 100%	15	6
100%	106	43
Total	251	100

OAO RAO "UES of Russia" takes part in power construction projects under cost sharing agreements and joint-venture agreements. As of 1 January 2003, contributions of OAO RAO "UES of Russia" amounted to RUB 14,078,643.3 thousand. OAO RAO "UES of Russia" owned the backbone trunk transmission lines and substation of 220 kV and above, which make up the Unified Backbone Grid of the Russian Federation and ensure interchange of electricity among the Integrated Energy Systems in the regions and enhance the static and dynamic stability of the Russian energy system. In 2002, 70% of the power grid assets were assigned to OAO "UES FGC", with the remaining part to be handed over to OAO "UES FGC" over 2003.

The assets used for system operation and control included facilities for technological control over electrical modes, telecommunications equipment, automation equipment and IT systems, almost all of which were transferred to OAO "UES SO-CDA" in 2002.

Nizhegorodskaya HPP, Saratovskaya HPP, and Kharanorskaya TPP worked as branches of OAO RAO "UES of Russia".

The property of 7 power plants (Novosibirskaya HPP, Kirishinskaya TPP, Reftinskaya TPP, Sredne-Uralskaya TPP, Nizhnevartovskaya TPP, Severo-Zapadnaya CHPP, and Verkhnetagilskaya TPP) was leased out to regional energos.

In 2003, the property of Kharanorskaya TPP and Kirishskaya TPP will be handed over to the newly established companies, OAO "Kharanorskaya TPP" and OAO "Kirishskaya TPP".

Property Management Principles

Decisions on matters of property management are intended to maximize the Company's revenues. The major principles of property management formulated by the Board of Directors of RAO "UES of Russia" in 2002 are as follows:

• retention by RAO "UES of Russia" of its core assets (decision of the Board of Directors of 29 November 2002);
• restructuring of regional energos' repair and maintenance units at a faster pace than the reorganization of the regional energos themselves (decision of the Board of Directors of 27 September 2002);
• divestiture of non-core assets by RAO "UES of Russia" Group (decision of the Board of Directors of 6 March 2002).

Decisions regarding transactions in property of OAO RAO "UES of Russia" and its SDCs are taken by such bodies, as the Property Committee of OAO RAO "UES of Russia", the Management Board and the Board of Directors of OAO RAO "UES of Russia", and SDCs' Boards of Directors. What body is to take a decision on a particular asset will depend on the subject and amount of transaction.

When considering transactions involving property items, the Property Committee of OAO RAO "UES of Russia" seeks to achieve the following:

• taking sound decisions on the issues of preparation and performance of transactions in property that ensure protection of the Company's interests in accordance with its objectives and priority tasks;
• ensuring maximum capitalization in the course of performing transactions in property items;
• coordinating the activities of the Company's units in the course of preparation and performance of transactions in property items.

Transactions in property are conducted on a competitive basis, taking into account the market values determined by independent appraisers accredited by the Valuation Committee of the Board of Directors of OAO RAO "UES of Russia".

In order to ensure observance of shareholders' interests and fair valuation of the Holding Company's assets during the restructuring period, RAO "UES of Russia" is developing a common procedure for evaluation of energy companies' assets. For that purpose, the Board of Directors of OAO RAO "UES of Russia" established its Valuation Committee in April 2002. The Committee is to develop the procedure for determining the market value of assets and businesses of OAO RAO "UES of Russia", its SDCs, the newly established companies, and any other business entities taking part in transactions during the reform period, and to control the performance of evaluation.

To increase efficiency of capital management, OAO RAO "UES of Russia" and its SDCs developed corporate procedures designed to ensure efficiency and transparency of decision-making with respect to property items.

As a result of a competitive tender, RAO "UES of Russia" awarded a contract to Deloitte and Touche Regional Consulting Services Ltd. The latter is to develop the Procedure for Appraisal of Energy Companies' Assets and Business in the Course of Reform. The Procedure being developed by the Consultant will include formalized instructions, algorithms, assumptions, and standard models for calculation using dynamic tables.

Core Assets Management

In 2002, a moratorium was declared on the sale of core assets, loan-for-shares schemes, and on granting of options to purchase these assets until a mechanism is developed for fair valuation of assets and procedures for distribution of asset sale proceeds are created.

Within the framework of the moratorium, the Board of Directors of OAO RAO "UES of Russia" prepared and approved the first part of the List of assets which may not be divested until the reorganization process is completed, including the following assets:

• trunk grid assets owned by OAO "UES FGC";
• core assets that are expected to be assigned to the Wholesale Generation Companies (WGCs); this part of the List may be changed pursuant to a corresponding resolution of the Government of the Russian Federation.

The Board of Directors gave its Working Group a task to prepare proposals regarding the second part of the List, including generation and grid assets owned by SDCs of RAO "UES of Russia".

Management of Support (Service) Assets

In September 2002, the Board of Directors of OAO RAO "UES of Russia" took a decision to restructure its mainenance businesses at a rate faster than the reorganization of regional energos and AO-power plants. The basic method of separation to be used at the first stage of restructuring of maintenance units is establishment of wholly-owned subsidiaries of a regional energo or AO-power plant. Depending on the position of minority shareholders of regional energos, divestiture of repair and maintenance entities may be performed at the stage of regional energos' reorganization.

In the course of establishment of regional energos or AO-power plants' wholly-owned subsidiaries engaged in maintenance, contributions to their authorized capitals will be made in the form of assets involved in the respective line of business and to the extent ensuring independence of regional energos and AO-power plants from the maintenance companies being established.

The second stage of restructuring of the maintenance businesses, which is to start in 2003, will see a decrease in the degree of affiliation of the newly established repair companies in relation to the energy companies. The objectives of the second stage are to develop competition in the maintenance business, to ensure income for shareholders of regional energos and AO-power plants, to optimize maintenance expenses, and to protect shareholders' interests.

Management of Non-Core Assets

Steps taken by RAO "UES of Russia" in 2002 with respect to the non-core assets owned by the Holding Company were designed to enhance efficiency of the property structure. Specific decisions were taken upon thorough assessment of their possible consequences for the Company, taking into account its shareholders' interests.

In 2002, the non-core assets owned by the Company and its SDCs consisted of 8,850 entities, out of which 5,100 were in the housing and public utilities sector. The "Guidelines for Divestiture by OAO RAO "UES of Russia" and its Subsidiaries or Dependent Companies of their Non-Core Businesses" developed in 2002 defined the following priorities in dealing with non-core assets:

• reduction of costs involving maintenance of non-core assets;
• enhancing efficiency of the principal lines of business through optimization of costs connected with non-core lines of business;
• optimization of assets structure;
• concentration of organizational resources on management of the main lines of business.

The chief vehicles for implementation of the Company's policy regarding its non-core assets were the sale of non-core businesses, transfer of the housing and public utility entities and social and leisure facilities owned by RAO "UES of Russia" to municipalities, and organization of commercial management of non-core assets.