MESSAGE TO SHAREHOLDERS FROM THE CHAIRMAN OF THE MANAGEMENT BOARD OF RAO "UES OF
RUSSIA"
Dear shareholders,
Last year, due to the upturn in the national economy,
Russia saw a steady increase in the demand for electricity for the first time in a decade.
As compared with the preceding year, the companies of RAO "UES of Russia"
increased their output of energy by 20.6 billion kWh to a total of 622.8 billion kWh. For
99.94 per cent of calendar time the Unified Energy System of Russia operated at the
standard frequency of electric current, the best result achieved for the last five years.
The trend towards fewer operational malfunctions was also maintained, with the number of
incidents reduced by nine per cent
Last year work continued on developing relations with the republics of
the CIS. During the year 2000 synchronous operation was restored between the Integrated
Energy Systems of Siberia and Kazakhstan and the Unified Energy System of the European
territory of Russia and agreements on parallel operation were signed with Georgia and
Azerbaidjan. In concluding similar agreements with Ukraine and Lithuania we are
effectively completing the restoration of a single energy pool across the territory of the
former USSR. This activity has as its goal improved reliability for the Unified Energy
System and the energy supply to consumers.
Our technical achievements were made possible primarily by the policy
of tougher payment discipline in relations with electricity consumers which was introduced
by the Company in 1999. Last year the average level of payments made in cash exceeded 80
per cent, including a level of 101 per cent of cash payments during the third and fourth
quarters. This means that the target set by the Board of Directors on 29.09.2000 of
increasing the level of payments in “real money” to at least 100 per cent by the end
of the year was achieved. From 1 January 2001 all non-cash forms of settlement have been
prohibited within the Company
The higher level of cash payments for the services of RAO "UES of
Russia" made it possible to increase the proportion of full-value roubles paid over in
settlements with the coal companies by a factor of 3.1, in settlements with
“Rosenergoatom ” by a factor of 3.6, in settlements with “Gazprom” by a factor of
3.9 and in settlements with the oil companies by a factor of 4.3. In the year 2000 for the
first time in recent years RAO "UES of Russia" began discharging its debts to
suppliers and subcontractors. Specifically, the power companies reduced their indebtedness
to the coal companies by 17 per cent and to “Gazprom” by 24 per cent. The Company also
more than doubled the amount it paid in taxes to the federal budget. From 1 December 2000
RAO "UES of Russia" has made 100 per cent of payments to the federal budget in
“real money”. In the space of two and a half years we have not only achieved the key
goal of normalising the Company's current financial and business activity, but also
managed to clear the financial thrombosis which was afflicting Russia's fuel and energy
complex, blocking the civilised development of the entire sector and a substantial part of
the national economy
The financial rehabilitation of RAO "UES Russia" has for the
first time allowed us to start dealing with the problem of receivables. During the year
2000 we managed to reduce customer debt by 16 billion roubles, although the total number
owed to RAO "UES of Russia" remains high at approximately 116 billion roubles.
We must not omit to mention here the fundamental reduction of 80 per cent achieved by
consumers financed from the federal budget. As before, however, the largest debts are
still owed to RAO "UES of Russia" by wholesale consumers and resellers (27.5
billion roubles) and local authority budgets (17.9 billion roubles). Last year the Company
also reduced its level of new borrowing by almost 80 per cent.
The increase in cash revenue made it possible to increase investment in
the construction of new power facilities, which is especially important in the present
situation, when obsolescence of fixed assets in the electric power sector is almost
overwhelming. In the year 2000 25 new turbine assemblies were brought into operation with
a total capacity of 665.8 MW. They include a hydro power unit at the Zagorsk
Hydro-Accumulation Power Station and the first stage of the Tomsk Thermo-Electric Power
Station No.3.In addition, on the 80th anniversary of the State Plan for the
Electrification of Russia, Russian president Vladimir Putin launched trial operations of
Russia's first 450 MW steam-gas power unit at the North Western Thermo-Electric Power
Station in St. Petersburg
However, the resources of the Parent Company and its subsidiaries are
quite clearly inadequate to the task of introducing new generation capacity. At the
present time physical depreciation of fixed assets at the power stations of the Unified
Energy System of Russia stands at 50 per cent, and the level for machinery and equipment
is 67 per cent.
In the light of the forecast increase in energy consumption this
represents a genuine threat of Russia's transformation from a country with an energy
surplus into one with an energy deficit.
In order to raise large-scale investment funding, at the instruction of
the Board of Directors the Company devised proposals for restructuring RAO "UES of
Russia" which were the subject of wide-ranging discussion throughout the whole of
last year.
The framework of discussion included meetings and consultations with
regional leaders and international organisations. Major western consultants were involved
in the shape of the J.P.Morgan Investment Bank and the legal firm Cameron McKenna. A
number of serious and substantive comments were made by the Association for the Protection
of Investors' Rights, which defends the interests of minority shareholders in our Company.
On the whole, setting aside the emotional aspect of the discussion, the outcome of these
deliberations may be regarded as productive.
In December 2000 a session of the Government of the Russian Federation
considered proposals from the Ministry of Economic Development, the Ministry of Atomic
Energy and the state concern “Rosenergoatom” for the reform of the electric power
sector. A draft statement of the main areas of state policy on the reform of the electric
power sector of the Russian Federation, proposed by the Ministry of Economic Development,
was adopted as a basis for further elaboration. It was noted at the meeting that by
2003-2004 existing generating capacity will not be capable of meeting the economy's
expanding requirements for electric power. The need to attract private investment and
effect structural reform in the sector was also established.
We are certain that the combined efforts of the Federal Assembly, the
Government, the regional authorities and the shareholders will result in a development
strategy for the electric power sector which will act as a powerful stimulus to the flow
of investment funding and promote the growth of the Company's capitalisation.
Anatoly CHUBAIS
Chairman of the Management Board
