9.4. Exports

Electricity exports are viewed as a priority of RAO "UES of Russia" and one of sources of funds for the Company's operations and implementation of investment projects.

In 2002, total electricity exports made RUB 16.7 billion decreasing by 1.2 TWh, or 6%, compared to 2001. Despite that, export revenues grew to USD 292 million in 2002 from USD 254.1 million in 2001, which suggests that the efficiency of export operations of RAO "UES of Russia" has improved. In 2002, RAO "UES of Russia" exports to the former Soviet Union countries somewhat decreased compared to 2001, whereas exports to other foreign countries rose.

Exports to the CIS and Former Soviet Union Countries

Pursuant to the decision of the Management Board of RAO "UES of Russia", beginning in Q4 2002, part of export sales to the CIS countries were handled under contracts by ZAO "Inter RAO UES", a wholly-owned subsidiary of RAO "UES of Russia". The volume of electricity exported by ZAO "Inter RAO UES" in 2002 totalled 848.3 million kWh.

Ukraine

The synchronous operation of Ukraine's energy system and the UES of Russia commenced in August 2001. This made possible to resume electricity supplies to Ukraine, with export volumes in 2002 reaching 231.1 million kWh. Besides, in the reporting year Russia and Ukraine started joint power supplies to the Republic of Moldova.

Belarus

In 2002, the volume of electricity sales to Belarus amounted to 3.7 TWh compared to 6.2 TWh in 2001, as determined by the solvent demand of Concern "Belenergo".

Kazakhstan

OAO RAO "UES of Russia" continued its cooperation with its Kazakhstan counterpart, the national grid company OAO "KEGOG", seeking to enhance reliability of operation of the UES of Russia and the UES of Kazakhstan. The advantages offered by synchronous operation of the two energy systems have been utilized to a great extent. This ensured reliable power supply in the Omsk energy system and allowed to more fully use the potential of the capacities in place in Siberia. The establishment of a Russia-Kazakhstan joint venture based on Ekibastuzskaya TPP-2 entered its final stage.

In 2002, for the first time in the last two years, the volume of electricity imported from Kazakhstan exceeded exports to the country: the exports amounted to 1.66 TWh, whereas imports made 2.51 TWh.

Azerbaijan

In 2002, electricity exports to Azerbaijan reached 1.09 TWh. Throughout the year, the UES of Russia and Azerbaijan's energy system continued their synchronous operation. The supplies of Russian electricity to the energy system of Azerbaijan entered a new level in terms of quality.

RAO "UES of Russia" has approved a "Comprehensive Program for Enhancing Reliability of Operation of Cross-Border Transit Line of 330 kV UES of Russia – Dagenergo – Azerbaijan", which includes a series of measures to ensure uninterrupted operation of the energy systems of the Russian Federation and the Republic of Azerbaijan.

Negotiations are underway on participation of RAO "UES of Russia" in the completion of the construction project at the 9^th power unit of Azerbaijanskaya TPP, and on the construction of a new 330 kV transmission line to Iran.

Armenia

Under an intergovernmental agreement, talks are taking place on the issue of management of Razdanskaya TPP, which must be assigned to the Russian Federation for repayment of Armenia's government debt to Russia. In the future, this may allow to sell electricity produced in Armenia.

Georgia

Electricity exports to Georgia reached 249.9 million kWh in 2002.

Under the current transit agreement, RAO "UES of Russia" supplied electricity to Turkey through Georgia's power grid. Measures were taken to restore the 500 kV cross-border transmission line "Kavkasioni", which was damaged during the natural disasters in the south of Russia. A series of practical measures are being implemented to increase electricity supplies subject to guarantees of payment for the power supplied. Work continued to resolve the issue of repaying the debts owed [by Georgia] for the electricity supplied in 1992-1999.

Finland

In 2002, the volume of electricity exports to Finland amounted to 7.5 TWh.

In late 2002, the construction of the third 400 kV transmission line "Vyborg (Russia) - Kumi (Finland) was completed, which made it possible to start synchronous operation of the first generating unit at Severo-Zapadnaya CHPP with the energy system of Finland and increase the cross-border transfer capacity by 40% beginning on 1 January 2003.

In 2002, RAO Nordic Oy, a wholly owned subsidiary of ZAO "Inter RAO UES" was established and started its operations in Finland. RAO Nordic Oy is to enable to trade Russian electricity directly on the NordPool Exchange, as RAO Nordic Oy has become a full member of the Exchange.

Estonia

In 2002, electricity exports to Estonia made 70.8 million kWh.

On 1 January 2002, the cost of electricity transit services provided by the Estonian power grid was reduced. An agreement was reached in December 2002 on further reduction of the cost of these services with effect from 1 January 2003. Electricity transit through Estonian power grid is fully paid for in cash.

Latvia

In 2002, the volume of Russian electricity exports to Latvia made 1.11 TWh, growing 3.7 times compared to 2001. This was due to an increased water supply deficit in the area and the corresponding growth in the competitiveness of Russian electricity.

Poland

In 2002, the volume of Russian electricity exports to Poland fell to 270.6 million kWh as a consequence of technical restrictions imposed by the Polish party. Since June 2002, electricity supplies to Poland have been carried out by ZAO "Inter RAO UES".

Turkey

The agreement for electricity supply to Turkey has expired. Negotiations are now underway to conclude a new electricity supply agreement providing for an increase in electricity supplies and acceleration of payment for the electricity supplied thereunder.

Electricity exports by OAO RAO "UES of Russia" in 2000-2002, million kWh

Country

2000

2001

2002*

-

9.64

1,087.30

6,450.11

6,237.09

3,727.92

269.30

415.22

249.92

1,847.93

2,460.93

1,663.38

-

-

440.26

-

185.03

231.13

8,567.34

9,307.91

7,399.91

103.47

164.27

151.13

302.90

298.42

1,112.19

-

37.68

103.66

-

0.09

0.07

164.63

592.84

270.56

-

-

70.80

-

180.49

92.76

3,910.80

7,316.72

7,478.86

4,481.80

8,590.51

9,280.03

13,049.14

17,898.42

16,679.94

Electricity exports by OAO RAO "UES of Russia" in 2000-2002, USD million

Outlook for Export Development

One of the aspects of the Russian electricity reform program is reorganization of foreign operations. In 2002, RAO "UES of Russia" together with independent generators launched an effort to establish a joint operator for electricity export/import based on ZAO "Inter RAO UES". In 2003 the implementation of the export program will be handled both by RAO "UES of Russia" and the joint export-import operator. This is to become the first stage in demonopolizing foreign operations in the electricity industry.

In 2003, RAO "UES of Russia" aims to enhance the activities of its affiliates operating on the foreign markets. Work of these companies will enable transition from wholesale electricity sales to foreign energy companies on DAF terms to direct delivery of electricity to end-consumers. To date, daughter companies of ZAO "Inter RAO UES" have been established in Ukraine and Finland. Besides, a company has been set up to operate on the energy markets of the Republic of Moldova and the Balkan countries. These entities will act both as "retail" resellers of Russian electricity and as organizers of electricity supplies to third countries, export to which directly from Russia is inefficient due to high electricity transit tariffs.