5.3.5. Dividend Policy

The dividend policy of OAO RAO "UES of Russia" and the Holding Company is laid down in the Principles of Dividend Policy approved by the Board of Directors of OAO RAO "UES of Russia".

In 2004, OAO RAO "UES of Russia" allocated a total of RUB2,399 million for the payment of dividends to shareholders in respect of 2003, up RUB411 million on the amount of dividends paid for 2002. Of that amount, RUB1,099 million was paid to the state, and RUB1,300 to the minority shareholders of OAO RAO "UES of Russia". In 2003, the dividend payments to these shareholder groups amounted to RUB808 million and RUB1,180 million, respectively.

* The reduction of dividends on preferred shares for 2003 was due to the decrease in the net profit made by OAO RAO "UES of Russia", as dividends on preferred shares are determined, pursuant to Article 5.3. of the Company's Charter, as a fixed percentage of the net profit.

In 2004, the dividend policy pursued by OAO RAO "UES of Russia" with respect to its SDCs was characterized by the following peculiarity. The companies scheduled for restructuring in early 2005 approved the payment of interim dividends for the first 9 months of 2004 in order to reduce the financial burden on the unbundled energy companies during the first months of their operation in a new environment and, at the same time, ensure protection of their shareholders' interests.

The amount of the interim dividends in 2004 declared by the SDCs totalled RUB5,872 million, which is nearly the same as the dividend amount paid for the entire 2003. The intermin dividends declared in 2004 on the shares in the SDCs held by OAO RAO "UES of Russia" amounted to RUB4.430 million.

** interim dividends