CORPORATE GOVERNANCE SYSTEM

The supreme management body of RAO "UES of Russia" is the General Shareholders Meeting. Shareholders delegate the powers to manage the Company between shareholder meetings to the Board of Directors. The Company is operated by the Management Board, the collective executive body of the Company appointed by the Board of Directors.

Relationships within the Company are based on hierarchical subordination; the activities of the Company officers and divisions are regulated in detail by its internal Standards and Regulations approved by the Management Board of OAO RAO "UES of Russia" and its Chairman. Standards have been developed to regulate the key managerial functions, including property management, corporate governance at the subsidiaries and dependent companies, budgeting and business planning, investment activities, determination of the key performance indicators, HR management, and internal audit.

In order to enhance its corporate governance and information transparency, the Company reviewed and approved the restated Corporate Governance Code and Regulation on the Information Policy of RAO "UES of Russia".

The amendments made to the Regulation on the Information Policy are designed to further improve the Company's information disclosure practices, including the methods, timing and scope of information disclosure on the corporate website, in the issuer's quarterly filings, and the annual report of the Company, and to bring the disclosure practices into line with the recommendations provided by Standard and Poor's.

In 2006, the Board of Directors of RAO "UES of Russia" approved the Regulation on Internal Control Procedures. Internal controls are the set of measures taken by the Company's Auditing Commission, Board of Directors, Audit Committee under the Board of Directors, and the executive bodies and divisions of the Company authorized to implement internal control. Internal controls in RAO "UES of Russia" are aimed at identifying non-compliance with the laws and the Company's internal regulations in the conduct of business, and assessing the effectiveness of the Company's actions to achieve its goals. Control over the Company's financial and business operations is exercised by the Financial and Corporate Controlling Center and the Internal Audit Department.

Pursuant to Russian law and the Charter of RAO "UES of Russia", the Auditing Commission of the Company is elected by the shareholders at the AGM for a term of one year. The Commission has the authority to control the Company's financial and business operations and monitor compliance with Russian laws.

The Auditing Commission's activities are governed by the Regulation on the Activities of the Auditing Commission of OAO RAO "UES of Russia". In 2006, the Commission conducted a review of the Company's operations.

Pursuant to the Regulation on Remuneration of Members of the Auditing Commission of RAO "UES of Russia" approved by the AGM on 28 June 2002 (as amended by the AGM of 28 June 2006), the Commission members were paid remuneration of RUB36,000 in respect of 2006.

The Company advances its interests in the subsidiaries and dependent companies by using corporate methods in strict compliance with the laws in force, the SDCs' charters and regulations.

The corporate governance system at RAO UES Holding Company is based on the Rules of Procedure for interaction of OAO RAO "UES of Russia" with the business companies whose shares (ownership interests) are owned by RAO "UES of Russia".

RAO "UES of Russia" exercises control over the current and future activities of the SDCs by the Board of Directors determining the Company's stance on the key items of business of General Shareholder Meetings and Board meetings of the SDCs. Special attention is paid to SDCs' major transactions.

The efforts undertaken by RAO "UES of Russia" to improve the corporate governance are similarly aimed at its subsidiaries and dependent companies. In 2006, work was performed to cause the SDCs' management bodies to adopt their own corporate governance codes and regulations on information policy. The standard forms of these documents were drafted by the Company's experts and recommended for approval.

In 2006, ZAO "MICEX Stock Exchange" named RAO "UES of Russia" the winner in the category "Best Equity Issuer".

RAO "UES of Russia" also became a laureate of the Contest "Best Annual Report of Issuer Included in the RTS Quotation Lists."

The Investor Protection Association in 2006 declared RAO "UES of Russia" the winner of the Russian Leaders in Corporate Governance 2006 Awards in three categories: "Company Exercising the Greatest Influence on Corporate Governance Development", "Company with the Best Investor Relations", "Company with the Best Annual Report".

Chairman of the Management Board of RAO "UES of Russia" Anatoly Chubais was named the winner of the Russian Corporate Governance Leaders - 2006 Awards in the category "Best Corporate Manager".

In 2006, the Russian Institute of Directors and Expert RA Rating Agency assigned a B++ corporate governance rating to RAO "UES of Russia". The rating reflects the Company's sound corporate governance practices. The descriptions of B++ and B+ ratings may be viewed on the website: www.rid.ru.