Investment activities

RESULTS OF INVESTMENT ACTIVITIES

COMMISSIONINGS IN 1998-2007

The Company's priority is to implement its key investment projects in the UES of Russia and increase the volume of investments.

Over the past ten years, 12.8 GW of turbine capacity and 6,450 km of backbone transmission lines of over 220 kV were brought on line.

Commissioning of turbine capacity in RAO UES Holding Company. MW

Among the projects implemented in 1998-2007, especially noteworthy is the construction and commissioning of power plants equipped with large capacity combined-cycle power units.

These projects include the two 450 MW power units brought on line at the Severo-Zapadnaya CHPP, the first power plant in Russia using the new generation of binary combined-cycle technology of electricity and heat generation which is highly efficient and environment-friendly. The Severo-Zapadnaya CHPP was the first among the Russian power plants to successfully implement an automated system to switch over its generation units from the Russian energy system to that of Finland.

The construction of large capacity combined-cycle power units in Russia was continued at the 900 MW Kaliningradskaya CHPP-2, a power plant which has a key role to play in ensuring energy security in the Kaliningrad enclave. The plant's first power unit was put into service in October 2005. The construction of the second unit will be continued within the framework of a joint venture with the participation of ZAO "INTER RAO UES" and OAO "Gazprom".

Among the major hydropower projects, one should mention the construction and commissioning of the Bureyskaya HPP.

The plant's construction was started back in 1983 but later on had to be suspended due to the lack of funds. The construction of the Bureyskaya HPP resumed in 2000 gave a strong impetus to the social and economic development in the Amurskaya Region, the area where the plant is located. In 2007, the last hydropower units of the Bureyskaya HPP were brought on line. The plant's installed capacity is 2,010 MW.

Among the power grid projects, a special mention is deserved by the 500 kV "Primorskaya TPP-Khabarovskaya" transmission line. This 357-km long line with its unique crossing over the Amur River was commissioned in 2003 to 2006. The final phase of the project was the construction of the 500 kV Khekhtsir Substation. The project helped to resolve the capacity shortfall problem in the Far East of Russia.

The amount of investments programmes rose from RUB2.3 billion in 1998 to RUB356.3 billion in 2007. The total amount of investment made over the past decade reached RUB1 trillion.

Such an increase in amounts of investment is due to the ongoing efforts undertaken by RAO UES entities in accordance with the Company's financial and investment policies. In 1998, the key source of funds for investment purposes was the depreciation charges of the companies, with the bulk of the companies' services paid in form of set-offs and promissory notes. By 2002, the RAO UES energy companies managed to collect 100 percent of customers' payments in cash. The financial restructuring at the companies made it possible, beginning in 2003, to make extensive use of borrowed and own funds in order to finance their investments.

In 2003, RAO "UES of Russia" introduced a three-year, and then a five-year cycle of investment planning. In 2003-2006, the Investment Programme of RAO "UES of Russia" was divided to create own investment programmes for OAO "FGC UES" and OAO "SO UES" (in 2003), OAO "HydroWGC" (in 2006), and ZAO "INTER RAO UES" (in 2006). Furthermore, the newly established generation companies, WGCs and TGCs, also prepared their investment programmes which will serve as a basis for planning and controlling their investment activities.

KEY INVESTMENT PROJECTS IN 2007

Before 2006, the electricity industry developed almost without any financing provided by the federal government. The investment allocations in the federal and regional budgets amounted to about RUB1 billion annually, with a tendency to decline. Only in 2007 was the investment process reinvigorated, with more than RUB28 billion in funds provided by the federal and regional authorities. Investments in the electricity industry were made through purchases of shares in OAO "FGC UES ", OAO "SO UES", and OAO "HydroWGC". In 2007, the additional share issues carried out by the newly established companies served as the principal source of investments. In grid construction, one of the main sources of finance will be the connection fees charged on new energy users and producers.

Last year, the generation companies created in the course of the RAO UES restructuring brought on line 33 power units with the combined capacity of 1,887.2 MW, including 676 MW capacity of hydropower units.

These projects include the last two units at the Bureyskaya HPP with the combined installed capacity of 670 MW, which brought the construction of the largest power plant in the Far East of Russia to completion.

In 2007, ten mobile combined-cycle power plants with the combined capacity of 225 MW were brought on line in the Moscow Region. Their task was to ensure reliable power supply during the peak load period in autumn and winter. Last year, a power unit of 450 MW was put into service at the CHPP-27 of OAO "Mosenergo". The new unit uses an advanced combined-cycle technology which delivers a 51.5 percent efficiency and has the highest generation capacity in the Moscow Region. The new technology helps save up to 25 percent of fuel and cut emissions into the atmosphere by a third.

In 2007, OAO "FGC UES" brought on line 591.8 km of HV transmission lines, 6,891 MVA of transformer capacity, including the following major projects: the first phase of the 330 kV "Kolskaya NPP-Knyazhegubskaya HPP" transmission line (79 km long) and transformer capacity of 250 MVA, the commissioning of 220 kV feeder lines to the 500 kV Yemelino Substation to meet the needs of the Seversky Tube Plant in connection with the launch of steel operations scheduled for 2008. The 330 kV Rzhevskaya Substation was brought on line in Saint Petersburg, which made it possible to reduce the load on the existing substation, 330 kV Vostochnaya Substation, and made it possible to carry out a project to modernize the substation, and to connect new users in Saint Petersburg and the Leningrad Region.