Operational results

GENERATION

INSTALLED CAPACITY

At end-2007, the installed capacity of the RAO UES power plants stood at 161,200 MW, an increase of 1,600 MW over 2006. Such an increase was due to new generation capacity brought on line at the thermal and hydro power plants: the Bureyskaya HPP, CHPP-27 of OAO "Mosenergo" Belgorodskaya CHPP, and mobile gas turbine power plants.

In 2007, the aggregate installed capacity of the WGCs' power plants reached 77,000 MW, or 48 percent of the total installed capacity of the Holding Company's power plants. The TGCs had 55,100 MW of aggregate installed capacity, or 34 percent, and the power plants owned by the companies that are not part of WGCs or TGCs had 29,300 MW of installed capacity, or 18 percent of the total installed capacity of the RAO UES power plants.

In 2007, electricity output in the UES of Russia totalled 997.3 billion kWh, up 1.9 percent on 2006. In certain integrated energy systems, the output growth figures compared to 2006 were as follows: North-West IES – up 3.8 percent, South IES – 3.6 up percent, Urals IES – up 3.1 percent, Volga IES – up 1.8 percent, Central IES – up 1.4 percent, and Siberia IES – up 0.3 percent. The IES in the Far East of Russia saw a 0.4 percent decline in electricity output.

The electricity output by the Holding Company's power plants was 706 billion kWh, an increase of 1.6 percent compared to 2006. RAO UES entities accounted for about 70 percent of the overall electricity generation in Russia.

Last year, the Holding Company's thermal power plants generated 577.8 billion kWh, a 1.5 percent increase from 2006.

The output of the Holding Company's hydro power plants rose by 1.8 percent to 128.2 billion kWh. The increase in the hydro generation was due to the high average daily ambient air temperatures in Q1 2007 observed in the European part of Russia and, as a consequence, the melting of the snow cover, which, in turn, resulted in a higher water inflow in the rivers of the Volga-Kama series of HPPs. In Q2-Q4 2007, the extremely low stream rates on the Yenisei River led to a reduction in the annual electricity output by the Sayano-Shushenskaya HPP to 20,764.5 million kWh, down 22.6 percent compared to 2006.

2007 saw a year-on-year increase in the output of Russia's major thermal power plants— Krasnoyarskaya TPP-2 by 24.2 percent, Berezovskaya TPP by 23.2 percent, Gusinoozerskaya TPP by 19.4 percent, Permskaya TPP by 11.1 percent, Ryazanskaya TPP by 5.6 percent, Kostromskaya TPP by 4.9 percent, and Pechorskaya TPP by 4.8 percent. Some thermal power plants demonstrated a decline compared to the year before,—ZAO "LuTEK" by 9.6 percent, Kirishskaya TPP by 9.3 percent, Nevinnomysskaya TPP by 3.2 percent, and Stavropolskaya TPP by 1.3 percent.

The heat output by the Holding Company's power plants and boiler plants in 2007 amounted to 459.1 million Gcal, up 3.9 percent on 2006.

In 2007, the RAO UES entities supplied over 30 percent of the nation's annual heat output.

FUEL SUPPLY

In 2007, gas supplies to the RAO UES power plants rose 3 percent over 2006. The independent gas suppliers accounted for 34.6 percent of the total gas deliveries during the year, with the share of the gas purchased on the electronic marketplace run by OOO "Mezhregiongaz" standing at about 2.4 percent. The most fuel cost-effective power plants owned by the WGCs increased their gas use by 6.8 percent in 2007.

The amount of coal purchased by the Holding Company's power plants in 2007 declined 9.2 percent compared to the 2006 level, while their consumption of fuel oil fell by as much as 53.3 percent. It was caused by a high level of fuel oil consumption at a number of RAO UES thermal power plants under 2006 extremely cold winter temperatures. In 2007, the level of fuel oil consumption corresponded to an annual average. In addition, in early 2007 RAO UES thermal power plants kept high fuel oil inventories. As of 1 January 2007, fuel inventories available at the Holding Company's power plants were 43.3 percent and 32.7 percent higher than the respective targets for coal and fuel oil.

FUEL DELIVERIES TO POWER PLANTS OF THE RUSSIAN FEDERATION AND RAO UES HOLDING COMPANY

Throughout 2007, the fuel stocks were higher than the targets at all RAO UES energy companies. As of 1 January 2008, fuel inventories were also above the targets—by 26.9 percent for coal (15.2 million tonnes), and by 34.3 percent for fuel oil (3.6 million tonnes).

In 2007, the prices of fuel supplied to RAO UES power plants rose 9.3 percent compared to 2006: gas prices increased by 15.9 percent, coal prices by 10.2 percent, and fuel oil prices by 3.3 percent. Such a small increase in fuel oil prices in 2007 was due to the existing domestic market conditions (i.e. reduction of fuel oil deliveries), especially in Q1 2007, when fuel oil prices declined by 6.6 percent compared to Q4 2006. During the next three quarters of 2007, fuel oil price was growing, reaching an average of RUB6,186.8 per tonne at the Holding Company's entities.

FUEL PRICES INCLUSIVE OF VAT AND TRANSPORTATION COSTS

2007 saw continued operation of the energy sector's e-procurement systems, B2B-energo.ru and TZS-Elektra.ru. Natural gas was purchased on the electronic marketplace run by OOO "Mezhregiongaz" at prices which were on the average 35 percent higher than the price set by the Federal Tariffs Service of Russia for the so-called "limit" gas (i.e. fixed amounts of gas sold at regulated prices).

In 2007, to ensure reliable gas deliveries to the Holding Company's energy companies, a great deal of work was done to negotiate and sign a standard long-term gas supply contract for 2008-2012.

During the year, all RAO UES energy companies signed contracts for the supply of "limit" gas in 2008-2012. Also, most energy companies signed long-term contracts for the supply of gas in addition to the "limit" gas with OAO "Gazprom" and independent gas producers.

Coal from the coal mines owned by OAO "SUEK" was supplied under the contracts made using the standard forms approved by the Federal Antimonopoly Service of the Russian Federation.

As a measure to reduce its fuel costs, the Holding Company continued to pursue its practices of competitive and regulated procurement. For instance, nearly all energy companies procured fuel oil and some of their coal needs using a competitive process.

In 2007, the Holding Company's entities achieved a year-on-year reduction in the fuel consumption rate for electricity and heat supplied by them.

Fuel consumption mix at the Holding Company's TPPs in 2007, %

In the 2007 fuel consumption mix of the Holding Company's power plants, the share of natural gas grew by 2.2 percent to 72.2 percent compared to 2006, while the share of coal declined by 0.9 percent to 25.1 percent, and fuel oil was down 1.3 percent, making 2.1 percent of the fuel mix.