International activities

FOREIGN ASSETS AND PROJECTS

In 2006, the export and import operations of RAO "UES of Russia" Holding Company, the authority to perform export and import contracts and agreements were transferred in full to ZAO "INTER RAO UES".

LIST OF FOREIGN ASSETS OWNED OR MANAGED BY ZAO "INTER RAO UES"

Armenia

• 100 percent of shares of the Armenian Nuclear Power Plant under fiduciary management. The installed capacity of the NPP is 815 MW. The plant's core business is generation and sale of electricity.
• 70 percent shares in ZAO "Electricity Networks of Armenia", a distribution company which owns 0.4-110 kV, which sells electricity to customers in Armenia and maintains the overhead and cable electricity transmission lines, transformer substations and voltage distribution installations owned by it.
• 90 percent shares of ZAO "International Energy Corporation", the operator of the Sevan-Razdan series of HPPs consisting seven power plants. The installed capacity of the HPPs is 560 MW. The plants' core business is generation and sale of electricity.

Georgia

• 75 percent shares in AO "Telasi", the distribution company in the city of Tbilisi, which owns 0.4-110 kV networks and substations. Telasi's core business is purchase, sale and distribution of electricity;
• Right to manage 100 percent shares in AO "Khrami HPP I" and AO "Khrami HPP II" (two hydroelectric power plants, with an installed capacity of 110 MW each. The plants' core business is generation and sale of electricity);
• 100 percent interest in OOO "Mtkvari Energetika", the owner of Unit 9 and Unit 10 at the Tbilisi TPP. Each power unit has an installed capacity of 300 MW. The company's core business is generation and sale of electricity.

Kazakhstan

• 50 percent shares in OAO "Station Ekibastuzskaya TPP-2" with an installed capacity of 1,000 MW (two power units 500 MW each). The company's core business is generation and sale of electricity;
• 100 percent in TOO "INTER RAO Central Asia", a company primarily engaged in the purchase and sale of electricity.

Moldova

• 100 percent interest in S.C. "Tehnoelectrica" S.R.L., a company whose core business is purchase and sale of electricity.

Trans-Dniestria

• 51 percent stake in ZAO "Moldavskaya TPP" (installed capacity of 2,520 MW). The company's core business is generation and sale of electricity;
• 40 percent stake in SOOO "Energospetsservisobsluzhivanie", a power equipment R&M company.

Finland

• 100 percent shares in RAO NORDIC Oy, a company engaged in selling electricity imported from Russia on the Nordic wholesale electricity market. RAO NORDIC Oy is a member of the Nord Pool power exchange.

Turkey

• 70 percent shares in TGR Enerji, a Turkish electricity wholesaler.

Ukraine

• 90 percent shares in ZAO "INTER RAO UES Ukraine", a company primarily engaged in purchasing and selling power equipment.

The Netherlands

• 67 percent shares in INTERENERGO B.V., a company whose core business is asset management and investments in the electricity industry;
• 100 percent shares in ES Georgia Holdings B.V., a holding company engaged in the management of energy assets;
• 100 percent shares in Gardabani Holdings B.V., a holding company engaged in the management of energy assets;
• 100 percent shares in Silk Road Holdings B.V., a holding company engaged in the management of energy assets.

Belgium

• 100 percent shares in Saint Guidon Invest N.V., a holding company engaged in the management of energy assets.

PERFORMANCE OF THE FOREIGN ASSETS OWNED OR MANAGED BY ZAO "INTER RAO UES"

In managing its foreign assets, ZAO "INTER RAO UES" has achieved significant improvement in the financial and economic performance of its foreign companies and expansion of its operations and sales.

The system of running the foreign assets is based on the standards adopted by RAO "UES of Russia". It is designed to deliver increased shareholder value, which is ensured by improving operating efficiencies, stable payments for the electricity and capacity supplied, and expanding the geographic coverage of export and import operations.

In most facilities, the company has implemented business planning and budgeting systems, as well as cash expense controls, which ensured stability of the financial position of the foreign legal entities owned or managed by ZAO "INTER RAO UES". In most companies, the electricity sales proceeds increased significantly in 2007. Specifically, the electricity sales revenue of ZAO "Moldavskaya TPP" in 2007 amounted to $48.9 million, up 201 percent from 2006, while the sales revenue generated by AO "Khrami HPP II" in 2007 reached $1.6 million, which represents a 60% increase compared to 2006. The same figure for ZAO "Electricity Networks of Armenia" amounted to $236.1 million in 2007, or 24.8% more than in 2006. The companies have put additional safeguards in place to ensure secure and reliable operation, which resulted in fewer occupational injuries.

PROSPECTS OF OAO "INTER RAO UES"

OAO "INTER RAO UES" is to be created as part of the second (final) phase of the reorganization of RAO "UES of Russia" which will involve the spin-off of OAO "INTER RAO UES Holding" from OAO RAO "UES of Russia", with the spin-off company simultaneously merging with and into OAO "Sochinskaya TPP".

This target model was determined by the Board of Directors of RAO "UES of Russia" on 31 August 2007.

In the course of the reorganization, OAO "Sochinskaya TPP" will change its name for OAO "INTER RAO UES". On 28 March 2008, the Management Board of RAO "UES of Russia", acting as AGM of OAO "Sochinskaya TPP", adopted the restated Charter of the Company with account of forthcoming renaming.

Under the spin-off balance sheet, OAO "INTER RAO UES Holding" will receive shareholdings in:

• ZAO "INTER RAO UES";
• OAO "Severo-Zapadnaya CHPP";
• OAO "Kaliningradskaya CHPP-2";
• OAO "Sochinskaya TPP";
• OAO "Ivanovskie PGU";
• OAO "Sangtuda HPP-1";
• other assets envisaged in the spin-off balance sheet.

Simultaneously with the spin-off of OAO "INTER RAO UES Holding", the spin-off company will merge with and into OAO "Sochinskaya TPP". It is also planned that part of the companies whose shares will be transferred to OAO "INTER RAO UES Holding" in the course of the spin-off from RAO "UES of Russia" (namely, ZAO "INTER RAO UES", OAO "Severo-Zapadnaya CHPP", OAO "Kaliningradskaya CHPP-2", and OAO "Ivanovskie PGU") will also merge with OAO "Sochinskaya TPP".

Shares in OAO "Sochinskaya TPP" will be distributed among all shareholders of RAO "UES of Russia" and the shareholders of the other companies merging with OAO "Sochinskaya TPP" pro rata to their interests in the capital of RAO "UES of Russia" and the merging companies, respectively.

ZAO "INTER RAO UES" and other companies merging with OAO "Sochinskaya TPP" are expected to be reorganized in two phases.

PHASES OF ZAO "INTER RAO UES" REORGANIZATION

KEY FOREIGN PROJECTS OF RAO "UES OF RUSSIA"

China: Development of a feasibility study to organize large-scale electricity exports from Russia into China

In late 2006, RAO "UES of Russia" and China's State Power Grid Corp. signed a contract to supply electricity to China as part of the first phase of the Project designed to increase electricity deliveries from Russia to the People's Republic of China and pursuant to the Agreement on the principles of implementing the Project.

The parties established three phases for the Project implementation and the target export volume of 60 billion kWh annually.

In 2007, a feasibility study was launched for the construction of the 500 kV transmission line "Amurskaya Substation – State Border" and additional generation capacity needed for the first phase of the Project (2008-2012).

After the new facilities are brought on line, the supplies of Russian electricity to China are to be increased to 4.5 billion kWh annually as part of the first phase.

Also, in 2007 work was carried out to prepare the feasibility study for the construction of generation capacity under the final phase of the Project (2012-2015). It is planned that during the second phase up to 3,500 MW of new generation capacity will be created in the energy system of Russia's Far East, with the export deliveries to China to be increased to 22.5 billion kWh.

During the third phase, after 2015, new, predominantly coal-fired power plants with an aggregate capacity of 6,000-6,400 MW will help increase exports of Russian electricity to China to the target level.

The Sangtuda HPP-1 is part of the series of hydropower plants located on the Vakhsh River, Tajikistan. The design capacity of the power plant is 670 MW (four turbines 167.5 MW each).

Under the Agreement between the Government of Tajikistan and the Government of the Russian Federation on the procedure for and terms of participation of the Russian Federation in the construction of the Sangtuda HPP-1, with RAO "UES of Russia" acting as the authorized organizations from the Russian side. On 15 December 2005, the Board of Directors of OAO "Sangtuda HPP-1" approved the estimated cost of the completion of the power plant in the amount of $598.87 million.

According to the Protocols signed by the Governments of the Russian Federation and the Republic of Tajikistan on taking a joint resolution to issue shares of OAO "Sangtuda HPP-1", the amount of funds provided for the construction amounted to $401.65 million.

Tajikistan's contribution to the capital of OAO "Sangtuda HPP-1" will be in the form of construction in progress worth $121 million.

In 2006, construction work was launched on all hydraulic structures of the power plant. The work was continued in 2007. On 15 December 2006 the dam across the Vakhsh River was completed, and the plant's first hydropower unit was launched on 20 January 2008, three months ahead of schedule.