Corporate governance system

The framework for the governance system of RAO "UES of Russia" is comprised of Russian laws, the Company's Charter and Corporate Governance Code.

The supreme management body of RAO "UES of Russia" is the General Meeting of its shareholders. During the periods between shareholder meetings, shareholders authorize the Board of Directors to manage the Company. The Company is operated by the Management Board, the collective executive body appointed by the Board of Directors of RAO "UES of Russia".

Relationships within the Company are based on hierarchical subordination; the activities of its officers and divisions are prescribed in detail by its internal Policies and Regulations of the Company adopted by the Management Board and its Chairman. Standards have been produced to regulate the key managerial functions, including property management, corporate governance in subsidiaries and dependent companies, budgeting and business planning, investment activities, determination of the key performance indicators, HR management, and the conduct of internal audits.

The Company's revised and restated Corporate Governance Code and Regulation on the Information Policy of RAO "UES of Russia" have helped improve the quality of corporate governance and enhance transparency in the Company.

The Company has a successful internal control system organized in accordance with the Regulations on Internal Control Procedures. Internal controls are a set of procedures used by the Company's Auditing Commission, Board of Directors, Audit Committee under the Board of Directors, and the executive bodies and divisions which have the authority to implement internal control. Internal controls in the Company are designed to identify violations of law and the Company's bylaws in the conduct of its business, and to assess the effectiveness of the Company's activities in achieving its goals. Control over the Company's financial and business operations is exercised by its Financial and Corporate Controlling Center and 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 Annual General Meeting 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 Regulations on the Activities of the Auditing Commission of RAO "UES of Russia". In 2007, the Commission conducted a review of the Company's operations.

AUDITING COMMISSION MEMBERS ELECTED 26 JUNE 2007*

Ganeyeva, Marina Vilevna Department Head, Ministry of Industry and Energy of the Russian Federation
Kobzev, Andrey Nikolayevich Head of Division, Federal Energy Agency of the Russian Federation
Kurbatov, Mikhail Yuryevich Deputy Head of Division, Ministry of Economic Development and Trade of the Russian Federation
Oseledko, Victoria Vladimirovna Department Head, Ministry of Industry and Energy of the Russian Federation
Rutenberg, Alexander Borisovich Deputy Head of the Directorate, Federal Energy Agency of the Russian Federation
* Positions held at the time of election

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 in the amount 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 charters and bylaws of its subsidiaries and dependent companies.

The corporate governance system at RAO UES Holding Company is based on the Procedure for Interaction of RAO "UES of Russia" with the Business Companies Whose Shares (Ownership Interests) are Owned by RAO "UES of Russia".

The Parent Company 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 to be considered by General Meetings of shareholders and Board meetings at the SDCs.

Among such items special emphasis is placed on:
  • major transactions undertaken by SDCs;
  • transactions involving acquisition, disposal or encumbrance by SDCs of shares and interests in other entities held by the SDC concerned;
  • transactions in shares and interests in second-tier SDCs;
  • transactions involving SDCs' plant and equipment and/or intangible assets used in their core operations and having a market value in excess of RUB15 million;
  • transactions involving SDCs' plant and equipment and/or intangible assets which are not used in the SDCs' core operations, whose book or market value is in excess of RUB30 million.

The efforts undertaken by RAO "UES of Russia" to improve the corporate governance practices are aimed equally at its subsidiaries and dependent companies. In 2007, the SDCs introduced the standard Corporate Governance Code and Regulations on Information Policy for SDCs produced by the Company. In 2007, the Company also adopted the standard Regulations on the Internal Audit Department and implemented it in the WGCs and TGCs, which will help coordinate the entire internal audit and financial control process.

Awards and Ratings in Corporate Governance and Information Disclosure

In 2007, the Investor Protection Association named RAO "UES of Russia" winner in the following categories:

  • "Company with the Best Corporate Governance";
  • "Company with the Greatest Influence on the Development of Corporate Governance";
  • "Company with the Best Investor Relations System".

In late 2007, Standard and Poor's released its annual Transparency and Disclosure survey of 80 major publicly traded companies for 2007, with RAO "UES of Russia" moving up in the ranking from 33rd in 2006 to 5th in 2007, and the Transparency Index of the entire electricity industry growing from 52 percent in 2006 to 72 percent in 2007. Thus, RAO "UES of Russia" achieved as significant improvement in 2007 in the area of transparency and disclosure, which is extremely important for the final phase of the Company's reorganization.

In October 2007, PricewaterhouseCoopers Russia B.V. carried out a transparency and disclosure survey of corporate information disclosure practices at RAO "UES of Russia", finding that the information disclosed by the Company satisfied 114 criteria out of the 134 applied (85 percent).

The Annual Report of RAO "UES of Russia" took part in the 10th annual federal Annual Reports and Corporate Websites Awards, a competition organized by the RTS Stock Exchange and the Rynok Cennykh Bumag ("Securities Market") magazine. The Company's report ranked third in the category of "Best Information Disclosure for Investors in Issuer's Annual Report".
 
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