Corporate governance system

DIVIDEND POLICY

RAO "UES of Russia" pursues its dividend policy with respect to the Parent Company and its SDCs in accordance with the Dividend Policy Principles approved by the Board of Directors of RAO "UES of Russia".

In 2007, RAO "UES of Russia" did not pay any dividends on its ordinary and preferred shares. This was due to the fact that the bulk of the Company's net income came from the revaluation of its financial investments (i.e. shares in the subsidiaries and dependent companies of RAO "UES of Russia") without any actual cash gain. Accordingly, the payment of dividends out of the Company's net income not supported by actual receipts of funds would lead to a failure of the Company's investment programme and would adversely affect the financial position of RAO "UES of Russia". In that connection, the AGM of shareholders decided to pass the dividends on the Company's shares for 2006.

AMOUNT OF DIVIDENDS DECLARED BY RAO "UES OF RUSSIA", THOUSAND OF RUB

PAYMENT OF DIVIDENDS IN 2008 FOR 2007

In 2007, the net income of RAO "UES of Russia" according to the Russian Accounting Standards amounted to RUB452,827 million. Such amount of net income was due to the fact that most of the Company's net income resulted from the obligatory revaluation of its financial investments (i.e. shares in the subsidiaries and dependent companies of RAO "UES of Russia") in regard of the growth of these shares' quotations on stock markets, without any actual cash gain.

Under the previously resolutions of the Board of Directors of RAO "UES of Russia", the Company allocated RUB75.8 billion in funds for investment purposes out of the anticipated net profit for 2007. In particular, the funds were used to deploy and bring on line several mobile gas turbine units in the Moscow Region to accommodate the peak loads in the winter of 2007-2008 and to purchase additional shares in OAO "HydroWGC" and OAO "UES FGC" as a measure to eliminate the deficit of the investment programmes. The funds invested in the companies have now been capitalized and the shareholders of RAO "UES of Russia" will receive their pro rata shares in the respective companies.

As a result of implementation of the investment programme, RAO "UES of Russia" had a RUB47 billion shortfall in its annual net profit. This was because out of the net income of RUB452.827 billion posted in 2007 only RUB28.782 was supported with actual receipts of funds.

As provided by Article 5.3 of the Charter of RAO "UES of Russia", the total amount of dividends paid on preferred shares should be at least 10% of the Company's net income divided by the number of such shares, which make up 25% of the authorized capital of the Company. The amount of dividends paid on each preferred share should be no less than the amount of the dividend per ordinary share.

This means that the dividend payment out of the Company's net income not fully supported by actual receipts of funds will undermine the Company's investment programme and adversely affect the financial position of OAO RAO "UES of Russia".

In light of that, the Board of Directors of RAO "UES of Russia" recommended that the Annual General Meeting of shareholders on 28 may 2008 vote to omit the dividend for 2007.

DIVIDEND PAYMENTS BY SDCS OF RAO "UES OF RUSSIA"

In 2007, RAO "UES of Russia" continued its practice of declaring interim dividends at its SDCs (WGCs, TGCs, retail and R&M companies) which faced the risk of nonpayment of dividends for 2007 in connection with the restructuring and the resultant organizational and legislative restrictions. Thus, the Board of Directors of RAO "UES of Russia" approved the payment of interim dividends by SDCs of RAO "UES of Russia" before the SDCs carry out additional share offerings, complete reorganization or are sold to outside investors.

The amount of interim dividends declared by the SDCs of RAO "UES of Russia" for Q1, H1 and 9M 2007, including the taxes, totalled RUB4,988.4 million, which includes of RUB3,816.6 million payable on the shares owned by OAO RAO "UES of Russia".

Thus, the dividend amounts declared by the SDCs of RAO "UES of Russia" in 2007 (taking into account the interim dividends declared in 2007) increased by a small amount, 1.9 percent, compared to 2006 (taking into account the interim dividends declared in 2006) to RUB14,514 million. The amount of dividends accrued on the shares held by RAO "UES of Russia" in 2007 declined by 4.2 percent compared to 2006, which was due to differences in the capital structures of the SDCs which declared dividends.

AMOUNT OF DIVIDENDS DECLARED BY THE SDCS OF RAO "UES OF RUSSIA", MILLION OF RUB