The electricity industry reform is a tremendous step forward in the development of the Russian economy. Only joint efforts of all participants in the process — the Government, RAO "UES of Russia", users and electricity producers made it possible to get over the difficulties of the transitional period and achieve the targets before the sector.

In the past years, we managed to preserve the reliability of electricity supply, completely restructure the sector, create new companies which are today valued at billions of dollars, gave a boost to investment inflow in the generation and power companies. Practically all the transformation mechanisms used in the course of the reform are unique and were used for the first time not only in Russia, but also in the world.

Today, we are proud to say that we have managed to accomplish many of our tasks. All the rest will be implemented at the next phases of the reform. In this connection, the key task Rosenergo has to implement after 1 July 2008 is to maintain pace and ensure the industry's rapid development and reliable electricity supply in the country.

It is possible now to evaluate the preliminary results of the energy sector reform. Much has been done to create a competitive environment in the sector. We have been able to attract investments, including foreign ones, in the sector. But there still remains a lot to be done, for example, to create the Market Council.

We are to launch a competitive market for capacity and an energy derivatives stock exchange. We have to phase in the liberalization of the electricity market from the present level to 100 % after 2011.

As electricity market competition evolves, the energy sector will need a stronger antitrust regulatory environment. By controlling large M&A transactions we can help prevent the monopolization of competitive markets. We have put ongoing monitoring and control arrangements in place in order to prevent manipulation of electricity and capacity prices. A competition control system has been created as part of the system of regulated access to services rendered by natural monopolies and ATS so as to ensure non-discriminatory access.

Among other things, the energy industry reform has created the necessary conditions for the business development and expansion in the electricity trading segment. It will certainly take time to make amendments to the rules and regulations, optimize the technological interaction among the wholesale market participants and the infrastructure organizations, and develop the necessary methodologies and procedures. It is especially important as the implementation of the Company's investment programme will help address local capacity shortfalls in Russia's regions and expand the export capability of Russian generation companies.

"INTER RAO UES" has vast experience of trading on Russian and foreign energy markets, as well as a team of experienced engineers and managers. Transfer of certain RAO UES generation assets to "INTER RAO UES" will make the Company's position on the Russia's energy market more stable and secure and will give us additional competitive advantages.

In my view, the electricity reform has created a unique situation in the sector. The reform has changed not only the economic and organizational model of the energy enterprises' work. It has given thousands of specialists a unique chance to change their life and implement new ideas and projects.

The idea of the electricity sector reform appeared after a very simple situation was analysed. In the 1990s, Russia changed its economic model. It is trying to transform the Soviet-style model into a market economy. And until recently, RAO "UES of Russia" lived Soviet-style. It is clear that there was a disbalance between the planned system in the electricity industry and the market system in the other sectors of economy. Black and grey markets for services, fuel and electricity emerged on the "border line" between the two systems.

RAO "UES of Russia" was ready for the reform when a team of people, who understood that the Soviet system would not survive in a market environment, came to the Company.

The key objective of the sector reform was to launch an electricity market in order to sell electricity at unregulated prices driven by demand and supply. This goal has not been achieved yet, but we are on our way. I hope that within three years all electricity will be traded on the competitive market.

It became obvious to me that the reform in the electric power industry was inevitable back in the early 1990s. The situation in the energy system became too complex and it was clear that the problem of depreciation of plant and equipment could not be resolved by using the existing mechanisms, such as tariffs and subscription fee. Since then, the development of the electricity industry through a sector reform has become my life's work.

Today we see that we were right at that time: the reform helped us overcome the crisis, ensure the sector's transparency and investment attractiveness. Large-scale investment programmes of the energy companies were produced and are being implemented. I am especially happy that major construction projects have been launched in the Urals area.

Being an engineer, I am glad that the reform has launched not only the process of attraction of equity investments, but also a self-regulating market mechanism capable of identifying areas of capacity deficit. Money comes to those areas of the UES of Russia where it is really needed.

The history of the electricity reform is far from simple. The difficult economic situation experienced by the country at that time, the desire of some officials to preserve a socialist model in the energy sector, lack of any tangible results of reorganization in other sectors — none of these factors could make the state authorities be more resolute and approve resolutions needed to carry out the energy reform.

Russia had a strong pool of engineers and managers in the power sector who created the nation's electricity industry and ensured the sector's operation under planned economy. We did not have any managers who had experience of work in a market environment. We had to learn by doing in the process of the reform and teach others, including state officials.

Now the reform is entering its final, investment phase. All the companies spun off from RAO "UES of Russia" approved very intensive investment programmes. In order to successfully implement them, we have to address the issues relating to expansion of the potential of design, research and development, power engineering and energy construction and installation entities. The programmes will be implemented only if the new owners' incentives are strong enough to do so. Primarily, I mean proper use of funds raised through the new share offerings by spin-off companies. I would like to hope that the steps taken by the Russian Government and energy companies' officers will ensure successful implementation of the projects provided by their programmes.

When in January 2000, a group of drafters of the first electricity industry reform concept gathered at RAO "UES of Russia" neither of us imagined how complex and large-scale the task was. Most of us were managers, security market specialists, and lawyers. Privatization of energy assets seemed something familiar and clear, so was the launch of an electricity market. Wasn't the security market launched from scratch?! We will surely accomplish the task in three years… That's what we thought…

Eight years have passed since then and a lot still remains to be done in terms of reforming the sector. It is sad to say good-bye to RAO "UES of Russia", but the existing team of those who implemented this reform with their own hands, or to be more exact, with their brains, nerves, and hearts, remains. Those who worked at night without days-off in projects groups, those who took part in development of the most complex laws and resolutions and overcame obstacles on their way. Those who managed to convinced the most suspicious officials and the most unyielding shareholders. This team will remain in the sector and the development of the energy industry will not stop. I believe in it.

We would not have been able to achieve the objectives of the electricity reform without proper relations between the senior managers of RAO "UES of Russia" and shareholders or without providing information about the resolutions approved in the company.

The adoption of the Corporate Governance Code of RAO "UES of Russia" made it possible to achieve the best balance of interests of all the parties involved in the process. We did it by formalizing in the Corporate Governance Code the agreements and arrangements among all corporate stakeholders, including various groups of shareholders, representatives of supervisory agencies and the companies' management bodies. As a result, the corporate management system created by us ensured support of the reform from practically all shareholders of RAO "UES of Russia".

Maximum of publicly available information, granting our shareholders the functions of effective controllers and a possibility to take part in the development of the restructuring plans, the duty imposed on senior managers to take into account shareholders' criticisms, comments and interests—all these principles implemented in the company ensure a successful development of the reform at RAO "UES of Russia" and its subsidiaries.

Five years have passed since the State Duma adopted the key legislative package on the electric power industry reform. Since that time, the industry has been developing in strict accordance with these laws. The federal laws approved with the active support from the Duma majority served as basis not only for the major changes in the electricity industry, but also for the sector's development after the transitional period of the electricity reform.

The concept for the strategic change in the sector provided for the presence, preservation and increase in the state control over the most important areas in terms of national safety, such as electricity transmission, dispatching, nuclear and hydro power generation.

The competitive wholesale market for electric power was launched. But the key achievement, the most valuable result of the reform is the start of a large-scale investment process. The joint efforts of legislative and executive branches and energy companies helped create an environment which ensured cash inflow into the sector, its technical upgrade, and increase in its capacity to the level needed to support the growth of the country's economy as a whole.

I started my work in the electricity sector in 1994, at the Kirishskaya TPP. Every level was more interesting than the pervious one. I was involved in the project to make the Kirishskaya TPP a supplier on the FOREM and to build a combined-cycle gas turbine at our power plant.

When I was invited to RAO "UES of Russia", I had a clear understanding of what steps the Company's subsidiaries were expecting from RAO UES and what the regional elites wanted from the energy companies. By that time, the restructuring was nearing completion and the conditions were created for the final investment phase of the reform. We started to develop regional development programmes. The task was extremely exciting: we had to combine the demands of the key regions and their economic plans with the construction of new power stations and transmission lines and propose measures to prevent energy crises. We implemented projects in the territory stretching from Kaliningrad to Siberia, in more than twenty constituent entities of the Russian Federation, where we introduced sound programmes of joint activities of energy companies and the regional governments designed to develop the electricity sector.

Now these plans are not merely on paper, they exist in reality and tens of thousands of new sites where new energy facilities are being constructed and modernized are appearing on the map every month. I believe that it is a direct result of the industry reform which entered its final phase.

The reform had two important milestones. The first was the adoption of the legislative package on the reform in 2003. Everybody understood that the electricity industry reform was a necessity, but there were so much heated debate! Scientists, lawyers, representatives of energy companies, and major consumers worked on the legislative framework for the reform. Such cooperation made it possible to make the discussion of the draft laws informative, public, and highly professional. Whilst developing the energy sector laws and regulations, we tried to take into account as much as possible the interests of different regions of Russia, primarily, their population.

We are seeing the second milestone develop before our eyes. This process involves the completion of the intended sector structure. Planning projects on paper is one thing, but their implementation is something different. By now, a competitive environment has been created in the generation segment and investments have been attracted and used to finance the development of the electricity sector. It has been done and it is working. It will help make the industry more efficient, an objective which was identified as one of the reform's priorities.

Thanks to the hard work of many people, we have managed to create a unique electricity market in Russia within a very short time frame. Its obvious advantages are the increase in transparency of the energy companies' activities and the significant growth of their investment attractiveness.

However, the market has lead to emergence of new risks — price risks, reliability risks, and development risks. The competition authorities are responsible for ensuring the "accuracy" of price signals, including prevention of price manipulations. The law gives the Russian Federation Federal Antimonopoly Service significant powers needed to prevent and suppress wrongful actions by market participants. I am sure that we will be able to build an efficient system of monitoring and controlling the electricity market which will counter market participants' violations, protect free competition without hindering the natural pricing process.

I used to be convinced that the vertically-integrated energy system was ideal for Russia, but I started to doubt it in 1997–1998. By that time the electricity industry became sort of "part of the state budget" that covered the shortfall in payments not backed by sources of revenue.

I came to RAO "UES of Russia" during the period when the reform concept was being drafted. Within our "functional group" we developed possible approaches to the reorganization of the scientific and research, services and dispatching businesses. The more we worked, the more aware we became how complex and multifaceted the reform issues were. The term was coined, "preparatory period", i.e. the transition to a project-based approach to the reform management. We became aware of the scope of legislation needed for the reform, the group of stakeholders and the need to interface with them.

From a professional viewpoint, I am lucky that I have not only been involved in the development of the reform concept, but also, when I went to work at VOGEK and then at HydroWGC, I saw in practice that the reform was capable of changing the electricity sector for the better and breathe a new life into the industry.

As I watched the battles over the reform, it seemed to me that the numerous opponents attacking the very basis of the reform would stop its development and reverse it. And the key issue was to create a competitive market and preserve conditions for competition. Because, in my view, even small-scale competition will inevitably greatly influence the entire sector spirit.

I cannot say that the benefits of the reform will be felt immediately, because it addresses too broad range of issues. But the success of then reform means that it will expand into other economy sectors, such as the residential utilities sector, gas industry, and income of the population.

The framework for the new energy industry system has been created. It took great efforts on the part of reformers, their colossal endurance and their ability to reach compromise. I believe that in the present environment it is a tremendous success.

At first, the minority shareholders of RAO "UES of Russia" were cautious about the idea of electricity industry reform. It was unclear what structural changes were to be implemented and there were doubts about whether the distribution of energy assets would be transparent and fair enough.

In 2001, at a time when a conflict arose between the Company's management and its minority shareholders, the Company created a Strategy and Reform Committee under the Board of Directors of RAO "UES of Russia". I have been head of the Committee since its establishment. It was the first committee under the Board of Directors to be created in a Russian company. The committee became a forum for the discussion of key issues with the minority shareholders.

We decided to focus on making the committee's activities transparent. A broad range of participants — representatives of Russian and foreign strategic investors and portfolio funds — were invited to attend its meetings. This openness gave RAO "UES of Russia" and the Government not merely support from minority shareholders of the Parent Company and its subsidiaries. As a result, the committee approved balanced resolutions that took into account interests of all parties and it helped increase the capitalization of RAO "UES of Russia" and develop the entire industry.