Dear Shareholders!

2007 was the last reporting year for the Board of Directors and a year of the major decisions regarding the Company's reorganization. In mid-2008, RAO "UES of Russia" will cease to exist.

In 2007, RAO "UES of Russia" successfully completed the first phase of its reorganization and, as a result, two thermal generation companies, OAO "WGC-5" and OAO "TGC-5", were spun off from the Company. Shareholders of RAO "UES of Russia" received shares in OAO "WGC-5" and OAO "TGC-5" in proportion to their holdings in RAO "UES of Russia". The model for the final phase of the Company's reorganization was approved by its shareholders at the Extraordinary General Meeting held on 26 October 2007.

During the reporting year, the Board of Directors of RAO "UES of Russia" paid special attention to issues relating to the completion of the structural reform of RAO UES Holding Company and the implementation of the energy companies' investment programmes.

The Board of Directors thoroughly reviewed the five-year investment programmes of generation companies and sources of funding these programmes and took a major decision: all of the Company's thermal WGCs and TGCs are to issue additional shares before they spin off from RAO "UES of Russia". Despite the liquidity crisis on the financial markets, 2007 was a successful year in terms of attracting private investments in the energy companies. Strategic investors came to the companies. The total amount of private investments raised through the issuance of additional shares in thermal generation companies in 2007 and Q1 2008 amounted to RUB411.5 billion.

In 2007, the Government took a decision to divest the generation companies by selling the Company's shares in WGCs and TGCs to private investors. All proceeds from the sale are to be used to finance the investment projects to develop the Unified National Energy Grid (UNEG) and hydropower generation facilities, which will remain under the government control. By the end of Q1 2008, about RUB338 billion was raised through the sale of the "government stakes" in the thermal generation companies.

The Board of Directors approved the new the new IDC configuration, finalized the target model of OAO "HydroWGC", approved the strategy for the sale of non-core assets of RAO "UES of Russia" and its subsidiaries, including the sale of its shares in repair and maintenance companies and scientific and research centres, and approved the schedule for auctions to sell the Company's shares in energy retail companies.

We can say today that the structural reform has been a success. Establishment of all thermal wholesale generation companies — six WGCs and fourteen TGCs — was completed, and mid 2008 will see the completion of establishment of FGC, IDCs, and HydroWGC. All principal relevant resolutions have been approved. On 1 July 2008, the energy assets and isolated energy systems in the Far East of Russia will be consolidated into OAO "RAO Energy Systems of the East", and foreign assets and some combined-cycle power plants will merge with and into OAO "INTER RAO UES".

Like in the previous years, an important role in the activities of the Board of Directors was played by the advisory bodies—the Strategy and Reform Committee, the Audit Committee, and the Appraisal Committee, Human Resources and Remunerations Committee, and the Investments and Fuel Supply Commission. Prior to being considered by the Board of Directors, all important issues were reviewed by the relevant committees.

At every phase of the reform, the Company's corporate governance had its key goal — the creation in RAO "UES of Russia" and each of its subsidiaries of a balanced, harmonious, transparent system of relations between shareholders, the Board of Directors and managers.

We can confidently state that all the results of the large-scale process of corporate restructuring mentioned above were achieved thanks to the support from shareholders of RAO "UES of Russia". We highly appreciate the confidence and assistance both from the Company's key shareholders — the state and strategic investors — and from the minority shareholders.

A.S. VOLOSHIN