Dear Shareholders!
RAO UESR, the Russian power and electrification
joint stock company, has ended its fifth business year.
Currently, RAO UESR is among the world’s biggest companies and is developing rapidly.
In the course of that five years, the power industry has undergone major restructuring
resulting from the company’s move into the private sector which led to the formation of
several joint stock companies. Thus, because of new economic conditions both within the
industry and in relation to other industries, whole and retail electric and heat power
markets are developing. Conclusively, the main objective of the transitional period has
been reached: stable power supplies to consumers; the integrity of UES of Russia and state
control over the industry have been preserved despite strong destructive trends and
adverse factors.
The economic performance of RAO UESR and those of its subsidiaries are clearly
reflected in the Russian stock market. In the past year, the UESR’s share price has
increased more than three-fold, and average monthly UESR stock trade volume remains at not
less than 30% of total trade turnover on the Russian stock market. The market for shares
in our subsidiaries, such as Mosenergo, Lenenergo, Krasnoyarskenergo, Sverdlovskenergo and
other major power industry companies is actively developing.
RAO UESR and the overwhelming majority of the member power industry companies showed
positive financial results for 1997.
This was achieved due to the fact that tariff problems were, on the whole, resolved and
a number of measures were implemented to prepare the power industry for the autumn and
winter period: 98% of power companies received readiness certificates by the beginning of
the period. The stock of fuel reserves at the industry’s power stations by the beginning
of the autumn-winter period exceeded the previous year’s levels by 22% for coal and by
7% for fuel oil.
In 1997, RAO UESR was able to sign an agreement with RAO Gazprom and Lukoil Joint Stock
Company. That agreement ensured stable fuel supplies to power stations in winter and
allowed the creation of conditions for restraining fuel prices and power production cost.
In 1997 the Unified Energy System of Russia operated with standard current frequency
98% of the calendar year.
As the organiser of the federal (national) wholesale electricity (capacity) market, the
company has coordinated the work of over 40 power producers (nuclear power stations, major
hydroelectric power stations, AO-energos with excess capacity) which supply over 30% of
all electricity consumed in Russia, and over 60 consumers (regional power supply
organisations and major power-intensive consumers, FOREM subjects).
Companies in the power industry faced considerable difficulties as a result of
non-payments by consumers. Non-payments hinder the daily operations of power companies and
make prospective business extremely difficult. Consumers’ debts for power used increased
from RUR 79 trillion to RUR 102 trillion in 1997.
The considerable debts owed by electric and heat power consumers have resulted in the
growth of power companies’ accounts payable, which increased by 1.2 time during 1997.
The Government of the Russian Federation adopted Resolutions ¹1 dated January 5,
1998, and ¹5 dated January 5, 1998 on the initiative of RAO UESR as the legal basis for
addressing the problem of non-payments for electric and heat power. These resolutions
approve the procedure of cutting or limiting electric, heat power and gas supplies to the
consuming organisations which fail to pay for the fuel and energy resources supplied to
them (used by them), and the procedure of establishing yearly electric power consumption
volumes and electric power charges due from the organisations funded from the government
budget within the limits of federal budget funds.
Investment has somewhat decreased. Capital investment amounted to RUR 29.2 trillion
which is 98% of the 1996 figure. 16 turbines with the total capacity of 631.6 thousand kWt
were commissioned at the power stations of Russia (against 1,282 thousand kWt in 1996);
1,826 km of power lines with the voltage of 35 kW and above was commissioned (against
3,313 km in 1996).
The company’s most important tasks next year will be to ensure the reliable operation
and development of RAO UESR, helping in the revival of Russian industry by reducing
tariffs for this sector and building a balanced tariff system, as well as overcoming the
non-payment crisis, strengthening the financial position of power companies in general,
reducing their accounts receivable and payable, improving investments, renovating the
existing capacity and completing construction in progress, mobilising all resources
available to the Company in order to meet its obligations to employees, shareholders,
business partners and the state.
The created UESR management structure is the guarantor of an uninterrupted power supply
to consumers. RAO UESR will continue to take measures in order to make sure that it is
always warm and sufficiently lighted in the apartments of Russian citizens, and will
continue to develop as the biggest company both in Russia and abroad.
With best wishes
RAO UESR Executive Office
June, 1998
