Financial Results

Address to Shareholders from the RAO UESR Executive Office

Company's Business Results

Asset Structure

Volume of Products, Subscriber Fees, Revenues' Structure

Production Cost, Profit and its use

Accounts Receivable and Payable

Balance Sheet

Profit and Loss Account

RAO UESR Stock in the Securities Market

Summary of UES of Russia Coordination and Management Results

Electric Power Production and Transfer

Electric and Heat Power Markets

UES of Russia Dispatch Manegement

Subsidiary Management

Investments

Foreign Business Activity

Scientific and Technical Development of UESR

Audit Report

Information for Shareholders

Appendix

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Report's Home Page

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UESR Home

Electric and Heat Power Markets

Electric and Heat Power Consumer Market

The power industry is one of the few Russian industries to have its tariffs regulated directly by the government, in this case through the Federal Energy Commission of the Russian Federation and regional energy commissions of constituent members of the Russian Federation.

The strict anti-inflationary policy adopted by the authorities in 1997 of freezing tariffs while the prices of allied suppliers grew, resulted in a situation where the growth rate of tariffs for industrial consumers is lagging behind industry price index for the whole of Russia.

Between 1990 and 1997, prices in electric power industry increased by 11.1 thousand times, while, in the industry as a whole, the increase was by 14.3 thousand times.

Current Russian Price Dynamics Compares with 1990

Subsidies to the population, organisations funded by the budget and agricultural consumers with power tariffs results in an unsubstantiated increase in tariffs for industrial consumers.

Raising tariffs for the population and agricultural consumers just to the average tariff level will allow for a 20-25% reduction in tariffs for industrial consumers in a number of regions.

A number of measures were implemented in 1997 to reduce electric power tariffs for industrial consumers and bring discounted tariffs for consumer groups such as the population, agricultural consumers and re-selling consumers to an economically acceptable level. The measures have allowed, to some degree, the reduction of tariffs for industry as early as the second half of 1997 (June - December), while electric power tariffs for the population were raised.

Resolution of the Russian Federation Government №1231 “On Staged Termination of Cross Subsidising in the Power Industry and Bringing Electric Power Tariffs for the Population to Actual Power Production, Transmission and Distribution Cost” dated September 26, 1997 approved a schedule for bringing electric power tariffs for the population to the actual power production and distribution cost with regard to living standards in the regions during the period 1997 to 2000.

History of Electric Power Tariffs for the Population and Industry in Russia

The average electric power tariff for consumers was 216 roubles per 1 kWh in 1997, and 204 roubles per kWh in December, 1997, with the average approved tariff of 235 roubles per kWh.

Average Russian Electric Power Tariff Structure in 1997*

* Date for 1996 is shown in brackets.

Federal (National) Wholesale Electric Power (Capacity) Market (FWEPM)

In 1997, 34 major electric power stations, 10 power supply organisations and Altai-Koks Joint Stock Company contributed electric power to the wholesale market. The buyers of electric power and capacity in the federal wholesale electric power market included 60 power suppliers that have deficit production and 8 large industrial consumers. Some electric power was also exported.

FWEPM Electric Power Suppliers and Purchasers
(kWh, billion)

Suppliers

Purchasers

In order to establish a new electric power trading system, the National Power Market and Nezavisimyi Finansoviy Operator (Independent Financial Operator) Private Joint Stock Company, new structures which act as FWEPM operators, were established in virtue of Decree of the President of the Russian Federation №426 “On Basic Provisions of Structural Reform at Natural Monopolies” dated April 28, 1997. Cash settlements could only be made via the Independent Financial Operator for electric power and additional services (capacity) purchased at the FWEPM; electric power (capacity) was sold to consumers at reduced (lower than approved) tariffs.

Two-rate electric power (capacity) tariffs were introduced at the FWEPM in July 1, 1997.

The introduction of the two-rate tariffs permitted the elimination of losses for the first half of 1997 and ensured the self-financing of state district power stations and hydraulic power stations power stations of the federal level in 1997.