Dear shareholders!
Dear shareholders!In the course of the past year the renewed membership of the Board of Directors of RAO UES of Russia not only dealt with issues pertaining to the regular business of the Company, but also turned its attention to identifying the priority areas in the Company’s development and developing a corporate strategy.
In order to reinforce the Company’s financial stability we had to resolve multiple issues leading to an improvement in the quality of settlements for energy supplied to consumers and to adopt a more exacting approach to all customers. The management of UES was faced with the task of bringing about a fundamental improvement in the state of affairs in the marketing of electricity and heat, while taking a harder line on defaulters to increase the proportion of cash payments to the Company, and on this basis to improve the way in which UES meets its obligations to its suppliers and the Federal budget.
It is now possible to say that this goal has been achieved to a very high degree. Whereas a year and a half ago cash constituted only 18% of total payments for goods and services supplied by UES, by the end of 1999 this proportion had increased to 49% and as a result UES’s payments to the Federal budget increased almost threefold, — from 710- million rubles to 625 million rubles, — payments to the Pension Fund are being made in full, and the amount of wage arrears within the company has been reduced two and a half times. The Board of Directors of UES has charged the Management of the Company to ensure that by the end of the year 2000 the cash component in settlements be increased to 75%, a level which corresponds fully to Paragraph 63 of the RF Government Decree No. 829 dated July 19th, 1999. The Company’s improved financial condition made it possible for the Board of Directors to recommend to the meeting of shareholders of UES that dividends should be increased two and a half times on preferred shares and almost doubled on ordinary shares.
As one of the measures intended to stabilise the Company’s financial situation, the Board of Directors of UES adopted a Company Credit Policy, under the terms of which any increase in UES’s overall level of borrowing is ruled out, while borrowing is only permitted for purposes of refinancing on better terms those liabilities which had been taken on and accrued over preceding years. Based on instructions of the Board of Directors in 2000 work started to develop a medium-term programme for the redemption of all of the Company’s credit instruments through use of own funds.
The attention of the Board of Directors was also focused on issues of UES’s investment policy and the commissioning of new capacity. In 1999 UES spent 4,55 billion roubles of dedicated investment resources to finance construction of power facilities, which is twice higher than the figure for 1998. The Board of Directors of UES decided that in 2000 allocations to finance capital construction would be increased by 15%. The funds will be used to construct new power facilities. The Board of Directors approved a list of these, the plan is to commission capacity at the North-Western Combined Heat & Power Plant, the Tomsk Combined Heat & Power Plant No. 3, the cascade of units in the Nizhne-Chereksk Hydro power Stations and new high-voltage transmission lines. At the same time it should be emphasised that significant wear and tear of the Company’s fixed assets means that massive efforts are required to build and commission new power generating facilities.
Note should be taken of the Board of Director’s position on the crucial issue of selecting the direction of UES’s future development and identifying the prospects for such a massive economic structure to complete the transfer to market relations without losing sight of the interests of its shareholders and the national economy as a whole. In order to facilitate the establishment of an efficient electricity market and develop competition, the Board of Directors of UES approved at the end of 1999 the establishment of a FOREM (electricity wholesale market) Contracts and Settlements Centre, which would assume the role of operator in the trading system, while the functions of the industrial operator of the market would be transferred to the Central Dispatch Department (System Operator) of UES. Reform of the FOREM will stimulate the creation of a competitive environment encouraging competition between producers of electricity and alleviating peak loads in combination with significant cost-saving. Based on the instructions of the Board of Directors of UES, a basic strategy document has been drawn up titled Concept for Company Restructuring — which is currently the subject of public discussion.
Following the 1999 annual meeting of shareholders of UES, the Board of Directors once again included in its composition representatives of minority shareholders, — this has undoubtedly improved the monitoring of the Company’s activities by various groups of shareholders and enhanced their role in its management. The changes in the composition of the Board of Directors have resulted in an increase of focus on protection of shareholder rights. The Board of Directors of UES has appealed to the Government of the Russian Federation asking it to assign the Constitutional Court to renew its examination of the issue of whether the Federal Law On Special Conditions Pertaining to the Disposal Shares of RAO UES of Russia and Shares in Other Joint-Stock Companies in the Electric Energy Sector which are Federal Property is in fact consistent and corresponds to the Constitution of the RF. The provisions of this Law undermine the rights of the Company’s shareholders and UES intends to have them annulled in the year 2000.
We shall continue in future to take every possible measure to make UES into an efficiently operating company, which meets all its liabilities in full and provides high levels of returns to its shareholders.
Chairman of the Board of Directors
| Next Chapter | ||