Adopted by the State Duma on February 21, 2003

Article 1.Federal Law No. 74-FZ, dated May 7, 1998, "On Specific Features of Disposal of Shares of the Unified Energy System of Russia, a Russian Energy and Electricity Joint-Stock Company, and Shares of Other Joint-Stock Companies of the Electric Power Industry That Are Under the Federal Ownership" (Collected Legislation of the Russian Federation, 1998, No. 19, Article 2070) shall be recognized to lose their force from January 1, 2005.

Article 2.The following documents shall be recognized to have lost their force from the date of entry into force of the Federal Law "On Electric Power Industry" in full (the date of end of the transitional period of restructuring the electric power industry):

Federal Law No. 41-FZ, dated April 14, 1995, "On State Regulation of Tariffs for Electric and Thermal Power in the Russian Federation" (Collected Legislation of the Russian Federation, 1995, No. 16, Article 1316);

Federal Law No. 33-FZ, dated February 11, 1999, "On Introduction of Amendments and Supplements into the Federal Law 'On State Regulation of Tariffs for Electric and Thermal Power in the Russian Federation' " (Collected Legislation of the Russian Federation, 1999, No. 7, Article 880);

Federal Law No. 6-FZ, dated January 10, 2003, "On Introduction of Amendments and Supplements to Article 2 of the Federal Law 'On State Regulation of Tariffs for Electric and Thermal Power in the Russian Federation' " (Collected Legislation of the Russian Federation, 2003, No. 2, Article 158).

Article 3.Clause 1 of Article 17 of Federal Law No. 128-FZ, dated August 8, 2001, "On Licensing Individual Types of Activities" (Collected Legislation of the Russian Federation, 2001, No. 33, Article 3430; 2002, No. 11, Article 1020; No. 50, Article 4925; 2003, No. 2, Article 169) shall be supplemented with a paragraph to read as follows:

• "activities for sale of electric power to citizens.".

Article 4.For the purpose of ensuring state control over implementation of measures for restructuring electric power industry, decisions of the managing bodies of the Unified Energy System of Russia, a Russian energy and electricity open joint-stock company, relating to its reorganization (including decisions on reorganization of the company and on its form, on the procedure for distribution of shares of the reorganized company, on forming the property of companies to be established as a result of reorganization) shall be adopted by a simple majority of votes of those participating in voting from the day of entry into force of the Federal Law "On Electric Power Industry."

A decision on the procedure for distribution of shares during reorganization of the Unified Energy System of Russia, a Russian energy and electricity open joint-stock company, adopted in accordance with this Article by a simple majority of votes of those participating in voting, shall provide for the distribution of shares of joint-stock companies to be established during the reorganization among the shareholders of the reorganized company in proportion to their interest in the charter capital of the reorganized company.

Decisions on reorganization of energy and electricity joint-stock companies that are natural monopoly entities and have not been reorganized in the procedure established by the legislation of the Russian Federation before January 1, 2005 shall be adopted upon expiration of that period of time by a simple majority of votes of those participating in voting.

Decisions on the procedure for distribution of shares during reorganization (in the form of separation or spin-off) of energy and electricity joint-stock companies adopted in accordance with this Article by a simple majority of votes of those participating in voting shall provide for distribution of shares of joint-stock companies established during reorganization among the shareholders of the reorganized companies in proportion to their interest in the charter capitals of the reorganized companies. Organizations established during reorganization of the Unified Energy System of Russia, a Russian energy and electricity open joint-stock company, its subsidiaries and related companies shall not be entitled to simultaneously own electric power grid facilities pertaining to the unified national (All-Russian) electric power grid and electric power grid facilities not pertaining to the unified national (All-Russian) electric power grid.

The Unified Energy System of Russia, a Russian energy and electricity open joint-stock company, shall contribute to the charter capital of the organization managing the unified national (All-Russian) electric power grid its shares of organizations which have been established during reorganization of energy and electricity joint-stock companies and under whose ownership electric power grid facilities pertaining to the unified national (All-Russian) electric power grid have been transferred. In doing so, the organization managing the unified national (All-Russian) electric power grid shall increase its participation interest in the charter capitals of such organizations to a level of no less than 50 per cent plus one voting share using methods provided for by the legislation of the Russian Federation.

Article 5.State regulated prices (tariffs) in the electric power industry shall be brought to a level ensuring an economically substantiated rate of return on investment capital invested in the types of activities of electric power industry entities where state regulation of prices (tariffs) is applied, in accordance with the program for changing the level of state regulated prices (tariffs) in the electric power industry approved by the Government of the Russian Federation.

Article 6.During the transitional period of restructuring the electric power industry, the authority of the Government of the Russian Federation shall include:

• establishing the maximum volume of electric power which is allowed to be sold at free (non-regulated) prices for each wholesale market entity supplying electric power;
• determining a list of wholesale market zones (hereinafter, price zones of the wholesale market) coinciding with the territory of one or more constituent entities of the Russian Federation within whose boundaries all electric power industry entities are provided with the right to conduct the activities related to purchasing and selling electric power at free (non-regulated) prices.

State regulation of prices (tariffs) shall be kept in respect of the remaining volume of electric power until the date of end of the transitional period of restructuring the electric power industry.

Before the date of end of the transitional period of restructuring the electric power industry, the wholesale electric power (capacity) market and retail electric power markets shall function on the basis of the transitional period rules which, inter alia, establish the specific features of participation of suppliers in the wholesale electric power (capacity) market connected with terms and conditions of fuel purchasing (degree of monopolization of the fuel market, procedure for regulation of fuel prices). The transitional period rules shall be approved by the Government of the Russian Federation.

During the transitional period of restructuring the electric power industry, electric power generators determined by the Government of the Russian Federation shall be obliged to make long-term contracts for supply of electric power to guaranteeing suppliers of electric power that shall enter into force from the date of end of the transitional period of restructuring the electric power industry and shall be effective for three years.

The Government of the Russian Federation shall determine the terms and conditions of long-term contracts for supply of electric power to guaranteeing suppliers of electric power taking into account the following requirements:

• to sell electric power to guaranteeing suppliers in the necessary volume under the said contracts for ensuring the consumption of electric power by the population and for providing public utility services to the population;
• to sell electric power to one or more guaranteeing suppliers of electric power in the volume of up to 35 per cent of the electric power generated by each generator. The said volume shall be determined taking into account the shares of generating companies in the actual balance of generation of electric power for the year preceding the date of making the contract;
• to determine the initial price of electric power supplied under the said contracts in the amount not lower than the tariff established for the generating company by the body of state regulation of prices (tariffs) at the time of making the contract;
• to make the level of price of electric power supplied under the said contracts dependent upon the level of the average price for electric power in the wholesale market, reducing the difference between the said prices each year.

It shall be prohibited to combine the activities related to electric power transmission and operational dispatch control in the electric power industry with the activities related to generation and purchase and sale of electric power for legal entities and individual entrepreneurs from January 1, 2005 and for groups of persons and affiliated persons within the boundaries of one price zone of the wholesale market from the date of end of the transitional period of restructuring the electric power industry.

For the purposes of ensuring implementation of the said requirements, it shall not be allowed to simultaneously own or otherwise possess on a ground provided for by federal laws the property directly used in conducting activities related to electric power transmission and operational dispatch control in the electric power industry and the property directly used in conducting activities related to generation and purchase and sale of electric power.

The requirements of this Article shall not apply to:

• business entities functioning in technologically isolated territorial electric power systems in the conditions of absence or restriction of competition;
• business entities conducting activities related to electric power transmission and operational dispatch control in the electric power industry solely for satisfaction of own production needs;
• territorial power grid organizations in the event that the status of a guaranteeing supplier of electric power is assigned to them in the procedure established by Article 38 of the Federal Law "On Electric Power Industry."

Business entities that failed to ensure the compliance with the requirements established by this Article within the said timeframes shall be subject to compulsory reorganization (in the form of separation or spin-off) in the procedure provided for by the legislation of the Russian Federation.

In the event of compulsory reorganization of joint-stock companies, distribution of shares of joint-stock companies to be established during such reorganization shall be envisaged among shareholders of the reorganized companies in proportion to their interest in the charter capitals of the reorganized companies.

Prices of products (works, services) of business entities which combine the said types of activities as of the date of entry into force of the Federal Law "On Electric Power Industry" shall be subject to state regulation in accordance with the legislation of the Russian Federation on state regulation of prices (tariffs).

The Government of the Russian Federation may, in accordance with federal laws, establish other specific features of activities of business entities which failed to ensure the compliance with the requirements established by this Article.

Article 7.From the date of end of the transitional period of restructuring the electric power industry, any organizations (except for guaranteeing suppliers of electric power and organizations in respect of which the Federal Law "On Electric Power Industry" provides for the prohibition to participate in relations connected with electric power trading) conducting activities as electric power supplying organizations shall sell electric power to consumers at free prices after obtaining a license for conduct of the said type of activities in the cases and in the procedure established by the legislation of the Russian Federation.

Previously formed indebtedness for consumed electric power shall be repaid upon agreement of the parties in the procedure established by the Government of the Russian Federation in accordance with the legislation of the Russian Federation.

Article 8.The organization managing the unified national (All-Russian) electric power grid and the system operator shall be open joint-stock subsidiary companies of the Unified Energy System of Russia, a Russian energy and electricity open joint-stock company, which companies shall be established taking into account the following conditions:

• property owned by the Unified Energy System of Russia, a Russian energy and electricity open joint-stock company, and pertaining to the unified national (All-Russian) electric power grid in accordance with Article 7 of the Federal Law "On Electric Power Industry" shall be contributed as a payment of the charter capital of the organization managing the unified national (All-Russian) electric power grid;
• property owned by the Central Dispatch Department of the Unified Energy System of Russia, an open joint-stock company, and a part of the property owned by the Unified Energy System of Russia, a Russian energy and electricity open joint-stock company, and used in the process of operational dispatch control in the electric power industry shall be contributed as a payment of the charter capital of the system operator.

The participation of the Russian Federation in the charter capital of the organization managing the unified national (All-Russian) electric power grid and in the charter capital of the system operator in the amount of no less than 52 per cent shall be ensured no later than on the date of end of the transitional period of restructuring the electric power industry.

Until the said amount of the participation interest of the Russian Federation is ensured in the charter capital of the organization managing the unified national (All-Russian) electric power grid and in the charter capital of the system operator, alienation of their shares and (or) property (except for monetary funds) contributed as a payment of their charter capital shall not be allowed.

During the subsequent period, the Russian Federation shall increase its participation interest in the charter capitals of the organization managing the unified national (All-Russian) electric power grid and in the charter capital of the system operator to a level of no less than 75 per cent plus one voting share using methods provided for by the legislation of the Russian Federation, including through reduction of the participation interest of the Russian Federation in generating companies taking into account the restrictions established by Article 9 of this Federal Law.

Article 9.Nuclear power plants may only be under the federal ownership in accordance with federal laws on use of nuclear power.

In the process of transforming the Unified Energy System of Russia, a Russian energy and electricity open joint-Stock company, it shall not be allowed to reduce the participation interest of the Russian Federation (if the said interest exceeds 50 per cent) in the charter capital of:

• joint-stock companies that own or otherwise possess on a ground provided for by federal laws hydroelectric power plants commissioned as of the date of entry of this Federal Law into force;
• organizations (or their legal successors) in respect of which the said joint-stock companies are subsidiaries.

When establishing generating companies on the basis of electric power plants commissioned before the day of entry into force of the Federal Law "On Electric Power Industry," it shall not be allowed to include generating equipment constituting in aggregate 35 or more per cent of the established generating capacity within the boundaries of the price zone of the wholesale market in the property of any of said companies.

Article 10.The wholesale market rules provided for by Article 21 of the Federal Law "On Electric Power Industry" shall enter into force no earlier than July 1, 2005.

The Government of the Russian Federation shall exercise control over the implementation progress of restructuring the electric power industry and reorganizing the Unified Energy System of Russia, a Russian energy and electricity open joint-stock company.

The Government of the Russian Federation shall, within the transitional period of restructuring the electric power industry, inform the State Duma of the Federal Assembly of the Russian Federation and the Council of Federation of the Russian Federation of the progress in restructuring the electric power industry every six months.

Article 11.For the purpose of ensuring the state control over activities of the wholesale market trading system administrator related to ensuring the functioning of the wholesale electric power (capacity) market, the federal body of executive power authorized by the Government of the Russian Federation shall:

• enjoy the right of veto in respect of decisions of managing bodies of the wholesale market trading system administrator;
• submit issues, mandatory for consideration, to managing bodies of the wholesale market trading system administrator which have to be included in the agenda of the next or extraordinary meeting (session) of the managing bodies of the wholesale market trading system administrator whose competence includes resolution of such issues;
• adopt a decision on issues submitted to the managing bodies of the wholesale market trading system administrator if the said bodies have not adopted a decision on them within 45 days.

From the day of entry into force of the Federal Law "On Electric Power Industry" and during the transitional period of restructuring the electric power industry, the participation of the following representatives shall be ensured in the supervisory board of the wholesale market trading system administrator:

• four representatives of the federal bodies of executive power authorized by the Government of the Russian Federation as well as two authorized representatives of the State Duma of the Federal Assembly of the Russian Federation and two representatives of the Council of Federation of the Federal Assembly of the Russian Federation;
• eight representatives of suppliers and buyers of electric power.

Article 12.A fee for services related to organization of functioning and development of the Unified Energy System of Russia shall be charged before the date of end of the transitional period of restructuring the electric power industry. The procedure for and conditions of charging the said fee shall be determined by the Government of the Russian Federation in accordance with federal laws.

From January 1, 2003, the investment component of the fee for services related to organization of functioning and development of the Unified Energy System of Russia shall be spent on development of electric power grid facilities and electric and thermal power generation facilities whose list shall be approved by the Government of the Russian Federation.

Article 13.Thermoelectric power plants which are the principal generators of thermal power in the service area and which generate electric power for which there is no demand in the electric power market may only be decommissioned within three years from the date of end of the transitional period of restructuring the electric power industry upon the decision of the respective body of executive power of the constituent entity of the Russian Federation upon agreement with the federal body of executive power authorized by the Government of the Russian Federation.

In the event of a refusal to decommission the said facilities, a decision on necessary measures related to converting the said electric power plants into boiler houses or constructing alternative thermal sources in the service area shall be adopted simultaneously. These measures may be financed at the expense of the funds of budgets of the constituent entities of the Russian Federation or local budgets or at the expense of a temporary individual price (tariff) for maximum available generating capacity specially imposed for the respective power plant.

Article 14.This Federal Law shall enter into force from the date of its official publication, except for Article 3.

Article 3 of this Federal Law shall enter into force from January 1, 2004.

President
of the Russian Federation
V. Putin