In accordance with article 5 of the Federal act “On specifics of energy industry functioning in the transition period and on introduction of alterations into several legislative acts of the Russian Federation and declaration of several legislative acts of the Russian Federation invalid in connection with adoption of the Federal act “On energy industry”:

1. Approve of the accompanying program of altering state regulated prices (tariffs) in energy industry (further on – the program).

2. Till April 1, 2004 and in coordination with the program FEC of Russia should fix limit (minimal and maximal) tariffs for energy and heat supplied to users by energy supply companies including tariffs limits for population among the Russian Federation regions for 2005-2006, considering their scheduling if necessary and division by users categories regarding their regional and other specific matters.

3. Executive administration of the Russian Federation regions are recommended to use the program regulations while fixing tariffs for energy and heat supplied to users by energy supply companies, including tariffs for population for 2005-2006 within the frameworks of limits (minimal and maximal), set by FEC of Russia.

Head of the Russian Federation Government

M.KASYANOV

Approved

by the Russian Federation

Government Decree

of December 1, 2003 N 1754-đ

THE PROGRAM

OF ALTERING OF STATE REGULATED PRICES (TARIFFS)

IN ENERGY INDUSTRY

1. The purpose of the program of altering state regulated prices (tariffs) in energy industry (further on - the program) is to bring the level of state regulated prices (tariffs) in conformity with the level providing economically reasoned return on investment capital, invested in activity of energy industry subjects where state regulation of prices (tariffs) is applied.

2. Term of the program implementation is determined by transitional duration according to the Federal acts "On energy industry" and "On specifics of energy industry functioning in the transition period and on introduction of alterations into several legislative acts of the Russian Federation and declaration of several legislative acts of the Russian Federation invalid in connection with adoption of the Federal act “On energy industry”.

3. During the program implementation tariffs for energy will be fixed for a longer period than it is done at present, which will allow to increase the interest of energy suppliers in optimization of prospect expenses, to reduce price risks for energy subjects and create conditions for investment capital formation.

4. Transition to regulation of tariffs on the basis of economically reasoned return on investment capital should be implemented in stages during 2004-2006 in accordance with criteria and methods of calculating state regulated prices (tariffs) in energy industry developed by FEC of Russia.

5. While calculating limit (minimal and maximal) tariffs and fixing tariffs within these limits the following should be taken into account:

à) Macroeconomic parameters of the Russian Federation social-economic development forecast;

b) forecast of changes in structure, volumes and prices for fuel (with transportation), used for energy and heat production;

c) forecast of changes in structure and volumes of energy and heat bought by energy supply companies and supplied to users, in connection with bringing energy users to wholesale energy market and transition of heat users to their own heat supply sources;

d) forecastparameters of energy produced at hydroelectric power plants;

e) previous regulation of prices (tariffs) in energy industry and economically inaccurate moderation of energy and heat tariffs by several regional energy commissions in some Russian Federation regions;

f) Investment programs of energy subjects where state regulation of prices (tariffs) is applied;

g) Stage-by-stage introduction of free energy pricing at wholesale energy market;

h) Planned measures on optimization of joint-stock energy and electrification companies and other regulated organizations expenses;

j) Planned reforming of joint-stock energy and electrification companies, approved of in accordance with the established procedure.

6. Limit prices (tariffs) in energy industry, fixed in coordination with the program regulations, can be reconsidered in the following case:

a) Changes in structure and (or) volumes of financing of natural energy monopolies investment programs coordinated in accordance with the established procedure;

b) bringing of new energy supply organizations and (or) energy users to wholesale energy market, approved of in accordance with the established procedure;

c) address of executive administration of the Russian Federation region regarding state regulated tariffs and revision of tariffs limits;

d) implementation of energy and electrification joint-stock companies reforms projects.