I. CURRENT RESULTS OF RUSSIAN FEDERATION ENERGY INDUSTRY REFORMING
- SEPARATION OF REGIONAL ENERGY COMPANIES INTO
ACTIVITY TYPES
By March 30, 2005 OAO RAO “UES of Russia” Board of directors has approved of 60 projects of reforming shareholding companies engaged in energy industry and electrification (further on – AO-energo), out of which 49 will be implemented in compliance with the basic principle – through reorganization with separation of companies by activity types (further on – basic principle) and 11 projects will be implemented in compliance with individual reform principles.
Each reform project was prior considered by Inter-departmental commission for energy industry reforming (earlier – Russian Federation Government Commission for energy industry reforming), and by Working group for consideration of projects aimed at reforming of shareholding companies engaged in energy and electrification of Inter-departmental commission (earlier – corresponding Working group of Russian Federation Government Commission).
Voting of the State representatives in OAO RAO “UES of Russia” Board of directors concerning AO-energo reforming issues was accomplished in accordance with regulations of RF Ministry of Economic Development and with consideration of resolutions of Inter-departmental commission for energy industry reforming (Russian Federation Government Commission for energy industry reforming).
Extraordinary general shareholders meetings at 41 AO-energo resolved to reorganize companies, and in 26 AO-energo the separation by activities types is completed. AO-energo reorganization will produce the following main companies (in case there are corresponding assets): RGC - regional generating companies, ITC – main network companies that according to separation balance will own objects of united national energy system (further on – UNES), ESC – energy supply companies. After reorganization most of AO-energo will be transformed into DC – distribution network companies, having assets of electricity network that do not belong to UNES on balance. Repair, motorcar and other non-core activities are usually separated by establishment of 100% associated dependent companies (further on – SDC), or in accordance with companies' minority shareholders wishes – by separation of corresponding companies during reorganization (in case AO-energo minority shareholders are interested in participating in non-core companies).
- NETWORK COMPLEX REFORMING
OAO “FGC UES” was established in accordance with Russian Federation Government Regulation N 526 of July 11, 2001 “On Russian Federation energy industry reforming” and with the purpose of consolidation of main network assets within an organization that manages united national (all-Russia) electrical network. OAO RAO “UES of Russia” is the sole founder of OAO “FGC UES”.
MAIN NETWORK COMPLEX (ESTABLISHMENT OF INTERREGIONAL MAIN NETWORK COMPANIES – ITC)
On December 23, 2003 the Russian Federation Government issued a Regulation N 1939-p on establishment of 7 ITC. In February 2004 in accordance with this Regulation, Russian Fund of Federal Property in cooperation with OAO “FGC UES” established 7 Interregional main network companies: OAO “Central ITC”, OAO “North-West ITC”, OAO “Volga ITC”, OAO “South ITC”, OAO “Ural ITC”, OAO “Siberia ITC”, and OAO “East ITC”. Russian Fund of Federal Property share amounts to 85%, OAO “FGC UES” share – 15%.
All 7 ITC were officially registered: OAO “Volga ITC” (February 11, 2004), OAO “North-West ITC” (February 10, 2004), OAO “Ural ITC” (February 5, 2004), OAO “Siberia ITC” (February 9, 2004), OAO “South ITC” (February 6, 2004), OAO “Central ITC” (February 9, 2004), OAO “East ITC” (February 10, 2004). On November 25, 2004 additional emission of OAO “Central ITC”, OAO “South ITC”, OAO “Volga ITC”, OAO “North-West ITC”, OAO “Siberia ITC”, and OAO “Ural ITC” shares was officially registered in order to be used as UNES objects’ authorized capital.
DISTIRBUTION NETWORK COMPLEX (ESTABLISHMENT OF INTERREGIONAL DISTRIBUTION NETWORK COMPANIES)
Principles of interregional integration were stipulated by major directions of the Russian Federation energy industry reforming and in coordination with the Russian Federation Government Regulation N 526 of July 11, 2001 “On the Russian Federation energy industry reforming”. Distribution network companies’ integration is aimed at establishment of more stable companies with high capitalization, attractive for strategic and portfolio investors. Expedience of integrating distribution network companies is determined by possibility of gaining additional benefit at the expense of economy. OAO RAO “UES of Russia” Board of directors Resolution (Minutes N 113 of April 3, 2002) approved of basic principle of distribution network complex reforming – interregional integration of network companies: establishment of inter-regional companies within united energy systems (UES) with account of regional specifications and economic expediency.
OAO RAO “UES of Russia” Board of directors Resolution (Minutes N 168 of April 23, 2004) approved of the following configuration of interregional distribution network companies (IDC):
· IDC - 1 within DC related to Central UES and North-Caucasus UES;
· IDC – 2 within DC related to North-West UES;
· IDC – 3 within DC related to Ural UES and Middle Volga UES;
· IDC – 4 within DC related to Siberia UES.
The issue on expediency of IDC establishment within East UES is to be considered together with resolving the issue of Far East energy systems reforming.
Initially all 4 interregional distribution network companies are founded via establishment of OAO RAO “UES of Russia” 100% associated companies.
OAO RAO “UES of Russia” Board of directors resolution of October 1, 2004 (Minutes N 178) approved of parameters (amount of authorized capital, shares nominal value and amount, form of authorized capital payment, etc.) of OAO RAO “UES of Russia” participation in 4 IDC.
Presently 3 IDC are officially registered: OAO “Central and North-Caucasus IDC” (December 17, 2004 in Tver), OAO “North-West IDC” (December 23, 2004 in St.-Petersburg), OAO “Ural and Volga IDC” (March 3, 2005 in Ekaterinburg).
- REFORMING OF THE CENTRAL DISPATCH ADMINISTRATION
OAO “SO-CDA UES” as OAO RAO “UES of Russia” 100% associated company was established in 2002 on the basis of Central operational management of Unified energy system in accordance with the Russian Federation Government Regulation N 526 of July 11, 2001 “On the Russian Federation energy industry reforming”.
Consolidation of the dispatch administration is implemented in two stages with the purpose of increasing stability of energy supplies to customers during energy industry reforming:
- the first stage was establishment of branches that obtained dispatch administration functions of RDA AO-energo and leased property of regional dispatch administration companies (further on – RDA) that belonged to AO-energo;
- at the second stage OAO “SO-CDA UES” acquires RDA assets at the expense of money paid for System operator services.
Presently OAO “SO-CDA UES” has 56 RDA-branches and the transfer of dispatch administration functions of shareholding energy and electrification companies is almost completed. RDA property that belongs to AO-energo (except independent and isolated AO-energo) is leased to OAO “SO-CDA UES”.
- ESTABLISHMENT AND FORMATION OF WHOLESALE GENERATING COMPANIES (FURTHER ON – WGC)
Order of formation and structure of WGC are defined by the Russian Federation Government Regulation N 1254-p of September 1, 2003 (edited RF Government Regulation N 1367-p of October 25, 2004) providing that their authorized capital consists of property of energy plants (stock of shareholding companies founded on their basis) that belong to OAO RAO “UES of Russia”, and the authorized capital of newly established generating companies' authorized capital consists of property of energy plants (stock of shareholding companies established on their basis), including incomplete construction, that belong to OAO RAO “UES of Russia” associated shareholding companies.
At present OAO RAO “UES of Russia” Board of directors has approved of participation in all WGC: OAO “WGC-1”, OAO “WGC-2”, OAO “WGC-3”, OAO “WGC-4”, OAO “WGC-5”, OAO “WGC-6”, OAO “Hydro-WGC” (OAO RAO “UES of Russia” Board of directors meetings minutes N 183 of December 24, 2004, N 183 of December 24, 2004, N 178 of October 1, 2004, N 181 of November 26, 2004, N 176 of September 3, 2004ital of newly established generative companies' authorized capital consists of property of energy plants (stock , N 181 of November 26, 2004, N 176 of September 3, 2004, N 183 of December 24, 2004, N 183 of December 24, 2004 correspondingly).
All 7 WGC were officially registered: OAO “WGC-5” (October 27, 2004 in Ekaterinburg), OAO “WGC-3” (November 23, 2004 in Ulan-Ude), OAO “Hydro-WGC” (December 26, 2004 in Krasnoyarsk), OAO “WGC-4” (March 3, 2005 in Surgut), OAO “WGC-2” (March 9, 2005 in Izobilny, Stavropol region), OAO “WGC-6” (March 17, 2005 in Rostov-on-Don), OAO “WGC-1” (March 23, 2005 in Tyumen).
WGC formation is implemented in two stages in accordance with OAO RAO “UES of Russia” Strategy concept for 2003-2008 and OAO RAO "UES of Russia" Board of directors resolution (Minutes N 150 of September 26, 2003):
- the first stage includes WGC establishment as OAO RAO “UES of Russia”
100% associated companies with authorized capital that consists of property of energy plants and shares of AO-plants that belong to OAO RAO “UES of Russia”;
- the second stage includes payment for WGC additional shares by stocks of AO-plants separated from AO-energo that belong to OAO RAO “UES of Russia”.
- ESTABLISHMENT OF TERRITORIAL GENERATING COMPANIES (FURTHER ON – TGC)
Regional generating companies’ integration principles were determined by major directions of the Russian Federation energy industry reforming in accordance with the Russian Federation Government Regulation N 526 of July 11, 2001 “On Russian Federation energy industry reforming”.
Establishment of 14 TGC was considered and approved of by the Russian Federation Government Commission for energy industry reforming.
OAO RAO “UES of Russia” Board of directors resolution (Minutes of OAO RAO “UES of Russia” Board of directors meeting N 168 of April 23, 2004) approved of TGC configuration on the basis of AO-energo generating assets (excluding plants that went into WGC and isolated AO-energo).
The following mechanisms are used while establishing TGC:
• Establishment as OAO RAO “UES of Russia” 100% associated companies;
• Co-establishment by several AO-energo;
• Use of intermediate mechanism of leasing generating capacities of corresponding RGC (AO-energo);
• Combination of abovementioned options.
Most of approved TGC establishment methods provide TGC establishment via OAO RAO “UES of Russia” associated company establishment with possible participation of corresponding AO-energo minority shareholders or TGC co-establishment by several AO-energo. Further on this TGC leases generating property of AO-energo (regional generating company).
At the second stage of TGC establishment corresponding regional generating companies join TGC.
Presently OAO RAO “UES of Russia” Board of directors approved of the projects of the following TGC establishment: OAO “TGC-1”, OAO “TGC-2”, OAO “TGC-4”, OAO “TGC-5”, OAO “TGC-6”, OAO “TGC-8”, OAO “TGC-9”, OAO “TGC-10”, OAO “TGC-13”, OAO “TGC-14” (OAO RAO “UES of Russia” Board of directors resolutions N 181 of November 26, 2004, N 188 of February 25, 2005, N 183 of December 24, 2004, N 188 of February 25, 2005, N 180 of October 29, 2004, N 176 of September 3, 2004, N 180 of October29, 2004, N 181 of November 26, 2004, N 176 of September 3, 2004 correspondingly). Project of TGC-7 establishment is approved of within the frames of reform project of energy systems managed by OAO “SMUEC”; TGC-3 establishment is part of OAO “Mosenergo” reform project.
The government position regarding TGC configuration as a whole and for each separate case was expressed by voting of its representatives at OAO RAO "UES of Russia" Board of directors meetings.
The following TGC were officially registered: OAO “TGC-1” (March 30, 2005 in St.-Petersburg), OAO “TGC-5” (March 22, 2005 in Cheboksary), OAO “TGC-8” (March 22, 2005 in Astrakhan), OAO “TGC-9” (December 9, 2004 in Perm”, OAO “TGC-10” (March 30, 2005 in Chelyabinsk), OAO “TGC-14” (December 7, 2004 in Chita).
- ISOLATED ENERGY SYSTEMS AND
FAR EAST ENERGY SYSTEMS REFORMING
The Russian Federation Government Regulation N 854 of December 27, 2004 approved of operational management rules for energy industry and the list of isolated energy systems (energy systems of Kamchatka region, Magadan region, Sakhalin region, Chukotka autonomous region, Taimyr (Dolgano-Nenetsk) autonomous region, the Republic of Yakutia (except Southern energy-region).
In accordance with item 3 articles 27 of the Federal Act N 35-Ô3 of March 26, 2003 “On energy industry” all energy industry activities can be performed by one legal entity in technologically isolated energy systems where competition is impossible due to technological reasons. State regulation should be applied to this energy industry sector.
II. BASIC PROVISION OF THE COMPLEX PLAN FOR RUSSIAN FEDERATION ENERGY INDUSTRY REFORMING
- AO-ENERGO SEPARATION BY ACTIVITIES TYPES
In accordance with the Federal Act N 35-Ô3 of March 26, 2003 “On energy industry” it is required that competitive and natural-monopoly activity types should be separated, thus during the period of 2005 – first half of 2006 a process of separating AO-energo by their activity types will be continued. All other reform projects, including OAO "Kuzbassenergo" reform project, are to be considered by October 2005 by Inter-departmental commission for energy industry reforming of the Russian Federation Government and approved of by OAO RAO “UES of Russia” Board of directors. All other projects of isolated energy systems and the Far East energy systems should also be considered individually taking into account reforming projects of AO-energo in isolated systems and energy systems with limited competition.
In accordance with the Federal Act N 35-Ô3 of March 26, 2003 “On energy industry” reorganization of energy industry enterprises should be finished by April 1, 2006. Enterprises that did not follow these requirements in due time are subject to mandatory reorganization. Being authorized by Inter-departmental Commission for energy industry reforming, RF Federal Antimonopoly Service, RF Ministry of Regional Development, OAO RAO “UES of Russia” and administrations of corresponding RF subjects implement activities aimed at organizational provision of energy industry companies' reorganization.
During 2005 management companies established during AO-energo reorganization will be terminated.
Besides energy systems of OAO RAO "UES of Russia", OAO "Irkutskenergo", OAO "Bashkirenergo", OAO "Tatenergo" and OAO "Novosibirskenergo", as well as other companies with different ownership form, combining competitive and natural-monopoly activity types (including municipal unitary enterprises) will also be separated in 2005-2006 according to their activities types.
- MANAGEMENT OF ASSETS (STOCKS) OF SUPPLY COMPANIES ESTABLISHED DURING ENERGY INDUSTRY REFORMING
Energy supply companies are established during the process of AO-energo reforming. In accordance with Ministry of industry and power energy of the RF project rules for energy retail market during the transition period, energy supply companies will presumably get the status of guaranteeing supplier (1st half of 2005).
Major issues of supply companies’ assets management include expediency of state participation and form of inter-regional and vertical integration of these companies.
In accordance with logics of Russian energy industry reform and since electrical energy sales is a competitive activity RF Ministry of Economic Development considers it expedient to reduce state participation in joint-stock capital of energy supply companies (up to termination of participation). At the same time system of state regulation of energy supply companies activities should be improved via the system of licensing sales of energy to customers and regulation of energy supply companies – guaranteeing suppliers operating at retail electrical energy market.
OAO RAO “UES of Russia” Strategic concept for 2003-2008 provided for establishment of single holding owning shares of energy supply companies separated from AO-energo as a result of OAO RAO “UES of Russia” reorganization. Further on the Working group for energy industry of RF Government council on competition and entrepreneurship declared the establishment of unified holding of supply companies inexpedient.
RF Ministry of Economic Development considers that establishment of this holding in the process of OAO RAO “UES of Russia” reorganization does not meet key goals of the state terminating its participation in supply companies' joint-stock capital (despite the status of guaranteeing supplier). Besides this holding might have additional management problems because of the large number of managed objects.
Considering the abovementioned and with the purpose of increasing financial stability of guaranteeing suppliers after their establishment in the course of AO-energo reorganization it is expedient to consider the principle of vertical integration of these energy supply companies and TGC operating at retail energy sales market.
During 2005-2006 after AO-energo reorganization is completed and TGC are established, energy supply companies will be integrated with TGC by transfer of stock of energy supply companies that belong to OAO RAO “UES of Russia” to corresponding TGC. Within the frames of this integration minority shareholders of energy supply companies should have a possibility to transfer to single share with corresponding TGC.
At this, Ministry of industry and power energy of the RF, RF FAS and RF FST consider it expedient to unite energy supply companies separated from AO-energo with TGC via establishment of TGC corresponding associated companies or transfer of shares of stated energy supply companies for TGC operation. Besides Ministry of industry and power energy of the RF and RF FAS think it is expedient to consider the possibility of selling several energy supply companies to investors via putting them up to auction after these companies are separated out of corresponding AO-energo (Ministry of industry and power energy of the RF, RF FAS) or after their interregional integration (RF FAS). Russian Ministry of Economic Development and RF FAS states that auctions on selling energy supply companies are expedient only after legalizing of cross-subsidy and defining the rules of retail energy sales markets. This will allow setting reasonable cost of energy supply companies and providing for transparency of energy supply business for potential investors. RF Ministry of Finance suggests that for the purpose of setting reasonable cost of the assets, the auctions should be organized after energy supply companies operate for some period of time.
Energy supply companies stock should correspond to license requirements, which may result in additional emission of energy supply companies’ shares that will attract capital of side investors (with further reduction of TGC participation in stock of such companies), which may result in additional financial resources attraction.
- FORMATION AND ISOLATION OF GENERATING COMPANIES. TERMS AND MECHANISMS
3.1. WGC
The second stage of WGC formation is implemented after WGC are established and AO-plants separated as the result of AO-energo reorganization to be included into WGC according to RF Government Regulation N 1254-p of September 1, 2003 (edited RF Government Regulation N 1367-p of October 25, 2004) are officially registered. Together with implementation of the second stage the abovementioned companies will switch to single share via exchange of WGC shares into shares of WGC associated AO-plants that belong to minority shareholders of these AO-plants.
The basic process of formation (including transition to single share) is to be completed during the following period:
- WGC-3, WGC-5 – 3 quarter of 2005;
- WGC-1, WGC-2, WGC-4, WGC-6 – 3 quarter of 2006.
During the 2nd half of 2005 – 2006 OAO “Hydro-WGC” companies (or SDC OAO "Hygro-WGC") will switch to single share preserving state control over hydro-generating assets.
3.2. TGC
The process of establishment of TGC as OAO RAO “UES of Russia” associated companies or via co-establishment by several AO-energos with transfer of generating assets of corresponding regional generating companies (or AO-energo) is to be completed during 2005 or by the end of the 1st half of 2006.
Starting from the 2nd half of 2005 the second stage of TGC formation is to be implemented. It involves joining of regional generating companies that are part of TGC. This process should be completed during the following period: TGC-6, TGC-5, TGC-8, TGC-9, TGC-4 - 3 quarter of 2006; TGC-10 - 4 quarter of 2006; TGC-13, TGC-2 – 1 quarter of 2007; TGC-14 – 3 quarter of 2007.
TGC-1 and TGC-7 are formed via co-establishment by corresponding AO-energos. Establishment of operational companies is to be completed not later than by 2006, all activities concerning TGC-1 - at the beginning of 2007, and TGC-7 – in the middle of 2007.
TGC-3 is established as the results of OAO “Mosenergo” reorganization on the basis of corresponding generating assets of OAO “Mosenergo”. Company formation is to be completed in the 1st half of 2005.
TGC-11 and TGC-12 are to be formed on the basis of OAO “Kuzbassenergo” generating capacities after OAO “Kuzbassenergo” reorganization, which should join the abovementioned TGC. The process is presently suspended as there is no coordinated position of Russian Federation executive bodies, Kemerovo region Governor A.G.Tuleev, OAO RAO “UES of Russia” and OAO “SUEC” (OAO “Kuzbassenergo” minority shareholder). RF Ministry of Economic Development together with interested ministries, Federal bodies and companies coordinate positions of OAO RAO "UES of Russia", executive bodies of the Russian Federation and Kemerovo region administration regarding OAO "Kuzbassenergo" reforming.
In case there is a coordinated resolution regarding this issue the next meeting of OAO RAO “UES of Russia” Board of directors on April 26, 2005 will resolve the issue of TGC-11 and TGC-12 configuration (expected in the 2nd quarter of 2005).
3.3. SEPARATION OF GENERATING COMPANIES
RF Ministry of Economic Development, Ministry of industry and power energy of the RF, Russian Ministry of Finance, RF FAS, and RF FST think that in order to attract investments into energy industry Russian Federation has to reduce its participation share in generating companies capital up to total termination of the state participation in these companies (except OAO “Hydro-WGC” and “Rosenergoatom” concern).
Generating companies should be given to private owners before OAO RAO "UES of Russia" starts its reorganization, as soon as the companies are ready to start the process.
Separation of generating companies from OAO RAO “UES of Russia” is possible upon completion of corporate procedures involving acquisition of all generating assets and termination of the proposal made to minority shareholders of corresponding companies on transition to single share according to resolutions of RF Government and OAO RAO “UES of Russia” management. Thus generating companies’ separation might be started at the end of 2005.
Methods of generating assets separation should provide equal rights to all shareholders. Generating companies’ separation will be made in the form of auction selling of the whole stock of these companies that belong to OAO RAO “UES of Russia”. Payment form – money and OAO RAO “UES of Russia” shares.
Money obtained from the auction can be used for buyout of OAO RAO “UES of Russia” shares and their consequent redemption.
Auction mechanism means:
• putting up of all generating companies shares that belong to OAO RAO “UES of Russia”;
• lots are the shares of generating companies, not the stock;
• all interested investors may take part in auctions;
• money and OAO RAO “UES of Russia” may be used as payment for generating companies shares;
• redemption of all shares acquired by OAO RAO “UES of Russia” and reduction of OAO RAO “UES of Russia” authorized capital (which will lead to increase of the Russian Federation share in OAO RAO “UES of Russia” and consequently to increase of its indirect share in OAO “FGC UES” and OAO “SO-CDA UES”).
RF Ministry of Economic Development, Ministry of industry and power energy of the RF, RF Ministry of Finance, RF FAS, and RF FST consider it expedient to use auction profit for buyout of OAO RAO “UES of Russia” shares. Money can also be used for increase of the Russian Federation share and in shareholders' favor.
Exact number of companies that can be separated via auction mechanisms before and after OAO RAO “UES of Russia” reorganization will be determined in accordance with market competition and the process of complete formation of generating companies. After OAO RAO "UES of Russia" reorganization the Russian Federation will be able to put up to auction its share in corresponding generating companies (federal property) acquired as the result of proportional division (with introduction of corresponding amendments into the Plan of state property assets’ privatization).
Generating companies can be ready for separation during the following period:
2005: WGC-5 – 3-4 quarter of 2005; WGC-3 – 4 quarter of 2005; OAO “Moscow generating company” (TGC-3 – on the basis of OAO “Mosenergo” generating assets) – 2-3 quarter of 2005;
2006: WGC-1, WGC-2, WGC-4, WGC-6, TGC-5, TGC-6, TGC-8, TGC-9 – second half of 2006.
Considering the fact that the analysis of economic activities of newly established companies will take at least a year and a half (a year of operational activity, a quarter for reporting, a quarter for analysis of the results), RF Ministry of Economic Development, Ministry of industry and power energy of the RF, RF Ministry of Finance, RF FAS, and RF FST considers it expedient to put up WGC-5 to the auction after corporate procedures are completed in the 4th quarter of 2005. After the auction and analysis of its results will be made a resolution regarding time and form of other generating companies separation. Before OAO RAO “UES of Russia” is reorganized, WGC-3, TGC-3 and some other companies might also be separated after corporative procedures are finished. The RF Ministry of Finance suggests that auctions should be organized in some after abovementioned companies start operating in order to set reasonable cost of generating companies.
- CONSOLIDATION OF UNIFIED NATIONAL ENERGY SYSTEM
OBJECTS INTO OAO “FGC UES”
OAO RAO "UES of Russia" Board of directors (OAO RAO "UES of Russia" Board of directors meeting, Minutes N 188 of February 25, 2005) approved of changing the consolidation scheme for main network companies that provides for the following stages:
• Separation of ITC in the course of AO-energo reorganization and transfer of UNES objects that belong to this AO-energo according to separation balance.
• Transfer of ITC shares acquired by OAO RAO “UES of Russia” according to separation balance in the course of AO-energo reorganization to OAO "FGC UES" authorized capital.
• Consolidation of ITC with one of TC (with simultaneous consolidation with other TC), if ITC shareholders resolve it by majority (three fourths of votes) at general shareholders meeting.
Before TC is separated out of AO-energo in 2005, an agreement on use of UNES objects that belong to AO-energo can be concluded with one of ITC, and starting from 2006 all UNES objects that belong to ITC are to be transferred to OAO “FGC UES” with setting up OAO “FGC UES” transfer tariff.
Approximate time of payment for OAO “FGC UES" additional shares with ITC shares – 3rd quarter of 2005.
Approximate time of completed consolidation of ITC and ITC – end of 2006.
- CONSOLIDATION OF DISPATCH ADMINISTRATION PROPERTY
IN OAO “SO-CDA UES”
During 2005-2006 the second stage of OAO "SO-CDA UES" is to be continued, namely OAO “SO-CDA UES” will buy out RDA property leased from energy companies at the expense of payment for System operator services. In technologically isolated territorial energy systems (the list is approved by RF Government Regulation of N 854 of December 2004 “On approval of the rules of energy industry operational management”) dispatch administration will be implemented by independent organizations (established on the basis of RDA of corresponding AO-energo). We should note a problem of functioning of dispatch administration subjects (further on – DA subjects), implementing dispatch administration on the territories of technologically non-isolated energy systems – OAO “Baskhirenergo”, OAO “Irkutskenergo”, OAO “Novosibirskenergo”, and OAO “Tatenergo”. Considering the fact that these organizations can manipulate operational schedule of loading capacities, RF FAS thinks it is expedient in favor of generating companies affiliated with mentioned DA subjects to form a unified structure of UNES dispatch administration (excluding technologically isolated territorial energy systems).
- INCREASE OF STATE PARTICIPATION IN
OAO “SO-CDA UES” AND OAO “FGC UES”
In accordance with item 2 article 8 and item 3 article 12 of Federal Act N 35-Ô3 of March 26, 2003 "On energy industry" target share in OAO “FGC UES” and OAO “SO-CDA UES” capital structure amounts to 75% plus one share, and during OAO RAO “UES of Russia” reorganization period it can not be less than 52%. RF Ministry of Economic Development, Ministry of industry and power energy of the RF, RF Ministry of Finance, RF FAS, and RF FST believe that the state participation in abovementioned companies should be at minimum considering the fact that minority shareholders participation in energy companies’ management allows improvement of corporate control and creates additional reasons for increased efficiency of operational activities not mentioning the budget savings on repayment of shares. The only additional right for the owner of 75% plus 1 share comparing to 52% of shares is the possibility of making independent decisions regarding company reorganization issues. Considering high capitalization of OAO “FGC UES” and in case there is a necessity to introduce amendments into Federal Act N 35-Ô3 of March 26, 2003 “On energy industry” in the course of further industry reforming, RF Ministry of Economic Development, Ministry of industry and power energy of the RF, RF FAS, and RF FST should consider the issue of decreasing Russian Federation target share in OAO “FGC UES” up to 52%.
In order to follow the requirements of Russian Federation legislation regarding participation in OAO “SO-CDA UES” and OAO “FGC UES” capital the state should take a number of consecutive measures to reach the target share of participation in abovementioned companies. If the first measure does not result in achievement of necessary target share, the state proceeds to the second measure, etc.
- the state uses its assets as payment for additional OAO “FGC UES” and OAO “SO-CDA UES” shares (before and after OAO RAO “UES of Russia” reorganization);
- when generating companies are separated from OAO RAO “UES of Russia”, the money should be used for buyout and redemption of OAO RAO “UES of Russia”, which will lead to increase of the state participation in OAO RAO “UES of Russia” and consequently in OAO “FGC UES" and OAO “SO-CDA UES”;
- acquisition (buyout) of OAO "SO-CDA UES" and OAO "FGC UES” shares from shareholders after OAO RAO “UES of Russia” reorganization (the state may buy shares out directly or via indicated companies).
- MANAGEMENT OF INTERREGIONAL DISTRIBUTION NETWORK COMPANIES ASSETS (STOCKS)
Starting from the 4th quarter of 2005 four IDCs will be formed via payment for additional IDC shares with shares of DC separated during the process of AO-energo reorganization. Additional emission of IDC shares will be offered for sale (exchange) to DC minority shareholders with the purpose of IDC companies’ transition to single share.
Registration of additional emission of IDC shares, except OAO "Siberia IDC" is planned for the 4th quarter of 2005, and OAO "Siberia IDNS" - for the 1st quarter of 2006. Placement is to be carried out in a year time.
Considering the scales of new companies and their monopolistic character, RF Ministry of Economic Development thinks that during the transition period the state should preserve (after OAO RAO “UES of Russia” reorganization) shares of company separated from OAO RAO “UES of Russia” that owns shares of corresponding IDC. This principle of distribution network assets consolidation will provide for continuity of distribution network complex management and state control over regional energy supplies.
Consolidation of distribution network companies established after AO-energo reorganization is expedient to be carried out in accordance with resolutions regarding 4 IDC, since several IDC will allow comparing the efficiency of these companies and increasing their management transparency. In the process of interregional integration of distribution network assets IDC will carry out transition to single share via exchange of shares that belong to DC minority shareholders for additional shares of corresponding IDC. At this RF Ministry of Economic Development, Ministry of industry and power energy of the RF, RF Ministry of Finance, RF FAS, and RF FST consider inexpedient consolidation of IDC and OAO "FGC UES" or giving OAO "FGC UES" management functions.
With the purpose of IDC management system optimization and considering corporative and/or economic expedience separate DC integrated in one IDC might be enlarged via joining each other.
- TIME AND METHODS OF ISOLATED ENERGY SYSTEMS REFORMING (ENERGY SYSTEMS OF KAMCHATKA REGION, MAGADAN REGION, SAKHALIN REGION, CHUKOTKA AUTONOMOUS REGION, TAIMYR (DOLGANO-NENETSK) AUTONOMOUS REGION, THE REPUBLIC OF YAKUTIA (EXCEPT SOUTHERN ENERGY REGION)
Principles of isolated energy systems reforming depend on general and specific purposes the state has regarding corresponding regions (companies).
Reorganization of isolated energy systems has the following priority goals:
1. Provision for safe energy supply;
2. Prevention of inconsistent growth of tariffs for all categories of consumers;
3. Creation of conditions that attract investments.
There is no universal solution for isolated energy systems reforming – each isolated energy system requires individual approach considering its technological features (during 2005).
- TIME AND METHODS OF FAR EAST ENERGY SYSTEM REFORMING (KHANAROVSKENERGO, DALENERGO, AMURENERGO, SOUTHERN YAKUTIA)
Principles of the Far East energy systems reforming depend on general and specific purposes the state has regarding the Far East regional economy.
During 2005-2006 it is considered expedient to establish unified Far East Energy Company with associated companies separated by activity types with transfer of main network assets related to UNES to OAO “FGC UES” and transfer of RDA assets to OAO “SO-CDA UES”. This company will be established on the basis of OAO “Amurenergo”, OAO “Khabarovskenergo”, OAO “Dalenergo”, OAO “LuTEC” and southern power system of OAO “Yakutskenergo”. On the one hand this configuration will maximize company capitalization and centralize management function and financial resources, and on the other hand it will separate activity types in newly established company with the purpose of increasing its transparency, securing energy supplies, and improving economic and technological efficiency.
- REPAIR AND SERVICE COMPANIES
During 2005-2006 OAO RAO "UES of Russia" and its associated companies will reduce their affiliation with repair and service companies.
- SCIENTIFIC-DESIGN AND ENGINEERING COMPLEX REFORMING
During 2005-2006 the reforming process of scientific-design and engineering organizations that belong to OAO RAO “UES of Russia” will be continued. At this stage companies will be separated from OAO RAO “UES of Russia” via open competitive sales including sales of shares to management.
- OAO RAO “UES OF RUSSIA” REFORMING
OAO RAO “UES of Russia” reforming is to be started after the completion of major reorganizations - approximately in the middle of 2006.
OAO RAO “UES of Russia” reforming schedule provides for separation of the following companies:
· OAO “FGC UES”;
· OAO “SO-CDA UES”;
· OAO “Hydro-WGC”;
· Companies that own WGC and TGC shares belonging to OAO RAO “UES of Russia” by reorganization moment (each company is separated individually);
· Companies that own IDC shares;
· Companies that own isolated energy systems shares;
· Companies that own the Far East holding company shares.
In accordance with the Russian Federation current legislation on joint-stock companies OAO RAO “UES of Russia” reorganization will result in separation of intermediate companies that own shares of industry target structure companies. Further on (approximately not earlier than by 2008) companies separated from OAO RAO “UES of Russia” will join industry target structure companies.
This mechanism is not the optimal one since its implementation and achievement of target conditions requires a relatively long period of time, while the mechanism itself is rather complicated. Besides it will require implementation of such processes in all other companies with participation of a large number of minority shareholders with different financial interests.
Considering the abovementioned RF Ministry of Economic Development, Ministry of industry and power energy of the RF, RF Ministry of Finance, RF FAS, and RF FST think it is expedient to preserve the concept of proportional distribution of newly established companies’ shares among OAO RAO “UES of Russia” shareholders (including the state) and discuss the possibility of joint-stock companies' reorganization scheme that will allow avoiding establishment of intermediate companies - owners of target companies shares (with introduction of corresponding amendments into Russian Federation legislation).
While preparing to OAO RAO “UES of Russia” reforming approximately by the end of 2005 it is necessary to develop and submit the strategy of managing several assets that belong to OAO RAO “UES of Russia” (including shares of ZAO “InterRAO UES”, OAO “AK “Aviaenergo” and other non-core assets).
Besides it is necessary to consider the issue on transfer of general system function presently performed by OAO RAO “UES of Russia” (in accordance with the Russian Federation Government Regulation N 792 of December 30, 2003) to state bodies of the Russian Federation and newly established companies of industry target structure. | 
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