Power Engineering - RAO UES ends moratorium on assets sales

10 November 2005 - The board of directors of Russian power monopoly RAO UES of Russia has passed a procedure for distributing funds from the sale of the company's core assets, reports daily newspaper Kommersant. Assets are being sold as part of a wide-ranging reform programme that will see the break-up of the monopoly and a separation of generating and network assets.

All proceeds from those sales, minus fees, will be invested in the holding. RAO head Anatoly Chubais explained after the meeting that the state has thus gone against the wishes of the electricity monopoly's minority shareholders, who voted two weeks ago for the opposite procedure. The state's position is that proceeds from asset sales should go first to the payment of taxes and other fees and expenses (the costs of estimates, auctions, etc.) related to their sale. The remaining funds will be "invested in the authorized capital of legal entities, reconstruction, modernization, refitting of the core assets of RAO UES and its subsidiaries and dependent societies, research, design and exploration and the attraction of loans and credits for these purposes," the RAO press service stated.

Tamiyrenergo and the Western Siberian and Southern Kuzbass electric plants are to be the first assets sold. The electric plants are part of Kuzbassenergo, but must be sold separately to avoid monopolization of the region's energy market after the reforms are completed.

Minority stockholders and the holding's committee on strategy and reform were in favour of using all the funds from the sales of core assets to buy up the holding's stock on the open market. The minority stockholders placed a moratorium on asset sales in the fall of 2002 and were willing to remove the moratorium only under those conditions.

"Key in our decision was that the money should be spent only for the buy up of stock since, in my personal opinion, the investment projects that RAO is now implementing are, as a rule, unprofitable and, consequently, lead to the loss of value of the company for its stockholders," said David Hern, head of the committee told Kommersant. RAO board member and head of the Finn investment bank Seppo Remes also expressed his opposition to the decision.

Chubais characterized the disagreement not as between the majority and minority stockholders, but as between long-term and short-term interests. He said that dependability had to be kept in mind along with the guiding principle of increasing capitalization.

Separately, RAO UES has announced that an article published in one of Moscow's newspapers in which the CEO of RAO "UES of Russia" is alleged to say that "liquidation of RAO UES as a result of the reform is a mistake, and it will not take place" is deliberate misinformation.

The Company officially announces that no such statements were made -or could have been made -by its managers, or by the shareholders, including the Company's major shareholder, the State.

The reform of RAO "UES of Russia" will be brought to completion in accordance with the Government Programme and laws passed by the Federal Assembly and signed by the President of the Russian Federation. The task set before RAO UES managers is to transfer their functions, when market participants and electricity markets are created, to the ministries and agencies concerned, and to the infrastructure organizations-Federal Grid Company, System Operator, thus ensuring reliable operation of the Unified Energy System as a result of the sector reform.

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