One of the nation's largest natural monopolies, RAO UES of Russia, will cease to exist on 1 July, 2008. This matter can be considered practically decided. The government which is RAO UES's majority shareholder with 52% of shares in the holding company has voted in favour of calling an extraordinary meeting of shareholders on 26 October with the key item on the agenda being the reorganisation of the company. Apparently, the votes belonging to the government and other major shareholders who have supported the reform of the power industry (including Gazprom, Norilsk Nickel, and SUEK) will suffice to pass the crucial decision. At the same time, it is not to be forgotten that several hundred thousand ordinary Russians own RAO UES of Russia shares and each of us is an electricity consumer. In what way will minority shareholders and consumers benefit from RAO UES of Russia's reorganisation? Question: Mr Akhanov, is it really necessary that RAO UES of Russia should cease to exist? Answer: It is worthwhile reminding that RAO UES of Russia has in fact always been just a management company which has controlled the operations of grid, generating, and power-selling enterprises. Now that the governmental power industry reform programme is drawing to a close, these assets need increasingly less control from a single centre. The division of the monopolistic and the competitive sectors in the power industry is practically finished. It is clear that competition between backbone power grids is out of the question. Therefore, they will remain controlled by government-owned Federal Grid Company. Just like supervisory control over the Unified Energy System will continue to be exercised by the government. Power plants have already been grouped in separate companies: seven wholesale generating companies (WGCs) and 14 territorial generating companies (TGCs). The entire infrastructure for competitive trade in electric power has been established, including the exchange: the non-profit-making partnership Trading System Administrator (TSA). All necessary laws and regulations aiming to liberalise the power market have been passed. However, can WGCs and TGCs really compete with each other when they have one common "parent," RAO UES of Russia? Can RAO UES of Russia-owned sales companies compete with each other? Of course not, competition is only possible when there are different owners. Therefore, the government welcomes the involvement of private investors in generation and sales. Entire thermoelectric power generation is to be private by July 2008. Six generating and eight sales companies are already beyond RAO UES control. The reorganisation is to fully complete the process of transferring the competitive sectors of the power industry to private owners. Q.: Yet everyone has got used to RAO UES of Russia being responsible for everything that happens in the power industry. Who will bear the responsibility for power supply when RAO UES no longer exists? A.: Power supply will certainly remain in place. I should say once again that it is not RAO UES of Russia that generates electric power and transmits it to consumers, but operating companies: generating and grid ones. Meanwhile, they will not disappear. As for control of the industry, it is indeed a serious matter. In the future structure of the industry, control thereof will rest on two basic supports: improvement of the quality of the management of government structures and self-regulation of industry participants. As far as government control is concerned, the relevant ministry, the Industry and Energy Ministry, is to step up its influence on the sector. It is this ministry that must determine the strategy and the rules of conduct in the power industry with the support of the Federal Antimonopoly Service, the Federal Tariff Service, and the Economic Development and Trade Ministry. One of its main tasks for the near future in this sector is to step up antimonopoly control in the power industry. At the same time, it seems correct to us to also develop self-regulation: establish on the basis of the TSA a so-called "Market Council," a non-profit making organisation representing the interests of all wholesale power market participants which will provide a floor for interaction between companies. Almost all industries in the country are controlled on the basis of such principles. There is no RAO above them, but competing enterprises successfully manufacture sausages, milk, and bread. Q.: However, power is a special industry, one could say a strategic one. How safe it is to transfer it to private owners? A.: The state strategy in this area was defined quite a long time ago: laws on the power industry passed in 2003 clearly determine that a number of assets on which the nation's energy security depends will remain controlled by the government. I have already referred to Federal Grid Company and System Operator as some of these. In generation, the government will continue to control nuclear power and hydropower generation. Private investors will only be able to control competitive operations: thermoelectric power plants and sales companies. The property model that is being implemented in the Russian power industry is quite conservative by global standards. There are lots of examples in the world when not only thermoelectric generation, but also backbone grids and hydropower generation and nuclear power plants are in full or in part owned by private companies. What is most important is that there should be clear and understandable self-regulation rules in the market which ensure against possible excesses. Q.: RAO UES of Russia has several hundred thousand shareholders among individuals across the country who have small shareholdings. What will they gain as a result of the reorganisation of the company? A.: Until 1 July, 2008, they all will continue to be RAO UES of Russia shareholders, unless, of course, they wish to sell their shares before. Nothing will happen to RAO UES shares before that time: they will continue to be quoted on exchanges as before and continue to be among the most liquid shares in the Russian stock market. All RAO UES shareholders have already received shares of WGC-5 and TGC-5 which have been spun off, and nothing has happened to the RAO UES of Russia shares they own. Shareholders have actually received a certain "dividend" in the form of shares of two generating companies. And I should note: this dividend is not taxable. As a result of the final reorganisation, shareholders will receive shares in the 23 companies of the target structure of the power industry which will accumulate all RAO UES-owned assets. These will be shares in all thermoelectric generating companies (WGCs and TGCs), Federal Grid Company (FGC), Federal Hydropower Generating Company (FHGC), the holding company of distribution grid companies, the company comprising power industry assets in the country's Far East, and in Inter RAO, the import and export operator and the owner of power industry assets abroad. Q.: Is it profitable for shareholders to receive a collection of several companies' securities for shares of RAO UES of Russia which is, by the way, one of the three largest corporations in the country? A.: The best indicator of what shareholders themselves think about the course of the reform is growth in prices for RAO UES of Russia shares. Since 2002 when the reform began, the price of shares has grown from 8 cents to 1 dollar and 30 cents. And if you take a look at comments by stock market participants for the last five years, you will notice that everyone believes that it is the reform that became the key growth driver for both RAO UES of Russia and our subsidiaries. However, the reorganisation is also profitable to shareholders from the financial point of view. Analysts estimate that the aggregate value of those shares which shareholders will obtain is at least 30% higher than the value of RAO UES shares today. Besides, shareholders will be handed shares in companies that own tangible assets: grid and generating ones. Q.: The decision on the ending reorganisation of RAO UES of Russia will be passed at an extraordinary meeting of shareholders on 26 October, 2007. In what form will the voting of the shareholders be arranged? Is it necessary to go to Moscow? Will shareholders have to pay for anything? A.: The extraordinary meeting on 26 October will be held in absentia. This means, that no one needs to go anywhere. All shareholders will receive voting ballots by post and will be able to familiarise themselves with all necessary materials. Once a shareholder passes a decision, he or she just needs to fill in the ballot and send it by post. For your vote to be taken into account during the voting, the letter should arrive before 6.00 p.m. on 26 October. Accordingly, one will only have to pay the postage for sending the ballots. Q.: They say that shareholders who vote in favour and those who vote against the reorganisation of RAO UES of Russia will receive different sets of shares in the target companies. Is that so? To what extent is this legal, for earlier Anatoly Chubais said that everyone will receive shares on a pro-rata basis? A.: The RAO UES reorganisation is conducted in strict accordance with the law. And of course, we adhere to the principles we announced earlier. The key principle for us has always been the distribution of the target companies among RAO UES shareholders on a pro-rata basis. The proposed reform scheme observes exactly the same principle. Each shareholder who votes in favour of the RAO UES reorganisation at the meeting of shareholders or who fails to take part in the voting will receive shares in each of the target companies on a pro-rata basis. However, the Russian law contains an additional requirement: each shareholder who votes against the reorganisation must receive shareholdings in all "technically divested companies." Since the RAO UES reorganisation suggests a technologically more complicated divestment scheme (the government has decided to contribute all its shares in thermoelectric power generation to FGC and FHGC for investment purposes), all shareholders who vote against will receive shares in all divested companies, in compliance with the law. These shares will include technological ones. As a result, those who vote against will obtain fewer shares in thermoelectric power generation and more shares in government-owned companies, i.e. FGC and FHGC, as well as shares in companies belonging to RAO UES's major shareholders: Gazprom, SUEK, and Norilsk Nickel. To make this simple and clear, we posted a special calculator on our website at www.rao-ees.ru. Every shareholder can enter the number of RAO UES shares he or she owns and the voting option and the calculator will automatically determine the list of companies and the number of shares the shareholder will receive. Q.: When will it be possible to summarise the first results of the power industry reform? What will you consider a reform success? A.: A significant positive effect of the reform is already to be seen. The division of vertically integrated regional power companies (referred to as AO-energo) into generation, sales, and grids has, to my mind, already produced a colossal effect by ensuring transparency of each type of operations and reduction in operating costs. One more proof of the efficiency of the reform is the beginning of an investment process. Only in the last 12 months we have attracted hundreds of billions of roubles of private investment in the power industry. It was impossible to imagine something like that before the reform. To me personally, the reform will be a success in the long term exactly if new power plants and power lines continue to be built in the country without RAO UES of Russia in three, five and ten years. * * * Supporting the reorganisation, a RAO UES of Russia shareholder will receive for 100 ordinary shares: .TV: Target companies Number of Shares WGC-1 96 WGC-2 50 WGC-3 41 WGC-4 103 WGC-6 58 TGC-1 3,823 TGC-2 1,298 Mosenergo 34 TGC-4 1587 TGC-6 1,533 Volga TGC 33 Southern Generating Company TGC-8 1,726 TGC-9 6,733 TGC-10 147 TGC-11 619 Kuzbassenergo 70 Yenisei TGC 172 TGC-14 971 FGC 1,011 FHGC 345 InterRAO (Sochi Thermoelectric Power Plant) 4,186 Holding Company of Interregional Distribution Grid Companies 100 RAO Energy Systems of the East 100 .TE: |
