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RAO « UES of Russia »: The energy of the reform. Speech of the Chairman of the Management Board of RAO «UES of Russia» A. Chubais. RUSSIA POST ELECTIONS: GREAT EXPECTATIONS VIII ANNUAL INVESTOR CONFERENCE Moscow, Russia 22 .0 6 .2004. 1 , 750. 1 , 500. 1 , 250. 1 , 000. 750.
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RAO «UES of Russia»: The energy of the reform Speech of the Chairman of the Management Board of RAO «UES of Russia» A. Chubais RUSSIA POST ELECTIONS: GREAT EXPECTATIONSVIII ANNUAL INVESTOR CONFERENCE Moscow, Russia 22.06.2004
1,750 1,500 1,250 1,000 750 Overview of Russia and Russian Electricity Sector Russia: 4th Largest Power Producer in the World in2003 TWh 5,000 3,864 4,000 3,000 1,472 2,000 1,033 889 588 580 577 546 1,000 383 328 0 US China Japan Russia Canada Germany India France UK Brazil % of World Total 25.0% 9.5% 6.7% 5.7% 3.8% 3.7% 3.7% 3.5% 2.5% 2.1% Source: IEA Positive Consumption Trend TWh 1,545 Optimistic Scenario 1,315 1,135 1,073 945 897 889 1,200 841 828 863 875 879 1,100 832 813 809 1,020 911 Pessimistic Scenario 2020 1990 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2010 2015 Source: Energy Recearch Institut, Russian Academy of Sciences
Key Facts • Except for nuclear capacity • and several large independent generators, • UES controls the electricity industry in Russia • 72% of Russia’s installed generation capacity • 69% of Russia’s electricity output • 32% of Russia’s heat production • 96% of Russia’s power transmission lines Company Home-base Capacity (GW) RAO UES Russia >156 SPCC China 151 EDF France 121 TEPCO Japan 59 E.ON Germany 54 SUEZ France 49 ENEL Italy 45 RWE Germany 43 USA 42 AEP ESKOM South Africa 42 RAO “UES of Russia” Today: Operating Highlights The World’s Ten Largest Electricity Companies (2003) Source: RAO “UES of Russia”,IEA
IndependentAO-Energos: Irkutskenergo Tatenergo Bashkirenergo Russian Electricity Sector: Today’s Structure Government RussianFederation Minority Shareholders of the Parent Company RosEnergoAtom 52% 48% 10 NuclearStations RAO UES of Russia 100% 100% From 50 to 100% From 49% to 100% 73 Regional Power Companies - AO-Energos Federal Grid Company System Operator 44 FederalPower Stations (incl. 8 power station under Construction) Generation Transmission &Distribution Grids Supply DispatchingServices
US$ m 9 months ended 30 Sept 2001 9 months ended 30 Sept 2002 9 months ended 30 Sept 2003 Revenue 8,474 10,328 13,720 Net Profit 909 669 543 EBITDA 1,070 1,494 2,720 EBITDA Margin 12.6% 14.5% 19.8% Operational Margin 1.2% 0.6% 8.9% Net Margin 10.7% 6.5% 4% Fixed Assets 24,201 25,834 29,293 Shareholder Equity 14,404 16,730 19,733 2003 (Forecast Data): Revenue – around $19,6 bn 2002: Revenue – $15,83 bn RAO “UES of Russia” Today: Key Financial Data
Oct-Dec 2002 Jan-Mar 2003 Apr-Jun 2003 Jul-Sep 2003 Oct-Dec 2003 Jan-Mar 2004 Growth of the market capitalisation of RAO «UES of Russia» (RTS data) In the recent two years the stocks of RAO «UES of Russia» were largely outperforming the Russian securities market as a whole 440% 420% 400% 380% 360% 340% 320% 300% 280% 260% 240% 220% 200% 180% 160% 140% 120% 100% 80% Capitalisation of RAO «UES of Russia» RTS Index Adoption of a package of laws on electricity industry 08/06/2004 02/09/2002
Approval of a configuration ofWholesale Generation Companies; Approval of a configuration ofTerritorial Generation Companies; Approval of a configuration of Interregional Distribution Companies and Interregional Transmission Companies; Approval of the corporate strategy concept (“5+5”); Ongoing consolidation of transmission and operational control assets (within AO “Federal Grid Company” and AO “System Operator”); Adoption of restructuring decisions by 30 AO-Energos. Restructuring of the first utility (“Kalugaenergo”) has been completed; Ongoing spin-off of repair and maintenance businesses; A management company for AO “North-West CHPP” (an international consortium involving ENEL and ESN Energo) has been chosen through a public tender procedure. Establishment of new market participants: 10 wholesale generation companies (WGCs), Up to 20 territorial generation companies (TGCs) 5 interregional distribution companies (IDCs); !Sale of thermal WGCs and TGCs to private investors; Completion of the restructuring of AO-Energos: by the end of 2004, 40 AO-Energos will have held restructuring shareholders meetings); Completion of the consolidation of transmission and operational control assets; Attracting initernationally recognized strategic investors into the Russian power sector Power sector reformafter adoption of a package of laws: restructuring of RAO «UES of Russia» Results Plans
Power sector reform after adoption of a package of laws: formation of the market Results Plans • Since November 2003, electricity trading sessions have been going on in the competitive sector 5-15 • Within the first 7 months of its operation, the trading exchange of the Non-Commercial Partnership «ATS» became one the ten largest specialized trading exchanges of the world by trading volumes • The free sector of the market represents some 8% of the total electricity generation and consumptionin European Russia and Urals • Implementation of the current model of the competitive wholesale electricity market throughout the Russian territory (with the exception of isolated power systems and the Far East) • Development of a new target model of the market • Establishment of regional liberalized retail market (subject to the elimination of the cross subsidisation practices)
180 600 522 1327 2616 3781 4383 3987 3580 2022 160 508,8 490,85 498,93 493 500 140 477,79 481,44 483 462,2 120 400 431,43 100 393,59 Mln.kWt.h Rub/MWt.h 80 300 276,94 Trading volume 60 264,25 251,95 Price in the competitive sector 40 200 20 Price in the regulated sector 0 100 November December January February March April May June (15 days) Power sector reform: formation of the market Volume and price dynamics in the competitive sector of the wholesale market Source: NP ATS
Improvement of management The new organizational structure of RAO UES of Russia must stimulate the reform progress in the electric power sector of Russia Management Board Corporate Center Business Unit «Grids» Reform Management Center Business Unit 1 Business Unit 2 Business Unit «Service» Business Unit «Hydro Generation» Thermal WGCs (3), TGCs (6), Corresponding Regional Energos Federal Grid Сompany, IDCs, Export-import, Foreign assets Hydro WGCs (4), Hydro Power Stations under construction Repair and Service Companies SO-CDU Thermal WGCs (3), TGCs (8), Corresponding Regional Energos
In addition to the traditional exports, RAO «UES of Russia» has launched a new stage of its strategy abroad based on the acquisition of foreign assets. The company has acquired energy assets in Georgia and Armenia. Expansion of the geographical scope of exports, attraction of investments into the export-oriented core business development projects. Participation in assets management or acquisition or foreign assets in the CIS area (Moldova, Ukraine, Kazakhstan,Kyrgyzstan,Tadjikistan) and foreign countries (Slovakia, Bulgaria, Poland, Romania, Turkey). Participation in assets management,Export Results Plans Synchronization of the electricity systems of Russia and European countries. • The Union for the Co-ordination of Transmission of Electricity (UCTE) has prepared draft Terms of Reference for the development of a Feasibility Study of the synchronization project. • Approval of the key parameters of the Feasibility Study of synchronous interconnection by the European Commission.
RAO “UES of Russia” Restructuring: Terms and Quality «OK, Mr. Chubais, I agree that a quality of your reform is more important than its terms… But… Time is money, isn’t it?!»
RAO “UES of Russia” Restructuring: Wholesale Generation Companies(WGC) • I stage: Wholesale Generation Companies are set up as 100 % daughter companies of RAO UES • (based on the assets and stocks of federal power plants belonging to RAO UES) • July-August, 2004: setting up of Wholesale Generation Companies№№ 1, 2, 4, 5, 6 • 2 stage: Auctions to sell out Wholesale Thermal Power Generation Companies • Auctioning mechanism should be approved by the Russian Government
RAO “UES of Russia” Restructuring: Territorial Generation Companies (TGC) • April 2004: RAO UES Directors Board has endorsed the scheme of the Territorial Generation Companies being established on the basis of the rented generation equipment of AO-Energos. • Based on this scheme Territorial Generation Companies №№ 9 and 14 will be set up. • It is planned that Territorial Generation Companies №№ 9 and 14 will start operating since 01.01.2005. • Territorial Generation Companies №№ 9 and 14 could be sold to investors after their formation has been completed (2006).
Setting up and further splitting off WGCs andTGCs– the biggest actors on the future electric power competitive market in Russia Breach of time schedule of setting up electric power competitive market in Russia - + 02.12.2004: Time to make a choice