The board of directors of RAO UES of Russia, the largest power holding in Russia, has approved a two-phase reorganization of the company. As a result of the restructuring of the Russian electricity sector, RAO UES of Russia will cease to exist as a state-owned monopoly and will be transformed into several state-owned and private companies.

In the first phase of the reorganization, which began in late 2006 and is expected to take place throughout 2007, two generation companies will be spun off from RAO UES of Russia. In the second phase, which will take place starting this year and into 2008, RAO UES of Russia will cease to exist by being split into companies that will make up the target structure of the industry, such as a federal grid company, system operator, wholesale generation companies, territorial generation companies and interregional distribution companies.

The two-stage approach was chosen because it is necessary during the first reorganization to evaluate the ability of large private generation companies to independently attract investments, manage their development, participate in the wholesale electricity market and, in the case of territorial generation companies, in the thermal energy segment.