Industry Trend Review

Historically energy sector plays an important role for the Russian economy. Being a constituent part of fuel and energy the sector corrects the development of all spheres and serves as an indicator for economic stability in the country.

Nowadays main peculiarity of energy sector development is a transition from negative tendencies in energy consumption appeared in 1990-s to energy consumption increase tendency appeared in 1999. Energy consumption increase and production increase coincided and this enables us to speak of the tendency stability and, as a consequence, of the necessity to satisfy the growing demand for ensuring economic growth

The growth of industrial production was accompanied by increase of paying ability of the commercial consumers and this improved non-payment problems in the sector. In 2000-2002 payments for energy consumption reached 100%, earlier debts being paid or restructured. . In 4Q2008, due to global crisis, there is a decrease on energy consumption in metallurgy and machine-building. Financial crisis bears the risk of decrease in paying ability of consumers.

The growth of economy, alongside with accompanying structural shifts, sets a new goal for energy sector. The energy sector should be an infrastructure that is able to support the creation of new industrial capacities or expansion of the current ones where required. This goal shall demand a forced development of grids and technological structure in energy sector and increase of its flexibility.

Main development tendencies in 2002-2005 were:

- Creation of infrastructural organizations of wholesale market: System operator - ОАО "SO CDM UES", Company for managing UNES (OАО "FSK UES", Trade system administrator (NP "ATS");

- Creation of generating, sales, grid companies;

- Start of free sector for wholesale trade on energy "5-15";

- Start of sector for wholesale trade on electric output.

Changes in regulatory environment are stated below:

1. Access to wholesale energy market (WEM) for generating companies and OAO "FSK UES" since 01.01.2006. This caused the review of information exchange system between the market participants and toughening of requirements to energy accounting in gridcos.

2. Approval and enactment since 01.09.2006 of the Rules on wholesale and retail energy markets of transition period (Government Decrees #529 and 530 dd. 31.08.2006). Besides the change of the current system of WEM and clear perfection of all subjects of wholesale and retail markets these documents shall lead to changes in payments for gridcos' services and customer relations.

3. Changes in regulating charges for services rendered by ОАО "FSK UES" since 01.07.2006. Introduction of new principles of UNES price regulation enabled gridcos to accurately plan the volume and FSK' service charges for 2006-2008.

4. Changes in regulating charges for transmission services rendered by gridcos since 01.01.2008., double-rate tariff payment for the services - rate for network maintenance and rate for loss compensation;

5. Continuing work for setting uniform tariff for transmission services stipulated by the Federal Tariff Service and Russian Government required support of current and new "network boilers" in 2007. This scheme, aside from setting uniform tariff for transmission services requires contractual relations on energy transfer. In 2009 there are 2 network boiler schemes in gridcos of the Company's service area.