OREANDA-NEWS. July 23, 2007. RAO "UES of Russia" has released the consolidated financial statements of RAO UES Group* prepared in accordance with the International Financial Reporting Standards (IFRS) for the year ended 31 December 2006.

Consolidated Balance Sheet as at 31 December 2006

During 2006, the Group's total assets increased by RUB325,537 million to RUB1,543,436 million as at 31 December 2006. Of that amount, the Group's non-current assets amounted to RUB1,259,017 million, up RUB266,821 million, and the current assets amounted to RUB279,536 billion, an increase of RUB53,833 million on 2005.

As at 31 December 2006, the property, plant and equipment of RAO UES Group stood at RUB1,217,526 million, an increase of RUB262,394 million from RUB955,132 million in 2005. The increase in the book value of PP&E was chiefly due to the recovery of the impairment reserve in the amount of RUB189,629 million**, increase in the capital expenditures on the construction of new and modernization of the existing power grid and generation facilities, and the acquisition of control over OAO "Heat Energy Company" (currently the Belgorod Regional Generation branch of OAO "TGC-4"), and the recovery of control over OAO "Kurganenergo".

Beginning from 2007, the Group adjusted its accounting policies to reflect the revaluation of PP&E in its financial statements, which will lead to an increase in the value of the Group's PP&E and net assets.

The reporting period saw an improvement in the Group's current ratio, with the current assets exceeded the current liabilities by RUB24 billion as of 31 December 2006.

The accounts payable in 2006 totalled RUB112,128 million, which represents an increase of RUB9,680 million from 1 January 2006. The increase in payables was largely driven by the increase in debts owed to suppliers and contractors.

As at 31 December 2006, the non-current and current debt of RAO UES Group amounted to RUB209,712 million, up RUB82,219 million on 31 December 2005. The increase was due to new loans and credit facilities raised by the Group's entities, as well as bond issues (specifically, Mosenergo, FGC, MOESK, OAO "HydroWGC", WGC-5, and WGC-3) to finance the construction and modernization of the energy facilities.

Consolidated Statement of Operations for year ended 31 December 2006:

The Group's revenues in 2006 amounted to RUB894,896 million, an increase of RUB130,241 million (or 17%) compared to 2005. The Group's operating expenses in 2006 grew by RUB124,116 million (18%) to RUB820,556 million.

Such dynamic of revenues and expenses was attributable, on the one hand, to the increased power consumption across the country, which led to an increase in the electricity and heat sales, and on the other hand, to the growing fuel prices and fuel consumption.

EBITDA (without the accounting for the recovery of the impairment reserve**) of RAO UES Group in 2006 amounted to RUB165,590 million, an increase of RUB18,567 million on 2005. This was due to the fact that the operating income grew faster than operating costs (without depreciation), as well as the reversal of the tariff imbalance*** after the NOREM launch.

Over the reporting period, the Group's operating profit grew in year-on-year terms by RUB209,655 million to RUB282,269 million. The profit before profit tax declined by RUB211,545 million to RUB266,080 million.

In 2006, the Group's net profit (less profit tax expense) in 2006 grew by 5.9 times (or RUB124,141 million) to RUB149,518 million. The increase in the net profit was due to the recovery of the impairment reserve (by RUB189,629 million)**, the tariff imbalance of 11,708 million***, and to proceeds from the sale of their non-core assets and assets that are not part of the Group's intended structure. This growth was compensated by the increase in the amount of the deferred profit tax in respect of recovery of the impairment reserve (by RUB47,733 million)** and the investments in some of the Group's subsidiaries (by RUB36,314 million).

Specifically, the net profit of RAO UES Group attributable to the shareholders of RAO "UES of Russia" grew 4.3-fold during 2006 to RUB83,371 million. The net profit attributable to the minority interest of the Group grew almost 10.8-fold to RUB66,147 million, which was due to a significant increase in earnings of the Group's companies which have a considerable minority interest.

Consolidated Cash Flow Statement for the year ended 31 December 2006

The cash flow from operating and financing activities in 2006 totalled RUB154,543 million, an increase of RUB45,346 million from 2005 (RUB109,197 million). As a result of the launch of a large-scale investment programme, RAO UES Group companies spent RUB137,567 million in investments, up RUB29,651 compared to 2005.

Consolidated Statement of Changes in Equity for the year ended 31 December 2006

In October 2006, OAO "WGC-5" issued RUB11,919 million of new shares which were sold in an IPO. After the IPO, the Group's interest in WGC-5 declined from 87.7% to 76%, and the Group's IFRS Consolidated Statement of Changes in Equity for 2006 showed a decrease in the minority interest by RUB4,099 million. In the course of the Group restructuring in 2007, the Group's interest in most WGCs and TGCs will decline after the sale of stakes in these companies or public offerings of their shares. According to the Group's accounting policy, all effects of changes in minority interests will be reflected in the Statement of Changes in Equity.

The statements have bee audited by ZAO "PricewaterhouseCoopers Audit", approved as the Group's external auditors by the AGM of RAO "UES of Russia" shareholders.