10. AUDITING COMMITTEE REPORT

Re: Territorial Generating Company No. 1 in 2006

Saint-Petersburg
March 23, 2007

Pursuant to Internal Auditors’ resolution (Minutes №3 of Internal Auditors’ meeting of February 19, 2007), the Internal Auditors, namely, L.B. Sidorov, Chairman of the Internal Audit Commission, and Commission members:

A.S. Sharikov, I.I. Uzgorov, S.G. Samsonov, N.Y. Orlova, and independent contractor A.N. Lisin have audited financial and economic activity of TGC-1 in 2006.

The Company’s External Auditor PriceWaterhouseCoopers Audit, elected by the General Shareholders’ Meeting (Minutes №10 of May 31, 2006), audited the financial statements of the Company for the period from January 1, 2006 to December 31, 2006 (Auditor’s Report No. n/a of March 27, 2007). In the Auditor’s opinion, the financial statements of TGC-1 give a true and fair view in all material aspects of the state of financial and economic activity of the Company as of December 31, 2006, and of the Company’s financial results for the period from and including January 1, 2006 to and including December 31, 2006, as required by the laws of Russia governing financial reporting.

The audit was conducted between March 12, 2007 and March 23, 2007.

The primary instruments available for the audit were audited on a test basis.

In 2006, the Company earned RUR 20,502.7 million from sale of goods and services, including electricity sales worth RUR 8,994.6 million. The cost of goods and services sold was RUR 20,177.4 million. Accordingly, the Company’s sales made a profit of RUR 325.3 million during the period reported.

Other revenues, interest receivable, and income earned from equity participation in other companies exceeded “other costs,” and “interest payable” by RUR 401 million and totaled RUR 4,218.5 million.

The “other costs” projection for 2006 was RUR 2,195.9 million, but the Company physically incurred RUR 3,817.4 million.

The Company earned a net profit of RUR 598.2 million in 2006, or 146% of its target.

The book value of the Company’s assets was RUR 41,047.6 million as of December 31, 2006. The Company’s net assets were worth RUR 29,955.9 million as of December 31, 2006.

The indexes below describe the Company’s solvency and liquidity as of January 1, 2007:

• Equity Ratio: 0.73;
• Absolute Liquidity Ratio: 0.08;
• Quick Liquidity Ratio: 0.53;
• Current Liquidity Ratio: 1.00.

The accounts receivable vs. accounts payable ratio was 1.04 for TGC-1 at the end of 2006.

The financial standing of TGC-1 is deemed “satisfactory”.

In determining the financial standing of the Company, we employed JSC RAO “UES of Russia” Methodology used to assess the financial condition of TGC-1 for the purposes of awarding a credit rating.

As of January 1, 2007, the Company’s accounts receivable were down RUR 87.6 million from the beginning of 2006, totaling RUR 3,839.9 million, including: resale agents for electricity and heat (RUR 260.2 million), other accounts receivable (RUR 3,579.7 million), including advances paid (RUR 277.6 million) etc.

As of January 1, 2007, the Company’s accounts payable were down RUR 6.8 million from the beginning of 2006, totaling RUR 3,695.6 million, including: money owing to building contractors (RUR 392.7 million), repair contractors (RUR 656.6 million), other contractors and suppliers (RUR 552.3 million), wages (RUR 21.1 million), etc.

Based on our audit, taking into account the opinion of the External Auditor of TGC-1, the Internal Auditors have sufficient evidence to vindicate the figures and disclosures contained in the annual report of TGC-1 and its annual financial statements.

Chairman, Internal Audit Commission, TGC-1 L.B. Sidorov