For decades, Russia has been an important trading partner in our natural gas business. We, or one of our predecessor entities, have been Russia’s biggest natural gas customer for more than 20 years. But Russia also has one of the world’s largest and fastest-growing electricity markets, with an annual consumption of more than 900 terawatt-hours and an annual growth rate of 5 percent. Our long-term objective is to establish a strong position in the country’s industrial regions: Ural, Western Siberia, Volga, and Central Russia. Russia’s electricity industry requires substantial capital investments. Over the next several years, the Russian government plans to gradually deregulate the country’s wholesale electricity market. These factors create an attractive environment for investments in power generation.

In mid-October 2007, we took an important step towards our objective by acquiring a majority stake in OGK-4, a Russian power producer. OGK-4 operates four gas-fired power stations and one coal-fired power station with an aggregate installed capacity of about 8,600 megawatts and plans to add 2,400 megawatts of technologically advanced generating capacity at existing sites by 2011. This asset base gives us a solid platform for further growth in Russia.

In late May 2007, we reached an agreement with STS, an energy utility with operations in western Siberia, to form a 50-50 joint-venture company called E.ON-STS Energia with the aim of seizing opportunities created by the ongoing privatization of Russia’s electricity industry.