Cargegie seminar Stockholm - Mikael Lilius - Fortum

Capturing the Russian
growth opportunity
Mikael Lilius
CEO & President
Carnegie Nordic Large Cap Seminar, Stockholm
March 4, 2008

Fortum's strategy
Fortum focuses on the Nordic, Russian and Baltic Rim
markets as a platform for profitable growth
2
Become the leading
power and heat
company
Become the
energy supplier
of choice
Benchmark business performance

A strong position in Nordic countries and Russia
Nordic countries
Generation 51.1 TWh
Electricity sales 58.5 TWh
Heat sales 20.4 TWh
Distribution cust. 1.6 million
Poland
Heat sales 3.5 TWh
Electricity sales 7 GWh
3
Baltic countries
Heat sales 1.2 TWh
Distribution cust. 24,000
Russia – existing
TGC-1 (~25% minority stake*)
Power generation ~6 TWh
Heat production ~8 TWh
Electricity cust. 1.3 million *Fortum’s share
Russia – acquisition
TGC-10 (majority)
Power generation 18 TWh
Heat sales 27 TWh

A huge need for new capacity in the Nordic market
Demand and capacity development
in the Nordic market
TWh
500
400
300
200
100
0
2000 2005 2010 2015 2020
Demand
Existing / remaining generation
Committed projects
4
80 TWh
• Electricity demand is expected to increase by ~45
TWh by 2020 compared to 2006
• Estimated retiring generation approx. 35 TWh*)
• Total need for investments roughly 80 TWh
– decisions for another 35 TWh still needed
Committed new production ~45TWh
Thermal
CHP
Wind
Hydro
Nuclear, OL3
Nuclear upgrades
*) Partly decommissioned due to increasing environmental requirements,
partly replaced by more efficient new plants; may still be available as
peak-load capacity.

New capacity will require an EUR 50+ power price
EUR/MWh
110
100
90
80
70
60
50
40
30
20
10
0
1995 -97 -99 -01 -03 -05 -07 -09 -11 -13
Source: Nord Pool
5
Futures
29 February 2008
EUR/MWh
110
100
90
80
70
60
50
40
30
20
10
0
CO2 cost 20 €/ton
Fuel costs
Fixed costs
( variation)
Coal Gas Nuclear Hydro Wind
Clean
coal
Source: IEA "World Energy Outlook 2006"; Elforsk "El från nya anläggningar" 2003,
and Fortum.
Adjusted to indicate nominal costs year 2012.
Large variations in cost of new hydro and wind due to location and conditions

Fortum´s carbon exposure among the lowest in Europe
g CO 2 /kWh electricity
1200
1000
800
600
400
200
0
DEI
Drax
RWE
6
Scottish & Southern
Edison
EDP
CEZ
Endesa
Union Fenosa
Enel
E.ON
Essent
Dong: Elsam+Energy E2
Vattenfall
Electrabel
PVO
Average 372 g/kWh
Iberdola
Verbund
British Energy
Fortum
EDF
2006 data
Statkraft
Source:
PWC & Enerpresse, 2007
Changement climatique et Électricité

Fortum's Nordic power production
TWh
60
50
40
30
20
10
Continued increase in CO 2 -free power production through
Nordic investment programme
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
CO 2 -free production
(nuclear power, hydro power, bio fuels)
7
Other
(peat, gas, coal, other)
2006 2007
After the
investment
programme
• ~9 TWh increase in
CO2 -free
production*
• ~10 TWh increase
in total production*
* compared to 2006

Fortum is committed to sustainability
Strong track record in the EU
- Strict specific emission targets
• Electricity: specific emissions below
80 gCO 2 /kWh by 2020
(5-year average)
• Heat: specific emissions (gCO 2 /kWh)
reduced by at least 10% by 2020 from
the 2006 level
in each district heating area
8
Commitment to utilise own
know-how outside the EU
Targets within the EU Commitment outside the EU
• Increase energy and
environmental efficiency
with latest technologies
• Transfer and apply expertise to
Russian production plants
• Agreement on Joint
Implementation projects
in Russia

Russia – The acquisition of Territorial
Generating Company No 10

Delivering growth and value creation
• Fortum to acquire a majority stake of 63-76% in TGC-10
– 100% ownership targeted through a mandatory offer to remaining minority
shareholders
• Total consideration EUR 1.7-2.7 billion (737 USD/kW)
– of which the capital increase EUR 1.3 billion to finance the committed investment
program
• Significant increase to Fortum’s power generation: TGC-10’s volume 18 TWh/a – Fortum
52 TWh/a in 2007
• Doubles Fortum’s heat sales: TGC-10 27 TWh/a – Fortum 27 TWh/a
• Earnings dilutive for two years
• Value creation based on power price development, volume growth and annual efficiency
improvement of at least EUR 30 million
• Fully debt financed, financing fully committed
Fortum becomes a major player in the fast developing Russian market
10

Transaction structure
Key steps in the transaction
1
2
3
End-Feb 2008 RAO UES stake sale of TGC-10 shares 29% EUR 0.8 billion
Mid-March 2008 TGC-10 capital increase 34-47%* EUR 0.9-1.3 billion
April-July 2008 Mandatory offer to minorities
Potential squeeze-out
11
24-37% EUR 0.6-1.0 billion
Total purchase price for Fortum 100% ~EUR 2.7 billion
Shareholder structure of TGC-10
Pre-transaction Post sale of RAO UES stake and
1 2
capital increase
RAO UES
82%
Minorities
18%
Fortum
63-76%
Minorities
10-23%
RAO UES minorities
14%
* Depending on the extent minorities will use their pre-emption rights in the share offering
3
Post mandatory offer
Fortum
63-100%
Minorities
0-37%

TGC-10 – a regional company with huge potential
• Regional power and heat company
with the best capacity utilisation
among TGCs
• Operates in the heart of oil and
gas producing Urals region
• Very high demand growth
• Significant capacity expansion
plans
– Electricity capacity from 3,000
MW (18 TWh/a) to 5,300 MW
• Total annual heat sales exceed
Fortum’s heat sales in the Nordic
region
– Heat capacity 15,800 MW
(27 TWh/a)
• 6,100 employees
12
OGK-4 investment potential outweighs the concerns
Argayashsk Chelyabinsk Tobolsk Tyumen 1
Chelyabinsk 1
Chelyabinsk 2
Chelyabinsk 3
Tyumen 2

TGC-10 is a unique investment opportunity
Platform for growth in the
World’s #4 power market
– Liberalisation to increase power prices
– Significant organic growth through
investment programme
– Fortum has a unique competence
base in operating in Russia
Attractive asset portfolio with
significant upside
– Medium-sized regional generating
company (TGC) with high capacity
utilisation
– Significant operational efficiency upside
– Power and heat plants located in the
heart of the fast growing Russian oil,
gas and metal producing regions
– Efficient CHP plants
13
TGC-10
A financially attractive
investment
– Material upside in profitability through
power prices and operational
efficiencies
– Significant growth potential through
investments

Significant growth in Fortum’s power generation
Power generation, TWh
Fortum 52
10.9
70
Fortum Fortum
+ TGC-10
Capacity, GW
13.9
Fortum Fortum
+ TGC-10
Committed TGC-10 investments
Fortum’s Nordic capacity investment programme
14
93
Fortum + TGC-10
with new investments
17.5
Fortum + TGC-10
with new investments
EDF
E.ON + WGC 4
Enel + Endesa + WGC-5
RWE
Vattenfall
Electrabel
Rosenergoatom
Iberdrola
Fortum+TGC-10
Hydro WGC
EnBW
Irkutskenergo
British Energy
CEZ
TGC 3
DEI
WGC 2
WGC 1
Statkraft
Annual power generation by largest producers
TWh/a 0 100 200 300 400

TGC-10 will double Fortum’s heat volumes
• Main heat supplier in the area, 27 TWh/a
• Mainly CHP, additionally heat boilers
• From networks 1/3 owned and 2/3 operated
• An area with large temperature changes
– cold winters, January aver. -16 °C
– warm summers, aver. +18 °C
• Significant efficiency improvement potential
in heat networks
• Heat pricing regulated, set by local authorities
within the limits set at the state level
• 45% of output sold to households,
28% to industry
15
TGC-10 heat generation and local network
Heat output by customer segment (2007)
Others 5%
Heat resale 15%
State financed
organisations 7%
Households 45%
Industry 28%

Russia is the World’s 4th largest power market
– and growing rapidly
TWh
2,500
2,000
1,500
1,000
500
> 4,000
0
US
Russia is the 4th largest power
market in the World
Source: IEA, 2005,
*) Ministry of Industry and Energy
16
China
Japan
Russia
India
Canada
Germany
France
Brazil
Nordic
UK
2,200
2,000
1,800
1,600
1,400
1,200
1,000
800
Demand for electricity in Russia to
increase 50% by 2020 *)
• Base scenario: 1,700 TWh/a by 2020
• High scenario 2,000 TWh/a by 2020
Demand growth 700+ TWh
before year 2020
2000 2005 2010 2015 2020
2,000
1,700

Russian prices reflect demand and supply
– market-based volume increasing
€/MWh
50
40
30
20
10
0
Russian price development *
2006 2007
2008
• New wholesale market model was launched in September 2006
• Russian government approved liberalisation targeting full implementation in 2011
*) Price includes liberalised energy price and regulated capacity payment
17
TWh/a
1400
1200
1000
800
600
400
200
0
Pace of liberalisation
Regulated
volume
Market-based
volume
2007 2008 2009 2010 2011

Positive power price outlook
• Overall power price increase expected
due to tight demand/supply balance and
planned gas price increases
• The need to build new generation
capacity will lead to convergence
towards the cost of new entry
• Russian reserve margin currently
accounts for only ~11% of installed
capacity
• Regional and technological restrictions
further tighten the demand/supply
balance
* Source: Brokers’ consensus estimates on the Russian power price
** Source: RF Ministry of Industry and Energy
18
Analyst consensus on the Russian power price outlook*
EUR/MWH
50
45
40
35
30
25
20
15
10
5
0
Price index
2,5
2
1,5
1
0,5
0
2007 2009 2011
Russian gas prices as planned by the Government**
2007 2009 2011

Strong regional growth outlook in electricity
Tyumen
South
Moscow and region
Urals w/o Tyumen
North-West
Centre w/o Moscow
Average annual growth in electricity
consumption by region 2005 - 2007*
Siberia
Volga
Far East
19
0 5 10
Source: Rosstat, broker estimates
Current TGC-10 capacity split by region
Tyumen
60%
TGC-10 capacity split post the
investment programme
Tyumen
74%
Urals without
Tyumen
40%
Urals without
Tyumen
26%

Growth through TGC-10’s committed investment programme
• Planned value EUR ~2.2 bn
• Gas-fired production
• Financed by the EUR 1.3 bn share
issue and partly debt/cash
• Commissioning 2010–2013 according
to TGC-10's estimation
• The relative share of electricity
capacity will increase
MW
6,000
5,000
4,000
3,000
2,000
1,000
0
+73%
+2,270 MW
3,020
2007 2013
20
5,290
1,200 MW
Greenfield
Nyagan
210 MW
Tobolsk Tyumen 1
Chelyabinsk 3
220 MW
190 MW
Tyumen 2
450 MW

Fortum has long experience of successful co-operation with
Soviet Union and Russia
1950 1960 1970 1980 1990 2000
Construction of hydro power
plants in Kola area
*) Including single largest purchase agreement of uranium with TVEL
21
Construction of Loviisa
nuclear power plant
Electricity import to Finland �
Nuclear fuel import to Finland *) �
Construction of North-West
CHP in St. Petersburg
Lenenergo shareholding
Automation & information system deliveries to
thermal power plants )
Permanent presence in Moscow & Safety improvements for nuclear
St. Petersburg �
power plants
St Petersburg Sales Co
Main Power Circuits
TGC-1
Agreement Joint
Implementation of Kyoto
Protocol with TGC-1

Fortum brings competence
• Strong competence and over 10-years experience in liberalised power
markets – trading, risk management
• Excellence both in optimisation and performance of power plants;
availability and energy efficiency
• Benchmark operation of different production forms – efficiency with
proper environmental approach
• Strong competence in combined heat and power (CHP)
• Global experience in operation and maintenance
• Long track record in cooperation with Russia
Efficiency improvements of at least EUR 30 million annually
Sources: Fortum, VGB/Germany, NERC/USA
22

Financial summary
• EPS dilution for two years
• Fortum’s Balance sheet remains strong
– Net debt/EBITDA below 3.0x
• Fortum's EUR 3 billion Nordic capacity investment programme to
continue as planned
• Financial flexibility retained
23

Conclusions

Fortum delivers on its strategy
• Russian economic growth and Fortum’s know-how will create
one of Russia’s most efficient power generators
• TGC-10 operates in the heart of oil and gas producing region in
the Urals with very fast growth
• Significant potential for efficiency and environmental
improvements
• Fortum has substantial long-term experience in the Russian
energy market
• Fortum retains its financial flexibility and its capability for further
investments
25
Fortum well positioned for the fast growing
Russian power markets

Fortum is well positioned for the future
• Focus on the Nordic and Baltic areas, Russia and Poland
– well positioned in Russia
• Climate change mitigation creates business opportunities
– flexible and climate-benign production portfolio
– investments in new CO 2-free production capacity
– efforts in developing new technologies
• Strong financial position
26

Supplementary material

Transaction timetable
Feb 28 Bidding day (submission of offers for Secondary Shares)
Feb 29 BoD TGC 10 set the Final Offer Price, public
announcement of the Final Offer Price
March 17 - 21 Payment of Primary shares
March 18 - 26 Transfer of Primary shares
March 21 – April 15 Payment and transfer of Secondary shares
June/July TGC-10 EGM to nominate the Board of Directors
June-August Mandatory offer completed
29

TGC-10 – overview of the asset base and investment plans
• A portfolio of ~3,000 MW installed
electricity capacity
• The highest load factor of all TGCs
• Committed investment programme
of an additional 2,270 MW of
electricity capacity
• TGC-10 owns a 925 km heat
distribution network and operates
a total network of 2,175 km
30
Chelyabinsk
Power capacity 1,106 MW
Heat capacity 7,299 MW
Boiler heat capacity 910 MW
Tyumen
Kurgan
Khanty-Masiysk
Power capacity 1,679 MW
Heat capacity 6,386 MW
Electricity capacity (MW) Heat capacity (MW)
Plant Fuel type Existing Planned Total Existing Planned Total
Tyumenskaya CHP-2 Gas 755 450 1,205 1,640 399 2,039
Tyumenskaya CHP-1 Gas 472 190 662 1,641 297 1,938
Tobolskaya CHP Gas 452 210 662 3,105 3,105
Chelyabinskaya CHP-3 Gas 360 220 580 1,270 170 1,440
Chelyabinskaya CHP-2 Coal, gas 320 320 1,112 1,112
Argayanskaya CHP Coal, gas 195 195 866 866
Chelyabinskaya CHP-1 Coal, gas 149 149 1,560 1,560
Chelyabinskaya GRES Gas 82 82 2,491 2,491
Nyaganskaya GRES Gas 1,200 1,200 279 279
Boilers - 910 910
Kurgan Generation (49%) Gas 235 235 1,149 1,149
TGC-10 3,020 2,270 5,290 15,744 1,145 16,889

Historical Russian transaction multiples
(enterprise value) €/kW
€/kW
600
500
400
300
200
100
0
466
445
31
367
497
543
512
344
WGC 3 TGC 3 TGC 5 WGC 5 WGC 4 TGC 1 WGC 2 TGC 8 TGC 9 TGC 12 WGC 6 TGC 3 TGC 10
Calculated with €/RUB exchange rate at each transaction day. RUB/kW figure based on transaction price at each day
406
434
264
336
€/RUB at each
transaction day
528
490

Historical Russian transaction multiples
(enterprise value) RUB/kW
RUB/kW
25 000
20 000
15 000
10 000
5 000
0
16 052
32
15 625
12 768
17 338
19 098
17 986
12 148
14 410
15 571
9 404
11 937
18 985
17 817
WGC 3 TGC 3 TGC 5 WGC 5 WGC 4 TGC 1 WGC 2 TGC 8 TGC 9 TGC 12 WGC 6 TGC 3 TGC 10

Russian power reform completed in July 2008
Ownership structure after liberalisation
State
100%
Nuclear
>75%
FGC
75%
System
Operator
50%
Hydro-
WGC

TGC-10 key financials
MEUR LTM Q3/07 2006 2005
Sales
EBITDA
EBIT
Net profit
Balance sheet total
Interest-bearing net debt
€/RUB exchange 35.986 (31.12.2007)
34
590
55
26
12
677
61
493 430
42 55
15 29
574
8 19
542
40 -3

Attractive operating characteristics
• Power plants located in fast growing
areas with oil, gas and metal
production
• Efficient combined heat and power
(CHP) generation
• Significant efficiency improvement
potential
• Significant investment programme
further increases efficiency and power
generation capacity
• Potential for CO2-emission reductions
through Joint Implementation
1) Average fuel efficiency = generation volume / fuel consumption
2) Load factor = actual generation / maximum generation with full load all time
35
Average fuel efficiency
45 %
40 %
35 %
30 %
25 %
20 %
15 %
10 %
5 %
0 %
1)
TGC 3
TGC 10
Load factors
80 %
70 %
60 %
50 %
40 %
30 %
20 %
10 %
0 %
2)
TGC 10
TGC 3
TGC 1
TGC 12
TGC 5
TGC 9
TGC 7
TGC 8
TGC 13
TGC 14
TGC 6
TGC 13
TGC 11
TGC 5
TGC 2
TGC 6
TGC 4
TGC 11
TGC 8
TGC 1
TGC 12
TGC 7
TGC 9
TGC 4
TGC 14
TGC 2

Integration built on solid experience
• Integration team headed by Tapio Kuula
• Experienced professionals committed to the integration team with key
competencies in
– after-transaction issues
– power generation
– heat production
– power market
– implementation of investment programme
– business control and group functions
• Transfer of Fortum’s business culture and systems
– management and leadership co-operation and development
36

The transaction is debt financed
• Maximum consideration EUR 2.7 billion, of which the capital increase
EUR 1.3 billion
• Adjusted Net Debt / EBITDA at acquisition 2.8x
• Financial flexibility and efficient capital structure retained
• Committed financing is fully in place
– new committed credit facility of EUR 3.5 billion obtained to be
syndicated in the bank market
– two tranches: 3-year term-loan and 5-year revolving credit facility
37
Fortum retains its financial flexibility

Maintaining a solid capital structure
Capital employed
Interest-bearing net debt
EBITDA
Adjusted Net debt / EBITDA 3)
38
Current 1)
Pro forma 2)
13,544 16,412
4,466 5,954
2,298 2,353
2.2 2.8
1) Fortum 2007
2) Pro forma is based on full-year 2007 of Fortum and LTM Q3/2007 of TGC10 assuming 100% ownership based on bidding price.
3) Based on EBITDA excluding capital gain from sale of Fortum's holding in Lenenergo amounting to 232 MEUR.

Fortum will improve asset efficiency
• Improving
– fuel efficiency
– plant availability
– optimization of district heating production
– refurbishing existing power plants and
heating networks
• Improving specific CO2 emissions
• Utilising modern technologies
• TGC-1 experience
• Extensive power plant O&M experience
1) Energy availability = available generation capability
39
%
100
95
90
85
80
75
70
Energy availability, gas-fired power plants
95 96 97 98 99 00 01 02 03 04 05 06
Meri-Pori
(modern site)
Operation and maintenance costs
Modeled Europ.
best practice
US peer plants,
average
US peer plants,
best quartile
USA Germany Fortum
100%
145%
180%
395%

Fortum has extensive international O&M experience
• International O&M 4300 MW e + 900 MW th
electricity/ district heat/ steam
Grangemouth (UK) gas 140 / - /250 MW
Bristol (UK) gas 50 MW
Exeter (UK) gas 50 MW
Croydon (UK) gas 50 MW
Heartlands (UK) gas 100 MW
Hythe (UK) gas 55/-/62 MW
Sullom Voe (UK) gas 95 /-/ 330 MW
Allington EfW (UK) waste 500,000t/a 34 MW
Lakeside EfW (UK) waste 420,000t/a 32 MW
Herbrechtingen (Germany) bio 16 /- / 25 MW
Trianel (Germany) gas 800 MW
Knapsack (Germany) gas 800 MW
Al Taweelah (UAE) gas 2,070 MW
Panjin Liaohe (China) coal 44 /- /250 MW
• Technical support agreement
Tanjung Jati (Indonesia) coal 1,320 MW
Kapar (Malaysia) coal, gas, oil 2,440 MW
Dhofar (Oman) distribution
Port Said Suez (Egypt) gas 683 MW
40
Great Britain
Germany
NW Russia
Baltic countries
UAE
Oman
China
Malaysia
Thailand

Fortum's Nordic investment programme
41
• Olkiluoto 3, Finland, nuclear
• Swedish nuclear
• Suomenoja, Finland (CHP)
• Värtan, Sweden (bio CHP)
• Järvenpää, Finland (bio CHP)
• Brista, Sweden (waste CHP)
• Refurbishing of existing hydro assets
• Wind power, Sweden
Value of the investment programme around EUR 3 billion
of which ~90% CO 2-free
In addition
• Automated meter management (EUR 240 million)
• Security of supply in distribution (EUR 700 million)
Total
~ 1,300 MW